<PAGE> 1
As filed with the Securities and Exchange Commission on February 5, 1998
Registration Statement No. 333-43643
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
DOANE PRODUCTS COMPANY
(Exact name of Registrant as specified in its charter)
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DELAWARE 2047 43-1350515
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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WEST 20TH STREET AND STATE LINE ROAD
JOPLIN, MISSOURI 64804
(417) 624-6166
(Address, including zip code and telephone number,
including area code, of registrant's
principal executive offices)
---------------------------
BOB L. ROBINSON
DOANE PRODUCTS COMPANY
WEST 20TH STREET AND STATE LINE ROAD
JOPLIN, MISSOURI 64804
(417) 624-6166
(Name, address, including zip code and telephone number, including area code,
of agent for service)
Copy to:
ALAN P. BADEN
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
1001 FANNIN STREET
HOUSTON, TEXAS 77002-6760
(713) 758-2222
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
DOANE PRODUCTS COMPANY
OFFER TO EXCHANGE
SHARES OF 14.25% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2007 THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ALL OUTSTANDING SHARES OF 14.25%
SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 12,
1998, UNLESS EXTENDED
--------------------
Doane Products Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange one share of the Company's 14.25% Senior Exchangeable Preferred Stock
Due 2007, par value $0.01 per share (the "Exchange Shares"), which has been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for each outstanding share of the Company's
14.25% Senior Exchangeable Preferred Stock Due 2007, par value $0.01 per share
(the "Old Shares"). The Exchange Shares have the same rights, preferences,
qualifications and restrictions as the Old Shares, except for certain transfer
restrictions and registration rights relating to the Old Shares. The Exchange
Shares and the Old Shares are collectively referred to herein as the "Preferred
Shares" or "Preferred Stock."
The Company will accept for exchange any and all Old Shares that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be March 12, 1998, unless the Exchange
Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions;
Amendment." Tenders of Old Shares may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date (as
defined herein), unless previously accepted for exchange. The Exchange Offer is
not conditioned upon any number of Old Shares being tendered for exchange.
However, the Exchange Offer is subject to certain conditions which may be waived
by the Company and to the terms and provisions of the Registration Rights
Agreement (as defined herein). The Company has agreed to pay the expenses of the
Exchange Offer. See "The Exchange Offer."
(Cover continued on next page)
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE
PREFERRED SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is February 6, 1998
<PAGE> 3
Dividends on the Preferred Shares are payable quarterly at an annual rate
of 14.25% of the liquidation preference of the Preferred Shares (initially
$25.00 per share) (the "Liquidation Value"). At December 31, 1997, the
Liquidation Value was $34.20 per share. Dividends on the Preferred Shares
accrete to the Liquidation Value and, at the option of the holders of a majority
of the Preferred Shares, may be paid through the issuance of additional
Preferred Shares on each dividend payment date through September 30, 2000. The
Company does not expect to pay dividends on the Preferred Shares in cash for any
period prior to September 30, 2000. The Preferred Shares are exchangeable, in
whole or in part, at the option of the Company on any dividend payment date for
14.25% Junior Subordinated Exchange Debentures. See "Description of Preferred
Stock."
The Old Shares were initially sold by the Company to certain affiliates
(the "DLJ Affiliates") of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC") and to Chase Manhattan Investment Holdings, Inc. on October 5, 1995.
The DLJ Affiliates sold their Old Shares in December 1997 to DLJSC in a
transaction not registered under the Securities Act in reliance upon Section
4(2) of the Securities Act. Such shares were thereupon offered and sold by DLJSC
only to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act), each of whom agreed to comply with certain transfer
restrictions and other conditions. Accordingly, the Old Shares may not be
offered, resold or otherwise transferred unless registered under the Securities
Act or unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Shares are being offered hereunder in
order to satisfy the obligations of the Company under a registration rights
agreement between the Company and DLJSC (the "Registration Rights Agreement") in
connection with the sale of the Old Shares by the DLJ Affiliates to DLJSC. See
"The Exchange Offer; Registration Rights."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
(the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Shares issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by the respective holders thereof (other than a "Restricted Holder,"
being (i) a broker-dealer who purchased Old Shares exchanged for such Exchange
Shares directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Shares are
acquired in the ordinary course of such holder's business and such holder is not
participating in, and has no arrangement with any person to participate in, the
distribution (within the meaning of the Securities Act) of such Exchange Shares.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Holders who tender Old Shares in the
Exchange Offer with the intention to participate in a distribution of the
Exchange Shares may not rely upon the Morgan Stanley Letter or similar no-action
letters. See "The Exchange Offer -- General." Each broker-dealer that receives
Exchange Shares for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Shares. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Shares received in
exchange for Old Shares where such Old Shares were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business 90 days after the date of this Prospectus, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Shares will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity of
any markets that may develop for the Exchange Shares or as to the ability of or
price at which the holders of Exchange Shares would be able to sell their
Exchange Shares. Future trading prices of the Exchange Shares will depend on
many factors, including, among others, the Company's operating results and the
market for similar securities. The Company does not intend to apply for listing
of the Exchange Shares on any securities exchange. DLJSC has informed the
Company that it currently intends to make a market for the Exchange Shares.
However, it is not so obligated, and any such market making may be discontinued
at any time without notice. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Shares or as to the
liquidity of or the trading market for the Exchange Shares.
2
<PAGE> 4
THE EXCHANGE OFFER IS NOT BEING MADE TO, AND THE COMPANY WILL NOT ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD SHARES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
TABLE OF CONTENTS
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PAGE NO
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Available Information.................................... 3
Summary.................................................. 5
Forward-Looking Statements............................... 10
Risk Factors............................................. 10
Private Placement........................................ 13
Use of Proceeds.......................................... 13
Capitalization........................................... 13
Selected Historical Financial Data....................... 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 16
Business................................................. 22
Description of the Preferred Stock....................... 28
The Exchange Offer....................................... 30
Exchange Offer; Registration Rights...................... 36
Plan of Distribution..................................... 37
Transfer Restrictions on Old Shares...................... 37
Legal Matters............................................ 38
Experts.................................................. 39
Index to Financial Statements............................ F-1
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AVAILABLE INFORMATION
The Company is complying with the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy and information statements
and other information with the Commission. Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the Commission: Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Commission maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information filed electronically by the Company with the Commission which can be
accessed over the Internet at http://www.sec.gov. While any Old Shares remain
outstanding, the Company will make available, upon request, to any holder and
any prospective purchaser of Old Shares, the information required pursuant to
Rule 144A(d)(4) under the Securities Act during any period in which the Company
is not subject to Section 13 or 15(d) of the Exchange Act. Any such request
should be directed to Thomas R. Heidenthal, Senior Vice President and Chief
Financial Officer, Doane Products Company, West 20th Street and State Line Road,
Joplin, Missouri 64804.
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of contracts or other documents are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the copy of the applicable contract or other document filed with
the Commission. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the fee prescribed by the Commission, or may be examined without charge at the
public reference facilities of the Commission described above.
3
<PAGE> 5
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE EXCHANGE AGENT (AS DEFINED HEREIN). NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
4
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto included elsewhere in this Prospectus and in the documents
incorporated herein by reference.
THE COMPANY
The Company is the second largest producer of dry pet food products in the
United States, accounting for approximately 22% of the total volume of such
products in 1996, and is the largest producer of private label dry pet food in
the United States. The Company produces, markets and distributes a wide
selection of dry pet food products under private labels for approximately 300
customers, including mass merchandisers, membership clubs, national and regional
grocery chains, speciality pet store chains, farm and feed store chains, and
grocery and feed mill wholesalers and cooperatives. The Company also
manufactures branded pet food products for national pet food companies in
accordance with customer specifications and standards. In addition, the Company
remarkets non-manufactured pet products, manufactures and sells pet food
production equipment and parts, and fabricates other steel products to customer
specifications. The Company manufactures and distributes its pet food products
utilizing thirteen manufacturing and warehouse facilities and three additional
distribution warehouse facilities, all of which are located in proximity to
customers, raw materials and transportation networks. These facilities include a
recently completed manufacturing and warehouse facility in Miami, Oklahoma that
was financed through the issuance in March 1997 of $6.0 million of industrial
development revenue bonds (the "Industrial Development Bonds"). The new facility
produces, packages, stores and distributes pet food treats.
The Company was incorporated under the laws of the state of Delaware in
1995 for the purpose of consummating the Acquisition (as defined herein). Prior
to the Acquisition, Doane Products Company, the Company's predecessor, had been
in the dry pet food manufacturing industry for 37 years. The Company's principal
executive offices are located at West 20th Street and State Line Road, Joplin,
Missouri 64804, and its telephone number at such offices is (417) 624-6166.
THE ACQUISITION
On October 5, 1995, the Company was acquired through the merger of DPC
Subsidiary Acquisition Corp. with and into the Company's predecessor, Doane
Products Company (the "Predecessor"), which immediately merged with and into the
Company (formerly known as DPC Transition Corp.), with the Company being the
surviving entity. Immediately following such mergers, DPC Transition Corp.
changed its name to Doane Products Company. DPC Subsidiary Acquisition Corp. and
DPC Transition Corp. were both newly organized Delaware corporations formed for
the sole purpose of effecting the Acquisition.
The Company is a wholly-owned subsidiary of DPC Acquisition Corp.
("DPCAC"), which was formed by the Investors to acquire the Company. The
Investors included (a) certain members of the Company's management, (b)
Summit/DPC Partners, L.P. ("Summit"), an affiliate of Summit Capital, Inc.
("SCI"), (c) DLJ Merchant Banking Partners, L.P. and certain of its affiliates
("DLJMB"), all of which are affiliates of DLJSC, and (d) Chase Manhattan
Investment Holdings, Inc. ("CMIHI"), a wholly-owned subsidiary of The Chase
Manhattan Corporation.
The purchase price for the Acquisition was $249.1 million, including
existing indebtedness. The Acquisition was financed through (i) the Senior
Credit Facility, which provides term loan borrowings of $90 million and
revolving loan borrowings of up to $25 million (the "Senior Credit Facility"),
(ii) the sale of $120 million principal amount of senior subordinated increasing
rate notes of the Company (the "Bridge Notes"), and (iii) a securities purchase
agreement with the Investors providing for (a) the sale of the Preferred Stock
and warrants to purchase common stock of DPCAC for $30 million, and (b) common
stock of DPCAC for $27.5 million. The Bridge Notes and $40 million of term loan
borrowings were refinanced on March 4, 1996, with the proceeds of $160 million
of the Company's 105/8% Senior Notes due 2006 (the "Senior Notes"). As used
herein, the term "Acquisition" means the acquisition of the Company by DPCAC,
the refinancing of existing indebtedness and the payment of related fees and
expenses.
5
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THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to 1,200,000 Exchange
Shares for a like number of Old Shares. The Exchange Shares have the same
rights, preferences, qualifications and restrictions as the Old Shares except
that the Exchange Shares have been registered under the Securities Act and will
not be subject to certain transfer restrictions and are not entitled to
registration rights under the original registration rights agreement. See
"Exchange Offer; Registration Rights."
The Exchange Offer.................... The Company will issue one Exchange
Share in exchange for each Old Share.
As of the date hereof, 1,200,000 Old
Shares are issued and outstanding. The
Company will issue the Exchange Shares
to tendering holders of Old Shares
promptly after the Expiration Date.
Resale................................ The Company believes that the Exchange
Shares issued pursuant to the Exchange
Offer generally will be freely
transferable by the holders thereof
without registration or any prospectus
delivery requirement under the
Securities Act, except for certain
Restricted Holders who may be required
to deliver copies of this Prospectus in
connection with any resale of the
Exchange Shares issued in exchange for
such Old Shares. See "The Exchange
Offer--General" and "Plan of
Distribution."
Expiration Date....................... 5:00 p.m., New York City time, on
March 12, 1998, unless the Exchange
Offer is extended, in which case the
term "Expiration Date" means the latest
date to which the Exchange Offer is
extended. See "The Exchange Offer--
Expiration Date; Extensions;
Amendments."
Procedures for Tendering Old Shares... Each holder of Old Shares wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile, or an
Agent's Message (as defined herein)
along with the stock certificates
representing the Old Shares to be
exchanged and any other required
documentation to the Exchange Agent at
the address set forth herein and
therein or effect a tender of Old
Shares pursuant to the procedures for
book-entry transfer as provided for
herein. See "The Exchange Offer--
Procedures for Tendering."
Special Procedures for Beneficial
Holders............................... Any beneficial holder whose Old Shares
are registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee and who wishes to
tender in the Exchange Offer should
contact such registered holder promptly
and instruct such registered holder to
tender on the beneficial holder's
behalf. If such beneficial holder
wishes to tender directly, such
beneficial holder must, prior to
completing and executing the Letter of
Transmittal and delivering the Old
Shares, either make appropriate
arrangements to register ownership of
the Old Shares in such holder's name or
obtain a properly completed stock power
from the registered holder. The
transfer of record ownership may take
considerable time. See "The Exchange
Offer-- Procedures for Tendering."
Guaranteed Delivery Procedures........ Holders of Old Shares who wish to
tender their Old Shares and whose Old
Shares are not immediately available or
who cannot deliver their Old Shares and
a properly completed Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent prior to the
Expiration Date, or who cannot complete
6
<PAGE> 8
the procedure for book-entry transfer
on a timely basis and deliver an
Agent's Message, may tender their Old
Shares according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights..................... Tenders of Old Shares may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the business day
prior to the Expiration Date, unless
previously accepted for exchange. See
"The Exchange Offer-- Withdrawal of
Tenders."
Termination of the Exchange Offer..... The Company may terminate the Exchange
Offer if it determines that the
Exchange Offer violates any applicable
law or interpretation of the staff of
the SEC. Holders of Old Shares will
have certain rights against the Company
under the Registration Rights Agreement
should the Company fail to consummate
the Exchange Offer. See "Exchange
Offer; Registration Rights."
Acceptance of Old Shares and
Delivery of Exchange Shares........... Subject to certain conditions (as
summarized above in "Termination of the
Exchange Offer" and described more
fully in "The Exchange Offer--
Termination"), the Company will accept
for exchange any and all Old Shares
which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date.
The Exchange Shares issued pursuant to
the Exchange Offer will be delivered
promptly after the Expiration Date. See
"The Exchange Offer -- General."
Exchange Agent........................ U.S. Trust Company of Texas, N.A. is
serving as exchange agent (the
"Exchange Agent") in connection with
the Exchange Offer. The mailing address
of the Exchange Agent is: P.O. Box 841,
Cooper Station, New York, New York
10276, Attention: Corporate Trust. For
information with respect to the
Exchange Offer, the telephone number
for the Exchange Agent is (212)
420-6668, and the facsimile number for
the Exchange Agent is (212) 420-6155.
See "The Exchange Offer -- Exchange
Agent."
RISK FACTORS
Prior to making an investment decision, prospective investors in the
Preferred Shares should consider all the information set forth in this
Prospectus and should carefully evaluate the considerations set forth in "Risk
Factors."
7
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SUMMARY FINANCIAL DATA
The following table sets forth (i) summary historical financial data of the
Company prior to the Acquisition ("Predecessor") as of and for the year ended
December 31, 1994 and the nine month period ended September 30, 1995, and (ii)
summary historical financial data of the Company after the Acquisition
("Successor") as of and for the three months ended December 31, 1995, the year
ended December 31, 1996, and the nine month periods ended September 30, 1996 and
1997. The summary historical financial data as of and for the year ended
December 31, 1994 and the nine month period ended September 30, 1995 have been
derived from the audited financial statements of Predecessor. The selected
historical financial data as of and for the three months ended December 31, 1995
and the year ended December 31, 1996 have been derived from the audited
financial statements of Successor. The summary historical financial data as of
and for the nine month periods ended September 30, 1996 and 1997 have been
derived from the unaudited financial statements of Successor. The results of
operations for the three month period ended December 31, 1995 and the nine month
periods ended September 30, 1996 and 1997 are not necessarily indicative of the
results of operations of Successor for the full year. The financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto included elsewhere in this Prospectus.
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PREDECESSOR SUCCESSOR
--------------------------- --------------------------------------------------------
NINE MONTHS
ENDED THREE MONTHS NINE MONTHS NINE MONTHS
YEAR ENDED SEPTEMBER ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
--------------------------- --------------------------------------------------------
(DOLLARS IN THOUSANDS)
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INCOME STATEMENT DATA:
Net sales:
Pet food $ 328,065 $ 270,049 $ 105,301 $ 468,292 $ 334,696 $ 367,996
Non-manufactured products 30,625 18,844 4,408 24,337 15,144 25,968
Engineering 6,514 5,825 1,909 8,079 6,117 5,080
--------- --------- --------- --------- --------- ---------
Total net sales 365,204 294,718 111,618 500,708 355,957 399,044
Gross Profit 57,966 49,555 15,254 57,130 40,048 47,650
Selling expenses 11,155 8,773 3,298 14,844 10,557 12,572
General and administrative expenses 12,972 10,776 4,343 17,375 11,377 12,859
Unusual items (1) -- 9,440 -- -- -- --
Income from operations 33,839 20,566 7,613 24,911 18,114 22,219
Net income (loss) (2) 31,000 16,746 1,024 (1,518) (2,495) 3,381
Non-cash preferred stock dividends(3) -- -- 1,069 4,670 3,440 3,896
Accretion of preferred stock (4) -- -- 269 1,076 808 809
OTHER DATA:
EBITDA (5) $ 38,613 $ 33,804 $ 10,063 $ 35,264 $ 25,719 $ 30,407
Interest expense 2,597 3,707 5,926 22,687 17,173 17,090
Non recurring finance charge (6) -- -- -- 4,815 4,815 --
Depreciation and amortization 4,660 3,694 2,359 11,157 7,388 8,008
Ratio of EBITDA to interest expense -- -- 1.7x 1.6x 1.5x 1.8x
Ratio of earnings to fixed charges (7) 13.1x 5.6x 1.3x .9x .8x 1.3x
Additions to property and equipment
Maintenance 1,891 1,290 567 2,353 1,651 2,325
Expansion(8) 10,268 2,934 730 5,548 3,305 10,608
Pet food sold (thousands of tons) 942 774 288 1,189 865 896
Net cash provided by operating
activities 39,250 12,954 1,996 18,583 8,339 9,930
Net cash used in investing activities 12,368 3,677 209,346 17,398 14,301 13,987
Net cash (used in) provided by financing
activities (16,808) (20,568) 205,350 (2,735) 4,412 4,057
</TABLE>
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PREDECESSOR SUCCESSOR
---------------------- ---------------------------------------------------------------
AT DECEMBER 31, AT DECEMBER 31, AT SEPTEMBER 30,
---------------------- --------------------------------- -----------------------------
1994 1995 1996 1996 1997
---------------------- ----------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $ 35,410 $ 38,894 $ 25,578 $ 30,496 $ 29,075
Total assets.............................. 142,710 309,584 338,333 311,001 328,465
Long-term debt (including current portion) 68,436 209,738 206,603 214,150 209,810
Preferred stock (9)....................... -- 18,414 24,160 22,624 28,864
Stockholders' equity...................... 31,759 40,111 33,247 33,407 32,773
</TABLE>
- ------------------
(1) Represents nonrecurring bonus payments to senior management in connection
with the Acquisition.
(2) Net income of Predecessor does not include any provision for federal income
taxes. Prior to the Acquisition, Predecessor was organized as a subchapter
S corporation. Consequently, Predecessor did not pay federal, state or
local income taxes except in those states that did not recognize subchapter
S status or that required the payment of franchise taxes based on income.
(3) Dividends on the Preferred Stock are payable quarterly at a rate of 14.25%
per annum, accrete to the Liquidation Value and may be paid through the
issuance of additional shares of Preferred Stock on each dividend payment
date through September 30, 2000.
(4) Represents accretion of the excess of the Liquidation Value over the
carrying value of the Preferred Stock.
(5) EBITDA (earnings before interest, taxes, depreciation, amortization and
unusual item) is presented here not as a measure of operating results, but
rather as a measure of the Company's operating performance and ability to
service debt.
(6) Amount represents fees relating to the $120 million of Bridge Notes (as
hereinafter defined) associated with the Acquisition. These fees were
expensed in March 1996 in connection with the refinancing of the Bridge
Notes with proceeds from the sale of the Senior Notes.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
(including capitalized interest) on all indebtedness, amortization of
deferred financing costs and that portion of rental expense that management
believes to be representative of interest.
(8) Includes the construction of new manufacturing or distribution facilities
and expenditures to increase production capacity.
(9) The Preferred Stock had an initial liquidation preference of $30 million
and was sold as a unit with warrants to purchase shares of common stock of
DPCAC for aggregate consideration of $30 million. Approximately $12.9
million of such consideration was allocated to the value of the warrants
and is recorded as stockholders' equity.
9
<PAGE> 11
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this Prospectus
and in the documents incorporated herein by reference, including without
limitation statements under "Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
regarding the planned capital expenditures, the availability of capital
resources to fund capital expenditures, the Company's financial position,
business strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Additional
important factors that could cause actual results to differ materially from the
Company's expectations are disclosed under "Risk Factors" and elsewhere in this
Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such factors.
RISK FACTORS
In addition to the other information set forth elsewhere in this
Prospectus, the following factors should be carefully considered when evaluating
an investment in the Exchange Shares.
LEVERAGE; RESTRICTIVE COVENANTS
The Company is highly leveraged as a result of the Acquisition. At
September 30, 1997, the Company had outstanding approximately $209.8 million in
aggregate principal amount of indebtedness (excluding trade payables and other
accrued liabilities, of which $160 million was attributable to the Senior Notes,
and $44.9 million is attributable to the Senior Credit Facility, and $4.9
million was attributable to the Industrial Development Bonds (collectively, the
"Senior Indebtedness")). See "Capitalization." In addition, subject to the
restrictions in the Senior Credit Facility and the Indenture between the Company
and U.S. Trust Company of Texas, N.A., as Trustee, in connection with the
issuance of the Senior Notes (the "Indenture"), the Company may incur additional
indebtedness from time to time to finance working capital, capital expenditures
or acquisitions or for other purposes.
The level of the Company's indebtedness will have important consequences to
holders of the Preferred Shares, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes, (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures, general corporate purposes or other purposes may be restricted,
(iii) the Company's borrowings under the Senior Credit Facility are at floating
rates of interest, which could result in higher interest expense in the event of
an increase in interest rates, (iv) the Indenture and the Senior Credit Facility
contain financial and other restrictive covenants that could limit the Company's
operating and financial flexibility and, if violated, would result in an event
of default that could preclude the Company's access to credit under the Senior
Credit Facility and could otherwise have a material adverse effect on the
Company, and (v) the level of the Company's indebtedness could limit its
flexibility in reacting to changes in its industry and economic conditions
generally.
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of the assets of the Company. In addition, the Senior Credit Facility contains
other and more restrictive covenants and prohibits the Company and its
subsidiaries from prepaying other indebtedness. See "Description of Senior
Credit Facility." The Senior Credit Facility also requires the Company to
maintain specified financial ratios and satisfy certain financial condition
tests. The Company's ability to meet such financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet such tests. A breach of any of these covenants could result in
a default under the Senior Credit Facility, the Indenture, or both. Upon the
occurrence of an event of default under the Senior Credit Facility, the lenders
could elect to declare all amounts outstanding under the Senior Credit Facility,
together with accrued interest, to be immediately due and payable. If the
Company were unable to repay those amounts, the lenders could proceed against
the collateral granted to them to secure that indebtedness. If the Senior
Indebtedness were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay in full that indebtedness and the
other obligations of the Company including redemption of the Liquidation Value.
In connection with the Senior Credit Facility, the Company has pledged to the
lenders substantially
10
<PAGE> 12
all of its assets, and DPCAC has pledged all of the common stock of the Company.
If an event of default occurs under the Senior Credit Facility, the lenders have
the right to foreclose upon such collateral. These restrictions could limit the
ability of the Company to effect future financings or may otherwise restrict
corporate activities.
EFFECTIVE SUBORDINATION TO SENIOR INDEBTEDNESS
The Senior Credit Facility is secured by a first priority lien on
substantially all of the Company's assets. The Industrial Development Bonds are
secured by a first priority lien on certain real and personal property of the
Company's Miami, Oklahoma plant. The Senior Notes rank senior to the Preferred
Shares in respect of interest, repayment of principal and redemption upon
changes in control. Holders of secured indebtedness of the Company, including
the lenders under the Senior Credit Facility, will have claims with respect to
the assets constituting collateral for such indebtedness that are prior to the
claims of holders of the Preferred Shares. In the event of a default on any
Senior Indebtedness, or a bankruptcy, liquidation or reorganization of the
Company, the encumbered assets will be available to satisfy obligations with
respect to the Senior Credit Facility or the Industrial Development Bonds, as
appropriate, and any remaining assets will be available to satisfy the
obligations with respect to the Senior Notes before any payment therefrom could
be made on the Preferred Shares. Accordingly, Senior Indebtedness is effectively
senior in right of payment to the Preferred Shares. At September 30, 1997, the
Company had outstanding $204.9 million of Senior Indebtedness. In addition, as
of September 30, 1997, the Company had $16.6 million (net of $.8 million of
letters of credit outstanding) in unused secured borrowing capacity under the
Senior Credit Facility.
MANDATORY PURCHASE OF THE PREFERRED SHARES AND SENIOR NOTES
Upon a change of control, as defined in the Certificate of Designations,
Preferences and Rights of the Preferred Stock ("Preferred Stock Change of
Control"), the Company is required to offer to purchase all outstanding
Preferred Shares at a redemption price of 101% of the then Liquidation Value
plus accrued and unpaid dividends, to the date of purchase. In addition, upon a
change of control pursuant to the Indenture ("Senior Note Change of Control,"
and together with a Preferred Stock Change of Control, a "Change of Control"),
the Company is required to offer to purchase the Senior Notes at 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase. The source of funds for any such purchases will be the
Company's available cash or cash generated from operations or other sources,
including borrowings, sales of assets, sales of equity or funds provided by a
new controlling person. However, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to make any required
repurchases of Preferred Shares or Senior Notes. In addition, the Senior Credit
Facility prohibits the Company from repurchasing any Preferred Shares or Senior
Notes upon a Change of Control. The effect of such requirements may make it more
difficult to delay attempts by others to obtain control of the Company. See
"Description of the Preferred Stock." All of the outstanding shares of common
stock of the Company are owned by DPCAC, which is owned and controlled by the
Investors. Therefore, such persons will be able to control the Company,
including whether a Change of Control will occur.
DEPENDENCE ON CERTAIN CUSTOMERS
For the years ended December 31, 1994, 1995 and 1996, Wal-Mart Stores, Inc.
("Wal-Mart") and the Sam's Club division of Wal-Mart ("Sam's Club") accounted
for an aggregate of 68.9%, 67.5% and 64.9%, respectively, of the Company's net
sales. The Company does not have a long-term contract with Wal-Mart, Sam's Club
or any other customer. The Company has participated significantly in the
development of private label pet food programs for Wal-Mart and Sam's Club. The
Company has been the primary supplier of private label dry pet food products to
Wal-Mart since 1970 and has been the primary supplier of such pet food products
to Sam's Club since 1990. A significant decrease in business from either
Wal-Mart or Sam's Club would have a material adverse effect on the Company's
results of operations, financial condition and cash flows. See "Business --
Customers."
RAW MATERIALS AND PACKAGING COSTS
The Company's financial results depend to a large extent on the cost of raw
materials and packaging and the ability of the Company to pass along to its
customers increases in these costs. Historically, market prices for commodity
grains and food stocks have fluctuated in response to a number of factors,
including changes in United States government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing
11
<PAGE> 13
and harvesting seasons. Fluctuations in paper prices have resulted from changes
in supply and demand, general economic conditions and other factors. In the
event of increases in raw material costs, the Company would be required to
increase sales prices for its products in order to avoid margin deterioration.
There can be no assurance that any future sales price increases could be
successfully implemented by the Company or as to whether any price increases
implemented by the Company may affect the volumes of future shipments. See
"Business -- Raw Materials and Packaging."
COMPETITION
The pet food business is highly competitive. The companies that produce and
market the major national branded pet foods are national or international
conglomerates that are substantially larger than the Company and possess
significantly greater financial and marketing resources than the Company. The
private label pet food products sold by the Company's customers compete for
access to shelf space with national branded products on the basis of quality and
price. National branded products compete principally through advertising to
create brand awareness and loyalty, and increasingly through pricing. The
Company expects that competition from national branded manufacturers may occur
from time to time in the future. To the extent that there is significant price
competition from the national branded manufacturers or such manufacturers
significantly increase their presence in the private label market, the Company's
operating results and cash flow could be adversely affected. The Company also
competes with regional branded manufacturers and other private label
manufacturers and competes to manufacture certain products for national branded
pet food companies. See "Business -- Competition."
ENVIRONMENTAL MATTERS
The Company is subject to a broad range of federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with releases of hazardous substances.
Violations of these regulatory requirements can result in civil or criminal
penalties being levied against the Company or in a cease and desist order
against operations that are not in compliance. The Company believes that its
operations are in material compliance with environmental requirements; however,
there can be no assurance that environmental requirements will not change in the
future or that the Company will not incur significant costs in the future to
comply with environmental requirements. See "Business -- Governmental
Regulation."
CONSEQUENCES OF FAILURE TO EXCHANGE; RESTRICTIONS ON RESALE OF OLD SHARES
The Old Shares that are not exchanged for Exchange Shares in the Exchange
Offer have not been registered under the Securities Act or any state securities
laws and, unless so registered, may not be offered or sold except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. See
"Transfer Restrictions on Old Shares." The Company anticipates that the
liquidity of the market for any Old Shares remaining after the consummation of
the Exchange Offer may be substantially limited. Additionally, holders (other
than Restricted Holders) of any Old Shares not tendered in the Exchange Offer
prior to the Expiration Date will not be entitled to any registration rights,
including the ability to require the Company to file a shelf registration
statement. See "Exchange Offer; Registration Rights."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE SHARES
The Exchange Shares will be new securities for which there is currently no
trading market. The Company does not intend to apply for listing of the Exchange
Shares on any securities exchange or stock market. Although DLJSC has informed
the Company, that it intends to make a market in the Exchange Shares, DLJSC is
not obligated to do so, and any such market making may be discontinued at any
time without notice. The liquidity of any market for the Exchange Shares will
depend upon the number of holders of the Exchange Shares, the interest of
securities dealers in making a market in the Exchange Shares and other factors.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Exchange Shares, and even if a market does develop, the price at
which the holders of Exchange Shares will be able to sell such Exchange Shares
is not assured and the Exchange Shares could trade at a price above or below
either their purchase price or the Liquidation Value.
12
<PAGE> 14
PRIVATE PLACEMENT
On October 5, 1995, the Company completed the private sale to the DLJ
Affiliates and Chase Manhattan Investment Holdings, Inc. of 1,200,000 Old Shares
in a transaction not registered under the Securities Act in reliance upon
Section 4(2) of the Securities Act. In December 1997, DLJSC purchased 1,000,000
Old Shares from the DLJ Affiliates and thereupon offered and resold such Old
Shares only to "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act) in compliance with Rule 144A.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Shares offered hereby. In consideration for issuing the Exchange Shares
as contemplated in this Prospectus, the Company will receive in exchange a like
number of Old Shares, which are identical to the Exchange Shares. Accordingly,
issuance of the Exchange Shares will not result in any change in capitalization
of the Company.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (in thousands):
<TABLE>
<S> <C>
Current maturities of long-term debt ................. $ 11,354
Long-term debt, net of current maturities:
Senior Credit Facility
Term loan ................................... 25,962
Revolving loan .............................. 7,575
Senior Notes .................................... 160,000
Industrial Development Bonds (net of
construction and reserve funds) ................. 4,919
---------
Total long-term debt ................... 198,456
---------
Preferred Stock (1) .................................. 28,864
Shareholders' equity:
Common stock and additional paid-in-capital ..... 41,675
Retained earnings ............................... (8,902)
Total shareholders' equity .................. 32,773
---------
Total capitalization ................... $ 271,447
=========
</TABLE>
- ------------------
(1) The Preferred Stock had an initial aggregate liquidation preference of $30
million and was sold as a unit with warrants to purchase shares of common
stock of DPCAC for aggregate consideration of $30 million. Approximately
$12.9 million of such consideration was allocated to the value of the
warrants and is recorded as shareholders'equity.
13
<PAGE> 15
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth (i) selected historical financial data of
the Company prior to the Acquisition ("Predecessor") as of and for the year
ended December 31, 1994 and the nine month period ended September 30, 1995, and
(ii) selected historical financial data of the Company after the Acquisition
("Successor") as of and for the three months ended December 31, 1995, the year
ended December 31, 1996, and the nine month periods ended September 30, 1996 and
1997. The selected historical financial data as of and for the year ended
December 31, 1994 and the nine month period ended September 30, 1995 have been
derived from the audited financial statements of Predecessor. The selected
historical financial data as of and for the three months ended December 31, 1995
and the year ended December 31, 1996 have been derived from the audited
financial statements of Successor. The selected historical financial data as of
and for the nine month periods ended September 30, 1996 and 1997 have been
derived from the unaudited financial statements of Successor. The results of
operations for the three month period ended December 31, 1995 and the nine month
periods ended September 30, 1996 and 1997 are not necessarily indicative of the
results of operations of Successor for the full year. The financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------- ----------------------------------------------------
THREE
NINE MONTHS MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1992 1993 1994 1995 1995 1996 1996 1997
--------- --------- --------- ------------- ----------- ----------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
Pet food ............. $ 257,371 $ 304,097 $ 328,065 $ 270,049 $105,301 $ 468,292 $ 334,696 $ 367,996
Non-manufactured
products .......... 9,644 23,782 30,625 18,844 4,408 24,337 15,144 25,968
Engineering .......... 4,996 7,106 6,514 5,825 1,909 8,079 6,117 5,080
--------- --------- --------- --------- -------- --------- --------- ---------
Total net sales .. 272,011 334,985 365,204 294,718 111,618 500,708 355,957 399,044
Gross Profit .............. 51,541 55,846 57,966 49,555 15,254 57,130 40,048 47,650
Selling expenses .......... 12,915 12,900 11,155 8,773 3,298 14,844 10,557 12,572
General and administrative
expenses ............... 13,892 12,502 12,972 10,776 4,343 17,375 11,377 12,859
Unusual items (1) ......... -- -- -- 9,440 -- -- -- --
Income from operations .... 24,734 30,444 33,839 20,566 7,613 24,911 18,114 22,219
Net income (loss) (2) ..... 23,193 28,528 31,000 16,746 1,024 (1,518) (2,495) 3,381
Non-cash preferred stock
dividends(3) ........... -- -- -- -- 1,069 4,670 3,440 3,896
Accretion of preferred
stock (4) .............. -- -- -- -- 269 1,076 808 809
OTHER DATA:
EBITDA (5) ................ $ 29,116 $ 35,103 $ 38,613 $ 33,804 $ 10,063 $ 35,264 $ 25,719 $ 30,407
Interest expense ..... 1,101 1,773 2,597 3,707 5,926 22,687 17,173 17,090
Non recurring finance
charge (6) ............. -- -- -- -- -- 4,815 4,815 --
Depreciation and
amortization ........... 4,434 4,526 4,660 3,694 2,359 11,157 7,388 8,008
Ratio of EBITDA to
interest expense ....... -- -- -- -- 1.7x 1.6x 1.5x 1.8x
Ratio of earnings to fixed
charges (7) ............ 22.4x 17.2x 13.1x 5.6x 1.3x .9x .8x 1.3x
Additions to property
equipment
Maintenance .......... 1,059 1,888 1,891 1,290 567 2,353 1,651 2,325
Expansion(8) ......... 5,356 2,231 10,268 2,934 730 5,548 3,305 10,608
Pet food sold (thousands
of tons) ............... 759 897 942 774 288 1,189 865 896
Net cash provided by
operating activities ... 28,450 25,820 39,250 12,954 1,996 18,583 8,339 9,930
Net cash used in investing
activities ............. 5,519 4,070 12,368 3,677 209,346 17,398 14,301 13,987
Net cash (used in) provided (26,147) (17,768) (16,808) (20,568) 205,350 (2,735) 4,412 4,057
by financing activities
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------- ----------------------------------------------
AT DECEMBER 31, AT DECEMBER 31, AT SEPTEMBER 30,
----------------------------------- -------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- --------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 24,175 $ 31,194 $ 35,410 $ 38,894 $ 25,578 $ 30,496 $ 29,075
Total assets............................... 101,743 117,962 142,710 309,584 338,333 311,001 328,465
Long-term debt (including current portion) 33,823 32,776 68,436 209,738 206,603 214,150 209,810
Preferred Stock (9)........................ -- -- -- 18,414 24,160 22,624 28,864
Stockholders' equity....................... 41,420 50,148 31,759 40,111 33,247 33,407 32,773
</TABLE>
- ------------------------------------
(1) Represents nonrecurring bonus payments to senior management in connection
with the Acquisition.
(2) Net income of Predecessor does not include any provision for federal income
taxes. Prior to the Acquisition, Predecessor was organized as a subchapter
S corporation. Consequently, Predecessor did not pay federal, state or
local income taxes except in those states that did not recognize subchapter
S status or that required the payment of franchise taxes based on income.
(3) Dividends on the Preferred Stock are payable quarterly at a rate of 14.25%
per annum, accrete to the Liquidation Value and may be paid through the
issuance of additional shares of Preferred Stock on each dividend payment
date through September 30, 2000.
(4) Represents accretion of the excess of the Liquidation Value over the
carrying value of the Preferred Stock.
(5) EBITDA (earnings before interest, taxes, depreciation, amortization and
unusual item) is presented here not as a measure of operating results, but
rather as a measure of the Company's operating performance and ability to
service debt.
(6) Amount represents fees relating to the $120 million of Bridge Notes (as
hereinafter defined) associated with the Acquisition. These fees were
expensed in March 1996 in connection with the refinancing of the Bridge
Notes with proceeds from the sale of the Senior Notes.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
(including capitalized interest) on all indebtedness, amortization of
deferred financing costs and that portion of rental expense that management
believes to be representative of interest.
(8) Includes the construction of new manufacturing or distribution facilities
and expenditures to increase production capacity.
(9) The Preferred Stock had an initial liquidation preference of $30 million
and was sold as a unit with warrants to purchase shares of common stock of
DPCAC for aggregate consideration of $30 million. Approximately $12.9
million of such consideration was allocated to the value of the warrants
and is recorded as stockholders' equity.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives substantially all of its revenue from the sale of dry
pet food products. The Company generally prices its pet food products based on
the cost of raw materials and packaging and certain other costs plus a
conversion charge (which includes a profit factor). The Company periodically
adjusts prices based on fluctuations in raw material and packaging costs. There
is often a lag between the timing of changes in costs and changes in sales
prices.
Variable costs comprise a majority of the Company's pet food cost of goods
sold. Historically, approximately 85% to 90% of pet food cost of goods sold was
comprised of raw material and packaging costs with labor, insurance, utilities
and depreciation comprising the remainder. As a result, volatility in
marketplaces for certain commodity grains and food stocks used in the Company's
production process can have a significant impact on the profitability of the
Company. In periods of significant commodity price increases, the Company is
required to increase sales prices for its products in order to avoid margin
deterioration. However, there can be no assurance that any future sales price
increases could be successfully implemented by the Company or as to whether any
price increases implemented by the Company might affect the volumes of future
shipments. To mitigate the potential impact of commodity price swings, the
Company hedges certain product commitments using forward exchange contracts.
Unrealized gains and losses on commodity futures contracts are generally
deferred and included in the basis of the product received. The forward exchange
contracts have varying maturities, with none generally exceeding twelve months.
Unrealized losses of $1.0 million were deferred on outstanding contracts at
September 30, 1997.
Operating expenses are comprised of selling, general and administrative
expenses. Selling expenses are primarily (a) brokerage fees, (b) promotions,
volume incentive discounts and rebates paid to customers, and (c) salaries and
fringe benefits for sales personnel. A significant portion of the Company's
general and administrative expenses are relatively fixed. As a result, these
expenses typically do not increase proportionately with increases in volume and
product sales.
Sales of non-manufactured products include sales of cat litter, canned pet
products and pet treats produced by third parties. The Company receives these
items at its manufacturing facilities and warehouses and aggregates them with
the Company's products for combined shipment to certain customers. The Company
provides this service as part of its direct shipment program.
The Company's sales are somewhat seasonal. The Company typically
experiences an increase in net sales during the first and fourth quarters of
each year, as is typical in the pet food industry. The seasonality of the pet
food business is generally attributable to cooler weather, which results in
increased dog food consumption.
Prior to the Acquisition, the Company was organized as a subchapter S
corporation. Consequently, the Company did not pay federal, state or local
income taxes except in those states that did not recognize subchapter S status
or that required payment of franchise taxes.
The financial statements for the three months ended December 31, 1995, the
year ended December 31, 1996, and the nine months ended September 30, 1997 are
presented on Successor's new basis of accounting, while the financial statements
for the nine months ended September 30, 1995 and prior periods are presented on
the Predecessor's historical cost basis of accounting. The principal differences
between the financial statements for Predecessor and for Successor are
Successor's financial statements have increased debt expense, new depreciable
basis, goodwill and corporate level taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, capital expenditures
and working capital requirements from cash flow from operations, bank borrowings
and industrial development bonds. The Company had working capital of $29.1
million at September 30, 1997. Net cash provided by operating activities was
$39.3 million, $15.0 million, $18.6 million and $9.9 million for the year ended
December 31, 1994, for the twelve month period ended December 31, 1995, for the
year ended December 31, 1996 and for the nine months ended September 30, 1997,
respectively. Net cash
16
<PAGE> 18
provided by (used in) borrowings was approximately $35.7 million, $140.4
million, ($3.1) million and $3.2 million, respectively, for such periods.
Historically, principal uses of cash have been stockholder dividends,
capital expenditures and working capital. During the three year period ended
December 31, 1996, the Company spent $25.6 million on capital expenditures, of
which $19.5 million was used to construct additional manufacturing capacity,
including a new manufacturing facility and four new production lines in existing
facilities, and $6.1 million was used to maintain existing manufacturing
facilities. During the nine months ended September 30, 1997, the Company spent
$12.9 million on capital expenditures, of which $10.6 million was used for
expansion, including (a) the acquisition (in February 1997), renovation and
equipping of the Everson, Pennsylvania facility, (b) the construction of a new
manufacturing facility for the production of treats in Miami, Oklahoma, which
commenced operations on August 12, 1997 and (c) the addition of a biscuit line
to the Washington Court House facility. The Company financed the Miami, Oklahoma
facility through the issuance on March 12, 1997 of $6.0 million of Industrial
Development Bonds, which are secured by a mortgage lien and security interest on
certain real and personal property. The Industrial Development Bonds were
recorded at $4.9 million at September 30, 1997, which was net of undrawn amounts
and construction and reserve funds.
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 Senior Notes, the
Company is highly leveraged and has significantly increased cash requirements
for debt service relating to the Senior Credit Facility and the Senior Notes.
The Company's ability to borrow is limited by the Senior Credit Facility and the
limitations on the incurrence of indebtedness under the 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 1998 calendar year.
In connection with the Acquisition, the Company entered into the Senior
Credit Facility with a syndicate of lenders led by Mercantile Bank providing for
term loan borrowings of $90.0 million (the "Term Loan Facility") and a revolving
credit facility of $25.0 million (the "Revolving Credit Facility") that the
Company uses for working capital and capital expenditures. Approximately $84.3
million of the Term Loan Facility was advanced to the Company at the time of the
Acquisition, $1.8 million was advanced on December 29, 1995 to repay certain
industrial development bonds and an additional $3.1 million was advanced in 1996
to redeem additional industrial development bonds. The Senior Credit Facility
was amended on February 28, 1996 to modify, among other things, certain
covenants, the maturity date and the repayment schedule. In conjunction with
such amendment, the Company repaid $40 million in principal amount of term loan
borrowings with a portion of the proceeds of the sale of the Senior Notes. The
Senior Credit Facility was also amended on June 28, 1996 and March 31, 1997 to
modify certain financial covenants.
Mandatory repayments under the Term Loan Facility, as amended, are required
to be made on a quarterly basis. Such repayments commenced on September 30,
1996, with two quarterly payments of $2.1 million having been paid in 1996, and
quarterly payments of $2.6 million having been paid in 1997. The quarterly
payments will increase to $2.9 million per quarter in 1998 and 1999, and $3.7
million in the first two quarters of 2000 with the balance due in September
2000. In addition, the Company is required to make annual payments equal to a
specified percentage of cash flow based on certain levels of indebtedness. The
Term Loan Facility and the Revolving Credit Facility mature on September 30,
2000. The Company is required to make payments under the Revolving Credit
Facility sufficient to reduce total amounts outstanding under the Revolving
Credit Facility to specified levels for 30 consecutive days in each year.
Substantially all of the Company's assets are pledged to secure the performance
of the Company's obligations under the Senior Credit Facility.
At September 30, 1997, the Company had borrowing capacity in the amount of
$16.6 million under the Revolving Credit Facility, which was net of $.8 million
for outstanding letters of credit. Long term debt outstanding at September 30,
1997 consisted primarily of $160.0 million Senior Notes, the Term Loan Facility
in the amount of $37.3
17
<PAGE> 19
million, the Revolving Credit Facility in the amount of $7.6 million and
Industrial Development Bonds in the net amount of $4.9 million.
RESULTS OF OPERATIONS
The following discussion is based on the historical financial statements
included elsewhere in this Prospectus. The results for the three months ended
December 31, 1995, the year ended December 31,1996, the nine months ended
September 30, 1996 and the nine months ended September 30, 1997 reflect the
Acquisition, which has been accounted for using the purchase method of
accounting. The total purchase price of $249.1 million, including existing
indebtedness (exclusive of fees and expenses of approximately $13.0 million),
was allocated to the assets and liabilities acquired based upon their respective
fair values. As a result, beginning October 1, 1995, the Company recorded
expenses for depreciation and amortization significantly in excess of historical
levels recorded by the Predecessor. In addition, 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 in
connection with the Senior Credit Facility, the Bridge Notes and the Shares.
The historical combined results of operations of the Company for the twelve
month period ended December 31, 1995, the year ended December 31, 1996 and the
nine month periods ended September 30, 1996 and 1997 are not directly comparable
to the results of operations of Predecessor due to the effects of the
Acquisition.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------- ----------------------------
THREE MONTH COMBINED TWELVE
NINE MONTH PERIOD MONTH PERIOD
YEAR ENDED PERIOD ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER DECEMBER 31,
1994 1995 31, 1995 1995
--------------- ------------ ------------ ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales .......................... $365.2 100.0% $294.7 $111.6 $406.3 100.0%
Cost of sales ...................... 307.2 84.1 245.1 96.4 341.5 84.0
------ ------ ------ ------ ------ ------
Gross profit ....................... 58.0 15.9 49.6 15.2 64.8 15.9
Operating expenses:
Selling ......................... 11.2 3.1 8.8 3.3 12.1 3.0
General and administrative....... 13.0 3.6 10.8 4.3 15.1 3.7
Unusual item .................... -- -- 9.4 -- 9.4 2.3
------ ------ ------ ------ ------ ------
Total operating
expenses ................ 24.2 6.7 29.0 7.6 36.6 9.0
Income from operations ............. 33.8 9.2 20.6 7.6 28.2 6.9
Interest expense ................... 2.6 0.7 3.7 5.9 9.6 2.4
Non-recurring finance charge ....... -- -- -- -- -- --
Other expense (income) ............. (0.1) 0.0 (0.1) (0.1) (0.2) 0.0
------ ------ ------ ------ ------ ------
Income before taxes ................ 31.3 8.5 17.0 1.8 18.8 4.6
Provision for income taxes ......... 0.4 0.1 0.2 0.8 1.0 0.0
------ ------ ------ ------ ------ ------
Net income (loss)(1) ............... $ 30.9 8.4% $ 16.8 $ 1.0 $ 17.8 4.4%
====== ======= ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------------------------------
NINE MONTH NINE MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
-------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales ....................... $500.7 100.0% $356.0 100.0% $399.0 100.0%
Cost of sales ................... 443.6 88.6 316.0 88.8 351.4 88.1
------ ------ ------ ------ ------ ------
Gross profit .................... 57.1 11.4 40.0 11.2 47.6 11.9
Operating expenses:
Selling ...................... 14.8 2.9 10.5 2.9 12.6 3.2
General and administrative ... 17.4 3.5 11.4 3.2 12.8 3.2
Unusual item ................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total operating expenses .. 32.2 6.4 21.9 6.1 25.4 6.4
Income from operations .......... 24.9 5.0 18.1 5.1 22.2 5.5
Interest expense ................ 22.7 4.5 17.2 4.8 17.1 4.3
Non-recurring finance charge .... 4.8 0.9 4.8 1.3 -- --
Other expense (income) .......... (0.2) 0.0 (.2) 0.0 (0.2) 0.0
------ ------ ------ ------ ------ ------
Income before taxes ............. (2.4) (0.4) (3.7) (1.0) 5.3 1.2
Provision for income taxes ...... (0.9) (0.1) (1.2) (0.3) 1.9 .5
------ ------ ------ ------ ------ ------
Net income (loss)(1) ............ ($ 1.5) (0.3%) $ (2.5) (0.7%) $ 3.4 0.7%
====== ====== ====== ====== ====== ======
</TABLE>
- ----------
(1) For Predecessor, net income does not include any provision for federal
income taxes.
Nine Month Period Ended September 30, 1997 Compared to Nine Month Period Ended
September 30, 1996
The following table sets forth the Company's net sales for each sales
component and gross profit for the nine month periods ended September 30, 1997
and September 30, 1996:
<TABLE>
<CAPTION>
NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED %
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 CHANGE
------------------- ------------------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Pet food ..................... $334.7 $368.0 9.9%
Non-manufactured products .... 15.2 25.9 70.4
Engineering products ......... 6.1 5.1 (16.4)
------ ------ -----
Total .................... $356.0 $399.0 12.1%
====== ====== ====
Gross Profit ...................... $ 40.0 $ 47.6 19.0%
====== ====== ====
</TABLE>
18
<PAGE> 20
Net Sales. Net sales for the nine months ended September 30, 1997 increased
12.1% to $399.0 million from $356.0 million for the same period in 1996. Pet
food net sales for the same periods increased 9.9% to $368.0 million from $334.7
million. Of this amount, approximately 3.8% was due to increases in tons sold,
and the balance was principally the result of price increases implemented in
late 1996 to mitigate increases in raw material costs that occurred throughout
1996. Net sales of non-manufactured products for the same periods increased
70.4% to $25.9 million from $15.2 million due to distribution of additional
products. Engineering products net sales for the same periods decreased 16.4% to
$5.1 million from $6.1 million due to the focusing of the Company's efforts on
its projects at Everson, Pennsylvania, Washington Court House, Ohio and Miami,
Oklahoma.
Gross profit. Gross profit for the nine months ended September 30, 1997
increased 19.0% to $47.6 million from $40.0 million for the same period in 1996.
Of this amount, 13.0% represents improvements in pet food margins due to the
aforementioned price increases and some reduction in the cost of certain raw
materials in the latter part of the nine month period ended September 30, 1997.
The balance of the gross profit improvement is principally attributable to the
additional non-manufactured products. Gross profit increased as a percentage of
net sales to 11.9% for the nine months ended September 30, 1997 from 11.2% for
the nine months ended September 30, 1996.
Operating expenses. Operating expenses for the nine months ended September
30, 1997 increased to $25.4 million (6.4% of net sales) from $21.9 million (6.1%
of net sales) for the same period in 1996 due to (i) increases in salaries and
related fringe benefits and (ii) increases in sales promotions, volume incentive
discounts and brokerage costs resulting from increased pet food tons sold.
Income from operations. Income from operations for the nine months ended
September 30, 1997 increased 22.7% to $22.2 million from $18.1 million for the
same period in 1996. Income from operations as a percentage of net sales
increased to 5.5% from 5.1% for the same period in 1996, due to the improved pet
food and non-manufactured products margins.
Interest expense. Interest expense decreased to $17.1 million for the nine
months ended September 30, 1997 from $17.2 million for the same period in 1996.
Interest expense reductions resulting from payments on the Term Loan Facility
were largely offset by additional interest expense on proceeds from the
Industrial Development Bonds that were used to finance the construction of the
new Miami, Oklahoma facility. For the nine months ended September 30, 1997,
interest expense as a percentage of net sales decreased to 4.3% from 4.8% for
the same period in 1996.
Net income. Net income for the nine months ended September 30, 1997
increased to $3.4 million from a net loss of $2.5 million for the same period in
1996, primarily as a result of increased pet food and non-manufactured products
margins.
Year Ended December 31, 1996 Compared to Combined Twelve Month Period Ended
December 31, 1995
The following table sets forth the Company's net sales for each sales
component and gross profit for the year ended December 31, 1996 and the combined
twelve month period ended December 31, 1995:
<TABLE>
<CAPTION>
COMBINED TWELVE
MONTH PERIOD ENDED YEAR ENDED %
DECEMBER 31, 1995 DECEMBER 31, 1996 CHANGE
--------------------- ------------------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Pet food .......................... $375.4 $468.3 24.7%
Non-manufactured products ......... 23.2 24.3 4.7
Engineering products .............. 7.7 8.1 5.2
------ ------ -----
Total ......................... $406.3 $500.7 23.2%
====== ====== =====
Gross Profit ........................... $ 64.8 $ 57.1 (11.9)%
====== ====== =====
</TABLE>
Net sales. Net sales in 1996 increased 23.2% to $500.7 million from $406.3
million in the twelve month period ended December 31, 1995. Pet food net sales
increased 24.7% to $468.3 million in 1996 from $375.4 million in the twelve
month period ended December 31, 1995. This increase was primarily due to a 12.0%
increase in tons sold, of which 2.2% represented new business, and price
increases implemented throughout the year in response to higher raw material
costs. Net sales of non-manufactured products increased 4.7% in 1996 to $24.3
million due to distribution of additional items. Engineering net sales increased
5.2% in 1996 to $8.1 million.
19
<PAGE> 21
Gross profit. Gross profit for 1996 was negatively impacted by increases in
the costs of most raw materials. The cost increases were partially offset by an
increase in tons of pet food sold and price increases implemented throughout the
year. Gross profit for 1996 was also negatively impacted by $1.9 million due to
increased depreciation resulting from the write-up of assets in connection with
the Acquisition. Gross profit as a percentage of net sales for the periods
declined from 15% for 1995 to 11.4% for 1996, primarily due to decreased margins
on pet food sales.
Operating expenses. Operating expenses decreased 12.0% to $32.2 million in
1996 from $36.6 million in the twelve month period ended December 31, 1995. This
was due primarily to the nonrecurrence in 1996 of $9.4 million of unusual
expenses recorded as of September 30, 1995 in connection with the Acquisition.
Selling expenses increased to $14.8 million in 1996 from $12.1 million in the
twelve month period ended December 31, 1995. This increase was primarily
attributable to a $1.9 million increase in promotions, volume incentive
discounts, rebates and brokerage fees resulting from increased pet food tons
sold. General and administrative expenses increased to $17.4 million in 1996
from $15.1 million in the twelve month period ended December 31, 1995, primarily
due to additional depreciation and amortization expenses in the amount of $2.6
million incurred in connection with the Acquisition. Operating expenses as a
percentage of net sales decreased to 6.4% from 9.0% in the twelve month period
ended December 31, 1995.
Income from operations. Income from operations decreased 11.7%, or $3.3
million, to $24.9 million in 1996 from $28.2 million in the twelve month period
ended December 31, 1995. Income from operations as a percentage of net sales
decreased to 5.0% in 1996 from 6.9% in the twelve month period ended December
31, 1995, primarily as a result of lower pet food margins and increased
depreciation and amortization expense.
Nonrecurring charge. In the year ended December 31, 1996, $4.8 million in
nonrecurring interim debt financing costs was written off concurrent with the
issuance of the Shares.
Interest expense. Interest expense increased to $22.7 million in 1996 from
$9.6 million in the twelve month period ended December 31, 1995 due to the debt
incurred to finance the Acquisition.
Net income. Net income (loss) decreased to $(1.5) million in 1996 from
$17.8 million in the twelve month period ended December 31, 1995, as a result of
lower pet food margins, increased interest, depreciation and amortization
expenses and nonrecurring financing fees.
Combined Twelve Month Period Ended December 31, 1995 Compared to Year Ended
December 31, 1994
The following table sets forth the Company's net sales for each sales
component and gross profit for the combined twelve month period ended December
31, 1995 and the year ended December 31, 1994:
<TABLE>
<CAPTION>
COMBINED TWELVE MONTH
YEAR ENDED PERIOD ENDED %
DECEMBER 31, 1994 DECEMBER 31, 1995 CHANGE
--------------------- ----------------------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Pet food................................. $ 328.1 $ 375.4 14.4%
Non-manufactured products................ 30.6 23.2 (24.2)
Engineering products..................... 6.5 7.7 18.5
--------- ---------- -----
Total................................ $ 365.2 $ 406.3 11.3%
========= ========== =====
Gross Profit.................................. $ 58.0 $ 64.8 11.7%
========= ========== =====
</TABLE>
Net sales. Net sales in the twelve month period ended December 31, 1995
increased 11.3% to $406.3 million from $365.2 million in 1994. Pet food net
sales increased 14.4% to $375.4 million in the twelve month period ended
December 31, 1995 from $328.1 million in 1994. This increase was primarily due
to a 12.7% increase in pet food tons sold and price increases implemented in the
last three months of 1995 in response to higher raw material costs. Net sales of
non-manufactured products decreased 24.2% in the twelve month period ended
December 31, 1995 due to the discontinuation of selected products. Engineering
net sales increased 18.5% in the twelve month period ended December 31, 1995 to
$7.7 million primarily due to increased sales for export.
Gross profit. Gross profit for the twelve month period ended December 31,
1995 increased 11.7% to $64.8 million from $58.0 million in 1994. The increase
was primarily due to the increase in pet food tons sold. Gross profit for the
twelve month period ended December 31, 1995 was negatively impacted by $280,000
due to increased depreciation
20
<PAGE> 22
resulting from the write-up of assets in connection with the Acquisition. Gross
profit as a percentage of net sales for the periods was approximately equal.
Operating expenses. Operating expenses increased to $36.6 million in the
twelve month period ended December 31, 1995 from $24.2 million in 1994. This was
due primarily to the incurrence of $9.4 million of unusual expenses recorded as
of September 30, 1995 in connection with the Acquisition. Selling expenses
increased to $12.1 million in 1995 from $11.2 million in 1994. This increase was
attributable to a $0.9 million increase in promotions, volume incentive
discounts and rebates resulting from increased pet food tons sold. General and
administrative expenses increased to $15.1 million in the twelve month period
ended December 31, 1995 from $13.0 million in 1994 primarily due to increased
depreciation and amortization expense in the three months ended December 31,
1995 resulting from the Acquisition, increases in quality control and pension
plan expenses during 1995. Operating expenses as a percentage of net sales
increased to 9% from 6.7% in 1994.
Income from operations. Income from operations decreased 16.6%, or $5.6
million, to $28.2 million in the twelve month period ended December 31, 1995
from $33.8 million in 1994. This decrease was the result of the $9.4 million
unusual item and approximately $1 million of incremental depreciation and
amortization expense recorded in the three month period ended December 31, 1995
in connection with the Acquisition. Excluding the unusual item, income from
operations would have increased by $3.8 million. Income from operations as a
percentage of net sales decreased to 6.9% from 9.2% in 1994 as a result of the
unusual item and increased depreciation and amortization expense resulting from
the Acquisition.
Interest expense. Interest expense increased to $9.6 million in the twelve
month period ended December 31, 1995 from $2.6 million in 1994 due to the debt
incurred in the three months ended December 31, 1995 to finance the Acquisition.
Net income. Net income decreased to $17.8 million in the twelve month
period ended December 31, 1995 from $30.9 million in 1994 as a result of the
$9.4 million unusual item and increased interest expense and depreciation and
amortization expense resulting from the Acquisition.
21
<PAGE> 23
BUSINESS
THE COMPANY
The Company is the second largest producer of dry pet food products in the
United States, accounting for approximately 22% of the total volume of such
products in 1996, and is the largest producer of private label dry pet food in
the United States. The Company produces, markets and distributes a wide
selection of dry pet food products under private labels for approximately 300
customers, including mass merchandisers, membership clubs, national and regional
grocery chains, speciality pet store chains, farm and feed store chains, and
grocery and feed mill wholesalers and cooperatives. The Company also
manufactures branded pet food products for national pet food companies in
accordance with customer specifications and standards. In addition, the Company
remarkets non-manufactured pet products, manufactures and sells pet food
production equipment and parts, and fabricates other steel products to customer
specifications. The Company manufactures and distributes its pet food products
utilizing thirteen manufacturing and warehouse facilities and three additional
distribution warehouse facilities, all of which are located in proximity to
customers, raw materials and transportation networks.
The Company recently completed a new manufacturing and warehouse facility
in Miami, Oklahoma that was financed through the issuance in March 1997 of the
Industrial Development Bonds. The new facility produces, packages, stores and
distributes pet food treats.
THE ACQUISITION
On October 5, 1995, the Company was acquired through the merger of DPC
Subsidiary Acquisition Corp. with and into the Predecessor, which immediately
merged with and into the Company (formerly known as DPC Transition Corp.), with
the Company being the surviving entity. Immediately following such mergers, DPC
Transition Corp. changed its name to Doane Products Company. DPC Subsidiary
Acquisition Corp. and DPC Transition Corp. were both newly organized Delaware
corporations formed for the sole purpose of effecting the Acquisition.
The Company is a wholly-owned subsidiary of DPCAC, which was formed by the
Investors to acquire the Company. The Investors included (a) certain members of
the Company's management, (b) Summit, (c) DLJMB, and (d) CMIHI.
The purchase price for the Acquisition was $249.1 million, including
existing indebtedness. The Acquisition was financed through (i) the Senior
Credit Facility, which provides term loan borrowings of $90 million and
revolving loan borrowings of up to $25 million, (ii) the sale of $120 million
principal amount of Bridge Notes, and (iii) a securities purchase agreement with
the Investors providing for (a) the sale of the Preferred Stock and warrants to
purchase common stock of DPCAC for $30 million, and (b) common stock of DPCAC
for $27.5 million. The Bridge Notes and $40 million of term loan borrowings were
refinanced on March 4, 1996, with the proceeds of the $160 million of Senior
Notes.
GENERAL
The Company manufactures and distributes its pet food products utilizing
thirteen manufacturing and warehouse facilities and three additional
distribution warehouse facilities, all of which are located in proximity to
customers, raw materials and transportation networks. This network of
manufacturing and warehouse facilities reduces freight costs for raw materials
and finished goods and facilitates direct store shipment programs. Since 1987,
the Company has constructed seven new manufacturing and warehouse facilities,
purchased and renovated an existing facility, and renovated or expanded most of
its other manufacturing and warehouse facilities. In constructing and renovating
such facilities the Company utilizes in-house capabilities for the design,
manufacture, installation and repair of its pet food manufacturing equipment,
thereby reducing capital costs and start up times for plant construction and
renovation.
The Company has been a major supplier of private label dry pet food
products to Wal-Mart since 1970 and to Sam's Club since 1990. The Company
utilizes a computerized order and distribution system to ship product directly
from the Company's manufacturing and warehouse facilities to most domestic
Wal-Mart stores, a majority of which are located within 250 miles of the
Company's facilities. The Company's direct ship program, which reduces customer
inventory, handling and warehouse expenses, is enhanced by the location and
number of the Company's facilities. The Company also offers direct shipment
programs to, and utilizes electronic data interchange systems with, other
customers, and
22
<PAGE> 24
believes that its experience with such programs and systems is an important
competitive factor that has allowed it to attract new customers and increase
sales to existing customers.
PRODUCTS AND SERVICES
The Company's primary product is dry pet food, which generated
approximately 90%, 92%, 93% and 92% of the Company's total net sales in 1994,
1995, 1996 and the nine months ended September 30, 1997, respectively.
Non-manufactured products generated approximately 8%, 6%, 5% and 6% of the
Company's total net sales in 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively. The Company's engineering services group
generated 1% to 2% of the Company's net sales in each of such years.
Dry Pet Food Products. The Company produces, markets and distributes a wide
selection of high quality dry pet food products, predominantly for dogs and
cats. The Company manufactures dry pet food under approximately 200 different
private labels and also manufactures various branded products for national pet
food companies. The dog food product lines have accounted for the largest
portion of the Company's dry pet food shipments. Such shipments, excluding
biscuits, represented approximately 86%, 85%, 84% and 84% of the Company's dry
pet food shipments (tonnage) in 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively. The Company's cat food product lines accounted
for approximately 11%, 12%, 12% and 12% of the Company's dry pet food shipments
(tonnage) in 1994, 1995, 1996 and the nine months ended September 30, 1997,
respectively.
Non-Manufactured Products. Non-manufactured products include cat litter,
canned pet products and pet treats produced by third parties. The Company
receives these items at its facilities and aggregates them with the Company's
manufactured products for combined shipment to certain customers. The Company
provides this service as a part of its direct shipment program.
Engineering Services Group. The Company generally utilizes its in-house
engineering services group to design and supervise plant construction with the
objective of reducing construction costs and ensuring quality control. The
Company also designs and builds extruders, conveyors, dryers and other parts and
equipment, including replacement parts, for pet food manufacturing facilities of
the Company and third parties. The engineering services group includes a repair
staff to provide machinery and equipment service and repair at the Company's
production facilities and reduce production downtime.
SEASONALITY OF PET FOOD
The Company's sales are somewhat seasonal. The Company typically
experiences an increase in net sales during the first and fourth quarters of
each year, as is typical in the pet food industry. The seasonality of the pet
food business is generally attributable to cooler weather, which results in
increased dog food consumption.
SALES AND DISTRIBUTION
The Company's direct sales force seeks new accounts and negotiates with
mass merchandisers, membership clubs, feed stores and specialty pet stores. The
Company generally uses independent food brokers in obtaining business from
grocery stores. The Company also seeks to generate new business through the
expansion of its product lines and the development of new marketing programs to
existing customers.
The Company does not own or operate any transportation equipment. Most of
the Company's products are distributed utilizing its customers' transportation
networks. Several of the Company's largest customers utilize the Company as a
"just-in-time" supplier and maintain trailers at the Company's manufacturing and
distribution facilities. The trailers are loaded and shipped either directly to
individual stores or to customers' distribution centers. Customers not utilizing
their own fleets either arrange their own transportation or have the Company
arrange transportation on a contract basis through common carriers.
CUSTOMERS
The Company produces, markets and distributes a wide selection of dry pet
food products under private labels for approximately 300 customers, including
mass merchandisers, membership clubs, national and regional grocery chains,
specialty pet store chains, farm and feed store chains, and grocery and feed
mill wholesalers and cooperatives. The
23
<PAGE> 25
Company also manufactures branded pet food products for national pet food
companies in accordance with customer specifications and standards. In addition,
the Company remarkets non-manufactured pet products, manufactures and sells pet
food production equipment and parts, and fabricates other steel products to
customer specifications.
In 1996, Wal-Mart and Sam's Club accounted for 64.9% of the Company's net
sales. The Company has been a major supplier of private label dry pet food
products to Wal-Mart since 1970 and to Sam's Club since 1990. A portion of the
Company's sales to Wal-Mart and other customers is attributable to branded pet
food products manufactured and distributed by the Company for national pet food
companies. The Company utilizes a computerized order and distribution system to
ship product directly to most domestic Wal-Mart stores, a majority of which are
located with 250 miles of the Company's facilities.
The Company generally does not have written contracts with its customers.
The loss of any significant customer, or customers, which in the aggregate
represent a significant portion of the Company's sales, would have an adverse
impact on the Company's operating results and cash flows.
COMPETITION
The pet food business is highly competitive. The companies that produce and
market the major national branded pet foods are national or international
conglomerates that are substantially larger than the Company and possess
significantly greater financial and marketing resources than the Company. The
private label pet food products sold by the Company's customers compete for
access to shelf space with national branded products on the basis of quality and
price. National branded products compete principally through advertising to
create brand awareness and loyalty, and increasingly through pricing. The
Company expects that price competition from national branded manufacturers may
occur from time to time in the future. To the extent that there is significant
price competition from the national branded manufacturers or such manufacturers
significantly increase their presence in the private label market, the Company's
operating results and cash flow could be adversely affected. The Company also
competes with regional branded manufacturers and other private label
manufacturers and competes to manufacture certain products for national branded
pet food companies.
RAW MATERIALS AND PACKAGING
The principal raw materials required for the Company's manufacturing
operations are bulk commodity grains and food stocks, including corn, soybean
meal, wheat middlings, meat and bone meal, and corn gluten meal. The Company
generally purchases raw materials one to three months in advance. The Company
generally purchases the raw material requirements of each of its manufacturing
facilities locally due to the high freight cost of transporting bulk commodity
products. As a result, raw material costs may vary substantially among
manufacturing facilities due to local supply and demand and varying freight
costs. Raw materials are generally purchased from large national commodity
companies and local grain cooperatives. The Company does not maintain long-term
contracts with any of its suppliers.
Packaging is a material component of the Company's raw material costs. The
Company has four main suppliers of packaging. The Company has no long term
contracts with any of its packaging suppliers.
The Company's raw material costs fluctuate, sometimes rapidly and
significantly. Generally, the Company prices its pet food products based on the
costs of raw materials and certain other costs plus a conversion charge (which
includes a profit factor). The Company periodically adjusts its product prices
based upon fluctuations in raw material costs. However, the Company's customers
generally discourage frequent changes in prices, and there is often a lag
between raw material cost fluctuations and adjustments in sales prices. In the
short-term and particularly in the event of rapid or significant short-term cost
fluctuations, the prices at which the Company sells its products may not fully
reflect cost fluctuations. There can be no assurance as to the timing or extent
of the Company's ability to implement future price adjustments in the event of
significantly increased raw material costs. The Company's recent experience has
been that it has not been able entirely or immediately to pass through such cost
increases to its customers.
The availability and price of agricultural commodities are subject to price
fluctuations that create price risk. It is the Company's intent to manage the
price risk created by market fluctuations by hedging portions of its primary
commodity products purchases, principally through exchange traded futures and
options contracts that are designated as hedges. The terms of such contracts are
generally less than one year. Settlement of positions are either through
24
<PAGE> 26
financial settlement with the exchanges or via exchange for the physical
commodity, in which case the Company delivers the contract against the
acquisition of the physical commodity.
The Company's policy does not permit speculative commodity trading. Futures
and options contracts are accounted for as hedges, and gains and losses are
recognized in the period realized as part of the cost of products sold and in
the cash flows. The deferred net futures and options position is reported on the
balance sheet as a current asset for net loss positions and as a deferred credit
for net gain positions. In addition to futures and options, the Company also
contracts for future physical procurement, in which case unrealized gains and
losses are deferred to the applicable accounting period. Typically, maturities
vary and do not exceed twelve months.
There can be no assurance that advance purchasing strategies and hedging
activities will have the desired effect of counter-balancing raw material cost
increases. Conversely, should raw material costs decrease below the costs
reflected in the Company's advance purchases and hedges, such activities could
adversely affect the Company's results of operations compared to what they
otherwise would have been. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RESEARCH AND DEVELOPMENT
The Company's research and development department consists of a staff of
chemists and nutritionists, a central laboratory used for research and
development, and laboratories at each of the Company's production facilities
used for quality control. The research and development department formulates the
mix of raw materials, vitamins, and minerals, and tests the nutritional content
of new products. Independent commercial kennels and catteries are used for
comparison taste tests to nationally branded products to assure digestibility
and palatability as well as to substantiate the nutritional content of new
products.
GOVERNMENTAL REGULATION
The Company is subject to federal, state and local laws and regulations
intended to protect the public health and the environment, including air and
water quality, fuel storage tanks, and waste handling and disposal. The Company
considers itself to be in material compliance with applicable environmental laws
and regulations currently applicable to its business and operations. Compliance
with environmental laws and regulations historically has not had a material
effect on the Company's capital expenditures, earnings or competitive position,
and the Company does not anticipate that such compliance will have a material
effect on the Company in the future. Environmental laws and regulations have
changed substantially in recent years and the Company believes that the trend of
more expansive and more strict environmental legislation and regulations will
continue. While the Company believes it is in substantial compliance with
applicable environmental and worker safety laws, there can be no assurance that
additional costs for compliance will not be incurred in the future or that such
costs will not be material.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered statutorily responsible for the release of a
"hazardous substance" into the environment. These persons include the owner or
operator of a facility where a hazardous substance release occurred and
companies that disposed or arranged for the disposal of hazardous substances.
Persons who are or were responsible for the releases of hazardous substances
under CERCLA may be subject to joint, several and retroactive liability for the
costs of environmental response measures. While there can be no assurance of the
position that may be taken by any environmental agency with respect to the
Company's past operations in connection with any CERCLA site, the Company has
not received, nor does it expect to receive, any notice that it is or will be
designated a potentially responsible party to any CERCLA site. Some of the
Company's manufacturing facilities are located within industrial areas. In the
past, nearby industries have suffered releases of hazardous substances to the
environment that are subject of CERCLA investigations. It is possible that these
neighboring environmental activities may have impacted some of the Company's
properties. The Company has not been advised, nor does it expect to be advised,
by any environmental agency that it is considered a potentially responsible
party for the neighboring environmental conditions, and the Company has no
reason to believe that such conditions would have a material adverse effect on
the Company,.
The manufacturing and marketing of the Company's products are subject to
regulation by federal regulatory agencies, including the Occupational Safety and
Health Administration ("OSHA"), the Food and Drug Administration ("FDA") and the
United States Department of Agriculture ("DOA"), and by various state and local
authorities. The FDA
25
<PAGE> 27
also regulates the labeling of the Company's products. The Company procures and
maintains the necessary permits and licenses in order to operate its facilities
and considers itself to be in material compliance with applicable OSHA, DOA, and
FDA requirements.
TRADEMARKS
Certain of the Company's brands are protected by trademark registrations in
the United States. The Company believes that its registered trademarks are
adequate to protect such brand names.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,243 employees, of
which approximately 132 were management and administrative personnel and
approximately 1,111 were manufacturing personnel. Of this number, 324 employees
in three of the Company's plants were represented by labor unions at each of the
plants. The collective bargaining agreement with respect to the Birmingham,
Alabama plant covers 86 employees as of December 31, 1997, and expires in
January 2001. The collective bargaining agreement with the Joplin, Missouri
plant covers 193 employees as of December 31, 1997, and expires in February
1999. The collective bargaining agreement with the Muscatine, Iowa plant covers
45 employees as of December 31, 1997, and expires in December 1999. The Company
considers its relations with its employees to be satisfactory.
PROPERTIES
The Company owns thirteen manufacturing and warehouse facilities and
operates three separate distribution warehouses, two of which are owned by the
Company and the third is leased. The Company also owns its executive office
building, its central laboratory, a machining facility and a steel fabrication
facility, all of which are located in the Joplin, Missouri area. The
manufacturing facilities are generally located in rural areas to minimize land
and labor costs and to be in proximity to customers, raw materials and
transportation networks, including rail transportation.
Since 1987, the Company has constructed seven new manufacturing and
warehouse facilities, purchased and renovated an existing facility, and
renovated or expanded most of its other manufacturing and warehouse facilities.
The Company's facilities are currently operating near capacity to meet current
demand. The Company anticipates that additional facilities will be necessary in
order to support continued growth of the Company's business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Liquidity and Capital Resources."
26
<PAGE> 28
The following table summarizes the Company's manufacturing and warehouse
facilities.
<TABLE>
<CAPTION>
LOCATION YEAR SQUARE FOOTAGE
-------- ---- --------------
BUILT
-----
<S> <C> <C>
Manufacturing and Warehouse Facilities
Muscatine, Iowa........................................ 1970 99,500
Tracy, California...................................... 1976 110,000
Manassas, Virginia..................................... 1979 80,300
San Bernardino, California............................. 1983 109,300
Birmingham, Alabama.................................... 1954(1) 114,600
Temple, Texas.......................................... 1987 110,300
Joplin, Missouri....................................... 1989(2) 274,000
Tomah, Wisconsin....................................... 1990 78,000
Washington Court House, Ohio........................... 1991 135,000
Pueblo, Colorado....................................... 1991 94,000
Orangeburg, South Carolina............................. 1995 138,500
Everson, Pennsylvania.................................. 1956(3) 88,200
Miami, Oklahoma........................................ 1997 60,000
Distribution Warehouses
Ocala, Florida......................................... 1978 78,100
Alexandria, Louisiana.................................. 1990 33,400
Guilderland, New York.................................. --(4) 43,200
</TABLE>
- -----------------
(1) This facility was acquired by the Company in 1983. Major plant expansions
were undertaken in 1988 and 1989.
(2) The Company's original manufacturing facility, located in Joplin, Missouri,
was rebuilt in 1989.
(3) This facility was acquired by the Company in February 1997 and renovated in
1997.
(4) This warehouse is leased by the Company. All other properties are owned by
the Company.
In November 1996, a subsidiary of the Company, DPC International Limited,
acquired approximately 50% of the issued and outstanding capital stock of
Effeffe, S.p.a., an Italian company that manufactures dry pet food. The total
purchase price was approximately $2,000,000. Effeffe, S.p.a. is not treated as a
consolidated subsidiary of the Company. The Company's investment is accounted
for on the equity method.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its financial condition or
results of operation.
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<PAGE> 29
DESCRIPTION OF THE PREFERRED STOCK
In connection with the Acquisition, the Company issued 1,200,000 shares of
14.25% Senior Exchangeable Preferred Stock due 2007 (the "Preferred Stock"). The
following is a summary of the principal terms of the Preferred Stock.
Each share of Preferred Stock had an initial Liquidation Value of $25.00
per share, plus accrued and unpaid dividends. Dividends on the Preferred Stock
are payable quarterly at the rate of 14.25% per annum per share. Dividends on
the Preferred Stock accrete to the liquidation value of the Preferred Stock and,
at the option of the holders of a majority of the shares of Preferred Stock, may
be paid through the issuance of additional shares of Preferred Stock on each
dividend payment date through September 30, 2000. The Liquidation Value was
$34.20 per share at December 31, 1997. Prior to September 30, 1998, the Company
may, at its option, redeem up to one-third of the then outstanding shares of
Preferred Stock with the net proceeds of an initial public offering of its
common stock at a redemption price of 114% of the then liquidation value of the
Preferred Stock, plus accrued and unpaid dividends. On and after September 30,
2000, the Company may, at its option, redeem the Preferred Stock in whole or in
part at the redemption prices per share set forth below, together with accrued
and unpaid dividends:
<TABLE>
<CAPTION>
YEAR BEGINNING PERCENTAGE OF
SEPTEMBER 30, LIQUIDATION VALUE
------------- -----------------
<S> <C>
2000..................................... 107.125%
2001..................................... 105.700
2002..................................... 104.275
2003..................................... 102.850
2004..................................... 101.425
2005..................................... 100.000
2006..................................... 100.000
</TABLE>
In addition, the Company has the right at any time to redeem the Preferred
Stock, in whole or in part, from the initial Investors (and their permitted
transferees as defined in the Investors' Agreement) at a price of 100% of the
then Liquidation Value of the Preferred Stock, plus accrued and unpaid
dividends. The Company will be required to redeem all remaining outstanding
shares of Preferred Stock on September 30, 2007 at 100% of the then Liquidation
Value, together with accrued and unpaid dividends. The Company is entitled to
issue shares of Preferred Stock in connection with an exchange offer made by the
Company for the purpose of issuing shares of Preferred Stock registered under
the Securities Act, with the newly issued shares having a Liquidation Value
equal to the Liquidation Value of the surrendered shares.
Upon the occurrence of a Preferred Stock Change in Control (as defined
below), at the election of any holder of the Preferred Stock, the Company will
be required to purchase for cash, shares of Preferred Stock held by such holder
at 101% of the then Liquidation Value, plus accrued and unpaid dividends to the
date of repurchase. A Preferred Stock Change in Control means (a) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than any person or group composed solely of the initial Investors, has
become the beneficial owner, by way of merger, consolidation or otherwise of 40%
or more of the voting power of all classes of voting securities of the Company
or of DPCAC, and such person or group has become the beneficial owner of a
greater percentage of the voting power of all classes of voting securities of
the Company or of DPCAC than that beneficially owned by the initial Investors;
or (b) a sale or transfer of all or substantially all of the assets of the
Company or of DPCAC to any person or group (other than any group consisting
solely of the initial Investors) has been consummated; or (c) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company or of DPCAC (together with any
new directors whose election was approved by a vote of a majority of the
directors then still in office, who either were directors at the beginning of
such period or whose election or nomination for the election was previously so
approved) cease for any reason to constitute a majority of the directors of the
Company or of DPCAC as the case may be, then in office.
The terms of the Preferred Stock prohibit (i) the payment of dividends on
securities ranking on a parity with the Preferred Stock, (ii) dividends (other
than dividends or distributions paid in shares of, or options, warrants or
rights to subscribe for, or purchase shares of, ranking junior to the Preferred
Stock ("Junior Securities")) or other distributions with respect to Junior
Securities, and (iii) redemption, repurchase or acquisition of any Junior
Securities (other than a redemption, purchase or other acquisition of shares of
common stock made for purposes of an employee incentive or benefit plan of the
Company or any subsidiary), in each case, unless full cumulative dividends have
been paid on the Preferred Stock.
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<PAGE> 30
The number of directors on the Company's Board of Directors will be
increased by two and the holders of the Preferred Stock will have the right to
elect the two additional directors to the Company's Board of Directors if the
Company fails to (i) declare and pay dividends on any six consecutive dividend
payment dates or (ii) fulfill any mandatory redemption obligation (including a
redemption upon the occurrence of a Preferred Stock Change in Control). The
right to elect board members will continue to exist until all dividend
arrearages are paid in full in cash and those shares of Preferred Stock which
were required to be redeemed have been redeemed in full in cash.
Without the written consent of a majority of the outstanding shares of the
Preferred Stock, the Company is not permitted to merge, consolidate, or sell,
exchange or convey all or substantially all of the assets, property or business
of the Company unless, in the case of a merger or consolidation, the surviving
corporation has a Consolidated Net Worth (immediately following any such
transaction but prior to any purchase price accounting adjustments resulting
from the transaction) at least equal to that of the Company immediately prior to
such transaction. "Consolidated Net Worth" means at any date and with respect to
any person, the consolidated stockholders' equity of such person and its
consolidated subsidiaries less their consolidated Intangible Assets, all
determined as of such date. For purposes of this definition "Intangible Assets"
means the amount (to the extent reflected in determining such consolidated
stockholders' equity) of (i) all write-ups (other than write-ups of assets of a
going concern business made within twelve months after the acquisition of such
business) subsequent to October 5, 1995 in the book value of any asset owned by
such person or a consolidated subsidiary, (ii) all investments in unconsolidated
subsidiaries and all equity investments in persons which are not subsidiaries
and (iii) all unamortized debt discount and expense, unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names, anticipated
future benefit of tax loss carry-forwards, copyrights, organization or
developmental expenses and other intangible assets. Except as aforesaid or as
may otherwise be required by law, the Preferred Stock has no voting rights.
The 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 "Exchange Debentures"). Each share of
Preferred Stock will be exchanged on the basis of $1.00 of principal amount of
Exchange Debentures (in denominations of $1,000 or integral multiples thereof)
for each $1.00 of liquidation value of such share, plus accrued and unpaid
dividends. Any such optional exchange will be prohibited if (i) a default under
the indenture governing the Exchange Debentures exists or would exist after
giving effect to such exchange, or (ii) dividends are in arrears on the
Preferred Stock. The Exchange Debentures will be subject to redemption on terms
comparable to the Preferred Stock. The indenture governing the Exchange
Debentures will contain covenants with respect to payment of principal and
interest, reports by the company and a limitation on dividends on capital stock,
redemption of capital stock and other repurchases of capital unless all required
interest payments on the Exchange Debentures have been made. In addition, in the
event of a Preferred Stock Change in Control, the Company is required to make an
offer to repurchase the Exchange Debentures at 101% of the principal amount
thereof plus accrued interest. The exchange right does not apply to shares of
Preferred Stock held by the initial Investors and their permitted transferees
(as defined in the Investors' Agreement).
The Company will covenant in the indenture governing the Exchange
Debentures not to merge, consolidated or sell all or substantially all of its
assets unless the corporation formed by such consolidation or into which the
Company has merged or which acquired such assets (i) agrees to assume the
obligations of the Company under the Exchange Debentures, including the
Indenture, and (ii) has a Consolidated Net Worth, immediately following any such
transaction, at least equal or greater than that of the Company immediately
prior to such transaction.
TAXATION OF DIVIDENDS
For purposes of United States income taxation, section 305(c) of the
Internal Revenue Code requires that dividends that accrue on or before September
30, 2000 and either accrete to the liquidation value or are paid with additional
shares of Preferred Stock, be included in the income of a holder of Preferred
Shares as dividend income on a daily basis as such dividends accrue regardless
of the holder's method of accounting, even though no cash has been distributed
to such holder. Dividends that accrue and are paid after September 30, 2000
will be taxable to a holder of the Preferred Shares as dividend income,
generally at the time such dividend is declared and paid in accordance with such
holder's regular method of accounting for United States Federal income tax
purposes.
29
<PAGE> 31
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Shares, the purchasers thereof
became entitled to the benefits of certain registration rights under a
registration rights agreement among the Company and the purchasers of the Old
Shares. The DLJ Affiliates and the Company have entered into a registration
rights agreement dated November 25, 1997 (the "Registration Rights Agreement")
providing for the Exchange Offer in satisfaction of the Company's registration
obligations to the DLJ Affiliates under the original registration rights
agreement. The Exchange Shares are being offered hereunder to satisfy the
obligations of the Company to the DLJ Affiliates under the Registration Rights
Agreement. See "Exchange Offer; Registration Rights."
For each Old Share surrendered to the Company pursuant to the Exchange
Offer, the holder of such Old Share will receive one Exchange Share. Upon the
terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, the Company will accept all Old Shares
properly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. Holders may tender some or all of their Old Shares pursuant to the
Exchange Offer.
Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Shares would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Shares
exchanged for such Exchange Shares directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Shares
are acquired in the ordinary course of such holder's business and such holder is
not participating in, and has no arrangement with any person to participate in,
the distribution (within the meaning of the Securities Act) of such Exchange
Shares. Eligible holders wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met. Any holder of Old Shares who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Shares may not rely on the interpretation by the staff of the
SEC enunciated in the Morgan Stanley Letter and similar no-action letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Each holder of Old Shares who wishes to exchange Old Shares for Exchange
Shares in the Exchange Offer will be required to make certain representations,
including that (i) it is not an affiliate of the Company nor a broker-dealer
tendering Old Shares acquired directly from the Company for its own account,
(ii) any Exchange Shares to be received by it are being acquired in the ordinary
course of its business and (iii) it is not participating in, and it has no
arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of the Exchange Shares. In addition, in
connection with any resales of Exchange Shares, any broker-dealer (a
"Participating Broker-Dealer") who acquired Old Shares for its own account as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Shares. The staff of the SEC has
taken the position in no-action letters issued to third parties, including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Shares (other than a resale of an unsold allotment
from the original sale of Old Shares) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Shares. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Shares for all
outstanding Old Shares (other than Old Shares held by a Restricted Holder)
pursuant to the Exchange Offer, or (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Shares for all Old Shares that have been
tendered and not withdrawn on the Expiration Date. In such event, holders of Old
Shares seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act.
As of the date of this Prospectus, 1,200,000 Old Shares are issued and
outstanding.
30
<PAGE> 32
The Company shall be deemed to have accepted for exchange validly tendered
Old Shares when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "--Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Shares for the purpose of receiving
Exchange Shares from the Company and delivering Exchange Shares to such holders.
If any tendered Old Shares are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Shares will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Shares who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Shares
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean March 12, 1998 unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Shares an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Shares not previously accepted, if any of the
conditions set forth herein under "--Termination" shall have occurred and shall
not have been waived by the Company (if permitted to be waived by the Company),
by giving oral or written notice of such delay, extension or termination to the
Exchange Agent, and (ii) to amend the terms of the Exchange Offer in any manner
deemed by it to be advantageous to the holders of the Old Shares. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Shares of such amendment. Without
limiting the manner in which the Company may choose to make public announcements
of any delay in acceptance, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
DIVIDENDS ON THE EXCHANGE SHARES
Dividends on the Exchange Shares are payable quarterly at an annual rate of
14.25% of the Liquidation Value, which will be identical to the Liquidation
Value of the Old Shares. Dividends on the Exchange Shares will accrete to the
Liquidation Value and, at the option of the holders of a majority of the
Preferred Shares may be paid through the issuance of additional Preferred Shares
on each dividend payment date through September 30, 2000. At December 31, 1997,
the Liquidation Value was $34.20 per share. The Exchange Shares will have the
same Liquidation Value as the Old Shares. The Company does not expect to pay
dividends on the Exchange Shares in cash for any period prior to September 30,
2000.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message,
together with the Old Shares and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the stock certificates for such Old Shares must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Shares, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility" or "DTC") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent along with an Agent's Message prior to the Expiration Date or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. The tender by a holder of Old Shares will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. Delivery of all
documents must be made to the Exchange Agent at its address set forth herein.
Holders may also request that their respective brokers, dealers, commercial
banks, trust companies or nominees effect such tender for such holders.
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<PAGE> 33
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Shares which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
The method of delivery of Old Shares and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Stock
certificates representing Old Shares should be sent to the Company. Only a
holder of Old Shares may tender such Old Shares in the Exchange Offer. The term
"holder" with respect to the Exchange Offer means any person in whose name Old
Shares are registered on the books of the Company or any other person who has
obtained a properly completed stock power from the registered holder.
Any beneficial holder whose Old Shares are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on behalf of the registered holder. If such
beneficial holder wishes to tender directly, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Shares, either make appropriate arrangements to register ownership of the Old
Shares in such holder's name or obtain a properly completed stock power from the
registered holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the Old Shares
tendered thereby, the signature must correspond with the name(s) written on the
face of the Old Shares without alteration, enlargement or any change whatsoever.
If the Letter of Transmittal is signed by a participant in DTC, the signature
must correspond with the name as it appears on the security position listing as
the holder of the Old Shares. Signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the Old Shares tendered pursuant thereto are tendered (i) by a registered
holder (or by a participant in DTC whose name appears on a security position
listing as the owner) who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
and the Exchange Shares are being issued directly to such registered holder (or
deposited into the participant's account at DTC) or (ii) for the account of an
Eligible Institution. If the Letter of Transmittal is signed by a person other
than the registered holder of any Old Shares listed therein, such Old Shares
must be endorsed or accompanied by appropriate stock powers which authorize such
person to tender the Old Shares on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the Old
Shares. If the Letter of Transmittal or any Old Shares or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Shares
(or a timely confirmation received of a book-entry transfer of Old Shares into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Shares in exchange for Old Shares tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Old Shares (or a timely confirmation received of a book-entry
transfer of Old Shares into the Exchange Agent's account at DTC with an Agent's
Message) with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Shares will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Old Shares not properly tendered or any Old Shares the Company's acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in tender as to particular Old Shares. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any
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<PAGE> 34
defects or irregularities in connection with tenders of Old Shares must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Shares nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Shares will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Shares received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Shares, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date. In addition,
the Company reserves the right in its sole discretion to (i) purchase or make
offers for any Old Shares that remain outstanding subsequent to the Expiration
Date, or, as set forth under "--Termination," to terminate the Exchange Offer
and (ii) to the extent permitted by applicable law, purchase Old Shares in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Shares
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Old Shares by causing DTC to transfer such Old Shares into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of Old Shares may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an Agent's Message must be transmitted to and
received by the Exchange Agent on or prior to the Expiration Date at one of its
addresses set forth below under "--Exchange Agent", or the guaranteed delivery
procedure described below must be complied with. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this
Prospectus to deposit or delivery of Old Shares shall be deemed to include DTC's
book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Shares and whose Old Shares are not
immediately available or who cannot deliver their Old Shares, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis and deliver an Agent's Message, may effect a tender if: (i) the
tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Shares, the registration number or numbers of such Old Shares
(if applicable), and the total principal amount of Old Shares tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal, together
with the Old Shares in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC with an Agent's
Message) and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal, together with the
certificate(s) representing all tendered Old Shares in proper form for transfer
(or a confirmation of such a book-entry transfer) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
five business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Shares received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Shares, and that such holder
is not a Restricted Holder.
Old Shares tendered in exchange for Exchange Shares (or a timely
confirmation of a book-entry transfer of such Old Shares into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal or an Agent's Message and any other required documents, by the
Expiration Date or within the time periods set forth above pursuant to a Notice
of Guaranteed Delivery from an Eligible Institution. Each holder tendering the
Old
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<PAGE> 35
Shares for exchange shall be deemed to sell, assign and transfer the Old Shares
to the Exchange Agent, as agent of the Company, and irrevocably constitute and
appoint the Exchange Agent as the holder's agent and attorney-in-fact to cause
the Old Shares to be transferred and exchanged. The holder warrants that it has
full power and authority to tender, exchange, sell, assign and transfer the Old
Shares and to acquire the Exchange Shares issuable upon the exchange of such
tendered Old Shares, that the Exchange Agent, as agent of the Company, will
acquire good and unencumbered title to the tendered Old Shares, free and clear
of all liens, restrictions, charges and encumbrances, and that the Old Shares
tendered for exchange are not subject to any adverse claims when accepted by the
Exchange Agent, as agent of the Company. The holder also warrants and agrees
that it will, upon request, execute and deliver any additional documents deemed
by the Company or the Exchange Agent to be necessary or desirable to complete
the exchange, sale, assignment and transfer of the Old Shares. All authority
conferred or agreed to be conferred in the Letter of Transmittal by the holder
will survive the death, incapacity or dissolution of the holder and any
obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Shares may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Shares in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Shares to be withdrawn (the "Depositor"), (ii) identify
the Old Shares to be withdrawn (including, if applicable, the registration
number or numbers and total principal amount of such Old Shares), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Shares were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Shares to register the
transfer of such Old Shares into the name of the Depositor withdrawing the
tender, (iv) specify the name in which any such Old Shares are to be registered,
if different from that of the Depositor and (v) if applicable because the Old
Shares have been tendered pursuant to the book-entry procedures, specify the
name and number of the participants account at DTC to be credited, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Shares so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Shares will be
issued with respect thereto unless the Old Shares so withdrawn are validly
retendered. Any Old Shares which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Shares may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Shares not thereto accepted for
exchange, and may terminate the Exchange Offer if they determine that the
Exchange Offer violates any applicable law or interpretation of the staff of the
SEC.
If the Company determines that they may terminate the Exchange Offer, as
set forth above, the Company may (i) refuse to accept any Old Shares and return
any Old Shares that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Shares tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Shares to
withdraw their tendered Old Shares or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Shares that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Shares, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Shares, if the Exchange Offer
would otherwise expire during such period.
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<PAGE> 36
EXCHANGE AGENT
U.S. Trust Company of Texas, N.A. has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail: By Overnight Courier:
P.O. Box 841 770 Broadway
Cooper Station 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Attention: Corporate Trust
(registered or certified mail recommended)
By Hand: Facsimile Transmission:
111 Broadway (212) 420-6155
Lower Level Confirm by Telephone:
New York, New York 10006 (212) 420-6668
Attention: Corporate Trust
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and their affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the Old
Shares and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Shares pursuant to the Exchange
Offer. If, however, Exchange Shares or Old Shares not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Shares tendered, or
if tendered Old Shares are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Shares pursuant to the Exchange Offer,
then the amount of such transfer taxes (whether imposed on the registered holder
or any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer.
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<PAGE> 37
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has agreed pursuant to the Registration Rights Agreement, for
the benefit of the holders of the Old Shares, that the Company will, at the
Company's cost, use its reasonable best efforts to (i) file a registration
statement (the "Exchange Offer Registration Statement") with the Commission with
respect to a registered offer (the "Registered Exchange Offer") to exchange the
Old Shares for the Exchange Shares having terms identical to the Old Shares
(except that the Exchange Shares will not contain legends with respect to
transfer restrictions and will not be entitled to registration rights under the
original registration rights agreement) and (ii) cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
210 days from the effective date of the Registration Rights Agreement. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer the Exchange Shares in the Registered Exchange Offer. The Company shall
commence the Registered Exchange Offer upon effectiveness of the Exchange Offer
Registration Statement, and the date of acceptance for exchange shall in no
event be later than the date 30 days after the date the Exchange Offer
Registration Statement is declared effective by the SEC. For each Old Share
surrendered to the Company pursuant to the Registered Exchange Offer, the holder
of such Old Share will receive one Exchange Share having a Liquidation Value
equal to that of the surrendered Old Share. Based upon existing Commission
interpretations, the Exchange Shares would be freely transferrable by holders
other than affiliates of the Company after the Registered Exchange Offer without
further registration under the Securities Act if the holder of the Exchange
Shares represents that it is acquiring the Exchange Shares in the ordinary
course of its business, that it has no arrangement or understanding with any
person to participate in the distribution of the Exchange Shares and that it is
not an affiliate of the Company, as such terms are interpreted by the
Commission; provided that broker-dealers ("Participating Broker-Dealers")
receiving Exchange Shares in the Registered Exchange Offer will have a
prospectus delivery requirement with respect to resales of such Exchange Shares.
The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to Exchange Shares
(other than a resale of an unsold allotment from the original sale of the Old
Shares) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of such Exchange
Shares.
A holder of Old Shares (other than certain specified holders) who wishes to
exchange such shares for Exchange Shares in the Registered Exchange Offer will
be required to represent that any Exchange Shares to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Shares and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
In the event that (i) upon advice of outside counsel, the Company
determines that applicable interpretations of the staff of the Commission do not
permit the Company to effect such a Registered Exchange Offer, (ii) for any
other reason the Exchange Offer Registration Statement is not declared effective
within 210 days from the effective date of the Registration Rights Agreement or
the Registered Exchange Offer is not consummated within 240 days from the
effective date of the Registration Rights Agreement or (iii) prior to the 90th
day after the effective date of the Registration Rights Agreement, any holder
notifies the Company it is not eligible to participate in the Registered
Exchange Offer and such holder has not received a written opinion from counsel
to the Company to the effect that such holder is legally permitted to
participate in the Registered Exchange Offer, the Company will, at the Company's
cost, (a) file a Shelf Registration Statement with the SEC covering resales of
the Old Shares or the Exchange Shares, as the case may be, (b) shall use its
reasonable best efforts to have the Shelf Registration Statement declared
effective under the Securities Act on or prior to 210 days after the effective
date of the Registration Rights Agreement and (c) keep the Shelf Registration
Statement effective until two years after its effective date. The Company will,
in the event a Shelf Registration Statement is filed, among other things,
provide to each holder for whom such Shelf Registration Statement was filed
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Old Shares or the Exchange Shares, as the case may be. A holder
selling such Old Shares or Exchange Shares pursuant to the Shelf Registration
Statement generally would be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
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<PAGE> 38
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Shares for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Shares. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Shares received in
exchange for Old Shares where such Old Shares were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the date of this Prospectus and ending on the close of
business 90 days after such date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. A broker-dealer that delivers such a prospectus to a purchaser in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations). In addition, until May 7, 1998 all dealers effecting transactions
in the Exchange Shares may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Shares
by broker-dealers. Exchange Shares received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions, through the writing of options on the Exchange Shares or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Shares. Any broker-dealer that resells Exchange Shares that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Shares may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Shares and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 90 days after the date of this Prospectus, the Company will
promptly send additional copies of this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed in
the Registration Rights Agreement to pay all expenses incident to the Exchange
Offer other than commissions or concessions of any brokers or dealers and to
indemnify the holders of the Old Shares (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
TRANSFER RESTRICTIONS ON OLD SHARES
OFFERS AND SALES BY DLJSC
The Old Shares were not registered under the Securities Act and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Old Shares were offered and
sold only in the United States to qualified institutional buyers ("QIBs") under
Rule 144A under the Securities Act.
Each purchaser of the Old Shares was deemed to have represented and agreed
to each of the following:
(1) It is acquiring the Old Shares for its own account or for an
account with respect to which it exercises sole investment discretion and
that it or such account is a QIB.
(2) It acknowledges that the Old Shares have not been registered under
the Securities Act and may not be sold, pledged or otherwise transferred
except as permitted below.
(3) It understands and agrees (x) that such Old Shares are being
offered only in a transaction not involving any public offering within the
meaning of the Securities Act, and (y) that (A) if within two years after
the date of original
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<PAGE> 39
issuance of the Old Shares or if within three months after it ceases to be
an affiliate (within the meaning of Rule 144 under the Securities Act) of
the Company, it decides to resell, pledge or otherwise transfer such Old
Shares on which the legend set forth below appears, such Old Shares may be
resold, pledged or transferred only (i) to the Company, (ii) so long as
such security is eligible for resale pursuant to Rule 144A, to a person
whom the seller reasonably believes is a QIB that purchases for its own
account or for the account of a QIB to whom notice is given that the
resale, pledge or transfer is being made in reliance on Rule 144A (as
indicated by the box checked by the transferor on the Certificate of
Transfer on the reverse of the Old Share if such Old Share is not in
book-entry form), (iii) in an offshore transaction in accordance with
Regulation S (as indicated by the box checked by the transferor on the
Certificate of Transfer on the reverse of the Old Share if such Old Share
is not in book-entry form), (iv) to an institutional "accredited investor,"
as defined under Rule 501(a)(1), (2), (3) or (7) under the Securities Act
(an "Institutional Accredited Investor") (as indicated by the box checked
by the transferor on the Certificate of Transfer on the reverse of the Old
Share if such Old Share is not in book-entry form) who has certified to the
Company that such transferee is an Institutional Accredited Investor and is
acquiring the Old Shares for investment purposes and not for distribution
in violation of the Securities Act or any other applicable securities laws,
(v) pursuant to an exemption from the registration requirements of the
Securities Act provided by Rule 144 (if applicable) under the Securities
Act or (vi) pursuant to an effective registration statement under the
Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States, (B) the purchaser will, and each
subsequent holder is required to, notify any purchaser of Old Shares from
it of the resale restrictions referred to in (A) above, if then applicable,
and (C) with respect to any transfer of Old Shares by an Institutional
Accredited Investor, such holder will deliver to the Company such
certificates and other information as it may reasonably require to confirm
that the transfer by it complies with the foregoing restrictions.
(4) It understands that the notification requirement referred to in (3)
above will be satisfied, in the case only of transfer by physical delivery
of certificated Old Shares, by virtue of the fact the following legend has
been placed on the Old Shares unless otherwise agreed by the Company:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE INVESTORS'
AGREEMENT DATED AS OF OCTOBER 5, 1995, COPIES OF WHICH MAY BE OBTAINED
UPON REQUEST FROM DPC ACQUISITION CORP., DOANE PRODUCTS COMPANY OR ANY
SUCCESSOR THERETO.
(5) It (i) is able to fend for itself in the transactions contemplated
by this Prospectus; (ii) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
prospective investment in the Old Shares; and (iii) has the ability to bear
the economic risks of its prospective investment and can afford the
complete loss of such investment.
(6) It has received a copy of this Prospectus and acknowledges that it
has had access to such financial and other information, and has been
afforded the opportunity to ask questions of the Company and the Company
and receive answers thereto, as it deemed necessary in connection with its
decision to purchase the Old Shares.
(7) It understands that the Company, DLJSC and others will rely upon
the truth and accuracy of the foregoing acknowledgments, representations
and agreements and agrees that if any of the acknowledgments,
representations and agreements deemed to have been made by its purchase of
the Old Shares are no longer accurate, it shall promptly notify the Company
and DLJSC; and if it is acquiring the Old Shares as a fiduciary or agent
for one or more investor accounts, it represents that it has sole
investment discretion with respect to each such account and it has full
power to make the foregoing acknowledgments, representations and agreements
on behalf of such account.
Any Old Shares not exchanged in the Exchange Offer for Exchange Shares will
continue to be subject to the transfer restrictions described above.
LEGAL MATTERS
The validity of the issuance of the Exchange Shares offered hereby will be
passed on for the Company by Vinson & Elkins L.L.P., Houston, Texas.
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EXPERTS
The financial statements of Doane Products Company--Successor as of and for
the three months ended December 31, 1995 and as of and for the year ended
December 31, 1996 and Doane Products Company--Predecessor as of December 31,
1994 and for each of the years ended December 31, 1993 and 1994 and for the nine
months ended September 30, 1995 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
DOANE PRODUCTS COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants................................................................ F-2
Consolidated Balance Sheets:
As of December 31, 1995 and 1996 and September 30, 1997 (unaudited)..................................... F-3
Consolidated Statements of Income:
Successor for the three months ended December 31, 1995, the year ended December
31, 1996 and the nine months
ended September 30, 1997 (unaudited) .............................................................. F-4
Predecessor for the year ended December 31, 1994 and the
nine months ended September 30, 1995............................................................... F-4
Consolidated Statements of Cash Flows:
Successor for the three months ended December 31, 1995, the year ended December
31, 1996 and the nine months ended
September 30, 1997 (unaudited) ................................................................... F-5
Predecessor for the year ended December 31, 1994 and the nine
months ended September 30, 1995.................................................................... F-5
Consolidated Statements of Stockholders' Equity:
Successor for the three months ended December 31, 1995.................................................. F-6
Predecessor for the years ended December 31, 1994, 1995
and 1996 and for the nine months ended September 30, 1997.......................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE> 42
Independent Auditors' Report
Board of Directors
Doane Products Company:
We have audited the accompanying consolidated balance sheets of Doane Products
Company - Successor as of December 31, 1995 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows of Doane
Products Company - Successor for the year ended December 31, 1996 and for the
three month period ended December 31, 1995, and the consolidated statements of
income, stockholders' equity and cash flows of Doane Products Company
Predecessor for the year ended December 31, 1994 and for the nine months ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Doane Products Company
Successor at December 31, 1995 and 1996, and the results of operations and cash
flows of Doane Products Company - Successor for the year ended December 31, 1996
and for the three month period ended December 31, 1995 and of Doane Products
Company - Predecessor for the year ended December 31, 1994 and for the nine
month period ended September 30, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 9, 1996
F-2
<PAGE> 43
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31, 1995, 1996 and September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Successor
----------------------------------------------
Assets September 30,
------ 1995 1996 1997
------------ ------------- --------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,550 $ -- $ --
Accounts receivable, less allowance for doubtful accounts;
$8, $-0- and $89 @ December 31, 1995,
1996 and September 30, 1997, respectively 46,558 67,734 56,721
Inventories 27,595 30,737 31,131
Prepaid expenses and other 2,298 7,408 3,136
Total current assets 78,001 105,879 90,988
----------- ------------- -------------
Property and equipment, at cost:
Land 3,911 3,987 3,993
Buildings and improvements 24,474 25,395 27,581
Machinery and equipment 60,367 65,377 71,521
Furniture and fixtures 1,485 1,932 2,332
Automotive equipment 887 1,000 1,092
Construction in progress 2,265 3,504 7,496
----------- ------------- -------------
93,389 101,195 114,015
Less accumulated depreciation 1,557 8,112 13,490
----------- ------------- -------------
91,832 93,083 100,525
Goodwill, net of amortization 129,105 126,613 124,230
Other assets 9,176 11,176 11,116
Investments - cash value of life insurance 1,470 1,582 1,606
----------- ------------- -------------
$ 309,584 $ 338,333 $ 328,465
=========== ============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt 5,505 10,417 11,354
Accounts payable 19,148 51,343 35,735
Accrued expenses:
Salaries and commissions 2,909 3,223 3,959
Other 11,545 15,318 10,865
----------- ------------- -------------
Total current liabilities 39,107 80,301 61,913
Deferred compensation 4,846 4,030 4,113
Long-term debt 204,233 196,186 198,456
Deferred income taxes 1,103 409 2,346
Deferred credit 1,770 -- --
----------- ------------- -------------
Total liabilities 251,059 280,926 266,828
Senior exchangeable preferred stock, 3,000 shares authorized,
1,200 shares issued 18,414 24,160 28,864
----------- ------------ -------------
Stockholders' equity:
Common stock, par value $.01. Authorized and
issued 1,000 shares -- -- --
Additional paid in capital 40,425 40,825 41,675
Retained earnings (314) (7,578) (8,902)
----------- ------------ -------------
40,111 33,247 32,773
----------- ------------ -------------
$ 309,584 $ 338,333 $ 328,465
=========== ============ =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 44
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Predecessor Successor
-------------------------------- -------------------------------------------------
Nine month Three month Nine month
Year ended period ended period ended Year ended period ended
December 31, September 30, December 31, December 31, September 30,
1994 1995 1995 1996 1997
-------------- ---------------- ------------- ------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 365,204 $ 294,718 $ 111,618 $ 500,708 $ 399,044
Cost of goods sold 307,238 245,163 96,364 443,578 351,394
------------- --------------- ------------- ------------- ---------------
Gross profit 57,966 49,555 15,254 57,130 47,650
------------- --------------- ------------- ------------- ---------------
Operating expenses:
Selling 11,155 8,773 3,298 14,844 12,572
General and administrative 12,972 10,776 4,343 17,375 12,859
Unusual items -- 9,440 -- -- --
------------- --------------- ------------- ------------- ---------------
24,127 28,989 7,641 32,219 25,431
------------- --------------- ------------- ------------- ---------------
Income from operations 33,839 20,566 7,613 24,911 22,219
Other income (expense):
Interest income 103 -- 120 218 117
Interest expense (2,597) (3,707) (5,926) (22,687) (17,090)
Nonrecurring finance charge -- -- -- (4,815) --
Miscellaneous 11 104 (29) -- 52
------------- --------------- ------------- ------------- ---------------
(2,483) (3,603) (5,835) (27,284) (16,921)
------------- --------------- ------------- ------------- ---------------
Income (loss) before income taxes 31,356 16,963 1,778 (2,373) 5,298
Provision (benefit) for income taxes 356 217 754 (855) 1,917
------------- --------------- ------------- ------------- ---------------
Net income (loss) $ 31,000 $ 16,746 $ 1,024 $ (1,518) $ 3,381
============= =============== ============= ============= ===============
Net income (loss) applicable to common
stock (note 5) $ -- $ -- $ (314) $ (7,264) $ (1,323)
Net income (loss) per common share $ -- $ -- $ (314) $ (7,264) $ (1,323)
Pro forma earnings data (unaudited)
Net income as reported $ 31,000 $ 16,746
Pro forma adjustment for federal
and state income tax expense 10,850 5,861
------------- ---------------
Pro forma net income $ 20,150 $ 10,885
============= ===============
Pro forma net income per common share $ 225 $ 189 $ $ $
============= =============== ============= ============== ================
Weighted average shares outstanding 89,375 57,500 1,000 1,000 1,000
============= =============== ============= ============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 45
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor Successor
---------------------------- ----------------------------------------------
Nine months Three month Nine month
Year ended period ended period ended Year ended period ended
December 31, September 30, December 31, December 31, September 30,
1994 1995 1995 1996 1997
------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 31,000 $ 16,746 $ 1,024 4 (1,518) $ 3,381
Items not requiring (providing) cash:
Depreciation and amortization 4,660 3,694 2,359 15,972 8,008
Accrued deferred compensation 75 (93) 22 282 83
Prepaid contract costs (2,400) -- -- --
Loss on sale of property and equipment 49 10 -- 26
Deferred credit commodity -- -- -- (1,770) --
Deferred income taxes -- -- 1,103 (1,575) 1,937
Changes in:
Accounts receivable (2,455) 1,800 (7,620) (21,176) 11,013
Inventories (3,108) (2,424) (2,954) (3,141) (394)
Prepaid expenses and other 1,230 (498) (571) (4,799) 4,272
Current maturities of long-term debt -- -- (715) --
Accounts payable 8,182 (11,526) 4,084 32,195 (15,608)
Accrued expenses 2,017 5,245 7,034 4,087 736
Other -- -- (1,770) -- (3,498)
------------ ----------- ------------ ----------- --------------
Net cash provided by (used in)
operating activities 39,250 12,954 1,996 18,583 9,930
------------ ----------- ------------ ----------- --------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 35 571 -- 26 25
Purchase of property and equipment (12,159) (4,224) (1,297) (7,901) (12,933)
Payments received on long-term notes receivable 3 -- -- --
Acquisition related payments -- -- (207,961) (1,087)
Increase in cash value of life insurance (247) (24) (88) (112)
Increase in debt issuance costs -- -- -- (5,909) (468)
Investment in Sub - DPC International, Ltd. -- -- -- (1,979)
Other -- -- -- (436) (611)
------------ ----------- ------------ ----------- --------------
Net cash used in
investing activities (12,368) (3,677) (209,346) (17,398) (13,987)
------------ ----------- ------------ ----------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 39,750 (7,225) 204,348 163,136 4,919
Retirement of prior indebtedness -- -- (46,013) --
Net borrowings under short-term credit agreements 15,000 595 (6,800) --
Net borrowings under revolving credit agreement -- -- -- 1,475 6,100
Principal payments on long-term debt (19,090) (786) (3,685) (167,746) (7,812)
Dividends paid (18,468) (13,152) -- --
Issuance of preferred stock -- -- 17,075 --
Capital contribution -- -- 40,425 400 850
Purchase of treasury stock (34,000) -- -- --
------------ ----------- ------------ ----------- --------------
Net cash provided by (used in)
financing activities (16,808) (20,568) 205,350 (2,735) 4,057
------------ ----------- ------------ ----------- --------------
Increase (decrease) in cash
and cash equivalents 10,074 (11,291) (2,000) (1,550) --
Cash and cash equivalents, beginning of period 4,767 14,841 3,550 1,550 --
------------ ----------- ------------ ----------- --------------
Cash and cash equivalents, end of period $ 14,841 $ 3,550 $ 1,550 $ -- $ --
============ =========== ============ =========== ==============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 46
DOANE PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
For the years ending December 31, 1994, 1995, 1996 and
the nine months ending September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Predecessor
--------------------------------------------------------------------------------------
Common stock Treasury Stock
------------------- Paid-in ----------------------- Retained
Shares Amount capital Shares Amount earnings Total
--------- ------- -------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 100,000 $ 50 $ -- -- $ -- $ 50,098 $ 50,148
Net income -- -- -- -- -- 31,000 31,000
Dividends, declared, $180 per share -- -- -- -- -- (15,389) (15,389)
Purchase of treasury stock at cost -- -- -- (42,500) (34,000) -- (34,000)
-------- ------ -------- ---------- --------- --------- -----------
Balances, December 31, 1994 100,000 50 -- (42,500) (34,000) 65,709 31,759
Net income -- -- -- -- -- 16,746 16,746
Dividends declared, $229 per share -- -- -- -- -- (13,152) (13,152)
-------- ------ -------- ---------- --------- --------- -----------
Balances, September 30, 1995 100,000 $ 50 $ -- (42,500) $ (34,000) $ 69,303 $ 35,353
======== ====== ======== ========== ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Successor
---------------------------------------------------------------------------------------
Common stock Treasury Stock
------------------- Paid-in ------------------------ Retained
Shares Amount capital Shares Amount earnings Total
--------- ------- --------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balances, October 1, 1995 -- $ -- $ -- -- $ -- $ -- $ --
Capital contribution 1,000 -- 40,425 -- -- -- 40,425
Net income -- -- -- -- -- 1,024 1,024
Preferred stock dividends -- -- -- -- -- (1,069) (1,069)
Accretion of preferred stock -- -- -- -- -- (269) (269)
-------- ------- -------- ----------- ---------- --------- -----------
Balances, December 31, 1995 1,000 -- 40,425 -- -- (314) 40,111
Capital contribution -- -- 400 -- -- -- 400
Net loss -- -- -- -- -- (1,518) (1,518)
Preferred stock dividends -- -- -- -- -- (4,670) (4,670)
Accretion of preferred stock -- -- -- -- -- (1,076) (1,076)
-------- ------- -------- ----------- ---------- --------- -----------
Balances, December 31, 1996 1,000 $ -- $ 40,825 -- $ -- $ (7,578) $ 33,247
Capital Contribution 850 850
Net income 3,381 3,381
Preferred stock dividends (3,896) (3,896)
Accretion of preferred stock (809) (809)
-------- ------- -------- ----------- ---------- --------- -----------
Balances, September 30, 1997 (unaudited) 1,000 $ -- $ 41,675 -- $ -- $ (8,902) $ 32,773
======== ======= ======== =========== ========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 47
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31, 1994, 1995, 1996 and
September 30, 1997 (unaudited)
(1) ACQUISITION
On October 5, 1995 Doane Products Company (Doane) was acquired (the
Acquisition) through the merger (the Merger) of DPC Subsidiary
Acquisition Corp. with and into Doane with Doane being the surviving
entity (Successor). DPC Subsidiary Acquisition Corp. was a newly
organized Delaware corporation formed for the sole purpose of effecting
the Acquisition. Doane is a wholly-owned subsidiary of DPC Acquisition
Corp. (DPCAC). The purchase price was $249.1 million, including
existing indebtedness. The acquisition was financed with a senior
credit facility which provides term loan borrowings of $90 million and
revolving loan borrowings of up to $25 million, $120 million of senior
subordinated increasing rate notes, and $30 million of 14.25% Senior
Exchangeable Preferred Stock. 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 million. The goodwill is being amortized over 40
years on a straight-line basis.
For financial statement purposes, the Acquisition and Merger was
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. As a result, the Company's financial
statements for the periods subsequent to September 30, 1995 are
presented on the Successor's new basis of accounting, while financial
statements for September 30, 1995 and prior periods are presented on
the Predecessor's historical cost basis of accounting.
In connection with the Acquisition and Merger, the Company recorded
certain merger related expenses of $9,440 consisting primarily of bonus
payments to certain members of management, which have been charged to
operations as of September 30, 1995. The following unaudited pro forma
results of operations for the twelve month period ended December 31,
1995 and 1994 are presented assuming the Acquisition and Merger had
occurred on January 1, 1994 (no effect on revenues):
<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Net income (loss) $ 3,107 $ (1,442)
Earnings (loss) per share 3,107 (1,442)
</TABLE>
The primary pro forma effects are revised depreciation and
amortization charges, interest expense, income taxes and elimination
of unusual items. The pro forma information does not purport to
present what the Company's results of operations would actually have
been if the Acquisition and Merger had occurred on January 1, 1994 and
is not intended to project future results of operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company manufactures dry pet foods and operates a machine shop and
a structural steel fabrication plant. The Company extends unsecured
credit principally to large
F-7
<PAGE> 48
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
distributors and retailers throughout the United States, with credit
extended to one customer approximating 74%, 70% and 65% of accounts
receivable at December 31, 1995, 1996 and September 30, 1997
(unaudited), respectively.
PRINCIPLES OF CONSOLIDATION
In November 1996, the Company formed a UK holding company, DPC
International, Ltd., a wholly-owned subsidiary of Doane Products
Company, to account for its 50% investment in a foreign joint venture.
The Company is accounting for its investment under the equity method
of accounting. The accompanying consolidated financial statements for
December 31, 1996 include the accounts of Doane and its wholly-owned
subsidiary. All intercompany transactions and balances have been
eliminated.
BASIS OF PRESENTATION
Certain reclassifications have been made to the fiscal 1995
consolidated financial statements to conform with the fiscal 1996
presentation.
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents
consist primarily of repurchase agreements and certificates of
deposit.
INVENTORIES
All inventories are valued at the lower of cost or market. Cost is
determined using the FIFO method.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful life
of each asset ranging from three to forty years. Annual depreciation
is computed using the straight-line method.
INCOME TAXES
Effective October 1, 1995, concurrent with the Acquisition and the
Company's changing from a S Corporation for federal income tax
purposes to a C Corporation, the Successor Company began applying the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (FAS 109). FAS 109 requires recognition
of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities. These
deferred taxes are measured by applying current tax laws.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired represents the excess of the
purchase price over the fair value of the net assets acquired in the
Acquisition and is being amortized by the
F-8 (Continued)
<PAGE> 49
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
straight-line method over 40 years. The Company's policy is to
periodically evaluate such cost to determine whether there has been
any impairment in value. Accumulated amortization was $802, $4,046 and
$6,497, at December 31, 1995, 1996, and September 30, 1997
(unaudited), respectively.
RECOGNITION OF REVENUE
Revenue is recognized at the time the product is shipped.
COMMODITY HEDGES
The Company hedges certain product commitments using forward exchange
contracts. Realized and unrealized gains and losses on commodity
futures contracts are deferred and included in the basis of the
product received. The forward exchange contracts have varying
maturities with none exceeding twelve months. Unrealized gains
(losses) of $1,770, ($5,348) and ($955) are deferred on outstanding
contracts at December 31, 1995 and 1996, and September 30, 1997
(unaudited), respectively.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
PRO FORMA FINANCIAL DATA
Pro forma net income per common share and pro forma income taxes are
set forth herein because the Predecessor Company previously operated
as a subchapter S Corporation.
Pro forma net income per share of common stock is calculated based on
net income reduced by pro forma income taxes, divided by the weighted
average number of shares of common stock outstanding.
Pro forma income taxes, reflect federal income taxes that would have
been incurred had the Predecessor Company been subject to such taxes.
Such amounts have been deducted from net income in the accompanying
statements of income, pursuant to the rules and regulations of the
Securities and Exchange Commission.
F-9
<PAGE> 50
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FINANCIAL INSTRUMENTS
Fair value estimates are made at discrete points in time based on
relevant market information. These estimates may be subjective in
nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. The Company
believes that the carrying amounts of its current assets, current
liabilities and long-term debt approximate the fair value of such
items.
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. Fully
diluted income (loss) per common share is determined based upon the
weighted average number of common shares outstanding. The income
(loss) is decreased (increased) by unpaid cumulative preferred stock
dividends and the accretion of the preferred stock in calculating net
income (loss) attributable to the common shareholder.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company completed the analysis required by Statement of Financial
Accounting Standards No. 121 (SFAS 121) as of December 31, 1995 and
the adoption of SFAS 121 did not have an impact on the Company's
financial statements due to the adjustment of the Company's assets to
fair value as of October 1, 1995.
Long-lived assets and certain identifiable intangibles are written
down to their current fair value whenever events or changes in
circumstances indicate that the carrying amount of these assets are
not recoverable. These events or changes in circumstances may include
but are not limited to a significant change in the extent in which an
asset is used, a significant decrease in the market value of the
asset, or a projection or forecast that demonstrates continuing losses
associated with an asset. If an impairment is determined, the asset is
written down to its current fair value and a loss is recognized.
(3) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Raw materials $ 8,401 $ 8,831 $ 8,144
Packaging materials 9,480 10,608 10,602
Finished goods 9,714 11,298 12,385
-------- --------- ---------
$ 27,595 $ 30,737 $ 31,131
======== ========= =========
</TABLE>
F-10
<PAGE> 51
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------------
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------
1995 1996 1997
----------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Senior Credit Facility $ 86,158 $ 46,603 $ 44,891
Bridge Notes 120,000 -- --
Senior Notes -- 160,000 160,000
Industrial Development Revenue Bonds, 3,580 -- 4,919
----------- --------- ----------
209,738 206,603 209,810
5,505 10,417 11,354
----------- --------- ----------
Less current maturities
$ 204,233 $ 196,186 $ 198,456
=========== ========= ==========
</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 provides
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) 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 $2,100 to
$3,700, commencing September 30, 1996. The Senior Credit Facility
provides for mandatory prepayments of the Term Loan Facility based on
certain performance targets as well as proceeds of asset sales which
are subject to certain permitted exceptions. The Revolving Credit
Facility matures on September 30, 2000. The Company is required to
reduce borrowings under the Revolving Credit 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 Revolving Credit
Facility bore interest at 9.5% for the year ended December 31, 1996.
The Term Loan Facility bore interest at a weighted average rate of
8.47% for the period from October 5, 1995 to December 31, 1995, 7.95%
for the year ended December 31, 1996 and 8.41% for the nine month
period ended September 30, 1997.
F-11 (Continued)
<PAGE> 52
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company is required to pay a commitment fee based on the committed
undrawn amount of the Revolving Credit Facility during the preceding
quarter equal to .375% per annum, payable in arrears on a quarterly
basis during 1996 and equal to .5% per annum, payable in arrears on a
quarterly basis, thereafter; provided, such fee may be reduced after
1996 to as low as .25% based on certain performance targets.
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.
The Senior Credit Facility requires the Company to meet certain
financial tests, including minimum cash flow, minimum cash flow
coverage ratio and maximum leverage ratios. The Senior Credit Facility
also contains covenants which, among other things, will limit the
incurrence of additional indebtedness, the nature of the business of
the Company and its subsidiaries, investments, leases of assets,
ownership of subsidiaries, dividends, transaction with affiliates,
asset sales, acquisitions, mergers and consolidations, liens and
encumbrances and other matters customarily restricted in such
agreements.
BRIDGE NOTES
The bridge notes (the Bridge Notes) matured on October 5, 1996 and bore
interest at a floating rate equal to the sum of (i) the prime rate,
(ii) 5.00%, and (iii) an additional percentage amount, equal to 1.00%
effective from March 30, 1996 and increasing by .50% effective from and
including each quarterly anniversary of such date until the Bridge
Notes are paid in full; provided that the interest rate shall not
exceed 20% per annum. On March 4, 1996, the Bridge Notes were repaid
with the proceeds from the issuance of the Senior Notes. The Bridge
Notes bore interest at a rate of 13.50% per annum at December 31, 1995
and for the period January 1, 1996 to March 4, 1996.
SENIOR NOTES
The Senior Notes (the Senior Notes) bear interest at the rate of
10.625% per annum, payable semiannually on March 1 and September 1 of
each year, commencing on September 1, 1996. 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 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 the Senior Notes remain outstanding immediately after any
such redemption.
F-12 (Continued)
<PAGE> 53
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Senior Notes are general senior unsecured obligations of the
Company, ranking senior to all subordinated indebtedness of the Company
and ranking pari passu in right of payment to all other senior
indebtedness of the Company. Lenders under the Senior Credit Facility
have claims with respect to the assets constituting collateral for such
indebtedness that are effectively senior and right of payment to the
claims of holders of the Senior Notes. The Senior Notes were issued
pursuant to the Note Indenture which contains covenants restricting or
limiting the ability of the Company and its subsidiaries to pay
dividends or make other restricted payments, incur additional
indebtedness and issue preferred stock, create liens, incur dividends
and other payment restrictions affecting subsidiaries, enter into
mergers or consolidations, make asset sales, enter into transactions
with affiliates, and engage in other lines of business. Under certain
circumstances, the Company is required to offer to purchase all
outstanding Senior Notes at a purchase price in cash equal to 100% of
their principal amount, plus accrued and unpaid interest to the date of
repurchase, with the proceeds of certain asset sales. Upon a Change of
Control (as defined in the Note Indenture) each holder of Senior Notes
will have the right to require the Company to repurchase all or any
part of such holder's Senior Notes at a purchase price equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest
to the date of purchase.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
The Industrial Development Revenue Bonds with the County of Pueblo,
Colorado (the Pueblo IDRB's) were issued on October 1, 1991 in the
aggregate principal amount of $4,500. The Pueblo IDRBs bear interest at
a rate of 6.3% to 7.15% per annum. Principal repayments are due
annually through October, 2001. The Pueblo IDRBs are secured by real
estate and other property and equipment at the Pueblo, Colorado
manufacturing facility. On October 30, 1996, the Company redeemed the
remaining Pueblo IDRB's with funds borrowed from the Term Loan
Facility.
On March 12, 1997 the Company issued $6,000 of 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.
Aggregate annual maturities of long-term debt at December 31, 1996
were:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 10,417
1998 11,667
1999 11,667
2000 12,852
Thereafter 160,000
</TABLE>
The Company had approximately $22,700 and $44,900 available under the
revolving credit agreement and the term loan facility, respectively, at
December 31, 1996 which expires in 1999.
(5) SENIOR EXCHANGEABLE PREFERRED STOCK
The Company has authorized 3,000 shares of Senior Exchangeable
Preferred Stock of which the Company issued 1,200 shares in connection
with the financing of the Acquisition.
F-13 (Continued)
<PAGE> 54
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 September 30, 1997, December
31, 1996 and 1995 are $9,635, $5,739 and $1,069, respectively and are
included in the carrying amount of the Senior Exchangeable Preferred
Stock as indicated below:
<TABLE>
<S> <C>
Issuance on October 5, 1995 for cash
(at fair value on date of issuance) $ 17,075
Accretion to redemption value 270
Dividends on the senior exchangeable preferred stock 1,069
--------
18,414
Accretion to redemption value 1,076
Dividends on the senior exchangeable preferred stock 4,670
--------
Balance, December 31, 1996 $ 24,160
--------
Accretion to redemption value 808
Dividends on the senior exchangeable preferred stock 3,896
--------
Balance, September 30, 1997 (unaudited) $ 28,864
========
</TABLE>
F-14 (Continued)
<PAGE> 55
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Prior to September 30, 1998, the Company may, at its option, redeem up
to one-third of the then outstanding Senior Exchangeable Preferred
Stock with the net proceeds of an initial public offering of its common
stock at a redemption price of 114% of the then liquidation value of
the Senior Exchangeable Preferred Stock, plus accrued and unpaid
dividends. On and after September 30, 2000, the Company may, at its
option, redeem the Senior Exchangeable Preferred Stock in whole or in
part at redemption prices per share set forth below, together with
accrued and unpaid dividends:
<TABLE>
<CAPTION>
Year Percent of
Beginning liquidation
September 30, Value
------------ -----------
<S> <C> <C>
2000 107.125%
2001 105.700
2002 104.275
2003 102.850
2004 101.425
2005 100.000
2006 100.000
</TABLE>
In addition, the Company has the right at any time to redeem the Senior
Exchangeable Preferred Stock, in whole or in part, from DLJ Merchant
Banking Partners, L.P. and certain of its affiliates and Chase
Manhattan Investment Holdings, Inc. at a price 100% of the then
liquidation value of the Senior Exchangeable Preferred Stock, plus
accrued and unpaid dividends. The Company will be required to redeem
all remaining outstanding shares of Senior Exchangeable Preferred Stock
on September 30, 2007 at 100% of the then liquidation value, together
with accrued and unpaid dividends.
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.
In the event of a change of control, as defined, the holders of Senior
Exchangeable Preferred Stock have the right to require the Company to
redeem such Senior Exchangeable Preferred Stock, in whole or in part,
at a price equal to 101% of the then liquidation value together with
and unpaid dividends.
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.
Holders of the Senior Exchangeable Preferred Stock have limited voting
rights customary for preferred stock, and the right to elect two
additional directors upon certain events such as the Company failing to
declare and pay dividends on any six consecutive dividend payment
dates.
F-15 (Continued)
<PAGE> 56
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(6) MAJOR CUSTOMER
For the year ended December 31, 1994 and the nine months ended
September 30, 1995, one customer accounted for approximately 69% and
67%, respectively, of the Predecessor Company's total revenue. For the
three months ended September 30, 1995, the year ended December 31, 1996
and the nine months ended September 30, 1997 (unaudited), one customer
accounted for approximately 67%, 65%, and 63%, respectively, of the
Successor Company's total revenue. The Company does not have a
long-term contract with this customer.
(7) INCOME TAXES
The Predecessor has elected under both Federal and certain state income
tax laws to be taxed as an S Corporation. Under this election, the
Company's taxable income is taxed to the stockholders on their
individual income tax returns. The provision for income taxes reflects
the accrual of corporation income taxes due in states which do not
recognize the S Corporation status.
Effective October 1, 1995, concurrent with the Acquisition and the
Company's changing from S Corporation for Federal income tax purposes
to a C Corporation, the Successor began applying the provisions of FAS
109.
The Company elected to step up the tax basis in the assets acquired.
Goodwill recorded in the acquisition is deductible for tax purposes
over 15 years.
The components of income tax expense (benefit) are:
<TABLE>
<CAPTION>
Successor
------------------------------
Three month
period ended Year ended
December 31, December 31,
1995 1996
------------- -------------
<S> <C> <C>
Current:
Federal $ (318) $ --
State (30) --
Deferred:
Federal 1,102 (855)
-------- ------
Total income tax provision (benefit) $ 754 $ (855)
======== ======
</TABLE>
The difference between the statutory rate and the effective tax rate is
a result of nondeductible meals and entertainment expenses and other
miscellaneous expenses.
F-16 (Continued)
<PAGE> 57
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The tax effects of temporary differences that give rise to the
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
CURRENT DEFERRED
Deferred tax assets:
Accounts receivable $ 3 $ 19
Inventory -- 286
Accruals and provisions 85 576
------- -------
Current deferred tax asset 85 881
NONCURRENT DEFERRED
Deferred tax assets -- 8,656
------- -------
-- 8,656
Deferred tax liabilities:
Tax over book amortization (867) (4,088)
Difference between book and tax basis of
property and equipment (323) (4,977)
------- -------
(1,191) (9,065)
Net noncurrent deferred tax liability (1,191) (409)
------- -------
Total net deferred tax asset (liability) $(1,103) 472
======= =======
</TABLE>
There is no valuation allowance as of fiscal year ended December
31,1996. It is the opinion of management that future operations will
more likely than not generate taxable income to realize deferred tax
assets.
At December 31, 1996, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $23,000, which are
available to offset future federal income, if any, through 2011.
F-17
(Continued)
<PAGE> 58
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) EMPLOYEE BENEFIT PLANS
The Company has a defined benefit, noncontributory pension plan
covering substantially all non-bargaining employees. Benefits under the
plan are based on the employee's compensation during the five most
highly compensated consecutive years during the ten years preceding
normal retirement date. The Company's funding policy for the plan is to
make the minimum annual contribution required by applicable
regulations.
Net periodic pension cost for the Company's defined benefit pension
plans consisted of the following components for the years ended:
<TABLE>
<CAPTION>
Predecessor Successor
----------------------------- -----------------------------
Nine month Three month
Year ended period ended period ended Year ended
December 31, September 30, December 31, December 31,
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service cost (benefits) earned $ 758 $ 714 $ 237 $ 1,059
Interest cost on projected
benefit obligation 647 515 197 781
Actual return on plan assets 156 (1,509) (377) (906)
Net amortization and deferral (816) 997 180 71
------- ------- ------- -------
Net periodic pension cost $ 745 $ 717 $ 237 $ 1,005
======= ======= ======= =======
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of:
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
December 31,
------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Discount rate 7.5% 7.0% 7.0%
Rate of increase in compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return on plan assets 7.5% 7.5% 7.5%
</TABLE>
F-18
(Continued)
<PAGE> 59
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the plan's funded status and amounts
recognized in the accompanying balance sheets as of:
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
December 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (5,534) $ (7,421) $ (7,940)
======== ======== ========
Accumulated benefits $ (5,720) $ (7,638) (8,172)
======== ======== ========
Projected benefits $ (9,043) $(11,592) $(13,060)
Plan assets at fair value 8,842 11,524 12,428
-------- -------- --------
Projected benefit obligation in excess of
plan assets (201) (68) (632)
Items not yet recognized in earnings:
Unrecognized net loss (gain) 1,523 -- (45)
Unrecognized prior service cost (49) -- --
Unrecognized net asset at December 31, 1986,
being recognized over 14.49 to 17.95 years (393) -- 333
-------- -------- --------
Prepaid pension asset (liability) recognized in
the balance sheet $ 880 $ (68) $ (344)
======== ======== ========
</TABLE>
F-19
(Continued)
<PAGE> 60
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company sponsors a defined contribution postretirement plan which
provides medical coverage for eligible retirees and their dependents
(as defined in the plan). On October 1, 1995, the Company adopted SFAS
106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. The following sets forth the plans' funded status reconciled
with the amount shown in the Company's statement of income on an
accrual basis rather than a pay-as-you-go (cash) basis as follows:
<TABLE>
<CAPTION>
Successor
-----------------
December 31,
-----------------
1995 1996
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents $ 813 $ 825
Fully eligible active plan participants 265 356
Other active plan participants 282 316
------ ------
Accrued postretirement benefit cost $1,360 $1,497
====== ======
</TABLE>
<TABLE>
<CAPTION>
Three month
period ended Year ended
December 31, December 31,
1995 1996
---- ----
<S> <C> <C>
Net periodic postretirement benefit cost included the following
components:
Service cost - benefits attributed to
service during the period $ 17 $ 17
Interest cost on accumulated postretirement
benefit obligation 100 104
---- ----
Net periodic postretirement benefit cost $117 $121
==== ====
</TABLE>
For measurement purposes, a 10% and 10.5% annual rate of increase in
the per capita cost of medical benefits was assumed for 1995 and 1996,
respectively; the rate was assumed to decrease gradually to 4.5% for
2001 and remain at that level thereafter. The medical cost trend rate
assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed medical cost trend rates by 1
percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 by $206 and
the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended 1996 by $18.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 7.0% for December 31,
1995 and 1996, respectively.
F-20
(Continued)
<PAGE> 61
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) DEFERRED COMPENSATION AGREEMENTS AND
SALARY CONTINUATION PLAN
The Company has deferred compensation agreements with two individuals
which provide, upon retirement, annual payments to be paid over ten
consecutive years. The liability is approximately $2,086, $1,190 and
$1,160 at December 31, 1995 and 1996 and September 30, 1997
(unaudited), respectively.
The Company also has a salary continuation plan in which there were
twenty-four participants at December 31, 1995 and 1996. Participants in
the plan, who reach age fifty-five and have ten years of service with
the Company, become vested as to benefits which are payable in ten
equal annual installments after retirement. The Company has recorded an
expected future liability equal to the present value of future payments
under this plan. The liability is approximately $1,400, $1,343 and
$1,332 at December 31, 1995 and 1996 and September 30, 1997
(unaudited), respectively.
(10) ADDITIONAL CASH FLOW INFORMATION
The following is additional cash flow information for the year ended
December 31, 1994, for the nine months ended September 30, 1995, for
the three month period ended December 31, 1995, and for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
Predecessor Successor
---------------------------- ---------------------------------------------
Nine month Three month Nine month
Year ended period ended period ended Year ended period ended
December 31, September 30, December 31, December 31, September 30,
1994 1995 1995 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Noncash investing and
Financing activities:
Accounts payable
Incurred for property
Equipment $ 283 $ -- $ 67 $ -- $ --
Additional cash payment
Information:
Interest paid (net of
amounts capitalized) 2,333 5,114 192 21,028 20,382
Income taxes paid
(refunded) 354 302 (51) 351 --
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
The Company is party, in the ordinary course of business, to certain
claims and litigation. In management's opinion, the resolution of such
matters is not expected to have a material impact on the financial
condition or results of operations of the Company.
F-21
(Continued)
<PAGE> 62
DOANE PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Successor
-------------------------------------------------------------------
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 118,404 $ 112,881 $ 124,672 $ 144,751
Gross margins 15,428 12,925 12,707 16,070
Net income (loss) (1,650) (236) (609) 977
</TABLE>
<TABLE>
<CAPTION>
Predecessor Successor
------------------------------------------- --------------
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $103,638 $ 99,148 $ 91,932 $111,618
Gross margins 16,738 16,723 16,094 15,254
Net income (1) 9,303 9,236 (1,793) 1,024
</TABLE>
(1) Net income for the third quarter of 1995 includes an unusual
item of $9,440 related to bonuses paid in connection with the
Acquisition.
F-22
(Continued)
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law
Section 145(a) of the General Corporation law of the State of Delaware
(the "DGCL") provides that a corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than by an action by or in the right of the
corporation) by reason of fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgment, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication or liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnify for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a)and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b). Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorney's
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section 145.
Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deem appropriate.
II-1
<PAGE> 64
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which whose
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the
power to purchase and maintain insurance of behalf of any person who is or was
a director, officer, employee of agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity , or raising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Certificate of Incorporation
The Company's Certificate of Incorporation (the "Certificate") provides
that a director of the Company will not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
(iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transactions from
which the director derived an improper personal benefit. If the DGCL is amended
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall
be eliminated or limited to the fullest extent permitted by the DGCL, as so
amended form time to time.
Bylaws
The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigate, by
reason of the fact that he or she or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as director or officer, shall
be indemnified and held harmless by the Company to the fullest extent
authorized by the DGCL, as the same exists or may thereafter be amended (but,
in the case of any such amendment, only tot the extent that such amendment
permits the Company to provided broader indemnification rights than said law
permitted that Company to provide prior to such amendment) against all expense,
liability and loss (including, without limitation, attorneys' feed, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who to the
benefit of his or her heirs, executors and administrators; provided, however,
that the Company shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the board of directors of
the Company. The Bylaws further provide that the right to indemnification
conferred thereby shall be a contract right and shall include the right to be
paid by the Company the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the DGCL
requires, the payment of such expenses incurred by a current, former or
proposed director or officer in his or her capacity as a director or officer or
proposed director or officer (and not in any other capacity in which service
was or is or has been agreed to be rendered by such person while a director or
officer, including, without limitation, service to an employee rendered by such
person while a director or officer, including, without limitation, service to
an employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery tot eh Company of an undertaking, by or on
behalf of such indemnified person, to repay all amount so advanced if it shall
ultimately be determined that such indemnified person is not entitled to be
indemnified under the Bylaws or otherwise. In addition,
II-2
<PAGE> 65
the Bylaws provide that the Company may, by action of its board of directors,
provide indemnification of directors and officers provided for in the Bylaws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers, or
persons controlling the registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of August 31, 1995
among Doane Products Company, DPCAC and DPC Subsidiary
Acquisition Corp.; list of schedules to such Merger
Agreement; Agreement of Company to furnish such schedules
to the Commission upon its request (incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1,
Registration No. 33-98110).
3.2* Certificate of Amendment to Certificate of Incorporation
of the Company, filed with the Secretary of State of the
State of Delaware on February 4, 1998.
3.3 Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
4.1 Form of Trust Indenture between the Company and U.S.
Trust Company of Texas, N.A (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-98110).
4.2 Revolving Credit and Term Loan Agreement dated as of
October 5, 1995 among the Company, Mercantile Bank of St.
Louis National Association, as agent for the Banks named
therein, and the Banks named therein (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
4.3 Amended and Restated Revolving Credit and Term Loan
Agreement dated as of February 28, 1996 among the
Company, Mercantile Bank of St. Louis National
Association, as agent for the Banks named therein, and
the Banks named therein (incorporated by reference to
Exhibit 4.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.4 First Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement dated as of June 28, 1996 among
the Company, Mercantile Bank of St. Louis National
Association, as agent for the Banks named therein, and
the Banks named therein (incorporated by reference to
Exhibit 4.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.5 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 (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997).
5.1 Opinion of Vinson & Elkins L.L.P.
9.1 Investors' Agreement dated as of October 5, 1995 among
DPC Acquisition Corp., the Company, Summit Capital Inc.,
Summit/DPC Partners, L.P., Chase Manhattan Investment
Holdings, Inc., DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners,
C.V., DLJ Merchant Banking Funding, Inc. and certain
other persons named therein (incorporated
II-3
<PAGE> 66
by reference to Exhibit 9.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
10.1 Doane Products Company Employee Retirement Plan
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1,
Registration No. 33-98110).
10.2 Employment Agreement dated September 1, 1994, as amended
on August 31, 1995, between the Company and Bob L.
Robinson (incorporated by reference to Exhibit 10.2 to
the Company's Registration Statement on Form S-1,
Registration No. 33-98110).
10.3 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Roy E. Hess
(incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1,
Registration No. 33-98110).
10.4 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Terry W. Bechtel
(incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1,
Registration No. 33-98110).
10.5 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Earl R. Clements
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1,
Registration No. 33-98110).
10.6 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Dick H. Weber
(incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1,
Registration No. 33-98110).
10.7 Employment Agreement dated as of March 3, 1997, between
the Company and Thomas R. Heidenthal (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March
31, 1997).
10.8 DPC Acquisition Corp. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
12.1 Statement regarding Computation of Ratios.
23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1).
23.2* Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule (incorporated by reference to
Exhibit 27.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997).
99.1* Form of Letter of Transmittal.
- ---------------
* Filed herewith. All other exhibits have been previously filed.
(b) Consolidated Financial Statement Schedules, Years ended December 31,
1994, 1995 and 1996:
Not Applicable
II-4
<PAGE> 67
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. this includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Joplin, State of Missouri, on the 5th day of February, 1998.
DOANE PRODUCTS COMPANY
By: /s/ THOMAS R. HEIDENTHAL
-------------------------------------------------
Thomas R. Heidenthal
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ BOB L. ROBINSON President and Chief Executive February 5, 1998
- ---------------------------- Officer and Director (Principal
Bob L. Robinson Executive Officer)
/s/ THOMAS R. HEIDENTHAL
- ---------------------------- Senior Vice President and Chief February 5, 1998
Thomas R. Heidenthal Financial Officer (Principal
Financial Officer and Principal
Accounting Officer
/s/ *
- ---------------------------- Director February 5, 1998
Peter T. Grauer
/s/ *
- ---------------------------- Director February 5, 1998
George B. Kelly
/s/ *
- ---------------------------- Director February 5, 1998
M. Walid Mansur
/s/ *
- ---------------------------- Director February 5, 1998
Andrew H. Rush
/s/ *
- ---------------------------- Director February 5, 1998
Jeffrey C. Walker
*By /s/ THOMAS R. HEIDENTHAL
------------------------
Thomas R. Heidenthal,
as attorney-in-fact
II-6
<PAGE> 69
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of August 31, 1995
among Doane Products Company, DPCAC and DPC Subsidiary
Acquisition Corp.; list of schedules to such Merger
Agreement; Agreement of Company to furnish such schedules
to the Commission upon its request (incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, Registration No.
33-98110).
3.2* Certificate of Amendment to Certificate of Incorporation
of the Company, filed with the Secretary of State of the
State of Delaware on February 4, 1998.
3.3 Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
4.1 Form of Trust Indenture between the Company and U.S. Trust
Company of Texas, N.A (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-98110).
4.2 Revolving Credit and Term Loan Agreement dated as of
October 5, 1995 among the Company, Mercantile Bank of St.
Louis National Association, as agent for the Banks named
therein, and the Banks named therein (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
4.3 Amended and Restated Revolving Credit and Term Loan
Agreement dated as of February 28, 1996 among the Company,
Mercantile Bank of St. Louis National Association, as
agent for the Banks named therein, and the Banks named
therein (incorporated by reference to Exhibit 4.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
4.4 First Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement dated as of June 28, 1996 among
the Company, Mercantile Bank of St. Louis National
Association, as agent for the Banks named therein, and the
Banks named therein (incorporated by reference to Exhibit
4.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
4.5 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 (incorporated by reference to Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997).
5.1 Opinion of Vinson & Elkins L.L.P.
9.1 Investors' Agreement dated as of October 5, 1995 among DPC
Acquisition Corp., the Company, Summit Capital Inc.,
Summit/DPC Partners, L.P., Chase Manhattan Investment
Holdings, Inc., DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V.,
DLJ Merchant Banking Funding, Inc. and certain other
persons named therein (incorporated
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
by reference to Exhibit 9.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-98110).
10.1 Doane Products Company Employee Retirement Plan
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1, Registration
No. 33-98110).
10.2 Employment Agreement dated September 1, 1994, as amended
on August 31, 1995, between the Company and Bob L.
Robinson (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1, Registration
No. 33-98110).
10.3 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Roy E. Hess
(incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1, Registration
No. 33-98110).
10.4 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Terry W. Bechtel
(incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1, Registration
No. 33-98110).
10.5 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Earl R. Clements
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1, Registration
No. 33-98110).
10.6 Employment Agreement dated June 1, 1994, as amended on
August 31, 1995, between the Company and Dick H. Weber
(incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1, Registration
No. 33-98110).
10.7 Employment Agreement dated as of March 3, 1997, between
the Company and Thomas R. Heidenthal (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March
31, 1997).
10.8 DPC Acquisition Corp. 1996 Stock Option Plan (incorporated
by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
12.1 Statement regarding Computation of Ratios.
23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.2* Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule (incorporated by reference to
Exhibit 27.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997).
99.1* Form of Letter of Transmittal.
</TABLE>
- --------------
* Filed herewith. All other exhibits have been previously filed.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Doane Products Company, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the
Corporation, a resolution was duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation
declaring the proposed amendment to be advisable and calling a meeting
of the sole stockholder of the Corporation for consideration thereof.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors of the
Corporation deems it advisable and in the best
interest of the Corporation to amend the
Corporation's Certificate of Designations,
Preferences and Rights of 14.25% Senior Exchangeable
Preferred Stock Due 2007 to add Section 4(d), so that
the full text of such section as added shall read as
follows:
"(d) Shares of Senior Preferred
Stock issued in connection with an exchange
offer made by the Corporation for outstanding
shares of Senior Preferred Stock for the
purpose of providing the holders of such
outstanding shares of Senior Preferred Stock
with shares registered under the Securities
Act of 1933, as amended, shall initially have
a liquidation preference equal to the
Liquidation Value of such outstanding shares
of Senior Preferred Stock on the date of such
exchange and shall thereafter have a
Liquidation Value determined in accordance
with Section 4(a)."
SECOND: That the sole stockholder of the Corporation has
given written consent to the amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State
of Delaware.
THIRD: That the amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, Doane Products Company has caused this certificate
to be signed by Thomas R. Heidenthal, its Senior Vice President and Chief
Financial Officer, this 4th day of February, 1998.
DOANE PRODUCTS COMPANY
By: /s/ THOMAS R. HEIDENTHAL
-------------------------------------
Thomas R. Heidenthal
Senior Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Doane Products Company:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Houston, Texas
February 5, 1998
<PAGE> 1
EXHIBIT 99.1
DOANE PRODUCTS COMPANY
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
SHARES OF 14.25% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2007
IN EXCHANGE FOR
SHARES OF 14.25% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2007
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 12, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE")
OLD SHARES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE
DELIVER TO THE EXCHANGE AGENT:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<S> <C> <C>
By Hand: By Overnight Courier: By Mail:
U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A.
111 Broadway -- Lower Level 770 Broadway -- 13th Floor P.O. Box 841 -- Cooper Station
New York, New York 10006 New York, New York 10003 New York, New York 10276
Attention: Corporate Trust Attention: Corporate Trust Attention: Corporate Trust
(registered or certified mail
recommended)
</TABLE>
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 420-6155
Confirm by Telephone:
(212) 420-6668
____________________
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated February 6, 1998 (the "Prospectus") of Doane Products Company, a Delaware
corporation (the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe the offer of the Company (the "Exchange
Offer") to exchange the Company's 14.25% Senior Exchangeable Preferred Stock
Due 2007 (the "Exchange Shares"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for a like number
of the Company's issued and outstanding 14.25% Senior Exchangeable
Preferred Stock Due 2007 (the "Old Shares"). Capitalized terms used but not
defined herein have the respective meanings given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The
Company shall notify the holders of the Old Shares of any extension by oral or
written notice and will mail to the record holders of Old Shares an
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. The term
"business day" shall mean any day which is not a Saturday, Sunday or day on
which banks are authorized by law to close in the State of New York.
This Letter of Transmittal is to be used by a holder of Old Shares if
original Old Shares, if available, are to be forwarded herewith or an Agent's
Message is to be used if delivery of Old Shares is to be made by book-entry
transfer to the account
<PAGE> 2
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering"
and "-- Book-Entry Transfer." Holders of Old Shares whose Old Shares are not
immediately available, or who are unable to deliver their Old Shares and all
other documents required by this Letter of Transmittal to the Exchange Agent on
or prior to the Expiration Date, or who are unable to complete the procedure
for book-entry transfer on a timely basis, must tender their Old Shares
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The term "holder" with respect to the Exchange Offer means any person in
whose name Old Shares are registered on the books of the Company or any other
person who has obtained a properly completed stock power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Shares must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the Old Shares to which this Letter of Transmittal relates. If
the space below is inadequate, list the certificate numbers and share amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
- --------------------------------------------------------------------------------
DESCRIPTION OF OLD SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered
Holder(s) Exactly as Name(s)
Appear(s) on Old Shares
(Please Fill In, If Blank) Old Share(s) Tendered
- --------------------------------------------------------------------------------
Certificate Number of Old
Number(s)* Shares Tendered
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD SHARES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
<PAGE> 3
[ ] CHECK HERE IF TENDERED OLD SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered holder(s) of Old Shares:_________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________________
Window Ticket Number (if available):___________________________________________
Name of Eligible Institution that Guaranteed Delivery:_________________________
Account Number (if delivered by book-entry transfer):__________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:__________________________________________________________________________
Address:_______________________________________________________________________
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the number of Old Shares indicated
above. Subject to and effective upon the acceptance for exchange of the number
of Old Shares tendered in accordance with this Letter of Transmittal, the
undersigned hereby exchanges, assigns and transfers to the Company all right,
title and interest in and to the Old Shares tendered for exchange hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent, the
agent and attorney-in-fact of the undersigned (with full knowledge that the
Exchange Agent also acts as the agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Shares with full power of
substitution to (i) deliver such Old Shares, or transfer ownership of such Old
Shares on the account books maintained by the Book-Entry Transfer Facility, to
the Company and deliver all accompanying evidences of transfer and authenticity,
and (ii) present such Old Shares for transfer on the books of the Company and
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Old Shares, all in accordance with the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed to be irrevocable
and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old
Shares tendered hereby and to acquire the Exchange Shares issuable upon the
exchange of such tendered Old Shares, and that the Company will acquire good
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim, when the same
are accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange Shares issued in
exchange for the Old Shares pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than a
broker-dealer who purchased Old Shares exchanged for such Exchange Shares
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Shares are acquired in the ordinary course of such holders'
business and such holders are not participating in, and have no arrangement
with any person to participate in, the distribution of such Exchange Shares.
The undersigned specifically represent(s) to the Company that (i) any Exchange
Shares acquired in exchange for Old Shares tendered hereby are being acquired
in the ordinary course of business of the person receiving such Exchange
Shares, whether or not the undersigned, (ii) the undersigned is not
participating in, and has no arrangement with any person to participate in, the
distribution of Exchange Shares, and (iii) neither the undersigned nor any such
other person is an "affiliate" (as defined in Rule 405 under the Securities
Act) of the Company or a broker-dealer tendering Old Shares acquired directly
from the Company.
<PAGE> 4
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Shares. If the undersigned is a broker-dealer that will receive
Exchange Shares for its own account in exchange for Old Shares that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus in connection with any resale
of such Exchange Shares; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The undersigned
acknowledges that if the undersigned is participating in the Exchange Offer for
the purpose of distributing the Exchange Shares (i) the undersigned cannot rely
on the position of the staff of the SEC in the Morgan Stanley Letter and
similar SEC no-action letters, and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Shares, in which case the registration statement must contain the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the SEC, and (ii) a broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will
be subject to certain of the civil liability provisions under the Securities
Act and will be bound by the provisions of the Registration Agreement
(including certain indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Shares
tendered hereby, including the transfer of such Old Shares on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Shares when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Shares that are not accepted for exchange pursuant to the Exchange Offer for
any reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the acceptance of properly tendered Old
Shares by the Company pursuant to the procedures described under the caption
"The Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Shares issued in exchange for the Old Shares accepted for
exchange and return any Old Shares not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail or deliver the Exchange Shares issued in exchange for
the Old Shares accepted for exchange and any Old Shares not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signature(s). In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the Exchange Shares issued in exchange for the Old Shares accepted for exchange
in the name(s) of, and return any Old Shares not exchanged to, the person(s) so
indicated. The undersigned recognizes that the Company has no obligation
pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Shares from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the Old
Shares so tendered for exchange.
<PAGE> 5
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SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6) (SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Exchange Shares To be completed ONLY if Exchange Shares issued in
issued in exchange for Old Shares accepted for exchange for Old Shares accepted for exchange, are to
exchange, are to be issued in the name of someone be mailed or delivered to someone other than the
other than the undersigned, or (ii) if Old Shares undersigned, or to the undersigned at an address other
tendered by book-entry transfer which are not than that shown below the undersigned's signature.
exchanged are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility other Mail or deliver Exchange Shares and/or Old Shares to:
than the account indicated above.
Issue Exchange Shares and/or Old Shares to: Name:
--------------------------------------------------
(Please Type or Print)
Name:
-------------------------------------------------- -------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------- -----------------------------------------------
Address:
----------------------------------------------- -------------------------------------------------------
(include Zip Code)
-------------------------------------------------------
(include Zip Code)
-------------------------------------------------------
(Tax Identification or Social Security Number)
-------------------------------------------------------
(Tax Identification or Social Security Number)
[ ] Credit unexchanged Old Shares delivered by
book-entry transfer to the Book-Entry Transfer
Facility set forth below:
Book-Entry Transfer Facility Account Number:
(Complete Substitute Form W-9)
- ----------------------------------------------------------- -------------------------------------------------------------
</TABLE>
<PAGE> 6
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OLD SHARES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X_______________________________________________________________________________
X_______________________________________________________________________________
(Signature(s) of Registered Holder(s) of Old Shares)
Dated______________________________________________________, 1998
(The above lines must be signed by the registered holder(s) of Old
Shares as name(s) appear(s) on the Old Shares or on a security position
listing, or by person(s) authorized to become registered holder(s) by a
properly completed stock power from the registered holder(s), a copy of
which must be transmitted with this Letter of Transmittal. If Old Shares to
which this Letter of Transmittal relate are held of record by two or more
joint holders, then all such holders must sign this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, then such person must (i) set forth his
or her full title below and (ii) unless waived by the Company, submit
evidence satisfactory to the Company of such person's authority so to
act. See Instruction 5 regarding the completion of this Letter of
Transmittal, printed below.)
Name(s):_______________________________________________________________________
(Please Type or Print)
Capacity:______________________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:____________________________
(Authorized Signature)
______________________________________________________________________________
(Title)
______________________________________________________________________________
(Name of Firm)
______________________________________________________________________________
(Address, Include Zip Code)
______________________________________________________________________________
(Area Code and Telephone Number)
Dated:__________________________________________________________________, 1998
- --------------------------------------------------------------------------------
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Shares or Book-Entry
Confirmations. All physically delivered Old Shares or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Shares tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or Agent's Message or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. The method of delivery of the tendered Old
Shares, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it
is recommended that the holder use an overnight or hand delivery service. In
all cases, sufficient time should be allowed to assure delivery to the Exchange
Agent before the Expiration Date. No Letter of Transmittal or Old Shares
should be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Shares and whose Old Shares are not immediately available or who cannot deliver
their Old Shares, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date or who cannot complete
the procedure for book-entry transfer on a timely basis and deliver an Agent's
Message, must tender their Old Shares according to the guaranteed delivery
procedures set forth in the Prospectus. Pursuant to such procedures: (1) such
tender must be made by or through a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers Inc., a commercial bank or a trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have received from
the Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder of the Old Shares, the registration
number(s) of such Old Shares and the number of Old Shares tendered, stating that
the tender is being made thereby and guaranteeing that, within five business
days after the Expiration Date, this Letter of Transmittal (or facsimile hereof)
together with the Old Shares in proper form for transfer (or a Book-Entry
Confirmation) and any other documents required hereby, must be deposited by the
Eligible Institution with the Exchange Agent within five business days after the
Expiration Date; and (iii) the certificates for all physically tendered shares
of Old Shares, in proper form for transfer (or Book-Entry Confirmation, as the
case may be) and all other documents required hereby are received by the
Exchange Agent within five business days after the Expiration Date.
Any holder of Old Shares who wishes to tender Old Shares pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a
Notice of Guaranteed Delivery will be sent to holders who wish to tender their
Old Shares according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a holder of Old Shares may tender such Old
Shares in the Exchange Offer. Any beneficial holder of Old Shares who is not
the registered holder and who wishes to tender should arrange with the
registered holder to execute and deliver this Letter of Transmittal on his
behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his Old Shares, either make appropriate arrangements to register
ownership of the Old Shares in such holder's name or obtain a properly
completed stock power from the registered holder.
4. Signatures on this Letter of Transmittal; Stock Powers and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal (or
facsimile hereof) is signed by the record holder(s) of the Old Shares tendered
hereby, the signature must correspond with the name(s) as written on the face
of the Old Shares without alteration, enlargement or any change whatsoever. If
this Letter of Transmittal (or facsimile hereof) is signed by a participant in
the Book-Entry Transfer Facility, the signature must correspond with the name
as it appears on the security position listing as the holder of the Old Shares.
<PAGE> 8
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Shares listed and tendered hereby and the
Exchange Shares issued in exchange therefor are to be issued to the registered
holder, the said holder need not and should not endorse any tendered Old Shares,
nor provide a separate stock power. In any other case, such holder must either
properly endorse the Old Shares tendered or transmit a properly completed
separate stock power with this Letter of Transmittal, with the signatures on the
endorsement or stock power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Old Shares listed, such Old
Shares must be endorsed or accompanied by appropriate stock powers, in each
case signed as the name of the registered holder or holders appears on the Old
Shares.
If this Letter of Transmittal (or facsimile hereof) or any Old Shares or
stock powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to act must be submitted with this Letter of Transmittal.
Endorsements on Old Shares or signatures on stock powers required by this
Instruction 4 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old Shares
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered Old
Shares) and the Exchange Shares are to be issued directly to such registered
holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility,
deposited to such participant's account at such Book-Entry Transfer Facility)
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Registration Instructions" has been completed, or (ii) such
Old Shares are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal (or facsimile hereof)
must be guaranteed by an Eligible Institution.
5. Special Registration and Delivery Instructions. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which Exchange Shares or
substitute Old Shares not accepted for exchange are to be issued or sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
6. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Shares pursuant to the Exchange Offer. If,
however, Exchange Shares or Old Shares not accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Old Shares tendered hereby, or if tendered Old
Shares are registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Shares pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
this Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD SHARES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. Tax Identification Number. Federal income tax law requires that a
holder of any Old Shares which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual is his or her social
security number. If the Company is not provided with the correct TIN, the
holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
(If withholding results in an over-payment of taxes, a refund may be obtained).
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Old Shares are registered in more than one name or are not
in the name of the actual owner, see the
<PAGE> 9
enclosed "Guidelines for Certification of Taxpayer Identification Number of
Substitute Form W-9" for information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
8. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Old Shares will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Shares not properly tendered or any Old Shares
its acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any conditions
of the Exchange Offer or defects or irregularities in tenders as to particular
Old Shares. The interpretation of the terms and conditions by the Company of
the Exchange Offer (which includes this Letter of Transmittal and the
instructions hereto) shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Shares must be
cured within such time as the Company shall determine. Neither the Company,
the Exchange Agent, nor any other person shall be under any duty to give
notification of defects or irregularities with regard to tenders of Old Shares
nor shall any of them incur any liability for failure to give such
notification.
9. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
10. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Shares on transmittal of this Letter of Transmittal
will be accepted.
11. Mutilated, Lost, Stolen or Destroyed Old Shares. Any holder whose Old
Shares have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
12. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
13. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD SHARES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL
HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
<PAGE> 10
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SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
BOX AT RIGHT AND CERTIFY BY SIGNING AND OR Employer Identification Number
FORM W-9 DATING BELOW
------------------------------------
---------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PART 2 -- Certification -- Under penalties of PART 3 --
perjury, I certify that:
(1) The number shown on this form is my correct Awaiting TIN [ ]
Taxpayer Identification Number (or I am waiting
for a number to be issued to me) and
(2) I am not subject to backup withholding either Please complete the
PAYER'S REQUEST FOR TAXPAYER because I have not been notified by the Certificate of Awaiting
IDENTIFICATION NUMBER (TIN) Internal Revenue Service ("IRS") that I am Taxpayer Identification
subject to backup withholding as a result of Number below.
failure to report all interest or dividends, or
the IRS has notified me that I am no longer
subject to backup withholding.
---------------------------------------------------------------------------------
Certificate Instructions -- You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
SIGNATURE DATE , 1998
--------------------------------------------------- -------
- ----------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU
PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
- ----------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and
either (a) I have mailed or delivered an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or
deliver an application in the near future. I understand that if I do not provide a taxpayer identification
number to the payor within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I
provide a number.
, 1998
---------------------------------------------- ----------------------------------------------
Signature Date
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
<TABLE>
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CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States citizen or resident (or I am signing for
a foreign corporation, partnership, estate or trust).
, 1998
- ---------------------------------------------- ----------------------------------------------
Signature Date
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
