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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1999
REGISTRATION NO. 333-70759
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DOANE PET CARE COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2047 43-1350515
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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103 POWELL COURT, SUITE 200
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
THOMAS R. HEIDENTHAL
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
103 POWELL COURT, SUITE 200
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(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
HOUSTON, TEXAS 77002
(713) 758-2222
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 1, 1999
DOANE PET CARE COMPANY
$150,000,000
OFFER TO EXCHANGE 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE NOTES
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the old notes, except that we have registered the
exchange notes with the Securities and Exchange Commission. Because we have
registered the exchange notes, the exchange notes will not be subject to
certain transfer restrictions and will not be entitled to registration rights.
- - Interest on the exchange notes will accrue from November 12, 1998 at the rate
of 9 3/4% per annum, payable semi-annually in arrears on each November 15 and
May 15, beginning May 15, 1999.
- - The exchange notes will be unsecured and will rank equally with the old notes
and all of our other unsecured senior subordinated indebtedness.
THE EXCHANGE OFFER
- - Subject to certain customary conditions, which we may waive, the exchange
offer is not conditioned upon a minimum aggregate principal amount of old
notes being tendered.
- - We will issue an exchange note in a principal amount equal to the principal
amount of each old note that you tender to us before the expiration of the
exchange offer.
- - You may tender your old notes for exchange at any time before 5:00 p.m., New
York City time, on , 1999. We may extend the expiration date.
- - You may withdraw your tenders of old notes at any time prior to the expiration
of the exchange offer, unless we have already accepted your old notes for
exchange.
- - The exchange of old notes for exchange notes in the exchange offer will not be
a taxable event for U.S. federal income tax purposes.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE NOTES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT WE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE INFORMATION
PROVIDED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANY PERSON TO PROVIDE
INFORMATION OTHER THAN INFORMATION PROVIDED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION FROM THAT INCLUDED
IN THIS PROSPECTUS. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THIS DOCUMENT.
WE INCLUDE CROSS-REFERENCES IN THIS PROSPECTUS TO CAPTIONS IN THESE
MATERIALS WHERE YOU CAN FIND FURTHER RELATED DISCUSSIONS. THE FOLLOWING TABLE OF
CONTENTS TELLS YOU WHERE TO FIND THESE CAPTIONS.
TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements.................................. i
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
The Company................................................. 13
Capitalization.............................................. 14
Unaudited Pro Forma Financial Statements.................... 15
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 31
Management.................................................. 40
Certain Transactions........................................ 47
Description of Senior Credit Facility....................... 49
The Exchange Offer.......................................... 50
The Exchange Notes.......................................... 58
Old Notes Registration Rights............................... 80
Certain United States Federal Income Tax Considerations..... 82
Transfer Restrictions on Old Notes.......................... 82
Plan of Distribution........................................ 85
Legal Matters............................................... 86
Experts..................................................... 86
Where You Can Find More Information......................... 86
Index to Financial Statements............................... F-1
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements:
- address activities, events or developments that we expect, believe,
anticipate or estimate will or may occur in the future;
- are based on certain assumptions and analyses that we have made and that
we believe are reasonable; and
- are based on various risks and uncertainties, general economic and
business conditions, the business opportunities that may be presented to
and pursued by us from time to time, changes in laws or regulations and
other factors, many of which are beyond our control.
Any one of these factors, or any combination of these factors, could
materially affect our future results of operations and whether the
forward-looking statements ultimately prove to be accurate. These
forward-looking statements are not guarantees of our future performance, and our
actual results and future developments may differ materially from those
projected in the forward-looking statements. See "Risk Factors."
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PROSPECTUS SUMMARY
This summary highlights information from this prospectus. We encourage you
to read the entire prospectus, which describes the exchange offer and contains
detailed information about our business and financial data. You should also
carefully read the risk factors beginning on page 7.
References in this prospectus to "we," "us," "our" or "Doane" refer to
Doane Pet Care Company and its subsidiaries. In this prospectus, the term "old
notes" refers to the 9 3/4% Senior Subordinated Notes due 2007 that were issued
on November 12, 1998. The term "exchange notes" refers to the 9 3/4% Senior
Subordinated Notes due 2007 that will be issued in the exchange offer. The term
"notes" refers to the old notes and the exchange notes collectively.
The pro forma financial and operating data of Doane set forth in this
prospectus gives effect to the acquisition of Windy Hill Pet Food Holdings, Inc.
and its subsidiaries ("Windy Hill") in August 1998 and the acquisition of IPES
IBERICA, S.A. ("IPES") in April 1998 as if we acquired Windy Hill and IPES on
January 1, 1998. The pro forma financial and operating data of Windy Hill set
forth in this prospectus gives effect to acquisitions made by Windy Hill as if
they had occurred on January 1, 1997.
THE EXCHANGE OFFER
In this exchange offer, we are offering to exchange up to $150 million
aggregate principal amount of exchange notes for up to $150 million aggregate
principal amount of old notes. We will issue an exchange note in a principal
amount equal to the principal amount of each old note that you tender to us
before the expiration of the exchange offer.
Terms of the Exchange Notes.
The exchange notes are substantially identical to the old notes, except
that we have registered the exchange notes with the Securities and Exchange
Commission. Because we have registered the exchange notes, the exchange notes
will not be subject to certain transfer restrictions and will not be entitled to
registration rights. The exchange notes will evidence the same debt as the old
notes, and the old notes and the exchange notes will be governed by the same
indenture.
The exchange notes are described in detail under the heading "The Exchange
Notes" beginning on page 58. Some of the key terms of the exchange notes are as
follows:
(1) Maturity Date. The maturity date of the exchange notes is May 15,
2007.
(2) Interest. The interest payment dates are May 15 and November 15 of
each year, beginning on May 15, 1999.
(3) Optional Redemption. We may not redeem the exchange notes prior to
May 15, 2002. After that date, we will have the option to redeem the
exchange notes at redemption prices described in this prospectus. Also,
prior to May 15, 2000, we will have the right to use the cash proceeds of
certain equity offerings to redeem up to 35% of the original principal
amount of the exchange notes at a redemption price of 109.75%. At least 65%
of the original principal amount of the exchange notes must remain
outstanding after such a redemption.
(4) Ranking. The exchange notes are unsecured senior subordinated
obligations of our company and will rank subordinate in right of payment to
all existing and future senior indebtedness of our company.
(5) Change of Control. Upon the occurrence of a change of control of
our company as described in "The Exchange Notes" beginning on page 58, we
will be required to offer to repurchase all or a portion of each holder's
exchange notes at a price in cash equal to 101% of the aggregate principal
amount of such exchange notes, plus accrued and unpaid interest.
(6) Certain Covenants. The old notes have been, and the exchange notes
will be, issued under an indenture containing certain covenants for your
benefit. These covenants limit our ability to:
- incur certain additional indebtedness,
- pay certain dividends,
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- make certain distributions,
- make investments and certain other restricted payments,
- enter into certain transactions with affiliates,
- dispose of certain assets and
- engage in certain mergers and consolidations.
Resale.
We believe that you will be able to freely transfer the exchange notes
without registration or any prospectus delivery requirement; however, certain
broker-dealers and certain of our affiliates may be required to deliver copies
of this prospectus if they resell any exchange notes.
Expiration Date; Withdrawal of Tender.
You can exchange your old notes any time before 5:00 p.m., New York City
time, on , 1999, or such later date and time to which we extend the
exchange offer. You may withdraw your tender of old notes at any time prior to
the expiration of the exchange offer, unless we have already accepted your old
notes for exchange. We will return to you, without charge, promptly after the
expiration or termination of the exchange offer any old notes that you tendered
but that were not accepted for exchange.
Procedures for Tendering Old Notes.
If you want to exchange your old notes in the exchange offer, you must
complete, sign and date the letter of transmittal or comply with the procedures
for book-entry transfer. Please read this prospectus and the instructions in the
accompanying letter of transmittal before completing your letter of transmittal.
Unless you tender through book-entry transfer, you must deliver your old notes
and your letter of transmittal to our exchange agent.
Special Procedures for Beneficial Holders.
If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender in the
exchange offer, you should contact the registered holder promptly and instruct
the holder to tender the old notes on your behalf. If you want to tender your
old notes directly, before delivering your old notes to us, you must either
arrange to register those old notes in your name or obtain a stock power from
the registered holder. You should note that the transfer of record ownership may
take considerable time.
Guaranteed Delivery Procedures.
If you want to tender your old notes but:
(1) you cannot deliver the old notes and a properly completed letter
of transmittal;
(2) your old notes are not immediately available; or
(3) you cannot complete book-entry transfer in a timely manner,
then you may use the guaranteed delivery procedures set forth in this prospectus
under "The Exchange Offer" beginning on page 50.
Termination of Exchange Offer; Rights Under Registration Rights Agreement.
We may terminate the exchange offer if we determine it violates any law or
interpretation of the staff of the SEC. If we do not consummate this exchange
offer, you will still be entitled to the benefits of the existing registration
rights agreement. Please read "Old Notes Registration Rights" beginning on page
80 for more information regarding your rights as a holder of old notes.
Acceptance of Old Notes and Delivery of Exchange Notes.
Subject to certain conditions described under "The Exchange Offer"
beginning on page 50, we will accept for exchange any old notes properly
tendered to the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date. We will issue and deliver the exchange notes to you promptly
after the expiration date.
Exchange Agent.
Our exchange agent for this exchange offer is Wilmington Trust Company. The
mailing address of the exchange agent is: Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Operations. If
you would like more information about the exchange offer, you should call the
exchange agent at (302) 651-1562. The facsimile number for the exchange agent is
(302) 651-1079.
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THE COMPANY
We are the largest manufacturer of dry pet food in the United States,
producing approximately 26% of the total volumes sold in 1998 on a pro forma
basis. We manufacture products for store brands owned by retail customers, which
are also known as private labels. We manufacture a full range of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. We provide products that meet customer
specifications, from super premium to value products. We manufacture store
brands for over 350 customers in the United States, including the three largest
mass merchandisers, the five largest grocery companies and the largest national
pet specialty retailer. We also manufacture, package and ship dry pet food and
treats for five of the six largest national branded pet food companies under
co-manufacturing arrangements.
We have the most extensive manufacturing and distribution network in the
pet food industry, which gives us certain operational and cost advantages over
our competitors. We manufacture and distribute products in the United States
using 32 combination manufacturing and distribution facilities and eight
additional distribution centers. We expect to open one additional manufacturing
and distribution facility in Clinton, Oklahoma in the second quarter of fiscal
1999. Our extensive network reduces our distribution expenses and also enables
certain of our customers to bypass their distribution centers and deliver
directly to their stores.
We have achieved strong internal growth by increasing sales volumes from
1992 to 1998 at a compound annual growth rate of 9.3%, exclusive of
acquisitions. We believe our growth is primarily due to an increase in consumer
acceptance of dry products versus canned products and store brands versus
national brands. In addition, we have been the primary supplier of store brand
pet food to WalMart Stores Inc., including its Sam's Club division ("Wal*Mart"),
since 1970. We manufacture and distribute, under a direct store delivery
program, a variety of products for Wal*Mart including its store brand, Ol' Roy.
Ol' Roy is the largest selling brand of dry pet food in the United States by
volume. In 1998, sales of store brand products to Wal*Mart accounted for 36.5%
of our sales on a pro forma basis.
RECENT DEVELOPMENTS
Refinancing Transactions.
In November 1998, we refinanced our capital structure through the following
series of transactions:
(1) Windy Hill was merged into Doane;
(2) Doane completed a cash tender offer for approximately $97 million
principal amount of our 10 5/8% Senior Notes due 2006;
(3) Windy Hill completed a cash tender offer for $46 million principal
amount of its 9 3/4% Senior Subordinated Notes due 2007, which tender offer
was required by a change of control provision in the indenture governing
those notes;
(4) Doane completed an exchange offer of $150 million principal amount
of our old notes for the remaining approximately $63 million principal
amount of our 10 5/8% Senior Notes due 2006 and the remaining approximately
$74 million principal amount of Windy Hill's 9 3/4% Senior Subordinated
Notes due 2007; and
(5) Doane entered into a new senior credit facility with a syndicate
of financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the senior credit facility to:
- fund the cash requirements of the refinancing transactions;
- repay borrowings under and retire our previous credit
facilities;
- repay other debt; and
- repay a bridge financing incurred in connection with the tender
offer for Windy Hill's 9 3/4% Senior Subordinated Notes due
2007.
Windy Hill Acquisition.
In August 1998, Doane Pet Care Enterprises, Inc., our parent corporation,
acquired Windy Hill for approximately 1.6 million shares of common stock and the
assumption of $183.5 million of indebtedness. Windy Hill was a leading
manufacturer of pet food products for both dogs and cats, including dry, canned,
semi-moist, soft dry, soft treats and dog biscuits. With Windy Hill, we became
the
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largest manufacturer of dog biscuits in the United States. In 1997, Windy Hill
had pro forma net sales of $304.0 million, EBITDA of $26.7 million and a net
loss before extraordinary item of $1.6 million.
Our acquisition of Windy Hill strengthens our presence in the dry pet food
and dog biscuit market segments, provides revenue synergies and enhances our
position as a low-cost manufacturer and distributor of pet food products. We
also believe the acquisition of Windy Hill provides the opportunity for revenue
growth by (1) enabling us to offer regional brands, semi-moist, soft dry and
canned pet food products to our traditional customer base and (2) enabling us to
offer soft treats and other specialized dry food products to Windy Hill's
traditional customer base. With the addition of Windy Hill's 19 plants, we
believe we can achieve cost savings by:
- optimizing production schedules;
- lowering distribution costs;
- obtaining purchasing synergies; and
- eliminating redundant overhead functions.
IPES Acquisition.
In April 1998, we acquired IPES IBERICA, S.A. for $26.2 million, net of
cash purchased of $1.9 million, and the assumption of indebtedness of $1.9
million. IPES, located in Spain, is a manufacturer of both store and regional
brands. In fiscal 1997, IPES had net sales of $21.1 million, EBITDA of $3.8
million and net income of $1.0 million. We believe that our acquisition of IPES,
together with our investment in the Italian pet food manufacturer, Effeffe,
S.p.a., provides us with a platform for growth in Europe.
RISK FACTORS
Please read "Risk Factors" beginning on page 7 for a discussion of certain
factors that you should consider before participating in the exchange offer.
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SUMMARY FINANCIAL INFORMATION
The summary historical financial information for the periods ended December
31, 1996, 1997 and 1998, except for pet food sold, are derived from the
consolidated financial statements of Doane included elsewhere in this
prospectus. The unaudited condensed pro forma income statement data give effect
to the acquisition of Windy Hill, including the pro forma effects of each of the
transactions included in the pro forma financial statements of Windy Hill, the
acquisition of IPES and the refinancing transactions as if each of those
transactions had occurred on January 1, 1998. The pro forma data are presented
for illustrative purposes only and do not purport to represent Doane's actual
results if those events had occurred at the dates indicated, nor do the data
purport to project the results of operations for any future period. The
information set forth below is qualified in its entirety and should be read in
conjunction with the consolidated financial statements and notes thereto of
Doane, the consolidated financial statements and notes thereto of Windy Hill,
"Unaudited Condensed Pro Forma Financial Statements," "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
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YEAR ENDED DECEMBER 31,
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PRO FORMA
1996 1997 1998(1) 1998
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(IN THOUSANDS)
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INCOME STATEMENT DATA:
Net sales.................................. $513,217 $564,741 $686,663 $865,346
Gross profit............................... 66,441 81,845 132,216 175,556
Transition expenses(2)..................... -- -- 7,043 15,499
Product recall(3).......................... -- -- 3,000 3,000
Income from operations..................... 24,911 31,984 44,400 48,342
Interest expense, net...................... 22,471 22,463 31,136 41,073
Non-recurring finance charge(4)............ 4,815 -- 4,599 4,599
Income (loss) before extraordinary items... $ (1,518) $ 6,234 $ 4,899 $ (892)(5)
OTHER DATA:
EBITDA(6).................................. $ 30,449 $ 43,216 $ 57,514 $ 68,956
Adjusted EBITDA(6)......................... 35,264 43,216 72,156 92,054
Ratio of adjusted EBITDA to interest
expense................................. 1.8x 1.9x 2.3x 2.2x
Ratio of earnings to fixed charges(7)...... 0.9x 1.3x 1.2x 1.1x
Depreciation and amortization expense...... 10,135 10,971 17,877 24,763
Capital expenditures(8).................... 7,901 14,437 23,327 28,221
Pet food sold (thousands of tons).......... 1,189 1,237 1,513 1,864
</TABLE>
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<CAPTION>
DECEMBER 31,
1998
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HISTORICAL
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,349
Working capital........................................... 29,723
Total assets.............................................. 709,068
Total debt................................................ 459,170
Stockholders' equity...................................... 69,294
</TABLE>
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(1) Results for the year ended December 31, 1998 include the results of Windy
Hill for the period from August 3, 1998 to December 31, 1998 and the results
of IPES from April 18, 1998 to December 31, 1998.
(2) Represents certain non-recurring transition expenses in connection with the
acquisition of Windy Hill.
(footnotes continued on next page)
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(3) Represents costs associated with a product recall in the fourth quarter of
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Commitments and Contingencies."
(4) Non-recurring finance charges include $4,815 of interim bridge debt
financing costs that were incurred in conjunction with the issuance of the
senior notes in 1996 and $4,599 of interim bridge debt financing costs that
were incurred in conjunction with the refinancing transactions in 1998.
(5) Income before extraordinary items was reduced by $16,259, as a result of
transition expenses, product recall expenses and the non-recurring finance
charge, net of a tax benefit of $6,839. Excluding these charges, income
before extraordinary items would have been $15,367.
(6) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition and product recall expenses and non-recurring finance charges.
EBITDA is not a measure recognized by generally accepted accounting
principles and should not be considered in isolation or as a substitute for
operating income as an indicator of liquidity or as a substitute for net
cash provided by operating activities, which are determined in accordance
with generally accepted accounting principles. EBITDA is included because we
believe that certain investors may find it useful. See "Unaudited Condensed
Pro Forma Financial Statements" and our consolidated financial statements
and the notes thereto included elsewhere in this prospectus.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest).
(8) Capital expenditures exclude payments for acquisitions.
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RISK FACTORS
WE ARE A HIGHLY LEVERAGED COMPANY
We are a highly leveraged company. At December 31, 1998, we had
approximately $459.2 million in aggregate principal amount of outstanding
indebtedness, excluding trade payables and other accrued liabilities. Subject to
the restrictions in our senior credit facility and the indenture governing the
notes, we may incur additional indebtedness from time to time to finance working
capital, capital expenditures, acquisitions or for other purposes.
We may need to increase our leverage significantly for future acquisition
or development activities. Our ability to meet our debt service obligations and
to reduce our total indebtedness will be dependent upon our future performance,
which will be subject to general economic conditions and to financial, business
and other factors affecting our operations. Many of these factors are beyond our
control. If we are unable to generate sufficient cash flow from operations in
the future to service our indebtedness and to meet our other commitments, we
will be required to adopt one or more alternatives, such as refinancing or
restructuring our indebtedness, selling material assets or operations or seeking
to raise additional debt or equity capital. We cannot assure you that we would
be able to take any of these actions on a timely basis or on satisfactory terms
or that these actions would enable us to continue to satisfy our capital
requirements. The terms of our indebtedness, including the senior credit
facility and the indenture governing the notes, also may prohibit us from taking
these actions.
OUR DEBT AGREEMENTS LIMIT CERTAIN BUSINESS ACTIVITIES
Our senior credit facility and the indenture governing the notes limit our
ability to:
- incur additional indebtedness,
- incur liens,
- pay dividends or make certain other restricted payments,
- sell certain assets,
- enter into certain transactions with affiliates,
- merge or consolidate with any other person or
- dispose of substantially all of our assets.
The senior credit facility also requires us to maintain specified financial
ratios and satisfy certain financial condition tests. Our ability to meet the
financial ratios and tests can be affected by events beyond our control, and we
cannot assure you that we will meet the tests. In connection with the senior
credit facility, we pledged substantially all of our assets as collateral to
secure our indebtedness. Upon the occurrence of an event of default under the
senior credit facility, our lenders could declare all amounts outstanding under
the senior credit facility to be immediately due and payable. If we were unable
to repay those amounts, the lenders have the right to foreclose upon the
collateral securing the senior credit facility. If the lenders foreclose on the
collateral, we cannot assure you that our assets would be sufficient to repay
our debt in full. These restrictions could limit our ability to obtain future
financings or restrict other corporate activities.
THE NOTES ARE SUBORDINATED IN RIGHT OF PAYMENT TO ALL OF OUR EXISTING AND FUTURE
SENIOR INDEBTEDNESS
The notes are general unsecured obligations of Doane and subordinated in
right of payment to all of our existing and future senior indebtedness,
including all indebtedness under the senior credit facility. As of December 31,
1998, we had approximately $312.2 million of senior indebtedness outstanding. As
a result of the subordination, the holders of any senior indebtedness must be
paid in full before the holders of the notes in the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of Doane or upon a
default in payment with respect to, or the acceleration of, any senior
indebtedness. If we incur any additional debt that is on an equal basis with the
notes, the holders of that debt would be entitled to share on an equal basis
with the holders of the notes in any proceeds distributed in connection with any
insolvency, liquidation,
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reorganization, dissolution or other winding-up of Doane. This may have the
effect of reducing the amount of proceeds paid to holders of the notes. In
addition, we cannot \make cash payments with respect to the notes during a
payment default with respect to senior indebtedness and, under certain
circumstances, no payments may be made with respect to the principal of, and
premium, if any, on the notes for a period of up to 179 days if a non-payment
default exists with respect to senior indebtedness.
WE MAY BE UNABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL
If a change of control of Doane occurs, we are required to offer to
purchase all outstanding notes at 101% of the principal amount plus accrued and
unpaid interest, if any, to the date of purchase. We will use our available cash
or cash generated from operations or other sources to fund any required
repurchases of notes. However, we cannot assure you that sufficient funds will
be available at the time of any change of control to make any required
repurchases of the notes.
In addition, the senior credit facility will prohibit us from purchasing
the notes, except in certain limited amounts, and will also provide that certain
change of control events will constitute a default under the senior credit
facility. Any future credit agreements or other agreements relating to senior
indebtedness that we enter into may contain similar restrictions and provisions.
In the event a change of control occurs at a time when we are prohibited from
purchasing the notes, we could seek the consent of our lenders to the purchase
of the notes or attempt to refinance the borrowings that contain the
prohibition. If we do not obtain the consent or repay the borrowings, we will
remain prohibited from purchasing the notes by the relevant senior indebtedness.
In that case, our failure to purchase the tendered notes would constitute an
event of default under the indenture governing the notes, which would, in turn,
constitute a default under the senior credit facility and could constitute a
default under other senior indebtedness. In those circumstances, the
subordination provisions in the indenture governing the notes would likely
restrict payments by us to the holders of the notes.
WE DEPEND ON CERTAIN OF OUR CUSTOMERS
Sales to Wal*Mart accounted for approximately 63% of our net sales for the
year ended December 31, 1996, 61% of our net sales for the year ended December
31, 1997 and 52% of our net sales for the year ended December 31, 1998. For the
year ended December 31, 1998, on a pro forma basis, sales of store brand
products to Wal*Mart accounted for an aggregate of 36.5% of our net sales. We do
not have a long-term contract with Wal*Mart or any other customer. A significant
decrease in business from Wal*Mart would have a material adverse effect on our
results of operations, financial condition and cash flows. In addition, our
results of operations would be negatively impacted to the extent that Wal*Mart
is unable to make payments on outstanding accounts receivable.
INCREASES IN THE COSTS OF RAW MATERIALS AND PACKAGING COULD AFFECT OUR RESULTS
OF OPERATIONS
Our financial results depend to a large extent on the cost of raw materials
and packaging and our ability to pass along increases in these costs to our
customers. Historically, market prices for commodity grains and food stocks have
fluctuated in response to a number of factors, including changes in U.S.
government farm support programs, changes in international agricultural and
trading policies and weather conditions during the growing and harvesting
seasons. Fluctuations in paper prices have resulted from changes in supply and
demand, general economic conditions and other factors. If there are any
increases in raw materials costs, we would be required to increase sales prices
for our products in order to avoid margin deterioration. We cannot assure you of
the timing or extent of our ability to implement future price adjustments in the
event of increased raw material costs or of whether any price increases
implemented by us may affect the volumes of future shipments. Although we manage
the price risk created by market fluctuations by hedging portions of our primary
commodity product purchases, we cannot assure you that our results of operations
will not be exposed to volatility in the commodity markets.
8
<PAGE> 12
VOLATILITY IN THE COMMODITY MARKETS COULD AFFECT OUR RESULTS OF OPERATIONS
We manage price risk created by market fluctuations by hedging portions of
our primary commodity product purchases, principally through exchange traded
futures and options contracts that are designated as hedges. The terms of these
contracts are generally less than one year. Settlement of positions are either
through financial settlement with the exchanges or through exchange for the
physical commodity in which case we deliver the contract against the acquisition
of the physical commodity.
Our hedging 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. We cannot assure you that our results of operations will not be
exposed to volatility in the commodity markets.
OUR ACQUISITION STRATEGY INCLUDES VARIOUS RISKS
Our acquisition strategy is based on identifying and acquiring businesses
engaged in manufacturing and distributing pet food products in markets where we
currently do not operate or businesses with products that would complement our
product mix. We will evaluate specific acquisition opportunities based on
prevailing market and economic conditions. Our lack of experience in new markets
we may enter through future acquisitions could have an adverse effect on our
results of operations and financial condition. Acquisitions may require
investment of operational and financial resources and could require integration
of dissimilar operations, assimilation of new employees, diversion of management
time and resources, increases in administrative costs, potential loss of key
employees of the acquired company and additional costs associated with debt or
equity financing. Any future acquisition that we make could have an adverse
effect on our results of operations. We may encounter increased competition for
acquisitions in the future, which could result in acquisition prices we do not
consider acceptable. We cannot assure you that we will find suitable acquisition
candidates at acceptable prices or succeed in integrating any acquired business
into our existing business or in retaining key customers of acquired businesses.
We cannot assure you that we will have sufficient available capital resources to
execute our acquisition strategy.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR RECENT ACQUISITIONS WITH OUR
EXISTING OPERATIONS
We cannot assure you that we will succeed in integrating Windy Hill into
our existing business. In addition, we may experience a loss of certain
customers as a result of the acquisition of Windy Hill. Our operating results
and financial condition could be materially and adversely affected if any of the
following occur:
- the expected operating efficiencies from the acquisition of Windy Hill do
not materialize;
- we fail to integrate the acquisition of Windy Hill into our existing
operations;
- the costs of the integration exceed expectations; or
- we experience unexpected costs or liabilities at Windy Hill.
In addition, we cannot assure you that we will succeed in integrating other
recent acquisitions, including acquisitions made by Windy Hill, into our
existing operations.
THE AMOUNT OF GOODWILL AND OTHER INTANGIBLE ASSETS WE HAVE RECORDED FROM OUR
ACQUISITIONS MAY NOT BE REALIZED
We had an aggregate $299.6 million of net goodwill and other intangible
assets on our balance sheet as of December 31, 1998. Goodwill has been recorded
under purchase accounting to represent the excess of the amount paid over the
book value of the assets acquired. Other intangibles include trademarks and
miscellaneous intangible assets such as software development costs. We cannot
assure you that the amount of the goodwill and other intangible assets
equivalent to the value of those assets will be realized by us in the future.
Goodwill and other intangible assets represented 42.3% of our total assets as of
December 31, 1998. We are amortizing our goodwill over 40 years, trademarks over
30 years and miscellaneous intangible assets over four to five years. We cannot
assure you that these amortization rates approximate the time period over
9
<PAGE> 13
which these businesses and assets will be valuable to us. Our earnings in future
periods would be reduced if the amortization periods were shortened or the
amount of goodwill or other intangible assets were to be written off prior to
amortization.
OUR BUSINESS IS COMPETITIVE
The pet food industry 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 us and possess significantly
greater financial and marketing resources than we do. The store brand pet food
products sold by our 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, on price. We experience price competition from national
branded manufacturers. Our operating results and cash flow could be adversely
affected to the extent that there is significant price competition from the
national branded manufacturers or if they significantly increase their presence
in the store brand market. We also compete with regional branded manufacturers
and other store brand manufacturers.
RISKS OF CONDUCTING INTERNATIONAL OPERATIONS; OUR BUSINESS COULD BE AFFECTED BY
CURRENCY FLUCTUATIONS
We operate a portion of our business and market products internationally,
and we plan to increase our international marketing and business activities. We
are, therefore, subject to and will increasingly become subject to, the risks
customarily attendant to international operations and investments in foreign
countries. These risks include nationalization, expropriation, war and civil
disturbance, restrictive action by local governments, limitation on repatriation
of earnings, change in foreign tax laws and change in currency exchange rates,
any of which could have an adverse effect on our operations in foreign
countries. Interruption of our international operations could have a material
adverse effect on our financial condition and results of operations.
We may, from time to time, conduct a portion of our business in currencies
other than the U.S. dollar, thus subjecting our results to fluctuations in
foreign currency exchange rates. We cannot assure you that we will be able to
protect ourself against currency fluctuations in the future.
THE BOARDS OF DIRECTORS OF DOANE PET CARE ENTERPRISES, INC. AND DOANE ARE
CONTROLLED BY CERTAIN STOCKHOLDERS
Doane Pet Care Enterprises, Inc., the parent of Doane, is a holding company
with no operations. Doane is its sole operating subsidiary. In connection with
the acquisition of Windy Hill, Doane, Summit/DPC Partners, L.P. ("Summit"),
Summit Capital Inc. ("SCI"), Chase Manhattan Investment Holdings, Inc. ("CMIHI")
and an affiliate thereof, DLJ Merchant Banking Partners, L.P. ("DLJMB") and
certain of its affiliates, all of Windy Hill's former stockholders and certain
other stockholders of Doane Pet Care Enterprises, Inc. entered into an
investors' agreement. The investors' agreement provides that the boards of
directors of Doane Pet Care Enterprises, Inc. and Doane will consist of eight
members, one being the chief executive officer of Doane Pet Care Enterprises,
Inc. Other than the chief executive officer, certain of the remaining seven
directors will be designated by one or a combination of the parties listed
above, subject to certain percentage ownership requirements. DLJMB and its
affiliates do not have any right to designate board members and are not parties
to the governance provisions of the investors' agreement. Through their control
of the boards of directors of Doane Pet Care Enterprises, Inc. and Doane,
certain of the parties listed above, excluding DLJMB and its affiliates, will be
in a position to control the policies, management and affairs of Doane and to
effectively prevent or cause a change in control of Doane. None of the parties
listed above who have the right to designate individuals to the boards of
directors of Doane Pet Care Enterprises, Inc. and Doane will have that right if
its percentage ownership of common stock of Doane Pet Care Enterprises, Inc. is
reduced below 5%.
10
<PAGE> 14
WE DEPEND UPON CERTAIN KEY PERSONNEL
Our success depends in part upon the continued services of our highly
skilled personnel involved in management, production and distribution, and, in
particular, upon the efforts and abilities of our executive management group. If
we lose the service of any of the members of our executive management group, the
loss could have a material adverse effect on our business, financial condition
and results of operations. We have entered into employment agreements with
members of our executive management group. We do not have key-person life
insurance covering any of our employees. Our success also depends upon our
ability to attract and retain additional highly qualified employees.
WE ARE SUBJECT TO ENVIRONMENTAL, SAFETY AND OTHER REGULATIONS; WE RECENTLY
RECALLED CERTAIN PRODUCTS
We are subject to a broad range of federal, state, local and foreign laws
and regulations intended to protect the public health and the environment,
including those governing discharges to the air and water, the storage of
petroleum substances and chemicals, the handling and disposal of solid or
hazardous wastes and the remediation of contamination associated with releases
of wastes or hazardous substances. We are also subject to regulation by the
Occupational Safety and Health Administration, the Food and Drug Administration
and the United States Department of Agriculture and by various state and local
authorities. Violations of these regulatory requirements can result in
administrative, civil or criminal penalties being levied against us, permit
revocation or modification or in a cease and desist order against operations
that are not in compliance.
On October 30, 1998, we initiated a voluntary product recall for certain
dry dog food manufactured at our Temple, Texas plant. The recall covered dry dog
food manufactured at our Temple plant between July 1 and August 31, 1998 and did
not apply to dry dog food manufactured at other plants or to our dry cat food,
biscuits, treats or canned products. The recall resulted from reported sickness
and death of dogs in the State of Texas. These conditions were attributed to
elevated levels of aflatoxins in corn, which is an ingredient in dry dog food.
Aflatoxins are compounds produced from certain kinds of crop molds that can be
caused by extreme weather conditions such as drought and heat. We have an
extensive corn testing program for the detection of aflatoxins and that program
has been intensified since the problems were reported. We maintain insurance
against losses from illness or death of animals; however, the cost of the
product recall was not covered by our insurance. We recorded a $3.0 million
product recall charge in the fourth quarter of fiscal 1998.
We believe that our operations are in material compliance with
environmental, safety and other regulatory requirements; however, we cannot
assure you that these requirements will not change in the future or that we will
not incur significant costs in the future to comply with these requirements, to
effect future recalls or in connection with the effect of these matters on our
business.
FRAUDULENT CONVEYANCE
The incurrence of indebtedness, such as the notes, is subject to review
under relevant federal and state fraudulent conveyance statutes in a bankruptcy
or reorganization case or lawsuit by or on behalf of our other creditors. If a
court were to find that the notes were issued with the intent to hinder, delay
or defraud any present or future creditor or that we contemplated insolvency
with a design to favor one or more of our creditors to the exclusion in whole or
in part of others or we did not receive fair consideration or reasonably
equivalent value for issuing the notes and, at the time thereof, we:
- were insolvent or rendered insolvent by reason of the issuance of the
notes,
- were engaged or about to engage in a business or transaction for which
our remaining assets constituted unreasonably small capital or
- intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they matured,
a court could avoid or subordinate the notes in favor of our other creditors.
On the basis of historical financial information, recent operating history
and other information currently available to us, we believe that the notes are
being issued for proper purposes and in good faith and that, after
11
<PAGE> 15
giving effect to indebtedness incurred in connection with the issuance of the
notes, we are solvent, will have sufficient capital for carrying on our business
and will be able to pay our debts as they become absolute and mature. We cannot
assure you, however, that a court passing on those questions would reach the
same conclusions and, if not, a court could void all or a portion of our
obligations to holders of notes and/or subordinate our obligations under the
notes to a greater extent than would otherwise be the case.
IF YOU FAIL TO EXCHANGE YOUR OLD NOTES, THEY WILL CONTINUE TO BE SUBJECT TO
TRANSFER RESTRICTIONS
The old notes that are not exchanged for exchange notes in the exchange
offer have not been registered with the SEC or in any state. Unless the exchange
notes are registered, they 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 of 1933 and applicable state securities laws.
We anticipate that the liquidity of the market for any old notes remaining after
the exchange offer is completed may be substantially limited. Additionally,
holders, other than certain holders who cannot take advantage of the exchange
offer, of any old notes not tendered in the exchange offer prior to its
expiration will not be entitled to any registration rights, including the
ability to require us to file a shelf registration statement.
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES AND WE DO NOT INTEND TO LIST
THEM ON ANY SECURITIES EXCHANGE OR AUTOMATED QUOTATION SYSTEM
The exchange notes will be new securities for which there is currently no
trading market. We do not intend to apply for listing of the exchange notes on
any securities exchange or for quotation of the exchange notes in any automated
dealer quotation system. The liquidity of any market for the exchange notes will
depend upon the number of holders of the exchange notes, the interest of
securities dealers in making a market in the exchange notes and other factors.
We cannot assure you of the development or liquidity of any market for the
exchange notes. Even if a market does develop, we cannot assure you of the price
at which the holders of exchange notes will be able to sell their exchange
notes. The exchange notes could trade at a price above or below either their
purchase price or face value.
WE HAVE YEAR 2000 RISKS
We have conducted a comprehensive review of our computer software to
identify the systems that could be affected by the "year 2000" issue. The year
2000 issue results from computer programs being written using two digits, rather
than four, to define the applicable year. As a result, certain of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This calculation could result in a major system
failure or miscalculations.
We have made an assessment of year 2000 compliance and reviewed our
business application software, which resulted in plans to either replace or
upgrade all essential business software at an estimated cost of $5.6 million. We
are currently reviewing our administrative hardware and software, which include
networks, communications and security systems, and the software related to
manufacturing equipment. We have implemented a program to confirm year 2000
compliance with all third parties with which we have material relationships.
As of December 31, 1998, we had incurred costs of approximately $3.0
million in connection with year 2000 compliance. We intend to test and verify
our year 2000 compliance by July 1999, including third party compliance. We
believe that a failure to complete our year 2000 compliance, or a failure by
parties with whom we have material relationships to complete their year 2000
compliance, by December 31, 1999 could have a material adverse effect on our
financial condition and results of operations. We believe that we can provide
the resources necessary to ensure year 2000 compliance prior to the year 2000.
However, should we be delayed in our year 2000 compliance, we may experience a
decrease in efficiency that could have a material adverse effect on our results
of operations. We also believe that a sufficient number of suppliers exist if
our current suppliers are delayed in their efforts to achieve year 2000
compliance, thereby minimizing risk to us. We have developed contingency plans
that include moving production within our plant network, securing additional
ingredient storage facilities and transferring procurement to year 2000
compliant suppliers.
12
<PAGE> 16
THE COMPANY
Doane Pet Care Enterprises, Inc., our parent corporation, was formed in
1995 by a group of investors led by SCI, DLJMB, CMIHI and certain members of
existing management to acquire Doane for an aggregate purchase price of $249.1
million, including existing indebtedness. Those management members who are still
affiliated with our company are Bob L. Robinson, a director of Doane Pet Care
Enterprises, Inc. and Doane, Terry W. Bechtel, a Vice President of Doane, Dick
Weber, Managing Director of Field Sales of Doane, and Earl Clements, Central
Regional Director -- Production of Doane. Prior to the acquisition in 1995,
Doane had been a manufacturer of dry pet food for 37 years.
In April 1998, we acquired IPES for $26.2 million, net of cash purchased of
$1.9 million, and the assumption of indebtedness of $1.9 million. In August
1998, Doane Pet Care Enterprises, Inc. acquired Windy Hill for approximately 1.6
million shares of its common stock and the assumption of $183.5 million of
indebtedness. Windy Hill was a manufacturer of pet food products based in
Tennessee. In November 1998, Windy Hill was merged into Doane.
Windy Hill was formed in February 1995 by a group of investors led by
Dartford Partnership L.L.C. to acquire substantially all of the assets and
liabilities of the pet food division of Martha White Foods, Inc. for $21.0
million. In April 1996, Windy Hill acquired the assets and liabilities
associated with certain pet food product lines of Heinz Inc. for a purchase
price of $52.5 million. In May 1997, Windy Hill acquired Hubbard Milling Company
("Hubbard") for a net purchase price of $131.1 million. Subsequent to that
acquisition, Windy Hill sold the animal feed division of Hubbard for a sales
price of approximately $50.0 million, net of taxes. In February 1998, Windy Hill
acquired all of the assets of the AGP pet food division of Consolidated
Nutrition, L.C. ("AGP") for a purchase price of approximately $12.4 million. In
April 1998, Windy Hill acquired certain pet food assets and certain liabilities
associated with the NuPet division of Nulaid Foods, Inc. ("NuPet") for a
purchase price of approximately $3.1 million. In June 1998, Windy Hill acquired
Deep Run Packing Company, Inc. ("Deep Run") for a net purchase price of
approximately $16.4 million.
Doane is incorporated under the laws of the State of Delaware. Our
principal executive offices are located at 103 Powell Court, Suite 200,
Brentwood, Tennessee 37027, and our telephone number is (615) 373-7774.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth, as of December 31, 1998, our
capitalization. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Doane and Windy Hill and the related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------
(IN THOUSANDS)
<S> <C>
Total debt(1):
Senior credit facility................................. $277,000
Foreign debt........................................... 25,391
Industrial revenue bonds............................... 9,783
The notes(2)........................................... 146,996
--------
Total debt........................................ 459,170
Senior exchangeable preferred stock, 3,000,000 shares
authorized; 1,200,000 shares issued and outstanding(3).... 37,792
Stockholder's equity:
Common stock, par value $0.01 per share, 1,000 shares
authorized; 1,000 shares issued and outstanding....... 1
Additional paid-in capital............................. 105,669
Accumulated other comprehensive income................. 489
Accumulated deficit.................................... (36,865)
--------
Total stockholder's equity........................ 69,294
--------
Total capitalization............................ $566,256
========
</TABLE>
- ------------------------------
(1) Total debt includes current portion of long-term debt.
(2) The notes have an aggregate principal amount of $150 million and have been
recorded at their principal amount less unamortized discounts of
approximately $3.0 million.
(3) The Doane preferred stock had an initial liquidation preference of $30.0
million (accreted liquidation value of $47.2 million at December 31, 1998)
and was sold as a unit with warrants to purchase shares of common stock of
Doane Pet Care Enterprises, Inc. for aggregate consideration of $30.0
million.
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<PAGE> 18
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma financial
statements consist of the following:
- the unaudited pro forma condensed combined statement of operations of
Doane and Windy Hill for the fiscal year ended December 31, 1998 and
related notes,
- Doane's unaudited pro forma condensed consolidated statement of
operations for the fiscal year ended December 31, 1998 and related notes
and
- the unaudited pro forma condensed consolidated statement of operations of
Windy Hill for the seven months ended August 2, 1998.
Doane's unaudited pro forma financial statement gives effect to the acquisition
of IPES as if that transaction had occurred on January 1, 1998. The unaudited
pro forma financial statement of Windy Hill gives effect to the acquisitions of
AGP, NuPet, Deep Run and the purchase by Windy Hill of certain joint venture
interests held by third parties as if those transactions had occurred on January
1, 1998. The unaudited pro forma condensed combined statement of operations
gives effect to the pro forma results of Doane as if the acquisition of Windy
Hill and the refinancing transactions had occurred on January 1, 1998.
The historical data of Doane for the fiscal year ended December 31, 1998
have been derived from our audited consolidated financial statements. The
historical data of Windy Hill for the seven months ended August 2, 1998 have
been derived from Windy Hill's unaudited interim financial statements.
The unaudited condensed consolidated pro forma financial statements are
based on assumptions and include adjustments as explained in the notes thereto.
The unaudited condensed consolidated pro forma financial statements are not
necessarily indicative of the actual financial results if the transactions
described above had been effective on and as of the dates indicated and should
not be indicative of operations in future periods or as of future dates. The
unaudited condensed consolidated pro forma financial statements should be read
in conjunction with the notes thereto, the historical audited consolidated
financial statements of Doane and the notes thereto and the unaudited interim
financial statements of Windy Hill and the notes thereto included elsewhere in
this prospectus.
15
<PAGE> 19
CONDENSED COMBINED DOANE PET CARE COMPANY
AND WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS COMBINED PRO FORMA COMBINED
PRO FORMA WINDY FOR COMPANY ADJUSTMENTS DOANE
DOANE (SEE HILL (SEE WINDY HILL PRO FOR REFINANCING PRO FORMA
TABLE 1-A)(A) TABLE 2-A) ACQUISITION FORMA TRANSACTIONS AS ADJUSTED(G)
------------- ---------- ----------- -------- --------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $692,649 $175,111 $(2,414)(b) 865,346 $ -- $865,346
Cost of goods sold.............. 558,995 130,795 689,790 -- 689,790
-------- -------- ------- -------- ------- --------
Gross profit.................... 133,654 44,316 (2,414) 175,556 -- 175,556
Operating expenses:
Promotion and
distribution.............. 45,346 19,874 (2,414)(b) 62,806 -- 62,806
Selling, general and
administrative............ 26,450 9,457 -- 35,907 35,907
Amortization of
intangibles............... 6,579 2,557 866(c) 10,002 10,002
Transition expenses............. 7,043 8,456 15,499 -- 15,499
Product recall.................. 3,000 -- -- 3,000 -- 3,000
-------- -------- ------- -------- ------- --------
Income from operations...... 45,236 3,972 (866) 48,342 -- 48,342
Interest expense, net........... 31,612 11,194 42,806 (1,733)(d) 41,073
Non-recurring finance charge.... 4,599 -- -- 4,599 4,599
Other (income) expense, net..... 100 (550) (450) -- (450)
-------- -------- ------- -------- ------- --------
Income before income taxes
and extraordinary loss.... 8,925 (6,672) (866) 1,387 1,733 3,120
Income tax expense (benefit).... 3,773 (420) -- 3,353 659(e) 4,012
-------- -------- ------- -------- ------- --------
Income before extraordinary
loss...................... $ 5,152 $ (6,252) $ (866) (1,966) $ 1,074 $ (892)
======== ======== ======= ======== ======= ========
Basic and diluted earnings per
share......................... $ (892)
Basic and diluted weighted
average number of shares
outstanding................... 1,000
EBITDA(f)....................... $ 68,956
========
Adjusted EBITDA(f).............. $ 92,054
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
16
<PAGE> 20
CONDENSED COMBINED DOANE PET CARE COMPANY
AND WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) Doane's historical financial statements for the year ended December 31,
1998 include the results of Windy Hill for the period from August 3, 1998
to December 31, 1998 and the results of IPES for the period from April 18,
1998 to December 31, 1998.
(b) Adjustment to reclassify $2,414 for the seven months ended August 2, 1998
of Windy Hill's cash discounts to net sales from promotion and distribution
expenses to conform the accounting policies of Windy Hill to those of
Doane.
(c) Adjustment to selling, general and administrative expenses to recognize
additional amortization for goodwill resulting from the Windy Hill
acquisition. We recorded the Windy Hill acquisition as a purchase
transaction with the purchase price and direct acquisition costs allocated
based on the fair value of assets acquired and the liabilities assumed.
(d) Pro forma as adjusted interest expense, which includes amortization of
deferred financing costs, has been calculated on pro forma debt levels and
applicable interest rates after giving effect to the refinancing
transactions and the application of the net proceeds to us therefrom. The
table below presents pro forma as adjusted interest expense noted with the
respective interest rates:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Senior credit facility ($277.0 million at a blended rate of
8.13%).................................................... $22,530
The notes ($150.0 million at 9.75%)......................... 14,984
IPES debt ($25.4 million at 6.50%).......................... 1,650
Industrial revenue bonds ($6.0 million at a rate of 7.5%)... 450
Amortization of deferred financing costs ($11.0 million
amortized over seven to nine years)....................... 1,459
-------
Total interest expense at year-end...................... $41,073
Less historical interest expense............................ 42,806
-------
Adjustment.................................................. $(1,733)
=======
</TABLE>
The adjustment for interest expense on the notes includes $359 amortization
of original issue discount.
Pro forma interest on the industrial revenue bonds has been calculated
excluding interest on approximately $3.8 million of the bonds outstanding
at December 31, 1998 as these bonds were purchased by Doane's wholly-owned
subsidiary, Doane/Windy Hill Joint Venture Corp.
(e) Reflects an adjustment to income tax expense to tax effect the pro forma
adjustments at the combined state and federal statutory rate of 38% for the
year ended December 31, 1998. In calculating the tax adjustment, the
goodwill amortization as calculated in (c) above has not been tax effected
as it is non-deductible for tax purposes.
(f) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition and product recall expenses and non-recurring finance charges.
EBITDA is not a measure recognized by generally accepted accounting
principles and should not be considered in isolation or as a substitute for
operating income, as an indicator of liquidity or as a substitute for net
cash provided by operating activities, which are determined in accordance
with generally accepted accounting principles. EBITDA is included because
we believe that certain investors may find it useful.
(g) The acquisition of Windy Hill provides us with the opportunity to achieve
cost savings in the following areas that have not been reflected in the pro
forma statement of operations:
-
selling, general and administrative expense primarily due to headcount
reductions and elimination of certain advisory fees;
-
purchasing cost savings through economies of scale and raw material
cost savings through formula rationalizations; and
-
distribution cost savings, improved efficiencies and reduced overtime
through optimizing production schedules at the network of 32 domestic
manufacturing facilities.
17
<PAGE> 21
TABLE 1-A
DOANE PET CARE COMPANY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DOANE IPES ADJUSTMENTS FOR PRO FORMA
HISTORICAL(A) HISTORICAL(B) IPES ACQUISITION DOANE
------------- ------------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.............................. $686,663 $5,986 $ -- $692,649
Cost of goods sold..................... 554,447 4,480 68(c) 558,995
-------- ------ ----- --------
Gross profit........................... 132,216 1,506 (68) 133,654
Operating expenses:
Promotion and distribution........... 45,039 307 -- 45,346
Selling, general and
administrative.................... 26,266 184 -- 26,450
Amortization of intangibles.......... 6,468 -- 111(d) 6,579
Transition expenses.................... 7,043 -- -- 7,043
Product recall......................... 3,000 -- -- 3,000
-------- ------ ----- --------
Income from operations............... 44,400 1,015 (179) 45,236
Interest expense, net.................. 31,136 28 448(e) 31,612
Non-recurring finance charge......... 4,599 -- -- 4,599
Other (income) expense, net............ 164 (64) -- 100
-------- ------ ----- --------
Income before taxes............... 8,501 1,051 (627) 8,925
Income tax expense..................... 3,602 367 (196)(f) 3,773
-------- ------ ----- --------
Income before extraordinary
items........................... $ 4,899 $ 684 $(431) $ 5,152
======== ====== ===== ========
EBITDA(g).............................. $ 58,840
========
Adjusted EBITDA(g)..................... $ 73,482
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
18
<PAGE> 22
DOANE PET CARE COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) Doane's historical financial statements for the year ended December 31,
1998 include the results of Windy Hill for the period from August 3, 1998
to December 31, 1998 and the results of IPES for the period from April 18,
1998 to December 31, 1998.
(b) Includes results for IPES for the period January 1, 1998 to April 17, 1998,
the date of acquisition.
(c) Adjustment to reflect $68 of additional depreciation resulting from the
write-up of property, plant and equipment to fair value related to the
acquisition of IPES.
(d) Adjustment to reflect $111 of additional goodwill and intangible
amortization resulting from the acquisition of IPES.
(e) Adjustments to interest expense to reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Effect of additional financing incurred in connection with
the acquisition of IPES ($25.3 million at a blended rate
of 6.8%).................................................. $ 430
Additional amortization of deferred financing cost resulting
from the acquisition of IPES.............................. 18
------
$ 448
======
</TABLE>
(f) Reflects an adjustment to income tax expense to tax effect the pro forma
adjustments at the combined federal and state statutory rate of 38%. In
calculating the tax adjustment, the goodwill amortization as calculated in
(d) above has not been tax effected as it is non-deductible for tax
purposes.
(g) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition and product recall expenses and non-recurring finance charges.
EBITDA is not a measure recognized by generally accepted accounting
principles and should not be considered in isolation or as a substitute for
operating income, as an indicator of liquidity or as a substitute for net
cash provided by operating activities, which are determined in accordance
with generally accepted accounting principles. EBITDA is included because
we believe that certain investors may find it useful.
19
<PAGE> 23
TABLE 2-A
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SEVEN MONTHS ENDED AUGUST 2, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR WINDY HILL
WINDY HILL AGP DEEP RUN OTHER RECLASSIFICATIONS PRO FORMA
HISTORICAL(A) HISTORICAL(B) HISTORICAL(C) ACQUISITIONS(D) AND ACQUISITIONS COMBINED
------------- ------------- ------------- --------------- --------------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $151,460 $5,651 $13,740 $4,260 $ -- $175,111
Cost of goods sold......... 110,367 5,419 11,782 3,418 (191)(e) 130,795
-------- ------ ------- ------ ------- --------
Gross profit............... 41,093 232 1,958 842 191 44,316
Operating expenses:
Promotion and
distribution......... 18,934 30 673 237 -- 19,874
Selling, general and
administrative....... 8,401 302 590 164 -- 9,457
Amortization of
intangibles.......... 2,456 -- -- -- 101(f) 2,557
Transition expenses........ 8,456 -- -- -- -- 8,456
-------- ------ ------- ------ ------- --------
Income from
operations........... 2,846 (100) 695 441 90 3,972
Interest expense, net...... 10,226 5 2 (3) 964(g) 11,194
Other (income) expense,
net...................... (568) 15 (102) -- 105(h) (550)
-------- ------ ------- ------ ------- --------
Income before taxes.... (6,812) (120) 795 444 (979) (6,672)
Income tax expense
(benefit)................ (331) -- -- -- (89)(i) (420)
-------- ------ ------- ------ ------- --------
Income (loss) before
extraordinary
items................ $ (6,481) $ (120) $ 795 $ 444 $ (890) $ (6,252)
======== ====== ======= ====== ======= ========
EBITDA(j).................. $ 10,116
========
Adjusted EBITDA(j)......... $ 18,572
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
20
<PAGE> 24
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) Windy Hill Pet Food Holdings, Inc. ("Windy Hill") was a private holding
company that owned 100% of its subsidiary, Windy Hill Pet Food Company,
Inc.
(b) Includes results for AGP for the period from January 1, 1998 to February
23, 1998, the date of acquisition.
(c) Includes results for Deep Run for the period January 1, 1998 to June 1,
1998, the date of acquisition.
(d) Other acquisitions include the purchase of NuPet and the remaining 50%
interest not previously owned in the Cartersville, Georgia joint venture.
Results of NuPet are included for the period January 1, 1998 to March 30,
1998, the date of acquisition, and results of Cartersville are included
from January 1, 1998 to February 28, 1998, the date of acquisition.
(e) Adjustment to cost of goods sold to reflect $191 of reductions in
depreciation expense resulting from the AGP, Deep Run, NuPet and
Cartersville acquisitions.
(f) Adjustments to selling, general and administrative expense reflect $101 of
additional amortization of goodwill resulting from the AGP, Deep Run, NuPet
and Cartersville acquisitions.
(g) Adjustment to interest expense to reflect the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
AUGUST 2, 1998
--------------
(IN THOUSANDS)
<S> <C>
Credit facility ($12.5 million at 8.17%).................... $162
Credit facility ($20.5 million at 10%)...................... 801
Additional amortization of deferred financing cost resulting
from the AGP, Deep Run, NuPet and Cartersville
acquisitions.............................................. 1
----
$964
====
</TABLE>
The interest adjustment for the credit facility includes interest for AGP,
NuPet and Deep Run from the beginning of the year through their dates of
acquisition.
(h) To eliminate equity in earnings of joint ventures for the months prior to
acquisition.
(i) Reflects an adjustment to income tax expense (benefit) to tax effect the
pro forma adjustments at the combined state and federal rate of 39% for
Windy Hill. In calculating the tax adjustment, approximately $90 of the
goodwill as calculated in (f) above has not been tax effected as it is
non-deductible for tax purposes.
(j) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition expenses. EBITDA is not a measure recognized by generally
accepted accounting principles and should not be considered in isolation or
as a substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because we believe that certain investors may find it
useful.
21
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below, except for pet
food sold, as of and for the years ended December 31, 1996, 1997 and 1998 are
derived from Doane's audited consolidated financial statements included
elsewhere in this prospectus. The selected consolidated financial data presented
below as of and for the year ended December 31, 1994, the nine months ended
September 30, 1995 and the three months ended December 31, 1995 are derived from
Doane's consolidated financial statements not included in this prospectus. The
information set forth below is qualified in its entirety and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Doane's consolidated financial statements and notes
thereto and the consolidated financial statements of Windy Hill and notes
thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) DOANE
---------------------------- ---------------------------------------------
THREE
NINE MONTHS MONTHS YEAR ENDED
YEAR ENDED ENDED ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------------------------
1994 1995 1995 1996 1997 1998(2)
------------ ------------- ------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $377,018 $303,633 $ 114,958 $513,217 $564,741 $686,663
Cost of goods sold........................ 308,622 247,394 97,184 446,776 482,896 554,447
-------- -------- --------- -------- -------- --------
Gross profit.............................. 68,396 56,239 17,774 66,441 81,845 132,216
Operating expenses:
Promotion and distribution.............. 23,007 17,675 6,484 26,480 31,876 45,039
Selling, general and administrative..... 11,550 8,558 2,660 11,512 14,384 26,266
Amortization of intangibles............. -- -- 1,017 3,538 3,601 6,468
Unusual items(3)........................ -- 9,440 -- -- -- --
Transition expenses(4).................. -- -- -- -- -- 7,043
Product recall(5)....................... -- -- -- -- -- 3,000
-------- -------- --------- -------- -------- --------
Income from operations................ 33,839 20,566 7,613 24,911 31,984 44,400
Interest expense, net..................... 2,494 3,611 5,806 22,471 22,463 31,136
Non-recurring finance charge(6)........... -- -- -- 4,815 -- 4,599
Other (income) expense, net............... (11) (8) 29 (2) (102) 164
-------- -------- --------- -------- -------- --------
Income before taxes................... 31,356 16,963 1,778 (2,373) 9,623 8,501
Income tax expense (benefit).............. 356 217 754 (855) 3,389 3,602
-------- -------- --------- -------- -------- --------
Income (loss) before extraordinary
item(7)................................. 31,000 16,746 1,024 (1,518) 6,234 4,899
Extraordinary item, net of tax(8)......... -- -- -- -- -- 26,788
Net income (loss)....................... $ 31,000 $ 16,746 $ 1,024 $ (1,518) $ 6,234 $(21,889)
======== ======== ========= ======== ======== ========
OTHER DATA:
Cash flows provided by operating
activities.............................. $ 39,250 $ 12,954 $ 2,711 $ 18,583 $ 20,972 $ 33,992
Cash flows provided by (used in) investing
activities.............................. 12,368 (3,677) (209,346) (11,489) (15,161) (65,300)
Cash flows provided by (used in) financing
activities.............................. (16,808) (20,568) 204,635 (8,644) (5,811) 34,432
EBITDA(9)................................. 38,613 24,364 10,063 30,449 43,216 57,514
Adjusted EBITDA(9)........................ 38,613 33,804 10,063 35,264 43,216 72,156
Ratio of adjusted EBITDA to interest
expense................................. 15.5x 9.4x 1.7x 1.8x 1.9x 2.3x
Ratio of earnings to fixed charges(10).... 13.1x 5.6x 1.3x 0.9x 1.3x 1.2x
Depreciation and amortization expense..... 4,660 3,694 2,574 10,135 10,971 17,877
Capital expenditures(11).................. 12,159 4,224 1,297 7,901 14,437 23,327
Pet food sold (thousands of tons)......... 942 774 288 1,189 1,237 1,513
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 35,410 $ 38,894 $ 26,123 $ 25,645 $ 29,723
Total assets.......................................... 142,710 309,584 338,293 338,184 709,068
Total debt............................................ 68,436 209,738 206,603 200,410 459,170
Preferred stock....................................... -- 18,414 24,160 30,545 37,792
Stockholders' equity.................................. 31,759 40,111 33,247 33,946 69,294
</TABLE>
22
<PAGE> 26
- ---------------
(1) Doane Pet Care Enterprises, Inc., our parent corporation, was formed by a
group of investors in 1995 to acquire Doane. For financial statement
purposes, the acquisition of Doane was accounted for as a purchase
acquisition effective October 1, 1995. The effects of the acquisition of
Doane have been reflected in Doane's consolidated assets and liabilities at
that date. As a result, Doane's consolidated 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.
(2) Results for the year ended December 31, 1998 include the results of Windy
Hill for the period from August 3, 1998 to December 31, 1998 and the
results of IPES from April 18, 1998 to December 31, 1998.
(3) Represents non-recurring bonus payments to senior management in connection
with the acquisition of Doane.
(4) Represents certain non-recurring transition expenses in connection with the
acquisition of Windy Hill.
(5) Represents costs associated with a product recall in the fourth quarter of
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Commitments and Contingencies."
(6) Non-recurring finance charges represent $4,815 of interim bridge debt
financing costs that were incurred in conjunction with the issuance of the
senior notes in 1996 and $4,599 of interim bridge debt financing costs that
were incurred in conjunction with our refinancing transactions in 1998.
(7) Income (loss) before extraordinary items of Doane's predecessor does not
include any provision for federal income taxes. Prior to the acquisition of
Doane, Doane was organized as a subchapter S corporation. Consequently,
Doane 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.
(8) Represents charges associated with the early extinguishment of debt
incurred in connection with our refinancing transactions.
(9) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus unusual
items, transition and product recall expenses and non-recurring finance
charges. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because we believe that certain investors may find it
useful. See "Unaudited Condensed Pro Forma Financial Statements" and our
consolidated financial statements and the notes thereto included elsewhere
in this prospectus.
(10) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest).
(11) Capital expenditures exclude payments for acquisitions.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORY OF DOANE
Doane Pet Care Enterprises, Inc., our parent corporation, was formed in
1995 by a group of investors led by SCI, DLJMB, CMIHI and certain members of
existing management to acquire Doane for an aggregate purchase price of $249.1
million, including existing indebtedness. Doane had previously been a
manufacturer of dry pet food for 37 years. Our parent corporation's principal
asset and activities are its ownership of Doane common stock. Our parent
corporation has no other operations.
In April 1998, we acquired IPES for $26.2 million, net of cash purchased of
$1.9 million, and the assumption of indebtedness of $1.9 million. In August
1998, Doane Pet Care Enterprises, Inc. acquired Windy Hill for approximately 1.6
million shares of its common stock and the assumption of $183.5 million of
indebtedness. Windy Hill was a manufacturer of pet food products based in
Tennessee. Windy Hill was merged into Doane in November 1998.
Windy Hill was formed in February 1995 by a group of investors led by
Dartford Partnership L.L.C. to acquire substantially all of the assets and
liabilities of the pet food division of Martha White Foods, Inc. for $21.0
million. In April 1996, Windy Hill acquired the assets and liabilities
associated with certain pet food product lines of Heinz Inc. for a purchase
price of $52.5 million. In May 1997, Windy Hill acquired Hubbard for a net
purchase price of $131.1 million. Subsequent to that acquisition, Windy Hill
sold the animal feed division of Hubbard for a sales price of approximately
$50.0 million, net of taxes. In February 1998, Windy Hill acquired all of the
assets of AGP for a purchase price of approximately $12.4 million. In April
1998, Windy Hill acquired certain pet food assets and certain liabilities
associated with NuPet for a purchase price of approximately $3.1 million. In
June 1998, Windy Hill acquired Deep Run for a net purchase price of
approximately $16.4 million.
THE REFINANCING TRANSACTIONS
In November 1998, we refinanced our capital structure through the following
refinancing transactions:
- Windy Hill was merged into Doane;
- Doane completed a cash tender offer for approximately $97 million
principal amount of our senior notes;
- Windy Hill completed a cash tender offer for $46 million principal amount
of its notes, which tender offer was required by a change of control
provision in the indenture governing those notes;
- Doane completed an exchange offer of $150 million principal amount of our
old notes for the remaining approximately $63 million principal amount of
our senior notes and the remaining approximately $74 million principal
amount of Windy Hill notes; and
- Doane entered into the senior credit facility with a syndicate of
financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the senior credit facility to fund the
cash requirements of the refinancing transactions, repay borrowings under
and retire our previous credit facilities, repay other debt and repay
bridge financing incurred in connection with the tender offer for the
Windy Hill notes.
OVERVIEW
We are the largest manufacturer of dry pet food in the United States by
volume, producing approximately 26% of the total volumes sold in 1998 on a pro
forma basis. We manufacture products for store brands owned by retail customers,
also known as private labels, contract manufacture products for national branded
pet food companies and produce and sell under regional brands owned by us.
24
<PAGE> 28
We manufacture for our customers a full range of pet food products for both
dogs and cats, including dry, canned, semi-moist, soft dry, soft treats and dog
biscuits. We provide products that meet customer specifications across all
retail channels and price points, from super premium to value products.
Accordingly, we manufacture store brands for over 350 customers in the United
States, including the three largest mass merchandisers, the five largest grocery
companies and the largest national pet specialty retailer. We also manufacture
dry pet food and treats for five of the six largest national branded pet food
companies through co-manufacturing arrangements pursuant to which we produce,
package and ship a portion of those companies' products. Our engineering
services group designs and builds extruders, conveyors, dryers and other parts
and equipment, including replacement parts, for pet food manufacturing
facilities of our company and third parties.
We derive substantially all of our revenue from the sale of dry pet food
products. Historically, approximately 75% to 85% of pet food cost of goods sold
has been comprised of raw material and packaging costs with labor, insurance,
utilities and depreciation comprising the remainder. Historically, market prices
for commodity grains and food stocks have fluctuated in response to a number of
factors, including changes in U.S. government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing and harvesting seasons.
We manage the price risk created by market fluctuations by hedging portions
of our primary commodity products purchases on an on-going and continuous basis,
principally through exchange traded futures and options contracts. We
implemented a hedging policy in 1996 that does not permit trading in commodities
not utilized by us. All futures and options activity is based on the projected
requirements of our company. The term of such contracts is generally less than
one year. Settlement of positions are either through financial settlement with
the exchanges or through exchange for the physical commodity in which case we
deliver the contract against the acquisition of the physical commodity.
We account for our futures and options contracts as hedges, and gains and
losses are recognized in the period realized as part of the cost of products
sold. Our 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, we also contract 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
12 months. We have hedged over half of our corn and over 30% of our soybean meal
requirements through September 30, 1999. Corn and soybean meal are the two
principal commodities used by us in the manufacture of pet food. Unrealized
losses of $3.0 million were deferred on outstanding hedging contracts at
December 31, 1998. See "Business -- Raw Materials and Packaging."
The sales and expenses of two of our subsidiaries are denominated in
foreign currencies. We may encounter exchange rate risk to the extent that the
values of such currencies fluctuate. We do not currently hedge, and do not
anticipate hedging, against adverse foreign currency fluctuations.
Operating expenses consist of promotion and distribution expenses and
selling, general and administrative expenses. Promotion and distribution
expenses are primarily (1) brokerage fees, (2) promotions, volume incentive
discounts and rebates paid to customers and (3) freight and distribution
expenses. Our selling, general and administrative expenses represent salaries
and related expenses, amortization expense and other corporate overhead costs.
These expenses typically do not increase proportionately with increases in
volume and product sales.
Our sales are somewhat seasonal. We typically experience 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.
25
<PAGE> 29
RESULTS OF OPERATIONS
The following discussion is based on Doane's historical financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------------ ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $513,217 100.0% $564,741 100.0% $686,663 100.0%
Cost of goods sold..................... 446,776 87.1 482,896 85.5 554,447 80.7
-------- ----- -------- ----- -------- -----
Gross profit........................... 66,441 12.9 81,845 14.5 132,216 19.3
Operating expenses:
Promotion and distribution........... 26,480 5.2 31,876 5.6 45,039 6.6
Selling, general and
administrative..................... 11,512 2.2 14,384 2.6 26,266 3.9
Amortization of intangibles.......... 3,538 0.7 3,601 0.6 6,468 0.9
Transition expenses.................. -- -- -- -- 7,043 1.0
Product recall....................... -- -- -- -- 3,000 0.4
-------- ----- -------- ----- -------- -----
Income from operations............. 24,911 4.8 31,984 5.7 44,400 6.5
Interest expense, net.................. 22,471 4.4 22,463 4.0 31,136 4.6
Non-recurring finance charge........... 4,815 0.9 -- -- 4,599 0.7
Other (income) expense, net............ (2) -- (102) -- 164 --
-------- ----- -------- ----- -------- -----
Income (loss) before taxes......... (2,373) (0.5) 9,623 1.7 8,501 1.2
Income tax expense (benefit)........... (855) (0.2) 3,389 0.6 3,602 0.5
-------- ----- -------- ----- -------- -----
Income (loss) before extraordinary
item............................. (1,518) (0.3) 6,234 1.1 4,899 0.7
Extraordinary item, net of tax......... -- -- -- -- 26,788 3.9
-------- ----- -------- ----- -------- -----
Net income (loss).................. $ (1,518) (0.3)% $ 6,234 1.1% $(21,889) (3.2)%
======== ===== ======== ===== ======== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales for 1998 increased 21.6% to $686.7 million from $564.7
million in 1997. Included in this increase are $135.2 million in sales
attributable to the Windy Hill and IPES acquisitions. Excluding the Windy Hill
and IPES acquisitions, pet food net sales decreased 1.1% to $518.1 million for
1998 from $523.7 in 1997. Of this increase, the volume-related increases of 2.2%
were offset by price declines of 3.3% attributable to the pass-through of
certain raw material cost decreases to customers.
Gross profit. Gross profit for 1998 increased 61.5% to $132.2 million from
$81.8 million in 1997. Of this increase, (1) 42.8% was attributable to the Windy
Hill and IPES acquisitions, (2) 18.4% resulted from improvements in pet food
margins due to margin management efforts, automation savings, acquisition
synergies, improved product mix and reductions in certain raw material costs and
(3) approximately 2.4% was due to increased pet food tons sold. The increase in
gross profit was partially offset by a decrease in non-manufactured product
gross profit.
Promotion and distribution expenses. Promotion and distribution expenses
increased 41.3%, 39.9% of which was attributable to the Windy Hill and IPES
acquisitions, to $45.0 million for 1998 from $31.9 million in 1997. The balance
of the increase resulted from increases in variable sales promotions, incentive
discounts and brokerage costs on increased pet food tons sold.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 83.2%, 45.6% of which was attributable to the
Windy Hill and IPES acquisitions, to $26.3 million for 1998 from $14.4 million
in 1997. The balance of the increase resulted from increases in (1) salaries and
related fringe benefits (22.7%), (2) professional fees for acquisitions that
were not consummated and information systems consulting (5.2%) and (3) insurance
and taxes for new facilities (3.2%). Salaries and related fringe benefits
increased due to the restructuring of the senior management team in 1997 and
1998, recognition of stock compensation expense and performance based bonuses.
Amortization of intangibles. Amortization of intangible expenses increased
79.6% to $6.5 million for 1998 from $3.6 million in 1997 primarily due to the
Windy Hill and IPES acquisitions (79.1%).
Transition expenses. Transition expenses represent $7.0 million of expenses
incurred in connection with the merger and integration of Windy Hill with Doane.
These costs include compensation for transitional personnel, severance and bonus
expenses, relocation expenses, recruiting and training expenses, systems
conversion and other unique transition expenses.
26
<PAGE> 30
Product recall. Product recall represents non-recurring costs of $3.0
million related to the product recall discussed in "-- Commitments and
Contingencies."
Income from operations. Income from operations, excluding the transition
and product recall costs, for 1998 increased 70.0%, 39.3% of which was
attributable to the Windy Hill and IPES acquisitions, to $54.4 million, 7.9% of
net sales, from $32.0 million, 5.7% of net sales, in 1997. The balance of the
increase was principally due to improved pet food margins and increased pet food
tons sold, which were offset in part by the increase in selling, general and
administrative expenses.
Interest expense, net. Net interest expense for 1998 increased 38.2% to
$31.1 million from $22.5 million in 1997 primarily due to $206.0 million of debt
incurred in connection with the Windy Hill and IPES acquisitions.
Non-recurring finance charge. In 1998, $4.6 million in non-recurring
interim debt financing costs were written off concurrent with the issuance of
the notes.
Income (loss) before extraordinary item. Income before extraordinary item
for 1998 decreased to $4.9 million from $6.2 million in 1997. Excluding the
impact net of tax of the non-recurring finance charge, income before
extraordinary item for 1998 increased to $14.0 million from $6.2 million in
1997. The Windy Hill and IPES acquisitions represented $4.1 million of this
increase, and the balance was principally due to improved pet food margins and
increased pet food tons sold.
Extraordinary item, net of tax. The net amount of $26.8 million in 1998
represents costs of $42.8 million incurred in connection with our refinancing
transactions, which included tender premiums for our senior notes, change of
control costs for the Windy Hill notes and the write off of deferred financing
costs for all debt repaid in the refinancing transactions. These costs have been
partially offset by a $16.0 million tax benefit recognized by us.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales for 1997 increased 10.0% to $564.7 million from $513.2
million in 1996. Pet food net sales increased 9.1% to $524.7 million for 1997
from $480.8 million in 1996. Of this amount, approximately 4.3% 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 increased
in 1997 due to distribution of additional products that was partially offset by
a decrease in net sales of engineering products due to the focusing of our
efforts on internal engineering projects at Everson, Pennsylvania, Washington
Court House, Ohio and Miami, Oklahoma.
Gross profit. Gross profit for 1997 increased 23.2% to $81.8 million from
$66.4 million in 1996. Of this amount, 16.8% represents improvements in pet food
margins due to the aforementioned price increases and reductions in the cost of
certain raw materials in the latter part of 1997. The balance of the gross
profit improvement was largely due to additional non-manufactured products
sales. Gross profit increased as a percentage of net sales to 14.5% for 1997
from 12.9% in 1996.
Promotion and distribution expenses. Promotion and distribution expenses
increased to $31.9 million in 1997 from $26.5 million in 1996 due to increases
in sales promotions, volume incentive discounts and brokerage costs resulting
from increased pet food tons sold.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $14.4 million in 1997 from $11.5 million in
1996 due to (1) increases in salaries and related fringe benefits associated
with annual wage increases, additional personnel and increased bonuses due to
improved performance, (2) increases in property taxes on new and expanded
facilities and (3) increases in expenses associated with the installation of new
information systems.
Income from operations. Income from operations for 1997 increased 28.4% to
$32.0 million from $24.9 million in 1996. Income from operations as a percentage
of net sales increased to 5.7% for 1997 from 4.8% in 1996, due to improved pet
food margins and additional non-manufactured products sales.
Interest expense, net. Net interest expense remained unchanged at $22.5
million for 1997 and 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
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of the new Miami, Oklahoma facility. Interest expense as a percentage of net
sales decreased to 4.0% in 1997 from 4.4% in 1996.
Net income. Net income for 1997 increased to $6.2 million from a net loss
of $1.5 million in 1996, primarily as a result of increased pet food margins and
additional non-manufactured products sales.
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our operations, capital expenditures and
working capital requirements from cash flow from operations, bank borrowings and
industrial development bonds. The acquisition of IPES was funded through bank
borrowings, and the acquisition of Windy Hill was funded through the issuance of
common stock of our parent corporation. We had working capital of $29.7 million
at December 31, 1998. Net cash provided by operating activities was $18.6
million for the year ended December 31, 1996, $21.0 million for the year ended
December 31, 1997 and $34.0 million for the year ended December 31, 1998. Net
cash provided by (used for) borrowings was approximately $(9.0) million for the
year ended December 31, 1996, $(6.7) million for the year ended December 31,
1997 and $33.1 million for the year ended December 31, 1998.
During the three-year period ended December 31, 1998, we spent $45.7
million on capital expenditures, of which $37.3 million was used to acquire and
construct additional manufacturing capacity, including new manufacturing
facilities, a renovated manufacturing facility and five new production lines in
existing facilities and $8.4 million was used to maintain existing manufacturing
facilities.
We expect that existing manufacturing facilities will not be sufficient to
meet our anticipated volume growth. We have continued to examine alternatives
for expanding our business either through construction of additional
manufacturing capacity or acquisition of manufacturing assets. Potential
acquisitions could include acquisitions of operating companies. We intend to
finance these expansions or acquisitions with borrowings under existing or
expanded credit facilities.
On April 17, 1998, we acquired IPES for $26.2 million, net of cash
purchased of $1.9 million, and the assumption of indebtedness of $1.9 million.
We financed the acquisition of IPES through non-recourse borrowings in Spain for
$21.3 million of the purchase price and borrowings under a credit facility for
the remainder.
On August 3, 1998, Doane Pet Care Enterprises, Inc. acquired Windy Hill for
approximately 1.6 million shares of its common stock and the assumption of
$183.5 million of indebtedness.
On November 12, 1998, Doane Pet Care Enterprises, Inc. merged Windy Hill
into Doane, and we completed the refinancing transactions. As part of the
refinancing transactions, we entered into the senior credit facility, which
provides for total commitments of $345.0 million. As of February 28, 1999, we
had outstanding borrowings of $245.0 million under the term loan facility, $39.2
million under the revolving credit and swingline facilities. In addition, at
that date we had $2.4 million of outstanding letters of credit under the senior
credit facility.
Our company is highly leveraged and has significant cash requirements for
debt service relating to the senior credit facility, the notes, the IPES debt
and industrial development bonds. Our ability to borrow is limited by the senior
credit facility and the limitations on the incurrence of indebtedness in the
indenture governing the notes. We anticipate that our operating cash flow,
together with amounts available to us under the senior credit facility and new
industrial development bonds, will be sufficient to finance working capital
requirements, debt service requirements and capital expenditures through the
1999 fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate
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a derivative instrument as a hedge of exposures to changes in fair values, cash
flows, or foreign currencies. If the hedged exposure is a fair value exposure,
the gain or loss on the derivative instrument is recognized in earnings in the
period of change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is a cash flow
exposure, the effective portion of the gain or loss on the derivative instrument
is reported initially as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any amounts excluded from the assessment of hedge
effectiveness, as well as the ineffective portion of the gain or loss, is
reported in earnings immediately. Accounting for foreign currency hedges is
similar to the accounting for fair value and cash flow hedges. If the derivative
instrument is not designated as a hedge, the gain or loss is recognized in
earnings in the period of change.
We will adopt SFAS 133 beginning in fiscal 2000. We have not determined the
impact that SFAS 133 will have on our financial statements and believe that the
determination will not be meaningful until closer to the date of initial
adoption.
YEAR 2000
We have conducted a comprehensive review of our computer software to
identify the systems that could be affected by the "year 2000" issue. The year
2000 issue results from computer programs being written using two digits, rather
than four, to define the applicable year. As a result, certain of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This calculation could result in a major system
failure or miscalculations.
We have made an assessment of year 2000 compliance and reviewed our
business application software, which resulted in plans to either replace or
upgrade all essential business software at an estimated cost of $5.6 million. We
are currently reviewing our administrative hardware and software, which include
networks, communications and security systems, and the software related to
manufacturing equipment. We have implemented a program to confirm year 2000
compliance with all third parties with which we have material relationships.
As of December 31, 1998, we had incurred costs of approximately $3.0
million in connection with year 2000 compliance. We intend to test and verify
our year 2000 compliance projects by July 1999, including third party
compliance. We believe that a failure to complete our year 2000 compliance, or a
failure by parties with whom we have material relationships to complete their
year 2000 compliance, by December 31, 1999 could have a material adverse effect
on our financial condition and results of operations. We believe that we can
provide the resources necessary to ensure year 2000 compliance prior to the year
2000. However, if we are delayed in our year 2000 compliance, we may experience
a decrease in efficiency that could have a material adverse effect on our
results of operations. We also believe that a sufficient number of suppliers
exist if our current suppliers are delayed in their efforts to achieve year 2000
compliance thereby minimizing risk to us. We have developed contingency plans
that include moving production within our plant network, securing additional
ingredient storage facilities and transferring procurement to year 2000
compliant suppliers.
COMMITMENTS AND CONTINGENCIES
On October 30, 1998 we initiated a voluntary product recall for certain dry
dog food manufactured at our Temple, Texas plant between July 1 and August 31,
1998. The recall covered dry dog food manufactured at our Temple plant and did
not apply to dry dog food manufactured at other plants or to our dry cat food,
biscuits, treats or canned products. The recall resulted from reported sickness
and death of dogs in the State of Texas. These conditions were attributed to
elevated levels of aflatoxins in corn, which is an ingredient in dry dog food.
Aflatoxins are compounds produced from certain kinds of crop molds that can be
caused by extreme weather conditions such as drought and heat. We have an
extensive corn testing program for the detection of aflatoxins and that program
has been intensified since the problems were reported. We maintain insurance
against losses from illness or death of animals; however, the cost of the
product recall was not covered by insurance. We recorded a $3.0 million product
recall charge in the fourth quarter of fiscal 1998.
We believe that our operations are in material compliance with
environmental, safety and other regulatory requirements; however, we cannot
assure you that these requirements will not change in the future
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or that we will not incur significant costs in the future to comply with these
requirements, to effect future recalls or in connection with the effect of these
matters on our business. See "Business -- Environmental, Regulatory and Safety
Matters; Product Recall."
EURO
Effective January 1, 1999, eleven of the fifteen countries comprising the
European Union began a transition to a single monetary unit, the "Euro," which
is scheduled to be completed by July 1, 2002. We are currently considering
options to ensure that our European subsidiaries can operate effectively in the
Euro. Our subsidiaries in Italy and Spain may incur significant costs in
conversion of their systems to the Euro. We are unable to predict whether these
costs can be passed on to customers. The customers of these subsidiaries may
also begin conducting operations using the Euro prior to the completion of the
conversion of the systems of our subsidiaries. Delays in conversion could have a
material adverse effect on the results of the operations of these subsidiaries.
In addition, the introduction of the Euro may increase competition, as
manufacturers in other European countries become able to compete more easily in
our markets. We do not believe that the implementation of the Euro will have a
material effect on our operations or financial condition taken as a whole.
INFLATION AND CHANGES IN PRICES
Our financial results depend to a large extent on the cost of raw materials
and packaging and our ability to pass along to our 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 U.S.
government farm support programs, changes in international agricultural and
trading policies and weather conditions during the growing 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 any
increases in raw materials costs, we may be required to increase sales prices
for our products in order to avoid margin deterioration. We cannot assure you of
the timing or extent of our ability to implement future price adjustments in the
event of increased raw material costs or of whether any price increases
implemented by us may affect the volumes of future shipments.
We manage the price risk created by market fluctuations by hedging portions
of our primary commodity product purchases, principally through exchange traded
futures and options contracts that are designated as hedges. The terms of these
contracts are generally less than one year. Settlement of positions are either
through financial settlement with the exchanges or through exchange for the
physical commodity in which case we deliver the contract against the acquisition
of the physical commodity. Our policy does not permit speculative commodity
trading. Although we manage the price risk of market fluctuations by hedging
portions of our primary commodity product purchases, we cannot assure you that
our results of operations will not be exposed to volatility in the commodity
market. See "-- Overview" and "Business -- Raw Materials and Packaging."
OTHER EVENTS
Our parent, Doane Pet Care Enterprises, Inc., has filed a registration
statement on Form S-1 (Registration No. 333-61027) with the Securities and
Exchange Commission in connection with its proposed initial public offering.
Immediately prior to the completion of the proposed offering, Doane Pet Care
Enterprises, Inc. plans to effect a four-for-one stock split. The proceeds of
the proposed offering will be used to pay down indebtedness under our senior
credit facility, repurchase the Doane preferred stock and pay associated fees
and expenses. The proposed offering may or may not be successfully completed
prior to the completion of the exchange offer.
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BUSINESS
OVERVIEW
We are the largest manufacturer of dry pet food in the United States by
volume, producing approximately 26% of the total volumes sold in 1998 on a pro
forma basis. We manufacture products for store brands owned by retail customers,
also known as private labels, contract manufacture products for national branded
pet food companies and produce and sell under regional brands owned by us.
We manufacture for our customers a full range of pet food products for both
dogs and cats, including dry, canned, semi-moist, soft dry, soft treats and dog
biscuits. We provide products that meet customer specifications across all
retail channels and price points, from super premium to value products.
Accordingly, we manufacture store brands for over 350 customers in the United
States, including the three largest mass merchandisers, the five largest grocery
companies and the largest national pet specialty retailer. We also manufacture
dry pet food and treats for five of the six largest national branded pet food
companies through co-manufacturing arrangements pursuant to which we produce,
package and ship a portion of those companies' products.
We have the most extensive manufacturing and distribution network in the
industry, providing us with certain operational, cost and competitive
advantages. We manufacture and distribute our products in the United States
through 32 combination manufacturing and distribution facilities and eight
additional distribution centers. We expect to open one additional manufacturing
and distribution facility in Clinton, Oklahoma in the second quarter of fiscal
1999. The number and strategic location of our facilities reduce distribution
expenses, which represent a meaningful portion of the delivered cost of pet food
due to its bulk and weight relative to its selling price. Our extensive network
can further reduce expenses by enabling certain of our customers to bypass their
distribution centers and deliver directly to their stores. Direct store delivery
service currently accounts for approximately 45% of our sales by volume.
We have achieved strong internal growth. From 1992 to 1998, we increased
sales volumes at a compound annual growth rate of 9.3%, exclusive of
acquisitions. We believe our growth is primarily due to an increase in consumer
acceptance of dry products versus canned products and store brands versus
national brands. In addition, we have been the primary supplier of store brand
pet food to Wal*Mart since 1970. We manufacture and distribute, under a direct
store delivery program, a variety of products for Wal*Mart including its store
brand, Ol' Roy, which is the largest selling brand of dry pet food in the United
States by volume. In 1998, sales of store brand products to Wal*Mart accounted
for 36.5% of our sales on a pro forma basis.
THE PET FOOD INDUSTRY
The U.S. pet food industry is a $10.0 billion industry that has grown at a
compound annual rate of 4.2% from 1994 to 1998 in terms of sales. Growth in the
dry pet food and the biscuit and treats segments of the industry has exceeded
the growth of the overall pet food industry by capturing market share from other
segments, including canned pet food. Dry pet food sales have grown at a compound
annual rate of 6.4% since 1994 and accounted for approximately $5.7 billion of
sales in the industry in 1998. Sales of biscuits and treats have grown at a
compound rate of 4.5% per year since 1994 and accounted for approximately $1.3
billion of sales during 1998.
Improved product quality, consumer value and increased retailer support
have generally enabled store brands to outgrow the category in many traditional
branded categories, including pet food. Since 1994, the volume of sales of store
brand dry pet food has grown at a compound annual rate of 9.0% per year versus
the category, which has grown at 5.2% per year. The volume of sales of store
brand canned pet food over the same period has grown at a compound rate of 15.3%
per year versus the category, which has declined by 0.9%. Store brand dog
biscuits and treats have grown at a compound rate of 13.5% since 1994 with the
category growing at 4.5% per year. Sales of store brand pet food accounted for
in excess of 25% of the total pet food market in 1998 and have grown at a
compound annual growth rate in excess of 7% over the past five years. Store
brands have increased market share in each of the segments of the pet food
industry over the past five years. In 1998, store brands represented
approximately 38%, 31%, 24%, 18% and 16% of total sales volume of biscuits and
treats,
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dry dog, dry cat, canned dog and canned cat food, respectively. Store brands
today encompass a full range of pet food products at all price points, including
economy, premium and super premium.
RECENT DEVELOPMENTS
Refinancing Transactions. In November 1998, we refinanced our capital
structure through the following refinancing transactions:
-- Windy Hill was merged into Doane;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of our senior notes;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of its notes, which tender offer was required by a change of
control provision in the indenture governing those notes;
-- Doane completed an exchange offer of $150 million principal amount of
our old notes for the remaining approximately $63 million principal
amount of our senior notes and the remaining approximately $74 million
principal amount of Windy Hill notes; and
-- Doane entered into the senior credit facility with a syndicate of
financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the senior credit facility to fund the
cash requirements of the refinancing transactions, repay borrowings
under and retire our previous credit facilities, repay other debt and
repay bridge financing incurred in connection with the tender offer for
the Windy Hill notes.
Windy Hill Acquisition. In August 1998, Doane Pet Care Enterprises, Inc.
acquired Windy Hill for approximately 1.6 million shares of its common stock and
the assumption of $183.5 million of indebtedness. Windy Hill was a leading
manufacturer of pet food products for both dogs and cats, including dry, canned,
semi-moist, soft dry, soft treats and dog biscuits. With Windy Hill, we became
the largest manufacturer of dog biscuits in the United States. In 1997, Windy
Hill generated pro forma net sales of $304.0 million, EBITDA of $26.7 million
and a net loss before extraordinary item of $1.6 million.
The acquisition of Windy Hill strengthens our presence in the dry pet food
and dog biscuit market segments, provides revenue synergies and enhances our
position as a low-cost manufacturer and distributer of pet food products. We
believe the acquisition of Windy Hill provides the opportunity for revenue
growth by (1) enabling us to offer regional brands, semi-moist, soft dry and
canned pet food products to our traditional customer base and (2) enabling us to
offer soft treats and other specialized dry food products to Windy Hill's
traditional customer base. With the addition of Windy Hill's 19 plants, we
believe cost savings can be achieved through optimizing production schedules and
lowering distribution costs by reducing the distance products are shipped. The
acquisition of Windy Hill also provides us with the opportunity to achieve cost
savings by obtaining purchasing synergies and eliminating redundant overhead
functions.
IPES Acquisition. In April 1998, we acquired IPES for $26.2 million, net of
cash purchased of $1.9 million, and the assumption of indebtedness of $1.9
million. IPES, located in Spain, is a manufacturer of both store and regional
brands. In fiscal 1997, IPES had net sales of $21.1 million, EBITDA of $3.8
million and net income of $1.0 million. We believe that the acquisition of IPES,
together with our investment in the Italian manufacturer, Effeffe, S.p.a.,
provides us with a platform for growth in Europe.
STRATEGY
Our business objective is to increase revenues and earnings and to enhance
our leadership position within the pet food industry. The key elements of the
strategy to achieve our business objective are as follows:
Continue to be the Low Cost Quality Provider in the Pet Food Industry. We
believe we are the low cost provider of quality dry pet food. We believe our
position as the largest manufacturer of dry pet food provides us with certain
economies of scale, including production efficiencies and packaging purchasing
leverage. In addition, the number and strategic location of our facilities
enhances our position as the low cost provider by
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reducing transportation costs for raw materials and finished goods. We also
maintain in-house engineering, machining and fabrication capabilities that
enable us to design, construct and maintain facilities on a cost-effective
basis.
Leverage Distribution System. Our manufacturing and distribution network
enables us to service customers on a national basis and facilitates our direct
store delivery program, the scope of which we believe is unique in the industry.
In addition, we have developed capabilities that allow us to provide vendor
managed inventory services to certain key customers. Vendor managed inventory
allows us to communicate on-line with our customers, evaluate their inventory
status and place orders on their behalf. We intend to leverage our manufacturing
and distribution network by expanding sales of our full range of pet food
products to our existing customers. For example, we recently completed the
construction of a soft treat manufacturing facility, which will enable us to
offer soft treats to our traditional customer base, and we intend to expand
sales of certain products acquired in the acquisition of Windy Hill, including
semi-moist, soft dry, canned and regional brands to our existing customers.
Provide a Full Range of Pet Food Products. We offer customers a full range
of pet food products for both dogs and cats, including dry, canned, semi-moist,
soft dry, soft treats and dog biscuits. By offering a full range of products
under a variety of price points and brand formats, including store brands,
co-manufactured national brands and regional brands, we can be a significant
source for our customers' total pet food requirements. This enables customers to
realize administrative and distribution savings by aggregating a variety of
products and brands into a single shipment.
Focus on Diversified Brand Formats. We believe that store, co-manufactured
national and regional brand formats offer significant growth opportunities.
Sales of store brands have exceeded the overall growth in the pet food industry.
We believe this growth will continue due to:
- an increased awareness of retailers concerning the advantages of store
brands, including enhanced margins and customer loyalty,
- improved quality, innovation and variety of store brand products and
- increasingly informed and value-conscious consumers.
We believe co-manufactured national brands offer growth opportunities as
national branded pet food companies increasingly take advantage of our low-cost
status, quality products and logistic and specialty product capabilities. We
believe that the regional brands acquired with the acquisition of Windy Hill
complement our existing product lines, and we intend to capitalize on demand for
such brands within our existing customer base.
Acquire Additional Pet Food Companies. To supplement our internal growth,
we have acquired eight pet food companies over the last four years. We believe
that substantial opportunities exist in the United States and abroad to acquire
additional pet food companies. We will continue to seek accretive acquisitions
that offer complementary product lines, geographic scope, additional
distribution channels and cost saving opportunities.
Expand International Presence. We believe substantial opportunities exist
to increase sales in international markets. We believe that the approximately
$9.3 billion European pet food market is particularly attractive due to the
strength and demand for store brand products and the strong growth of dry pet
food products. We are currently expanding our manufacturing and distribution
capabilities in Spain and Italy and intend to pursue acquisitions of additional
pet food companies and expand our product offerings. In addition, we believe
that an opportunity exists to expand export sales to the Pacific Rim and South
America.
PRODUCTS AND SERVICES
We provide our customers with comprehensive pet food category management
services designed to expand each customer's pet food product lines and to
improve the category's profitability. Category management services include:
- product development and testing,
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- packaging design services and
- assistance in formulating pricing and marketing strategies in connection
with their store brand programs.
We sell our products as store brands owned by customers, also known as
private labels, and regional brands owned by us, and we also contract
manufacture products for national pet food companies. Our store brand program
involves the formulation and supply of a wide variety of high quality pet food
products, including dry, canned, semi-moist, soft dry and soft treats, as well
as dog biscuits, that are comparable in quality to, but lower in cost than,
competing branded pet food products. For national brand customers, we
manufacture dry pet food, treats and biscuits to such customers' specifications
and standards. The regional brands are used for economy priced products that are
generally marketed as a complement to customers' store brand programs.
Accordingly, we are able to provide customers with a single source for store
brands, certain co-manufactured national brands and regional brands. We are able
to ship all such product offerings together, giving customers the ability to
address a substantial portion of their pet food requirements from one source.
We manufacture dry pet food under approximately 350 store brands, including
Kirkland Signature, Retriever, Dura Life, Great Choice, Hy Vee, Ol' Roy, Exceed,
Maxximum Nutrition, Remarkable, Pathmark, Pet Club, PMI-Nutrition, Special Kitty
and Sportsman's Choice. We also co-manufacture branded pet food products for
national pet food companies in accordance with such companies' specifications
and standards. Our regional brands include Kozy Kitten(R), G. Whiskers(R), Trail
Blazer(R), and Tuffy's(R), which are sold to allow our customers to broaden
their product offerings and to provide them with a single source for their pet
food requirements. We also have Bonkers(R) and Pet Lovers(TM) branded treats
available for our retailers.
In addition to our pet food products, we sell products manufactured by
third parties and maintain an engineering group. A description of each of our
product lines is set forth below:
Dry Pet Food Products (80.2% of 1998 Pro Forma Net Sales)
We are the largest manufacturer of dry pet food products in the United
States. We produce, market and distribute a wide selection of high quality dry
pet food products predominantly for dogs and cats. The dog food product line
includes high protein, chunk style, premium blended, puppy food and gravy style
products. The dog food product line has accounted for the largest portion of our
dry pet food shipments over the past three years, with such products
representing approximately 84.1% of our dry pet food shipments (tonnage) in 1998
on a pro forma basis. Our cat food lines accounted for approximately 15.9% of
our dry pet food shipments (tonnage) in 1998 on a pro forma basis.
Biscuits and Treats (10.5% of 1998 Pro Forma Net Sales)
We are the largest manufacturer of dog biscuits in the United States, and
we are also a leading supplier of soft treats. Biscuits undergo a different
manufacturing process from dry pet food that primarily involves baking rather
than the use of extruders.
Semi-Moist, Soft Dry and Canned Pet Food (4.9% of 1998 Pro Forma Net Sales)
In connection with the acquisition of Windy Hill, we have expanded our
operations into the semi-moist, soft dry and canned pet food segments.
Semi-moist, soft dry and canned products are distinguishable from dry pet food
based on their higher moisture levels, the manufacturing technology used to
process such products and their higher costs of packaging.
Non-Manufactured Products (3.5% of 1998 Pro Forma Net Sales)
Sales of non-manufactured products include sales of cat litter, canned pet
products and pet treats produced by third parties. We receive these items at our
manufacturing facilities and warehouses and aggregate them with our products
into truckload quantities for combined shipment to certain customers. We provide
this service as a part of our direct shipment program and receive a handling fee
for this service.
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Engineering Services Group
Our engineering services group designs and builds extruders, conveyors,
dryers and other parts and equipment, including replacement parts, for our pet
food manufacturing facilities and for third parties. The engineering services
group also includes a repair staff that is available to service and repair
machinery and equipment at our production facilities, giving us the ability to
make timely repairs, thereby minimizing downtime. Our in-house engineers
generally design and supervise plant construction, thereby reducing plant
construction costs and ensuring consistent manufacturing processes and quality
control. We believe that our engineering services group provides us services at
a lower cost and more efficiently than could be obtained from third parties.
SALES AND DISTRIBUTION
Our direct sales force seeks new accounts and works directly with mass
merchandisers, membership clubs, feed stores and specialty pet stores. We also
use independent food brokers. We generate new business through the expansion of
our product line and the development of new marketing programs to existing
customers.
Most of our products are distributed utilizing our customers'
transportation networks. Several of our largest customers utilize us as a
"just-in-time" supplier and maintain trailers at our manufacturing and
distribution facilities. The trailers are loaded and shipped either directly to
individual stores or to customers' distribution centers. Those customers that
ship product directly from our manufacturing facilities to their retail outlets
are able to reduce their inventory, freight and handling costs by avoiding
shipment to a customer distribution center. Those customers that use their own
transportation fleet are able to utilize their trucks that would otherwise be
empty to backhaul a load of pet food on return to their distribution center or
directly to another store. Our ability to ship directly to certain of our
customers is a key consideration in locating our manufacturing facilities and is
a significant competitive advantage.
Our customers not utilizing their own fleet either arrange their own
transportation or have us arrange transportation on a contract basis through
common carriers. We do not own or operate any transportation equipment.
We have developed capabilities that allow us to provide vendor managed
inventory service to certain key customers. Vendor managed inventory allows us
to communicate on-line with our customers, evaluate their inventory status then
place the order for the customer. We utilize vendor managed inventory for both
direct store and warehouse deliveries. Vendor managed inventory benefits include
shorter lead-time, higher inventory turns and reduced out-of-stock positions.
CUSTOMERS
We manufacture store brands for over 350 customers. Store brand customers
include mass merchandisers such as Wal*Mart and Costco, specialty pet stores
such as PetsMart and grocery chains such as Safeway, Food Lion, Kroger, Publix,
Albertson's, Royal Ahold and Lucky's. In addition, we manufacture products for
farm and feed stores including Tractor Supply and Purina Mills and national
branded pet food companies such as Iams, Heinz, Kal-Kan, Hill's Pet Nutrition
and Nestle.
For the year ended December 31, 1998 on a pro forma basis, sales of store
brand products to Wal*Mart accounted for an aggregate of 36.5% of our net sales.
We have been the primary supplier of private label dry pet food products to
Wal*Mart since 1970 and to its Sam's Club division since 1990. We utilize a
computerized order and distribution system to ship product directly to virtually
all domestic Wal*Mart stores, a majority of which are located within 250 miles
of our facilities. The direct ship program, which reduces customer inventory,
handling and warehouse expenses, is enhanced by the number and strategic
locations of our facilities. We also offer direct shipment programs and
electronic data interchange systems to other customers who see these services as
a benefit.
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The loss of any significant customer or customers, who in the aggregate
represent a significant portion of our sales, would have an adverse impact on
our operating results and cash flows. See "Risk Factors -- Dependence on Certain
Customers."
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 us and possess significantly
greater financial and marketing resources than us. The store brand pet food
products sold by our 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.
We experience price competition from national branded manufacturers. To the
extent that there is significant price competition from the national branded
manufacturers or such manufacturers significantly increase their presence in the
store brand segment, our operating results and cash flow could be adversely
affected. We also compete with regional branded manufacturers and other store
brand manufacturers.
We believe that we differentiate our company from the national branded dry
pet food manufacturers by offering comparable products at lower prices giving
retailers the opportunity for greater pet food category profitability. We
believe that we differentiate our company from other store brand dry pet food
manufacturers by offering higher quality products, national production and
distribution capabilities and a reputation for increasing customers' store brand
dry pet food sales.
RAW MATERIALS AND PACKAGING
The principal raw materials required for our manufacturing operations are
bulk commodity grains and foodstocks, including corn, soybean meal, wheat
middlings, meat and bone meal, and corn gluten meal. We generally purchase raw
materials one to three months in advance. We purchase the raw material
requirements of each of our 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. We do not
maintain long-term contracts with any of our suppliers; however, we believe that
alternative sources of supply are readily available.
We manage the price risk created by market fluctuations by hedging portions
of our 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 financial settlement with the exchanges or via exchange for the physical
commodity, in which case we deliver the contract against the acquisition of the
physical commodity. Our hedging policy does not permit speculative commodity
trading. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
Packaging is a material component of our raw material costs. We have five
main suppliers of packaging and believe that additional suppliers of packaging
are available. A majority of our requirements are not covered by long term
contracts with any of our packaging suppliers.
We generally price our pet food products based on the cost of raw
materials, packaging and certain other costs plus a conversion charge, which
includes a profit factor. We periodically adjust prices based on fluctuations in
raw material and packaging costs. There can be no assurance that future price
increases will be obtained in the event of increased raw material costs. See
"Risk Factors -- Raw Materials and Packaging Costs" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RESEARCH AND DEVELOPMENT
Our 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 our production facilities used for quality control. We
are continually developing new products. The research and development department
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<PAGE> 40
formulates the mix of raw materials and 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.
Quality control is an integral part of our research and development. We
maintain a program of testing raw materials to ensure nutritional adequacy and
to test for the presence of bacteria and other harmful substances. We
continuously test pet food production at each of our plants by analyzing the
finished pet food product against formulas and regulatory requirements.
Packaging is inspected to ensure print quality, proper dimensions and compliance
with labeling regulations.
FACILITIES
Our corporate headquarters are located in Brentwood, Tennessee. We own
combination manufacturing and distribution facilities in the following states:
one each in New York, Virginia, Indiana, Tennessee, South Carolina, Georgia,
Iowa, Oklahoma, Nebraska, Colorado and Texas; two each in Ohio, Wisconsin,
Minnesota, Missouri, Alabama and Kansas; and three each in Pennsylvania and
California. We also have a 50% joint interest in facilities located in Butler,
Missouri; Caldwell, Idaho; Hereford, Texas; and Italy. We are in the process of
building a state of the art facility in Clinton, Oklahoma. We also own a
facility in Spain. In addition, we own or lease eight warehouses.
Our manufacturing facilities are generally located in rural areas in
proximity to customers, raw materials and transportation networks, including
rail transportation. We believe the number and strategic locations of our
manufacturing facilities enhance our position as the low cost producer by
reducing freight costs for raw material and finished goods and facilitating
direct store delivery programs. The rural locations also minimize land and labor
costs. We believe we are able to construct new manufacturing facilities at a
lower cost than competitors due to our engineering services group that designs
and constructs most of the necessary production equipment.
ENVIRONMENTAL, REGULATORY AND SAFETY MATTERS; PRODUCT RECALL
We are subject to a broad range of federal, state, local and foreign
environmental laws and regulations, including those governing discharges to the
air and water, the storage of petroleum substances and chemicals, the handling
and disposal of solid or hazardous wastes, and the remediation of contamination
arising from spills and releases. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil and criminal
penalties, permit revocation and modification as well as, in certain instances,
the issuance of injunctions. Aside from costs associated with the product recall
discussed below, we have not been subject to any material environmental
liabilities and compliance of our business and operations with environmental
laws and regulations has not had a material adverse effect on our capital
expenditures, earnings, or competitive position. Environmental laws and
regulations have changed substantially in recent years and we believe that the
trend of more expansive and more strict environmental legislation and
regulations will continue. While we believe we are in substantial compliance
with applicable environmental and public health 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.
Our business involves the use of aboveground and underground storage tanks.
Under applicable laws and regulations, we are responsible for the proper use,
maintenance and abandonment of regulated storage tanks that we own or operate,
and for remediation of subsurface soils and groundwater impacted by releases
from such existing or abandoned aboveground or underground storage tanks. We are
also subject to laws and regulations governing remediation, recycling, or
disposal. The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, also known as the "Superfund" law, and analogous state laws impose
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
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<PAGE> 41
responsible for the releases of hazardous substances under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 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 our past operations in connection with
any Comprehensive Environmental Response, Compensation and Liability Act of 1980
site, we have not received, nor do we expect to receive, any notice that we are
or will be designated a potentially responsible party to any Comprehensive
Environmental Response, Compensation and Liability Act of 1980 site.
We currently own or lease, and in connection with our acquisition program
will in the future own or lease, properties that in some instances have been
used for pet food manufacturing or feed mill operations for many years. Although
we have utilized operating and disposal practices that were standard in the
industry at the time, in some locations environmentally sensitive materials were
spilled or released on or under the properties owned or leased by us or on or
under other locations where such materials were taken for disposal. In addition,
many of these properties have been operated by third parties whose use, handling
and disposal of such environmentally sensitive materials or similar wastes were
not under our control. These properties and the waste materials spilled,
released or otherwise found thereon may be subject to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the federal
Resource Conservation and Recovery Act, and analogous state laws. Under these
laws, we have been required to remove or remediate previously spilled or
released waste materials, including materials spilled or released by prior
owners or operators, or property contamination, including groundwater
contamination caused by prior owners or operators, or to perform monitoring or
remedial activities to prevent future contamination, including releases from
underground storage tanks or aboveground bulk petroleum storage facilities.
Moreover, some of our manufacturing facilities are located within industrial
areas. It is possible that in the future additional environmental response costs
may be required for existing sites as well as any additional sites that may be
identified. In the past, nearby industries have suffered releases of hazardous
substances to the environment that are the subject of Comprehensive
Environmental Response, Compensation and Liability Act of 1980 investigations.
It is possible that these neighboring environmental activities may have impacted
some of our properties. We have not been advised, nor do we expect to be
advised, by any environmental agency that we are considered a potentially
responsible party for the neighboring environmental conditions, and we have no
reason to believe that such conditions would have a material adverse effect on
our company.
Our operations are subject to the federal Clean Air Act and comparable
state and local requirements. Regulations implementing the Clean Air Act require
the installation of pollution control devices on operating sources with air
emissions exceeding applicable threshold levels. As part of an overall
evaluation of our current operations, we are planning to install an air
scrubbing unit at one of our facilities, and are assessing whether to install
such a unit at another of our facilities. We do not expect the installation of
one or both of these units to have a material adverse impact on our operations.
It is possible that in the future additional air control devices may be
installed at other facilities of ours as necessary to satisfy existing or future
requirements.
The manufacturing and marketing of our products are subject to regulation
by federal regulatory agencies, including the Occupational Safety and Health
Administration, the Food and Drug Administration and the United States
Department of Agriculture, and by various state and local authorities. The Food
and Drug Administration also regulates the labeling of our products. Substantial
administrative, civil, and criminal penalties may be imposed for violations of
the Occupational Safety and Health Administration, the Food and Drug
Administration, and the Department of Agriculture regulations, and violations
may be restrained through injunction proceedings. We procure and maintain the
necessary permits and licenses in order to operate our facilities and consider
our company to be in material compliance with applicable Occupational Safety and
Health Administration, Department of Agriculture, and Food and Drug
Administration requirements.
On October 30, 1998 we initiated a voluntary product recall for certain dry
dog food manufactured at our Temple, Texas plant. The recall covered dry dog
food manufactured at our Temple plant between July 1 and August 31, 1998 and did
not apply to dry dog food manufactured at other plants or to our dry cat food,
biscuits, treats or canned products. The recall resulted from reported sickness
and death of dogs in the State of Texas. These conditions were attributed to
elevated levels of aflatoxins in corn, which is an ingredient in dry dog food.
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Aflatoxins are compounds produced from certain kinds of crop molds that can be
caused by extreme weather conditions such as drought and heat. We have an
extensive corn testing program for the detection of aflatoxins and that program
has been intensified since the problems were reported. We maintain insurance
against losses from illness or death of animals; however, the cost of the
product recall was not covered by insurance. We recorded a $3.0 million product
recall charge in the fourth quarter of fiscal 1998.
We believe that our operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that these requirements will not change in the future or that we
will not incur significant costs in the future to comply with these
requirements, to effect future recalls or in connection with the effect of these
matters on our business.
Our pet food operations outside the United States are potentially subject
to similar foreign governmental controls and restrictions pertaining to the
environment. We believe that compliance with existing requirements of those
governmental bodies has not had a material adverse effect on our operations.
TRADEMARKS
Certain of our brands are protected by trademark registrations in the
United States and in certain foreign markets. We believe that our registered
trademarks are adequate to protect such brand names.
EMPLOYEES
As of February 28, 1999, we had approximately 2,495 employees, of which
approximately 275 were management and administrative personnel and approximately
2,220 were manufacturing personnel. Of this number, 397 employees in five of our
plants are represented by labor unions. The collective bargaining agreement with
respect to the Birmingham, Alabama plant covers 94 employees and expires on
January 20, 2001. The collective bargaining agreement with the Joplin, Missouri
plant covers 188 employees and expires on January 31, 2003. The collective
bargaining agreement with the Muscatine, Iowa plant covers 49 employees and
expires in December 1999. The collective bargaining agreement with respect to
the NuPet plant in Ripon, California covers 25 employees and expires in October
2000, subject to renewal for subsequent one-year terms. The collective
bargaining agreement with respect to the Lincoln, Nebraska plant covers 41
employees and expires in July 1999. We consider our relations with our employees
to be satisfactory.
LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings, other than
ordinary routine litigation incidental to our business that we believe would not
have a material adverse effect on our financial condition or results of
operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the current
executive officers and directors of Doane and Doane Pet Care Enterprises, Inc.
Each of the members of the board of directors of Doane named below also serves
on the board of directors of Doane Pet Care Enterprises, Inc. The board of
directors of both Doane and Doane Pet Care Enterprises, Inc. is currently
composed of eight members. Certain of the directors of Doane and Doane Pet Care
Enterprises, Inc. are designated pursuant to an investors' agreement. See
"Certain Transactions -- Investors' Agreement." Officers serve at the discretion
of the board of directors. For information regarding employment agreements with
the executive officers of Doane Pet Care Enterprises, Inc. and Doane, see
"-- Employment and Termination Agreements."
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
George B. Kelly............. 49 Chairman of the Board and Director
Douglas J. Cahill*.......... 39 Chief Executive Officer, President and Director
Thomas R. Heidenthal*....... 47 Senior Vice President and Chief Financial Officer
F. Donald Cowan, Jr......... 53 Senior Vice President, Business Development and
Quality of Doane
Richard A. Hannasch......... 45 Vice President, Fulfillment of Doane
Richard D. Wohlschlaeger.... 46 Vice President, Sales and Marketing of Doane
David L. Horton............. 38 Vice President, Manufacturing and Engineering of
Doane
Terry W. Bechtel............ 56 Vice President, Co-Manufacturing (Sales) of Doane
Charles W. Dunleavy......... 54 Vice President and Managing Director, European
Operations of Doane
Joseph J. Meyers............ 37 Vice President and Chief Information Officer of
Doane
Philip K. Woodlief.......... 45 Vice President, Finance of Doane
Peter T. Grauer............. 53 Director
M. Walid Mansur............. 39 Director
Bob L. Robinson............. 61 Director
Jeffrey C. Walker........... 43 Director
Ray Chung................... 50 Director
Stephen C. Sherrill......... 46 Director
</TABLE>
- ---------------
* These executive officers hold the same positions at Doane and Doane Pet Care
Enterprises, Inc.
Set forth below is a brief description of the business experience of the
directors and executive officers of Doane Pet Care Enterprises, Inc. and Doane.
George B. Kelly has been Chairman of the Board of Doane since October 1995
and Chairman of the Board of Doane Pet Care Enterprises, Inc. since June 1995.
Mr. Kelly has been the Chairman of the Board of SCI since July 1990. Mr. Kelly
currently is a director of Alegis Group, Inc., Billboard Acquisition Company,
LLC, Independent Gas Company Holdings and Sevenday International, Inc.
Douglas J. Cahill became Chief Operating Officer of Doane and Doane Pet
Care Enterprises, Inc. in September 1997, began serving as President of Doane
and Doane Pet Care Enterprises, Inc. in January 1998 and began serving as Chief
Executive Officer of Doane and Doane Pet Care Enterprises, Inc. in July 1998. He
has been a director of Doane and Doane Pet Care Enterprises, Inc. since
September 1998. Prior to joining us, Mr. Cahill served as President of Olin
Corporation's Winchester Division, Corporate Vice President of Olin Corporation
and held various other positions with Olin Corporation during the period from
July 1984 through September 1997.
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Thomas R. Heidenthal became Senior Vice President and Chief Financial
Officer of Doane and Doane Pet Care Enterprises, Inc. in March 1997. Prior to
joining us, Mr. Heidenthal served as Vice President Finance and Administration
of TA Instruments, Inc. from August 1990 to February 1997.
F. Donald Cowan, Jr. began serving as Senior Vice President, Business
Development and Quality of Doane in January 1999. Before joining Doane in August
1998 as Senior Vice President, Operations, he served as Vice President of
Operations for Windy Hill. Prior to joining Windy Hill in 1995, Mr. Cowan was
Vice President of Operations for Martha White Foods, Inc. From 1987 to 1995, Mr.
Cowan held various positions at Martha White Foods, Inc. including Vice
President of Operations.
Richard A. Hannasch joined Doane in October 1996, has served as Vice
President, Fulfillment since January 1999 and served as Vice President,
Strategic Planning from June 1998 to January 1999 and Vice President of
Marketing from November 1997 to January 1999. Prior to joining us, Mr. Hannasch
served as Director, Business Development for Ralston Purina Company's
International Division and held various other positions at Ralston Purina
Company from September 1978 to October 1996.
Richard D. Wohlschlaeger joined Doane in April 1993, has served as Vice
President, Sales and Marketing since January 1999 and served as Vice President,
Customer Development from November 1997 to January 1999. Prior to joining us,
Mr. Wohlschlaeger held various other positions at Ralston Purina Company from
March 1976 to April 1993, including Group Director, Trade Marketing and Eastern
Division Sales Director.
David L. Horton joined Doane in November 1997, has served as Vice
President, Manufacturing and Engineering since January 1999 and served as Vice
President, Fulfillment from November 1997 to January 1999. Prior to joining us,
Mr. Horton served as Vice President of Manufacturing and Engineering of Olin
Corporation's Winchester Division and held various other positions with Olin
Corporation from January 1984 to November 1997.
Terry W. Bechtel has served as Doane's Vice President, Co-Manufacturing
(Sales) since November 1997. Mr. Bechtel joined us in June 1973 and served as
Vice President, Administration from March 1990 until November 1997, and as Vice
President, Sales from September 1976 through February 1990.
Charles W. Dunleavy began serving as Vice President and Managing Director,
European Operations of Doane in February 1999. Before joining Doane in August
1998 as Vice President, Finance, he served as Vice President of Finance for
Windy Hill. Prior to joining Windy Hill in September 1997, Mr. Dunleavy was Vice
President of Operations for Hudson Technologies, Inc. from 1993 to 1997. From
1989 to 1993, Mr. Dunleavy was the Managing Partner of the Detroit office of BDO
Seidman, LLP, a public accounting firm.
Joseph J. Meyers became Chief Information Officer of Doane in August 1998
and began serving as Vice President of Doane in January 1999. Prior to joining
us, Mr. Meyers held various information technology positions at Realtime
Consulting, PricewaterhouseCoopers and Olin Corporation from 1992 to 1998.
Philip K. Woodlief has served as Vice President, Finance for Doane since
February 1999. Prior to joining us, Mr. Woodlief was an independent financial
consultant from June 1998 to January 1999. From April 1997 to May 1998 Mr.
Woodlief was Vice President and Corporate Controller of Insilco Corporation, a
diversified consumer and industrial products manufacturing company, and from
January 1989 to April 1997 he served as Corporate Controller of Insilco.
Peter T. Grauer has been a director of Doane and Doane Pet Care
Enterprises, Inc. since October 5, 1995 and has been a Managing Director of DLJ
Merchant Banking, Inc. since September 1992. Mr. Grauer is a director of Total
Renal Care Holdings Inc., Decision One Holdings, Inc., Nebco Evans Holdings,
Inc., Bloomberg L.P., Thermadyne Holdings, LLC and Formica Corporation.
M. Walid Mansur has been a director of Doane and Doane Pet Care
Enterprises, Inc. since October 5, 1995. Mr. Mansur has served as the president
of Drafil Investments Inc. since 1990 and has been a managing director of Aspen
Venture Partners since 1993.
Bob L. Robinson joined Doane in August 1960 and served as President and
Chief Executive Officer from March 1992 until his resignation effective June 30,
1998. Mr. Robinson became a director of Doane and
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Doane Pet Care Enterprises, Inc. on October 5, 1995. Prior to being named
President and Chief Executive Officer, Mr. Robinson served as Executive Vice
President from January 1976 through February 1992.
Jeffrey C. Walker has been a director of Doane and Doane Pet Care
Enterprises, Inc. since April 1996. Mr. Walker has been Managing General Partner
of Chase Capital Partners, the private equity investment arm of The Chase
Manhattan Corporation, since 1988, and a General Partner thereof since 1984. Mr.
Walker is a director of the Monet Group, Inc., 800-Flowers, Guitar Center, House
of Blues and Domaine.
Ray Chung became a director of Doane and Doane Pet Care Enterprises, Inc.
in August 1998. He is a partner in Dartford Partnership, L.L.C. and an Executive
Vice President of Aurora Foods Inc. Mr. Chung previously served as Executive
Vice President and a director of Windy Hill. Mr. Chung served as a director,
Executive Vice President and Chief Financial Officer of Windmill Corporation
from 1989 to 1995 and as a director, Executive Vice President and Chief
Financial Officer of Wyndham Foods Inc. from 1985 to 1990. From May 1984 to
September 1985, Mr. Chung served as Vice President -- Finance for the Kendall
Company. Between 1981 and 1984, Mr. Chung served as Vice President -- Finance
for Riviana Foods, Inc. Both the Kendall Company and Riviana Foods, Inc. were
subsidiaries of the Colgate-Palmolive Company at the time.
Stephen C. Sherrill became a director of Doane and Doane Pet Care
Enterprises, Inc. in August 1998. He has been a Managing Director of Bruckmann,
Rosser, Sherrill & Co., Inc. since its formation in 1995. Bruckmann, Rosser,
Sherrill & Co., Inc. is the management company for Bruckmann, Rosser, Sherrill &
Co., L.P. Mr. Sherrill previously served as a director of Windy Hill. Mr.
Sherrill was an officer of Citicorp Venture Capital from 1983 through 1994.
Previously, he was an associate at the New York law firm of Paul, Weiss,
Rifkind, Wharton & Garrison. Mr. Sherrill is a director of Galey & Lord, Inc.,
Jitney-Jungle Stores of America, Inc., B&G Foods, Inc., HealthPlus Corporation,
Alliance Laundry Systems, L.L.C. and Mediq, Inc.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of Doane and certain other persons serving as executive
officers for the fiscal year ended December 31, 1998 who earned $100,000 or more
in combined salary and bonus during such year (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION(1) UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL ------------------- OPTIONS/SARS ALL OTHER
AT DOANE YEAR SALARY BONUS (#) COMPENSATION
<S> <C> <C> <C> <C> <C>
Douglas J. Cahill(2)............. 1998 $327,082 $424,000 25,000 $1,778,538(3)(4)(6)(10)
President and Chief Executive 1997 91,667 100,000 100,000 305,717(5)(6)
Officer
Thomas R. Heidenthal............. 1998 199,583 166,950 -- 303,198(3)(4)
Senior Vice President and Chief 1997 145,833 93,000 50,000 47,023(5)
Financial Officer
Bob L. Robinson(7)............... 1998 183,000 800,000 -- 299,300(8)(9)
1997 366,000 569,294 -- 38,712(9)
1996 366,000 420,289 125,000 37,052(9)
Richard D. Wohlschlaeger......... 1998 152,361 92,750 9,500 170,810(3)(4)
Vice President, Sales 1997 116,616 40,000 -- 794
and Marketing 1996 109,853 22,380 9,500 --
Richard A. Hannasch.............. 1998 147,917 92,750 -- 186,327(3)(4)
Vice President, Fulfillment 1997 108,627 40,000 -- 30,794(5)
1996 22,222 -- 18,000 --
David L. Horton.................. 1998 154,583 92,750 15,000 154,711(3)(4)
Vice President, Manufacturing 1997 14,071 -- -- 80,794(6)
and Engineering
</TABLE>
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- ---------------
(1) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each executive officer.
(2) Mr. Cahill served as Doane's Chief Operating Officer from September 1997 to
January 1998, became Doane's President in January 1998 and became Doane's
Chief Executive Officer in July 1998. Annual compensation amounts for 1997
represent compensation for the portion of 1997 of which Mr. Cahill was
employed by Doane.
(3) Includes bonuses received in connection with the acquisition of Windy Hill
as follows: Mr. Cahill -- $750,000; Mr. Heidenthal -- $250,000; Mr.
Wohlschlaeger -- $100,000; Mr. Hannasch -- $150,000; and Mr.
Horton -- $100,000.
(4) Includes relocation expenses and gross up for taxes as follows: Mr.
Cahill -- $94,010; Mr. Heidenthal -- $43,670; Mr. Wohlschlaeger -- $61,282;
Mr. Hannasch -- $26,798; and Mr. Horton -- $45,183.
(5) Includes relocation expenses and gross up for taxes of $128,335 for Mr.
Cahill, $44,641 for Mr. Heidenthal and $30,000 for Mr. Hannasch.
(6) Includes sign-on bonuses as follows: Mr. Cahill -- $175,000 (in each of
1997 and 1998); and Mr. Horton -- $80,000.
(7) Mr. Robinson served as Doane's Chief Executive Officer until his
resignation effective June 30, 1998. Upon his resignation, options for
50,500 shares of common stock of Doane Pet Care Enterprises, Inc. were
terminated. See "-- Stock Option Exercises" and "-- Employment and
Termination Agreements."
(8) Includes compensation of $183,000 under Mr. Robinson's retirement agreement
dated June 30, 1998, supplemental retirement benefits of $60,745 under Mr.
Robinson's employment agreement and amounts vested under Doane's deferred
compensation plan set forth in footnote 9 below.
(9) Includes the following amounts vested under Doane's deferred compensation
plan: 1998 -- $53,950; 1997 -- $34,860; and 1996 -- $33,200.
(10) Includes compensation of $750,000, which is the difference between the fair
market value and the exercise price of options for 25,000 shares of common
stock of Doane Pet Care Enterprises, Inc. that Mr. Cahill received and
exercised in fiscal 1998.
EMPLOYMENT AND RETIREMENT AGREEMENTS
Doane entered into employment agreements with Messrs. Cahill, Heidenthal,
Wohlschlaeger, Hannasch and Horton, effective January 1, 1998. The terms of
their employment agreements are substantially similar except for salary and
bonus amounts. Mr. Cahill's current base salary is $400,000 with a base bonus of
100% of base salary. Mr. Heidenthal's current base salary is $225,000 with a
base bonus of 70% of base salary and Messrs. Wohlschlaeger, Hannasch and
Horton's current base salary is $175,000 with a base bonus of 50% of base
salary. Earnings targets are established annually by our board of directors
under our annual bonus program. The base bonus is linked to achievement of
targeted earnings. There is no cap on additional bonuses in the employment
agreements. Each employment agreement provides for a term of two to three years
with automatic one year extensions. The agreements are subject to early
termination for cause without severance. The employment agreements for Messrs.
Wohlschlaeger, Hannasch and Horton provide (1) that terminations without cause
entitle the executive to receive severance payments equal to one year's base
salary and bonus and (2) for a one year non-competition agreement commencing
upon termination for any reason. The employment agreements of Messrs. Heidenthal
and Cahill contain similar provisions except that the severance and
non-competition terms are two years and three years, respectively. Pursuant to
his employment agreement, Mr. Cahill was paid a sign-on bonus of $175,000 in
1997 and an additional $175,000 in 1998.
Doane entered into a retirement agreement with Mr. Robinson effective June
30, 1998 pursuant to which Mr. Robinson resigned from employment with Doane and
Doane Pet Care Enterprises, Inc. Pursuant to his retirement agreement, we paid
Mr. Robinson his base salary, at the rate in effect on his retirement date of
June 30, 1998, through December 31, 1998. We also paid Mr. Robinson an annual
bonus for 1998 in the amount of $800,000, which bonus was in lieu of any bonus
Mr. Robinson was entitled to receive under the terms of his employment agreement
with us effective as of September 1, 1994. Effective as of his retirement
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<PAGE> 47
date, options for 18,000 shares of the common stock of Doane Pet Care
Enterprises, Inc. issued under the terms of two stock option agreements dated
November 1, 1996 became fully vested.
COMPENSATION OF DIRECTORS
No compensation is paid by us to our directors.
Certain directors of Doane and Doane Pet Care Enterprises, Inc. are
partners or directors of entities that received fees in connection with the
acquisition of Windy Hill, the exchange offer for Doane's senior notes and Windy
Hill's notes, the tender offer for Doane's senior notes and the repayment of
bridge financing incurred in connection with the tender offer for the Windy Hill
notes. See "Certain Transactions."
STOCK OPTION AND STOCK PURCHASE PLANS
Effective as of November 1, 1996, our parent corporation adopted its 1996
Management Stock Purchase Plan and its 1996 Stock Option Plan, as amended. The
stock option and purchase plans are intended to encourage certain of our
employees to develop a sense of proprietorship and personal involvement in the
development and financial success of our company.
Effective as of June 19, 1997, our parent corporation adopted its 1997
Management Stock Purchase Plan. Pursuant to the 1996 Management Stock Purchase
Plan and the 1997 Management Stock Purchase Plan, 125,000 shares of common stock
of Doane Pet Care Enterprises, Inc. were sold for $10.00 per share to certain
key employees, including sales of 50,000 shares to Mr. Heidenthal, 11,500 shares
to Mr. Wohlschlaeger and 11,500 shares to Mr. Hannasch.
In connection with the proposed initial public offering of common stock of
Doane Pet Care Enterprises, Inc., our parent plans to adopt the 1999 Stock
Incentive Plan. The number of shares of common stock of Doane Pet Care
Enterprises, Inc. that may be issued under the 1999 plan may not exceed 1.05
million shares. The 1999 plan will provide for the granting of incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code of
1986, options that do not qualify as incentive stock options, restricted stock
awards and stock appreciation rights. The 1999 plan will be administered by the
board of directors or a committee selected by the board of directors. In
general, the committee will be authorized to select the recipients of awards and
to establish the terms and conditions of those awards.
The price at which a share of common stock of Doane Pet Care Enterprises,
Inc. may be purchased upon exercise of an option granted under the 1999 plan
will be determined by the committee, but (a) in the case of an incentive stock
option, the purchase price will not be less than the fair market value of a
share of common stock of Doane Pet Care Enterprises, Inc. on the date the option
is granted and (b) in the case of an option that does not qualify as an
incentive stock option, the purchase price will not be less than 50% of the fair
market value of a share of common stock of Doane Pet Care Enterprises, Inc. on
the date the option is granted. Additionally, a stock appreciation right may be
granted in connection with the grant of an option. A stock appreciation right
allows the holder to surrender the right to purchase shares under the related
option in return for a payment in cash, shares of common stock of Doane Pet Care
Enterprises, Inc., or a combination thereof, in an amount equal to the
difference between the fair market value of the shares of common stock of Doane
Pet Care Enterprises, Inc. on the date the right is exercised and the purchase
price for those shares under the related option.
Shares of common stock of Doane Pet Care Enterprises, Inc. that are the
subject of a restricted stock award under the 1999 plan will be subject to
restrictions on disposition by the holder and an obligation of the holder to
forfeit and surrender the shares under certain circumstances.
The 1999 plan will provide that if (a) Doane Pet Care Enterprises, Inc. is
involved in a merger or consolidation pursuant to which its stockholders
immediately prior to the transaction own less than 50% of the total voting power
of the outstanding voting stock of the surviving entity immediately after the
transaction or (b) any person, entity or group acquires or gains ownership or
control of more than 50% of the outstanding shares of Doane Pet Care
Enterprises, Inc.'s voting stock, then, except as provided in any award
agreement, outstanding awards will immediately vest and become exercisable or
satisfiable, as applicable. In addition, upon the occurrence of any such event,
each outstanding option will continue to be exercisable for the
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<PAGE> 48
remainder of the applicable option term unless the committee determines that, in
connection with the transaction, the option must be exercised in full or
surrendered in exchange for a payment in cash, securities or other property.
STOCK OPTION GRANTS
The following table sets forth, as of December 31, 1998, certain
information as to options granted in 1998 under the 1996 Stock Option Plan to
the Named Executive Officers. As of December 31, 1998, options for 124,500
shares of stock had been exercised by the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF % OF TOTAL EXERCISE
SECURITIES OPTIONS PRICE
UNDERLYING OPTIONS GRANTED TO PER EXPIRATION
NAME GRANTED(#) EMPLOYEES SHARE DATE
<S> <C> <C> <C> <C>
Douglas J. Cahill....................... 25,000 27.3% $10.00 1999(1)
Richard D. Wohlschlaeger................ 9,500 10.4 20.00 2008
David L. Horton......................... 15,000 16.4 20.00 2008
</TABLE>
- ---------------
(1) Mr. Cahill was issued 25,000 options on May 1, 1998 with a term of one
year, all of which he exercised on June 1, 1998.
STOCK OPTION EXERCISES
The following table sets forth certain information with respect to
exercises by the Named Executive Officers of stock options during fiscal year
1998 and the number of shares underlying unexercised stock options held by those
officers as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
SHARES UNEXERCISED OPTIONS
ACQUIRED ----------------------------
NAME ON EXERCISE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C>
Douglas J. Cahill..................................... 50,000 18,750 56,250
Thomas R. Heidenthal.................................. -- 16,200 33,800
Richard D. Wohlschlaeger.............................. -- 6,194 12,806
Richard A. Hannasch................................... -- 6,344 11,656
David L. Horton....................................... -- 3,000 12,000
Bob L. Robinson*...................................... 74,500 0 0
</TABLE>
- ---------------
* Effective as of Mr. Robinson's retirement on June 30, 1998, options for
18,000 shares of common stock of Doane Pet Care Enterprises, Inc. issued
under the terms of two stock option agreements dated November 1, 1996 became
fully vested and his remaining unexercised options for 50,500 shares were
terminated.
OTHER COMPENSATORY ARRANGEMENTS
Employee Retirement Plan. On May 31, 1998, we terminated our employee
retirement plan. The retirement plan was a non-contributory, tax qualified plan
that provided retirement benefits based on the employee's tenure with Doane and
average monthly compensation. We are currently structuring a plan for
liquidating the retirement plan and anticipate providing a lump sum payment that
former plan participants may elect to contribute to the newly established
Savings and Investment Plan (see "-- 401(k) Plans") or to use to purchase
annuities.
401(k) Plans. As of June 1, 1998 Doane adopted our Savings and Investment
Plan for eligible employees not covered by collective bargaining arrangements
and our Savings and Investment Plan -- Union Plan for eligible union employees
at the Joplin, Missouri plant. The plans are intended to be qualified
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<PAGE> 49
retirement plans under the Internal Revenue Code. Both plans permit employee
contributions between 1% and 15% of pre-tax earnings subject to annual dollar
limits set by the IRS, an annual employer profit sharing contribution of $400
for each eligible participant and a variety of investment options. The Savings
and Investment Plan also includes an employer matching contribution in an amount
equal to 50% of participant contribution, up to 6% of compensation. Vesting for
the employer match is 25% per year for each full year of service.
Windy Hill adopted the Windy Hill Pet Food Company, Inc. Profit Sharing and
Savings Plan on March 1, 1995, as amended. The plan is intended to be a
qualified plan under the Internal Revenue Code. It permits employee
contributions from 1% to 15% of pre-tax earnings subject to annual dollar limits
set by the IRS. Of this amount, we will match 50% of the first 6% of the
employee contribution. In addition, the plan provides for contribution to
participant accounts of amounts equal to 2 1/2% of the employee's compensation.
Non-Qualified Salary Continuation Agreements. Doane has entered into
agreements with all of the Named Executive Officers to provide benefits to those
employees or their beneficiaries in the event of the death of the employee or
retirement by the employee at age 65 or on or after age 55 with 20 years of
service with Doane. If the employee remains employed until age 65, the employee,
or the employee's beneficiary, will receive an annual retirement benefit payable
for 10 years in accordance with a specified formula. If the employee terminates
employment before age 65 but after age 55 and with 10 years of service with
Doane, the employee's retirement benefit will be reduced in accordance with
percentages specified in the agreement, depending upon the employee's age at
retirement ranging from 100% at age 65 to 55.8% at age 55.
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<PAGE> 50
CERTAIN TRANSACTIONS
INVESTORS' AGREEMENT
In connection with the Windy Hill acquisition, Doane Pet Care Enterprises,
Inc., Doane, Summit, SCI, CMIHI and an affiliate thereof, DLJMB and certain of
its affiliates, all of the stockholders of Windy Hill and certain other
stockholders of Doane entered into an investors' agreement. The investors'
agreement contains provisions concerning the governance of Doane Pet Care
Enterprises, Inc. and Doane, restrictions on the transferability of the
securities of Doane Pet Care Enterprises, Inc. and Doane acquired by the
stockholders and registration rights for those securities. The governance
provisions of the investors' agreement provide that the board of directors of
Doane and Doane Pet Care Enterprises, Inc. will consist of eight members, of
whom:
- two will be designated by SCI on behalf of the Summit investors (each, a
Summit designee),
- one will be designated by CMIHI (the Chase designee),
- one will be the Windy Hill representative designated on behalf of the
Windy Hill investors (the Windy Hill designee),
- one will be the chief executive officer of Doane and
- one (the Kelly designee) will be designated by George B. Kelly, as long
as Mr. Kelly is one of the Summit designees, or by the Summit designees,
acting jointly, if Mr. Kelly is not then one of the Summit designees.
If at any time the number of shares of common stock of Doane Pet Care
Enterprises, Inc. owned of record by the Summit investors is less than 50% of
the number of shares of common stock of Doane Pet Care Enterprises, Inc. owned
as of August 3, 1998, the Summit investors will only have the right to designate
one individual in addition to the Kelly designee. Notwithstanding the foregoing,
at any time any of CMIHI's, the Summit investors' or the Windy Hill investors'
respective percentage ownership is less than 5%, that person or group will not
have the further right to designate any individual to the boards of directors of
Doane or Doane Pet Care Enterprises, Inc. pursuant to the investors' agreement.
In addition, until the earlier of August 3, 1999 and the date the Windy Hill
investors no longer have the right to designate any individual to the boards of
directors of Doane and Doane Pet Care Enterprises, Inc., Windy Hill Pet Food
Company L.L.C. will have the right to designate one observer to the boards.
DLJMB and its affiliates are not parties to the governance provisions of the
investors' agreement.
The investors' agreement also provides for certain registration rights for
the benefit of the stockholders. Doane Pet Care Enterprises, Inc. will not be
obligated to effect more than three demand registrations for the Summit
investors, collectively, three demand registrations for the DLJ entities,
collectively, three demand registrations for the Windy Hill investors,
collectively, and three demand registrations for CMIHI. Following the date Doane
Pet Care Enterprises, Inc. is eligible to use Form S-2 or S-3 for registration
of its securities, demand registrations on Form S-2 or S-3 for the DLJ entities,
CMIHI, the Summit investors and the Windy Hill investors will be unlimited. The
stockholders also have piggy-back registration rights if Doane Pet Care
Enterprises, Inc. proposes to register any of its common stock or warrants, or
if Doane proposes to register any of the Doane preferred stock under the
Securities Act.
TRANSACTIONS WITH DLJMB AND ITS AFFILIATES
In 1995, DLJSC entered into a financial advisory agreement with Doane Pet
Care Enterprises, Inc. and Doane that will terminate upon completion of an
initial public offering by Doane Pet Care Enterprises, Inc. The financial
advisory agreement provides for an annual retainer fee of $100,000 plus
reimbursable expenses.
In connection with our acquisition by our parent, DLJMB purchased 1,000,000
shares of the Doane preferred stock and warrants to purchase 1,128,732 shares of
common stock of Doane Pet Care Enterprises, Inc. for an aggregate purchase price
of $25 million. In December 1997, DLJMB and certain of its affiliates sold their
shares of Doane preferred stock to DLJSC, who thereupon sold the shares to
qualified institutional
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buyers, as defined in Rule 144A under the Securities Act. DLJMB is also a party
to the investors' agreement described above. Mr. Grauer, a Managing Director of
DLJMB, is a member of the boards of directors of Doane and Doane Pet Care
Enterprises, Inc.
DLJMB is an affiliate of DLJSC and DLJ Capital Funding, Inc. ("DLJ
Capital"). DLJSC and DLJ Capital and their affiliates perform various investment
banking and commercial banking services from time to time for us and for Doane
Pet Care Enterprises, Inc. DLJ Capital serves as an agent bank and a lender to
us under our senior credit facility. DLJSC served as financial advisor to Doane
Pet Care Enterprises, Inc. in connection with the Windy Hill acquisition and
received fees of $1.0 million. DLJSC also served as dealer manager in connection
with the tender offer for our senior notes and for the exchange offer for our
senior notes and Windy Hill's notes. DLJ Bridge Finance, Inc., an affiliate of
DLJSC, also provided, together with an affiliate of CMIHI, a bridge loan to us
in connection with our refinancing transactions. DLJSC and DLJ Capital received
approximately $3.8 million in connection with our refinancing transactions.
DLJSC, DLJ Capital and their affiliates have received, and will receive,
customary compensation for acting in the foregoing capacities.
TRANSACTIONS WITH SCI
SCI is the general partner of Summit, which is the owner of 720,000 shares
of common stock of Doane Pet Care Enterprises, Inc. In addition to certain
payments of fees and reimbursements for out-of-pocket expenses in connection
with our acquisition in 1995, SCI entered into a management advisory agreement
with Doane for a term of five years or until such time as Doane Pet Care
Enterprises, Inc. consummates an initial public offering of its common stock
resulting in the receipt by Doane Pet Care Enterprises, Inc. of at least $35
million in gross proceeds, whichever is shorter, and pursuant to which Doane
will pay SCI an annual fee of $200,000 plus reimbursable expenses.
SCI received fees of $2.0 million in connection with the acquisition of
Windy Hill. SCI and Summit are also parties to the investors' agreement. In
accordance with the investors' agreement, SCI has designated Messrs. Kelly and
Mansur to the boards of directors of Doane and Doane Pet Care Enterprises, Inc.
TRANSACTIONS WITH CMIHI AND AFFILIATES
CMIHI is an affiliate of Chase Securities Inc. ("CSI") and The Chase
Manhattan Bank ("Chase"). CMIHI and an affiliate of CMIHI own:
- 200,000 shares of the Doane preferred stock that will be repurchased by
Doane Pet Care Enterprises, Inc. in connection with its initial public
offering of common stock,
- 107,000 shares of Class A common stock of Doane Pet Care Enterprises,
Inc. and 583,000 shares of Class B (non-voting) common stock of Doane Pet
Care Enterprises, Inc. and
- warrants to purchase 225,746 shares of common stock of Doane Pet Care
Enterprises, Inc.
CMIHI received fees of $1,000,000 and CSI received fees of $500,000 in
connection with the acquisition of Windy Hill. In addition, CMIHI is a party to
the investors' agreement. In accordance with the investors' agreement, CMIHI has
designated Jeffrey C. Walker, the Managing General Partner of Chase Capital
Partners, which is an affiliate of CMIHI, to the boards of directors of Doane
and Doane Pet Care Enterprises, Inc.
CSI, Chase and their affiliates perform various investment banking and
commercial banking services from time to time for Doane and its affiliates.
Chase serves as an agent bank and a lender, and CSI served as co-arranger, to us
under the senior credit facility. Chase also acted as agent bank and a lender
under Windy Hill's prior credit facility, which was repaid in connection with
our refinancing transactions. CSI acted as an initial purchaser of the May 1997
offering of the Windy Hill notes. CSI acted as financial advisor to Windy Hill
in connection with the acquisition of Windy Hill. CSI also acted as dealer
manager in connection with Doane's exchange offer for its senior notes and Windy
Hill's notes. An affiliate of CMIHI also provided, together with an affiliate of
DLJSC, a bridge loan to Doane in connection with our refinancing transactions.
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<PAGE> 52
CSI, Chase and their affiliates received approximately $3.9 million in
connection with the refinancing transactions. CSI, Chase and their affiliates
have received, and will receive, customary compensation for acting in the
foregoing capacities.
TRANSACTIONS WITH M. WALID MANSUR
M. Walid Mansur, a director of Doane and Doane Pet Care Enterprises, Inc.,
was paid $500,000 for services rendered in connection with our acquisition in
1995 and related financings. Mr. Mansur owns 350,000 shares of common stock of
Doane Pet Care Enterprises, Inc., Mr. Mansur's spouse, Laura Hawkins Mansur,
owns 403,000 shares of common stock of Doane Pet Care Enterprises, Inc. and
75,000 shares of common stock of Doane Pet Care Enterprises, Inc. are held in
trust for their children.
OTHER TRANSACTIONS
In addition to the fees paid to CMIHI, DLJSC and SCI in connection with the
acquisition of Windy Hill, Dartford Partners received a fee of $3.0 million and
BRS received a fee of $1.0 million. BRS also was paid $500,000 at the closing of
the acquisition of Windy Hill, representing a deferred transaction fee earned by
BRS in connection with Windy Hill's acquisition of certain assets from Heinz
Inc. in April 1996.
We believe that the terms of the transactions described above were no less
favorable to us than could have been obtained from unaffiliated parties.
DESCRIPTION OF SENIOR CREDIT FACILITY
As part of the refinancing transactions, Doane entered into the senior
credit facility with a syndicate of banks and other institutional investors, as
lenders, and Chase, as administrative agent, DLJ Capital, as syndication agent,
and Mercantile Bank National Association, as documentation agent. DLJ Capital
and CSI served as the co-arrangers of the senior credit facility. The senior
credit facility consists of a $245.0 million term loan facility and a $100.0
million revolving credit/swingline facility. The revolving credit facility will
enable us to obtain revolving credit loans and issue letters of credit for our
account from time to time for working capital, permitted acquisitions and
general corporate purposes. As of February 28, 1999, we had borrowed $245.0
million under the term loan facility, $39.2 million under the revolving credit
and swingline facilities. In addition, at that date we had $2.4 million of
letters of credit outstanding under the revolving credit facility. Loans under
the senior credit facility bear interest at:
- the prime rate of the administrative agent, or, if higher, the secondary
market rate for certificates of deposit plus 1% or the federal funds rate
plus 0.5%, plus a specified margin based on the type of loan and the then
current ratio of senior debt to EBITDA (the "Applicable Margin") or
- the Eurodollar rate plus the Applicable Margin.
We also pay certain fees with respect to the senior credit facility. The
term loan facility consists of three tranches with terms between six and
one-half years and eight years, unless terminated sooner upon an event of
default. The term loan facility must be repaid in quarterly installments
commencing on March 31, 1999. The principal amounts under the term loan facility
shall be repaid, as follows:
- approximately $11.7 million in each of the calendar years 1999 and 2000,
- approximately $14.2 million in each of the calendar years 2001, 2002,
2003 and 2004,
- $85.8 million in the calendar year 2005 and
- $79.0 million in 2006.
The revolving credit facility has a term of six and one-half years, unless
terminated sooner upon an event of default, and outstanding revolving credit
loans will be payable on that date or an earlier date if the facility is
accelerated following the occurrence of any event of default.
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The senior credit facility contains various covenants that restrict us from
taking various actions and that require us to achieve and meet certain financial
tests, including meeting a consolidated leverage ratio, a consolidated senior
debt ratio, a consolidated interest coverage ratio and a consolidated fixed
charge coverage ratio. The senior credit facility also includes covenants
relating to balance sheet, fixed charge coverage, interest coverage and leverage
ratios and limitations on capital and other permitted expenditures, liens,
indebtedness, guarantees, mergers, acquisitions, disposition of assets,
dividends, changes in business activities and certain corporate activities.
The senior credit facility also contains events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties in any material respect, cross default and cross
acceleration to certain other indebtedness, bankruptcy, ERISA, material
judgments and certain changes in control of Doane.
Doane and certain restricted subsidiaries are required to guarantee amounts
outstanding under the senior credit facility. The indebtedness incurred pursuant
to the senior credit facility is secured by a first priority lien on
substantially all of the material assets of Doane and its restricted domestic
subsidiaries.
THE EXCHANGE OFFER
EXCHANGE TERMS
$150 million principal amount of old notes are currently issued and
outstanding. The maximum principal amount of exchange notes that will be issued
in exchange for old notes is $150 million.
The exchange notes will bear interest at a rate of 9 3/4% per year, payable
semiannually on May 15 and November 15 of each year, beginning on May 15, 1999.
Holders of exchange notes will receive interest on May 15, 1999 from the date of
the original issuance of the old notes. Holders of exchange notes will not
receive any interest on old notes.
In order to exchange your old notes for transferable exchange notes in the
exchange offer, you will be required to make the following representations:
- any exchange notes will be acquired in the ordinary course of your
business;
- you have no arrangement with any person to participate in the
distribution of the exchange notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or if you are our affiliate, that you will comply with the
applicable registration and prospectus delivery requirements of the
Securities Act.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any old notes
properly tendered in the exchange offer, and the exchange agent will deliver the
exchange notes promptly after the expiration date of the exchange offer. We
expressly reserve the right to delay acceptance of any of the tendered old notes
or terminate the exchange offer and not accept for exchange any tendered old
notes not already accepted if any conditions set forth under "-- Conditions of
the Exchange Offer" have not been satisfied or waived by us or do not comply, in
whole or in part, with any applicable law.
If you tender your old notes, you 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 the old notes. We
will pay all charges, expenses and transfer taxes in connection with the
exchange offer, other than certain taxes described below under "-- Transfer
Taxes."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless extended by us. We expressly reserve the right to
extend the exchange offer on a daily basis or for such period or periods as we
may determine in our sole discretion from time to time by giving oral, confirmed
in writing, or written notice to the exchange agent and by making a public
announcement by press release to the Dow Jones News Service prior to 9:00 a.m.,
New York City time, on the first business day following the previously scheduled
expiration date. During any extension of the exchange offer, all old notes
previously tendered, not
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validly withdrawn and not accepted for purchase will remain subject to the
exchange offer and may be accepted for purchase by us.
To the extent we are legally permitted to do so, we expressly reserve the
absolute right, in our sole discretion, to:
- waive any condition to the exchange offer and
- amend any of the terms of the exchange offer.
Any waiver or amendment to the exchange offer will apply to all old notes
tendered, regardless of when or in what order the old notes were tendered. If we
make a material change in the terms of the exchange offer or if we waive a
material condition of the exchange offer, we will disseminate additional
exchange offer materials, and we will extend the exchange offer to the extent
required by law.
We expressly reserve the right, in our sole discretion, to terminate the
exchange offer if any of the conditions set forth under "-- Conditions of the
Exchange Offer" exist. Any such termination will be followed promptly by a
public announcement. In the event we terminate the exchange offer, we will give
immediate notice to the exchange agent, and all old notes previously tendered
and not accepted for payment will be returned promptly to the tendering holders.
In the event that the exchange offer is withdrawn or otherwise not completed,
exchange notes will not be given to holders of old notes who have validly
tendered their old notes.
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to third parties, we believe that exchange notes issued under the
exchange offer in exchange for old notes may be offered for resale, resold and
otherwise transferred by you without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- you are not an "affiliate" of our company within the meaning of Rule 405
under the Securities Act;
- you are acquiring exchange notes in the ordinary course of your business;
and
- you do not intend to participate in the distribution of the exchange
notes.
If you tender old notes in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- you cannot rely on those interpretations by the SEC staff, and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute exchange notes should be covered by an effective
registration statement under the Securities Act containing the selling
securityholder's information required by Item 507 of Regulation S-K under the
Securities Act. This prospectus may be used for an offer to resell, resale or
other retransfer of exchange notes only as specifically set forth in this
prospectus. Only broker-dealers that acquired the old notes as a result of
market-making activities or other trading activities may participate in the
exchange offer. Each broker-dealer that receives exchange notes for its own
account in exchange for old notes, where such old notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. Please read the section captioned "Plan
of Distribution" for more details regarding the transfer of exchange notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE
We will accept for exchange old notes validly tendered pursuant to the
exchange offer, or defectively tendered, if such defect has been waived by us,
after the later of: (1) the expiration date of the exchange offer and (2) the
satisfaction or waiver of the conditions specified below under "-- Conditions of
the Exchange Offer." We will not accept old notes for exchange prior to the
expiration date of the exchange offer. Tenders of old notes will be accepted
only in principal amounts equal to $1,000 or integral multiples of $1,000.
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We expressly reserve the right, in our sole discretion, to:
- delay acceptance for exchange of old notes tendered under the exchange
offer, subject to Rule 14e-1 under the Exchange Act, which requires that
an offeror pay the consideration offered or return the securities
deposited by or on behalf of the holders promptly after the termination
or withdrawal of a tender offer, or
- terminate the exchange offer and not accept for exchange any old notes
not theretofore accepted for exchange, if any of the conditions set forth
below under "-- Conditions of the Exchange Offer" have not been satisfied
or waived by us or in order to comply in whole or in part with any
applicable law. In all cases, exchange notes will be issued only after
timely receipt by the exchange agent of certificates representing old
notes, or confirmation of book-entry transfer, a properly completed and
duly executed letter of transmittal, or a manually signed facsimile
thereof, and any other required documents.
For purposes of the exchange offer, we will be deemed to have accepted for
exchange validly tendered old notes, or defectively tendered old notes with
respect to which we have waived such defect, if, as and when we give oral,
confirmed in writing, or written notice to the exchange agent. Promptly after
the expiration date, we will deposit the exchange notes with the exchange agent,
who will act as agent for the tendering holders for the purpose of receiving the
exchange notes and transmitting them to the holders. The exchange agent will
deliver the exchange notes to holders of old notes accepted for exchange after
the exchange agent receives the exchange notes.
If, for any reason, we delay acceptance for exchange of validly tendered
old notes or we are unable to accept for exchange validly tendered old notes,
then the exchange agent may, nevertheless, on our behalf, retain tendered old
notes, without prejudice to our rights described under "-- Expiration Date;
Extensions; Termination; Amendments," "-- Conditions of the Exchange Offer" and
"-- Withdrawal of Tenders," subject to Rule 14e-1 under the Exchange Act, which
requires that an offeror pay the consideration offered or return the securities
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of a tender offer.
If any tendered old notes are not accepted for exchange for any reason, or
if certificates are submitted evidencing more old notes than those that are
tendered, certificates evidencing old notes that are not exchanged will be
returned, without expense, to the tendering holder, or, in the case of old notes
tendered by book-entry transfer into the exchange agent's account at a
book-entry transfer facility under the procedure set forth under "-- Procedures
for Tendering Old Notes -- Book-Entry Transfer," such old notes will be credited
to the account maintained at such book-entry transfer facility from which such
old notes were delivered, unless otherwise requested by such holder under
"Special Delivery Instructions" in the letter of transmittal, promptly following
the exchange date or the termination of the exchange offer.
Tendering holders of old notes exchanged in the exchange offer will not be
obligated to pay brokerage commissions or transfer taxes with respect to the
exchange of their old notes other than as described in "-- Transfer Taxes" or in
Instruction 7 to the letter of transmittal. We will pay all other charges and
expenses in connection with the exchange offer.
PROCEDURES FOR TENDERING OLD NOTES
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or held through
a book-entry transfer facility and who wishes to tender old notes should contact
such registered holder promptly and instruct such registered holder to tender
old notes on such beneficial owner's behalf.
Tender of Old Notes Held Through DTC. The exchange agent and DTC have
confirmed that the exchange offer is eligible for the DTC automated tender offer
program. Accordingly, DTC participants may electronically transmit their
acceptance of the exchange offer by causing DTC to transfer old notes to the
exchange agent in accordance with DTC's automated tender offer program
procedures for transfer. DTC will then send an agent's message to the exchange
agent.
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<PAGE> 56
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering old notes that are the subject of that book-entry confirmation that
the participant has received and agrees to be bound by the terms of the letter
of transmittal, and that we may enforce such agreement against such participant.
In the case of an agent's message relating to guaranteed delivery, the term
means a message transmitted by DTC and received by the exchange agent, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering old notes that they have received and agree to be bound by the
notice of guaranteed delivery.
Tender of Old Notes Held in Physical Form. For a holder to validly tender
old notes held in physical form:
- the exchange agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together with any
signature guarantees and any other documents required by the instructions
to the letter of transmittal, and
- the exchange agent must receive certificates for tendered old notes at
such address, or such old notes must be transferred pursuant to the
procedures for book-entry transfer described above. A confirmation of
such book-entry transfer must be received by the exchange agent prior to
the expiration date of the exchange offer. A holder who desires to tender
old notes and who cannot comply with the procedures set forth herein for
tender on a timely basis or whose old notes are not immediately available
must comply with the procedures for guaranteed delivery set forth below.
LETTERS OF TRANSMITTAL AND OLD NOTES SHOULD BE SENT ONLY TO THE EXCHANGE
AGENT, AND NOT TO DOANE OR TO ANY BOOK-ENTRY TRANSFER FACILITY.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER TENDERING OLD NOTES. DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE
SUGGEST THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE OF THE EXCHANGE OFFER TO PERMIT DELIVERY TO THE EXCHANGE AGENT
PRIOR TO SUCH DATE. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD
NOTES WILL BE ACCEPTED.
Signature Guarantees. Signatures on the letter of transmittal must be
guaranteed by an eligible institution unless:
- the letter of transmittal is signed by the registered holder of the old
notes tendered therewith, or by a participant in one of the book-entry
transfer facilities whose name appears on a security position listing it
as the owner of those old notes, or if any old notes for principal
amounts not tendered are to be issued directly to the holder, or, if
tendered by a participant in one of the book-entry transfer facilities,
any old notes for principal amounts not tendered or not accepted for
exchange are to be credited to the participant's account at the
book-entry transfer facility, and neither the "Special Issuance
Instructions" nor the "Special Delivery Instructions" box on the letter
of transmittal has been completed, or
- the old notes are tendered for the account of an eligible institution.
An eligible institution is a firm that is a participant in the Security Transfer
Agents Medallion Program or the Stock Exchange Medallion Program, which is
generally a member of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office in the United States.
Book-Entry Transfer. The exchange agent will seek to establish a new
account or utilize an existing account with respect to the old notes at DTC
promptly after the date of this prospectus. Any financial institution that is a
participant in the book-entry transfer facility system and whose name appears on
a security position listing it as the owner of the old notes may make book-entry
delivery of old notes by causing the book-entry transfer facility to transfer
such old notes into the exchange agent's account. HOWEVER, ALTHOUGH DELIVERY OF
OLD NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S
ACCOUNT AT A BOOK-ENTRY
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<PAGE> 57
TRANSFER FACILITY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF
TRANSMITTAL, OR A MANUALLY SIGNED FACSIMILE THEREOF, MUST BE RECEIVED BY THE
EXCHANGE AGENT AT ONE OF ITS ADDRESSES SET FORTH IN THIS PROSPECTUS ON OR PRIOR
TO THE EXPIRATION DATE OF THE EXCHANGE OFFER, OR ELSE THE GUARANTEED DELIVERY
PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH. The confirmation of a
book-entry transfer of old notes into the exchange agent's account at a
book-entry transfer facility is referred to in this prospectus as a "book-entry
confirmation." Delivery of documents to the book-entry transfer facility in
accordance with that book-entry transfer facility's procedures does not
constitute delivery to the exchange agent.
Guaranteed Delivery. If you wish to tender your old notes and:
(1) certificates representing your old notes are not lost but are not
immediately available,
(2) time will not permit your letter of transmittal, certificates
representing your old notes and all other required documents to reach
the exchange agent on or prior to the expiration date of the exchange
offer, or
(3) the procedures for book-entry transfer cannot be completed on or prior
to the expiration date of the exchange offer,
you may tender if all of the following are complied with:
- your tender is made by or through an eligible institution;
- on or prior to the expiration date of the exchange offer, the exchange
agent has received from the eligible institution a properly completed
and validly executed notice of guaranteed delivery, by manually signed
facsimile transmission, mail or hand delivery, in substantially the
form provided with this prospectus. The notice of guaranteed delivery
must:
(a) set forth your name and address, the registered number(s) of
your old notes and the principal amount of old notes tendered,
(b) state that the tender is being made thereby and
(c) guarantee that, within three New York Stock Exchange trading
days after the date of the notice of guaranteed delivery, the
letter of transmittal or facsimile thereof properly completed
and validly executed, together with certificates representing
the old notes, or a book-entry confirmation, and any other
documents required by the letter of transmittal and the
instructions thereto, will be deposited by the eligible
institution with the exchange agent; and
- the exchange agent receives the properly completed and validly
executed letter of transmittal or facsimile thereof with any required
signature guarantees, together with certificates for all old notes in
proper form for transfer, or a book-entry confirmation, and any other
required documents, within three New York Stock Exchange trading days
after the date of the notice of guaranteed delivery.
Other Matters. Exchange notes will be issued in exchange for old notes
accepted for exchange only after timely receipt by the exchange agent of:
- certificates for (or a timely book-entry confirmation with respect to)
your old notes,
- a properly completed and duly executed letter of transmittal or facsimile
thereof with any required signature guarantees, or, in the case of a
book-entry transfer, an agent's message, and
- any other documents required by the letter of transmittal.
All questions as to the form of all documents and the validity, including
time of receipt, and acceptance of all tenders of old notes will be determined
by us, in our sole discretion, the determination of which shall be final and
binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD NOTES WILL NOT BE
CONSIDERED VALID. We reserve the absolute right to reject any or all tenders of
old notes that are not in proper form or the acceptance
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<PAGE> 58
of which, in our opinion, would be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular old notes.
Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding.
Any defect or irregularity in connection with tenders of old notes must be
cured within the time we determine, unless waived by us. Tenders of old notes
will not be deemed to have been made until all defects and irregularities have
been waived by us or cured. Neither our company, the exchange agent, or any
other person will be under any duty to give notice of any defects or
irregularities in tenders of old notes, or will incur any liability to holders
for failure to give any such notice.
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the exchange notes;
- if you are not a broker-dealer, that you are not engaged in and do not
intend to engage in the distribution of the exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for old notes that were acquired as a result of
market-making activities, that you will deliver a prospectus, as required
by law, in connection with any resale of those exchange notes; and
- you are not an "affiliate," as defined in Rule 405 of the Securities Act,
of our company or, if you are an affiliate, you will comply with any
applicable registration and prospectus delivery requirements of the
Securities Act.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender of old notes at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at one of
the addresses set forth below under "-- Exchange Agent," or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be withdrawn
and
- identify the old notes to be withdrawn, including the principal amount of
the old notes.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal, and our determination shall be final
and binding on all parties. We will deem any old notes so withdrawn not to have
been validly tendered for exchange for purposes of the exchange offer.
Any old notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at DTC according to the procedures described above,
such old notes will be credited to an account maintained with DTC for the old
notes. This return or crediting will take place as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender
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<PAGE> 59
properly withdrawn old notes by following one of the procedures described under
"-- Procedures for Tendering Old Notes" above at any time on or prior to the
expiration date.
CONDITIONS OF THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any exchange
notes for, any old notes tendered, and we may terminate, extend or amend the
exchange offer and may, subject to Rule 14e-1 under the Exchange Act, which
requires that an offeror pay the consideration offered or return the securities
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of a tender offer, postpone the acceptance for exchange of old
notes so tendered if, on or prior to the expiration date of the exchange offer,
any of the following shall have occurred:
- any action or proceeding concerning the exchange offer is pending or
threatened before any court, governmental, regulatory or administrative
agency that is, or is reasonably likely to be, in our sole judgment,
materially adverse to us or our affiliates, or would or might, in our
sole judgment, prohibit, prevent, restrict or delay completion of the
exchange offer;
- any development occurs that would, in our sole judgment, materially
adversely affect our business or the business of our affiliates;
- an order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction arises that, in our sole judgment, would prevent
completion of the exchange offer or is materially adverse to us or our
affiliates;
- any event affecting the business or financial affairs of our company or
our affiliates occurs, that, in our sole judgment, would or might prevent
completion of the exchange offer;
- the trustee under the indenture takes any action that could, in our sole
judgment, adversely affect the completion of the exchange offer or takes
any action that challenges the validity of the procedures used by us in
the exchange offer or the acceptance of, the old notes; or
- any of the following occurs:
(1) any general suspension of, or limitation on prices for, trading in
securities in U.S. or Canadian securities or financial markets,
(2) any significant change in the price of the old notes or any publicly
traded securities of our company or any of our affiliates that is
adverse to us or any of our affiliates,
(3) a material impairment in the trading market for debt securities,
(4) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or Canada,
(5) any limitation, whether or not mandatory, by any government or
governmental, administrative or regulatory authority or agency,
domestic or foreign, or other event that, in our reasonable
judgment, might affect the extension of credit by banks or other
lending institutions,
(6) a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United
States or Canada or
(7) in the case of any of the foregoing existing on the date of this
prospectus, a material acceleration or worsening thereof.
The conditions to the exchange offer are for our sole benefit and may be
asserted by us in our sole discretion or may be waived by us, in whole or in
part, in our sole discretion, whether or not any other condition of the exchange
offer also is waived. We have not made a decision as to what circumstances would
lead us to waive any condition, and any waiver would depend on circumstances
prevailing at the time of that waiver. Any determination by us concerning the
events described in this section shall be final and binding upon all persons.
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ALTHOUGH WE HAVE NO PRESENT PLANS OR ARRANGEMENTS TO DO SO, WE RESERVE THE
RIGHT TO AMEND, AT ANY TIME, THE TERMS OF THE EXCHANGE OFFER. WE WILL GIVE
HOLDERS NOTICE OF ANY AMENDMENTS IF REQUIRED BY APPLICABLE LAW.
TRANSFER TAXES
We will pay all transfer taxes applicable to the transfer and exchange of
old notes pursuant to the exchange offer. If, however:
- delivery of the exchange notes, and/or certificates for old notes for
principal amounts not exchanged, are to be made to any person other than
the record holder of the old notes tendered;
- tendered certificates for old notes are recorded in the name of any
person other than the person signing any letter of transmittal; or
- a transfer tax is imposed for any reason other than the transfer and
exchange of old notes to us or our order,
the amount of any such transfer taxes, whether imposed on the recordholder or
any other person, will be payable by the tendering holder prior to the issuance
of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your old notes for exchange notes in the exchange
offer, you will remain subject to the restrictions on transfer of the old notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the old notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise set forth in the confidential memorandum distributed in
connection with the private offering of the old notes.
In general, you may not offer or sell the old notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the old notes under the Securities Act. Based on
interpretations of the SEC staff, you may offer for resale, resell or otherwise
transfer exchange notes issued in the exchange offer without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that (1) you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act, (2) you acquired the exchange notes in the ordinary course of
your business and (3) you have no arrangement or understanding with respect to
the distribution of the exchange notes to be acquired in the exchange offer. If
you tender old notes in the exchange offer for the purpose of participating in a
distribution of the exchange notes:
- you cannot rely on the applicable interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus, the letter of transmittal or
any other documents to the exchange agent. You should send certificates for old
notes, letters of transmittal and any other required documents to the exchange
agent addressed as follows:
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WILMINGTON TRUST COMPANY
<TABLE>
<CAPTION>
By Registered or Certified Mail
or Overnight Courier: By Hand in New York City: By Hand in Delaware:
<S> <C> <C>
Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company
Rodney Square North c/o Harris Trust Co. of New 1105 North Market Street,
1100 North Market Street York, as Agent 1st Floor
Wilmington, Delaware 19890 88 Pine Street, 19th Floor Wilmington, Delaware 19890
Attn: Corporate Trust Wall Street Plaza Attn: Corporate Trust
Operations New York, New York 10005 Operations
Attn: Corporate Trust
Operations
By Facsimile:
(for eligible institutions
only)
(302) 651-1079
Confirm by Telephone:
(302) 651-1562
Kristin Long
</TABLE>
THE EXCHANGE NOTES
GENERAL
We will issue the exchange notes under the indenture dated as of November
12, 1998 that we entered into with Wilmington Trust Company, as trustee, in
connection with the issuance of the old notes. We have summarized selected
provisions of the notes and the indenture below. The summary is not complete.
For a complete description, you should refer to the indenture, which we have
filed with the SEC. Please read "Where You Can Find More Information." We have
used certain capitalized terms in this summary that are defined below under
"-- Certain Definitions." As used in this summary, the term "Company" refers to
Doane Pet Care Company and not to any of its subsidiaries.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York, except that, at the
option of the Company, payment of interest may be made by check mailed to the
registered addresses of the holders.
The exchange notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
exchange notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
The old notes and the exchange notes will constitute a single class of debt
securities under the indenture. If the exchange offer is completed, holders of
old notes who do not exchange their old notes for exchange notes will vote
together with holders of the exchange notes for all relevant purposes under the
indenture. In that regard, the indenture requires that certain actions by
holders, including acceleration following an event of default, must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
indenture. In determining whether the required holders have given any notice,
consent or waiver or taken any other action permitted under the indenture, any
old notes that remain outstanding after the exchange offer will be aggregated
with the exchange notes, and the holders of the old notes and the exchange notes
will vote together as a single series. All references in this prospectus to
specified percentages in aggregate principal amount of the old notes means, at
any time after the exchange offer is completed, the percentages in aggregate
principal amount of the old notes and the exchange notes collectively then
outstanding.
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TERMS OF THE NOTES
The notes are unsecured senior subordinated obligations of the Company,
limited to $150.0 million aggregate principal amount and will mature on May 15,
2007. Each note will bear interest at the rate of 9 3/4% per annum from the date
of issuance, or from the most recent date to which interest has been paid or
provided for, payable semi-annually on May 15 and November 15 of each year
commencing on May 15, 1999 to holders of record at the close of business on the
May 1 or November 1, whether or not a business day, immediately preceding the
interest payment date.
OPTIONAL REDEMPTION
Except as set forth below, the notes will not be redeemable at the option
of the Company prior to May 15, 2002. On and after that date, the notes will be
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
the registered address of each holder of notes to be redeemed, at the following
redemption prices, which are expressed in percentages of principal amount, plus
accrued and unpaid interest to the redemption date, subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date.
If redeemed during the 12-month period commencing on May 15 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002...................................................... 104.875%
2003...................................................... 103.250%
2004...................................................... 101.625%
2005 and thereafter....................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 15, 2000, the
Company may redeem up to 35% of the aggregate principal amount of notes with the
cash proceeds of one or more equity offerings received by, or invested in, the
Company at a redemption price, expressed as a percentage of principal amount, of
109.750%, plus accrued and unpaid interest, if any, to the redemption date,
subject to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date; provided, however, that at
least 65% of the aggregate principal amount of the notes remain outstanding
after each redemption.
At any time on or prior to May 15, 2002, the notes may also be redeemed as
a whole at the option of the Company upon the occurrence of a change of control,
upon not less than 30 nor more than 60 days prior notice, but in no event more
than 90 days after the occurrence of the change of control, mailed by
first-class mail to each holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued and unpaid interest, if any, to, the date of redemption, subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date.
"Applicable Premium" means, with respect to a note at any redemption date,
the greater of 1.0% of the principal amount of that note and the excess of the
present value at that time of the redemption price of the note at May 15, 2002,
which redemption price is described in the table above, plus all required
interest payments due on the note through May 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 50 basis points over the principal
amount of the note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity, as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519) that
has become publicly available at least two business days prior to the redemption
date, or, if such statistical release is no longer published, any publicly
available source or similar market data, most nearly equal to the period from
the redemption date to May 15, 2002; provided, however, that if the period from
the redemption date to May 15, 2002 is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
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In the case of any partial redemption, selection of the notes for
redemption will be made by the trustee on a pro rata basis, by lot or by such
other method as the trustee in its sole discretion deems to be fair and
appropriate, although no note of $1,000 in original principal amount or less
will be redeemed in part. If any note is to be redeemed in part only, the notice
of redemption relating to that note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
RANKING
The payment of Indebtedness evidenced by, and all other obligations in
respect of, the notes is subordinated in right of payment, as set forth in the
indenture, to the prior payment in full in cash or cash equivalents when due of
all Senior Indebtedness of the Company. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
under "-- Defeasance" below is not subordinate to any Senior Indebtedness or
subject to the restrictions described herein. At December 31, 1998, the
aggregate amount of the Company's outstanding Senior Indebtedness was
approximately $312.2 million. Although the indenture contains limitations on the
amount of additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "-- Certain Covenants --
Limitation on Indebtedness."
"Senior Indebtedness" means the principal of, premium, if any, and
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization of the Company regardless of whether
post-filing interest is allowed in the proceeding, on, and fees and other
amounts owing in respect of, the senior credit facility and all other
Indebtedness of the Company, whether outstanding on November 12, 1998 or
thereafter issued, unless, in the instrument creating or evidencing the same, it
is provided that the obligations in respect of such Indebtedness are not
superior in right of payment to the notes; provided, however, that Senior
Indebtedness will not include:
- any obligation of the Company to any subsidiary;
- any liability for federal, state, foreign, local or other taxes owed or
owing by the Company;
- any accounts payable or other liability to trade creditors arising in the
ordinary course of business, including guarantees thereof or instruments
evidencing such liabilities;
- any Indebtedness, guarantee or obligation of the Company that is
expressly subordinate or junior in right of payment to any other
Indebtedness, guarantee or obligation of the Company, including any
Senior Subordinated Indebtedness and any Subordinated Obligations; or
- any capital stock.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the notes in accordance with the provisions of the indenture. The
notes will in all respects rank equally with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the indenture that it
will not incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinate or junior to Indebtedness secured by a lien merely
because it is unsecured.
The Company may not pay principal of, premium, if any, or interest on, or
liquidated damages with respect to, or make any payment on account of any other
obligations with respect to, the notes or make any deposit pursuant to the
provisions described under "-- Defeasance" below and may not otherwise purchase
or retire any notes (collectively, "pay the notes") if:
(1) any Senior Indebtedness is not paid when due in cash or cash
equivalents; or
(2) any other default on Senior Indebtedness occurs and the maturity of
that Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived
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<PAGE> 64
and any acceleration has been rescinded or that Senior Indebtedness has
been paid in full in cash or cash equivalents.
However, the Company may pay any amounts without regard to the foregoing if
the Company and the trustee receive written notice approving the payment from
the representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) of the immediately preceding
sentence has occurred and is continuing.
During the continuance of any default, other than a default described in
clause (1) or (2) of the second preceding sentence, with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice, except notice that may be
required to effect the acceleration, or the expiration of any applicable grace
periods, the Company may not pay any amounts in respect of the notes for a
period (a "payment blockage period") commencing upon the receipt by the trustee,
with a copy to the Company, of written notice (a "blockage notice") of default
from the representative of the holders of the Designated Senior Indebtedness
specifying an election to effect a payment blockage period and ending 179 days
thereafter. Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of the Designated Senior Indebtedness or
the representative of those holders have accelerated the maturity of the
Designated Senior Indebtedness, the Company may resume payments on the notes
after the end of the payment blockage period. Not more than one blockage notice
may be given in any consecutive 360-day period, irrespective of the number of
defaults with respect to Designated Senior Indebtedness during that period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization or bankruptcy of or
similar proceeding relating to the Company or its property, the holders of
Senior Indebtedness will be entitled to receive payment in full in cash or cash
equivalents of the Senior Indebtedness before the holders of the notes are
entitled to receive any payment, and until the Senior Indebtedness is paid in
full in cash or cash equivalents, any payment or distribution to which holders
would be entitled but for the subordination provisions of the indenture will be
made to holders of the Senior Indebtedness as their interests may appear. If a
distribution is made to holders of the notes that, due to the subordination
provisions, should not have been made to them, the holders are required to hold
it in trust for the holders of Senior Indebtedness and pay it over to them as
their interests may appear.
If payment of the notes is accelerated because of an event of default, the
Company or the trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the representative of those holders of the acceleration.
The Company may not pay the notes until five business days after those holders
or the representative of the Designated Senior Indebtedness receive notice of
the acceleration and, thereafter, may pay the notes only if the subordination
provisions of the indenture otherwise permit payment at that time.
By reason of the subordination provisions contained in the indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the notes, and
creditors of the Company who are not holders of Senior Indebtedness or of Senior
Subordinated Indebtedness, including the notes, may recover less, ratably, than
holders of Senior Indebtedness and may recover more, ratably, than holders of
Senior Subordinated Indebtedness.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "change of
control"), each holder of notes will have the right to require the Company to
repurchase all or any part of that holder's notes at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase, subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date:
(1) Prior to the first public offering of voting stock of the Company
or Doane Pet Care Enterprises, Inc., as the case may be, the Permitted
Holders cease to be the "beneficial owner," as defined in Rules 13d-3 and
13d-5 under the Exchange Act, directly or indirectly, of majority voting
power of the voting stock of the Company, whether as a result of issuance
of securities of the Company or Doane Pet
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Care Enterprises, Inc., as the case may be, any merger, consolidation,
liquidation or dissolution of the Company or Doane Pet Care Enterprises,
Inc., as the case may be, any direct or indirect transfer of securities by
any Permitted Holder or otherwise. For purposes of this paragraph (1) and
paragraph (2) below, the Permitted Holders will be deemed to beneficially
own any voting stock of a person (the "specified corporation") held by any
other person (the "parent corporation") so long as the Permitted Holders
beneficially own, directly or indirectly, a majority of the voting power of
the voting stock of the parent corporation.
(2) Following the first public offering of voting stock of the Company
or Doane Pet Care Enterprises, Inc., as the case may be, any "person," as
such term is used in Sections 13(d) and 14(d) of the Exchange Act, other
than one or more Permitted Holders, is or becomes the beneficial owner, as
defined in paragraph (1) above, except that a person shall be deemed to
have "beneficial ownership" of all shares that any person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, directly or indirectly, of more than 35% of the total
voting power of the voting stock of the Company or Doane Pet Care
Enterprises, Inc., as the case may be; provided that the Permitted Holders
beneficially own, as defined in paragraph (1) above, directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the voting stock of the Company or Doane Pet Care Enterprises, Inc., as
the case may be, than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of the Company or Doane Pet
Care Enterprises, Inc., as the case may be. For purposes of this paragraph
(2), the other person shall be deemed to beneficially own any voting stock
of a specified corporation held by a parent corporation, if the other
person "beneficially owns," as defined in this paragraph (2), directly or
indirectly, more than 35% of the voting power of the voting stock of the
parent corporation and the Permitted Holders "beneficially own," as defined
in paragraph (1) above, directly or indirectly, in the aggregate a lesser
percentage of the voting power of the voting stock of the parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of the parent corporation.
(3) During any period of two consecutive years, individuals who at the
beginning of that period constituted the board of directors, together with
any new directors whose election by the board of directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of that period or whose election
or nomination for election was previously so approved, cease for any reason
to constitute a majority of the board of directors then in office.
Within 30 days following any change of control, unless the Company has
mailed a redemption notice with respect to all the outstanding notes in
connection with the change of control, the Company shall mail a notice to each
holder of record of the notes with a copy to the trustee stating:
- that a change of control has occurred and that the holder has the right
to require the Company to purchase its notes at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase, subject to the right of
holders of record on a record date to receive interest on the relevant
interest payment date;
- the circumstances and relevant facts and financial information concerning
the change of control;
- the repurchase date, which shall be no earlier than 30 days nor later
than 60 days from the date the notice is mailed; and
- the procedures determined by the Company, consistent with the indenture,
that a holder must follow in order to have its notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions
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of the indenture, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations
described in the indenture by virtue thereof.
The occurrence of certain of the events that would constitute a change of
control would constitute a default under the new credit facility. Future Senior
Indebtedness of the Company and its subsidiaries may contain prohibitions of
certain events that would constitute a change of control or require that Senior
Indebtedness to be repurchased upon a change of control. Moreover, the exercise
by the holders of their right to require the Company to repurchase the notes
could cause a default under the Senior Indebtedness, even if the change of
control itself does not, due to the financial effect of the repurchase on the
Company. Finally, the Company's ability to pay cash to the holders upon a
repurchase may be limited by the Company's then existing financial resources. We
cannot assure you that sufficient funds will be available when necessary to make
any required repurchases. Even if sufficient funds were otherwise available, the
terms of the new credit facility generally prohibit the Company's prepayment of
the notes prior to their scheduled maturity. Consequently, if the Company is not
able to prepay the senior credit facility and any other Senior Indebtedness
containing similar restrictions or obtain requisite consents or waivers, as
described above, the Company will be unable to fulfill its repurchase
obligations if holders of the notes exercise their repurchase rights following a
change of control, thereby resulting in a default under the indenture.
CERTAIN COVENANTS
The indenture contains certain covenants including the following:
Limitation on Indebtedness. (1) The Company shall not, and shall not permit
any of its subsidiaries to, incur any Indebtedness; provided, however, that the
Company and any of its subsidiaries may incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 2.00:1.00.
(2) Notwithstanding the foregoing paragraph (1), the Company and its
subsidiaries may incur the following Indebtedness:
(a) Indebtedness incurred in connection with the senior credit facility
provided that the aggregate principal amount of Indebtedness
incurred pursuant to this clause does not exceed an amount
outstanding at any time equal to $330.0 million less the aggregate
amount of permanent reductions of commitments and repayments of
principal thereof, without duplication of repayments required as a
result of the reductions of commitments;
(b) Indebtedness of the Company to any wholly-owned subsidiary and of
any subsidiary to the Company or any wholly-owned subsidiary;
(c) Indebtedness represented by the notes, any Indebtedness, other than
the Indebtedness described in clauses (a) and (b) above, outstanding
on November 12, 1998 and any Refinancing Indebtedness incurred in
respect of any Indebtedness described in this clause;
(d) Indebtedness represented by the note guarantees and certain
guarantees of Indebtedness;
(e) Indebtedness under currency agreements and interest rate agreements
that are entered into for bona fide hedging purposes of the Company
or its subsidiaries, as determined in good faith by the board of
directors or senior management of the Company, and correspond in
terms of notional amount, duration, currencies and interest rates,
as applicable, to Indebtedness of the Company or its subsidiaries
incurred without violation of the indenture or to business
transactions of the Company or its subsidiaries on customary terms
entered into in the ordinary course of business; and
(f) Indebtedness of the Company or any of its subsidiaries, which may
comprise Indebtedness incurred in connection with the senior credit
facility, in an aggregate principal amount at any time outstanding
not in excess of $15.0 million.
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(3) Notwithstanding any other provision of this covenant, the Company shall
not incur any Indebtedness:
- pursuant to paragraph (2) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any Subordinated Obligations unless that
Indebtedness shall be subordinated to the notes to at least the same
extent as such Subordinated Obligations or
- pursuant to paragraph (1) or (2) if such Indebtedness is subordinate
or junior in ranking in any respect to any Senior Indebtedness unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness.
(4) The Company shall not incur any Indebtedness secured by a lien that is
not Senior Indebtedness unless contemporaneously therewith effective provision
is made to secure the notes equally and ratably with that Indebtedness for so
long as it is secured by a lien.
Limitation on Restricted Payments. (1) The Company will not, and will not
permit any subsidiary, directly or indirectly, after November 12, 1998 to:
- declare or pay any dividend or make any distribution on or in respect of
its capital stock, including any payment in connection with any merger or
consolidation involving the Company, except dividends or distributions
payable in its capital stock, other than Disqualified Stock, and
dividends or distributions payable to the Company or another subsidiary,
and, if the subsidiary is not a wholly-owned subsidiary, to its other
stockholders on a pro rata basis;
- purchase, redeem, retire or otherwise acquire for value any capital stock
of the Company or any subsidiary held by persons other than the Company
or another subsidiary;
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations, other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition; or
- make any investment, other than a Permitted Investment, in any person
(any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or investment being herein
referred to as a "restricted payment"), if at the time the Company or the
subsidiary makes the restricted payment: a default shall have occurred
and be continuing, or would result therefrom; the Company could not incur
at least an additional $1.00 of Indebtedness pursuant to paragraph (1)
under "-- Limitation on Indebtedness;" or the aggregate amount of the
restricted payment and all other restricted payments declared or made
subsequent to, but not on, November 12, 1998 would exceed the sum of:
(A) 50% of the Consolidated Net Income, disregarding any impact
on Consolidated Net Income caused by the Company's
distribution to Doane Pet Care Enterprises, Inc. on November
12, 1998 of an amount required to enable Doane Pet Care
Enterprises, Inc. to repay in full the convertible
subordinated promissory note issued to Heinz Pet Products
Company, accrued during the period from November 12, 1998 to
the end of the most recent fiscal quarter ending prior to the
date of the restricted payment as to which financial results
are available, but in no event more than 135 days prior to
the date of the restricted payment, or, in case the
Consolidated Net Income shall be a deficit, minus 100% of
that deficit;
(B) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its capital stock, other than
Disqualified Stock, or other cash contributions to its
capital subsequent to November 12, 1998, other than an
issuance or sale to a subsidiary of the
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Company or an employee stock ownership plan or other trust
established by the Company or any of its subsidiaries;
(C) aggregate Net Cash Proceeds from the issue or sale of its
capital stock to an employee stock ownership plan or similar
trust, provided, however, that if the plan or trust incurs
any Indebtedness to or guaranteed by the Company to finance
the acquisition of the capital stock, the aggregate amount
shall be limited to any increase in the Consolidated Net
Worth of the Company resulting from principal repayments made
by the plan or trust with respect to Indebtedness incurred by
it to finance the purchase of the capital stock; and
(D) the amount by which Indebtedness of the Company or its
subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange, other than by a subsidiary,
subsequent to November 12, 1998 of any Indebtedness of the
Company or its subsidiaries convertible or exchangeable for
capital stock, other than Disqualified Stock, of the Company,
less the amount of any cash, or other property, distributed
by the Company or any subsidiary upon the conversion or
exchange.
(2) The provisions of paragraph (1) shall not prohibit:
- any purchase or redemption of capital stock or Subordinated
Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, capital stock of the
Company, other than Disqualified Stock and other than capital stock
issued or sold to a subsidiary or an employee stock ownership plan or
other trust established by the Company or any of its subsidiaries;
provided, however, that the purchase or redemption shall be excluded
in the calculation of the amount of restricted payments and the Net
Cash Proceeds from the sale shall be excluded from clause (B) of
paragraph (1) above;
- any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Subordinated Obligations of the Company; provided,
however, that the purchase or redemption shall be excluded in the
calculation of the amount of restricted payments;
- any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "-- Limitation on Sales
of Assets and Subsidiary Stock" below; provided, however, that the
purchase or redemption shall be excluded in the calculation of the
amount of restricted payments;
- dividends paid within 60 days after the date of declaration if at the
date of declaration the dividend would have complied with this
provision; provided, however, that the dividend shall be included in
the calculation of the amount of restricted payments;
- payment of dividends or other distributions by the Company for the
purposes set forth in clauses (A) through (C) below; provided,
however, that any dividend or distribution described in clauses (A)
and (B) will be excluded in the calculation of the amount of
restricted payments and any dividend or distribution described in
clause (C) will be included in the calculation of the amount of
restricted payments:
(A) in amounts equal to the amounts required for Doane Pet Care
Enterprises, Inc. to pay franchise taxes and other fees
required to maintain its legal existence and provide for
audit, accounting, legal and other operating costs of up to
$500,000 per fiscal year;
(B) in amounts equal to amounts required for Doane Pet Care
Enterprises, Inc. to pay federal, state and local income
taxes to the extent those income taxes are attributable to
the income of the Company and its subsidiaries; and
(C) in amounts equal to amounts expended by the Company or Doane
Pet Care Enterprises, Inc. to repurchase capital stock of the
Company or Doane Pet Care Enterprises, Inc. owned by
employees, including former employees, of the Company or its
subsidiaries or
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their assigns, estates and heirs; provided that the aggregate
amount paid, loaned or advanced pursuant to this clause (C)
shall not, in the aggregate, exceed the sum of $3.0 million
plus any amounts contributed by Doane Pet Care Enterprises,
Inc. to the Company as a result of resales of the repurchased
shares of capital stock; or
- any repurchase of equity interest deemed to occur upon exercise of
stock options if those equity interests represent a portion of the
exercise price of the options.
Limitation on Restrictions on Distributions From Subsidiaries. Except for
agreements of IPES, Doane Pet Care Spain, S.L. or Effeffe, S.p.a. governing
Indebtedness existing prior to November 12, 1998 or incurred thereafter in
accordance with the "-- Limitation of Indebtedness" restrictions described
above, the Company shall not, and shall not permit any of its subsidiaries to:
(1) create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any subsidiary to pay
dividends, make any other distributions on its capital stock or pay any
Indebtedness or other obligation owed to the Company;
(2) make any loans or advances to the Company; or
(3) transfer any of its property or assets to the Company except:
- any encumbrance or restriction pursuant to an agreement in effect on
November 12, 1998, including those arising under or in connection with
the senior credit facility;
- any encumbrance or restriction with respect to a subsidiary pursuant
to an agreement relating to any Indebtedness incurred by a subsidiary
prior to the date on which that subsidiary was acquired by the
Company, other than Indebtedness incurred as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant
to which that subsidiary was acquired by the Company;
- any encumbrance or restriction with respect to a subsidiary pursuant
to an agreement effecting a refinancing of Indebtedness incurred
pursuant to an agreement referred to in this subsection or contained
in any amendment, supplement or modification, including an amendment
and restatement, to an agreement referred to in this subsection;
provided, however, that the encumbrances and restrictions contained in
any such refinancing agreement or amendment taken as a whole are no
less favorable to the holders of the notes in any material respect
than encumbrances and restrictions contained in the agreements;
- any encumbrance or restriction:
(A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease,
license, or similar contract,
(B) by virtue of any transfer of, agreement to transfer, option or
right with respect to, or lien on, any property or assets of the
Company or any subsidiary not otherwise prohibited by the
indenture, or
(C) contained in security agreements securing Indebtedness of a
subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to those security
agreements;
- any restriction imposed by applicable law;
- any restriction with respect to a subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or
substantially all the capital stock or assets of that subsidiary
pending the closing of the sale or disposition; and
- purchase obligations for property acquired in the ordinary course of
business that impose certain restrictions on the property so acquired.
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Limitation on Sales of Assets. (1) The Company shall not, and shall not
permit any subsidiary to, make any Asset Disposition unless:
- the Company or subsidiary receives consideration, including by way of
relief from, or by any other person assuming sole responsibility for,
any liabilities, contingent or otherwise, at the time of the Asset
Disposition at least equal to the fair market value of the shares and
assets subject to the Asset Disposition,
- at least 85% of the consideration thereof received by the Company or
subsidiary is in the form of cash and
- an amount equal to 100% of the Net Available Cash from the Asset
Disposition is applied by the Company, or the subsidiary, as the case
may be:
(A) first, to the extent the Company elects, or is required by the
terms of any Senior Indebtedness or Indebtedness, other than
preferred stock, of a wholly-owned subsidiary, to prepay, repay
or purchase Senior Indebtedness or such Indebtedness, other than
preferred stock, of a wholly-owned subsidiary, in each case other
than Indebtedness owed to the Company or an Affiliate of the
Company, within one year after the later of the date of the Asset
Disposition or the receipt of the Net Available Cash;
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the
Company or the subsidiary elects, to reinvest in Additional
Assets, including by means of an investment in Additional Assets
by a subsidiary with Net Available Cash received by the Company
or another subsidiary, within one year after the later of the
date of the Asset Disposition or the receipt of the Net Available
Cash;
(C) third, to the extent of the balance of the Net Available Cash
after application in accordance with clauses (A) and (B), to make
an offer to purchase notes pursuant and subject to the conditions
of the indenture to the holders of notes at a purchase price of
100% of the principal amount thereof plus accrued and unpaid
interest to the purchase date; and
(D) fourth, to the extent of the balance of the Net Available Cash
after application in accordance with clauses (A), (B) and (C), to
acquire Additional Assets, other than Indebtedness and capital
stock, or to prepay, repay or purchase Indebtedness of the
Company, other than Indebtedness owed to an Affiliate of the
Company and other than Disqualified Stock of the Company, or
Indebtedness of any subsidiary, other than Indebtedness owed to
the Company or an Affiliate of the Company, in each case
described in this clause (D) within one year from the receipt of
the Net Available Cash or, if the Company has made an offer
pursuant to clause (C), six months from the date the offer is
completed.
In connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (C) or (D) above, the Company or such subsidiary shall
retire such Indebtedness and shall cause the related loan commitment, if any, to
be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, the Company and
its subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that are not applied in accordance with this
covenant at any time exceed $1.0 million. The Company shall not be required to
make an offer for the notes pursuant to this covenant if the Net Available Cash
available therefor, after application of the proceeds as provided in clauses (A)
and (B), is less than $10.0 million for any particular Asset Disposition, which
lesser amounts shall be carried forward for purposes of determining whether an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition.
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For purposes of this covenant, the following will be deemed to be cash:
- the assumption of Indebtedness, other than Disqualified Stock, of the
Company or any subsidiary and the release of the Company or the
subsidiary from all liability on that Indebtedness in connection with
the Asset Disposition and
- securities received by the Company or any subsidiary of the Company
from the transferee that are promptly converted by the Company or such
subsidiary into cash.
(2) In the event of an Asset Disposition that requires the purchase of
notes pursuant to clause (1)(C) above, the Company will be required to purchase
notes tendered pursuant to an offer by the Company for the notes at a purchase
price of 100% of their principal amount plus accrued interest to the purchase
date in accordance with the procedures, including prorating in the event of
oversubscription, set forth in the indenture. If the aggregate purchase price of
the notes tendered pursuant to the offer is less than the Net Available Cash
allotted to the purchase of the notes, the Company will apply the remaining Net
Available Cash in accordance with clause (1)(D) above.
(3) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of the notes pursuant to the
indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the indenture by virtue thereof.
Limitation on Affiliate Transactions. (1) The Company will not, and will
not permit any subsidiary to, directly or indirectly, enter into or conduct any
transaction, including the purchase, sale, lease or exchange of any property or
the rendering of any service, with any Affiliate of the Company (an "affiliate
transaction") unless:
- the terms of the affiliate transaction are no less favorable to the
Company or the subsidiary, as the case may be, than those that could be
obtained at the time of the transaction in arm's-length dealings with a
person who is not an Affiliate;
- in the event the affiliate transaction involves an aggregate amount in
excess of $1.0 million, the terms of the transaction have been approved
by a majority of the members of the board of directors of the Company and
by a majority of the disinterested members of the board, if any; and
- in the event the affiliate transaction involves an aggregate amount in
excess of $5.0 million, the Company has received a written opinion from
an independent investment banking firm of nationally recognized standing
that the affiliate transaction is fair to the Company or the subsidiary,
as the case may be, from a financial point of view.
(2) The provisions of the foregoing paragraph (1) will not prohibit:
- any restricted payment permitted to be paid pursuant to the covenant
described under "-- Limitation on Restricted Payments;"
- the performance of the Company's or subsidiary's obligations under any
employment contract, collective bargaining agreement, employee benefit
plan, related trust agreement or any other similar arrangement heretofore
or hereafter entered into in the ordinary course of business;
- payment of compensation to, and indemnity provided on behalf of,
employees, officers, directors or consultants in the ordinary course of
business;
- maintenance in the ordinary course of business of benefit programs or
arrangements for employees, officers or directors, including vacation
plans, health and life insurance plans, deferred compensation plans, and
retirement or savings plans and similar plans; or
- any transaction between the Company and a wholly-owned subsidiary or
between wholly-owned subsidiaries.
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Limitation on Sale of Subsidiary Capital Stock. The Company will not, and
will not permit any subsidiary to, transfer, convey, sell, lease or otherwise
dispose of any capital stock of any subsidiary to any person, other than to the
Company or a wholly-owned subsidiary, and the Company will not permit any
subsidiary to issue any of its capital stock to any person other than to the
Company or a wholly-owned subsidiary; provided, however, that the foregoing
shall not prohibit the conveyance, sale, lease or other disposition of all the
capital stock of a subsidiary if the net cash proceeds from that transfer,
conveyance, sale, lease, other disposition or issuance are applied in accordance
with the covenant described above under "-- Limitation on Sales of Assets."
SEC Reports. Notwithstanding that the Company may not be required to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the Commission, and within 15 days after the
reports are filed, provide the trustee and the holders, at their addresses as
set forth in the register of notes, with the annual reports and the information,
documents and other reports that are otherwise required pursuant to Section 13
and 15(d) of the Exchange Act. In addition, following the registration of the
common stock of the Company pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Company shall furnish to the trustee and the holders, promptly upon
their becoming available, copies of the Company's annual report to stockholders
and any other information provided by the Company to its public stockholders
generally.
Future Note Guarantors. The Company will cause each subsidiary, other than
foreign subsidiaries, that incurs Indebtedness or that is a guarantor of
Indebtedness incurred pursuant to clause (2)(a) of the covenant described under
"-- Limitation on Indebtedness" to execute and deliver to the trustee a note
guarantee pursuant to which each subsidiary, other than foreign subsidiaries,
will guarantee, jointly and severally, to the holders and the trustee, subject
to subordination provisions substantially the same as those described above, the
full and prompt payment of the notes. Each note guarantee will be limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
that subsidiary without rendering the note guarantee, as it relates to such
subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any subsidiary to, engage in any business, other than the pet food business and
other business activities that are incidental or related thereto.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all of its
assets to, any person, unless:
- the resulting, surviving or transferee person (the "successor company")
is a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
successor company, if not the Company, expressly assumes, by supplemental
indenture, executed and delivered to the trustee, in form satisfactory to
the trustee, all the obligations of the Company under the notes and the
indenture;
- immediately after giving effect to the transaction, and treating any
Indebtedness that becomes an obligation of the successor company or any
subsidiary of the successor company as a result of the transaction as
having been incurred by the successor company or that subsidiary at the
time of the transaction, no default shall have occurred and be
continuing;
- immediately after giving effect to the transaction, the successor company
would be able to incur at least an additional $1.00 of Indebtedness
pursuant to paragraph (1) of "-- Limitation on Indebtedness;"
- immediately after giving effect to the transaction, the successor company
will have Consolidated Net Worth in an amount that is not less than the
Consolidated Net Worth of the Company immediately prior to the
transaction; and
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- the Company shall have delivered to the trustee an officers' certificate
and an opinion of counsel, each stating that the consolidation, merger or
transfer and the supplemental indenture, if any, comply with the
indenture.
The successor company will succeed to, and be substituted for, and may exercise
every right and power of, the Company under the indenture, but the predecessor,
the Company, in the case of a lease of all or substantially all of its assets,
will not be released from the obligation to pay the principal of and interest on
the notes.
Notwithstanding the foregoing clauses, any subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company or another wholly-owned subsidiary of the Company, and the
Company may merge with an Affiliate incorporated solely for the purpose of
reincorporating the Company in another jurisdiction to realize tax or other
benefits.
EVENTS OF DEFAULT
An event of default is defined in the indenture as:
(1) a default in any payment of interest on any note when due, continued
for 30 days,
(2) a default in the payment of principal of any note when due at its
stated maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise,
(3) the failure by the Company to comply with its obligations under
"-- Merger and Consolidation" above,
(4) the failure by the Company to comply for 30 days after notice with any
of its obligations under the covenants described under "-- Change of
Control" or under "-- Certain Covenants" above, in each case, other
than a failure to purchase notes, which shall constitute an event of
default, other than "-- Merger and Consolidation,"
(5) the failure by the Company to comply for 60 days after notice with its
other agreements contained in the indenture,
(6) Indebtedness of the Company or any subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5.0 million and the default
shall not have been cured or the acceleration rescinded within a 10-day
period (the "cross acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a significant subsidiary (the "bankruptcy provisions"),
(8) any judgment or decree for the payment of money in excess of $5.0
million, to the extent not covered by insurance, is rendered against
the Company or a significant subsidiary and the judgment or decree
shall remain undischarged or unstayed for a period of 60 days after it
becomes final and non-appealable (the "judgment default provision") or
(9) the failure of any note guarantee to be in full force and effect,
except as contemplated by the terms thereof, or the denial or
disaffirmation by any note guarantor of its obligations under the
indenture or any note guarantee if such default continues for 10 days.
However, a default under clauses (4) and (5) will not constitute an
event of default until the trustee or the holders of at least 25% in
principal amount of the outstanding notes notify the Company of the
default and the Company does not cure the default within the time
specified in clauses (4) and (5) hereof after receipt of the notice.
If an event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding notes by notice to the
Company may declare the principal of and accrued and unpaid interest on all the
notes to be due and payable. Upon such a declaration, the principal and accrued
and unpaid interest shall be due and payable immediately. If an event of default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company occurs and is continuing, the principal of and
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accrued and unpaid interest on all the notes will become and be immediately due
and payable without any declaration or other act on the part of the trustee or
any holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding notes may rescind any such acceleration with respect
to the notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, if an event of default occurs and is continuing, the trustee will be
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the holders unless the holders have
offered to the trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the indenture or the notes unless:
- the holder has previously given the trustee notice that an event of
default is continuing,
- holders of at least 25% in principal amount of the outstanding notes have
requested the trustee to pursue the remedy,
- the holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense,
- the trustee has not complied with their request within 60 days after
receipt of the request and the offer of security or indemnity and
- the holders of a majority in principal amount of the outstanding notes
have not given the trustee a direction that, in the opinion of the
trustee, is inconsistent with the request within that 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or of exercising any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the trustee in personal liability. Prior
to taking any action under the indenture, the trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The indenture provides that if a default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder notice of the default
within 90 days after it occurs. Except in the case of a default in the payment
of principal of, premium, if any, or interest on any note, the trustee may
withhold notice if and so long as a committee of its trust officers in good
faith determines that withholding notice is in the interests of the holders of
notes. In addition, the Company is required to deliver to the trustee, within
120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any default that occurred during the previous year. The
Company also is required to deliver to the trustee, within 30 days after the
occurrence thereof, written notice of any events that would constitute certain
defaults, their status and what action the Company is taking or proposes to take
in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the
consent of the holders of a majority in principal amount of the notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the notes
then outstanding. However, without the consent of each holder of an outstanding
note affected, no amendment may, among other things:
- reduce the amount of notes whose holders must consent to an amendment,
- reduce the rate of or extend the time for payment of interest on any
note,
- reduce the principal of or extend the stated maturity of any note,
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- reduce the premium payable upon the redemption or repurchase of any note
or change the time at which any note may be redeemed as described under
"-- Optional Redemption" above,
- make any note payable in money other than that stated in the note,
- make any change to the subordination provisions of the indenture that
adversely affects the rights of any holder of the notes,
- impair the right of any holder to receive payment of principal of and
interest on the holder's notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to
the holder's notes or
- make any change in the amendment provisions that require each holder's
consent or in the waiver provisions.
Without the consent of any holder, the Company and the trustee may amend
the indenture to:
- cure any ambiguity, omission, defect or inconsistency, to provide for the
assumption by a successor corporation of the obligations of the Company
under the indenture,
- provide for uncertificated notes in addition to or in place of
certificated notes, provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Internal Revenue
Code of 1986, or in a manner such that the uncertificated notes are
described in Section 163(f) (2) (B) of the Internal Revenue Code of 1986,
- add guarantees with respect to the notes,
- secure the notes,
- add to the covenants of the Company for the benefit of the holders of the
notes or
- surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder or to
comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of that Senior Indebtedness, or any group or
representative thereof authorized to give a consent, consent to the change.
The consent of the holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if the consent
approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing the amendment.
However, the failure to give notice to all the holders, or any defect therein,
will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the notes
and the indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes. The Company at any time may terminate its obligations under covenants
described under "-- Certain Covenants," other than "-- Merger and
Consolidation," the operation of the cross acceleration provision, the
bankruptcy provisions with respect to subsidiaries and the judgment default
provision described under "-- Events of Default" above and the limitations
contained under "-- Certain Covenants -- Merger and Consolidation" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an event of default with respect thereto. If the Company exercises its covenant
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defeasance option, payment of the notes may not be accelerated because of an
event of default specified in clause (4), (6), (7) with respect only to
subsidiaries, (8) or (9) under "-- Events of Default" above or because of the
failure of the Company to comply with certain clauses under "-- Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust with the trustee money or U.S. Government Obligations for the
payment of principal, premium, if any, and interest on the notes to redemption
or maturity, as the case may be, and must comply with certain other conditions,
including delivery to the trustee of an opinion of counsel to the effect that
holders of the notes will not recognize income, gain or loss for federal income
tax purposes as a result of the deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if the deposit and defeasance had not
occurred, and, in the case of legal defeasance only, the opinion of counsel must
be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law.
THE TRUSTEE
Wilmington Trust Company is the trustee under the indenture.
GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all of the following terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Additional Assets" means:
(1) any property or assets, other than Indebtedness and capital stock, to
be used by the Company or a subsidiary in the pet food business and
other business activities that are incidental or related thereto;
(2) the capital stock of a person that becomes a subsidiary as a result of
the acquisition of that capital stock by the Company or another
subsidiary; or
(3) capital stock constituting a minority interest in any person that at
the time is a subsidiary; provided, however, that, in the case of
clauses (2) and (3), the subsidiary is primarily engaged in the pet
food business and other business activities that are incidental or
related thereto.
"Affiliate" of any specified person means any other person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with the specified person, any person who is a director or officer of
that person or any subsidiary of that person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of that person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenants described under "Certain
Covenants -- Limitation on Sales of Assets," "-- Limitation on Restricted
Payments," "-- Limitation on Sale of Subsidiary Capital Stock" and
"-- Limitation on Affiliate Transactions" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the voting stock, on a fully diluted basis, of the Company or of rights or
warrants to purchase the voting stock, whether or not currently exercisable, and
any person who would be an Affiliate of any such beneficial owner pursuant to
the first sentence hereof.
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"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition, or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan, of shares of capital stock of a
subsidiary, other than directors' qualifying shares, property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any of its subsidiaries, including any disposition by means of a
merger, consolidation or similar transaction, other than:
- a disposition by a subsidiary to the Company or a wholly-owned subsidiary
or by the Company or a subsidiary to a wholly-owned subsidiary;
- a disposition of inventory or Temporary Cash Investments in the ordinary
course of business;
- a disposition of obsolete equipment or equipment that is no longer useful
in the conduct of the business of the Company and its subsidiaries and
that is disposed of in each case in the ordinary course of business;
- the sale of other assets so long as the fair market value of the assets
disposed of pursuant to this clause does not exceed $1.0 million in the
aggregate in any fiscal year and $5.0 million in the aggregate prior to
May 15, 2007;
- for the purposes of the covenant described under "Certain
Covenants -- Limitation on Sales of Assets" only, a disposition subject
to the covenant described under "-- Limitation on Restricted Payments;"
and
- the disposition of all or substantially all of the assets of the Company
in the manner permitted pursuant to the provisions described under the
caption "-- Certain Covenants -- Merger and Consolidation" or any
disposition that constitutes a change of control pursuant to the
indenture.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the notes, compounded annually, of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in the Sale/Leaseback Transaction, including any period for which the
lease has been extended.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date the lease may be terminated without penalty.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for that period, plus, to the extent deducted in calculating the Consolidated
Net Income:
- income tax expense,
- Consolidated Interest Expense,
- depreciation expense,
- amortization expense, in each case for that period,
- non-recurring fees and expenses related to the Windy Hill acquisition and
transition costs and expenses related to the integration of Windy Hill
and the Company and certain other fees and expenses and
- other non-cash charges reducing Consolidated Net Income, excluding any
non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash
expense that was paid in a prior period,
in each case for such period, and minus, to the extent not already deducted in
calculating Consolidated Net Income, the aggregate amount of "earnout" payments
paid in cash during the period in connection with acquisitions previously made
by the Company and non-cash items increasing Consolidated Net Income for the
period.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of the aggregate amount of Consolidated Cash Flow for the period of the
most recent four consecutive fiscal quarters ending prior to the date of the
determination to Consolidated Interest Expense for those four fiscal quarters;
provided, however, that:
(1) if the Company or any of its subsidiaries has incurred any Indebtedness
since the beginning of that period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an incurrence of Indebtedness, or both, Consolidated
Cash Flow and Consolidated Interest Expense for the period shall be
calculated after giving effect on a pro forma basis to the Indebtedness
as if the Indebtedness had been incurred on the first day of that
period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of the new
Indebtedness as if the discharge had occurred on the first day of the
period;
(2) if since the beginning of the period the Company or any of its
subsidiaries shall have made any Asset Disposition, Consolidated Cash
Flow for the period shall be reduced by an amount equal to the
Consolidated Cash Flow, if positive, attributable to the assets that
are the subject of the Asset Disposition for the period or increased by
an amount equal to the Consolidated Cash Flow, if negative,
attributable thereto for the period, and Consolidated Interest Expense
for the period shall be reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Company or any
of its subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing subsidiaries
in connection with the Asset Disposition for that period, or, if the
capital stock of any subsidiary of the Company is sold, the
Consolidated Interest Expense for the period directly attributable to
the Indebtedness of that subsidiary to the extent the Company and its
continuing subsidiaries are no longer liable for that Indebtedness
after the sale;
(3) if since the beginning of the period the Company or any of its
subsidiaries, by merger or otherwise, shall have made an investment in
any subsidiary of the Company, or any person that becomes a subsidiary
of the Company, or an acquisition of assets, including any investment
in a subsidiary of the Company or any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating
unit of a business, Consolidated Cash Flow and Consolidated Interest
Expense for the period shall be calculated after giving pro forma
effect thereto, including the incurrence of any Indebtedness and
including the pro forma expenses and cost reductions calculated on a
basis consistent with Regulation S-X of the Securities Act, as if such
investment or acquisition occurred on the first day of the period; and
(4) if since the beginning of the period any person, that subsequently
became a subsidiary of the Company or was merged with or into the
Company or any subsidiary of the Company since the beginning of the
period shall have made any Asset Disposition or any investment or
acquisition of assets that would have required an adjustment pursuant
to clause (2) or (3) above if made by the Company or a subsidiary of
the Company during that period, Consolidated Cash Flow and Consolidated
Interest Expense for that period shall be calculated after giving pro
forma effect thereto as if the Asset Disposition, investment or
acquisition occurred on the first day of the period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on that Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period, taking into account any interest rate agreement
applicable to that Indebtedness if the interest rate agreement has a remaining
term in excess of 12 months.
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"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its subsidiaries, plus, to the extent not included in
that interest expense:
- interest expense attributable to Capitalized Lease Obligations and
imputed interest with respect to Attributable Indebtedness;
- amortization of debt discount and debt issuance cost, other than those
debt discounts and debt issuance costs incurred on November 12, 1998;
- capitalized interest;
- non-cash interest expense;
- commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
- interest actually paid by the Company or any subsidiary under any
guarantee of Indebtedness or other obligation of any other person;
- net costs associated with currency agreements and interest rate
agreements, including amortization of fees;
- the product of all preferred stock dividends in respect of all preferred
stock of subsidiaries of the Company and Disqualified Stock of the
Company held by persons other than the Company or a wholly-owned
subsidiary multiplied by a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of the Company, expressed as a
decimal, in each case, determined on a consolidated basis in accordance
with GAAP; and
- the cash contributions to any employee stock ownership plan or similar
trust to the extent those contributions are used by the plan or trust to
pay interest or fees to any person, other than the Company, in connection
with Indebtedness incurred by the plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated subsidiaries; provided, however, that there
shall not be included in Consolidated Net Income:
(1) any net income (loss) of any person if the person is not a subsidiary,
except that subject to the limitations contained in clause (4) below,
the Company's equity in the net income of any person for the period
shall be included in Consolidated Net Income up to the aggregate amount
of cash actually distributed by the person during that period to the
Company or a subsidiary as a dividend or other distribution, subject,
in the case of a dividend or other distribution to a subsidiary, to the
limitations contained in clause (3) below, and the Company's equity in
a net loss of any such person for that period shall be included in
determining Consolidated Net Income;
(2) any net income (loss) of any person acquired by the Company or a
subsidiary in a pooling of interests transaction for any period prior
to the date of acquisition;
(3) any net income (loss) of any subsidiary if the subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by that subsidiary, directly or indirectly,
to the Company, except that subject to the limitations contained in (4)
below, the Company's equity in the net income of any such subsidiary
for such period shall be included in Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by the
subsidiary during the period to the Company or another subsidiary as a
dividend, subject, in the case of a dividend that could have been made
to another subsidiary, to the limitation contained in this clause, and
the Company's equity in a net loss of any such subsidiary for the
period shall be included in determining Consolidated Net Income;
(4) any gain, but not loss, realized upon the sale or other disposition of
any assets of the Company or its consolidated subsidiaries, including
pursuant to any Sale/Leaseback Transaction, that are not sold or
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otherwise disposed of in the ordinary course of business and any gain
or loss realized upon the sale or other disposition of any capital
stock of any person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made as the par or stated value of
all outstanding capital stock of the Company plus paid in capital or capital
surplus relating to such capital stock plus any retained earnings or earned
surplus less any accumulated deficit and any amounts attributable to
Disqualified Stock.
"Designated Senior Indebtedness" means the Indebtedness incurred in
connection with the senior credit facility and any other Senior Indebtedness
that, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $5.0 million and is specifically
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the indenture.
"Disqualified Stock" means, with respect to any person, any capital stock
of that person that by its terms, or by the terms of any security into which it
is convertible or for which it is exchangeable, or upon the happening of any
event:
- matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
- is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
- is redeemable at the option of the holder thereof, in whole or in part,
in each case on or prior to 123 days after the stated maturity of the
notes.
"Equity Investors" means the equity owners, including those holding
warrants, of Doane Pet Care Enterprises, Inc. on November 12, 1998.
"Indebtedness" means, with respect to any person on any date of
determination, without duplication:
(1) the principal of and premium, if any, in respect of indebtedness of
that person for borrowed money,
(2) the principal of and premium, if any, in respect of obligations of that
person evidenced by bonds, debentures, notes or other similar
instruments,
(3) all obligations of that person in respect of letters of credit or other
similar instruments, including reimbursement obligations with respect
thereto, other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1),
(2) and (5)) entered into in the ordinary course of business of such
person to the extent that such letters of credit are not drawn upon or,
if and to the extent drawn upon, the drawing is reimbursed no later
than the third business day following receipt by the person of a demand
for reimbursement following payment on the letter of credit,
(4) all obligations of that person to pay the deferred and unpaid purchase
price of property or services, other than contingent or "earn-out"
payment obligations and trade payables and accrued expenses incurred in
the ordinary course of business, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services,
(5) all Capitalized Lease Obligations and all Attributable Indebtedness of
that person,
(6) all Indebtedness of other persons secured by a lien on any asset of
that person, whether or not such Indebtedness is assumed by that
person, provided, however, that the amount of Indebtedness of such
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person shall be the lesser of the fair market value of the asset at the
date of determination and the amount of such Indebtedness of such other
persons,
(7) all Indebtedness of other persons to the extent guaranteed by such
person,
(8) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any subsidiary of the Company, any preferred stock, but
excluding, in each case, any accrued dividends, and
(9) to the extent not otherwise included in this definition, obligations of
such person under currency agreements and interest rate agreements.
The amount of Indebtedness of any person at any date shall be the
outstanding balance at that date of all unconditional obligations as described
above as such amount would be reflected on a balance sheet in accordance with
GAAP and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at that date.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form, therefrom, in each case net of:
- all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
- all payments made on any Indebtedness that is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
lien upon such assets, or which must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition;
- all distributions and other payments required to be made to any person
owning a beneficial interest in assets subject to sale or minority
interest holders in subsidiaries or joint ventures as a result of such
Asset Disposition;
- the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition and retained by the
Company or any subsidiary of the Company after such Asset Disposition;
and
- any portion of the purchase price from an Asset Disposition placed in
escrow, whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or
otherwise in connection with such Asset Disposition, provided, however,
that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of capital stock
or Indebtedness, means the cash proceeds of the issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with the issuance or sale and net of taxes paid or
payable as a result of the issuance or sale.
"Permitted Holders" means the Equity Investors and their respective
Affiliates.
"Permitted Investment" means:
- any investment in a subsidiary of the Company or a person that will, upon
making the investment, become a subsidiary; provided, however, that the
primary business of the subsidiary is the pet food business and other
business activities that are incidental or related thereto;
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- any investment in another person if as a result of such investment such
other person is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, the Company or a
subsidiary of the Company; provided, however, that the person's primary
business is the pet food business and other business activities that are
incidental or related thereto;
- any investment in Temporary Cash Investments;
- receivables owing to the Company or any of its subsidiaries, if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
- payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
- loans or advances to employees made in the ordinary course of business of
the Company or such subsidiary;
- stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any of its
subsidiaries or in satisfaction of judgments or claims;
- investments the payment for which consists exclusively of equity
securities, exclusive of Disqualified Stock, of the Company;
- any investment that existed on November 12, 1998;
- loans or advances to employees and directors to purchase equity
securities of the Company or Doane Pet Care Enterprises, Inc.; provided
that the aggregate amount of such loans and advances shall not exceed
$2.0 million at any time outstanding;
- any investment in another person to the extent such investment is
received by the Company or any subsidiary as consideration for Asset
Disposition effected in compliance with the covenant under
"-- Limitations on Sales of Assets;"
- prepayment and other credits to suppliers made in the ordinary course of
business consistent with the past practices of the Company and its
subsidiaries;
- investments in connection with pledges, deposits, payments or performance
bonds made or given in the ordinary course of business in connection with
or to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations; and
- any investment in another person provided that the aggregate investments
made pursuant to this clause shall not exceed in the aggregate $4.0
million at any one time outstanding, measured as of the date made and
without giving effect to subsequent changes in value, provided further
that such amount shall be increased by an amount equal to any return of
capital received from any investment.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a subsidiary transfers that
property to a person and the Company or a subsidiary leases it from that person.
"Senior Subordinated Indebtedness" means the notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank equally with the notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company that is not Senior Indebtedness.
"Subordinated Obligation" means any Indebtedness of the Company, whether
outstanding on November 12, 1998 or thereafter incurred, that is subordinate or
junior in right of payment to the notes pursuant to a written agreement.
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"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $250.0 million,
or the foreign currency equivalent thereof, and whose long-term debt,
or whose parent holding company's long-term debt, is rated "A," or such
similar equivalent rating, or higher by at least one nationally
recognized statistical rating organization, as defined in Rule 436
under the Securities Act;
(3) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in clause
(2) above; or
(4) investments in commercial paper, maturing not more than 180 days after
the date of acquisition, issued by a corporation, other than an
Affiliate of the Company, organized and in existence under the laws of
the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Group.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality thereof, for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
OLD NOTES REGISTRATION RIGHTS
We agreed pursuant to a registration agreement for the benefit of the
holders of the old notes, at our cost, to use our reasonable best efforts to:
- file with the SEC a registration statement within 90 days after the date
of the original issuance of the old notes, which date was November 12,
1998, with respect to a registered offer to exchange the old notes for
the exchange notes, and
- cause the exchange offer registration statement to be declared effective
under the Securities Act within 150 days after the date of the original
issuance of the old notes.
We are offering the holders of old notes who are not prohibited by any law
or policy of the SEC from participating in this exchange offer the opportunity
to exchange their old notes for exchange notes registered under the Securities
Act that are substantially identical to the old notes, except that the exchange
notes will not contain terms with respect to transfer restrictions, registration
rights and additional interest. We have agreed to use our reasonable best
efforts to keep this exchange offer open for not less than 30 days, or longer if
required by applicable law, after the date notice of this exchange offer is
mailed to the holders of the old notes. For each old note surrendered to us in
this exchange offer, the holder of the old note will receive a registered
exchange note having a principal amount equal to that of the surrendered old
note. Interest on each exchange note will accrue from the last interest payment
date on which interest was paid on the old note surrendered in exchange thereof
or, if no interest has been paid on the old note, from the date of its original
issue. Under existing SEC interpretations, the exchange notes will be freely
transferable by holders, other than our affiliates, after this exchange offer
without further registration under the Securities Act if the holder of the old
notes represents that it is acquiring the exchange notes 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 notes and that
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it is not our affiliate, as those terms are interpreted by the SEC; provided
that broker-dealers receiving exchange notes in this exchange offer will have a
prospectus delivery requirement with respect to resales of the exchange notes.
The SEC has taken the position that participating broker-dealers may fulfill
their prospectus delivery requirements with respect to exchange notes with the
prospectus contained in the exchange offer registration statement. Under the
registration agreement, we are 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 the exchange notes.
A holder of old notes, other than certain specified holders, who wishes to
exchange those notes for exchange notes in this exchange offer will be required
to represent that any exchange notes 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 notes and that it is not our "affiliate," as defined in
Rule 405 of the Securities Act, or if it is our affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If applicable interpretations of the staff of the SEC do not permit us to
effect this exchange offer, for any other reason the exchange offer registration
statement is not declared effective within 150 days after the date of the
original issuance of the old notes or the registered exchange offer is not
consummated within 45 days after the effective date of the exchange offer
registration statement or any holder is not eligible to participate in this
exchange offer or such holder does not receive freely tradeable exchange notes
in the registered exchange offer other than by reason of that holder being our
affiliate, we will, at our cost, use our reasonable best efforts to:
- as promptly as practicable, file a shelf registration statement covering
resales of the old notes or the exchange notes, as the case may be;
- cause the shelf registration statement to be declared effective under the
Securities Act; and
- keep the shelf registration statement effective until two years after its
effective date.
We will, in the event a shelf registration statement is filed, provide to each
holder for whom the shelf registration statement was filed copies of the
prospectus that is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take
certain other actions that are required to permit unrestricted resales of the
old notes or the exchange notes, as the case may be. A holder selling old notes
or exchange notes pursuant to the shelf registration statement generally would
be required to be named as a selling security holder 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 agreement that are
applicable to the holder, including certain indemnification obligations.
If:
- the registered exchange offer has not been completed on or prior to the
45th day following the effective date of the exchange offer registration
statement;
- a shelf registration statement has not been filed on or prior to 30 days
after the obligation to do so arises; or
- after either the exchange offer registration statement or the shelf
registration statement is declared effective, that registration statement
thereafter ceases to be effective or usable in connection with resales of
old notes or exchange notes in accordance with and during the periods
specified in the registration agreement,
special interest will accrue on the old notes and the exchange notes, in
addition to the stated interest on the old notes and the exchange notes, from
and including the date on which any such registration default occurs to, but
excluding, the date on which all registration defaults have been cured. The
special interest will accrue at a
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rate of 0.5% per annum during the 90-day period immediately following the
occurrence of any registration default and shall increase by 0.25% per annum at
the end of each subsequent 90-day period, but in no event shall the rate exceed
1.5% per annum.
All accrued special interest will be paid to holders of the old notes in
the same manner in which payments of other interest are made pursuant to the
indenture governing the notes.
The summary herein of certain provisions of the registration 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 agreement, a copy of
which we filed with the SEC as an exhibit to the registration statement of which
this prospectus is a part.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion generally summarizes the principal U.S. federal
income tax consequences of the exchange of old notes for exchange notes. This
discussion is based upon the provisions of the Internal Revenue Code of 1986, as
amended, Treasury Regulations promulgated under the Internal Revenue Code and
judicial and administrative interpretations thereof, all as in effect and
available as of the date of this prospectus and all of which are subject to
change, possibly retroactively, or different interpretation. We cannot assure
you that the Internal Revenue Service will not challenge one or more of the tax
consequences described in this prospectus. We have not obtained, nor do we
intend to obtain, a ruling from the Internal Revenue Service with respect to the
U.S. federal income tax consequences of the exchange offer. This discussion does
not purport to address all aspects of U.S. federal income taxation that may be
relevant to you in light of your specific circumstances or to you if you are
subject to special treatment under the Internal Revenue Code. This discussion
does not address the effect of any applicable U.S. federal estate and gift tax
laws or state, local or foreign tax laws.
The exchange of old notes for exchange notes pursuant to the exchange offer
will not be a taxable event for U.S. federal income tax purposes. You will not
recognize gain or loss upon the receipt of exchange notes, and if you are
otherwise subject to U.S. federal income tax you will be subject to such tax on
the same amount and in the same manner and at the same times as you would have
been as a result of holding the old notes. If you are a cash-basis exchanging
holder, you will not recognize in income any accrued and unpaid interest on the
old notes by reason of the exchange. The basis and holding period of an exchange
note will be the same as the basis and holding period of the corresponding old
note.
THIS DESCRIPTION IS INCLUDED IN THIS PROSPECTUS FOR GENERAL INFORMATION
ONLY. ACCORDINGLY, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR CONCERNING THE
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER WITH RESPECT TO YOUR
PARTICULAR SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
TRANSFER RESTRICTIONS ON OLD NOTES
OFFERS AND SALES OF THE OLD NOTES
The old notes were not registered under the Securities Act and may not be
offered or sold, except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the old notes were offered and
sold only (1) in the United States to qualified institutional buyers pursuant to
Rule 144A under the Securities Act and (2) to institutional "accredited
investors," as defined under Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
INVESTOR REPRESENTATIONS AND RESTRICTIONS ON RESALE
Each purchaser of old notes represented and agreed to each of the
following:
- it acquired the old notes for its own account or for an account with
respect to which it exercises sole investment discretion, and that it or
that account is a qualified institutional buyer or an institutional
accredited investor;
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- it acknowledged that the old notes have not been registered under the
Securities Act, and may not be sold, pledged or otherwise transferred
except as permitted below;
- it agreed that the old notes were offered only in a transaction not
involving any public offering within the meaning of the Securities Act;
- it agreed that:
(1) if within two years after the date of original issuance of the old
notes or if within three months after it ceases to be an affiliate,
within the meaning of Rule 144 under the Securities Act, of the
issuer, it decides to resell, pledge or otherwise transfer the old
notes on which the legend set forth below appears, the old notes may
be resold, pledged or transferred only:
(a) to the issuer,
(b) so long as the security is eligible for resale pursuant to Rule
144A, to a person whom the seller reasonably believes is a
qualified institutional buyer that purchases for its own account or
for the account of a qualified institutional buyer to whom notice
is given that the resale, pledge or transfer is being made in
reliance on Rule 144A,
(c) to an institutional accredited investor who has certified to the
issuer and the trustee for the old notes that it is an
institutional accredited investor and is acquiring the old notes
for investment purposes and not for distribution in violation of
the Securities Act or any other applicable securities laws,
(d) pursuant to an exemption from the registration requirements of the
Securities Act provided by Rule 144, if applicable, under the
Securities Act or
(e) 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,
(2) the purchaser will, and each subsequent holder is required to, notify
any purchaser of old notes from it of the resale restrictions referred
to in (1) above, if then applicable, and
(3) with respect to any transfer of old notes by an institutional
accredited investor, the holder will deliver to the issuer and the
trustee certificates and other information as they may reasonably
require to confirm that the transfer by it complies with the foregoing
restrictions;
- it understands that the notification requirement referred to above will
be satisfied, in the case only of transfer by physical delivery of
certificated old notes other than a global security, by virtue of the
fact that the following legend will be placed on the old notes unless
otherwise agreed by the issuer:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER OF THIS
SECURITY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF
(OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN
AFFILIATE OF THE ISSUER AT ANY TIME DURING THE THREE MONTHS PRECEDING
THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE ISSUER,
(2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER 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 THIS SECURITY), (3) TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR ANY OTHER
APPLICABLE SECURITIES LAWS, AND A CERTIFICATE IN THE FORM ATTACHED TO
THIS SECURITY IS DELIVERED BY THE TRANSFEREE TO THE ISSUER AND THE
TRUSTEE, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
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SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT, OR (5) 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. AN INSTITUTIONAL
ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE
ISSUER AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY
MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS
SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE
ISSUER THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND
THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION;"
- it:
(1) is able to fend for itself in the transactions contemplated by this
prospectus;
(2) has 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 notes; and
(3) has the ability to bear the economic risks of its prospective
investment and can afford the complete loss of its investment;
- it received a copy of the confidential memorandum relating to the old
notes and acknowledged that it had access to financial and other
information, and was afforded the opportunity to ask questions of the
issuer and receive answers thereto, as it deemed necessary in connection
with its decision to purchase the old notes;
- it understood that the issuer and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and agreements
and agreed that if any of the acknowledgments, representations and
agreements deemed to have been made by its purchase of the old notes are
no longer accurate, it would promptly notify the issuer; and if it
acquired the old notes as a fiduciary or agent for one or more investor
accounts, it represented that it had sole investment discretion with
respect to each such account and it had full power to make the foregoing
acknowledgments, representations and agreements on behalf of that
account; and
- it did not acquire the old notes with a view to any distribution thereof
in a transaction that would violate the Securities Act or the securities
laws of any state of the United States or any other applicable
jurisdiction; provided that the disposition of its property and the
property of any accounts for which it is acting as fiduciary shall remain
at all times within its control.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no action
letters issued to third parties, we believe that you may transfer exchange notes
issued under the exchange offer in exchange for old notes unless you are:
- an "affiliate" of our company within the meaning of Rule 405 under the
Securities Act;
- a broker-dealer that acquired old notes directly from us; or
- a broker-dealer that acquired old notes as a result of market-making or
other trading activities without compliance with the registration and
prospectus delivery provisions of the Securities Act;
provided that you acquire the exchange notes in the ordinary course of your
business and you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of the exchange notes. Broker-dealers receiving exchange notes in the exchange
offer will be subject to a prospectus delivery requirement with respect to
resales of the exchange notes.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange offer,
other than a resale of an unsold allotment from the original sale of the old
notes, with the prospectus contained in the exchange offer registration
statement. Pursuant to the registration agreement, we have agreed to permit
participating broker-dealers to use this prospectus in connection with the
resale of exchange notes. We have agreed that, for a period of up to 180 days
after the expiration of the exchange offer, we will make this prospectus, and
any amendment or supplement to this prospectus, available to any broker-dealer
that requests such documents in the letter of transmittal.
If you wish to exchange your old notes for exchange notes in the exchange
offer, you will be required to make certain representations to us as set forth
in "The Exchange Offer -- Exchange Terms" and "-- Procedures for Tendering Old
Notes -- Other Matters" of this prospectus and in the letter of transmittal. In
addition, if you are a broker-dealer who receives exchange notes for your own
account in exchange for old notes that were acquired by you as a result of
market-making activities or other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any resale by
you of those exchange notes.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Broker-dealers who receive exchange notes for their own account
in the exchange offer may sell them from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the exchange notes or a combination of
such methods of resale;
- at market prices prevailing at the time of resale; or
- at prices related to the prevailing market prices or negotiated prices.
Any 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 broker-dealer or the purchasers of any exchange notes. Any
broker-dealer that resells exchange notes it received for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of exchange notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of exchange notes
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.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the old notes, including any broker-dealers,
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against certain liabilities, including liabilities under the Securities Act, as
set forth in the registration agreement.
LEGAL MATTERS
Certain legal matters in connection with the offering of the exchange notes
will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of Doane Pet Care Company as of
December 31, 1997 and 1998 and for each of the years in the three-year period
ended December 31, 1998 have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Windy Hill Pet Food Holdings, Inc.
as of December 27, 1997 and December 28, 1996 and for the period from inception
(March 1, 1995) through December 30, 1995 and for the years ended December 28,
1996 and December 27, 1997 have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, special reports, proxy
statements and other information with the Securities and Exchange Commission.
You can read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
SEC's regional offices located at Seven World Trade Center, New York, New York
10048, and at 500 West Madison Street, Chicago, Illinois 60661. You can obtain
information about the operation of the SEC's Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains
information we file electronically with the SEC, which you can access over the
Internet at http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DOANE PET CARE COMPANY AND SUBSIDIARIES
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1997 and 1998....................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998....................... F-5
Consolidated Statements of Stockholder's Equity and
Comprehensive Income for the years ended December 31,
1996, 1997 and 1998.................................... F-6
Notes to Consolidated Financial Statements................ F-7
WINDY HILL PET FOOD HOLDINGS, INC.
Independent Auditors' Report.............................. F-26
Consolidated Balance Sheets as of December 28, 1996,
December 27, 1997 and June 27, 1998 (unaudited)........ F-27
Consolidated Statements of Operations for the ten months
ended December 30, 1995, for the years ended December
28, 1996 and December 27, 1997, and for the six months
ended June 28, 1997 and June 27, 1998 (unaudited)...... F-28
Consolidated Statements of Changes in Stockholders' Equity
for the ten months ended December 30, 1995, for the
years ended December 28, 1996 and December 27, 1997,
and for the six months ended June 28, 1997 and June 27,
1998 (unaudited)....................................... F-29
Consolidated Statements of Cash Flows for the ten months
ended December 30, 1995, for the years ended December
28, 1996 and December 27, 1997, and for the six months
ended June 28, 1997 and June 27, 1998 (unaudited)...... F-30
Notes to Consolidated Financial Statements................ F-31
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Doane Pet Care Company:
We have audited the accompanying consolidated balance sheets of Doane Pet
Care Company and subsidiaries as of December 31, 1997 and 1998 and the related
consolidated statements of income, stockholder's equity and comprehensive income
and cash flows for each of the years in the three-year period ended December 31,
1998. 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 Pet Care Company and
subsidiaries at December 31, 1997 and 1998, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1998 in conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 25, 1999
F-2
<PAGE> 92
DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 3,349
Trade accounts receivable, net of allowances.............. 66,369 95,775
Inventories, net.......................................... 32,426 51,499
Deferred tax asset........................................ 1,252 3,749
Prepaid expenses and other current assets................. 2,298 17,131
-------- --------
Total current assets.............................. 102,345 171,503
Property, plant, and equipment, net......................... 99,994 206,353
Goodwill and other intangible assets, net................... 122,882 299,631
Due from parent............................................. -- 80
Other assets................................................ 12,963 31,501
-------- --------
Total assets...................................... $338,184 $709,068
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 11,667 $ 12,889
Accounts payable.......................................... 42,422 79,013
Accrued liabilities....................................... 22,611 49,878
-------- --------
Total current liabilities......................... 76,700 141,780
Long-term debt, excluding current installments.............. 188,743 446,281
Other long-term liabilities................................. 4,081 9,160
Deferred tax liability...................................... 4,169 4,761
-------- --------
Total liabilities................................. 273,693 601,982
Senior Preferred Stock, 3,000 shares authorized, 1,200
shares issued............................................. 30,545 37,792
Stockholder's equity:
Common Stock, par value $.0001, 1,000 shares authorized
and issued............................................. 1 1
Additional paid-in capital................................ 41,674 105,669
Accumulated other comprehensive income.................... -- 489
Accumulated deficit....................................... (7,729) (36,865)
-------- --------
Total stockholder's equity........................ 33,946 69,294
-------- --------
Total liabilities and stockholder's equity........ $338,184 $709,068
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 93
DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $513,217 $564,741 $686,663
Cost of goods sold......................................... 446,776 482,896 554,447
-------- -------- --------
Gross profit............................................... 66,441 81,845 132,216
Operating expenses:
Promotion and distribution............................... 26,480 31,876 45,039
Selling, general and administrative...................... 11,512 14,384 26,266
Amortization of intangibles.............................. 3,538 3,601 6,468
Transition expenses...................................... -- -- 7,043
Product recall........................................... -- -- 3,000
-------- -------- --------
Income from operations........................... 24,911 31,984 44,400
Interest expense, net...................................... 22,471 22,463 31,136
Non-recurring finance charge............................... 4,815 -- 4,599
Other (income) expense, net................................ (2) (102) 164
-------- -------- --------
Income (loss) before income taxes and
extraordinary loss............................. (2,373) 9,623 8,501
Income tax expense (benefit)............................... (855) 3,389 3,602
-------- -------- --------
Income (loss) before extraordinary loss.......... (1,518) 6,234 4,899
Extraordinary loss, net of income tax benefit.............. -- -- 26,788
-------- -------- --------
Net income (loss)................................ $ (1,518) $ 6,234 $(21,889)
======== ======== ========
</TABLE>
F-4
<PAGE> 94
DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDING DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (1,518) $ 6,234 $ (21,889)
Items not requiring (providing) cash:
Depreciation and amortization of intangibles............ 10,135 10,971 17,877
Extraordinary items..................................... -- -- 26,788
Non-recurring finance fees.............................. 4,815 -- --
Noncash interest expense................................ 1,022 1,170 1,564
Stock compensation expense.............................. -- -- 765
Loss on sale of property and equipment.................. 26 115 --
Deferred income tax expense (benefit)................... (855) 3,389 3,352
Equity in foreign joint venture......................... -- (186) (273)
Other................................................... 282 51 931
Changes in current assets and liabilities (excluding
amounts acquired):
Accounts receivable................................... (21,176) 1,910 (5,287)
Inventories........................................... (3,141) (1,689) 72
Prepaid expenses and other............................ (5,479) 3,818 (2,665)
Accounts payable...................................... 32,155 (8,881) 10,457
Accrued expenses...................................... 2,317 4,070 2,300
--------- -------- ---------
Net cash provided by operating activities.......... 18,583 20,972 33,992
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment.............. 26 39 72
Capital expenditures, including interest
capitalized............................................. (7,901) (14,437) (23,327)
Acquisition related payments.............................. (1,087) -- (31,907)
Investment in joint venture............................... (1,979) -- 371
Purchase of Industrial Development Bonds.................. -- -- (9,000)
Other..................................................... (548) (763) (1,509)
--------- -------- ---------
Net cash used in investing activities.............. (11,489) (15,161) (65,300)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 163,136 5,698 454,764
Payment for debt issuance costs........................... (5,909) (468) (11,356)
Payment for Refinancing Transactions...................... -- -- (28,353)
Net borrowings (repayments) under revolving credit
agreement............................................... 1,475 (1,475) 32,000
Principal payments on long-term debt...................... (167,746) (10,416) (400,533)
Dividend to Parent........................................ -- -- (13,449)
Capital contribution...................................... 400 850 1,359
--------- -------- ---------
Net cash provided by (used in) financing
activities....................................... (8,644) (5,811) 34,432
--------- -------- ---------
Effect of exchange rates on cash................... -- -- 225
--------- -------- ---------
Increase (decrease) in cash and cash equivalents... (1,550) -- 3,349
Cash and cash equivalents, beginning of period.............. 1,550 -- --
--------- -------- ---------
Cash and cash equivalents, end of period.................... $ -- $ -- $ 3,349
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 95
DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
--------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
------ ------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995.............................. 1,000 $ 1 $ 40,424 $ (314) $ -- $ 40,111
Net loss............................................... -- -- -- (1,518) -- (1,518)
Preferred stock dividends.............................. -- -- -- (4,670) -- (4,670)
Accretion of preferred stock........................... -- -- -- (1,076) -- (1,076)
Stock rights exercised................................. -- -- 400 -- -- 400
------ --- -------- -------- ---- --------
Balances, December 31, 1996.............................. 1,000 1 40,824 (7,578) -- 33,247
Net income............................................. -- -- -- 6,234 -- 6,234
Preferred stock dividends.............................. -- -- -- (5,308) -- (5,308)
Accretion of preferred stock........................... -- -- -- (1,077) -- (1,077)
Stock rights exercised................................. -- -- 850 -- -- 850
------ --- -------- -------- ---- --------
Balances, December 31, 1997.............................. 1,000 1 41,674 (7,729) -- 33,946
Comprehensive income (loss):
Net loss............................................. -- -- -- (21,889) -- (21,889)
Comprehensive income, unrealized gain on foreign
currency translation............................... -- -- -- -- 489 489
--------
Total comprehensive loss........................ (21,400)
Preferred stock dividends.............................. -- -- -- (6,170) -- (6,170)
Accretion of preferred stock........................... -- -- -- (1,077) -- (1,077)
Stock compensation expense............................. -- -- 765 -- -- 765
Dividend to Parent..................................... -- -- (13,449) -- -- (13,449)
Capital contribution................................... -- -- 1,359 -- -- 1,359
Capital contribution related to Windy Hill merger...... -- -- 75,320 -- -- 75,320
------ --- -------- -------- ---- --------
Balances, December 31, 1998.............................. 1,000 $ 1 $105,669 $(36,865) $489 $ 69,294
====== === ======== ======== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 96
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Doane Pet Care Company ("Company"), formerly Doane Products Company,
manufactures dry and canned pet foods and operates a machine shop and a
structural steel fabrication plant. The Company extends unsecured credit in the
form of current accounts receivable, principally to large distributors and
retailers throughout the United States, with credit extended to one customer
approximating 70%, 65% and 50% of accounts receivable at December 31, 1996,
1997, and 1998, respectively.
Principles of Consolidation
On October 5, 1995, Doane Pet Care Enterprises, Inc. ("Parent") acquired
the Company. The accompanying consolidated financial statements for December 31,
1996, 1997, and 1998, include the accounts of the Company and its wholly-owned
subsidiaries. All inter-company transactions and balances have been eliminated.
The Company is accounting for its 50% investment in a foreign joint venture
under the equity method of accounting.
Basis of Presentation
Certain reclassifications have been made to previously reported
consolidated financial statements to conform with the fiscal 1998 presentation.
52-Week Fiscal Year
For the years ended December 31, 1996, 1997 and 1998, the Company's fiscal
year end was a calendar year end. Effective January 1, 1999, the Company has
implemented a fiscal year that ends on the Saturday nearest to the end of
December.
Cash and 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
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first out cost 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.
In fiscal 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long Lived Assets to be Disposed Of (SFAS 121).
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. When such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. The adoption of SFAS 121 did not have a material impact on the Company's
consolidated financial statements.
F-7
<PAGE> 97
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets include goodwill, trademarks and
certain identifiable intangible assets. Goodwill represents the excess of the
purchase price over the fair value of the net assets acquired. Trademarks and
goodwill are being amortized over thirty and forty years using the straight-line
method, respectively. Other intangible assets, primarily software, are being
amortized using the straight-line method over periods ranging from four to five
years. The Company's policy is to periodically evaluate such costs to determine
whether there has been any impairment in value. The measurement of possible
impairment is based primarily on the ability to recover the balance of the
goodwill from expected future operating cash flows on an undiscounted basis.
Accumulated amortization of goodwill and other intangible assets was $7,300 and
$13,039 at December 31, 1997 and 1998, respectively.
Financial Instruments
Fair value of cash, accounts receivable, accounts payable and accrued
liabilities approximate book value at December 31, 1997 and 1998. Fair value of
debt is based upon market value, if traded, or discounted at the estimated rate
the Company would incur currently on similar debt.
Recognition of Revenue
Revenue is recognized at the time the product is shipped.
Commodity Hedges
The Company manages price risk created by market fluctuations by hedging
portions of its primary commodity products purchases, principally through
exchange traded futures and options contracts which are designated as hedges.
The terms of such contracts are generally less than one year. Settlement of
positions are either through 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.
Deferred losses on these outstanding contracts were $917 and $3,022 at
December 31, 1997 and 1998, respectively.
F-8
<PAGE> 98
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Hedges
The Company periodically uses interest rate hedges (swaps) to limit its
exposure to the interest rate risk associated with its floating rate long term
foreign debt. Amounts received under swap agreements are recorded as a reduction
(addition) to interest expense.
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.
Net Income (Loss) Per Common Share
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which simplifies the
computation of earnings per share ("EPS"). All prior period earnings per share
amounts have been restated to conform to SFAS 128 requirements. Basic EPS is
calculated based upon the weighted average number of common shares of common
stock outstanding during the period after decreasing (increasing) net income
(loss) by unpaid cumulative preferred stock dividends and the accretion of the
preferred stock. SFAS 128 also requires a diluted EPS computation if a company's
capital structure includes common stock equivalents. The Company is not required
to compute diluted EPS as there are no common stock equivalents. The following
table summarizes the calculation of net income (loss) and, basic and dilutive
weighted average number of shares outstanding for purposes of computing net
income (loss) per common share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary loss..................... $(1,518) $ 6,234 $ 4,899
Less:
Extraordinary loss........................................ -- -- (26,788)
Preferred stock dividends and accretion of preferred
stock.................................................. (5,746) (6,385) (7,247)
------- ------- --------
Net loss applicable to common stock......................... $(7,264) $ (151) $(29,136)
======= ======= ========
Denominator:
Basic and diluted weighted average number of shares
outstanding............................................... 1,000 1,000 1,000
======= ======= ========
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary loss................... $(1,518) $ 6,234 $ 4,899
Extraordinary loss........................................ -- -- (26,788)
Preferred stock dividends and accretion of preferred
stock.................................................. (5,746) (6,385) (7,247)
------- ------- --------
Net loss applicable to common stock....................... $(7,264) $ (151) $(29,136)
======= ======= ========
</TABLE>
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging
F-9
<PAGE> 99
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
relationship and, if so, on the reason for holding it. If certain conditions are
met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness, as well as the
ineffective portion of the gain or loss, is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value an cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.
The Company will adopt SFAS 133 beginning in fiscal 2000. The Company has
not determined the impact that SFAS 133 will have on its financial statements
and believes that such determination will not be meaningful until closer to the
date of initial adoption.
(2) ACQUISITIONS
Ipes Iberica, S.A. Acquisition
On April 17, 1998 Doane purchased 100% of the outstanding stock of Ipes
Iberica, S.A. ("Ipes") for $26.2 million, net of cash acquired. IPES is a
private label pet food manufacturer located in Spain with 1997 net sales of
$21.1 million. The transaction was financed through a $20.9 million non recourse
facility provided by the HSBC Investment Bank, Plc. in Spain, and $7.4 million
from the Company's Senior Credit Facility. This transaction has been accounted
for as a purchase with the purchase price and direct acquisition costs allocated
based on the fair value of assets acquired and liabilities assumed. Goodwill of
approximately $15.1 million was recorded in connection with this transaction.
The goodwill is being amortized over 40 years on a straight line basis.
Windy Hill Pet Food Holdings Inc. ("Holdings") Acquisition
On August 3, 1998, the Parent acquired Holdings for approximately 1.6
million shares of its common stock valued at $63,574 and the assumption of
$183.5 million of indebtedness. Holdings was liquidated into the Parent at the
date of acquisition. Windy Hill Pet Food Company, Inc. ("Windy Hill"), a
wholly-owned subsidiary of Holdings, was merged into the Company in November
1998 in connection with the Refinancing Transactions as discussed in Note 4.
Windy Hill is a leading manufacturer of pet food products. Windy Hill
manufactures products for both dogs and cats, including dry, canned, semi-moist,
soft dry and soft treats and dog biscuits. With Windy Hill, the Company is the
largest manufacturer of dog biscuits in the United States. This acquisition has
been accounted for as a purchase with the purchase price and direct acquisition
costs allocated based on the fair value of assets acquired and liabilities
assumed. The allocation of the purchase price is preliminary because estimates
were made regarding the fair value of certain assets and liabilities for which
the Company is obtaining valuation information either from sale transactions, or
internal studies. The Company has recorded an estimated accrual associated with
such valuations at December 31, 1998. The final determination of the fair values
is expected to be completed no later than the second quarter of 1999, and any
resulting changes to the estimate, which are not expected to be material, will
be recorded as an adjustment to Goodwill. Goodwill of approximately $59.4
million was recorded in connection with this transaction. The goodwill is being
amortized over 40 years on a straight-line basis.
F-10
<PAGE> 100
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma information below has been prepared assuming Windy
Hill and Ipes were acquired January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales................................................... $885,681 $865,346
Income before income taxes
and extraordinary loss.................................... 10,841 3,120
Income before extraordinary loss............................ $ 5,963 $ (892)
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisition occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead, and general and administrative expenses.
(3) EXCHANGE OFFER AND REFINANCING TRANSACTIONS
In November 1998, the Company refinanced its capital structure pursuant to
the following series of transactions collectively referred to herein as the
"Refinancing Transactions."
-- Windy Hill was merged into Doane, the Company's principal operating
subsidiary;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its 10 5/8% Senior Notes due 2006;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of its 9 3/4% Senior Subordinated Notes due 2007, which tender
offer was required by a change of control provision in the indenture
governing such notes;
-- Doane completed an exchange offer (the "Exchange Offer") of $150 million
principal amount of its 9 3/4% Senior Subordinated Notes due 2007 for
the remaining approximately $63 million principal amount of Senior Notes
and the remaining approximately $74 million principal amount of Windy
Hill Notes; and
-- Doane entered into a new senior credit facility with a syndicate of
financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the Senior Credit Facility to fund the
cash requirements of the Refinancing Transactions, repay borrowings
under and retire its previous credit facilities, repay other debt and
repay a bridge financing incurred in connection with the tender offer
for the Windy Hill Notes.
As a result of the Exchange Offer and Refinancing Transactions, an
extraordinary loss of $26,788, net of tax, was recorded due to the early
extinguishment of debt. The extraordinary loss consists of the write-off of
deferred financing costs associated with the extinguished debt and associated
fees and expenses.
F-11
<PAGE> 101
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Raw materials............................................... $ 8,449 $13,349
Packaging materials......................................... 10,735 22,003
Finished goods.............................................. 13,242 16,147
------- -------
$32,426 $51,499
======= =======
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- --------
<S> <C> <C>
Land........................................................ $ 4,037 $ 7,627
Buildings and improvements.................................. 29,439 56,394
Machinery and equipment..................................... 76,442 149,131
Furniture and fixtures...................................... 2,536 4,421
Automotive equipment........................................ 1,016 1,257
Construction in progress.................................... 1,972 18,320
------- --------
115,442 237,150
Less accumulated depreciation............................... 15,448 30,797
------- --------
$99,994 $206,353
======= ========
</TABLE>
(6) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Goodwill.................................................... $130,182 $249,931
Trademarks.................................................. -- 61,990
Other intangibles........................................... -- 749
-------- --------
130,182 312,670
Less accumulated amortization.......................... 7,300 13,039
-------- --------
$122,882 $299,631
======== ========
</TABLE>
F-12
<PAGE> 102
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Salaries and commissions.................................... $ 4,714 $ 9,883
Accrued interest............................................ 6,223 5,541
Rebates and other promotions................................ 9,064 17,747
Acquisition related accruals................................ -- 5,734
Worker's comp............................................... 1,296 1,840
Health insurance............................................ 410 1,454
Real estate/franchise taxes................................. 792 944
Other....................................................... 112 6,735
------- -------
$22,611 $49,878
======= =======
</TABLE>
(8) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Bank revolving credit facility.............................. $ 775 $ 32,000
Bank term loans............................................. 33,937 245,000
Senior subordinated notes................................... 160,000 146,996
Industrial development revenue bonds........................ 5,698 9,783
Foreign subsidiaries........................................ -- 25,391
-------- --------
200,410 459,170
Less current maturities..................................... (11,667) (12,889)
-------- --------
$188,743 $446,281
======== ========
</TABLE>
Bank loans
In November 1998, the Company entered into the Senior Credit Facility with
a syndicate of banks and other institutional investors, as lenders, and Chase,
as administrative agent, DLJ Capital Funding, Inc. ("DLJ Capital"), as
syndication agent, and Mercantile Bank National Association, as documentation
agent. DLJ Capital and CSI served as the co-arrangers of the Senior Credit
Facility. The Senior Credit Facility consists of a $245.0 million term loan
facility (the "Term Loan Facility") and a $100.0 million revolving
credit/swingline facility (the "Revolving Credit Facility") with a $10 million
sub limit for issuance of letters of Credit ($2.4 million outstanding at
December 31, 1998). Loans under the Senior Credit Facility will bear interest
at: (i) the prime rate of the administrative agent (or, if higher, the secondary
market rate for certificates of deposit plus 1% or the federal funds rate plus
0.5%) plus a specified margin based on the type of loan and the then current
ratio of senior debt to EBITDA (the "Applicable Margin") or (ii) the Eurodollar
rate plus the Applicable Margin. The Company will also pay certain fees with
respect to the Senior Credit Facility. The Term Loan Facility bore interest at
9.14% and the Revolving Credit Facility bore interest at 8.39% during the period
in 1998 when the borrowings were outstanding. The Term Loan Facility consists of
three traunches with terms between six and one-half years and eight years,
unless terminated sooner upon an event of default. The principal amount under
the Term Loan Facility shall be repaid in quarterly installments starting March
31, 1999, as follows: (i) approximately $11.7 million in each of the calendar
years 1999 and 2000, (ii) approximately $14.2 million in each of the calendar
years 2001, 2002, 2003 and 2004, (iii) $85.8 million in the calendar year 2005
and (iv) $79.0 million in 2006. The Revolving Credit Facility has a term of six
and one-half years. At December 31, 1998, the Company had approximately $65,600
available under the Revolving Credit Facility.
F-13
<PAGE> 103
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and certain restricted subsidiaries are required to guarantee
amounts outstanding under the Senior Credit Facility. The indebtedness incurred
pursuant to the Senior Credit Facility is secured by a first priority lien on
substantially all of the material assets of the Company and its restricted
domestic subsidiaries. The Senior Credit Facility contains certain financial and
other covenants usual and customary for a secured credit agreement. The Company
was in compliance with these covenants at December 31, 1998.
In connection with the Refinancing Transactions (see Note 3), the Company
repaid borrowings under and retired its previous bank credit facility ("Prior
Bank Facility"). The Prior Bank Facility, as amended, provided for an aggregate
principal amount of loans of up to $85,000 consisting of $60,000 in aggregate
principal amount of term loans and a $25,000 revolving credit facility.
The Prior Bank Facility was to mature on September 30, 2001 and was due in
quarterly installments in increasing amounts, ranging from $2,100 to $3,700.
Indebtedness under the Prior Bank Facility bore 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. The revolving credit facility bore interest at
9.5%, 9.3% and 9.26% for the years ended December 31, 1996, 1997 and 1998,
respectively. The term loans bore interest at a weighted average rate of 7.95%,
8.44% and 8.11% for the years ended December 31, 1996, 1997 and 1998,
respectively.
The Prior Bank Facility was secured by substantially all of the assets of
the Company and a pledge of all of the Company's common stock.
Senior Subordinated Notes, Net of Discount
On November 12, 1998, the Company issued $150 million in aggregate
principal amount of its 9 3/4% Senior Subordinated Notes due May 15, 2007 with
interest payable semiannually. The Senior Subordinated Notes are general
unsecured obligations and are subordinated in right of payment to all senior
indebtedness and senior in right of payment to any current or future
indebtedness of the Company that, by its terms, is subordinated to the Senior
Subordinated Notes. The payment of obligations of each subsidiary guarantor are
subordinated to the payment of senior indebtedness of such subsidiary guarantor.
The Company may redeem the Senior Subordinated Notes at any time on or
after May 15, 2002, in whole or in part, at the option of the Company, at the
redemption prices set forth below, plus accrued and unpaid interest, if any, to
the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C> <C>
2002...................................................... 104.875%
2003...................................................... 103.250%
2004...................................................... 101.625%
2005 and thereafter....................................... 100.000%
</TABLE>
In addition, prior to May 15, 2000 the Company may redeem up to 35% of the
aggregate principal amount of the Senior Subordinated Notes with the proceeds of
one more Equity Offerings (as defined in the Note Indenture), at a redemption
price equal to 109.75% of the principal amount thereof, plus accrued and unpaid
interest, if any, provided, however, that at least 65% in aggregate principal
amount of the Senior Subordinated Notes remain outstanding immediately after
each such redemption. At any time prior to May 15, 2002, the Senior Subordinated
Notes may also be redeemed in whole, but not in part, at the option of the
Company upon the occurrence of a Change in Control (as defined in the Note
Indenture) at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium (as defined in the Note Indenture) and the unpaid
accrued interest, if any, to the date of redemption. Upon a Change in Control,
holders of the Senior Subordinated Notes may require the Company to purchase all
or a portion of the Senior
F-14
<PAGE> 104
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subordinated Notes at a purchase price equal to 101% of their principal amount
plus accrued interest, if any. The Senior Subordinated Notes have certain
covenants that have restrictions on dividends, distributions, indebtedness,
affiliate transactions and lines of business. In connection with the Refinancing
Transactions, the Company retired its Senior Notes that were originally due on
March 1, 2006 and bore interest at 10.625% per annum, payable semiannually. The
Senior Notes were issued in 1996 in connection with a debt refinancing, which
resulted in a $4,815 nonrecurring finance charge to write off interim debt
issuance costs.
Industrial Development Revenue Bonds
On March 12, 1997 the Company issued the 7.25% $6,000 Ottawa County Finance
Authority Industrial Development Revenue Bonds (the "Miami Bonds"). The Miami
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 Miami Bonds are general secured obligations of the
Company and ranking on a parity in right of payment with all other senior
indebtedness of the Company.
On July 24, 1998, the Company issued the 6.25% $9,000 Oklahoma Development
Finance Authority, Industrial Development Revenue Bonds, Series 1998 (Doane
Products Company Clinton, Oklahoma Project) (the "Clinton Bonds") through the
Oklahoma Development Finance Authority. At December 31, 1998 $4,087 had been
drawn down by the Company. The Clinton 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 July 15 of each year from 2018 through 2023. The Clinton
Bonds are general obligations of the Company and rank on parity in right of
payment with all other senior indebtedness of the Company. On July 24, 1998, the
Clinton Bonds were purchased by the Company's wholly owned subsidiary,
Doane/Windy Hill Joint Venture Corp., formerly DPC Funding Corp. It is
anticipated that such entity will attempt to sell the Clinton Bonds.
Foreign Subsidiaries Debt
Debt of foreign subsidiaries consists of peseta denominated borrowings from
HSBC Investment Bank Plc, for which the Midland Bank Plc, Branch in Spain is the
Facility agent. The borrowings are comprised of Tranche A, $17.6 million
(2,500,000,000 pesetas) amortizing over seven years, and Tranche B, $1.0 million
(142,000,000 pesetas) payable in full at the end of its eight year term. The
interest rates were 5.5625% and 6.5625% on Tranche A and B respectively and will
adjust with changes in MIBOR (Madrid Inter-Bank Offer Rate). The borrowings
under the Tranche B loan may be increased up to $4.2 million (600,000,000
pesatas) under certain circumstances.
Doane Pet Care Spain also entered into an interest rate swap starting
October 1998 for the notional amount of approximately $18,600, decreasing over
the three-year term of the hedge. The resulting fixed rate MIBOR is 4.495%.
Annual Maturities of Long-Term Debt
Aggregate annual maturities of long-term debt at December 31, 1998 were:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999........................................................ $ 12,889
2000........................................................ 14,186
2001........................................................ 17,054
2002........................................................ 17,072
Thereafter.................................................. 397,969
</TABLE>
F-15
<PAGE> 105
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value at December 31 of financial instruments, other
than current assets and liabilities, follows:
<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Revolving credit facility.............. $775 $775 $32,000 $32,000
Bank term loan......................... 33,937 33,937 245,000 245,000
Senior subordinated notes.............. 160,000 160,000 146,996 152,800
Other.................................. 5,698 5,698 35,174 35,174
--------- --------- --------- ---------
$200,410 $200,410 $459,170 $464,974
========= ========= ========= =========
Hedges:
Interest rate (asset).................. $-- $-- $-- $400
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(10) SENIOR PREFERRED STOCK
The Senior Preferred Stock has an initial liquidation preference of $25.00
per share (aggregate initial liquidation preference is $30,000). The Senior
Preferred Stock was recorded at the net proceeds of $17,075 after deducting
$12,925 paid to the Company for 1,354,478 warrants that were issued in
conjunction with the Senior 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 Preferred Stock are payable quarterly at the rate
of 14.25% per annum per share. Dividends on the Senior Preferred Stock accrete
to the liquidation value of the Senior Preferred Stock and, at the option of the
holders of a majority of the shares of Senior Preferred Stock, may be paid
through the issuance of additional shares of Senior Preferred Stock on each
dividend payment date through September 30, 2000. The Company does not expect to
pay dividends on the Senior Preferred Stock in cash for any period prior to
September 30, 2000. Cumulative dividends on Senior Preferred Stock that have not
been paid at December 31, 1997 and 1998, are $11,047 and $17,217, respectively,
and are included in the carrying amount of the Senior Preferred Stock. As of
December 31, 1997, and 1998, the cumulative accretion to redemption value and
cumulative dividends on the Senior Preferred Stock are $2,422 and $3,499,
respectively and $11,047 and $17,217, respectively.
Subsequent to September 30, 1998, and prior to September 30, 2000, the
Company is not precluded from purchasing in whole or in part the Senior
Preferred Stock on the open market at prevailing market prices. On and after
September 30, 2000, the Company may, at its option, redeem the Senior 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>
F-16
<PAGE> 106
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company will be required to redeem all outstanding shares of Senior
Preferred Stock on September 30, 2007 at 100% of the then liquidation value,
together with accrued and unpaid dividends.
In the event of a change of control, as defined, the holders of Senior
Preferred Stock have the right to require the Company to redeem such Senior
Preferred Stock, in whole or in part, at a price equal to 101% of the then
liquidation value together with any unpaid dividends.
The terms of the Senior Preferred Stock prohibit (i) the payment of
dividends on securities ranking on a parity with or junior to the Senior
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 Preferred Stock.
Holders of the Senior 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.
(11) COMMON STOCK
The Company's Common Stock consists of two classes, Class A and Class B.
The Class A and Class B Common Stock are identical in all respects except that
the Class B Common Stock has no voting rights. The Class B Common Stock is
convertible into shares of Class A Common Stock at any time at the option of the
holder thereof. Each holder of Class A Common Stock is entitled to one vote for
each share of Class A Common Stock held of record on all matters submitted to a
vote of stockholders. The holders of Class A Common Stock do not have cumulative
voting rights in the election of directors. The holders of Common Stock have no
preemptive, subscription, redemptive or conversion rights, except that holders
of Class B Common Stock may, at their option, convert their shares into Class A
Common Stock.
(12) STOCK OPTION PLAN
Effective November 1, 1996, the Company's parent, Enterprises, adopted a
management stock option plan, as amended. Certain employees of the Company are
covered under this plan, and each stock option granted allows for the purchase
of one share of Enterprises common stock. The options vest based on the
attainment of certain performance levels as defined by the plan.
The Company and its parent have elected to continue to follow APB Opinion
No. 25 to account for stock awards granted to employees; however, if the Company
adopted SFAS 123 to account for stock awards granted to employees, the Company's
net income and earnings per share for the years ended December 31, 1996, 1997
and 1998 would have been reduced as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ---------------------- ----------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA AS REPORTED PROFORMA
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net loss............... $(7,264) $(7,359) $ (151) $ (481) $(29,136) $(29,980)
Basic and diluted
earnings
per common share..... (7,264) (7,359) (151) (481) (29,136) (29,980)
</TABLE>
Pro forma information regarding net income and earnings per common share
has been determined as if the Company had accounted for its employee stock
options under the minimum value method of SFAS 123 under the assumptions of a
risk free rate of 5.75% and an expected life of options of 6 years. The Company
has no present plans to pay dividends on its Common Stock. The effects of
applying SFAS 123 as calculated above may not be representative of the effects
on reported net income for future years.
F-17
<PAGE> 107
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the year ended December 31, 1998, the Company recorded compensation
expense of $765 as an addition to additional paid-in-capital in connection with
1998 stock option grants under the plan. No compensation expense was recorded in
fiscal 1996 and 1997 for grants in those years.
(13) LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. Future annual
minimum lease payments under these leases are summarized as follows:
<TABLE>
<S> <C>
1999........................................................ $ 2,181
2000........................................................ 2,631
2001........................................................ 2,762
2002........................................................ 2,857
2003........................................................ 2,897
Thereafter.................................................. 5,919
-------
$19,247
=======
</TABLE>
Rent expense was $552 for the year ended December 31, 1998.
(14) TRANSITION EXPENSES
Transition expenses for 1998 represent the non-recurring transition
expenses incurred in connection with the acquisition and integration of Windy
Hill with the Company follow:
<TABLE>
<S> <C>
Relocation expense.......................................... $2,571
Merger/Relocation bonuses................................... 2,016
Severance................................................... 943
Professional fees........................................... 819
Travel...................................................... 348
Miscellaneous............................................... 346
------
$7,043
======
</TABLE>
The relocation expense represents liabilities incurred to relocate
personnel from the former Doane corporate office to merged corporate
headquarters. Merger bonuses were paid to Doane personnel in connection with the
acquisition. Professional fees represent costs for consultants in human
resources, employment, law, accounting and information systems to assist in the
transition. As of December 31, 1998, $2.6 million of these expenses were accrued
and expected to be paid in the next six months.
F-18
<PAGE> 108
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ------ --------
<S> <C> <C> <C>
Total taxes before extraordinary loss:
Current -- foreign........................................ $ -- $ -- $ 250
----- ------ --------
Deferred:
Federal................................................ (855) 3,084 2,790
State and local........................................ -- 305 524
Foreign................................................ -- -- 38
----- ------ --------
(855) 3,389 3,352
----- ------ --------
Total before extraordinary loss............................. (855) 3,389 3,602
Tax benefit related to extraordinary loss................... -- -- (16,001)
----- ------ --------
Total income taxes (benefit)...................... $(855) $3,389 $(12,399)
===== ====== ========
</TABLE>
Income before income tax by domestic and foreign source follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Domestic.................................................... $(2,373) $9,623 $6,995
Foreign..................................................... -- -- 1,506
------- ------ ------
$(2,373) $9,623 $8,501
======= ====== ======
</TABLE>
Income tax expense differs from the amount computed by applying the Federal
statutory rate to pretax income due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)................... $ (807) $3,272 $2,890
State and local taxes....................................... -- -- 341
Goodwill amortization....................................... -- -- 661
Meals and entertainment, other.............................. (48) 117 (290)
------- ------ ------
$ (855) $3,389 $3,602
======= ====== ======
</TABLE>
F-19
<PAGE> 109
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1996 and 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
CURRENT DEFERRED
Deferred tax assets:
Accounts receivable....................................... $ 40 $ 544
Inventory................................................. 291 618
Accruals and provisions................................... 921 2,587
-------- --------
Current deferred tax asset........................ $ 1,252 $ 3,749
======== ========
NONCURRENT DEFERRED
Deferred tax assets -- net operating loss carryforwards..... $ 10,093 $ 27,506
Deferred tax liabilities:
Tax over book amortization.................................. (5,751) (12,364)
Difference between book and tax basis of property and
equipment................................................. (8,511) (19,903)
-------- --------
(14,262) (32,267)
Net noncurrent deferred tax liability....................... (4,169) (4,761)
-------- --------
Total net deferred tax asset (liability).......... $ (2,917) $ (1,012)
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which these temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in working this assessment. Based upon the
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences at December 31, 1998.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $68,319 which are available to
offset future taxable income through 2013.
(16) EMPLOYEE BENEFIT PLANS
The Company has three defined benefit, noncontributory pension plans. The
Doane plan covers substantially all non-bargaining employees (terminated on May
31, 1998). Benefits under the Doane 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 has two plans
covering hourly and salaried employees of the former Hubbard Milling Company.
The Company's funding policy for these plans is to make the minimum annual
contribution required by applicable regulations. The disclosure for all of the
Company's defined benefit, noncontributory plans are aggregated in the following
footnote.
F-20
<PAGE> 110
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost for the Company's defined benefit pension plans
consisted of the following components for the years ended:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Service cost (benefits) earned................. $1,059 $1,276 $ 520
Interest cost on projected benefit
obligation................................... 781 903 867
Actual return on plan assets................... (906) (1,914) (1,391)
Net amortization and deferral.................. 71 983 204
------ ------ -------
Net periodic pension cost...................... $1,005 $1,248 $ 200
====== ====== =======
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 7.0% 6.75%
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>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying balance sheets as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $ (8,936) $(30,817)
======== ========
Accumulated benefits...................................... $ (9,192) $(31,270)
======== ========
Projected benefits........................................ $(14,818) $(31,270)
Plan assets at fair value................................. 14,557 36,641
-------- --------
Projected benefit obligation in excess of plan
assets.......................................... (261) 5,371
Items not yet recognized in earnings:
Unrecognized net loss (gain).............................. (1,144) 674
Unrecognized net asset at December 31, 1986, being
recognized over 14.49 to 17.95 years................... 313 --
-------- --------
Pension asset (liability) recognized in the
balance sheet................................... $ (1,092) $ 6,045
======== ========
</TABLE>
F-21
<PAGE> 111
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles the beginning and ending balances of the
accumulated post retirement pension obligation as of:
<TABLE>
<S> <C>
Projected benefit obligation, December 31, 1996............. $13,060
Service cost.............................................. 1,276
Interest cost............................................. 904
Benefits paid............................................. (286)
Actuarial gain............................................ (136)
-------
Projected benefit obligation, December 31, 1997............. 14,818
Increase due to assumption charge......................... 302
Service costs............................................. 520
Interest cost............................................. 866
Benefits paid............................................. (605)
Actuarial gain............................................ 580
Effect of plan termination................................ (741)
Business combination...................................... 15,530
-------
Projected benefit obligation, December 31, 1998............. $31,270
=======
</TABLE>
The following table reconciles the beginning and ending balances of plan
assets as of:
<TABLE>
<CAPTION>
<S> <C>
Plan assets, December 31, 1996.............................. $12,586
Employer contributions.................................... 343
Actual return............................................. 1,914
Benefits paid............................................. (286)
-------
Plan assets, December 31, 1997.............................. 14,557
Employer contributions.................................... 14
Actual return............................................. 1,391
Benefits paid............................................. (606)
Business combination...................................... 21,285
-------
Plan assets, December 31, 1998.............................. $36,641
=======
</TABLE>
On October 1, 1995, the Company adopted SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The Company sponsors two defined
contribution postretirement plans that provide medical coverage for eligible
retirees and their dependents of Doane and the former Hubbard Milling Company
(as defined in the plans). The following sets forth the plans' funded status
reconciled with the amount shown in the Company's consolidated balance sheets
and consolidated statements of income on an accrual basis rather than a
pay-as-you-go (cash) basis as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents..................................... $ 824 $3,166
Fully eligible active plan participants..................... 343 274
Other active plan participants.............................. 329 295
Unrecognized net gain....................................... 73 22
------ ------
Accrued postretirement benefit cost......................... $1,569 $3,757
====== ======
</TABLE>
F-22
<PAGE> 112
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net periodic postretirement benefit cost included the
following components:
Service cost -- benefits attributed to service during
the period.......................................... $ 17 $ 18 $ 16
Interest cost on accumulated postretirement benefit
obligation.......................................... 104 102 157
------ ------ ------
Net periodic postretirement benefit cost....... $ 121 $ 120 $ 173
====== ====== ======
</TABLE>
The following table reconciles the beginning and ending balances of the
accumulated post retirement pension obligation as of:
<TABLE>
<S> <C>
Projected benefit obligation, December 31, 1996............. $1,497
Service costs............................................. 18
Interest costs............................................ 102
Benefits paid............................................. (48)
------
Projected benefit obligation, December 31, 1997............. 1,569
Service costs............................................. 16
Interest costs............................................ 157
Benefits paid............................................. (138)
Business combination...................................... 2,153
------
Projected benefit obligation, December 31, 1998............. $3,757
======
</TABLE>
For measurement purposes per capita claims costs for participants over age
65 were assumed to increase at 7.07%, 6.50% and 6.00% annually for 1996, 1997
and 1998 respectively; the rate used to calculate the net periodic
postretirement benefit cost was assumed to decrease gradually to 2001 at the
annual rates of 4.50%, 4.00% and 3.75% for physical years ending December 31,
1996, December 31, 1997 and December 31, 1998 respectively: The rate used to
calculate the accumulated postretirement benefit obligation was assumed to
decrease gradually to 2001 at the notes of 4.00%, 4.00% and 3.75% as of December
31, 1996, December 31, 1997 and December 31, 1998 respectively. 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, 1998 by $384 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year ended 1998 by $36.
The weighted-average discount rate used in determining the net periodic
postretirement benefit cost was 7.50%, 7.00% and 7.00% for physical years ending
December 31, 1996, December 31, 1997 and December 31, 1998 respectively. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00%, 7.00% and 6.75% as of December 31,
1996, December 31, 1997 and December 31, 1998, respectively.
As of June 1, 1998 the Company adopted the Doane Products Company Savings
and Investment Plan for eligible employees not covered by collective bargaining
arrangements and the Doane Products Company Savings and Investment Plan -- Union
Plan for eligible union employees at the Joplin, Missouri plant. The plans are
intended to be qualified retirement plans under the Internal Revenue Code. Both
plans permit employee contributions between 1% and 15% of pre-tax earnings
subject to annual dollar limits set by the IRS, an annual employer profit
sharing contribution of $400 for each eligible participant and a variety of
investment options. The Doane Products Company Savings and Investment Plan also
includes an employer matching contribution in an amount equal to 50% of
participant contribution, up to 6% of compensation. Vesting for the employer
match is 25% per year for each full year of service. For the year ended December
31, 1998, the Company contributed $666 to the Doane Products Company Savings and
Investment Plan.
F-23
<PAGE> 113
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Windy Hill adopted the Windy Hill Pet Food Company, Inc. Profit Sharing and
Savings Plan on March 1, 1995, as amended. The plan is intended to be a
qualified plan under the Internal Revenue Code. It permits employee
contributions from 1% to 15% of pre-tax earnings subject to annual dollar limits
set by the IRS. Of this amount, the Company will match 50% of the first 6% of
the employee contribution. In addition, the plan provides for employer
contribution to participant accounts of amounts equal to 2 1/2% of the
employee's compensation. For 1998, the Company contributed $542 towards the
Windy Hill Pet Food Company, Inc. Profit Sharing and Savings Plan.
(17) 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 $1,150 and $1,254 at December 31, 1997 and 1998,
respectively.
The Company also has a salary continuation plan in which there were
twenty-two and twenty-nine participants at December 31, 1997 and 1998,
respectively. 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 $1,362 and $1,539 at
December 31, 1997 and 1998, respectively.
(18) MAJOR CUSTOMER
For the years ended December 31, 1996, 1997 and 1998, the same customer
accounted for approximately 63%, 61% and 52.0%, respectively, of the Company's
net sales. The Company does not have a long-term contract with this customer.
(19) RELATED PARTY TRANSACTIONS
The Company has a management advisory agreement with Summit Capital Inc.
(SCI) and Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), both
stockholders of the Company and each has a member who are directors of the
Company, in which the Company pays SCI and DLJ an annual fee of $200,000 and
$100,000, respectively; such agreements terminate upon the consummation of an
initial public offering of our parent. In addition, the Company paid SCI, DLJ,
Chase Manhattan Investment Holdings Inc. and Chase Securities, Inc. both
affiliates of the Chase Manhattan Bank (collectively "Chase") Dartford
Partnership, L.L.C. and BRS, stockholders of the Company and each has members
who are directors of the Company, fees of $2.0 million, $1.0 million, $1.5
million, $3.0 million and $1.5 million in connection with the Windy Hill
acquisition. In connection with the Refinancing Transactions, DLJ and Chase
received fees of $3.8 million and $3.9 million, respectively.
F-24
<PAGE> 114
DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(20) ADDITIONAL CASH FLOW INFORMATION
The following is additional cash flow information for the years ended
December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid (net of amounts capitalized)............ $21,028 $21,924 $ 27,202
Income taxes paid (refunded).......................... 351 -- (299)
Schedule of non cash investing and financing activities:
Exchange notes........................................ -- -- 137,000
Capital contribution.................................. -- -- 75,320
</TABLE>
(21) COMMITMENTS AND CONTINGENCIES
On October 30, 1998 the Company initiated a voluntary product recall for
certain dry dog food manufactured at its Temple, Texas plant. The recall covered
dry dog food manufactured at its Temple plant between July 1 and August 31, 1998
and did not apply to dry dog food manufactured at other plants or the Company's
dry cat food, biscuits, treats or canned products. The recall resulted from
reported sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated levels of aflatoxins in corn which, is an ingredient in
dry dog food. Aflatoxins are compounds produced from certain kinds of crop molds
that can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall was not covered by insurance. The
Company recorded a $3.0 million product recall charge in the fourth quarter of
fiscal 1998.
The Company is party, in the ordinary course of business, to other 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.
(23) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $144,307 $140,843 $176,511 $225,002
Gross profit....................................... 24,340 24,768 33,970 49,138
Net income (loss).................................. 3,279 2,783 601 (28,552)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $141,741 $137,215 $132,445 $153,340
Gross profit....................................... 19,016 18,885 20,623 23,321
Net income......................................... 995 481 1,905 2,853
</TABLE>
The prior quarters have been restated to be comparative with the year end
presentation.
F-25
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Windy Hill Pet Food Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Windy Hill
Pet Food Holdings, Inc. as of December 28, 1996 and December 27, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the ten-month period ended December 30, 1995, and for the years ended
December 28, 1996 and December 27, 1997. These consolidated 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. These 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Windy Hill
Pet Food Holdings, Inc. as of December 28, 1996 and December 27, 1997, and the
results of their operations and their cash flows for the years then ended and
for the ten-month period ended December 30, 1995 in conformity with generally
accepted accounting principles.
KPMG LLP
San Francisco, California
March 13, 1998
F-26
<PAGE> 116
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 570 $ 731 $ 1,063
Accounts receivable (net of $48, $372 and $386 allowance,
respectively).......................................... 8,224 19,252 21,894
Accounts receivable -- other.............................. 19 1,694 1,716
Inventories (Note 4)...................................... 5,141 13,312 17,181
Prepaid expenses.......................................... 811 990 1,356
Current deferred tax asset (Note 11)...................... 30 2,335 2,394
------- -------- --------
Total current assets.............................. 14,795 38,314 45,604
Property, plant and equipment, net (Note 5)................. 22,484 60,774 79,277
Investments in joint ventures (Note 6)...................... -- 3,527 1,975
Goodwill and other intangible assets, net (Note 7).......... 51,515 98,465 108,570
Other assets, net (Note 8).................................. 3,431 13,612 15,617
------- -------- --------
Total assets...................................... $92,225 $214,692 $251,043
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 9)................ $ 5,800 $ 1,312 $ 1,937
Senior secured revolving debt facility (Note 9)........... 2,000 2,000 --
Accounts payable.......................................... 9,816 20,178 21,140
Accrued liabilities....................................... 2,699 8,154 10,750
------- -------- --------
Total current liabilities......................... 20,315 31,644 33,827
Accrued interest -- non-current (Note 9).................... 962 2,595 3,458
Deferred tax liability (Note 11)............................ 1,867 12,390 13,004
Senior secured term debt (Note 9)........................... 35,750 13,688 44,223
Senior subordinated notes (Note 9).......................... 7,551 120,000 120,000
PIK A promissory notes (Note 9)............................. 3,750 3,750 3,750
PIK A-1 promissory note (Note 9)............................ -- 417 417
Convertible subordinated promissory note (Note 9)........... 10,500 10,500 10,500
Other liabilities........................................... 325 3,257 4,788
------- -------- --------
Total liabilities................................. 81,020 198,241 233,967
------- -------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 45,000 shares
authorized, 4,167 shares issued and outstanding,
liquidation preference of $4,163 (Note 16)............. 3,750 4,167 4,167
Class A common stock, $0.01 par value; 5,000 shares
authorized, 2,540 shares issued and outstanding (Note
16).................................................... -- -- --
Class B common stock, $0.01 par value; 2,000 shares
authorized, 569 shares issued and outstanding (Note
16).................................................... -- -- --
Additional paid-in capital (Note 16)...................... 7,681 16,624 16,624
Accumulated deficit....................................... (226) (4,340) (3,715)
------- -------- --------
Total stockholders' equity........................ 11,205 16,451 17,076
------- -------- --------
Commitments and contingent liabilities (Notes 9, 12 and 17)
Total liabilities and stockholders' equity........ $92,225 $214,692 $251,043
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 117
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
TEN MONTH YEARS ENDED ENDED
PERIOD ENDED --------------------------- -------------------
DECEMBER 30 DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27,
1995 1996 1997 1997 1998
------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $34,481 $82,993 $164,288 $60,323 $127,791
Cost of good sold 22,107 54,379 113,288 39,330 92,580
------- ------- -------- ------- --------
Gross profit................... 12,374 28,614 51,000 20,993 35,211
------- ------- -------- ------- --------
Operating expenses:
Promotion and distribution.......... 8,483 17,165 28,980 13,581 16,217
Selling, general and
administrative.................... 1,978 4,934 10,886 4,171 8,943
Non-recurring transition costs (Note
10)............................... -- -- 1,571 107 513
------- ------- -------- ------- --------
Total operating expenses....... 10,461 22,099 41,437 17,859 25,673
------- ------- -------- ------- --------
Operating income............... 1,913 6,515 9,563 3,134 9,538
Interest expense, net.................... 1,192 4,981 12,241 4,424 8,561
Equity in earnings of joint ventures..... -- -- (377) (29) (485)
Other expenses, net...................... -- 40 93 31 58
------- ------- -------- ------- --------
Income (loss) before income
taxes and extraordinary
item......................... 721 1,494 (2,394) (1,292) 1,404
Income tax expense (benefit)............. -- 824 (574) (514) 779
------- ------- -------- ------- --------
Income (loss) before
extraordinary item........... 721 670 (1,820) (778) 625
Extraordinary loss on early
extinguishment of debt, net of tax of
$0 in 1996 and $1,529 in 1997 (Note
9)..................................... -- 604 2,294 2,294 --
------- ------- -------- ------- --------
Net income (loss).............. $ 721 $ 66 $ (4,114) $(3,072) $ 625
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 118
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B PREFERRED RETAINED
COMMON STOCK COMMON STOCK STOCK EARNINGS
MEMBERS' --------------- --------------- --------------- PAID-IN (ACCUMULATED
CAPITAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
-------- ------ ------ ------ ------ ------ ------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Members' capital contribution,
net of syndication costs of
$109........................ $5,891 -- $ -- -- $ -- -- $ -- $ -- $ -- $ 5,891
Net income.................... -- -- -- -- -- -- -- -- 721 721
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 30,
1995........................ 5,891 -- -- -- -- -- -- -- 721 6,612
Contribution of Windy Hill Pet
Food Company, LLC members'
capital to Windy Hill Pet
Food Holdings, Inc. (Note
1).......................... (5,891) 500 -- -- -- 3,750 3,750 2,141 -- --
Deferred tax liability
recognized.................. -- -- -- -- -- -- -- -- (1,013) (1,013)
Capital contribution from
Windy Hill Pet Food
Holdings, Inc., net of
syndication cost of $210.... -- 500 -- 301 -- -- -- 4,540 -- 4,540
Warrants issued (Note 16)..... -- -- -- -- -- -- -- 1,000 -- 1,000
Net income.................... -- -- -- -- -- -- -- -- 66 66
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 28,
1996........................ -- 1,000 -- 301 -- 3,750 3,750 7,681 (226) 11,205
Contribution, net of
syndication cost of $224.... -- 1,429 -- 240 -- -- -- 9,776 -- 9,776
Warrants exercised (Note
16)......................... -- 111 -- 28 -- 417 417 (833) -- (416)
Net loss...................... -- -- -- -- -- -- -- -- (4,114) (4,114)
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 27,
1997........................ -- 2,540 -- 569 -- 4,167 4,167 16,624 (4,340) 16,451
Net loss (unaudited).......... -- -- -- -- -- -- -- -- 625 625
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at June 27, 1998
(unaudited)................. $ -- 2,540 $ -- 569 $ -- 4,167 $4,167 $16,624 $(3,715) $17,076
====== ===== ===== === ===== ===== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 119
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH
TEN MONTH YEARS ENDED PERIODS ENDED
PERIOD ENDED --------------------------- --------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 721 $ 66 $ (4,114) $ (3,072) $ 625
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Depreciation and amortization..... 787 2,719 6,882 2,543 4,470
Interest expense -- non-current... -- 962 1,633 1,077 1,365
Deferred income taxes............. -- 824 2,582 5,809 923
Early extinguishment of debt, net
of tax.......................... -- 604 2,294 2,294 --
Gain on sale of fixed assets...... -- -- 4 -- --
Equity in earnings of joint
ventures........................ -- -- (377) (29) (485)
Operating advances from joint
ventures........................ -- -- 1,015 84 1,063
Change in assets and liabilities,
net of effects of businesses
acquired:
(Increase) decrease in accounts
receivable................... (960) (3,941) (4,650) 1,348 540
(Increase) decrease in
inventories.................. 352 (454) (1,726) (243) 2,123
Increase in prepaid expenses.... (34) (412) (50) 66 (960)
Increase (decrease) in accounts
payable...................... 847 6,250 313 (3,121) (1,390)
Increase (decrease) in accrued
liabilities.................. -- 1,063 4,436 17,150 2,262
-------- -------- --------- --------- --------
Net cash provided by
operating activities....... 1,713 7,681 8,242 23,906 10,537
-------- -------- --------- --------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment......................... (1,120) (1,091) (4,175) (944) (3,700)
Change to other non-current assets
and liabilities................... (321) (357) (1,087) (2,534) (678)
Proceeds from sale of assets......... -- -- 51,704 49,889 --
Payment for acquisition of
businesses, net of cash
acquired.......................... (22,165) (56,768) (135,350) (138,528) (34,523)
-------- -------- --------- --------- --------
Net cash used in investing
activities................. (23,606) (58,216) (88,908) (92,117) (38,901)
-------- -------- --------- --------- --------
Cash flows from financing activities:
Proceeds from senior secured term and
revolving debt.................... 17,000 48,000 71,500 189,917 34,000
Proceeds from senior subordinated
notes............................. -- 8,500 120,000 -- --
Proceeds from PIK A promissory
notes............................. -- 3,750 -- -- --
Proceeds from convertible
subordinated promissory note...... -- 10,500 -- -- --
Repayment of borrowings.............. -- (21,450) (109,952) (109,952) (5,263)
Capital contributions................ 6,000 4,750 10,000 9,583
Debt issuance and syndication
costs............................. (780) (3,272) (10,721) (10,565) (41)
-------- -------- --------- --------- --------
Net cash provided by (used
in) financing activities... 22,220 50,778 80,827 78,983 28,696
-------- -------- --------- --------- --------
Increase (decrease) in cash and cash
equivalents.......................... 327 243 161 10,772 332
Cash and cash equivalents, beginning of
period............................... -- 327 570 570 731
-------- -------- --------- --------- --------
Cash and cash equivalents, end of
period............................... $ 327 $ 570 $ 731 $ 11,342 $ 1,063
======== ======== ========= ========= ========
Supplemental cash flow disclosure:
Cash paid for interest............... $ 1,179 $ 3,759 $ 6,660 $ 3,391 $ 3,757
Income taxes paid.................... $ -- $ -- $ 8,806 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 120
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All information related to the six-month periods ended June 28, 1997 and
June 27, 1998 is unaudited.)
NOTE 1 -- THE COMPANY
Organization
Windy Hill Pet Food Holdings, Inc. ("Holdings"), a Delaware corporation, is
a private holding company formed in April 1996 to invest in pet food processing
operations. Holdings owns 100% of its indirect subsidiary, Windy Hill Pet Food
Company, Inc. (the "Company"), which is a Minnesota corporation. The Company
commenced operations March 1, 1995, under its previous ownership structure as
Windy Hill Pet Food Company, L.L.C. ("LLC"). In connection with the Company's
acquisition of certain brands from Heinz Pet Products ("Heinz") in April 1996,
as further described in Note 3, LLC's net assets were contributed at net book
value to Holdings.
On May 21, 1997, Windy Hill Pet Food Acquisition Co., a newly formed
indirect subsidiary of Holdings, merged with and into Hubbard Milling Company
("Hubbard"), and Windy Hill Pet Food Company, Inc. ("Old Windy Hill") purchased
all of the stock of Armour Corporation. Concurrently, Hubbard, the surviving
corporation in the merger, was renamed Windy Hill Pet Food Company, Inc., and
Holdings transferred all of the operating assets and liabilities of Old Windy
Hill to the Company (Note 3). The Company was capitalized with a senior secured
term debt facility and senior subordinated notes (Note 9).
Operations
The Company manufactures and sells dog and cat food products and treats,
which are sold throughout the United States. The products are manufactured out
of thirteen plants, nine of which are wholly-owned and four of which are managed
under joint venture agreements in which the Company owns a 50% equity interest.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by Holdings in the preparation of the consolidated
financial statements conform to generally accepted accounting principles and
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual amounts could differ from these
estimates and assumptions. The accompanying consolidated financial statements
include the accounts of Holdings and its subsidiaries. All significant
intercompany balances have been eliminated in consolidation.
Fiscal Year
Holdings' fiscal year ends on the last Saturday of December. Certain prior
year amounts have been reclassified to conform to the current year's
presentation.
Cash and Cash Equivalents
Holdings considers all highly liquid financial instruments with a maturity
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in first-out (FIFO) method. Inventories include the
cost of raw materials, packaging, labor and manufacturing overhead.
F-31
<PAGE> 121
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the individual assets ranging from four to thirty
years. Costs which improve an asset or extend its useful life are capitalized,
while repairs and maintenance costs are expensed as incurred. Leasehold
improvements are amortized over the estimated useful life of the property or
over the terms of the leases, whichever is shorter.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets include goodwill, trademarks and
certain identifiable intangible assets. Trademarks and goodwill are being
amortized over four to forty years using the straight-line method. Other
intangible assets are being amortized using the straight-line method over
periods ranging from four to five years. Amortization of goodwill and other
intangible assets charged against income during the ten-month period ended
December 30, 1995, the years ended December 28, 1996 and December 27, 1997 and
for the unaudited six-month periods ended June 28, 1997 and June 27, 1998 was
$0.3 million, $1.1 million, $2.9 million, $0.8 million and $1.8 million,
respectively.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held for
disposal. Holdings has evaluated the carrying value for evidence of impairment,
and management believes at December 27, 1997, there were no indications of
impairment.
Holdings assesses the recoverability of long-lived assets by determining
whether the recorded balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of impairment, if any, is measured based upon projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of the asset will be impacted if
estimated future operating cash flows are not achieved.
Other Assets
Other assets consist of debt issuance costs, packaging design costs, and
other miscellaneous assets. Debt issuance costs of the senior subordinated notes
are being amortized using the interest method over the term of the respective
notes. Debt issuance costs of the senior secured debt are being amortized using
the straight-line method over the terms of the related debt. Aggregate
amortization of debt issuance costs and other assets charged against income in
the ten-month period ended December 30, 1995, the years ended December 28, 1996
and December 27, 1997, and the unaudited six-month periods ended June 28, 1997
and June 27, 1998 was $67,000, $259,000, $715,000, $154,000, and $486,000,
respectively. Amortization of packaging design costs charged against income was
$158,000, $205,000, $283,000, $120,000 and $230,000, for the same periods
respectively.
Disclosure About Fair Value of Financial Instruments
For purposes of financial reporting, Holdings has determined that the fair
value of its financial instruments approximates book value at December 28, 1996,
December 27, 1997, and June 27, 1998 (unaudited) based on terms currently
available to the Company in financial markets for similar instruments.
F-32
<PAGE> 122
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company sells its products to supermarkets, wholesalers and other
retailers. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and had no significant concentration of credit risk at
December 28, 1996, December 27, 1997, and June 27, 1998 (unaudited).
Income Taxes
Holdings records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. This method of accounting for income taxes uses an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between he
carrying amounts and the tax bases of assets and liabilities.
NOTE 3 -- BUSINESS ACQUISITIONS
On April 29, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of the Kozy Kitten(R) and Tuffy's(R) dry pet food
brands (the "Heinz Business") from Heinz Pet Products ("Heinz"), a division of
Heinz, Inc. The purchase price was $52.5 million, which included a contractually
agreed upon amount of working capital (as defined in the agreement). In
conjunction with the acquisition, the Company and Heinz entered into a
royalty-free licensing agreement, which entitles the Company to use the Kozy
Kitten trademark and trade name for dry cat food until April 29, 2006. The
Trademark License and Option Agreement gives the Company the irrevocable right
to purchase the trademark and trade name from Heinz no earlier than April 29,
2001 and no later than April 29, 2006 for a cash payment of $2.5 million. The
acquired assets also included a manufacturing facility in Perham, Minnesota. The
acquisition was accounted for using the purchase method of accounting and the
results of operations have been included since the date of acquisition.
In order to effect the Heinz Business acquisition and to refinance the
$17.0 million of existing debt of LLC at April 29, 1996, the Company entered
into a series of financings, as further described in Note 9. The financings
included (i) a capital contribution of $19.8 million from Holdings, (ii) senior
secured term debt of $43.0 million and a senior secured revolving debt facility
of $9.0 million, and (iii) issuance of a senior subordinated note in the amount
of $8.5 million.
The purchase price of the acquired Heinz Business has been allocated to
tangible and intangible assets as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash paid to acquire assets................................. $ 52,500
Other acquisition costs..................................... 4,257
--------
56,757
Cost assigned to net tangible assets........................ (19,282)
--------
Cost assigned to intangible assets.......................... $ 37,475
========
</TABLE>
Concurrent with the 1996 purchase of assets, the Company and Heinz entered
into a five year co-packing agreement in which the Company will manufacture
certain pet food products for Heinz. The agreement requires Heinz to meet a
minimum supply amount at a co-packing rate which covers the variable costs of
the pet food products as well as an amount to cover a specified rate of fixed
costs at the Perham facility where the products are manufactured.
On May 21, 1997, Windy Hill Pet Food Acquisition Co. merged with and into
Hubbard, and Old Windy Hill purchased all of the capital stock of Armour
Corporation, a holding company which prior to the closing of
F-33
<PAGE> 123
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the transaction owned 5% of the capital stock of Hubbard and after the
consummation of the transaction owned 39% of the capital stock of Hubbard.
Concurrently, Hubbard, the surviving corporation in the merger, was renamed
Windy Hill Pet Food Company, Inc., and Old Windy Hill transferred all the
operating assets and liabilities, including $27.0 million of equity and $51.0
million of indebtedness (the "Existing Indebtedness") of Old Windy Hill to the
Company. The net combined purchase price of Hubbard and the Armour Corporation
stock was approximately $131.1 million (net of cash acquired). For financial
reporting purposes, these transactions were accounted for as a purchase of
Hubbard by Old Windy Hill and the results of operations of Hubbard have been
included since the date of acquisition. The allocation of the purchase price has
been finalized.
The acquisition and the repayment of Existing Indebtedness was financed
with (i) a $9.8 million net capital contribution from Holdings, (ii) term debt
of $20.0 million and revolving debt of $45.0 million under a $65.0 million
senior secured debt facility, and (iii) proceeds from the issuance of $120.0
million of senior subordinated notes. Immediately following the merger, the
Company sold its animal feed business to Feed-Rite (US) Animal Feeds, Inc., a
subsidiary of the Ridley Group. The net after tax proceeds, subject to certain
adjustments, were approximately $50.0 million. The net proceeds were used to
repay $5.0 million of the senior secured term debt and $45.0 million of net
senior secured revolving debt facility.
The purchase price of the acquisitions have been allocated to tangible and
intangible assets as follows (in thousands):
<TABLE>
<CAPTION>
HUBBARD
--------
<S> <C>
Cash paid to acquire business, net of cash acquired......... $131,052
Other acquisition costs..................................... 5,438
--------
136,490
Cost assigned to net tangible assets and assets held for
sale...................................................... (86,305)
--------
Cost assigned to intangible assets.......................... $ 50,185
========
</TABLE>
The unaudited pro forma information below has been prepared assuming the
businesses were acquired December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Net sales.......................................... $208,100 $216,709
======== ========
Income before taxes and extraordinary item......... 882 4,465
======== ========
Net income......................................... $ (1,625) $ 2,679
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisitions occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead and general and administrative expenses.
F-34
<PAGE> 124
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................ $ 1,253 $ 3,004 $ 3,787
Packaging supplies....................... 2,339 5,536 8,230
Finished goods........................... 1,549 4,772 4,597
------- ------- -------
$ 5,141 $13,312 $16,614
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments to purchase raw materials
aggregating approximately $13.2 million.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.......................................... $ 203 $ 2,663 $ 2,968
Machinery and equipment....................... 17,043 42,882 56,393
Buildings and improvements.................... 6,266 16,328 19,781
Furniture and fixtures........................ 238 1,390 1,517
Computer equipment............................ 70 127 155
Construction-in-progress...................... 11 1,626 5,098
------- ------- -------
23,831 65,016 85,912
Less accumulated depreciation............... 1,347 4,242 (6,636)
------- ------- -------
$22,484 $60,774 $79,276
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments for facility construction
and related machinery and equipment purchases aggregating approximately
$332,000.
NOTE 6 -- INVESTMENTS IN JOINT VENTURES
The Company has a 50% equity interest in each of four manufacturing joint
ventures with each of the following joint venture partners, none of which are
affiliates of the Company or Holdings: Merrick PetFoods, Inc., MFA, Inc., J.R.
Simplot Company, and Flint River Mills, Inc. See Note 3. The Company accounts
for the joint ventures using the equity method of accounting.
F-35
<PAGE> 125
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill...................................... $ 7,588 $ 35,122 $ 46,948
Trademarks.................................... 45,000 66,807 66,807
Other intangibles............................. 332 852 852
------- -------- --------
52,920 102,781 114,607
Less accumulated amortization............... 1,405 4,316 6,037
------- -------- --------
$51,515 $ 98,465 $108,570
======= ======== ========
</TABLE>
NOTE 8 -- OTHER ASSETS
Other assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs........................... $2,978 $10,464 $10,464
Defined benefit pension plan asset............ -- 2,474 2,923
Packaging, plate cost and other costs......... 1,059 1,899 4,171
------ ------- -------
4,037 14,837 17,558
Less accumulated amortization............... 606 1,225 1,941
------ ------- -------
$3,431 $13,612 $15,617
====== ======= =======
</TABLE>
F-36
<PAGE> 126
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LONG TERM DEBT
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A-1 debt; interest rate of
8.29% at December 28, 1996.......................... $27,550 $ -- $ --
Senior secured tranche A-2 debt; interest rate of
8.29% at December 28, 1996.......................... 14,000 -- --
Senior secured revolving debt facility -- interest
rate of 8.37% at December 28, 1996.................. 2,000 -- --
Senior secured term debt -- interest rate of 8.38% at
December 27, 1997; principal due in quarterly
installments through November 21, 2003; floating
interest rate at the prime rate plus 1.5% or,
alternatively, the one, three or six month
Eurodollar rate plus 2.5% payable quarterly at the
termination of the Eurodollar contract period....... -- 15,000 46,160
Senior secured revolving debt facility -- interest
rate of 10.0% at December 27, 1997; principal due
November 21, 2003; floating interest rate at the
prime rate plus 1.50% or alternatively, the one,
three, or six month Eurodollar rate plus 2.50%;
payable quarterly or at the termination of the
Eurodollar contract period.......................... -- 2,000 --
SENIOR SUBORDINATED NOTES
Senior subordinated note issued April 29, 1996; coupon
interest rate of 12.0% with interest payable
quarterly; net of original issue discount of
$949,000............................................ 7,551 -- --
Senior subordinated notes issued May 15, 1997 at par
value of $120,000; coupon interest rate of 9.75%
with interest payable each May 15 and November 15;
matures on May 15, 2007............................. -- 120,000 120,000
PROMISSORY NOTES
PIK A promissory notes issued April 29, 1996; coupon
interest rate of (i) 10% per annum through April 29,
2003 and (ii) interest payable at 12.0% per annum
from April 30, 2003 through December 31, 2005;
compounded semi-annually with interest payable
annually beginning April 29, 2004; matures on
December 31, 2005, with original principal and
accrued interest through April 29, 2003............. 3,750 3,750 3,750
PIK A-1 promissory note issued May 21, 1997, effective
April 29, 1996; coupon interest rate of (i) 10% per
annum through April 29, 2003 and (ii) interest
payable at 12.0% per annum from April 30, 2003
through December 31, 2005; compounded semi-annually
with interest payable annually beginning April 29,
2004; matures on December 31, 2005, with original
principal and accrued interest through April 29,
2003................................................ -- 417 417
</TABLE>
F-37
<PAGE> 127
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible subordinated promissory note issued April
29, 1996; coupon interest rate of (i) 10% per annum
through April 29, 2003 and (ii) interest payable at
12.0% per annum from April 30, 2003 through April
29, 2006; compounded semi-annually with interest
payable annually beginning April 29, 2004; matures
on April 29, 2006, with original principal and
accrued interest through April 29, 2003............. 10,500 10,500 10,500
------- -------- --------
65,351 151,667 180,827
Less: current portion of senior secured debt.......... 5,800 1,312 1,937
current portion of senior secured revolving debt
facility........................................ 2,000 2,000 --
------- -------- --------
Long term debt........................................ $57,551 $148,355 $178,890
======= ======== ========
</TABLE>
Annual principal payments for the next five years and thereafter consist of
the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 27,
1997
------------
<S> <C>
1998........................................................ $ 3,312
1999........................................................ 1,781
2000........................................................ 2,156
2001........................................................ 2,531
2002........................................................ 2,906
Thereafter.................................................. 138,981
--------
$151,667
========
</TABLE>
Senior Secured Debt
Old Windy Hill and Holdings entered into a Credit and Guarantee Agreement,
dated April 29, 1996 (the "Agreement"), with several banks for $43.0 million of
senior secured term debt and a senior secured revolving debt facility. The
proceeds from the debt were used to acquire certain assets and brands from
Heinz, pay fees and expenses and fund working capital. The debt was guaranteed
by Holdings and Old Windy Hill. The Agreement contained optional prepayment
provisions with no premium. Substantially all of the assets of Old Windy Hill
were pledged as collateral for the debt.
The Agreement included $9.0 million of available borrowing under a senior
secured revolving debt facility, of which $2.5 million was reserved to support
the Trademark License and Option Agreement (Note 3). The available borrowings
were also subject to limitations related to aggregate inventory and accounts
receivable levels. The Agreement required a commitment fee of 0.50% per annum
payable quarterly on the unused portions of the revolving debt facility.
In conjunction with the acquisition of Hubbard, the Company entered into a
Credit Agreement, dated May 21, 1997 (the "Credit Agreement"), among Windy Hill
Pet Food Acquisition Co., Credit Suisse First Boston, The Chase Manhattan Bank
and the several banks and other financial institutions parties thereto, which
provided the Company with senior secured debt facilities (the "Senior Bank
Facilities") in the aggregate principal amount of $85.0 million. The proceeds
from the Senior Bank Facilities and the $120.0 million senior subordinated notes
were used to retire the senior secured term debt and the senior secured
revolving debt facility under the Agreement.
F-38
<PAGE> 128
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Bank Facilities consist of (i) a senior secured term loan
facility providing for term loans to the Company in a principal amount of $20.0
million (the "Term Loan Facility"), (ii) an acquisition debt facility (the
"Acquisition Facility") providing revolving loans to the Company for permitted
acquisitions in a principal amount of $45.0 million, and (iii) a working capital
revolving debt facility providing for revolving loans to the Company and the
issuance of letters of credit for the account of the Company as well as swing
line loans in an aggregate principal amount of $20.0 million. The senior secured
working capital debt facility is subject to a commitment fee of 0.5% per annum
payable quarterly on the unused portions of the facility.
As a result of the Hubbard and Heinz acquisitions, the Existing
Indebtedness and the $17.0 million of existing debt of LLC were refinanced and
in conjunction with the retirement of those debt facilities, $604,000 (together
with unamortized note discounts and other charges totaling $1.2 million in
fiscal 1997) and $2.6 million of debt issuance costs were written off as
extraordinary items in the statements of operations for the years ended December
28, 1996 and December 27, 1997, respectively. The effective tax rate was applied
to the write-off for the year ended December 27, 1997, while no income tax
effect was reflected to the write-off for the year ended December 28, 1996, as
the write-off was attributable to the members of LLC.
The Credit Agreement includes restrictive covenants, which limit
borrowings, cash dividends, and capital expenditures, while also requiring the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants at December 27, 1997.
Senior Subordinated Notes
On April 29, 1996, Old Windy Hill issued a senior subordinated note (the
"Old Note") in the amount of $8.5 million to a bank. The Old Note could be
prepaid at any time, subject to a prepayment penalty of 4% in the first year, 3%
in the second year, 2% in the third year, and 1% in the fourth year, and no
prepayment penalty thereafter.
The Old Note included a provision for warrants for 10% of the stock of
Holdings with a nominal exercise price. The warrants were subject to
anti-dilution covenants. The warrants would have expired the later of ten years
from the date of issuance or four years after the Old Note has been repaid. The
warrants were freely assignable and detachable. The holder of the Old Note also
had the right to "put" the warrants or stock to Holdings, beginning after the
earlier of five years from the closing, a sale or merger of the Company, or an
event of default on the Old Note. The value assigned to the warrants as of the
issuance date was $1.0 million and was recorded at Holdings and contributed to
Old Windy Hill as paid in capital. The capital contribution was recorded by Old
Windy Hill with a corresponding discount to the value of the Old Note. The
discount was being amortized over eight years, or the life of the Old Note.
Accumulated amortization as of December 28, 1996 was $51,000. In conjunction
with the acquisition of Hubbard, the holder of the Old Note exercised its
warrants for common and preferred stock of Holdings and a note due from Holdings
for $416,667.
In conjunction with the acquisition of Hubbard on May 21, 1997, the Company
issued $120.0 million of senior subordinated notes (the New Notes). The proceeds
from the New Notes, along with the proceeds from the Senior Bank Facilities and
a capital contribution from Holdings (Note 3), were used to (i) retire the
senior secured term debt and the senior secured revolving debt facility financed
under the Agreement, (ii) retire the Old Note and (iii) acquire Hubbard. In
connection with the retirement of the Old Note, $606,000 of debt issuance costs
were written off as an extraordinary item in the statement of operations for the
year ended December 27, 1997. The effective tax rate was applied to the
extraordinary item.
The Company may redeem the New Notes at any time after May 15, 2002, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem up to $42.0 million of the New Notes at any time prior to May
15, 2002, subject to certain requirements, with the cash proceeds received from
one or more equity offerings (as defined), at a redemption price of 109.750%
together with accrued and unpaid interest. Upon a change of control (as
defined), the Company has an option at any time
F-39
<PAGE> 129
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prior to May 15, 2002, to redeem the New Notes at a redemption price of 100%
plus the applicable premium (as defined), together with accrued and unpaid
interest. If the Company does not redeem the New Notes or if the change of
control occurs after May 15, 2002, the Company is required to offer to
repurchase the New Notes at a price equal to 101% together with accrued and
unpaid interest.
The New Notes include restrictive covenants, which limit additional
borrowings, cash dividends, sale of assets, mergers and the sale of stock. The
Company was in compliance with these covenants at December 27, 1997.
PIK A Promissory Notes
On April 29, 1996, Holdings issued $3,750,000 in PIK A promissory notes
("PIK A Notes") to shareholders of Holdings. The PIK A Notes can be prepaid at
any time without penalty. The PIK A Notes include restrictive covenants, which
limit cash dividends and distributions.
PIK A-1 Promissory Note
On May 21, 1997, in conjunction with the exercise of the warrants by the
holder of the Old Note, Holdings issued a $416,667 PIK A-1 Note ("PIK A-1
Note"). The PIK A-1 Note can be prepaid at any time without penalty. The PIK A-1
Note includes restrictive covenants, which limit cash dividends and
distributions.
Convertible Subordinated Promissory Note
On April 29, 1996, Holdings issued a $10.5 million convertible subordinated
promissory note ("Promissory Note") to Heinz. The Promissory Note can be prepaid
at any time without penalty. The Promissory Note includes restrictive covenants,
which limit cash dividends and distributions.
Interest Rate Hedge Agreements
The Company uses interest rate collar agreements (the "Agreements") to
reduce the impact of changes in interest rates on its floating rate term debt.
Premiums paid for such Agreements are being amortized to debt issuance costs
over the terms of the Agreements. Unamortized premiums are included in other
assets in the balance sheets. Amounts to be paid or received, if any, under the
Agreements are recognized as an increase or decrease, respectively, in interest
expense. The counterparty to the Company's Agreements is a major financial
institution.
The current effective cap rate is set at 7.50% (plus the applicable
margin). The effective floor rate is set at 5.50% (plus the applicable margin).
The notional principal under the Agreements is $25.0 million. As of December 28,
1996, and December 27, 1997, the Company had total variable rate debt
outstanding in the amount of $43.6 million and $17.0 million, respectively. The
aggregate premiums paid for the Agreements was $103,000.
Under the Agreements, the Company would receive payments from the
counterparty if the three-month LIBOR rate exceeds the cap rate and make payment
to the counterparties if the three-month LIBOR rate falls below the floor rates.
The payments would be calculated based upon the respective notional principal
amount. During fiscal 1996 and 1997 the Company made no payments under the
Agreements. At December 27, 1997, the three-month LIBOR rate was 5.91%.
Risk associated with the Agreements include those associated with changes
in market value and interest rates. At December 27, 1997, the fair value of the
Company's interest rate collars was immaterial and management considers the
potential loss in future earnings and cash flows attributable to such Agreements
to be immaterial.
F-40
<PAGE> 130
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- TRANSITION RELATED COSTS
Transition related expenses represent one time costs incurred to integrate
the Hubbard acquisition. These costs include transitional employee compensation,
relocation expenses, recruiting fees, training costs, system conversion costs
and other unique transitional expenses. Transition related costs for the year
ended December 27, 1997 were approximately $1.6 million.
NOTE 11 -- INCOME TAXES
Holdings files a federal income tax return on a consolidated basis with its
wholly-owned subsidiaries. State income tax returns are filed by Holdings and
the Company on a separate company basis or on a combined basis depending on the
particular laws in each state. Holdings' income tax provision is computed as if
all income tax returns were filed on a consolidated basis.
The income tax expense (benefit) is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
TEN MONTH YEARS ENDED
PERIOD ENDED ---------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense:
Federal.......................................... $ -- $ -- $ 7,763
State............................................ -- -- 1,443
---- ---- -------
Total current provision.................. -- -- 9,206
---- ---- -------
Deferred tax expense (benefit):
Federal.......................................... -- 641 (8,249)
State............................................ -- 183 (1,531)
---- ---- -------
Total deferred expense (benefit)......... -- 824 (9,780)
---- ---- -------
Total income tax expense (benefit)....... $ -- $824 $ (574)
==== ==== =======
</TABLE>
Holdings' tax provision in 1997 reflects taxes paid on the gain for tax
purposes on the sale of the animal feed business as well as the recognition of a
$12.3 million reduction in deferred taxes established for the gain at the time
of the acquisition of Hubbard.
F-41
<PAGE> 131
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets -- current:
Post-retirement benefits.................................. $ -- $ 1,006
Accrued expenses.......................................... -- 502
Package design costs...................................... -- 323
Other..................................................... 30 504
------- --------
Total deferred tax assets -- current.............. 30 2,335
------- --------
Deferred tax assets -- non-current:
Loss carryforwards........................................ 1,078 --
State taxes............................................... -- 666
------- --------
Total deferred tax assets -- non-current.......... 1,078 666
------- --------
Deferred tax liabilities -- non-current:
Depreciation.............................................. (202) (7,805)
Goodwill.................................................. (2,743) (4,144)
Prepaid pension........................................... -- (981)
Other..................................................... -- (126)
------- --------
Total deferred tax liabilities -- non-current..... (2,945) (13,056)
------- --------
Net deferred tax liability........................ $(1,837) $(10,055)
======= ========
</TABLE>
Holdings has not recorded a valuation allowance for its deferred tax
assets. Management believes that Holdings' deferred tax assets are more likely
than not to be realized.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
(Benefit) provision for income taxes at U.S.
statutory rate..................................... $638 $(814)
(Decrease) increase in tax resulting from:
Nondeductible expenses............................. 65 314
State taxes, net of federal benefit................ 121 (74)
---- -----
$824 $(574)
==== =====
</TABLE>
NOTE 12 -- LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2012.
F-42
<PAGE> 132
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future annual minimum lease payments under these leases at December 27,
1997 are summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 890
1999........................................................ 850
2000........................................................ 748
2001........................................................ 607
2002........................................................ 604
Thereafter.................................................. 2,037
------
$5,736
======
</TABLE>
Rent expense was $159,000, $248,000, $669,000, $160,000, and $412,000 for
the ten-month period ended December 30, 1995, the years ended December 28, 1996
and December 27, 1997, and for the unaudited six-month periods ended June 28,
1997 and June 27, 1998, respectively.
NOTE 13 -- SAVINGS AND BENEFIT PLANS
The Company maintains a defined contribution plan for all employees with
eligibility conditioned upon full time employment. The Company makes annual
contributions based upon a percent of the employee's annual taxable wages.
Vesting in the plan is according to a graduated scale of one third per year with
full vesting at the end of the third year of employment. The employer
contribution for the ten month period ended December 30, 1995, the years ended
December 28, 1996 and December 27, 1997, and the unaudited six-month periods
ended June 28, 1997 and June 27, 1998 was $72,000, $206,000 and $369,000, $0,
and $0, respectively. Eligible employees are also given the opportunity to make
their own contributions to the plan on a tax deferred basis.
Employee Benefit Plans
In connection with the acquisition of Hubbard, the Company succeeded in
interest to two noncontributory, defined benefit pension plans covering hourly
and salaried employees. The following tables set forth the funded status of the
pension plans and the amount recognized in the Company's balance sheet as of
December 27, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------- -------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested.............................................. $ 5,382 $ 9,739 $15,122
Nonvested........................................... 325 311 636
------- ------- -------
Accumulated benefit obligation.............. 5,707 10,050 15,758
Effect of projected future salary increases........... 1 939 940
------- ------- -------
Projected benefit obligation................ 5,708 10,989 16,698
Market value of plan assets........................... 5,894 15,323 21,217
------- ------- -------
Plan assets in excess of projected benefit
obligation................................ 186 4,334 4,519
Unrecognized net gain................................. (596) (1,449) (2,045)
------- ------- -------
(Pension liability) prepaid pension cost.... $ (410) $ 2,885 $ 2,474
======= ======= =======
</TABLE>
F-43
<PAGE> 133
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------- -------- -------
<S> <C> <C> <C>
The net periodic pension cost (benefit) components
were as follows for the year ended December 27, 1997
(dollars in thousands):
Service cost earned during the year................. $ 54 $ 148 $ 202
Interest cost on projected benefit obligation....... 277 531 808
Actual return on plan assets........................ (1,340) (2,775) (4,115)
Deferred gain....................................... 987 1,882 2,869
------- ------- -------
Pension (benefit)........................... $ (22) $ (214) $ (236)
======= ======= =======
</TABLE>
The principal actuarial assumptions used for December 27, 1997 were:
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN
------ --------
<S> <C> <C>
Discount rate............................................... 7.25% 7.25%
Long-term rate of compensation increase..................... 5.0% 5.0%
Long-term rate of return on plan assets..................... 8.0% 8.0%
</TABLE>
Other Benefits
In connection with the acquisition of Hubbard, the Company acquired a
retiree medical payment plan, which provides health care benefits for eligible
retired associates and their covered dependents and spouses. Employees must be
55 years or older with 10 years of service upon retirement to be eligible for
coverage under the current plan. Depending on the date of retirement, the
retiree must pay the premium cost associated with health care coverage. The plan
is not funded.
The accumulated post-retirement obligation included the following
components (dollars in thousands):
<TABLE>
<S> <C>
Retirees.................................................... $2,046
Eligible active plan participants........................... 114
Other active plan participants.............................. 672
------
Accumulated post-retirement benefit obligation.... 2,832
Unrecognized loss........................................... 318
------
Accrued post-retirement benefit obligation........ $2,514
======
</TABLE>
Under Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, postretirement
benefit expense included the following components (dollars in thousands):
<TABLE>
<S> <C>
Current service............................................. $ 27
Interest on accumulated benefits obligation................. 111
----
Total postretirement benefit expense.............. $138
====
</TABLE>
The discount rate used to determine the accumulated post-retirement benefit
obligation was 7.25%. The assumed health care cost trend rate used to measure
the obligation was 9.7% for 1997. A one-percentage point increase in the assumed
health care cost trend rate would have increased the 1997 accumulated post-
retirement obligation by $341,000.
F-44
<PAGE> 134
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- RELATED PARTY TRANSACTIONS
The Company is party to an Amended and Restated Management Services
Agreement, dated as of May 2, 1997, with Dartford Partnership, L.L.C.
("Dartford") pursuant to which Dartford provides management oversight to the
Company. Management services provided by Dartford include, but are not limited
to, operations oversight, corporate and financial planning, identification of
possible acquisitions and advice on the financing thereof and definition and
development of business opportunities. In the ten-month period ended December
30, 1995, and the years ended December 28, 1996 and December 27, 1997, the
Company paid a total of $250,000, $458,000 and $807,000, respectively, in
management fees to Dartford, a member of LLC, who is also a shareholder of
Holdings. The annual management fee was $250,000 prior to the acquisition of the
Heinz Pet Food Brands, $500,000 prior to the merger of Old Windy Hill and
Hubbard, and $1.0 million after the merger of Old Windy Hill and Hubbard. The
terms of the Amended and Restated Management Services Agreement were negotiated
among the equity investors of Holdings.
In connection with the acquisitions of the Heinz pet food brands and
Hubbard, the Company paid to certain members of LLC and shareholders of
Holdings, who are also represented on the Board of Directors or officers of the
Company and beneficial owners, fees for services rendered in connection with the
acquisitions of Heinz pet food brands and Hubbard and related financing of
acquisitions. The aggregate amount paid to certain members of LLC and
shareholders of Holdings was $2.5 million and was funded by the proceeds of the
financings. Of this $2.5 million, $1.8 million was paid to Dartford and $0.7
million was paid to Bruckmann, Rosser, Sherrill & Co. The fee amounts were
negotiated among the equity investors of Holdings.
The Company paid certain members of LLC fees totaling $420,000 during the
ten-month period ended December 30, 1995 and $525,000 during the year ended
December 28, 1996. The fees were paid for services provided in identifying,
negotiating and consummating the Company's acquisitions. The fees were included
in the costs of the acquisitions.
NOTE 15 -- INCENTIVE COMPENSATION PLAN
The Windy Hill Pet Food Holdings, Inc. Stockholders Agreement
("Stockholders Agreement") dated as of April 29, 1996 and amended as of May 21,
1997, contains an incentive compensation arrangement (the "Incentive Plan") a
means by which certain key employees and other specifically designated persons
("Key Personnel") of the Company, and/or affiliated with the Company, may be
given an opportunity to benefit from the appreciation in value of the Company.
Under the Incentive Plan, Key Personnel were issued non-voting Class B Common
Stock of Holdings ("Class B Stock"), at a $.01 per share, as a means to
participate in the appreciation of the Company. The Class B Stock is subject to
vesting requirements based on terms of employment or other factors. A portion of
the vesting period was deemed achieved at date of issuance of the Class B Stock.
The holders of vested Class B Stock will be entitled to receive certain
payments or distributions based on the amounts paid or distributed to investors
in Holdings. In general, there will be no payments to holders of vested Class B
Stock until the Preferred Series A and B Stock of Holdings ("Preferred Stock")
and associated accrued and unpaid dividends on the Preferred Stock, and Class A
Common Stock of Holdings ("Class A Stock") have received their respective return
of capital. The type of payment will be cash or non-cash consideration,
depending on the type of distribution to the Holdings' investors. Shares of
Class B Stock are convertible into an equal number of shares of Class A Stock
once the Preferred Stock and Class A Stock have received their priority
distribution.
Based on management's assessment of the valuation of the Company at the
date of issuance of the Class B Stock, there was no excess value attributable to
the Class B stock and therefore, no accrual for compensation expense was
necessary.
F-45
<PAGE> 135
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- STOCKHOLDERS' EQUITY
On February 28, 1995, under Old Windy Hill's previous ownership structure,
LLC was initially capitalized with a capital contribution from its members in
the gross amount of $6.0 million. Offering costs associated with this capital
contribution were $109,000. In connection with the acquisition of the Heinz
Business (Note 3), LLC contributed its capital in the net amount of $5.9 million
to Holdings. In exchange for the net capital contribution, LLC was issued Series
B preferred stock and 500 shares of Class A common stock.
On April 29, 1996, Holdings was capitalized with LLC's net capital
contribution and an additional capital contribution from its shareholders in the
gross amount of approximately $4.8 million. Offering costs associated with this
capital contribution were $210,000. The aggregate equity capital along with the
PIK A Notes and the Promissory Note were contributed to the Company and used to
fund the Company's acquisition of certain assets from Heinz.
On May 21, 1997, the shareholders of Holdings contributed an additional
gross capital contribution of $10.0 million. Offering costs associated with this
capital contribution were $224,000. In connection with the acquisition of
Hubbard (Note 3), Holdings contributed its additional capital in the net amount
of approximately $9.8 million to the Company. In exchange for the net capital
contribution, the shareholders were issued 1,428.6 shares of Class A common
stock.
Preferred Stock
Each holder of preferred stock is entitled to a cumulative 10% annual stock
dividend on the stated value through April 29, 2003. Thereafter, each holder is
entitled to a cumulative 12% annual return on the stated value. Each share of
preferred stock (i) is not entitled to vote, with few exceptions, (ii) can be
redeemed at the option of Holdings, and (iii) possess anti-dilution privileges.
The stock dividend is payable upon the Board of Directors' approval and payment
is also restricted by the Credit Agreement. In addition, when the holder of the
Old Note exercised its warrants, the holder was issued 416.667 shares of Series
B preferred stock of Holdings. The Company also has authorized 45,000 shares of
Series A preferred stock with no shares issued.
Common Stock
In addition to the Company's issued and outstanding Class A common stock,
the Company has also authorized 2,000 shares of Class B common stock, with 569
shares issued and outstanding. Under the securities purchase agreements dated
April 29, 1996 and May 21, 1997, certain officers and Dartford were issued Class
B common stock, par value $0.01 per share. In addition, when the holder of the
Old Note exercised its stock warrants, the holder was issued 111.11 shares of
Class A common stock of Holdings and 27.77 shares of Class B common stock of
Holdings.
Warrants
On April 28, 1996, warrants were issued to a bank affiliate (Note 9), which
entitled the holder to purchase up to 10% of the stock of Holdings at a nominal
exercise price. The holder of the warrants was also the holder of the Old Note.
The warrants were subject to anti-dilution covenants. The warrants expired the
later of ten years from closing or four years after the Old Note was repaid. The
holder of the warrants also had the right to "put" the warrants or stock to
Holdings at a price as specified in the agreement, beginning after the earlier
of five years from the closing, a sale or merger of the Company, or an event of
default on the Old Note.
On May 21, 1997, in conjunction with the merger of Hubbard and Old Windy
Hill and payment of the Old Note, the holder of the warrants exercised the
warrants in exchange for 416.667 shares of Series B preferred stock of Holdings,
111.11 shares of Class A common stock of Holdings, 27.77 shares of Class B
F-46
<PAGE> 136
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock of Holdings and was issued a PIK A-1 Promissory Note of Holdings in
the principal amount of $416,667.
NOTE 17 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, the ultimate outcome of any existing litigation will
not have a material adverse effect on the Company's financial condition or
results of operations.
NOTE 18 -- SUBSEQUENT EVENT (UNAUDITED)
On February 23, 1998, the Company acquired all of the assets of the pet
food division (the "AGP Business") of Consolidated Nutrition, L.C. The assets
acquired by the Company include four plants located in the states of Alabama,
Kansas, Missouri and Nebraska. The Company intends to use the acquired assets to
produce its current products. The purchase price was approximately $12.4
million. The acquisition was accounted for using the purchase method of
accounting. The Company financed the acquisition of the AGP Business and related
costs with a $12.5 million borrowing under the terms of its Acquisition
Facility.
F-47
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with threatened, pending
or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in right of the
corporation), brought against them by reason of the fact that they were or are
such directors, officers, employees or agents, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred in any
such action, suit or proceeding. Article VI of the registrant's Bylaws provides
that the registrant shall indemnify each person who is or was made a party to
any actual or threatened civil, criminal, administrative or investigative
action, suit or proceeding because such person is or was an officer or director
of the registrant or is a person who is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
relating to employee benefit plans, to the fullest extent permitted by the
Delaware General Corporation Law as it existed at the time the indemnification
provisions of the registrant's Bylaws were adopted or as may be thereafter
amended.
Section 5 of Article VI of the registrant's Bylaws also provide that the
registrant may maintain insurance, at its own expense, to protect itself and any
director, officer, employee or agent of the registrant or of another entity
against any expense, liability, or loss, regardless of whether the registrant
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article Tenth of the registrant's Certificate of Incorporation contains such a
provision.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of Doane Pet Care Company
(incorporated by reference to Exhibit 3.1 to Doane Pet
Care Company's Registration Statement on Form S-1, Reg.
No. 33-98110 (the "Form S-1"))
3.2 -- Certificate of Amendment to Certificate of Incorporation
of Doane Pet Care Company (incorporated by reference to
Exhibit 3.2 to Doane Pet Care Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (the "1997
Form 10-K"))
3.3 -- Bylaws of Doane Pet Care Company (incorporated by
reference to Exhibit 3.2 to the Form S-1)
4.1 -- Indenture dated November 12, 1998 between Doane Pet Care
Company and Wilmington Trust Company (incorporated by
reference to Exhibit 10.10 of Doane Pet Care Enterprises,
Inc. Registration Statement on Form S-1, Reg. No. 333-
61027 ("Enterprises' Form S-1"))
**4.2 -- Registration Agreement among Doane Pet Care Company,
Donaldson, Lufkin & Jenrette Securities Corporation and
Chase Securities Inc. dated November 12, 1998
*5.1 -- Opinion of Vinson & Elkins L.L.P.
</TABLE>
II-1
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
9.1 -- Amended and Restated Investors' Agreement dated as of
August 3, 1998 among Doane Pet Care Company, Doane Pet
Care Enterprises, Inc., Summit Capital Inc., Summit/DPC
Partners, L.P., Chase Manhattan Investment Holdings,
Inc., Baseball Partners, DLJ Merchant Banking Partners,
L.P., DLJ International Partners, C.V., DLJ Offshore
Partners, C.V., DLJ Merchant Banking Funding, Inc., DLJ
First ESC, L.P., Dartford Partnership, L.L.C., Bruckmann,
Rosser, Sherrill & Co., L.P., PNC Capital Corp, Windy
Hill Pet Food Company, L.L.C. and certain other persons
named therein (incorporated by reference to Exhibit 9.1
of Enterprises' Form S-1)
**9.2 -- First Amendment to First Amended and Restated Investors'
Agreement dated as of October 14, 1998 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First ESC, L.P., Dartford
Partnership, L.L.C., Bruckmann, Rosser, Sherrill & Co.,
L.P., PNC Capital Corp, Windy Hill Pet Food Company,
L.L.C. and certain other persons named therein
9.3 -- Second Amendment to First Amended and Restated Investor's
Agreement dated as of February 4, 1999 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First ESC, L.P., Dartford
Partnership, L.L.C., Bruckmann, Rosser, Sherrill & Co.,
L.P., PNC Capital Corp, Windy Hill Pet Food Company,
L.L.C. and certain other persons named therein
(incorporated by reference to Exhibit 9.3 to Enterprises'
Form S-1)
10.1 -- Early Retirement Agreement and Release effective as of
June 30, 1998 between Doane Pet Care Company and Bob L.
Robinson (incorporated by reference to Exhibit 10.1 of
Enterprises' Form S-1)
10.2 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Douglas J. Cahill (incorporated by
reference to Exhibit 10.3 to the 1997 Form 10-K)
10.3 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Thomas R. Heidenthal (incorporated
by reference to Exhibit 10.4 to the 1997 Form 10-K)
**10.4 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Richard D. Wohlschlaeger
**10.5 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Richard A. Hannasch
**10.6 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and David L. Horton
10.7 -- Doane Pet Care Enterprises, Inc.'s 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to Doane Pet
Care Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.8 -- First Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.8 to the 1997 Form 10-K)
10.9 -- Second Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.9 to the 1997 Form 10-K)
10.10 -- Termination and Dissolution Agreement, dated March 25,
1998, between Flint River Mills, Inc. and Windy Hill Pet
Food Company, Inc. (incorporated by reference to the
Quarterly Report of Windy Hill Pet Food, Inc. on Form
10-Q filed on May 12, 1998)
</TABLE>
II-2
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11 -- Revolving Credit and Term Loan Agreement dated as of
November 12, 1998 among Doane Pet Care Company, Doane Pet
Care Enterprises, Inc., DLJ Capital Funding, Inc., as
syndication agent, Mercantile Bank National Association,
as documentation agent, and The Chase Manhattan Bank, as
administrative agent, and the banks named therein
(incorporated by reference to Exhibit 10.11 of
Enterprises' Form S-1)
10.12 -- Employment Agreement dated February 15, 1999, between
Doane Pet Care Company and Philip K. Woodlief
(incorporated by reference to Exhibit 10.14 to
Enterprises' Form S-1)
*21.1 -- List of subsidiaries of Doane Pet Care Company
*23.1 -- Consent of KPMG LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
**24.1 -- Powers of Attorney
*25.1 -- Statement of Eligibility of Trustee
27.1 -- Financial Data Schedule (incorporated by reference to
Exhibit 27.1 to Doane Pet Care Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998
Form 10-K")
*99.1 -- Form of Letter of Transmittal
</TABLE>
- ------------------------------
* Filed herewith.
** Previously filed.
(b) Consolidated Financial Statement Schedules, Years ended December 31,
1995, 1996 and 1997.
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
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 of expenses
incurred or paid by a director, officer or controlling person of 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.
II-3
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on the 1st
day of April, 1999.
DOANE PET CARE 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
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
* Chairman of the Board and Director April 1, 1999
- -----------------------------------------------------
George B. Kelly
* Chief Executive Officer, President April 1, 1999
- ----------------------------------------------------- and Director (Principal
Douglas J. Cahill Executive Officer)
/s/ THOMAS R. HEIDENTHAL Senior Vice President and Chief April 1, 1999
- ----------------------------------------------------- Financial Officer (Principal
Thomas R. Heidenthal Financial Officer and Principal
Accounting Officer)
* Director April 1, 1999
- -----------------------------------------------------
Peter T. Grauer
* Director April 1, 1999
- -----------------------------------------------------
M. Walid Mansur
* Director April 1, 1999
- -----------------------------------------------------
Bob L. Robinson
* Director April 1, 1999
- -----------------------------------------------------
Jeffrey C. Walker
* Director April 1, 1999
- -----------------------------------------------------
Ray Chung
* Director April 1, 1999
- -----------------------------------------------------
Stephen C. Sherrill
*By: /s/ THOMAS R. HEIDENTHAL April 1, 1999
------------------------------------------------
Thomas R. Heidenthal,
as attorney-in-fact
</TABLE>
II-4
<PAGE> 141
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of Doane Pet Care Company
(incorporated by reference to Exhibit 3.1 to the Form
S-1)
3.2 -- Certificate of Amendment to Certificate of Incorporation
of Doane Pet Care Company (incorporated by reference to
Exhibit 3.2 to the 1997 Form 10-K)
3.3 -- Bylaws of Doane Pet Care Company (incorporated by
reference to Exhibit 3.2 to the Form S-1)
4.1 -- Indenture dated November 12, 1998 between Doane Pet Care
Company and Wilmington Trust Company (incorporated by
reference to Exhibit 10.10 to Enterprises' Form S-1)
**4.2 -- Registration Agreement among Doane Pet Care Company,
Donaldson, Lufkin & Jenrette Securities Corporation and
Chase Securities Inc. dated November 12, 1998
*5.1 -- Opinion of Vinson & Elkins L.L.P.
9.1 -- Amended and Restated Investors' Agreement dated as of
August 3, 1998 among Doane Pet Care Company, Doane Pet
Care Enterprises, Inc., Summit Capital Inc., Summit/DPC
Partners, L.P., Chase Manhattan Investment Holdings,
Inc., Baseball Partners, DLJ Merchant Banking Partners,
L.P., DLJ International Partners, C.V., DLJ Offshore
Partners, C.V., DLJ Merchant Banking Funding, Inc., DLJ
First ESC, L.P., Dartford Partnership, L.L.C., Bruckmann,
Rosser, Sherrill & Co., L.P., PNC Capital Corp, Windy
Hill Pet Food Company, L.L.C. and certain other persons
named therein (incorporated by reference to Exhibit 9.1
of Enterprises' Form S-1)
**9.2 -- First Amendment to First Amended and Restated Investors'
Agreement dated as of October 14, 1998 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First ESC, L.P., Dartford
Partnership, L.L.C., Bruckmann, Rosser, Sherrill & Co.,
L.P., PNC Capital Corp, Windy Hill Pet Food Company,
L.L.C. and certain other persons named therein
9.3 -- Second Amendment to First Amended and Restated Investor's
Agreement dated as of February 4, 1999 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First ESC, L.P., Dartford
Partnership, L.L.C., Bruckmann, Rosser, Sherrill & Co.,
L.P., PNC Capital Corp, Windy Hill Pet Food Company,
L.L.C. and certain other persons named therein
(incorporated by reference to Exhibit 9.3 to Enterprises'
Form S-1)
10.1 -- Early Retirement Agreement and Release effective as of
June 30, 1998 between Doane Pet Care Company and Bob L.
Robinson (incorporated by reference to Exhibit 10.1 of
Enterprises' Form S-1)
10.2 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Douglas J. Cahill (incorporated by
reference to Exhibit 10.3 to the 1997 Form 10-K)
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Thomas R. Heidenthal (incorporated
by reference to Exhibit 10.4 to the 1997 Form 10-K)
**10.4 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Richard D. Wohlschlaeger
**10.5 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and Richard A. Hannasch
**10.6 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Company and David L. Horton
10.7 -- Doane Pet Care Enterprises, Inc.'s 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to Doane Pet
Care Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.8 -- First Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.8 to the 1997 Form 10-K)
10.9 -- Second Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.9 to the 1997 Form 10-K)
10.10 -- Termination and Dissolution Agreement, dated March 25,
1998, between Flint River Mills, Inc. and Windy Hill Pet
Food Company, Inc. (incorporated by reference to the
Quarterly Report of Windy Hill Pet Food, Inc. on Form
10-Q filed on May 12, 1998)
10.11 -- Revolving Credit and Term Loan Agreement dated as of
November 12, 1998 among Doane Pet Care Company, Doane Pet
Care Enterprises, Inc., DLJ Capital Funding, Inc., as
syndication agent, Mercantile Bank National Association,
as documentation agent, and The Chase Manhattan Bank, as
administrative agent, and the banks named therein
(incorporated by reference to Exhibit 10.11 of
Enterprises' Form S-1)
10.12 -- Employment Agreement dated February 15, 1999, between
Doane Pet Care Company and Philip K. Woodlief
(incorporated by reference to Exhibit 10.14 to
Enterprises' Form S-1)
*21.1 -- List of subsidiaries of Doane Pet Care Company
*23.1 -- Consent of KPMG LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
**24.1 -- Powers of Attorney
*25.1 -- Statement of Eligibility of Trustee
27.1 -- Financial Data Schedule (incorporated by reference to
Exhibit 27.1 to the 1998 Form 10-K)
*99.1 -- Form of Letter of Transmittal
</TABLE>
- ------------------------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 5.1
[VINSON & ELKINS L.L.P. Letterhead]
___________ __, 1999
Doane Pet Care Company
103 Powell Court
Suite 200
Brentwood, Tennessee 37027
Ladies and Gentlemen:
We have acted as counsel to Doane Pet Care Company, a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Company's 9 3/4%
Senior Subordinated Notes due 2007 (the "Notes").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of (i) the Certificate of Incorporation, as amended, and
Bylaws of the Company, (ii) the Indenture dated as of November 12, 1998 (the
"Indenture") by and among the Company and Wilmington Trust Company, as trustee
(the "Trustee"), and (iii) such other certificates, statutes and other
instruments and documents as we considered appropriate for purposes of the
opinions hereafter expressed.
In connection with this opinion, we have assumed that the Registration
Statement, and any amendments thereto (including post-effective amendments),
will have become effective and the Notes will be issued and sold in compliance
with applicable federal and state securities laws and in the manner described in
the Registration Statement and the applicable Prospectus.
Based on the foregoing, we are of the opinion that when the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended, and
the Notes have been duly executed, authenticated, issued and delivered in
accordance with the provisions of the Indenture, such Notes will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforcement is subject to any
applicable bankruptcy, insolvency, reorganization or other law relating to or
affecting creditors' rights generally and general principles of equity, and will
be entitled to the benefits of the Indenture.
<PAGE> 2
Doane Pet Care Company
Page 2
______________ __, 1999
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Prospectus forming a part of he Registration Statement. By
giving such consent, however, we do not admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission issued thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF DOANE PET CARE COMPANY
<TABLE>
<CAPTION>
Name of Subsidiary Place of Incorporation/Organization
------------------ -----------------------------------
<S> <C>
DPC International Limited United Kingdom
Doane Pet Care Spain, S.A. Spain
IPES IBERICA, S.A. Spain
Effeffe, S.p.a. Italy
Doane/Windy Hill Delaware
Joint Venture Corp.
Doane/Windy Hill Joint Texas
Venture, LLC
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Doane Pet Care Company
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the registration
statement.
/s/ KMPG LLP
Houston, Texas
March 31, 1999
<PAGE> 1
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _____
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
DOANE PET CARE COMPANY
(Exact name of obligor as specified in its charter)
Delaware 43-1350515
(State of incorporation) (I.R.S. employer identification no.)
103 Powell Court, Suite 200
Brentwood, Tennessee 37027
(Address of principal executive offices) (Zip Code)
9 3/4% Senior Subordinated Notes due 2007
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes
the certificate of authority of Wilmington Trust Company to
commence business and the authorization of Wilmington Trust
Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b)
of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Wilmington Trust Company, a corporation organized and existing under
the laws of Delaware, has duly caused this Statement of Eligibility to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the City of
Wilmington and State of Delaware on the 22nd day of January, 1999.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ DONALD G. MACKELCAN By:/s/ EMMETT R. HARMON
--------------------------- ------------------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE> 5
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
2
<PAGE> 6
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual
3
<PAGE> 7
owners thereof, including the right to vote thereon; to
invest and deal in and with any of the moneys of the
Corporation upon such securities and in such manner as it
may think fit and proper, and from time to time to vary or
realize such investments; to issue bonds and secure the same
by pledges or deeds of trust or mortgages of or upon the
whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
4
<PAGE> 8
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of
5
<PAGE> 9
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article FOURTH), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
FOURTH), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to
6
<PAGE> 10
receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article FOURTH and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article FOURTH that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
7
<PAGE> 11
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the By-Laws of the Corporation),
any director or the entire Board of Directors of the
8
<PAGE> 12
Corporation may be removed at any time without cause, but only by
the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called
for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
9
<PAGE> 13
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
10
<PAGE> 14
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on
11
<PAGE> 15
such business combination, or immediately prior to the consummation
of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
12
<PAGE> 16
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
13
<PAGE> 17
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 18
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its
<PAGE> 19
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who
2
<PAGE> 20
shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
3
<PAGE> 21
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than
4
<PAGE> 22
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of
5
<PAGE> 23
Directors shall preside at all meetings of the Board of Directors at which the
Chairman of the Board shall not be present and shall have such further authority
and powers and shall perform such duties as the Board of Directors or the
Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE> 24
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
7
<PAGE> 25
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
8
<PAGE> 26
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, 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, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses
9
<PAGE> 27
under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 28
EXHIBIT C
SECTION 321(b) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939,
Wilmington Trust Company hereby consents that reports of examinations by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: January 22, 1999 By: /s/ EMMETT R. HARMON
---------------------------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE> 29
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- --------------------------------------------- ----------
Name of Bank City
in the State of DELAWARE, at the close of business on September 30, 1998.
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.......................................... 180,755
Interest-bearing balances.................................................................... 0
Held-to-maturity securities.............................................................................. 148,529
Available-for-sale securities............................................................................ 1,216,482
Federal funds sold and securities purchased under agreements to resell................................... 203,500
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,951,771
LESS: Allowance for loan and lease losses. . . . . . 64,835
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve............................ 3,886,936
Assets held in trading accounts......................................................................... 0
Premises and fixed assets (including capitalized leases)................................................ 137,819
Other real estate owned................................................................................. 1,847
Investments in unconsolidated subsidiaries and associated companies..................................... 997
Customers' liability to this bank on acceptances outstanding............................................ 0
Intangible assets....................................................................................... 3,105
Other assets............................................................................................ 82,400
Total assets............................................................................................ 5,862,370
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 30
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices.................................................................................... 4,338,785
Noninterest-bearing . . . . . . . . 792,528
Interest-bearing. . . . . . . . . . 3,546,257
Federal funds purchased and Securities sold under agreements to repurchase............................. 249,670
Demand notes issued to the U.S. Treasury............................................................... 74,347
Trading liabilities (from Schedule RC-D)............................................................... 0
Other borrowed money:.................................................................................. ///////
With original maturity of one year or less................................................. 576,507
With original maturity of more than one year............................................... 43,000
Bank's liability on acceptances executed and outstanding............................................... 0
Subordinated notes and debentures...................................................................... 0
Other liabilities (from Schedule RC-G)................................................................. 104,687
Total liabilities...................................................................................... 5,386,996
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................................................. 0
Common Stock.............................................................................................. 500
Surplus (exclude all surplus related to preferred stock).................................................. 62,118
Undivided profits and capital reserves.................................................................... 399,222
Net unrealized holding gains (losses) on available-for-sale securities.................................... 13,534
Total equity capital...................................................................................... 475,374
Total liabilities, limited-life preferred stock, and equity capital.......................................5,862,370
</TABLE>
2
<PAGE> 1
EXHIBIT 99.1
DOANE PET CARE COMPANY
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES 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 _____________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE")
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE
DELIVER TO THE EXCHANGE AGENT:
WILMINGTON TRUST COMPANY
<TABLE>
<S> <C> <C>
By Registered or Certified Mail or
Overnight Courier: By Hand in New York City: By Hand in Delaware:
Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company
Rodney Square North c/o Harris Trust Co. of New York, 1105 North Market Street,
1100 North Market Street as Agent 1st Floor
Wilmington, Delaware 19890 88 Pine Street, 19th Floor Wilmington, Delaware 19890
Attn: Corporate Trust Operations Wall Street Plaza Attn: Corporate Trust Operations
New York, New York 10005
Attn: Corporate Trust Operations
</TABLE>
By Facsimile Transmission:
(for Eligible Institutions Only)
(302) 651-1079
Confirm by Telephone:
(302) 651-1562
Kristin Long
--------------------
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 ___________, 1999 of Doane Pet Care Company, a Delaware corporation (the
"Company"), and this Letter of Transmittal, which together describe the offer of
the Company (the "exchange offer") to exchange the Company's 9 3/4% Senior
Subordinated Notes due 2007 (the "exchange notes"), 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 principal
amount of the Company's issued and outstanding 9 3/4% Senior Subordinated Notes
due 2007 (the "old notes"). Certain 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 give notice of any extension by giving oral, confirmed in writing, or
written notice to the exchange agent and by making a public announcement by
press release to the Dow Jones News Service prior to 9:00 a.m., New York City
time, on the first business day after the previously scheduled expiration date.
The term "business day" shall mean any day that is not a Saturday, Sunday or day
on which banks are authorized by law to close in the State of New York.
<PAGE> 2
This Letter of Transmittal is to be used by a holder of old notes if
original old notes, if available, are to be forwarded herewith or an agent's
message is to be used if delivery of old notes is to be made by book-entry
transfer to the account 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 Old Notes." Holders of old notes whose old notes are not immediately
available, or who are unable to deliver their old notes 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 notes according to the
guaranteed delivery procedures set forth in the prospectus under the caption
"The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed
Delivery." See Instruction 2. 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 notes are registered on the books of the Company or any other
person who has obtained a properly completed bond 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 notes 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 notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
DESCRIPTION OF OLD NOTES TENDERED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered
Holder(s) Exactly as Name(s)
Appear(s) on Old Notes
(Please Fill In, If Blank) Old Note(s) Tendered
- -----------------------------------------------------------------------------------------------------------
Aggregate Principal Principal
Registered Amount Represented by Amount
Number(s)* Note(s) Tendered**
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of old notes will be
deemed to have tendered the entire aggregate principal amount represented
by such old notes. All tenders must be in integral multiples of $1,000.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES 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:
--------------------------------------------------------
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED OLD NOTES 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 notes:
-----------------------------------
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 principal amount of old notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of old notes 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 notes 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 notes with
full power of substitution to:
o deliver such old notes, or transfer ownership of such old notes on the
account books maintained by the book-entry transfer facility, to the
Company and deliver all accompanying evidences of transfer and
authenticity, and
o present such old notes for transfer on the books of the Company and
receive all benefits and otherwise exercise all rights of beneficial
ownership of such old notes,
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 notes
tendered hereby and to acquire the exchange notes issuable upon the exchange of
such tendered old notes, 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 notes issued in
exchange for the old notes 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 notes exchanged for such exchange notes 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 notes 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 notes. The undersigned
specifically represent(s) to the Company that:
3
<PAGE> 4
o any exchange notes acquired in exchange for old notes tendered hereby
are being acquired in the ordinary course of business of the person
receiving such exchange notes, whether or not the undersigned;
o the undersigned is not participating in, and has no arrangement with
any person to participate in, the distribution of exchange notes;
o 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 notes acquired directly from the Company.
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 notes. If the undersigned is a broker-dealer that will receive exchange
notes for its own account in exchange for old notes 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
notes; 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 notes:
o 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
notes, 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
o 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 notes
tendered hereby, including the transfer of such old notes 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 notes when, as and if the Company
gives oral or written notice thereof to the exchange agent. Any tendered old
notes 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
notes by the Company pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering Old Notes" 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 notes issued in exchange for the old notes accepted for
exchange and return any old notes not tendered or not exchanged, in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the exchange notes issued in
exchange for the old notes accepted for exchange and any old notes not tendered
or 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 notes issued in exchange for the old notes
accepted for exchange in the name(s) of, and return any old notes not tendered
or 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 notes from the name of
the registered holder(s) thereof if the Company does not accept for exchange any
of the old notes so tendered for exchange.
4
<PAGE> 5
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if old notes in a principal amount not tendered, or
exchange notes issued in exchange for old notes accepted for exchange, are to be
issued in the name of someone other than the undersigned, or (ii) if old notes
tendered by book-entry transfer that are not exchanged are to be returned by
credit to an account maintained at the book-entry transfer facility other than
the account indicated above.
Issue exchange notes and/or old notes to:
Name:
---------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
[ ] Credit unexchanged old notes 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)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed only if old notes in a principal amount not tendered, or
exchange notes issued in exchange for old notes accepted for exchange, are to be
mailed or delivered to someone other than the undersigned, or to the undersigned
at an address other than that shown below the undersigned's signature.
Mail or deliver exchange notes and/or old notes to:
Name:
---------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
5
<PAGE> 6
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X
------------------------------------------------------------------------------
X
------------------------------------------------------------------------------
(Signature(s) of Registered Holders of Old Notes)
Dated: ________________________________________, 1999
(The above lines must be signed by the registered holder(s) of old notes as
name(s) appear(s) on the old notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by a properly completed bond
power from the registered holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If old notes 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
set forth his or her full title below and, 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:___________________________________________________________________ , 1999
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered old notes or any confirmation of a
book-entry transfer to the exchange agent's account at the book-entry transfer
facility of old notes 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 facsimile hereof) or agent's message, 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 notes,
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 notes should be sent
to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their old
notes and whose old notes are not immediately available or who cannot deliver
their old notes, 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 notes according to the guaranteed delivery
procedures set forth in the prospectus. Pursuant to such procedures:
o such tender must be made by or through a firm that 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");
o 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
notes, the registration number(s) of such old notes and the total
principal amount of old notes 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 notes 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
o the certificates for all physically tendered shares of old notes, 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 notes who wishes to tender old notes 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
notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed
Delivery" section of the prospectus.
3. Tender by Holder. Only a holder of old notes may tender such old notes
in the exchange offer. Any beneficial holder of old notes 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 notes, either make appropriate arrangements to register ownership of the old
notes in such holder's name or obtain a properly completed bond power from the
registered holder.
4. Partial Tenders. Tenders of old notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any old notes
is tendered, the tendering holder should fill in the principal amount tendered
in the third column of the box entitled "Description of Old Notes Tendered"
above. The entire principal amount of old notes delivered to the exchange agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all old notes is not tendered, then old notes for the
principal amount of old notes not tendered and exchange notes issued in exchange
for any old notes accepted will be sent to the holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, promptly after the old notes are accepted for exchange.
7
<PAGE> 8
5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the record holder(s) of the old notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the old notes 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 notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of old notes listed and tendered hereby and the
exchange notes issued in exchange therefor are to be issued (or any untendered
principal amount of old notes is to be reissued) to the registered holder, the
said holder need not and should not endorse any tendered old notes, nor provide
a separate bond power. In any other case, such holder must either properly
endorse the old notes tendered or transmit a properly completed separate bond
power with this Letter of Transmittal, with the signatures on the endorsement or
bond 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 notes listed, such old
notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered holder or holders appears on the old notes.
If this Letter of Transmittal (or facsimile hereof) or any old notes or
bond 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 notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an eligible institution.
No signature guarantee is required if :
o this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder(s) of the old notes 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 notes) and
the exchange notes 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 Issuance Instructions" has
been completed; or
o such old notes 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.
6. Special Issuance 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 notes or substitute old
notes for principal amounts not tendered or 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.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of old notes pursuant to the exchange offer. If,
however, exchange notes or old notes for principal amounts 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 notes
tendered hereby, or if tendered old notes 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 notes
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 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a holder
of any old notes that 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
8
<PAGE> 9
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:
o 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
o the Internal Revenue Service has notified the holder that such holder
is no longer subject to backup withholding.
If the old notes are registered in more than one name or are not in the name of
the actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number on 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.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered old notes
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 notes not properly tendered or any old notes the 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 notes. 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 notes 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 notes nor shall any of them incur any liability
for failure to give such notification.
10. 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.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of old notes or transmittal of this Letter of Transmittal will
be accepted.
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose old
notes have been mutilated, lost, stolen or destroyed should contact the exchange
agent at the address indicated above for further instructions.
13. 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.
14. Withdrawal. Tenders may be withdrawn only pursuant to the 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 NOTES 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.
9
<PAGE> 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN
IN THE BOX AT THE RIGHT AND --------------------------------------------
FORM W-9 CERTIFY BY SIGNING AND DATING Social Security Number(s)
BELOW
OR
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
--------------------------------------------
Employer Identification Number
- ---------------------------------------------------------------------------------------------------------------------------------
PART 2-- Certification-- Under penalties PART 3--
of perjury, I certify that:
(1) The number shown on this form is my Awaiting TIN |_|
correct Taxpayer Identification
Number (or I am waiting for a number
to be issued to me) and
PAYER'S REQUEST FOR TAXPAYER (2) I am not subject to backup
IDENTIFICATION NUMBER (TIN) withholding either because I Please complete the Certificate
have not been notified by Internal of Awaiting Taxpayer Identification
Revenue Service ("IRS") that I am Number below.
subject to backup withholding as a
result of failure to report all
interest or dividends or the IRS has
notified me that I am no longer
subject to backup withholding.
Certification 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 returns. 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 , 1999
--------------------------- -----------------
NAME (Please Print)
------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
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.
, 1999
- ---------------------------------- -----------------------
Signature Date
- ----------------------------------
Name (Please Print)
10
<PAGE> 11
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).
, 1999
- ---------------------------------- -----------------------
Signature Date
11
