<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 0-27818
---------
DOANE PRODUCTS COMPANY
State of Incorporation--Delaware IRS Employer Identification No. 43-1350515
West 20th and Stateline Road
Joplin, Missouri 64804
417-624-6166
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
------- -------
Common Stock outstanding May 14, 1997 - 1,000 shares
------
<PAGE> 2
DOANE PRODUCTS COMPANY AND SUBSIDIARY
INDEX
Page
----
PART I - Financial Information
Item 1:
Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996 2
Consolidated Statements of Operations - three months
ended March 31, 1997 and March 31, 1996 3
Consolidated Statements of Cash Flows - three months
ended March 31, 1997 and March 31,1996 4
Notes to Consolidated Financial Statements 5-8
Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-10
PART II - Other Information
Item 6:
Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE> 3
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful $ 60,748 $ 67,734
accounts; $46 and $-0- at March 31, 1997 and
December 31, 1996, respectively
Inventories 27,761 30,737
Prepaid expenses and other 2,624 7,408
--------- ---------
Total current assets 91,133 105,879
Property, net of accumulated depreciation of $9,811 as of
March 31, 1997, and $8,112 as of December 31, 1996 97,026 93,083
Goodwill, net of amortization 125,814 126,613
Other assets 11,058 11,176
Investments - cash value of life insurance 1,590 1,582
--------- ---------
$ 326,621 $ 338,333
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 10,729 $ 10,417
Accounts payable 32,179 51,343
Accrued expenses
Salaries and commissions 2,840 3,223
Other 8,230 15,318
--------- ---------
Total current liabilities 53,978 80,301
Deferred compensation 4,064 4,030
Long-term debt 208,663 196,186
Deferred income taxes 993 409
Deferred credit 521 --
Senior exchangeable preferred stock 25,703 24,160
Stockholder's equity:
Common stock, par value $.01
Authorized and issued 1,000 shares -- --
Additional paid in capital 40,825 40,825
Retained earnings (8,126) (7,578)
--------- ---------
32,699 33,247
--------- ---------
$ 326,621 $ 338,333
========= =========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 4
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED
MARCH 31, 1997 MARCH 31, 1996
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 137,747 $ 118,404
Cost of goods sold 122,245 103,325
--------- ---------
Gross profit 15,502 15,079
Operating expenses:
Selling 4,271 3,330
General and administrative 4,062 3,765
--------- ---------
8,333 7,095
--------- ---------
Income from operations 7,169 7,984
Other income (expense):
Interest income 6 82
Interest expense (5,678) (5,879)
Nonrecurring financing charge -- (4,815)
Miscellaneous 62 (1)
--------- ---------
(5,610) (10,613)
--------- ---------
Income (loss) before income taxes 1,559 (2,629)
Provision (benefit) for income taxes 564 (979)
--------- ---------
Net income (loss) $ 995 $ (1,650)
========= =========
Net loss applicable to common stock $ (547) $ (2,988)
Net loss per common share $ (547) $ (2,988)
Weighted average shares outstanding 1,000 1,000
========= =========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 5
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED
MARCH 31, 1997 MARCH 31, 1996
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 995 $ (1,650)
Items not requiring (providing) cash:
Depreciation and amortization 2,601 2,420
Nonrecurring financing charge expensed -- 4,815
Amortization of deferred debt issuance costs 281 146
Deferred income taxes 583 1,302
Deferred credit commodity 521 (321)
Other 72 12
Changes in working capital components (11,890) (9,485)
-------- ---------
Net cash used in operating activities $ (6,837) $ (2,761)
-------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 1 19
Purchase of property and equipment (5,711) (2,408)
Increase in debt issuance costs (91) (5,403)
Increase in other assets (151) (45)
-------- ---------
Net cash used in investing activities (5,952) (7,837)
-------- ---------
Cash flows from financing activities:
Net borrowings under revolving credit agreement 13,725 10,000
Proceeds from issuance of long-term debt 1,668 160,000
Principal payments on long-term debt (2,604) (160,000)
-------- ---------
Net cash provided by financing activities 12,789 10,000
-------- ---------
Decrease in cash and cash equivalents -- (598)
Cash and cash equivalents, beginning of period -- 1,550
-------- ---------
Cash and cash equivalents, end of period $ -- $ 952
======== =========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 6
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Accounting policies
The unaudited interim financial information included herein reflects the
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the results of
operations, financial position, and cash flows for the periods presented. Such
interim information should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10K (and
related exhibits) for the year ended December 31, 1996 and the Company's
Amendment No. 1 on Form S-3 to Form S-1 Registration Statement (File No.
33-98110) relating to the issuance of $160,000 principal amount of the
Company's 10 5/8% Senior Notes due 2006 (the "Senior Notes"). The accounting
policies used in preparing these financial statements are the same as those
summarized in the Company's 1996 financial statements included in the Annual
Report on Form 10K.
The results of operations for the three months ended March 31, 1997 and March
31, 1996 are not necessarily indicative of the results to be expected for other
interim periods or the full year.
Certain reclassifications have been made to the March 31, 1996 consolidated
financial statements to conform with the March 31, 1997 presentation.
2. Acquisition
On October 5, 1995, the Company was acquired (the "Acquisition") as a result
of the mergers of two wholly-owned subsidiaries of DPC Acquisition Corp. and
the Company's predecessor, Doane Products Company (the "Predecessor"), with the
Company being the surviving entity (sometimes referred to in the Company's
Annual Report on Form 10K as the "Successor"). The purchase price was $249,100
including existing indebtedness.
The Acquisition was financed in part through (i) a senior credit facility
(the "Senior Credit Facility") that provides term loan and revolving loan
borrowings, (ii) the proceeds of the issuance of the Senior Notes, and (iii)
$30,000 of 14.25% Senior Exchangeable Preferred Stock due 2007. As used herein,
the term "Acquisition" means the acquisition of the Company by DPCAC, the
refinancing of existing indebtedness of Predecessor and the payment of related
fees and expenses.
The cost of the Acquisition has been allocated on the basis of the estimated
fair value of the assets acquired and liabilities assumed. The allocation
resulted in goodwill of approximately $129,000. The goodwill is being amortized
over 40 years on a straight-line basis.
For financial statement purposes, the Acquisition and Merger were accounted for
as a purchase acquisition effective October 1, 1995. The effects of the
Acquisition have been reflected in the Company's assets and liabilities at that
date.
-5-
<PAGE> 7
3. Long-term debt
Long-term Debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Senior Credit Facility
Term Loan 42,524 45,128
Revolving Loan 15,200 1,475
Industrial Development Revenue Bonds
(net of construction and reserve funds) 1,668 --
Senior Notes 160,000 160,000
-------- --------
Total Long-term debt $219,392 $206,603
Less Current Maturities 10,729 10,417
-------- --------
$208,663 $196,186
======== ========
</TABLE>
Senior Credit Facility
In connection with the Acquisition, the Company entered into a senior credit
facility effective October 5, 1995 (the "Senior Credit Facility") with several
lending institutions. The Senior Credit Facility provided for an aggregate
principal amount of loans of up to $115,000 consisting of $90,000 in aggregate
principal amount of term loans (the "Term Loan Facility"), of which $40,000 has
been prepaid, and a $25,000 revolving credit facility (the "Revolving Credit
Facility").
The Term Loan Facility matures on September 30, 2000 and is due in quarterly
installments in increasing amounts, ranging from $2,917 to $4,792. The
Revolving Credit Facility matures on September 30, 2000. The Company is
required to reduce borrowings under the Revolving Credit Facility to $10,000 or
less for 30 consecutive days during the fiscal years ended September 30, 1996
and 1997, and to $7,500 or less for 30 consecutive days during each fiscal year
ended September 30 thereafter.
Indebtedness under the Senior Credit Facility bears interest at a rate based,
at the Company's option, upon (i) the Base Rate plus 1.50% with respect to Base
Rate Loans and (ii) the LIBOR Rate for one, two, three or six months plus 2.75%
with respect to LIBOR Rate Loans; provided, however, the interest rates are
subject to reductions in the event the Company meets certain performance
targets. The Term Loan Facility and the Revolving Loan Facility bore interest
at an average rate of 8.04% and 9.26% respectively for the period from January
1, 1997 to March 31, 1997.
The Senior Credit Facility is secured by substantially all of the assets of the
Company and a pledge of all of the Company's common stock held by DPCAC.
Senior Notes
The Senior Notes bear interest at the rate of 10 5/8% per annum, payable
semiannually on March 1 and September 1 of each year. The Senior Notes are
redeemable, at the Company's option, in whole or in part, from time to time, on
or after March 1, 2001, initially at 105.313% of their principal amount and
thereafter at prices declining to 100% at March 1, 2004 until maturity, in each
case together with accrued and unpaid interest to the redemption date. In
addition, at any time on or prior to March 1, 1999, the Company may redeem up
to 35% of the aggregate principal amount of the Senior Notes originally issued
with the net cash proceeds of one or more public equity offerings, at 109.625%
of their principal amount, together with accrued and unpaid interest, if any,
to the redemption date; provided that at least $104,000 in principal amount of
Senior Notes remain outstanding immediately after any such redemption.
-6-
<PAGE> 8
Industrial Development Revenue Bonds, Ottawa County, Oklahoma
On March 12, 1997 the Company issued $6,000 industrial development revenue
bonds (the "Bonds") through the Ottawa County Finance Authority in Miami,
Oklahoma. The Bonds bear interest at the rate of 7.25% payable on each December
1 and June 1, commencing December 1, 1997. The Bonds are subject to mandatory
redemption prior to maturity, in part, at a redemption price of 100% of the
principal amount thereof, plus accrued interest to the redemption date, in
varying principal amounts on June 1 of each year from 2007 through 2017.
The Bonds are general secured obligations of the Company, ranking senior to all
subordinated indebtedness of the Company and on a parity in right of payment
with all other senior indebtedness of the Company. The Bonds are additionally
secured by a Mortgage and Security Agreement.
4. Senior Exchangeable Preferred Stock
The Company has authorized 3,000,000 shares of Senior Exchangeable Preferred
Stock of which the Company issued 1,200,000 shares in connection with the
financing of the Acquisition.
The Senior Exchangeable Preferred Stock has an initial liquidation preference
of $25.00 per share (aggregate initial liquidation preference is $30,000). The
Senior Exchangeable Preferred Stock was recorded at the net proceeds of $17,075
after deducting $12,925 paid to DPCAC for warrants of DPCAC which were issued
in conjunction with the Senior Exchangeable Preferred Stock. The excess of the
liquidation preference over the carrying value is being accreted quarterly over
a twelve year period ended September 30, 2007 by a direct reduction to retained
earnings.
Dividends on the Senior Exchangeable Preferred Stock are payable quarterly at
the rate of 14.25% per annum per share. Dividends on the Senior Exchangeable
Preferred Stock accrete to the liquidation value of the Senior Exchangeable
Preferred Stock and, at the option of the holders of a majority of the shares
of Senior Exchangeable Preferred Stock, may be paid through the issuance of
additional shares of Senior Exchangeable Preferred Stock on each dividend
payment date through September 30, 2000. The Company does not expect to pay
dividends on the Senior Exchangeable Preferred Stock in cash for any period
prior to September 30, 2000. Cumulative dividends on Senior Exchangeable
Preferred Stock that have not been paid at March 31, 1997 and 1996 are $5,943
and $2,176, respectively and are included in the carrying amount of the Senior
Exchangeable Preferred Stock.
The Senior Exchangeable Preferred Stock will be exchangeable, in whole or in
part, at the option of the Company on any dividend payment date for 14.25%
Junior Subordinated Exchange Debentures.
The terms of the Senior Exchangeable Preferred Stock prohibit (i) the payment
of dividends on securities ranking on a parity with or junior to the Senior
Exchangeable Preferred Stock and (ii) redemption, repurchase or acquisition of
any Junior Securities with certain exceptions, in each case, unless full
cumulative dividends have been paid on the Senior Exchangeable Preferred Stock.
5. Income (Loss) Per Common Share
Income (loss) per common share is computed based upon the weighted average
number of common shares outstanding during each period. The income (loss) is
decreased (increased) by preferred stock dividends and the accretion of
preferred stock in calculating net income (loss) attributable to the common
shareholder.
-7-
<PAGE> 9
6. Inventories
The composition of inventories at the balance sheet dates was as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Raw materials $ 7,754 $ 8,831
Packaging materials 9,344 10,608
Finished goods 10,663 11,298
------- -------
$27,761 $30,737
======= =======
</TABLE>
-8-
<PAGE> 10
DOANE PRODUCTS COMPANY AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On October 5, 1995, the Company was acquired as a result of the mergers of two
wholly-owned subsidiaries of DPC Acquisition Corp. and the Company's
predecessor, Doane Products Company, with the Company being the surviving
entity.
The Acquisition was financed in part through (i) the Senior Credit Facility
that provides term loan and revolving loan borrowings, (ii) the proceeds of the
issuance of the Senior Notes, and (iii) $30.0 million of 14.25% Senior
Exchangeable Preferred Stock due 2007.
The Acquisition has been accounted for using the purchase method of accounting.
The purchase price has been allocated to the assets and liabilities acquired
based upon their respective fair values. The results of operations of the
Company have been significantly affected by the impact of the financing of the
Acquisition, including interest expense on the indebtedness incurred under the
Senior Credit Facility and the Senior Notes.
Results of Operations
Net Sales. Doane Products Company derives substantially all of its revenue from
the sale of private label pet food products. Net sales in the three month
period ended March 31, 1997 increased 16.3% to $137.7 million from $118.4
million for the same period ended in 1996. Pet food net sales increased 13.8%
to $127.8 million in the three month period ended March 31, 1997 from $112.3
million in the same period of 1996. This increase was primarily due to price
increases implemented in response to higher raw material costs and a 3.7%
increase in pet food tons sold. Net sales of non-manufactured products
increased 90.7% in the three month period ended March 31, 1997 to $8.2 million
from $4.3 million for the same period ended in 1996 due to distribution of
additional items. Engineering net sales decreased 5.6% in the three month
period ended March 31, 1997 to $1.7 million from $1.8 million for the same
period ended in 1996.
Gross Profit. Gross profit for the three month period ended March 31, 1997
increased 2.6% to $15.5 million from $15.1 million for the same period in 1996.
The increase in gross profit for the three month period ended March 31, 1997
was primarily due to increased distribution of non-manufactured products and
higher margins in the engineering division. Gross profit as a percent of net
sales for the three month period ended March 31, 1997 declined to 11.3% from
12.7% for the same period in 1996 primarily due to lower pet food margins.
Operating Expenses. Operating expenses increased to $8.3 million in the three
month period ended March 31, 1997 from $7.1 million for the same period of
1996. Selling expenses increased to $4.3 million from $3.3 million in 1996.
This increase was primarily attributable to increases in (i) sales promotions,
volume incentive discounts, and brokerage costs resulting from increased pet
food tons sold, and (ii) increases in salaries and related fringe benefits.
General and administrative expenses increased to $4.1 million in the three
month period ended March 31, 1997 from $3.8 million in 1996 primarily due to an
increase in salaries and related fringe benefits. Operating expenses as a
percent of net sales remained constant at 6.0% in both the first quarter of
1997 and 1996.
Income From Operations. Income from operations decreased $.8 million to $7.2
million in the three month period ended March 31, 1997 from $8.0 million in the
first quarter of 1996. This decrease was primarily due to higher operating
expenses.
-9-
<PAGE> 11
Interest Expense. Interest expense decreased to $5.7 million in the three month
period ended March 31, 1997 from $5.9. million in 1996 due primarily to
reduction of term loan debt under the Senior Credit Facility.
There were no nonrecurring financing fees in the three month period ended March
31, 1997. During the three month period ended March 31, 1996, the Company wrote
off $4.8 million in nonrecurring interim debt financing costs concurrent with
the issuance of the $160.0 million Senior Notes.
Income Taxes. Income taxes increased to $.6 million for the three month period
ended March 31, 1997 from $(1.0) million for the first quarter of 1996
primarily due to the write off of $4.8 million of nonrecurring finance costs in
1996.
Liquidity and Capital Resources
The Company had working capital of $37.2 million at March 31, 1997. For the
three month period ended March 31, 1997, net cash used by operating activities
was $6.8 million, which was up from $2.8 million for the same period during
1996, primarily due to a reduction in operating profits and the after tax effect
of the write off of nonrecurring finance costs in 1996. Also, cash used for
working capital components for the three month period ended March 31, 1997 was
$11.9 million ($2.4 million higher than the same period in 1996) which was
primarily due to decreases in accounts payable, timing of volume incentive
payments and recognition of deferred commodity losses. These changes were offset
in part by reductions in accounts receivable and inventories due to seasonally
reduced volumes from year end.
On February 6, 1997 the Company purchased a pet food manufacturing and warehouse
facility at Everson, Pennsylvania for a total cost of $1.9 million which
includes the cost of renovation and equipment. In addition, the Company has
financed a new manufacturing and warehouse facility through the issuance on
March 12, 1997 of $6.0 million of industrial development revenue bonds, which
are secured by a mortgage lien and security interest on certain real and
personal property. The Bonds have been recorded at $1.7 million at March 31,
1997, which is net of undrawn amounts, and construction and reserve funds.
As part of the Senior Credit Facility the Company maintains a $25.0 million
revolving credit facility with banks which provides adequate liquidity to meet
the Company's operational needs. At March 31, 1997 the Company had borrowing
capacity in the amount of $8.7 million under the Senior Credit Facility, which
is net of $1.1 million for outstanding letters of credit.
Long term debt outstanding at March 31, 1997 consisted primarily of $160.0
million Senior Notes, the Term Loan Facility in the amount of $42.5 million,
the Revolving Credit Facility in the amount of $15.2 million and industrial
development bonds in the net amount of $1.7 million.
It is expected that existing manufacturing facilities, notwithstanding the
recent capital expenditures on new and existing facilities, will not be
sufficient to meet the Company's anticipated volume growth for the next several
years. Accordingly, the Company anticipates that additional facilities will be
necessary in order to support continued growth of the Company's business. The
Company has continued to examine alternatives for expanding its business either
through construction of additional manufacturing capacity or acquisition of
manufacturing assets. Such potential acquisitions could include acquisitions of
operating companies. The Company intends to finance such expansions or
acquisitions with borrowings under existing credit facilities, or expanded
credit facilities, or the issuance of additional equity, depending on the size
of the proposed expansions or acquisitions.
As a result of the Acquisition and the sale of the Notes, the Company is highly
leveraged and has significantly increased cash requirements for debt service
relating to the Senior Credit Facility and the Notes. The Company's ability to
borrow is limited by the Senior Credit Facility and the limitations on the
incurrence of indebtedness under the Note Indenture. The Company anticipates
that its operating cash flow, together with amounts available to it under the
Senior Credit facility and new industrial development bonds, will be sufficient
to finance working capital requirements, debt service requirements and
anticipated capital expenditures during the 1997 calendar year.
-10-
<PAGE> 12
DOANE PRODUCTS COMPANY AND SUBSIDIARY
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Index
4.1 Second Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement dated as of March 31, 1997 among
the Company, Mercantile Bank of St. Louis National
Association, as agent for the Banks named therein, and
the Banks named therein.
10.1 Employment Agreement dated as of March 3, 1997, between the
Company and Thomas R. Heidenthal.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-11-
<PAGE> 13
DOANE PRODUCTS COMPANY AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements 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.
DOANE PRODUCTS COMPANY
(Date) By /s/ THOMAS R. HEIDENTHAL
-------------------------------
Thomas R. Heidenthal
Senior Vice President and
Chief Financial Officer
By /s/ ROY E. HESS
-------------------------------
Roy E. Hess
Vice President - Finance
(Principal Accounting Officer)
-12-
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1 Second Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement dated as of March 31, 1997 among
the Company, Mercantile Bank of St. Louis National
Association, as agent for the Banks named therein, and
the Banks named therein.
10.1 Employment Agreement dated as of March 3, 1997, between the
Company and Thomas R. Heidenthal.
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 4.1
SECOND AMENDMENT TO THE AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO THE AMENDED AND RESTATED REVOLVING
CREDIT AND TERM LOAN AGREEMENT (the "Amendment"), made and entered into as of
the 31st day of March, 1997, by and between DOANE PRODUCTS COMPANY, a Delaware
corporation ("Borrower"), MERCANTILE BANK NATIONAL ASSOCIATION, a national
banking association, SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a
national banking association, HARRIS TRUST AND SAVINGS BANK, an Illinois state
banking corporation, HIBERNIA NATIONAL BANK, a national bank, NBD BANK, and
BANK OF OKLAHOMA, N.A., a national banking association (collectively referred
to herein as the "Banks"), and MERCANTILE BANK NATIONAL ASSOCIATION, a national
banking association, as agent for the Banks (in such capacity, the "Agent").
WITNESSETH:
WHEREAS, Borrower, Agent and Banks entered into an Amended and
Restated Revolving Credit and Term Loan Agreement dated February 28, 1996,
which agreement was amended on June 28, 1996 (as amended, the "Credit
Agreement"); and
WHEREAS, Borrower has requested that the Credit Agreement be
amended and modified as hereinafter set forth, to which said amendments and
modifications Agent and Banks are willing to agree;
NOW, THEREFORE, in consideration of the premises and the
mutual provisions and agreements hereinafter set forth, the parties hereto do
hereby mutually promise and agree as follows:
AGREEMENTS
1. In consideration of the amendments to the Credit
Agreement made herein, Borrower shall pay the Banks a fee equal to 15 basis
points on the revolver facility and outstanding term loan balance.
2. Section 10.1(m)(i) of the Credit Agreement shall be
deleted in its entirety and in its place shall be substituted the following:
(i) Minimum Consolidated EBITDA. Borrower will have and
maintain a Consolidated EBITDA, determined for the four-quarter period
ending on the date of each such calculation hereunder, of at least:
<TABLE>
<CAPTION>
For Fiscal Quarter
Ended On Or Between Minimum Consolidated EBITDA
------------------- ---------------------------
<S> <C>
March 31, 1997 $34,000,000
June 30, 1997 $34,000,000
September 30, 1997 $36,000,000
December 31, 1997 $41,500,000
March 31, 1998 $42,500,000
June 30, 1998 $43,500,000
September 30, 1998 $43,500,000
December 31, 1998 $46,000,000
March 31, 1999 $46,000,000
June 30, 1999 $47,000,000
September 30, 1999 $47,000,000
December 31, 1999 through September 30, 2000 $48,500,000
</TABLE>
<PAGE> 2
3. Section 10.1(m)(ii) of the Credit Agreement shall be
deleted in its entirety and in its place shall be substituted the following:
(ii) Minimum Consolidated Cash Flow Coverage Ratio.
Borrower will have and maintain a Consolidated Cash Flow Coverage
Ratio of at least (i) 0.70 to 1.0 at all times during the period
commencing July 1, 1996 and ending June 30, 1997, (ii) 0.75 to 1.0 at
all times during the period commencing July 1, 1997 and ending
September 30, 1997, (iii) .80 to 1.0 at all times during the period
commencing October 1, 1997 and ending December 31, 1997, (iv) 0.85 to
1.0 at all times during the period commencing January 1, 1998 and
ending September 30, 1998, (v) .90 to 1.0 at all times during the
period commencing October 1, 1998 and ending September 30, 1999 and
(vi) 1.0 to 1.0 during the period commencing October 31, 1999 and
ending September 30, 2000. For purposes of this Section, Capital
Expenditures included in the definition of "Consolidated Cash Flow
Coverage Ratio" shall not include expenditures financed with direct or
indirect proceeds from industrial revenue bonds or similar
indebtedness.
4. Section 10.1(m)(iii) of the Credit Agreement shall be
deleted in its entirety and in its place shall be substituted the following:
(iii) Maximum Consolidated Total Debt to Consolidated
EBITDA. Borrower will at all times have and maintain a ratio of
Consolidated Total Debt to Consolidated EBITDA which is less than or
equal to the following:
<TABLE>
<CAPTION>
For Fiscal Quarter Maximum Consolidated Total
Ended On Or Between Debt to Consolidated EBITDA
------------------- ---------------------------
<S> <C>
March 31, 1997 6.60 to 1.00
June 30, 1997 6.30 to 1.00
September 30, 1997 6.30 to 1.00
December 31, 1997 5.50 to 1.00
March 31, 1998 5.50 to 1.00
June 30, 1998 5.20 to 1.00
September 30, 1998 5.20 to 1.00
December 31, 1998 4.50 to 1.00
March 31, 1999 4.50 to 1.00
June 30, 1999 4.25 to 1.00
September 30, 1999 4.25 to 1.00
December 31, 1999 through September, 30, 2000 4.10 to 1.00
</TABLE>
5. Notwithstanding anything to the contrary in the
Credit Agreement, amounts held by or on behalf of the Banks or other lenders
(including by collateral agents and indenture trustees) in reserve or cash
collateral accounts shall not be included (a) as "Consolidated Total Debt" for
purposes of Section 10.1(m)(iii), (b) as "Consolidated Senior Secured Debt" for
purposes of Section 10.1(m)(iv), or (c) as "outstanding" for purposes of
Section 10.2(a)(xiv).
6. Section 10.2(a) is hereby amended by adding the
following as a new Section 10.2(a)(xv):
(xv) In addition to any amounts permitted under clause (xiv)
above, purchase money indebtedness (including in connection with
industrial revenue bond financings) incurred after May 1, 1997 in an
amount not to exceed $10,000,000 in the aggregate at any
<PAGE> 3
one time outstanding for Borrower and all Subsidiaries of
Borrower; provided, that if any portion of such Indebtedness
is borrowed from an Unrestricted Subsidiary, it shall be
subordinated in writing to the payment of Borrower's
Obligations in form and substance satisfactory to the Required
Banks.
7. Borrower hereby represents and warrants to Agent and
Banks that:
(a) The execution, delivery and performance by
Borrower of this Amendment are within the corporate powers of Borrower, have
been duly authorized by all necessary corporate action and require no action by
or in respect of, or filing with, any governmental or regulatory body, agency
or official. The execution, delivery and performance by Borrower of this
Amendment do not conflict with, or result in a breach of the terms, conditions
or provisions of, or constitute a default under or result in any violation of,
and Borrower is not now in default under or in violation of, the terms of the
Certificate of Incorporation or Bylaws of Borrower, any applicable law, any
rule, regulation, order, writ, judgment or decree of any court or governmental
or regulatory agency or instrumentality, or any agreement or instrument to
which Borrower is a party or by which it is bound or to which it is subject;
(b) This Amendment has been duly executed and
delivered and constitutes the legal, valid and binding obligation of Borrower
enforceable in accordance with its terms; and
(c) As of the date hereof, all of the covenants,
representations and warranties of Borrower set forth in the Credit Agreement
are true and correct and no "Event of Default" (as defined therein) under or
within the meaning of the Credit Agreement has occurred and is continuing.
8. All references in the Credit Agreement to "this
Credit Agreement" and any other references of similar import shall henceforth
mean the Credit Agreement as amended by the First Amendment and as further
amended by this Amendment.
9. This Amendment shall be binding upon and inure to the
benefit of the parties thereto and their respective successors and assigns,
except the Borrower may not assign, transfer or delegate any of its rights or
obligations hereunder or thereunder.
10. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Missouri.
11. In the event of any inconsistency or conflict between
this Amendment and the Credit Agreement, the terms, provisions and conditions
of this Amendment shall govern and control.
12. The Credit Agreement, as hereby amended and modified,
is and shall remain the binding obligation of Borrower and all of the
provisions, terms, stipulations, conditions, covenants and powers contained
therein shall stand and remain in full force and effect, except only as the
same are herein and hereby specifically varied or amended, and the same are
hereby ratified and confirmed. This Amendment amends the Credit Agreement and
is not a novation thereof. If any installment of principal or interest on any
of the Notes (as defined in the Credit Agreement) shall not be paid when due as
provided in the Notes, the holders of the Notes shall be entitled to and may
exercise all rights and remedies under the Notes and the Credit Agreement and
any of the other Transaction Documents (as defined in the Credit Agreement).
13. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO
EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER, AGENT AND
BANKS FROM ANY MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY
BORROWER, AGENT AND BANKS COVERING SUCH MATTERS ARE CONTAINED IN THE CREDIT
AGREEMENT, AS AMENDED BY THIS AMENDMENT, WHICH CONSTITUTES A COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN BORROWER, AGENT AND BANKS.
EXCEPT AS BORROWER, AGENT AND BANKS MAY LATER AGREE IN WRITING TO MODIFY, THE
CREDIT AGREEMENT, AS AMENDED BY THIS AGREEMENT AND UNDERSTANDING BETWEEN THE
-3-
<PAGE> 4
PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR
WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date first written above.
DOANE PRODUCTS COMPANY
By: __________________________________________
Thomas R. Heidenthal, Senior Vice
President and Chief Financial Officer
West 20th & State Line Road
Joplin, Missouri 64804
Telecopy number: (417) 624-6327
MERCANTILE BANK NATIONAL
ASSOCIATION
By: __________________________________________
John A. Holland, Vice President
721 Locust Street
St. Louis, Missouri 63101
Telecopy number: (314) 425-3859
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION
By: __________________________________________
Lee Vaughn, Assistant Vice-President
Metropolitan Lending
420 North 20th Street
Birmingham, Alabama 35203
Telecopy number: (205) 254-5911
HARRIS TRUST AND SAVINGS BANK
By: __________________________________________
Emily L. Burt, Vice President
111 West Monroe Street
P.O. Box 755
Chicago, Illinois 60690-0755
Telecopy number: (312) 461-2591
-4-
<PAGE> 5
HIBERNIA NATIONAL BANK
By: __________________________________________
Cheryl H. Denenea, Vice President
313 Carondelet Street, 6th Floor
New Orleans, Louisiana 70130
Telecopy number: (504) 533-2060
BANK OF OKLAHOMA, N.A.
By: __________________________________________
Jane P. Faulkenberry, Vice President
One Williams Center
Tulsa, Oklahoma 74172
Telecopy number: (918) 588-6880
NBD BANK
By: __________________________________________
Title:
MERCANTILE BANK
NATIONAL ASSOCIATION, as Agent
By: __________________________________________
John A. Holland, Vice President
721 Locust Street
St. Louis, Missouri 63101
Telecopy number: (314) 425-3859
-5-
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
BETWEEN
DOANE PRODUCTS COMPANY
AND
THOMAS R. HEIDENTHAL
THIS EMPLOYMENT AGREEMENT dated March 3, 1997 is made between Doane
Products Company (the "Company"), a Delaware Corporation, and Thomas R.
Heidenthal (the "Executive"). This Agreement is made with reference to the
following facts and objectives:
RECITALS:
A. The Executive shall be the Senior Vice President in charge of
Finance, MIS and Administration of the Company.
B. The Executive acknowledges that the services to be performed
by him under this Agreement are of a special and unique character; the business
of the Company is currently national in scope; the Company has plans to expand
its business throughout the world; and the Company competes with other persons
that are or could be located in any part of the world; and in order to assure
the Company that the Company will retain its value and the Company's business
as a going concern, it is necessary that the Executive undertake not to utilize
his special knowledge of the Company, its business and its relationships with
customers and suppliers to compete with the Company if the Executive were to
leave the Company.
C. The Executive further acknowledges that during his employment
with the Company he will occupy a position of trust and confidence with the
Company and during such employment, the Company will compensate him, among
other purposes, to develop and preserve customer relationships and other
goodwill exclusively for the Company's benefit and that as a result, he will
become familiar with the Company's trade secrets, including, without
limitation, its profit margins, customer preferences and requirements, and with
other proprietary and confidential information concerning the Company and its
business.
D. The Executive further acknowledges that the use by him for his
own benefit or that of others of such goodwill, trade secrets or proprietary
and confidential information, or the solicitation of and/or doing business with
any of the Company's customers and potential customers would have a material
adverse effect on the Company and its business, and would place the Company at
a substantial competitive disadvantage.
E. The Executive further acknowledges that the agreements and
covenants contained in the Agreement, and in particular sections 6
(Non-Competition Covenants) and 7 (Confidentiality and Proprietary
Information), are essential to protect the Company and the goodwill of the
Company's business, are a condition precedent to the Company's willingness to
enter this Agreement and to pay
<PAGE> 2
the consideration set forth in this Agreement, and are necessary and reasonable
in light of the particular business of the Company, his knowledge thereof and
the services he will perform under the Agreement.
THE PARTIES ACCORDINGLY AGREE AS FOLLOWS:
AGREEMENT
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts employment by the Company, on the terms and
conditions of this Agreement.
2. EMPLOYMENT TERM.
(a) Subject to Section 9 (Termination of Employment), the
term of the Executive's employment under this Agreement begins on the date of
this Agreement and ends on the third anniversary of that date; provided,
however, that commencing on the third anniversary of the date of this Agreement
and each subsequent anniversary the term shall be extended for an additional
one year period unless either Executive or the Company gives the other party
written notice at least ninety (90) days before such anniversary that this
Agreement shall terminate on the then scheduled expiration date. If such notice
is given, this Agreement shall automatically terminate on such expiration date.
(b) The actual term of the Executive's employment under
this Agreement, including any earlier termination of the original term, is
referred to in this Agreement as the "employment term".
3. RESPONSIBILITIES. During the employment term, the Executive shall
serve as Senior Vice President in charge of Finance, MIS and Administration or
in any other position or capacity to which he may from time to time be elected
or appointed and shall perform such services for the Company as are reasonably
required by the Company and may be required by virtue of the offices and
positions held by the Executive. The Executive agrees that as a part of his
duties under this Agreement, he may be required from time to time to perform
services for affiliates of the Company. The Executive shall devote his full
time and best efforts to the performance of all responsibilities to the Company
and its affiliates and to further their respective businesses and interests.
4. COMPENSATION.
(a) The Company agrees to pay the Executive throughout
the employment term an annual salary of $175,000.00 (the "base salary") payable
in equal installments in accordance with Company payroll practices from time to
time in effect. The Board of Directors of the Company at its discretion from
time to time may review the base salary for increase.
2
<PAGE> 3
(b) Subject to Section 9 (Termination of Employment), the
Company agrees to pay the Executive throughout the employment term an annual
bonus (the "annual bonus") calculated pursuant to Exhibit A attached hereto.
The amount of the annual bonus payable to Executive shall be prorated for the
portion of a year employed by Executive by multiplying the annual bonus
determined pursuant to Exhibit A by a fraction with a numerator equal to the
number of days of the year during which the Executive was employed by the
Company and with a denominator of 365.
(c) The Company agrees to issue to Executive a stock
option for 50,000 shares of DPC Acquisition Corp. common stock pursuant to the
form of option agreement attached hereto as Exhibit B within three months of
the effective date of the Agreement.
(d) The Company agrees to offer the Executive the
opportunity to purchase 40,000 shares of DPC Acquisition Corp. common stock at
a price of $10.00 per share subject to the same terms as contained in the stock
offering to the employees of the Company in November and December 1996 within
six months of the effective date of this Agreement.
(e) To compensate the Executive for certain costs and
expense of relocating Executive and his family to the Joplin, Missouri area,
the Company shall reimburse Executive for (i) direct moving and packing
expenses, (ii) certain closing costs for the sale of Executive's existing home
including real estate commissions, legal and miscellaneous closing expenses
(but excluding repairs to the home and any loss on the sale of the home), (iii)
certain closing costs for the purchase of a new home, including legal and
miscellaneous closing costs including financial fees (points), (iv) temporary
housing expenses for up to sixty days from commencement of employment with the
Company, (v) transportation expenses for three trips from the east coast to
Joplin, Missouri for house hunting, (vi) transportation expense for three
return trips to the east coast during the first year of employment, and (vii)
an allowance of $2,000 for miscellaneous expenses incurred in Executive's
relocation. To the extent that any of the reimbursements listed in this Section
4(e) are includible as gross income by Executive for federal or state income
tax purposes and are not deductible by Executive, the Company shall pay
Executive an additional amount equal to the federal and state income taxes on
such amounts at the applicable marginal tax rate.
5. OTHER EXECUTIVE BENEFITS.
(a) The Executive shall, during the employment term, be
eligible to participate in such pension, profit sharing, bonus, life insurance,
hospitalization and major medical and other employee benefit plans of the
Company in effect from time to time, to the extent he is eligible under and
complies with the terms of those plans, but the allocation of benefits under
any bonus or other plan that provides that allocations thereunder shall be in
the discretion of the Board of Directors shall be determined from time to time
solely by the Board of Directors in its discretion.
(b) Executive shall be entitled to four weeks of paid
vacation each year. Vacation not used by the end of a year shall be forfeited
and shall not be eligible to be carried over to another year or eligible for
reimbursement except as otherwise provided by Company policies.
3
<PAGE> 4
6. NON-COMPETITIVE COVENANTS. Throughout the employment term and
during any period Executive receives compensation from the Company pursuant to
Section 9, the Executive promises and agrees that he will not: (a) directly or
indirectly assist in, engage in, have any financial interest in, or participate
in any way in, as an owner, partner, employee, agent, board member or
shareholder, any business that involves, in whole or in part, the design,
manufacture, distribution or sale of dry pet foods (or any other business in
which the Company may engage or begin preparation to engage during the
employment term) or make preparation with any person to do any of the
foregoing; provided, however, that the Executive may own, solely as an
investment, up to 1.0% of any class of securities as are listed on any national
or regional securities exchange; (b) call upon or have any contact with any
person or any successor in interest to any person who was at any time during
the Executive's last three years of employment with the Company, a customer of
the Company, or call upon or have any contact with any person or any successor
in interest to any person who is a prospective customer of the Company and with
whom the Executive deals, or on whose account the Executive worked, at any time
during Executive's last three years of employment with the Company, for the
purpose of (i) diverting any business of such person from the Company, or (ii)
selling or offering to sell to any such customer any product or service that is
of the same general type or that performs similar functions as any product or
service which has been sold, provided or offered for sale by the Company at any
time during the Executive's last three years of employment with the Company, or
(c) without prior written consent of the Company's Board of Directors, acquire
or discuss the acquisition of any ownership interest in or warrant or right to
acquire any such interest, or acquire any employment or other pecuniary benefit
from any person that, at the time, is a prospective candidate for or was a
party to a control transaction. The Executive acknowledges and agrees that the
consideration and benefits to be provided to the Executive under this Agreement
have been bargained and negotiated in exchange for, and in consideration of,
Executive's agreement to abide by the terms and provisions of this section 6
and section 7(confidentiality and Proprietary Information). The Executive
acknowledges and agrees that all of the Executive's duties and obligations
under this section 6 shall survive the expiration or termination of the
Executive's employment with the Company, regardless of the cause therefor.
7. CONFIDENTIALITY AND PROPRIETARY INFORMATION. In addition to any
common-law restriction upon the Executive's use, disclosure or exploitation of
confidential, proprietary or secret information of the Company, the Executive
covenants and agrees that without the prior written consent of the Company he
will not at any time during or after the employment term use for himself or
disclose to or use for any other person, directly or indirectly, any secret,
confidential or proprietary information of the Company, including, without
limitation, the Company's processes, formulas, techniques, customer identities,
preferences, requirements, reports and other sensitive customer information,
servicing methods, profit margins, analyses, employee, vendor and supplier
information, business or marketing plans or strategies, financial data and
presentation or sales materials, technologies, computer programs, software,
designs and inventions (collectively, the "confidential information");
provided, however, that the term confidential information does not include or
refer to any information that is in the public domain (other than by a breach
of this Agreement). The Executive acknowledges that the confidential
information is vital, sensitive,
4
<PAGE> 5
confidential and proprietary to the Company. The Executive covenants and agrees
that all files, reports, lists, materials, records, documents notes, memoranda,
specifications, product or other formulas, equipment and other items, and any
originals, copies, recordings, abstracts or notes thereof, relating to the
confidential information or the Company business that the Executive is or was
either provided, prepares or prepared himself, uses or used or simply acquires
or acquired during this employment with the Company (either before or during
the employment term), are and shall remain the sole and exclusive property of
the Company and shall be immediately returned to the Company at any time upon
demand, and in all events, immediately at the end of the employment term. The
Executive acknowledges and agrees that all of the Executive's duties and
obligations under this section 7 shall survive the expiration or termination of
the Executive's employment with the Company, regardless of the cause therefor,
8. REMEDIES FOR BREACH. In the event of a breach or threatened breach
of any of the Executive's duties and obligations under section 6
(Non-Competition Covenants) or 7 (Confidentiality and Proprietary Information),
the Company shall be entitled, in addition to any other legal or equitable
remedies the Company may have in that connection (including any right to
damages that the Company may suffer), to a temporary, preliminary and/or
permanent injunction restraining such breach or threatened breach. The
Executive hereby expressly acknowledges that the harm that might result to the
Company's goodwill or its relationships with customers, or as a result of the
disclosure or use of the confidential information, is largely irreparable. The
Executive specifically agrees that, in the event there is a question as to the
enforceability of section 6 (Non-Competition Covenants) or 7 (Confidentiality
and Proprietary Information), the Executive will not engage in any conduct
inconsistent with or contrary to either of such sections until after the
question has been resolved by a non-appealable final judgment.
9. TERMINATION OF EMPLOYMENT.
(a) The employment term and the Executive's employment by the
Company shall terminate: (i) upon the death of the Executive; (ii) upon the
disability of the Executive (as defined in section 9(b)(2)) upon 30 days' prior
written notice given by the Company to the Executive; (iii) for cause (as
defined in section 9(b)(1)), immediately upon the giving of written notice
thereof by the Company to the Executive or at such later time as the notice may
specify; (iv) without cause, upon not less than 30 days' prior written notice
given by the Company to the Executive, or (v) voluntarily by Executive upon not
less than fifteen (15) days' prior written notice given to the Company by the
Executive.
(b) In this Section 9:
(1) "Cause" exists whenever the Executive (a) has
been grossly derelict in his duty (other than
by reason of death or disability) to the
Company after Executive has been advised by
the Board of Directors of the Company or the
President and Chief Executive Officer of the
Company of any such dereliction and has been
given an opportunity
5
<PAGE> 6
to correct his performance; (b) has been
charged with any felony or committed any
financial dishonesty, unethical or fraudulent
acts against the Company; or (c) has
committed any willful malfeasance,
misfeasance or gross negligence in the
discharge of duties to the Company having a
material adverse effect on the Company, its
business or reputation.
(2) "Disability" refers to any circumstances in
which the Executive, by reason of illness,
incapacity or other disability, has failed to
perform his duties or fulfill his obligations
under this Agreement for a cumulative total
of 180 days in any 12-month period.
(c) Upon the termination of the Executive's employment
under the Agreement, the employment term shall end and all rights of the
Executive under this Agreement shall terminate, except that the Executive shall
nonetheless be entitled to receive the following:
(1) If the termination occurs by reason of the
death or disability of the Executive, the
Executive shall be entitled to receive the
base salary accrued through the date of
termination and annual bonus prorated through
the date of termination.
(2) If the termination is made by the Company
without cause, the Executive shall be
entitled to receive for the remainder of the
original three-year employment term his base
salary and annual bonus, if and as each would
have been payable if the Executive had not
been so terminated.
(3) If the termination is made by the Company for
cause or voluntarily by Executive, the
Executive shall be entitled to receive his
base salary through the date of termination.
If any termination for cause made by the Company is ever ultimately
determined by any court, agency or other tribunal to have been without cause,
then the Company's sole liability under the Agreement or otherwise at law or in
equity shall be to pay the Executive those amounts that would have otherwise
been paid to the Executive under section 9(c)(2) (Termination of Employment,
without cause) and the reasonable attorneys' fees and costs incurred by the
Executive in successfully obtaining this determination from the court, agency
or other tribunal.
10. NOTICE. Any notice required or permitted to be given under this
Agreement must be in writing and is effectively given:
6
<PAGE> 7
(1) To the Company, when signed by the Executive
and delivered in person to the Chairman of
the Board, President or Secretary (excluding
the Executive) of the Company, or,
(2) To the Executive, when signed by an officer
of the Company (excluding the Executive) and
delivered to the Executive in person, or one
day after the date sent by national
commercial courier for next day delivery, or
two days after the date mailed, by certified
or registered mail, postage prepaid, in
either case to the address set forth under
the Executive's signature at the end of this
Agreement or at such other address as the
Executive may designate for that purpose in a
notice given to the Company.
11. INVALIDITY OF PROVISIONS. If any provision of this Agreement is
adjudicated to be invalid or unenforceable under applicable law, the validity
or enforceability of the remaining provisions shall be unaffected. To the
extent that any provision of this Agreement is adjudicated to be invalid or
unenforceable because it is over broad, that provision shall not be void but
rather shall be limited only to the extent required by applicable law and
enforced as so limited.
12. ENTIRE AGREEMENT; WRITTEN MODIFICATIONS. This Agreement contains
the entire agreement between the parties and supersedes all prior or
contemporaneous representations, promises, understanding and agreements between
the Executive and the Company. This Agreement may not be changed except by
written agreement of the parties.
13. GOVERNING LAW. In light of the Company's contacts with the State
of Missouri and its significant interest in insuring that disputes as to the
validity and enforceability of sections 6 (Non-Competition Covenants) and 7
(Confidentiality and Proprietary Information) of this Agreement are resolved on
a uniform basis, the Executive and the Company agree that any litigation
involving any noncompliance with or alleged breach of section 6
(Non-Competition Covenants) or 7 (Confidentiality and Proprietary Information)
must be filed and conducted in Missouri and the Executive and the Company
consent to the personal jurisdiction of the federal and state courts sitting in
Missouri for purposes of any such litigation. This Agreement shall be governed
by the internal laws of the State of Missouri without regard to Missouri
conflict of laws principles.
14. CERTAIN DEFINED TERMS. IN THIS AGREEMENT:
(1) "Affiliate" of the Company means any person
controlling, controlled by or under common control
with the Company.
(2) "Base salary" is defined in section 4(a).
(3) "Company", as used in section 6 (Non-Competition
Covenants) and 7 (Confidentiality and Proprietary
Information), includes each affiliate of the
7
<PAGE> 8
Company for which the Executive performs services at
any time during his employment if the affiliate is
engaged in any business that involves, in whole or in
part, the design, manufacture, distribution or sale
of dry pet foods (or any other business in which the
Company may engage or begin preparation to engage in
during the employment term).
(4) "Employment term" is defined in section 2(b).
(5) "Person" includes any individual, trust, estate,
business trust, partnership, corporation,
unincorporated association, governmental entity,
limited liability company and any other judicial
person.
15. COMPANY'S RIGHT TO RECOVER COSTS. The Executive undertakes and
agrees that if the Executive breaches or threatens to breach any provision of
the Agreement, the Executive shall be liable for any attorneys' fees and costs
incurred by the Company in enforcing its rights under this Agreement.
16. RULE OF CONSTRUCTION. The rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be employed
in interpreting this Agreement.
17. TOLLING. In view of the parties' recognition and agreement that
the Company is entitled after the expiration of termination of the employment
term to certain limited protection from competition by the Executive, the
Executive and the Company agree that the running of the period set forth in
section 6 (Non-Competition Covenants) shall be tolled during any period of time
in which the Executive violates that section.
18. SUCCESSOR AND ASSIGNS. The Company may assign this Agreement or
any right or interest under this Agreement to any person that hereafter becomes
an affiliate of the Company or to any person to which the Company sells all or
any substantial part of its assets and, in such event, the Company shall,
automatically upon the assignee's assumption of the Company's obligations
hereunder, be released from any such obligations. This Agreement shall inure to
the benefit of the Company, and its successor and assigns.
19. NONWAIVER OF RIGHTS. The Company's failure to enforce at any time
of the provisions of this Agreement or to require at any time performance by
the Executive of any of the provisions hereof shall in no way be construed to
be a waiver of such provisions or to affect either the validity of this
Agreement, or any part hereof, or the right of the Company thereafter to
enforce each and every provision in accordance with the terms of this
agreement.
PLEASE NOTE: BY SIGNING THIS AGREEMENT, THE EXECUTIVE IS HEREBY
CERTIFYING THAT THE EXECUTIVE (A) RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW
AND STUDY BEFORE EXECUTING IT; (B) READ THIS AGREEMENT CAREFULLY BEFORE SIGNING
IT; (C) HAD SUFFICIENT
8
<PAGE> 9
OPPORTUNITY BEFORE SIGNING THIS AGREEMENT TO ASK ANY QUESTIONS THE EXECUTIVE
HAD ABOUT THIS AGREEMENT AND RECEIVED SATISFACTORY ANSWERS TO ALL SUCH
QUESTIONS; (D) UNDERSTANDS THE EXECUTIVE'S RIGHTS AND OBLIGATIONS UNDER THIS
AGREEMENT; AND (E) EXECUTED AND DELIVERED THIS AGREEMENT AT THE OFFICES OF THE
COMPANY IN JOPLIN, MISSOURI.
EXECUTED AND EFFECTIVE AS OF THE DATE FIRST WRITTEN ABOVE.
WITNESSES: DOANE PRODUCTS COMPANY
LINDA HOWE GEORGE B. KELLY
________________________________ ____________________________________
George B. Kelly
CHRYL HOZ
________________________________
WITNESSES: EXECUTIVE:
BARBARA J. MCKEE T.R. HEIDENTHAL
_______________________________ ____________________________________
T.R. Heidenthal
TERRY BECHTEL 228 Steeplechase Circle
________________________________ ____________________________________
Terry Bechtel STREET ADDRESS
Wilmington, DE 19808
____________________________________
CITY, STATE, ZIP CODE
9
<PAGE> 10
EXHIBIT A
ANNUAL BONUS CALCULATION
The bonus will be earned each year based upon the operating
performance of Doane Products Company (the "Company"), as measured by earnings
before interest, taxes, depreciation and amortization ("EBITDA"), as compared
to budget. The budget will be the annual financial budget of the Company as
approved by the Board of Directors at the start of each year except that for
1997 the amount to be used to calculate earning 100% of the bonus will be
$44,000,000. The specific bonus will be calculated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Percentage Percentage of
EBITDA Achieved Bonus Earned Actual Bonus Earned
- --------------------------------------------------------------------------
<S> <C> <C>
100 100 $87,500
- --------------------------------------------------------------------------
96 75 $65,625
- --------------------------------------------------------------------------
92 50 $43,750
- --------------------------------------------------------------------------
88 25 $21,875
- --------------------------------------------------------------------------
84 10 $ 8,750
- --------------------------------------------------------------------------
</TABLE>
<PAGE> 11
EXHIBIT B
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made this 3rd day of March, 1997, between DPC ACQUISITION
CORP., a Delaware corporation (the "Company"), and THOMAS R. HEIDENTHAL
("Employee").
To carry out the purposes of the DPC ACQUISITION CORP. 1996 STOCK
OPTION PLAN (the "Plan"), by affording Employee the opportunity to purchase
shares of the Class A Common Stock of the Company ("Stock"), and in
consideration of the mutual agreements and other matters set forth herein and
in the Plan, the Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("Option") to purchase all or any part of an
aggregate of 50,000 shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option is intended to constitute an incentive
stock option, within the meaning of section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant
to the exercise of this Option shall be $10.00 per share, which has been
determined to be not less than the fair market value of the Stock at the date
of grant of this Option. For all purposes of this Agreement, fair market value
of Stock shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chief Executive Officer at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the performance criteria set forth below
which have been met from
<PAGE> 12
the date of grant hereof to the date of such exercise, in accordance with the
following requirements:
Volume Goals:
<TABLE>
<CAPTION>
Tons Sold (Millions) and EBITDA of $35.0 Million
1997 1998 1999 2000 2001
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
1.252 1.353 1.434 1.502 1.575
</TABLE>
EBITDA Goals:
<TABLE>
<CAPTION>
EBITDA
(Millions)
1997 1998 1999 2000 2001
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$52.8 $58.1 $63.9 $70.3 $75.0
</TABLE>
Vesting Levels:
<TABLE>
<CAPTION>
Percentage of Volume Goal Percentage of Shares That
Achieved for a Year May Be Purchased
------------------------- -------------------------
<S> <C>
110% or more 11%
100% 10%
90% 7.5%
85% 5%
Less than 85% 0%
</TABLE>
<TABLE>
<CAPTION>
Percentage of EBITDA Goal Percentage of Shares That
Achieved for a Year May be Purchased
------------------------- -------------------------
<S> <C>
120% or more 12%
110% 11%
100% 10%
90% 9%
80% 8%
Less than 80% 0%
</TABLE>
-2-
<PAGE> 13
The percentage of shares that may be purchased after the end of a
calendar year shall be determined by the Committee based upon the Committee's
determination of the amount of the Volume Goals and EBITDA Goals that are met
for a particular year and all previous years. In order for a Volume Goal to be
satisfied for any year the Company must have achieved an EBITDA of $35.0
million for such year and achieved 85% or more of the Volume Goal. In order for
an EBITDA Goal to be satisfied for a year, the Company must have achieved 80%
or more of the EBITDA Goal. No more than 50% of the aggregate number of shares
offered by this Option shall become exercisable due to attaining the Volume
Goals and no more than 50% of the aggregate number of shares offered by this
Option shall become exercisable due to attaining the EBITDA Goals.
In determining, the amount of the Volume Goals or EBITDA Goals that
are met for a year, the Committee shall make the determination on a
consolidated group basis. The figures set forth above are based on the Company
as it exists at the time this Option is granted, and in the event the Company
acquires additional assets, entities or subsidiaries that produce the same or
similar products, the Committee shall increase the Volume Goals and EBITDA
Goals to reflect the acquisition of the new assets, entities or subsidiaries.
For purposes of the preceding performance criteria, EBITDA shall mean
earnings before interest income and expense, income taxes, depreciation and
amortization as presented in the Company's consolidated annual financial
statements.
Notwithstanding the foregoing, this Option may be exercised in full
after eight years from the date of grant hereof if Employee is still an
employee of the Company at such time.
This Option may be exercised only while Employee remains an employee
of the Company and will terminate and cease to be exercisable upon Employee's
termination of employment with the Company, except that:
(a) If Employee's employment with the Company terminates
by reason of disability (within the meaning of section 22(e)(3) of the
Code), this Option may be exercised by Employee (or Employee's estate
or the person who acquires this Option by will or the laws of descent
and distribution or otherwise by reason of the death of Employee) at
any time during the period of three months following such termination,
but only as to the number of shares Employee was entitled to purchase
hereunder as of the date Employee's employment so terminates.
(b) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by will or
the laws of descent and distribution or otherwise by reason of the
death of Employee, may exercise this Option at any time during the
period of one year following the date of Employee's death, but only as
to the number of shares Employee was entitled to purchase hereunder as
of the date of Employee's death.
-3-
<PAGE> 14
(c) If Employee's employment with the Company terminates
for any reason other than as described in (a) or (b) above, this
Option may be exercised by Employee at any time during the period of
three months following such termination, or by Employee's estate (or
the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Employee) during a
period of one year following Employee's death if Employee dies during
such three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the date
Employee's employment so terminates.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), or (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) a combination of cash and
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the exercise
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Employee, Employee (or the person
permitted to exercise this Option in the event of Employee's death) shall not
be or have any of the rights or privileges of a shareholder of the Company with
respect to shares acquirable upon an exercise of this Option.
4. EMPLOYEE SHAREHOLDER RESTRICTIONS. Any shares of Stock
acquired by exercise of this Option are subject to the requirements of the
Employee Stockholder Agreement which is attached hereto as Exhibit A and which
must be executed by Employee and Employee's spouse, if any.
5. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Employee for federal or state income
tax purposes, Employee shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations,
and, if Employee fails to do so, the Company is authorized to withhold from any
cash or Stock remuneration then or thereafter payable to Employee any tax
required to be withheld by reason of such resulting compensation income. Upon
an exercise of this Option, the Company is further authorized in its discretion
to satisfy any such withholding requirement out of any cash or shares of Stock
distributable to Employee upon such exercise.
6. STATUS OF STOCK. Employee understands that at the time of the
execution of this Agreement the shares of Stock to be issued upon exercise of
this Option have not been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities law, and that the Company does not
currently intend to effect any such registration. Until the shares of Stock
acquirable upon the exercise of the Option have been registered for issuance
under the Act, the Company will not issue such shares unless the holder of the
Option provides the Company with
-4-
<PAGE> 15
a written opinion of legal counsel, who shall be satisfactory to the Company,
addressed to the Company and satisfactory in form and substance to the
Company's counsel, to the effect that the proposed issuance of such shares to
such Option holder may be made without registration under the Act. In the event
exemption from registration under the Act is available upon an exercise of this
Option, Employee (or the person permitted to exercise this Option in the event
of Employee's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act and applicable state
securities laws or an applicable exemption from the registration requirements
of the Act and any applicable state securities laws. Employee also agrees that
the shares of Stock which Employee may acquire by exercising this Option will
not be sold or otherwise disposed of in any manner which would constitute a
violation of any applicable securities laws, whether federal or state.
In addition, Employee agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
7. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains an employee of either the Company, a parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company, or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee and its determination shall
be final.
8. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
-5-
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
DPC ACQUISITION CORP.
BY: GEORGE B. KELLY
------------------------------
T.R. HEIDENTHAL
------------------------------
EMPLOYEE
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DOANE
PRODUCTS COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 60,748
<ALLOWANCES> 0
<INVENTORY> 27,761
<CURRENT-ASSETS> 91,133
<PP&E> 106,837
<DEPRECIATION> (9,811)
<TOTAL-ASSETS> 326,621
<CURRENT-LIABILITIES> 53,978
<BONDS> 160,000
0
25,703
<COMMON> 0
<OTHER-SE> 40,825
<TOTAL-LIABILITY-AND-EQUITY> 326,621
<SALES> 137,747
<TOTAL-REVENUES> 137,747
<CGS> 122,245
<TOTAL-COSTS> 130,578
<OTHER-EXPENSES> 8,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,678
<INCOME-PRETAX> 1,559
<INCOME-TAX> 564
<INCOME-CONTINUING> 995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 995
<EPS-PRIMARY> (547)
<EPS-DILUTED> 0
</TABLE>
