<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997.
REGISTRATION NO. 333-30261
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WINDY HILL PET FOOD COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 2047 41-0323270
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
------------------------------
TWO MARYLAND FARMS
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
ROBERT V. DALE
PRESIDENT
WINDY HILL PET FOOD COMPANY, INC.
TWO MARYLAND FARMS
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Name, address, including ZIP Code, and telephone number, including area code,
of agent for service)
------------------------------
<TABLE>
<S> <C>
COPIES TO:
MR. RAY CHUNG NANCY YOUNG, ESQ.
DARTFORD PARTNERSHIP L.L.C. RICHARDS & O'NEIL, LLP
456 MONTGOMERY STREET 885 THIRD AVENUE
SUITE 2200 NEW YORK, NEW YORK 10022-4802
SAN FRANCISCO, CALIFORNIA 94104 (212) 207-1200
(415) 982-3019
</TABLE>
------------------------
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. / /
------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-4 ITEM AND CAPTION LOCATION OR PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover Page
of Prospectus......................................
3. Risk Factors, Ratio of Earnings to Fixed Charges and Prospectus Summary; Risk Factors; The Company;
Other Information.................................. Selected Historical Financial Data; and Pro Forma
Financial Information
4. Terms of the Transaction............................. Prospectus Summary; Risk Factors; The Exchange Offer;
Description of Notes
5. Pro Forma Financial Information...................... Prospectus Summary; Pro Forma Financial Information
6. Material Contacts with the Company Being Acquired.... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... Not Applicable
8. Interests of Named Experts and Counsel............... Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not Applicable
10. Information with Respect to S-3 Registrants.......... Not Applicable
11. Incorporation of Certain Information by Reference.... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information with Respect to Registrants Other Than Outside Front Cover Page; Prospectus Summary; Risk
S-3 or S-2 Registrants............................. Factors; The Company; Capitalization; Selected
Historical Financial Data; Pro Forma Financial
Information; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Financial Statements
15. Information with Respect to S-3 Companies............ Not Applicable
16. Information with Respect to S-2 or S-3 Companies..... Not Applicable
17. Information with Respect to Companies Other Than S-3
or S-2 Companies................................... Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................ Not Applicable
19. Information if Proxies, Consents or Authorizations Management; Security Ownership; Certain Related
are not to be Solicited or in an Exchange Offer.... Transactions
</TABLE>
<PAGE>
PROSPECTUS
OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
NOTWITHSTANDING THE DESIGNATION OF THE NOTES AS SENIOR SUBORDINATED NOTES, THE
COMPANY HAS NOT ISSUED AND HAS NO CURRENT FIRM ARRANGEMENTS TO ISSUE ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE NOTES WOULD BE SENIOR, AND THE OLD NOTES
ARE, AND THE NEW NOTES WILL BE, EFFECTIVELY SUBORDINATE TO ESSENTIALLY ALL OF
THE EXISTING OUTSTANDING INDEBTEDNESS OF THE COMPANY OR ITS SUBSIDIARIES.
WINDY HILL PET FOOD COMPANY, INC.
[LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME ON OCTOBER 11, 1997, UNLESS EXTENDED
Windy Hill Pet Food Company, Inc., a Minnesota corporation (the "Company")
hereby offers to exchange an aggregate principal amount of up to $120,000,000 of
its 9 3/4% Senior Subordinated Notes due 2007 (the "New Notes") for a like
principal amount of its 9 3/4% Senior Subordinated Notes due 2007 (the "Old
Notes") outstanding on the date hereof upon terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the "Exchange Offer"). The New Notes and Old Notes
are collectively referred to herein as the "Notes." The terms of the New Notes
are identical in all material respects to those of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes.
The New Notes will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined) governing the Old Notes.
Additionally, interest on the New Notes will accrue from the last interest
payment date on which interest was paid on the Old Notes surrendered in exchange
therefor or, if no interest has been paid on the Old Notes, from the date of
original issue of the Old Notes.
Interest on the New Notes is payable semiannually on May 15 and November 15 of
each year, commencing on November 15, 1997. The New Notes will mature on May 15,
2007. Except as described below, the Company may not redeem the New Notes prior
to May 15, 2002. On or after such date, the Company may redeem the New Notes in
whole or in part, at any time at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time and from time to time on or prior to May 15, 2000, the
Company may, subject to certain requirements, redeem up to $42 million of the
aggregate principal amount of the Notes with the cash proceeds of one or more
Equity Offerings (as defined) at a redemption price equal to 109.750% of the
principal amount to be redeemed, together with accrued and unpaid interest, if
any, to the date of redemption, provided that at least $78 million of the
aggregate principal amount of the Notes remain outstanding after each such
redemption. The New Notes will not be subject to any sinking fund requirement.
The Indenture provides that upon the occurrence of a Change of Control (as
defined) (i) the Company will have the option, at any time on or prior to May
15, 2002, to redeem the New Notes in whole but not in part at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium set
forth herein, plus accrued and unpaid interest to the date of redemption and
(ii) if the Company does not so redeem the New Notes or if such Change of
Control occurs after May 15, 2002, any holder of New Notes has the right to
cause the Company to repurchase the New Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of purchase. However, there can be no assurance that the Company will
have sufficient funds available to repurchase the New Notes upon a Change of
Control. The Change of Control provisions will not afford any protection in a
highly leveraged transaction which does not constitute a Change of Control. See
"Description of the Notes--Change of Control."
The New Notes will be unsecured and will be subordinated to all existing and
future Senior Indebtedness (as defined) of the Company and will be effectively
subordinated to all obligations of any subsidiaries of the Company as may exist
from time to time. The Company does not have any active subsidiaries. See
"Description of Notes -- General." However, the Indenture will not restrict the
ability of the Company to create, acquire, or capitalize subsidiaries in the
future. The New Notes will rank PARI PASSU with any future Senior Subordinated
Indebtedness of the Company and will rank senior to all other subordinated
indebtedness of the Company. The Indenture contains certain covenants which
limit the Company's and any of its subsidiary's ability to incur additional
significant indebtedness. See "Description of Notes -- Certain Covenants --
Limitation on Indebtedness." The Company has no current or pending arrangements
or agreements to incur any additional significant indebtedness to which the New
Notes would be subordinate. As of April 30, 1997, on a pro forma basis after
giving effect to the Transaction and the AF Sale (as defined), the aggregate
amount of the Company's outstanding Senior Indebtedness would have been
approximately $15 million (excluding unused commitments of $65 million under the
Senior Bank Facilities) and the Company would have had no Senior Subordinated
Indebtedness outstanding other than the Notes. See "Description of Notes --
Ranking." The Senior Bank Facilities which in aggregate principal amount cannot
exceed $85 million are secured by the assets of the Company and any subsidiary
and are senior to the Notes.
SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS
OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
-----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1997.
<PAGE>
(CONTINUED FROM COVER)
The Old Notes were originally issued and sold on May 21, 1997 (the "Closing
Date") in a transaction not registered under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon the exemptions provided in Rule
144A and Regulation D under the Securities Act. Accordingly, the Old Notes may
not be reoffered, resold, or otherwise pledged, hypothecated, or transferred in
the United States unless so registered or unless an applicable exemption from
the registration requirements of the Securities Act is available.
The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on October 11, 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, the Company will promptly return the Old
Notes to the holders thereof. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange, but is
otherwise subject to certain customary conditions. The Old Notes may be tendered
only in integral multiples of $1,000.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement, dated as of May 21, 1997 (the "Exchange and Registration Rights
Agreement"), by and between the Company, Chase Securities Inc., and Credit
Suisse First Boston Corporation, as the initial purchasers (the "Initial
Purchasers"), with respect to the initial sale of the Old Notes. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") rendered to third parties in similar transactions, the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by respective holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the New Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes and is not engaged in and does
not intend to engage in a distribution of the New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. Only broker-dealers which acquired the Old Notes as a result of
market making activities or other trading activities may participate in the
Exchange Offer. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of the New Notes received in exchange
for Old Notes if such New Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
There has not previously been any public market for the New Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the New Notes will develop. To the extent
that an active market for the New Notes does develop, the market value of the
New Notes will depend on market conditions (such as yields on alternative
investments), general economic conditions, the Company's financial condition,
and other factors. Such conditions might cause the New Notes, to the extent that
they are actively traded, to trade at a significant discount from face values.
See "Risk Factors -- Lack of Public Market."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses incident to the Exchange Offer.
ii
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON.
------------------------
Until December 10, 1997, (90 days after commencement of this offering), all
dealers effecting transactions in the New Notes, whether or not participating in
this offering, may be required to deliver a Prospectus.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (the "Registration Statement") under the Securities Act, with respect to the
New Notes. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Items of information omitted from this Prospectus but contained in
the Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the following regional offices of
the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. Electronic filings filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR")
are publicly available through the Commission's home page on the Internet at
http://www.sec.gov.
As a result of this offering, the Company will become subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In the event that the
Company ceases to be subject to the informational requirements of the Exchange
Act, the Company has agreed to file with the Commission and provide to the
Trustee and the holders of Notes annual reports and the information, documents
and other reports otherwise required pursuant to Sections 13 and 15(d) of the
Exchange Act. See "Description of Notes--Certain Covenants--SEC Reports."
------------------------
Except as provided below, the New Notes will be available initially only in
book-entry form. The Company expects that, except as provided below, the New
Notes sold pursuant hereto will be issued in the form of one fully registered
global note (the "Global Note"). The Global Note will be deposited with, or on
behalf of, The Depositary Trust Company ("DTC") and registered in its name or in
the name of Cede & Co., its nominee. Beneficial interests in the Global Note
representing the New Notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its participants. After the
initial issuance of the Global Note, New Notes in certificated form will be
issued in exchange for the Global Note only as set forth in the Indenture.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN
THIS PROSPECTUS, UNLESS THE CONTEXT REQUIRES OTHERWISE, (I) THE "COMPANY" MEANS
WINDY HILL PET FOOD COMPANY, INC., WHICH INCLUDES HUBBARD AND THE BUSINESS OF
OLD WINDY HILL PRIOR TO THE TRANSACTION, (II) "HOLDINGS" MEANS WINDY HILL PET
FOOD HOLDINGS, INC., A DELAWARE CORPORATION, (III) "HUBBARD" MEANS THE HUBBARD
PET FOOD BUSINESS OF HUBBARD MILLING, (IV) "HUBBARD MILLING" MEANS HUBBARD
MILLING COMPANY, A MINNESOTA CORPORATION, (V) "MERGERSUB" MEANS WINDY HILL PET
FOOD ACQUISITION CO., A MINNESOTA CORPORATION AND A WHOLLY-OWNED SUBSIDIARY OF
OLD WINDY HILL, (VI) "OLD WINDY HILL" MEANS WINDY HILL PET FOOD COMPANY, INC., A
DELAWARE CORPORATION AND A WHOLLY-OWNED SUBSIDIARY OF HOLDINGS, PRIOR TO
COMPLETION OF THE TRANSACTION, AND (VII) "WHPF" MEANS OLD WINDY HILL AFTER THE
COMPLETION OF THE TRANSACTION WHEN IT WAS RENAMED WHPF INC. EXCEPT AS OTHERWISE
INDICATED, (I) ALL REFERENCES TO THE COMPANY'S SALES REFER TO THE COMBINED PRO
FORMA NET SALES BASED ON THE HISTORICAL STATEMENTS OF HUBBARD AND OLD WINDY
HILL, (II) ALL REFERENCES TO THE PET FOOD INDUSTRY REFER TO THE U.S. DOG AND CAT
PET FOOD INDUSTRY, (III) ALL REFERENCES TO THE UPPER MIDWEST REFER TO IOWA,
MICHIGAN, MINNESOTA, NORTH DAKOTA, SOUTH DAKOTA, AND WISCONSIN, (IV) ALL
REGIONAL MARKET, CATEGORY AND SEGMENT DATA REFLECT GROCERY SALES AS GATHERED BY
A.C. NIELSEN FOR THE U.S. MARKETS FOR THE 52 WEEK PERIOD ENDING FEBRUARY 15,
1997, AND (V) ALL INDUSTRY DATA IN THIS PROSPECTUS IS CALCULATED WITH RESPECT TO
DOLLAR SALES AND BASED ON INFORMATION IN THE MAXWELL CONSUMER REPORT FOR 1995.
WHILE MANAGEMENT BELIEVES THAT SUCH ESTIMATES ARE REASONABLE AND RELIABLE, NO
ASSURANCE CAN BE GIVEN THAT SUCH INDUSTRY DATA ARE ACCURATE IN ALL MATERIAL
RESPECTS. TRAIL BLAZER-REGISTERED TRADEMARK-, TUFFY'S-REGISTERED TRADEMARK-,
BONKERS-REGISTERED TRADEMARK-, AND G. WHISKERS-REGISTERED TRADEMARK- ARE
REGISTERED TRADEMARKS OF THE COMPANY. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS
OF COMPANIES OTHER THAN THE COMPANY.
THE COMPANY
OVERVIEW
Management believes the Company is one of the leading manufacturers of
private label and economy branded pet food products. Based on its production
volume, including that of its joint ventures, management believes that the
Company is the second largest producer of private label dry pet food products
overall and the leader in private label dog biscuits, accounting for
approximately 30% of all private label dog biscuit tonnage produced in 1996. The
Company's private label products are broadly distributed through all channels of
distribution and consist of sales to over 500 customers including national and
regional grocery chains, mass merchandisers, membership clubs, specialty pet
store chains, and farm and feed store chains. The Company also manufactures and
markets economy dry dog and cat food products that are sold predominantly to
grocery store chains under its KOZY KITTEN, TRAIL BLAZER, and TUFFY'S brand
names. These brands generally have the leading or number two share in the
regional areas in which they compete. In addition, approximately 11% of the
Company's sales are related to contract manufacturing for other pet food
companies. To sell its products and to service its customers, the Company
utilizes both an in-house sales force and a network of independent brokers who
represent the Company on a non-exclusive basis pursuant to letter agreements.
The Company operates 14 manufacturing plants, nine of which are wholly owned and
five of which are operated under joint venture agreements. The Company's plants,
located throughout the United States, enable the Company to provide an efficient
nationwide distribution of a broad range of quality products for all price
points to all distribution channels. For the twelve months ended March 31, 1997,
the Company had pro forma sales and EBITDA (as defined) of $222.5 million and
$29.1 million, respectively. See "Business-- Company Overview," "--Marketing,
Sales and Distribution," "--Customers," "Manufacturing Facilities," and "--Joint
Ventures."
1
<PAGE>
INDUSTRY
The pet food industry in which the Company competes is a large and growing
industry. In terms of retail sales, it is a $9.3 billion industry that grew at a
compound annual rate of approximately 5% from 1991 to 1995. Certain segments
have grown at even faster rates. The private label and economy segments of this
industry represent approximately 35% of total industry sales and grew at a
compound annual rate of approximately 12% over the same period. The super
premium segment, which is comprised of high priced items offering superior
nutrition, palatability, and digestibility, represents approximately 16% of
total industry sales and grew at a compound annual rate of approximately 10%
over the same period. Growth in the private label and economy segments has been
driven by the lower prices of these products relative to branded products,
improved product quality, and increased retail support for private label items
in all distribution channels. Within the super premium segment, growth has been
driven by pet owners' increased awareness and concern about pet diets and
nutrition and the growth of pet specialty retail stores, which have focused on
promoting and supporting the super premium products. These trends are expected
to continue and, as a result, the Company believes that these segments should
continue to grow at a faster rate than the overall pet food industry.
The industry's growth has occurred primarily outside of the traditional
retail grocery channel, whose share of pet food sales has declined over the last
10 years from over 80% to approximately 60%. Most of the growth has been
captured by mass merchandisers, which have gained share by selling items
produced by private label manufacturers that are comparable in quality to the
national brands but sell at a lower price, and by pet specialty stores, which
carry the faster growing super premium products that are not available in the
retail grocery channel. The Company believes this shift away from the retail
grocery channel will continue, but at a slower rate, as the grocery stores
respond with higher quality private label products and their own super premium
products.
An emphasis on improving product quality has led private label manufacturers
to upgrade their manufacturing plants and production processes. This improvement
in quality, combined with a trend among a number of branded pet food companies
to outsource their manufacturing in order to focus on their marketing and brand
building activities, has resulted in more contract manufacturing opportunities
for private label producers. The Company believes that the trends toward better
product quality and production outsourcing will continue. See
"Business--Industry Overview."
COMPETITIVE STRENGTHS
Management believes that the following characteristics contribute to the
Company's position as a leading manufacturer of pet food products in the United
States and serve as a foundation for the Company's business strategy. See
"Business--Competitive Strengths."
- LEADING MARKET POSITIONS. The Company has a strong position in the private
label segment of the pet food industry. Within this segment, the Company
is the leading manufacturer of dog biscuits and semi-moist pet foods and
the second largest manufacturer of dry pet food products. The Company's
strength in private label products is complemented by a strong regional
presence in economy branded dry pet food products. The Company's TRAIL
BLAZER and KOZY KITTEN in the South and TUFFY'S in the Upper Midwest have
the leading or number two position in the segments in which they compete.
The Company believes that its positions in the private label and economy
branded pet food segments provide a strong platform from which to expand
its business.
- COMPREHENSIVE AND QUALITY PRODUCT LINE. The Company's leading market
positions are supported by a comprehensive product mix. Specifically, the
Company offers full product lines of dry dog food (180 formulations), dry
cat food (38 formulations), dog biscuits (64 formulations), semi-moist dog
food (6 formulations), semi-moist cat food (8 formulations), and dog and
cat treats (32 formulations). The Company believes that its broad
portfolio of private label and
2
<PAGE>
economy branded products makes it well-positioned to take advantage of
growth in certain segments of the pet food industry. In addition, the
Company's products are well-known for their high quality in terms of
nutritional content, palatability, and digestibility as well as their
overall value to both retailers and end-use consumers. The Company's
ability to fully service its customer's product needs with a full line of
quality product offerings has enabled it to compete effectively against
national branded pet food offerings and gain leading market positions.
- LOW COST MANUFACTURING. The Company has an extensive manufacturing network
consisting of 14 manufacturing facilities that are strategically
positioned to be near major consumer markets, raw and packaging material
suppliers and low cost labor sources. These facilities enable the Company
to service customers at competitive prices on a national basis. The
Company's facilities currently have approximately 20% excess capacity,
which represents an integral resource for growing the Company's business.
- STABLE BASE OF CASH FLOW. The Company's broad product line and leading
market positions provide it with a stable base of cash flow. Over the last
four years, the Company has produced an average EBITDA(1) margin (as
defined) of approximately 12%. The Company believes that its cash flow
performance has been driven by multiple factors, including strong demand
for higher margin pet food products, significant expansion of the
Company's customer base, selective acquisitions, low working capital
requirements, increased manufacturing efficiency and reduced operating
costs. The Company's strong cash flow provides resources that can be used
to pursue its growth strategy. See "Business--Competitive Strengths."
STRATEGY FOR GROWTH
The Company believes that it is well positioned for volume and profit
growth, given its competitive strengths and the growth trends in certain
segments of the pet food industry. Its objective is to be the leading supplier
to all channels of distribution of private label pet food products for all price
points and economy branded pet food products by pursuing the following
strategies:
- CAPITALIZE ON LEADERSHIP POSITION IN DOG BISCUITS. The Company is the
leader in private label dog biscuits, accounting for approximately 25% of
all private label dog biscuit tonnage produced in 1996. It operates three
dedicated biscuit manufacturing plants strategically located throughout
the United States. The Company's strategy is to capitalize on its current
leadership position by (i) offering a greater variety of premium specialty
biscuit formulations and (ii) increasing capacity at its three biscuit
plants by approximately 15% to service more private label customers.
- EXPAND PRESENCE IN MASS MERCHANDISING AND PET SPECIALTY RETAIL
CHANNELS. Most of the recent growth in the pet food industry has occurred
in the mass merchandising and pet specialty retail channels. The Company
plans to increase sales to these channels by providing a broader range of
pet foods to its current private label customers as well as by offering
these products to new private label accounts.
- INCREASE CONTRACT MANUFACTURING BUSINESS. Approximately 11% of the
Company's sales are to other pet food manufacturers who have contracted
out their manufacturing in order to better focus on their marketing and
brand building activities. Increasingly, these companies are using outside
contract manufacturers to satisfy their production requirements. The
Company believes that its strategically located, broad network of
manufacturing plants, excess capacity, and ability to produce quality
products at competitive prices enable it to capitalize on this trend and
to increase its contract manufacturing business.
- ------------------------
(1) EBITDA is a non-GAAP measure, as computed by the Company, and may not be
comparable to similarly-titled measures reported by other companies.
3
<PAGE>
- INCREASE PENETRATION OF SUPER PREMIUM PET FOOD PRODUCTS. Super premium pet
food products have been one of the fastest growing segments of the pet
food industry. The Company believes there is an opportunity to market
private label super premium products to retail grocery chains, which have
been requesting such products in order to grow their pet food sales. The
Company also plans to supply specialty pet stores, which want private
label super premium alternatives to the national brands.
- BROADEN USAGE OF THE KOZY KITTEN BRAND. The Company's KOZY KITTEN brand
has a leading position in economy cat foods, but the business has
historically been concentrated primarily in the South. The Company plans
to use the Hubbard facilities and distribution resources to strengthen its
KOZY KITTEN cat food business on the East and West coasts. The Company is
also developing a line of economy cat treats using KOZY KITTEN as an
umbrella brand. The cat treat segment has been a fast growing segment of
the cat food industry, and the Company sees strong growth potential for an
economy cat treat under an established brand name.
- MAKE SELECTED STRATEGIC ACQUISITIONS. The Company believes there are
opportunities to acquire additional pet food businesses at attractive
prices. Most of these businesses are established, privately-held companies
that would be a strategic complement to the Company's existing business in
terms of products, geographic scope, distribution channels, and new export
sales. The Company and its owners have substantial experience in making
strategic acquisitions. While the Company actively considers strategic
acquisitions, it does not have any current or pending plans, negotiations,
arrangements, or understandings, with respect to any material acquisitions
other than preliminary discussions. The Company has not entered into any
agreements with respect to any material acquisitions. See
"Business--Strategy for Growth."
OWNERSHIP AND MANAGEMENT
The Company was incorporated in 1897 and is indirectly owned by Windy Hill
Pet Food Company L.L.C. ("Windy Hill LLC") and Bruckmann, Rosser, Sherrill &
Co., L.P. ("BRS"). Windy Hill LLC is owned by Dartford Partnership L.L.C.
("Dartford") and its partners, management of the Company, and certain other
investors. See "Security Ownership--Security Ownership of Certain Beneficial
Owners." The Company is managed by Dartford and an operating team led by Robert
V. Dale, the Company's President.
Dartford was formed by Managing Partner Ian R. Wilson, former Vice Chairman
of The Coca-Cola Company and former Chairman and Chief Executive Officer of
Castle & Cooke, Inc. (Dole Food Company, Inc.), to make investments in the
consumer food and beverage categories. See "Management--Directors and Officers
of the Company." Dartford's five partners have extensive experience in building
and managing leveraged investments in the food and beverage categories. Over the
past eleven years, Dartford has successfully built and managed a number of food
companies including Wyndham Foods Inc. ("Wyndham"), which Dartford grew to
become the fourth largest cookie company in the United States, Windmill Holding
Corp. ("Windmill"), a branded baking products company, and Van de Kamp's, Inc.
("Van de Kamp's"), a leading frozen convenience food company. Under Dartford's
management, Van de Kamp's has grown into a diversified branded frozen
convenience food company, with annual revenues increasing from approximately
$150 million at September 30, 1995 to approximately $400 million at December 31,
1996. Most recently, Dartford formed Aurora Foods Inc. (formerly, MBW Foods
Inc.) ("Aurora"), which on December 31, 1996 acquired Mrs. Butterworth's, the
nation's number one brand of regular syrup and a producer of pancake mix.
BRS is a private equity investment firm with $400 million of committed
capital. The principals of BRS -- Bruce C. Bruckmann, Harold O. Rosser, Stephen
C. Sherrill, and Stephen F. Edwards -- are former senior officers of Citicorp
Venture Capital, Ltd. ("Citicorp Venture Capital") where they worked from the
mid 1980s until forming BRS in 1995. At Citicorp Venture Capital, they completed
25
4
<PAGE>
acquisitions. See "Management--Directors and Officers of the Company." Since its
inception, BRS has completed six acquisitions including: Old Windy Hill;
Jitney-Jungle Stores of America, Inc., the largest supermarket chain in
Mississippi; Restaurant Associates Corp., a restaurant operator and contract
food service provider; and Bloch & Guggenheimer/Burns & Ricker, Inc., a
processor and marketer of consumer food products.
The Company's President, Mr. Dale, is the former president of Martha White
Foods, Inc. ("Martha White"). Prior to joining Martha White, Mr. Dale was the
president of Beatrice Specialty Products Division, a $1.2 billion division of
Beatrice Companies, Inc. The Company's senior management team all have extensive
experience in operating consumer packaged food businesses in a leveraged
environment.
THE TRANSACTION
HISTORY
Hubbard Milling was incorporated in 1897 and since its incorporation has
been engaged in the business of manufacturing and distributing animal feed and
pet food products. Prior to the Closing, Armour Corporation ("Armour") owned 5%
of the outstanding capital stock of Hubbard Milling and individual investors
held the remaining 95% of the outstanding capital stock of Hubbard Milling.
Dartford formed Old Windy Hill in 1995 to acquire the pet food assets of Martha
White and as an acquisition platform for acquiring other economy branded
products and private label pet food companies. Holdings owns all of the
outstanding capital stock of Old Windy Hill. In April 1996, Old Windy Hill
acquired KOZY KITTEN economy cat food brand and the TUFFY'S economy dog and cat
food brands from H.J. Heinz Company. See "The Transaction -- Immediately Prior
to the Transaction" and "-- Immediately After the Transaction." Prior to the
Transaction, Hubbard Milling and Armour were not affiliated with the Company or
Holdings.
THE ACQUISITION AND MERGER
The Old Notes were offered in connection with the acquisition of beneficial
ownership of the Company by Holdings. As part of the acquisition, Windy Hill Pet
Food Acquisition Co., a newly-formed indirect subsidiary of Holdings
("MergerSub"), was merged with and into Hubbard Milling and Old Windy Hill
purchased all of the capital stock of Armour, a holding company, which prior to
the Closing Date owned 5% of the capital stock of Hubbard Milling and which
after the consummation of the Transaction owned 39% of the capital stock of
Hubbard Milling. Concurrently therewith, Hubbard Milling, the surviving
corporation in the merger, was renamed Windy Hill Pet Food Company, Inc. (the
"Company"), and Holdings transferred all the operating assets and liabilities,
including $27 million of equity and $51 million of indebtedness (the "Existing
Indebtedness") of Old Windy Hill to the Company. A portion of the proceeds of
the Company's offering of the Old Notes (the "Offering") was used to repay
Existing Indebtedness. The Company sold its animal feed business for net
proceeds of approximately $50 million simultaneously with the acquisition. See
"-- Sale of Animal Feed Business" below. Holdings beneficially owns all of the
capital stock of the Company. The merger, acquisition, transfer of Old Windy
Hill's operating assets and liabilities, and repayment of Existing Indebtedness
are hereinafter collectively referred to as the "Transaction." See "The
Transaction."
The acquisition of Hubbard Milling will be treated as a purchase by Old
Windy Hill for accounting purposes. As such, the purchase price of $148 million
will be allocated to tangible and intangible assets based upon their fair market
values. The principal components of the purchase price allocated were as
follows:
<TABLE>
<CAPTION>
(000'S)
-----------
<S> <C>
Working capital and other assets................................................. $ 6,000
Assets held for sale............................................................. 50,000
Property and equipment........................................................... 49,000
Intangible assets................................................................ 43,000
-----------
$ 148,000
-----------
-----------
</TABLE>
5
<PAGE>
The allocation of the purchase price has not been finalized; however, any
changes are not expected to be material.
On May 21, 1997 (the "Closing Date"), $195 million in cash was required to
consummate the Transaction, consisting of approximately (i) $133 million to
purchase all of the outstanding capital stock of Hubbard Milling, net of cash
acquired, including (a) $126 million paid to the shareholders of Hubbard Milling
in the merger and (b) $7 million to acquire the stock of Armour, (ii) $51
million to repay the Existing Indebtedness, (iii) $1 million for general
corporate purposes and (iv) $10 million in fees and expenses. The funds required
to consummate the Transaction were provided by (i) the net proceeds of the
Offering, (ii) borrowing by the Company of $45 million under an acquisition loan
facility (the "Acquisition Facility") and $20 million under a term loan facility
(the "Term Loan Facility"), and (iii) the proceeds of $10 million of equity
financing by Holdings contributed by Armour to the Company (items (i), (ii), and
(iii) being referred to herein as the "Financing"). In addition, the Company has
a $20 million working capital facility (the "Working Capital Facility"), which
was undrawn at the closing of the Transaction. The Acquisition Facility, Term
Loan Facility, and Working Capital Facility are hereinafter collectively
referred to as the "Senior Bank Facilities." See "Description of Notes" and
"Description of Senior Bank Facilities."
The following table sets forth the sources and uses of funds in connection
with the Transaction:
<TABLE>
<CAPTION>
AMOUNT
---------------------
<S> <C>
(DOLLARS IN MILLIONS)
SOURCES:
Senior Bank Facilities(1):
Acquisition Facility..................................................... $ 45.0
Term Loan Facility....................................................... 20.0
The Notes.................................................................... 120.0
Equity contribution(2)....................................................... 10.0
-------
Total sources............................................................ $ 195.0
-------
-------
USES:
Purchase price............................................................... $ 133.0
Repay Existing Indebtedness.................................................. 51.2
General corporate purposes................................................... .8
Fees and expenses(3)......................................................... 10.0
-------
Total uses............................................................... $ 195.0
-------
-------
</TABLE>
- ------------------------
(1) In addition to the Acquisition Facility and the Term Loan Facility, the
Company has a Working Capital Facility of $20 million, which was undrawn at
the closing of the Transaction. See "Description of Senior Bank Facilities."
(2) BRS, Windy Hill LLC, and PNC Capital Corp invested $10 million in Holdings
and Holdings contributed the proceeds of such investment to Armour, which in
turn contributed the proceeds to the Company.
(3) Reflects fees and expenses in connection with the Financing, including the
discount to the Initial Purchasers and other legal and accounting fees and
expenses incurred in connection with the Transaction.
SALE OF ANIMAL FEED BUSINESS
An asset purchase agreement to sell the assets and liabilities comprising
the animal feed business of Hubbard Milling (the "AF Sale") was entered into on
April 25, 1997, among Old Windy Hill, MergerSub, and Feed-Rite (US) Animal
Feeds, Inc., a subsidiary of The Ridley Group (the "AF Buyer"). The AF Buyer is
not an affiliate of the Company or Holdings. The closing of the AF Sale occurred
simultaneously with the closing of the Offering. After providing for estimated
taxes, net proceeds from the sale were approximately $50 million. A portion of
the proceeds from the AF Sale was used to repay in full the $45 million drawn at
closing under the Acquisition Facility and to repay $5 million of the term loan
facility which cannot be reborrowed. The Company's pro forma financial data
reflects the consummation of the AF Sale. See "--Summary Pro Forma Financial
Data" "Pro Forma Financial Information" and "The Transaction--Sale of Animal
Feed Business."
6
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The New Notes........... The forms and terms of the New Notes are identical in all
material respects to the terms of the Old Notes for which they
may be exchanged pursuant to the Exchange Offer, except for
certain transfer restrictions, registration rights and liquidated
damages provisions relating to the Old Notes described below
under "Description of Notes" and "Exchange and Registration
Rights Agreement."
The Exchange Offer...... The Company is offering to exchange up to $120,000,000 aggregate
principal amount of the New Notes for up to $120,000,000
aggregate principal amount of the Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000.
Expiration Date;
Withdrawal of
Tender................ The Exchange Offer will expire at 5:00 p.m., New York City time,
on October 11, 1997, or such later date and time to which it is
extended by the Company (the "Expiration Date"). The tender of
Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer. See "The
Exchange Offer -- Expiration Date; Extensions; Amendments."
Certain Conditions to
the Exchange Offer.... The Exchange Offer is subject to customary conditions, which may
be waived by the Company. Such conditions include, to the extent
they may materially impair the ability of the Company to proceed
with the Exchange Offer (i) the initiation or threat of
initiation of any action or proceeding, (ii) the proposal or
adoption of any rule, statute or regulation, or (iii) the
inability to obtain any required governmental approval. In the
event the Company asserts or waives a condition to the Exchange
Offer which constitutes a material change to the terms of the
Exchange Offer, the Company will disclose such change in a manner
reasonably calculated to inform prospective investors of such
change and will extend the period of the Exchange Offer by five
business days. See "The Exchange Offer -- Certain Conditions to
the Exchange Offer." Compliance with any rule, regulation, or
statute applicable to the Company cannot be waived by the
Company.
Procedures for Tendering
Old Notes............. Each holder of Old Notes wishing to accept the Exchange Offer
must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such Old Notes and
any other required documentation to the Exchange Agent (as
defined) at the address set forth herein. By executing the Letter
of Transmittal, each holder will represent to the Company that,
among other things, (i) any New Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has
no arrangement or understanding with any person to participate in
the distribution of the New Notes (iii) it is not engaged in and
does not intend to engage in a distribution of the New Notes, and
(iv) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or, if it is an affiliate, it will
comply with the registration and prospectus delivery requirements
of the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Securities Act to the extent applicable. Each holder whose Old
Notes are held through DTC (as defined) and wishes to participate
in the Exchange Offer may do so through DTC's Automated Tender
Offer Program ("ATOP") by which each tendering participant will
agree to be bound by the Letter of Transmittal. See "The Exchange
Offer--Procedures for Tendering."
Interest on the New
Notes................. Interest on the New Notes will accrue from the date of issuance
(the "New Note Issue Date") at the rate of 9 3/4% per annum, and
will be payable semi-annually in arrears on each May 15 and
November 15, commencing on November 15, 1997. Holders of the New
Notes will also on November 15, 1997 receive an amount equal to
the accrued interest on the Old Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the
New Notes. See "The Exchange Offer -- Interest on the New Notes."
Special Procedures for
Beneficial Owners..... Any beneficial owner whose Old Notes are registered in the name
of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender such Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct
such registered holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and executing
the Letter of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership of the Old
Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered
ownership may take considerable time and may not be able to be
completed prior to the Expiration Date. See "The Exchange Offer
-- Procedures for Tendering."
Guaranteed Delivery
Procedure............. Holders of Old Notes who wish to tender their Old Notes and whose
Old Notes are not immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange Agent,
prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Registration
Requirements.......... The Company has agreed to use its best efforts to consummate on
or prior to 180 days after May 21, 1997, the date of original
issuance of the Old Notes (the "Issue Date"), the registered
Exchange Offer pursuant to which holders of the Old Notes will be
offered an opportunity to exchange their Old Notes for the New
Notes which will be issued without legends restricting the
transfer thereof. In the event that applicable interpretations of
the staff of the Commission do not permit the Company to effect
the Exchange Offer or in certain other circumstances, the Company
has agreed to file a Shelf Registration Statement covering
resales of the Old Notes and to use its best efforts to cause
such Shelf Registration Statement to be declared effective under
the Securities Act and, subject to certain exceptions, keep such
Shelf Registration Statement effective until three years after
the Issue Date. If the Company fails to consummate the Exchange
Offer on or prior to 180 days after the Issue Date or, in the
event that the Company is not in compliance with certain
obligations under the
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Exchange and Registration Rights Agreement, the Company shall be
obligated to pay liquidated damages to holders of the Old Notes.
See "Exchange and Registration Rights Agreement."
Certain Federal Income
Tax Considerations.... In the opinion of Richards & O'Neil, LLP, the exchange of Notes
pursuant to the Exchange Offer will not be a taxable event for
federal income tax purposes. See "Certain United States Federal
Income Tax Considerations."
Use of Proceeds......... There will be no proceeds to the Company from the exchange of
Notes pursuant to the Exchange Offer. See "Use of Proceeds." For
a discussion of the use of proceeds of the Old Notes see "The
Transaction -- Closing Date."
Exchange Agent.......... Wilmington Trust Company is the Exchange Agent. The address and
telephone number of the Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent."
</TABLE>
TERMS OF THE NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that the New Notes are registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof and will
not contain the registration rights and liquidated damages provisions relating
to the Old Notes. See "Description of Notes" and "Exchange and Registration
Rights Agreement."
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain no action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases New Notes from the Company to
resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of the holder's business and such holder has no
arrangement or understanding with any person to participate in a distribution of
such New Notes. Each broker-dealer that receives New Notes for its own account
in exchange for Old Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and complied with. The Company has
agreed, pursuant to the Exchange and Registration Rights Agreement (as defined)
and subject to certain specified limitations therein, to register or qualify the
New Notes for offer or sale under the securities or "blue sky" laws of such
jurisdictions as any holder of the Notes reasonably requests in writing. If a
holder of Old Notes does not exchange such Old Notes for New Notes pursuant to
the Exchange Offer, such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange."
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to
9
<PAGE>
its consummation, the Old Notes may continue to be traded in the PORTAL market.
Following consummation of the Exchange Offer, the New Notes will not be eligible
for PORTAL trading.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by participants in connection with the Exchange Offer.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the Old
Notes, except for certain transfer restrictions and registration rights relating
to the Old Notes.
<TABLE>
<S> <C>
Issuer.................. Windy Hill Pet Food Company, Inc.
Securities Offered...... $120,000,000 principal amount of 9 3/4% Senior Subordinated Notes
due 2007. See "Description of Notes." Notwithstanding the
designation of the Notes as Senior Subordinated Notes, the
Company has not issued and has no current firm arrangements to
issue any significant indebtedness to which the Notes would be
senior, and the Old Notes are, and the New Notes will be,
effectively subordinate to essentially all of the existing
outstanding indebtedness of the Company or its subsidiaries.
Maturity................ May 15, 2007.
Interest Payment
Dates................. May 15 and November 15 of each year, commencing on November 15,
1997. Holders of the New Notes will also on November 15, 1997
receive an amount equal to the accrued interest on the Old Notes.
Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
Sinking Fund............ None.
Optional Redemption..... Except as described below and under "Change of Control," the
Company may not redeem the New Notes prior to May 15, 2002. On or
after such date, the Company may redeem the New Notes, in whole
or in part, at any time at the redemption prices set forth
herein, together with accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time and from time to
time on or prior to May 15, 2000, the Company may, subject to
certain requirements, redeem up to $42 million of the aggregate
principal amount of the Notes with the cash proceeds of one or
more Equity Offerings (as defined) at a redemption price equal to
109.750% of the principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of redemption,
provided that at least $78 million of the aggregate principal
amount of the Notes remain outstanding after each such
redemption. See "Description of Notes -- Optional Redemption."
Change of Control....... Upon the occurrence of a Change of Control, (i) the Company will
have the option, at any time prior to May 15, 2002, to redeem the
New Notes in whole but not in part at a redemption price equal to
100% of the principal amount thereof plus the Applicable Premium
set forth herein, plus accrued interest to the date of redemption
and (ii) if the Company does not so redeem the New Notes or if
such Change of Control occurs after May 15, 2002, any holder of
New Notes has the right to cause the Company to repurchase the
New Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to
the date of purchase. The Change of Control provisions will not
afford any protections in a highly leveraged transaction which
does not
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
constitute a Change of Control. However, there can be no
assurance that the Company will have sufficient funds available
to repurchase the New Notes upon a Change of Control. See
"Description of Notes -- Optional Redemption" and "-- Change of
Control."
Ranking................. The New Notes will be unsecured and will be subordinated to all
existing and future Senior Indebtedness of the Company. The New
Notes will rank PARI PASSU with any future Senior Subordinated
Indebtedness of the Company and will rank senior to all other
subordinated indebtedness of the Company. As of April 30, 1997,
on a pro forma basis after giving effect to the Transaction, the
Financing, and the AF Sale, the aggregate amount of the Company's
outstanding Senior Indebtedness would have been approximately $15
million (excluding unused commitments of $65 million under the
Senior Bank Facilities) and the Company would have had no Senior
Subordinated Indebtedness outstanding other than the Old Notes.
The New Notes will be effectively subordinated to the claims of
creditors, including trade creditors and preferred shareholders
(if any), of any subsidiary of the Company. See "Description of
Notes -- Ranking." The Company does not have any active
subsidiaries. See "Description of Notes -- General." However, the
Indenture (as defined) does not restrict the ability of the
Company to create, acquire, or capitalize subsidiaries in the
future.
Restrictive Covenants... The indenture under which the New Notes will be issued (the
"Indenture") contains the following material covenants relating
to (i) the incurrence of additional indebtedness by the Company
and its subsidiaries, (ii) the payment of dividends on, and
redemption of, capital stock of the Company and its subsidiaries
and the redemption of certain subordinated obligations of the
Company, (iii) investments, (iv) sales of assets and subsidiary
stock, (v) transactions with affiliates, (vi) consolidations,
mergers and transfers of all or substantially all the assets of
the Company, (vii) limitations on lines of business (viii) a
Change of Control, (ix) limitations or restrictions on
distributions from the Company's subsidiaries. However, all of
these limitations and prohibitions are subject to a number of
important qualifications and exceptions. See "Description of
Notes -- Certain Covenants."
</TABLE>
11
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited summary pro forma financial
data of the Company for the periods ended and as of the dates indicated. The
unaudited summary pro forma statement of operations data give effect to (i) the
Transaction, (ii) the Financing, (iii) the acquisition of the 50% interest in
the Maumee joint venture not previously owned and accounted for using the equity
method, (iv) adjustments made to reflect the elimination of certain
administrative operations, and (v) adjustments to include the effects of the
Kozy Kitten Acquisition to reflect a full year of operating data, in each case,
as if such transaction had occurred on January 1, 1996 for both the year ended
December 31, 1996 and the three months ended March 31, 1997. The unaudited
summary pro forma balance sheet data give effect to the Transaction, the
Financing, and the AF Sale as if they had occurred on April 30, 1997. The pro
forma financial data set forth below reflect pro forma adjustments that are
based upon available information and certain assumptions that the Company
believes are reasonable. The pro forma financial data do not purport to
represent the Company's results of operations or financial position that would
have resulted had the transactions to which pro forma effect is given been
consummated as of the dates or for the periods indicated. See "Pro Forma
Financial Information" and the separate historical financial statements of Old
Windy Hill and Hubbard and the notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
--------------------- ---------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales............................................................. $ 216,965 $ 55,179
Cost of goods sold.................................................... 159,989 39,452
---------- --------
Gross profit........................................................ 56,976 15,727
---------- --------
Selling, distribution and marketing expenses:
Selling, distribution and advertising............................... 17,241 4,357
Trade promotions and other marketing................................ 9,429 3,519
---------- --------
Total selling, distribution and marketing expenses.................... 26,670 7,876
General and administrative expenses................................... 9,000 2,610
Amortization of intangibles and other assets.......................... 3,062 832
---------- --------
Total operating expenses.............................................. 38,732 11,318
---------- --------
Operating income.................................................... 18,244 4,409
Equity in earnings of joint ventures.................................. 496 153
Interest expense, net................................................. 13,160 3,291
Amortization of deferred financing fees............................... 1,115 279
Other income (expense)................................................ -- 43
---------- --------
Income before income taxes.......................................... 4,465 1,035
Income tax expense.................................................... 1,786 414
---------- --------
Net income.......................................................... $ 2,679 $ 621
---------- --------
---------- --------
OTHER FINANCIAL DATA:
EBITDA(1)............................................................. $ 29,256 $ 7,604
EBITDA margin(2)...................................................... 13.5% 13.8%
Depreciation and amortization......................................... $ 11,631 $ 3,280
Ratio of EBITDA to interest expense................................... 2.2x 2.3x
Ratio of earnings to fixed charges(3)................................. 1.3x 1.3x
</TABLE>
- ------------------------
(1) EBITDA is defined as net income before interest, taxes, depreciation, and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare operating performance and to
determine a company's ability to service and incur debt. EBITDA should not
be considered in isolation from or as a substitute for net income, cash
flows from operating activities, or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(2) EBITDA margin is computed as EBITDA as a percentage of net sales.
(3) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as net income before provision for income taxes, plus fixed
charges. Fixed charges consist of interest expense on all indebtedness,
amortization of deferred financing fees and one-third of rental expense on
operating leases, representing that portion of rental expense deemed by the
Company to be attributable to interest.
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth below for risks involved with the Exchange Offer.
SUBSTANTIAL LEVERAGE
The Company is significantly leveraged. At April 30, 1997, after giving pro
forma effect to the Transaction, the Financing, and the AF Sale, the Company's
long-term indebtedness would have been $135 million (excluding unused
commitments of $65 million under the Senior Bank Facilities) and the Company
would have had stockholders' equity of $33.9 million. The degree to which the
Company is leveraged could have important consequences to holders of the Notes,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or general corporate purposes may be impaired; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of interest
on the Notes and its other indebtedness, thereby reducing the funds available to
the Company for other purposes; (iii) the agreements governing the Company's
long-term indebtedness contain certain restrictive financial and operating
covenants; (iv) the indebtedness under the Senior Bank Facilities will be, and
other indebtedness of the Company may be, at variable rates of interest, which
expose the Company to the risk of increased interest rates; (v) all of the
indebtedness outstanding under the Senior Bank Facilities will be secured by
substantially all the assets of the Company and matures prior to the maturity of
the Notes; and (vi) the Company's substantial degree of leverage may limit its
flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Description of Senior Bank
Facilities" and "Description of Notes."
The Company believes that its cash flow from operations may be sufficient to
meet mandatory principal installments on the Term Loan Facility and other
operational requirements. If the Company is unable to generate sufficient cash
flow from operations, it may be required to refinance all or a portion of the
Senior Bank Facilities at or prior to their maturity, which is prior to the
maturity of the Notes. Other potential measures to raise cash include the sale
of assets or equity. However, the Company's ability to raise funds by selling
assets is restricted by the Senior Bank Facilities, and its ability to effect
equity financings is dependent on results of operations and market conditions.
In the event that the Company is unable to refinance such indebtedness or raise
funds through asset sales, sales of equity or otherwise, its ability to pay
principal of and interest on the Notes would be adversely affected.
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes, will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness of the Company,
including all amounts owing under the Senior Bank Facilities. At April 30, 1997,
assuming consummation of the Transaction, the Financing, and the AF Sale, the
Company would have had $15 million of Senior Indebtedness outstanding (excluding
unused commitments of $65 million under the Senior Bank Facilities).
Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company, assets of the
Company will be available to pay obligations on the Notes only after all Senior
Indebtedness has been paid in full and there can be no assurance that there will
be sufficient assets to pay amounts due on all or any of the Notes. The payment
of principal of and interest on, and any premium or other amounts owing in
respect of, the Notes, will also be effectively subordinated to all obligations
of each subsidiary of the Company as may exist from time to time. See
"Description of Senior Bank Facilities" and "Description of Notes." The Company
does not have any active subsidiaries. See "Description of Notes -- General."
However, the
13
<PAGE>
Indenture does not restrict the ability of the Company to create, acquire, or
capitalize subsidiaries in the future.
The Company has granted the lenders under the Senior Bank Facilities
security interests in substantially all of the current and future assets of the
Company, including a pledge of all of the issued and outstanding shares of
capital stock of the Company's future domestic subsidiaries. In the event of a
default on such indebtedness (whether as a result of the failure to comply with
a payment or other covenant, a cross-default, or otherwise), the parties granted
such security interests will have a prior secured claim on the capital stock of
the Company and its subsidiaries and the assets of the Company and any
guarantors under the Senior Bank Facilities. If such parties should attempt to
foreclose on their collateral, the Company's financial condition and the value
of the Notes would be materially adversely affected. See "Description of Senior
Bank Facilities."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, enter into certain transactions with affiliates, impose
restrictions on the ability of a subsidiary to pay dividends or make certain
payments to the Company, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the assets of the Company. The Company's breach of such restrictions would
constitute, in some instances with the lapse of time, an event of default and
could materially adversely affect the financial condition and results of
operation of the Company. In addition, the Senior Bank Facilities contain other
and more restrictive covenants that, among other things, restrict (i) the making
of investments, loans, and advances and the paying of dividends and other
restricted payments; (ii) the incurrence of additional indebtedness; (iii) the
granting of liens, other than liens created pursuant to the Senior Bank
Facilities and certain permitted liens; (iv) mergers, consolidations and sales
of all or a substantial part of the Company's business or property; (v) the sale
of assets; and (vi) the making of capital expenditures.
The Senior Bank Facilities require the Company to maintain certain financial
ratios, including interest coverage, leverage and fixed charge ratios. There can
be no assurance that these requirements will be met in the future. If they are
not, the holders of the indebtedness under the Senior Bank Facilities will be
entitled to declare such indebtedness immediately due and payable. See
"Description of Senior Bank Facilities."
LIMITATION ON CHANGE OF CONTROL
The Indenture requires the Company, in the event of a Change of Control in
respect of which it has not elected to redeem the Notes, to repurchase any Notes
that holders thereof desire to have repurchased at 101% of the principal amount
thereof, plus accrued interest to the Change of Control repurchase date. See
"Description of Notes -- Change of Control."
The Change of Control purchase feature of the Notes may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company. There can be no assurance that the Company will have funds available to
redeem or repurchase the Notes upon the occurrence of a Change of Control. In
particular, a Change of Control may cause an acceleration of the Senior Bank
Facilities and other indebtedness, if any, of the Company, in which case such
indebtedness would be required to be repaid in full before redemption or
repurchase of the Notes. The inability to repay such indebtedness, if
accelerated, or to redeem or repurchase all of the Notes upon the occurrence of
a Change in Control would constitute an event of default under the Indenture.
See "Description of Notes--Change of Control" and "Description of Senior Bank
Facilities."
14
<PAGE>
COMPETITION
The pet food business is highly competitive. The Company's sales represent
less than 3% of the total pet food industry. It competes with a significant
number of companies of varying sizes, including divisions or subsidiaries of
larger companies. Many of these competitors have multiple product lines, have
substantially greater financial and other resources available to them and may be
substantially less leveraged than the Company. There is no assurance that the
Company can compete successfully with such other competitors. Also, the
Company's economy brands and the private label products sold by the Company's
customers compete with national branded products and other private label
products on the basis of quality and price. To the extent that there is
significant price competition from the national branded products and other
private label products, the Company's sales and operating results could be
adversely affected. See "Business -- Competition."
IMPACT OF GOVERNMENTAL REGULATION
The Company's production facilities and products are subject to numerous
federal, state and local laws and regulations concerning, among other things,
health and safety matters, animal food manufacture, product labeling,
advertising and the environment. Compliance with existing federal, state and
local laws and regulations is not expected to have a material adverse effect
upon the earnings or competitive position of the Company. The Company, however,
cannot predict the effect, if any, of laws and regulations that may be enacted
in the future, or of changes in the enforcement of existing laws and regulations
that are subject to extensive regulatory discretion. See "Business -- Certain
Legal and Regulatory Matters."
RAW MATERIALS
The Company purchases agricultural commodities, other raw materials and
packaging, supplies from growers, commodity processors, other food companies,
and packaging manufacturers, all located in the U.S. While all such materials
are available from numerous independent suppliers, commodity raw materials are
subject to fluctuations in price attributable to a number of factors, including
changes in crop size, federal and state agricultural programs, export demand,
and weather conditions during the growing and harvesting seasons. During
calendar 1996, market prices for certain commodity grains and food stocks used
in the Company's production process increased significantly. While the Company
implemented price increases for its products during the year, such price
increases only partially offset the impact of increases in raw materials costs,
primarily due to the lag between the time of the cost increases and the
effective implementation of the price increases. In the event of further
increases in raw materials costs, the Company would be required to further
increase sales prices for its products in order to maintain contribution
margins. There can be no assurance that any future sales price increases could
be successfully implemented by the Company or that any such increases would not
adversely affect future sales volumes. See "Business -- Raw Materials."
RISKS RELATING TO FUTURE ACQUISITIONS
The Company plans to continue to pursue additional acquisitions of pet food
businesses. There can be no assurance, however, that the Company will be able to
identify additional acquisitions or that, if consummated, any anticipated
benefits will be realized from such acquisitions. In addition, the availability
of additional acquisition financing cannot be assured and, depending on the
terms of such additional acquisitions, could be restricted by the terms of the
Senior Bank Facilities and/or the Indenture. The process of integrating acquired
operations into the Company's existing operations may result in unforeseen
operating difficulties, may require significant financial resources that would
otherwise be available for the ongoing development or expansion of the Company's
existing operations. Possible future acquisitions by the Company could result in
the incurrence of additional debt, contingent
15
<PAGE>
liabilities and amortization expenses related to goodwill and other intangible
assets, all of which could materially adversely affect the Company's financial
condition and operating results.
CONTROL BY INVESTORS
All of the outstanding shares of the Company's Common Stock are beneficially
owned by Holdings. BRS and Windy Hill LLC own collectively 72.1% of the
outstanding Common Stock of Holdings and have entered into a Stockholders
Agreement pursuant to which they have agreed, among other things, to vote their
shares together for the election of directors. Accordingly, BRS and Windy Hill
LLC control the Company and have the power to elect all of its directors
(subject to the right of PNC, (as defined) pursuant to the Stockholders
Agreement to designate a director in certain circumstances), appoint new
management and approve any action requiring the approval of the holders of the
Company's Common Stock, including adopting amendments to the Company's
Certificate of Incorporation and approving mergers or sales of substantially all
of the Company's assets. See "Security Ownership" and "Certain Related
Transactions--Stockholders Agreement."
ENVIRONMENTAL MATTERS
The business operations of the Company and the ownership and operation of
real property by the Company are subject to extensive and changing federal,
state, and local environmental laws and regulations pertaining to the discharge
of materials into the environment and the handling and disposition of wastes
(including solid and hazardous wastes) or otherwise relating to protection of
the environment. Compliance with such laws and regulations is not expected to
have a material impact on the Company's capital expenditures, earnings or
competitive position. Certain environmental assessments of Hubbard's properties
conducted by E. Roberts Alley & Associates, environmental consultants to the
Company, in connection with the Transaction revealed elevated levels of certain
metals and organic compounds in soil and groundwater that may require further
investigation or remediation. If the extent of environmental conditions that may
require remediation or the cost of such remediation exceeds the Company's
expectations or the Company is unable to obtain sufficient indemnification from
the Sellers (as defined) pursuant to the Acquisition Agreements (as defined) or
cannot obtain indemnification in a timely manner, such additional costs could
adversely affect the Company's financial condition or results of operations. See
"Business -- Certain Legal and Regulatory Matters."
FRAUDULENT CONVEYANCE
As part of the Transaction, the stockholders of Hubbard received
approximately $126 million in cash and the stockholders of Armour received $7
million in cash. See "The Transaction."
The incurrence of indebtedness (such as the Old Notes) in connection with
the Transaction and payments to consummate the Transaction with the proceeds
thereof are subject to review under relevant federal and state fraudulent
conveyance statutes in a bankruptcy or reorganization case or a lawsuit by or on
behalf of creditors of the Company. Under these statutes, if a court were to
find that obligations (such as the Old Notes) were incurred with the intent of
hindering, delaying or defrauding present or future creditors or that the
Company received less than a reasonably equivalent value or fair consideration
for those obligations and, at the time of the incurrence of the obligations, the
Company either (i) was insolvent or rendered insolvent by reason thereof, (ii)
was engaged or was about to engage in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital or (iii)
intended to or believed that it would incur debts beyond its ability to pay such
debts as they matured or became due, such court could void the Company's
obligations under the Notes, subordinate the Notes to other indebtedness of the
Company or take other action detrimental to the holders of the Notes. Some
courts have held that an obligor's purchase of its own capital stock does not
constitute reasonably equivalent value or fair consideration for indebtedness
incurred to finance that purchase.
16
<PAGE>
The measure of insolvency for purposes of a fraudulent conveyance claim will
vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. The Company believes that it is (i) neither
insolvent nor rendered insolvent by the incurrence of indebtedness in connection
with the Transaction and the Financing, (ii) in possession of sufficient capital
to run its business effectively and (iii) incurring debts within its ability to
pay as the same mature or become due. There can be no assurance, however, as to
what standard a court would apply to evaluate the parties' intent or to
determine whether the Company was insolvent at the time of, or rendered
insolvent upon consummation of, the Transaction and the Financing or that,
regardless of the standard, a court would not determine that the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transaction and the Financing.
LACK OF PUBLIC MARKET
The New Notes are new securities for which there currently is no market.
Although the Initial Purchasers have informed the Company that it currently
intends to make a market in the New Notes, it is not obligated to do so and any
such market making may be discontinued at any time without notice. In addition,
such market making activity may be limited during the pendency of the Exchange
Offer or the effectiveness of a shelf registration statement in lieu thereof.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the New Notes. The Old Notes have been designated for trading in the
PORTAL market. The New Notes will not be eligible for trading in the PORTAL
market and the Company does not intend to apply for listing of the New Notes on
any securities exchange or on any automated dealer quotation system.
The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
17
<PAGE>
THE TRANSACTION
The Old Notes were offered in connection with the acquisition of beneficial
ownership of the Company by Holdings.
PRIOR TO CLOSING.
Windy Hill LLC, the BRS Group (as defined), PNC Capital Corp ("PNC"),
Dartford and certain members of management consisting of Robert V. Dale, F.
Donald Cowan, Jr., Donald L. Gadd, Vaughn Oakley, Henry G. Hurd, Jr., and Ben W.
McCrory beneficially own all of the voting Common Stock of Holdings which,
through its wholly-owned subsidiary Old Windy Hill, owned all of the capital
stock of MergerSub. Old Windy Hill and MergerSub entered into agreements (the
"Acquisition Agreements") pursuant to which Holdings, through Old Windy Hill,
acquired all of the outstanding stock of the Company from the shareholders of
Hubbard Milling and Armour (the "Sellers"). The Acquisition Agreements contain
customary representations, warranties, and covenants of the Sellers, relating to
organization and authorization, capitalization, no conflicts or litigation,
government approvals, consents, material contracts, tax matters, environmental
matters, condition of assets, intellectual property, and labor matters. The
Sellers and Hubbard Milling also indemnified the Company in respect of certain
liabilities up to $10 million for claims made within 18 months following the
Closing Date relating to (i) the breach of any warranty, representation or
covenant in the Acquisition Agreements, (ii) environmental conditions existing
prior to the closing, (iii) litigation and claims identified prior to the
Closing Date, and (iv) the costs and expenses of any such litigation or claims.
In the case of any losses relating to certain environmental matters, only 50% of
any such loss is included in such indemnification provision.
CLOSING DATE.
On the Closing Date (May 21, 1997) of the Transaction, (i) all of the stock
of Armour (which prior to the Closing Date owned 5% of the stock of Hubbard
Milling and which after the consummation of the Transaction owned 39% of the
stock of Hubbard Milling) was acquired by Old Windy Hill, (ii) MergerSub was
merged into Hubbard Milling, and Hubbard Milling, as the surviving corporation,
changed its name to Windy Hill Pet Food Company, Inc. (which has been defined
herein as the "Company"), (iii) the operating assets and liabilities of Old
Windy Hill (including $27 million of equity and $51 million of Existing
Indebtedness) was transferred to the Company, and (iv) the Existing Indebtedness
was repaid. Upon consummation of the Transaction, Holdings owned all of the
capital stock of the Company. At closing, $10 million of the purchase price was
placed in escrow for a period of 18 months to be paid to WHPF or the Company to
cover indemnities of the Sellers under the Acquisition Agreements.
On the Closing Date, $195 million in cash was required to consummate the
Transaction, consisting of approximately (i) $133 million to purchase all of the
outstanding capital stock of Hubbard Milling, net of cash acquired, including
(a) $126 million paid to the shareholders of Hubbard Milling in the merger and
(b) $7 million to acquire the stock of Armour, (ii) $51 million to repay the
Existing Indebtedness, (iii) $1 million for general corporate purposes and (iv)
$10 million in fees and expenses. The funds required to consummate the
Transaction were provided by (i) net proceeds from the Offering, (ii) borrowing
by the Company of $45 million under the Acquisition Facility and $20 million
under the Term Loan Facility, and (iii) the proceeds of $10 million of equity
financing by Holdings which was contributed by Armour to the Company (items (i),
(ii), and (iii) being referred to herein as the "Financing"). In addition, the
Company has a $20 million Working Capital Facility, which was undrawn at the
closing of the Transaction. See "Description of Notes" and "Description of
Senior Bank Facilities."
18
<PAGE>
The following charts depict the ownership of the Company immediately prior
to and upon completion of the Transaction.
IMMEDIATELY PRIOR TO THE TRANSACTION
This chart graphically depicts the ownership of the Company prior to the
Transaction.
IMMEDIATELY AFTER THE TRANSACTION
This chart graphically depicts the ownership of the Company after the
Transaction.
19
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Transaction.
<TABLE>
<CAPTION>
AMOUNT
-------------------
<S> <C>
(DOLLARS IN
MILLIONS)
SOURCES:
Senior Bank Facilities(1):
Acquisition Facility................................................. $ 45.0
Term Loan Facility................................................... 20.0
The Notes................................................................ 120.0
Equity contribution(2)................................................... 10.0
-------
Total sources........................................................ $ 195.0
-------
-------
USES:
Purchase price........................................................... $ 133.0
Repay Existing Indebtedness.............................................. 51.2
General corporate purposes............................................... .8
Fees and expenses(3)..................................................... 10.0
-------
Total uses........................................................... $ 195.0
-------
-------
</TABLE>
- ------------------------
(1) In addition to the Acquisition Facility and the Term Loan Facility, the
Company has a Working Capital Facility of $20 million, which was undrawn at
the closing of the Transaction. See "Description of Senior Bank Facilities."
(2) BRS, Windy Hill LLC, and PNC invested $10 million in Holdings and Holdings
contributed the proceeds of such investment to Armour, which in turn
contributed the proceeds to the Company.
(3) Reflects fees and expenses in connection with the Financing, including the
discount to the Initial Purchasers and other legal and accounting fees and
expenses incurred in connection with the Transaction.
SALE OF ANIMAL FEED BUSINESS
An asset purchase agreement to sell the assets and liabilities comprising
the animal feed business of Hubbard Milling (the "AF Sale") was entered into on
April 25, 1997, among Old Windy Hill, MergerSub, and Feed-Rite (US) Animal
Feeds, Inc., a subsidiary of The Ridley Group (the "AF Buyer"). The AF Buyer is
not an affiliate of the Company or Holdings. The closing of the AF Sale occurred
simultaneously with the closing of the Offering. After providing for estimated
taxes, net proceeds from the sale were approximately $50 million. A portion of
the proceeds from the AF Sale was used to repay in full the $45 million drawn at
closing under the Acquisition Facility and to repay $5 million of the term loan
facility which cannot be reborrowed. The Company's pro forma financial data
reflects the consummation of the AF Sale. See "--Summary Pro Forma Financial
Data" and "Pro Forma Financial Information."
20
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy obligations of the Company under
the Exchange and Registration Rights Agreement. The Company will not receive any
proceeds from the issuance of the New Notes Offered hereby. In consideration for
issuing the New Notes as contemplated in this Prospectus, the Company will
receive, in exchange, Old Notes in like principal amount. The form and terms of
the New Notes are identical in all material respects to the form and terms of
the Old Notes, except as otherwise described herein under "The Exchange
Offer--Terms of the Exchange Offer." The Old Notes surrendered in exchange for
the New Notes will be retired and cancelled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase in the outstanding
debt of the Company.
The Company used the approximately $116.4 million of net proceeds from the
Old Notes as follows: (i) $51 million to repay Existing Indebtedness and (ii)
approximately $65.4 million to pay a portion of the purchase price for the
acquisition of the capital stock of Hubbard. See "The Transaction." The Existing
Indebtedness as of March 31, 1997 consisted of a senior term loan facility in
the amount of $40.1 million, a senior subordinated debt facility in the amount
of $8.5 million, and outstanding borrowings under a revolving credit facility in
the amount of $2.0. The senior term loan facility had a maturity date of April
30, 2003 and a floating interest rate based on LIBOR, which as of March 31, 1997
was 8.19% per annum. The senior subordinated debt facility had a maturity date
of April 29, 2004 and a fixed interest rate of 12.0% per annum. The revolving
credit facility had a maturity date of April 29, 2001 and a floating interest
rate based on LIBOR, which as of March 31, 1997 was 8.22% per annum.
CAPITALIZATION
The following table sets forth (i) the historical capitalization of Old
Windy Hill, (ii) the unaudited pro forma capitalization of the Company after
giving effect to the Transaction and the Financing and (iii) the unaudited pro
forma capitalization of the Company after giving effect to the AF Sale, the
Transaction, and the Financing, in each case as of April 30, 1997. This table
should be read in conjunction with "The Transaction," and "Pro Forma Financial
Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 3, 1997 APRIL 30, 1997
--------------- --------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL --------------------------------
OLD WINDY HILL PRIOR TO AF SALE AFTER AF SALE
--------------- ----------------- -------------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Long-term debt (including current maturities):
Working Capital Facility(1)............................... $ -- $ -- $ --
Acquisition Facility...................................... -- 45.0 --
Term Loan Facility........................................ -- 20.0 15.0
The Notes................................................. -- 120.0 120.0
Existing Indebtedness..................................... 51.2 -- --
----- ------- -------------
Total long-term debt.................................... 51.2 185.0 135.0
Total stockholders' equity.................................... 26.5 34.1 $ 34.1
----- ------- -------------
Total capitalization.......................................... $ 77.7 $ 219.1 $ 169.1
----- ------- -------------
----- ------- -------------
</TABLE>
- ------------------------------
(1) The Working Capital Facility provides revolving loans of up to $20 million
for working capital, which was undrawn at the closing of the Transaction.
See "The Transaction" and "Description of Senior Bank Facilities."
21
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Exchange and Registration Rights Agreement, the Company has
agreed (i) to file a registration statement with respect to an offer to exchange
the Old Notes for senior debt securities of the Company with terms substantially
identical to the Old Notes (except that the New Notes will not contain terms
with respect to transfer restrictions, registration rights and liquidated
damages) on or prior to 60 days after the Issue Date and (ii) to use best
efforts to cause such registration statement to become effective under the
Securities Act within 150 days after the Issue Date. In the event that
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer as contemplated thereby, or if certain
holders of the Old Notes notify the Company that they are not eligible to
participate in, or would not receive freely tradeable New Notes in exchange for
tendered Old Notes pursuant to the Exchange Offer, the Company will use its best
efforts to cause to become effective a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Old Notes and to keep
the Shelf Registration Statement effective until three years after the Issue
Date. In the event that the Company is not in compliance with certain
obligations under the Exchange and Registration Rights Agreement, the Company
shall be obligated to pay liquidated damages to holders of the Old Notes. See
"Exchange and Registration Rights Agreement."
Each holder of the Old Notes, that wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or Holdings or if it is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, the Company believes that, except as
described below, New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than a holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder (i) is not engaged in and does not intend to
engage in a distribution of such New Notes and (ii) has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer with the intention or for
the purpose of participating in a distribution of the New Notes cannot rely on
such interpretation by the staff of the Commission and 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 such resale transaction should be
covered by an effective registration statement containing the selling security
holder'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 New Notes only as specifically set forth herein. Each
broker-dealer that receives New 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 such New Notes. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes
22
<PAGE>
surrendered pursuant to the Exchange Offer. Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes, except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $120.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Exchange and Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and continue to accrue interest and will
be entitled to the rights and benefits such holders have under the Indenture and
the Exchange and Registration Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Old Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the provisions of Section 1 of
the Exchange and Registration Rights Agreement. The Exchange Agent will act as
agent for the tendering holders for the purposes of receiving the New Notes from
the Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions specified
below under "--Certain Conditions to the Exchange Offer."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
October 11, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
"--Certain Conditions to the Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of Old Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend
23
<PAGE>
the Exchange Offer, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 9 3/4% per annum, payable
semi-annually, on May 15 and November 15 of each year, commencing on November
15, 1997. Holders of New Notes will receive interest on November 15, 1997 from
the date of initial issuance of the New Notes, plus an amount equal to the
accrued interest on the Old Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court of
by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any rule, statute, or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff of
the Commission, which, in the Company's reasonable judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Old Notes
not accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above under "--Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. In the event the Company asserts or waives a
condition to the Exchange Offer which constitutes a material change to the terms
of the Exchange Offer, the Company will disclose such change in a manner
reasonably calculated to inform prospective investors of such change and will
extend the period of the Exchange Offer by five business days.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
24
<PAGE>
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signature there guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date or, in the alternative, comply
with DTC's ATOP procedures described below. In addition, either (i) Old Notes
must be received by the Exchange Agent along with the Letter of Transmittal, or
(ii) a timely confirmation of book-entry transfer (a "Book-Entry Confirmation")
of such Old Notes, if such procedure is available, into the Exchange Agent's
account at the Depository Trust Company (the "Book-Entry Transfer Facility" or
"DTC") pursuant to the procedure for book-entry transfer described below or
properly transmitted Agent's Message (as defined below) must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth below under "The
Exchange Offer--Exchange Agent" prior to 5:00 p.m., New York city time, on the
Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder of Old Notes to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's must, prior to completing and
executing the Letter of Transmittal and delivering such owner's Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
such owner's name or obtain a properly completed bond power from the registered
holder of Old Notes. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Old Notes with the signature
thereon guaranteed by an Eligible Institution.
25
<PAGE>
If the Letter of Transmittal 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,
provide evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's ATOP to tender.
Accordingly, participants in DTC's ATOP may, in lieu of physically completing
and signing the Letter of Transmittal and delivering it to the Exchange Agent,
electronically transmit their acceptance of the Exchange Offer by causing the
Depositary to transfer the Old Notes to the Exchange Agent in accordance with
the Depositary's ATOP procedures for transfer. The Depositary will then send an
Agent's Message to the Exchange Agent.
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 the Depositary has received an express acknowledgement from a participant
in DTC's ATOP that is tendering Old Notes which are the subject of such book
entry confirmation, that such participant has received and agrees to be bound by
the terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against such participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes 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 Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will 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.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility,
a properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Old Notes are not accepted for exchange for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's
26
<PAGE>
system 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
at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date, or if the guaranteed
delivery procedures described below are to be complied with, within the time
period provided under such procedures. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or and delivery)
setting forth the name and address of the holder, the registered number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
(3) New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the Old Notes or
a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile there), or properly transmitted Agent's Message as well as all
tendered Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three (3) New York
Stock Exchange trading days after the Expiration Date.
Upon request to 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.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, (i) a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent" or (ii) holders must comply with the appropriate procedures
of DTC's ATOP system. Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes were registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. 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 the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the
27
<PAGE>
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to the holder thereof without
cost to such holder (or, in the case of Old Notes tendered by book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering" above at any time
on or prior to the Expiration Date.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL OR BY BY HAND:
OVERNIGHT COURIER: Wilmington Trust Company
Wilmington Trust Company c/o Harris Trust Company of New York,
Corporate Trust Administration as Agent
1100 North Market Street 77 Water Street
Rodney Square North New York, New York 10004
Wilmington, Delaware 19890-0001
</TABLE>
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Administration
Facsimile: (302) 651-1079
Confirm by Telephone: (302) 651-8864
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$600,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, and
related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Old Notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of Old Notes tendered, or if tendered Old Notes are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of 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 the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Company to register New Notes in the name
28
<PAGE>
of, or request that Old Notes not tendered or not accepted in the Exchange Offer
be returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth (i) in the legend thereon 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 (ii) otherwise set forth in the
Offering Memorandum dated May 16, 1997 distributed in connection with the
Offering. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Notes under the Securities Act. Based on interpretations by the staff of the
Commission, New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in ordinary course of such holders' business and such holders
have no arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer. Any holder who tenders in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes (i) could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or such securities laws have been complied with. The
Company has agreed, pursuant to the Exchange and Registration Rights Agreement
and subject to certain specified limitations therein, to register or qualify the
New Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the New Notes may request in writing.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
OLD WINDY HILL
The selected historical financial information set forth for Old Windy Hill
with respect to the statement of operations data for the ten months ended
December 30, 1995, the year ended December 28, 1996, and with respect to the
balance sheet data at December 30, 1995, and December 28, 1996, was derived from
the financial statements of Old Windy Hill included elsewhere in this
Prospectus, and which have been audited by KPMG Peat Marwick LLP. The selected
historical financial information set forth as of and for the three months ended
March 30, 1996 and March 29, 1997, was derived from Old Windy Hill's unaudited
financial information which is not included elsewhere in this Prospectus and
which, in the opinion of management, include all adjustments necessary for a
fair presentation and is not indicative of a full year's results. The selected
historical financial information of Old Windy Hill set forth below should be
read in conjunction with Old Windy Hill's historical financial statements and
related notes thereto included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
TEN MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED ----------------------------
DECEMBER 30, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1996 1997
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 34,481 $ 82,993 $ 10,985 $ 25,937
Cost of goods sold.......................................... 22,107 54,379 7,384 16,061
--------------- --------------- ------------- -------------
Gross profit............................................ 12,374 28,614 3,601 9,876
--------------- --------------- ------------- -------------
Selling, distribution and marketing expenses:
Selling and distribution................................ 4,751 8,090 1,452 2,441
Trade promotions and other marketing.................... 3,732 9,075 1,289 3,519
--------------- --------------- ------------- -------------
Total selling, distribution and marketing expenses.......... 8,483 17,165 2,741 5,960
General and administrative expenses......................... 1,526 3,618 690 1,287
Amortization of intangibles and other assets................ 452 1,316 142 463
--------------- --------------- ------------- -------------
Total operating expenses................................ 10,461 22,099 3,573 7,710
--------------- --------------- ------------- -------------
Operating income........................................ 1,913 6,515 28 2,166
Amortization of deferred financing fees..................... 67 259 31 98
Interest expense, net....................................... 1,125 3,800 344 1,207
--------------- --------------- ------------- -------------
Income (loss) before income taxes....................... 721 2,456 (347) 861
Pro forma income tax expense(1)............................. 288 982 (139) 344
--------------- --------------- ------------- -------------
Pro forma net income (loss)(1).......................... $ 433 $ 1,474 $ (208) $ 517
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
OPERATING AND OTHER DATA:
EBITDA(3)................................................... $ 2,633 $ 8,910 $ 270 $ 2,994
Cash flows provided by operating activities................. 1,713 6,704 191 1,506
Cash flows used in investing activities..................... (23,606) (58,216) (396) (521)
Cash flows provided by financing activities................. 22,220 51,755 0 1,450
EBITDA margin(4)............................................ 7.6% 10.7% 2.5% 11.5%
Depreciation and amortization............................... $ 787 $ 2,654(5) $ 273 $ 926
Capital expenditures........................................ 1,120 1,091 133 287
Pet food sold (thousands of tons)........................... 75 157 22 48
Ratio of earnings to fixed charges(6)....................... 1.52 1.57 -- 1.62
Deficiency of earnings to cover fixed charges............... -- -- $ 347 --
BALANCE SHEET DATA (AT PERIOD END):
Inventories................................................. $ 1,720 $ 5,141 $ 1,815 $ 5,060
Property, plant and equipment, net.......................... 6,201 22,484 6,235 22,406
Total assets................................................ 27,484 92,225 26,986 90,696
Total liabilities........................................... 20,872 66,193 20,723 64,145
Total stockholder's equity.................................. 6,612 26,032 6,263 26,550
</TABLE>
- ------------------------------
(1) Prior to April 29, 1996, Old Windy Hill was organized as a limited liability
company. As such, pro forma income tax expense is presented to reflect pro
forma net income as if Old Windy Hill had been a taxable entity as of March
1, 1995.
(2) Reflects the write-off of deferred financing fees in connection with
refinancing of indebtedness at April 29, 1996.
(3) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, and extraordinary items and is presented because it is
commonly used by certain investors and analysts to analyze and compare
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities, or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(4) EBITDA margin is computed as EBITDA as a percentage of net sales.
(5) Excludes amortization of discount on note payable.
(6) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as net income before provision for income taxes, plus fixed
charges. Fixed charges consist of interest expense on all indebtedness,
amortization of deferred financing fees and one-third of rental expense on
operating leases, representing that portion of rental expense deemed by the
Company to be attributable to interest.
30
<PAGE>
HUBBARD
The selected historical financial information set forth for Hubbard with
respect to the statement of operations for the years ended April 30, 1995, 1996
and 1997, and with respect to the balance sheets as of April 30, 1995, 1996 and
1997 was derived from the financial statements of Hubbard included elsewhere in
this Prospectus and which have been audited by KPMG Peat Marwick LLP. The
selected historical financial information of Hubbard set forth below should be
read in conjunction with Hubbard's historical financial statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................................. $ 87,736 $ 102,268 $ 108,523
Cost of sales......................................................................... 67,052 80,658 87,768
--------- --------- ---------
Gross profit...................................................................... 20,684 21,610 20,755
--------- --------- ---------
Operating expenses:
Warehouse and delivery............................................................ 246 200 188
Selling and advertising........................................................... 6,469 7,035 6,924
General and administrative........................................................ 5,743 5,917 6,099
--------- --------- ---------
Total operating expenses.............................................................. 12,458 13,152 13,211
--------- --------- ---------
Operating income.................................................................. 8,226 8,458 7,544
Interest income....................................................................... 790 774 867
Equity in earnings of joint ventures.................................................. 1,356 981 976
Other income (expense)................................................................ 5 10 70
--------- --------- ---------
Income before income taxes........................................................ 10,377 10,223 9,457
Income tax expense.................................................................... 4,133 3,935 3,684
--------- --------- ---------
Net income........................................................................ $ 6,244 $ 6,288 $ 5,773
--------- --------- ---------
--------- --------- ---------
OPERATING AND OTHER DATA:
EBITDA(1)............................................................................. $ 12,679 $ 13,206 $ 12,616
Cash flows provided by operating activities........................................... 12,076 9,650 9,514
Cash flows used in investing activities............................................... (13,037) (4,651) (1,812)
Cash flows provided by (used for) financing activities................................ 4,890 (3,034) (6,543)
EBITDA margin(2)...................................................................... 14.4% 12.9% 11.6%
Depreciation and amortization......................................................... $ 3,092 $ 3,757 $ 4,026
Capital expenditures.................................................................. 2,607 3,839 2,406
Pet food sold (thousands of tons)..................................................... 179 204 201
BALANCE SHEET DATA (AT PERIOD END):
Inventories........................................................................... $ 6,194 $ 5,763 $ 5,373
Property, plant and equipment, net.................................................... 27,903 26,627 25,250
Total assets.......................................................................... 57,865 62,096 59,318
Total liabilities..................................................................... 12,865 13,843 11,835
Net assets............................................................................ 45,000 48,253 47,484
</TABLE>
- ------------------------
(1) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, and extraordinary items and is presented because it is
commonly used by certain investors and analysts to analyze and compare,
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities, or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(2) EBITDA margin is computed as EBITDA as a percentage of net sales.
31
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following presents certain unaudited pro forma financial information of
the Company for the periods ended and as of the dates indicated. The unaudited
summary pro forma statement of operations data give effect to (i) the
Transaction, (ii) the Financing, (iii) the acquisition of the 50% interest in
the Maumee joint venture not previously owned, (iv) adjustments made to reflect
the elimination of certain administrative operations, and (v) adjustments to
include the effects of the Kozy Kitten Acquisition to reflect a full year of
operating data, in each case, as if such transaction had occurred on January 1,
1996 for both the year ended December 31, 1996 and the three months ended March
31, 1997 (using the quarter ended April 30, 1997 financial data for Hubbard).
The unaudited summary pro forma balance sheet data give effect to the
Transaction, the Financing, and the AF Sale as if they had occurred on April 30,
1997. For quarterly and annual financial reporting purposes, the Company uses 13
week quarters with years ending on the last Saturday in December. For purposes
of the Pro Forma Statements of Operations, the Company's year end for 1996 and
the first quarter for 1997 have been designated December 31 and March 31,
respectively. In addition, the Pro Forma Balance Sheet gives effect to the
Transaction as if it occurred on April 30, 1997.
The pro forma financial information set forth below reflect pro forma
adjustments that are based upon available information, contractual agreements
and certain assumptions that the Company believes are reasonable. The pro forma
financial information does not purport to represent the Company's results of
operations or financial position that would have resulted had the transactions
to which pro forma effect is given been consummated as of the dates or for the
periods indicated. In preparing the pro forma information, the Company believes
it has utilized reasonable methods to conform the basis of presentation. Upon
finalization of the Transaction, a thorough review of all accounting practices
and policies will be made. In addition, the acquisition of Hubbard Milling will
be accounted for by the purchase method of accounting. The pro forma information
reflects preliminary estimates of the allocation of the purchase price and is
subject to final determination.
The pro forma financial statements and accompanying notes should be read in
conjunction with the historical financial statements of Old Windy Hill and
Hubbard and other financial information pertaining to the Company including
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
32
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
OLD WINDY HILL HUBBARD PRO FORMA COMPANY
MAY 3, 1997 APRIL 30, 1997 ADJUSTMENTS PRO FORMA
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash................................................... $ 893 $ 15,006 $ (13,896)(a) $ 2,003
Accounts receivable.................................... 6,729 5,357 421(b) 12,507
Inventories and prepaids............................... 6,149 5,433 90(b) 11,672
Deferred tax assets.................................... -- -- 1,192(c) 1,192
-------------- -------------- ------------ -----------
Total current assets............................. 13,771 25,796 (12,193) 27,374
Property, plant and equipment, net..................... 22,386 25,250 23,360(d) 70,996
Goodwill and other intangible assets, net.............. 51,158 3,461 40,608 ,(e 95,227
Investment in joint ventures........................... -- 4,190 (225)(f) 3,965
Other assets........................................... 3,339 622 6,954(g) 10,915
-------------- -------------- ------------ -----------
Total assets..................................... $ 90,654 $ 59,319 $ 58,504 $ 208,477
-------------- -------------- ------------ -----------
-------------- -------------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Bank overdraft......................................... $ 2,173 $ -- $ -- $ 2,173
Senior secured revolving facility...................... 4,000 -- (4,000)(h) --
Current portion of long term debt...................... 5,800 -- (5,050)(h) 750
Accounts payable and accrued expenses.................. 8,731 7,568 4,718 )(i 21,017
Deferred tax liability................................. 50 -- -- 50
Income tax payable..................................... 24 262 (262)(c) 24
-------------- -------------- ------------ -----------
Total current liabilities........................ 20,778 7,830 (4,594) 24,014
Senior secured term debt............................... 32,850 -- (18,600)(j) 14,250
Senior subordinated notes.............................. 7,580 -- (7,580)(k) --
The Notes.............................................. -- -- 120,000(l) 120,000
Deferred tax liability................................. 2,581 649 9,181(m) 12,411
Other liabilities...................................... 334 3,356 -- 3,690
-------------- -------------- ------------ -----------
Total liabilities................................ 64,123 11,835 98,407 174,365
-------------- -------------- ------------ -----------
Stockholders' equity:
Common stock......................................... -- -- --
Paid in capital...................................... 25,681 -- 9,719(n) 35,400
Retained earnings/parent investment.................. 850 47,484 (49,622)(o) (1,288)
-------------- -------------- ------------ -----------
Total stockholders' equity....................... 26,531 47,484 (39,903) 34,112
-------------- -------------- ------------ -----------
Total liabilities and stockholders' equity....... $ 90,654 $ 59,319 $ 58,504 $ 208,477
-------------- -------------- ------------ -----------
-------------- -------------- ------------ -----------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Balance Sheet
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(a) Reflects cash distributed to Hubbard Milling shareholders.
(b) Reflects the addition of working capital and other assets from the
acquisition of the Maumee joint venture. The terms of the acquisition
include a purchase price of $1.8 million. The preliminary purchase price
allocation is as follows:
<TABLE>
<CAPTION>
(000S)
---------
<S> <C>
Tangible assets................................................................. 400
Intangible assets............................................................... 1,400
---------
Total................................................................... $ 1,800
---------
---------
</TABLE>
The allocation of purchase price has not been finalized; however, any changes
are not expected to be material.
(c) To adjust current tax payable and deferred taxes to reflect the write-off of
the deferred financing and discount on notes related to the repayment of
Existing Indebtedness.
(d) Reflects a write-up of property, plant and equipment of $22.9 million to
estimated fair market value as part of the Hubbard purchase price allocation
and the acquisition of the fixed assets owned by the Maumee joint venture.
The purchase price allocation for the Hubbard Milling acquisition is as
follows:
<TABLE>
<CAPTION>
(000S)
-----------
<S> <C>
Working capital and other assets............................................. $ 6,000
Assets held for sale......................................................... 50,000
Property and equipment....................................................... 49,000
Intangible assets............................................................ 43,000
-----------
Total................................................................ $ 148,000
-----------
-----------
</TABLE>
The allocation of purchase price has not been finalized; however, any changes
are not expected to be material.
(e) Reflects the excess of cost over the fair market value of the net assets
acquired in connection with the acquisition of Hubbard Milling. The Company
will evaluate the net realizable value of intangible assets on an ongoing
basis relying on a number of factors, including operating results and future
cash flows.
(f) Reflects the adjustment to the investment in joint ventures account as a
result of the acquisition of the Maumee joint venture.
(g) Reflects the capitalization of deferred financing costs of $9.6 million
incurred in connection with the Transaction and the Offering, net of the
write-off of deferred financing costs on the Existing Indebtedness of $2.7
million.
(h) Reflects the repayment of the current portion of the Existing Indebtedness
and the current portion of new debt under the Term Loan Facility.
(i) Includes acquisition related costs of $3.7 million which will be paid after
the Closing Date. These severance and other costs to exit an activity relate
primarily to the closure of Hubbard Milling's corporate headquarters. In
addition, the amount includes $1.0 million of liabilities assumed by the
Company in the acquisition of Hubbard Milling, not reflected in the Hubbard
financial statements.
34
<PAGE>
(j) Reflects the net of (i) repayment of Old Windy Hill senior debt of $32.9
million and (ii) borrowings of $14.3 million under the Term Loan Facility.
(k) Reflects the repayment of Old Windy Hill subordinated notes.
(l) Reflects the issuance of the Notes.
(m) Reflects the tax effect of the write-up of $22.9 million in property, plant
and equipment.
(n) Reflects the $10 million equity contribution from Holdings, net of
syndication expenses.
(o) Reflects the sum of (i) elimination of Hubbard equity of $47.5 million, (ii)
reduction of equity related to the write-off of Old Windy Hill deferred
financing costs of $2.7 million due to the refinancing of the Existing
Indebtedness, and (iii) reduction of equity related to the write-off of Old
Windy Hill discount on subordinated debt of $.9 million, net of tax effect
on (ii) and (iii) of $1.4 million.
35
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL COMPANY
OLD WINDY HILL HISTORICAL HUBBARD PRO FORMA
YEAR ENDED YEAR ENDED PRO FORMA YEAR ENDED
DECEMBER 31, 1996 APRIL 30, 1997 ADJUSTMENTS DECEMBER 31, 1996
------------------- --------------------- ------------ -------------------
<S> <C> <C> <C> <C>
Net sales.............................. $ 82,993 $ 108,523 $ 25,449(a) $ 216,965
Cost of goods sold..................... 54,379 87,768 17,842(b) 159,989
-------- ---------- ------------ ----------
Gross profit......................... 28,614 20,755 7,607 56,976
-------- ---------- ------------ ----------
Selling, distribution and marketing
expenses:
Selling, distribution and
advertising........................ 8,090 7,112 2,039(c) 17,241
Trade promotions
and other marketing................ 9,075 -- 354(e) 9,429
-------- ---------- ------------ ----------
Total selling, distribution and
marketing expenses................. 17,165 7,112 2,393 26,670
General and administrative expenses.... 3,618 6,099 (717)(d) 9,000
Amortization of intangibles and other
assets............................... 1,316 -- 1,746(f) 3,062
-------- ---------- ------------ ----------
Total operating expenses............. 22,099 13,211 3,422 38,732
-------- ---------- ------------ ----------
Operating income..................... 6,515 7,544 4,185 18,244
Equity in earnings of joint ventures... -- 976 (480)(g) 496
Other income (expense)................. -- 70 (70) --
Interest (income) expense, net......... 3,800 (867) 10,227(h) 13,160
Amortization of deferred financing
expenses............................. 259 -- 856(h) 1,115
-------- ---------- ------------ ----------
Income before income taxes........... 2,456 9,457 (7,448) 4,465
Income tax expense..................... 1,209 3,684 (3,107)(i) 1,786
-------- ---------- ------------ ----------
Income before extraordinary item..... $ 1,247 $ 5,773 $ (4,341) $ 2,679
-------- ---------- ------------ ----------
-------- ---------- ------------ ----------
EBITDA(j).............................. $ 29,256
----------
----------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Statements of Operations
36
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL COMPANY
HISTORICAL HUBBARD PRO FORMA
OLD WINDY HILL THREE MONTHS THREE MONTHS
THREE MONTHS ENDED ENDED PRO FORMA ENDED
MARCH 31, 1997 APRIL 30, 1997 ADJUSTMENTS MARCH 31, 1997
--------------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 25,937 $ 26,282 $ 2,960(a) $ 55,179
Cost of goods sold......................... 16,061 20,451 2,940(b) 39,452
-------- -------------- ------------ ---------------
Gross profit........................... 9,876 5,831 20 15,727
-------- -------------- ------------ ---------------
Selling, distribution and marketing
expenses:
Selling, distribution and
advertising.......................... 2,441 1,877 39(c) 4,357
Trade promotions and other marketing... 3,519 -- -- 3,519
-------- -------------- ------------ ---------------
Total selling, distribution and marketing
expenses................................. 5,960 1,877 39 7,876
General and administrative expenses........ 1,287 2,346 (1,023)(d) 2,610
Amortization of intangibles and other
assets................................... 463 -- 369(f) 832
-------- -------------- ------------ ---------------
Total operating expenses............... 7,710 4,223 (615) 11,318
-------- -------------- ------------ ---------------
Operating income....................... 2,166 1,608 635 4,409
Equity in earnings of joint ventures....... -- 273 (120)(g) 153
Other income (expense)..................... -- 43 43
Interest expense/(income), net............. 1,207 (222) 2,306(h) 3,291
Amortization of deferred financing
expenses................................. 98 -- 181(h) 279
-------- -------------- ------------ ---------------
Income before income taxes............. 861 2,146 (1,972) 1,035
Income tax expense......................... 344 804 (734)(i) 414
-------- -------------- ------------ ---------------
Net income................................. $ 517 $ 1,342 $ (1,238) $ 621
-------- -------------- ------------ ---------------
-------- -------------- ------------ ---------------
EBITDA(j).................................. $ 7,604
---------------
---------------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Statements of Operations
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
The following pro forma adjustments give effect to (i) the Transaction, (ii)
the Financing, (iii) the acquisition of the 50% interest in the Maumee joint
venture not previously owned and accounted for using the equity method, (iv)
adjustments made to reflect the elimination of certain administrative
operations, and (v) adjustments to include the effects of the Kozy Kitten
Acquisition. In the latter case, four months unaudited information is included
in the year ended December 31, 1996 results.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------- -----------------
<S> <C> <C>
(a) Adjustments to net sales reflect the following:
Sales of products from Kozy Kitten Acquisition for
the relevant period prior to April 29, 1996.................... $ 13,607 $ --
Sales of Maumee joint venture..................................... 11,842 2,960
-------- -------
$ 25,449 $ 2,960
-------- -------
-------- -------
(b) Adjustments to cost of sales reflect the following:
Cost of sales of products from Kozy Kitten Acquisition for the
relevant period prior to
April 29, 1996................................................. $ 6,123 $ --
Depreciation on fair market value write-up of fixed
assets......................................................... 2,295 583
Cost of sales of the Maumee joint venture........................ 10,194 2,549
Fixed overhead savings related to plant closure.................. (500) (125)
Reclassification of goodwill amortization from Hubbard's
historical statements............................................ (270) (67)
-------- -------
$ 17,842 $ 2,940
-------- -------
-------- -------
</TABLE>
- --------------------------
<TABLE>
<S> <C> <C>
(c) Adjustments to selling and distribution and
advertising costs reflect the following:
Expense from Kozy Kitten Acquisition for the
relevant period prior to April 29, 1996......... $ 1,984 $ --
Expense of Maumee joint venture................... 701 175
Reclassification of fixed selling costs to general
and
administrative.................................. (646) (136)
-------- -------
$ 2,039 $ 39
-------- -------
-------- -------
</TABLE>
- --------------------------
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------- -----------------
(d) Adjustment to general and administrative expenses
reflect the following:
Kozy Kitten expense for the relevant period prior
to
April 29, 1996.................................. $ 800 $ --
Reduction in Hubbard administrative costs(1)...... (3,349) (1,432)(1)
Management fee.................................... 600 125
Reclassification from selling expense............. 646 136
Incremental administrative costs.................. 586 148
-------- -------
$ (717) $ (1,023)
-------- -------
-------- -------
</TABLE>
- --------------------------
<TABLE>
<S> <C> <C>
(1) Reduction in administrative costs achieved by the closure of Hubbard Milling's corporate headquarters
in Mankato, Minnesota pursuant to the Merger Agreement and the consolidation of corporate functions
to the Company's headquarters in Brentwood, Tennessee.
(e) Reflects trade promotion expense related to Kozy Kitten Acquisition for the relevant period prior to April 29,
1996.
(f) Reflects the increase in intangibles amortization expense as a result of the acquisition of Hubbard Milling
plus the reclassification from cost of sales reflected in (b) above. Goodwill will be amortized on a
straight-line basis over 40 years, and other intangibles over periods ranging from five to 20 years.
(g) Represents a decrease in investment in joint ventures due to the acquisition of the remaining 50% interest in
the Maumee joint venture not previously owned.
(h) Represents adjustment necessary to reflect pro forma interest expense and amortization of deferred financing
expense as shown below based upon pro forma debt levels and applicable interest rates. The table below presents
pro forma interest expense, noted with the respective interest rates and fees, and pro forma amortization of
deferred financing costs:
TWELVE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------- -----------------
Interest income (5.5%)........................................... $ (121) $ (29)
Term facility (8.375%)........................................... 1,256 313
Senior subordinated notes offered hereby (9.75%)................. 11,700 2,925
Commitment fee on Revolving Facility (0.5%)...................... 325 82
-------- -------
Total pro forma interest expense................................ $ 13,160 $ 3,291
-------- -------
-------- -------
Pro forma amortization of deferred financing costs............... $ 1,115 $ 279
-------- -------
-------- -------
</TABLE>
(i) Reflects a reduction in the provision for income taxes as a result of the
pro forma decrease in income before income taxes, computed at an effective
rate of 40%.
(j) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and extraordinary items and is presented because it is commonly
used by certain investors and analysts to analyze and compare on the basis
of operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company derives approximately 95% of its revenues from selling dry pet
food products. The majority of its revenues comes from the sale of private label
pet food products to customers throughout the country. Other revenues are
generated by the sale of economy branded pet food products, mainly to customers
concentrated in the South and the Upper Midwest, and contract manufacturing for
other pet food companies. The Company typically has slightly higher sales during
the fall and winter months, when cooler weather leads to increased dog food
consumption.
Prior to the Transaction, Hubbard Milling operated both a pet food business
and an animal feed business, with total sales of approximately $260 million.
Hubbard Milling maintained a corporate overhead structure to support its pet
food and animal feed businesses with administrative expenses of approximately
$7.0 million in 1996. Approximately 60% of the corporate overhead was allocated
to the animal feed division and the remaining 40% was allocated to the pet food
division. The animal feed division was sold to the AF Buyer simultaneously with
the closing of the Transaction. See "The Transaction--Sale of Animal Feed
Business." Over the course of the six months following the AF Sale, the Company
plans to eliminate the administrative operations in Mankato, Minnesota, and
consolidate the corporate overhead functions with Old Windy Hill's corporate
functions in Brentwood, Tennessee. See "Business--Marketing, Sales and
Distribution." As a result of this consolidation, the Company believes that
substantially all of Hubbard Milling's allocated expenses can be eliminated and
that the corporate offices in Brentwood can adequately support the business
going forward. The historical financial information presented for Hubbard
Milling represents only the results of operations of its pet food business,
including its allocable portion of corporate overhead.
The following discussion is based on the historical financial statements for
both Old Windy Hill and Hubbard. Because Old Windy Hill was formed in February
1995, the results of operations for 1995 reflects only a 10 month period ended
December 30, 1995. In addition, Old Windy Hill's results of operations for the
year ended December 28, 1996 and the four months ended May 3, 1997 have been
significantly affected by the acquisition of the KOZY KITTEN and TUFFY'S pet
food businesses (the "Kozy Kitten Acquisition") on April 29, 1996. The total
purchase price of such acquisition was $52.5 million. To finance such
acquisition and refinance $17.0 million of existing debt, Old Windy Hill
received an equity contribution of $19.8 million from Holdings and incurred new
bank debt of $60.5 million, which included a revolving credit facility of $9.0
million. As a result of the above mentioned transactions, the periods may not be
comparable.
40
<PAGE>
RESULTS OF OPERATIONS
OLD WINDY HILL
The following table sets forth for the periods indicated the components of
Old Windy Hill's statements of income expressed in dollar amounts and as a
percentage net of sales for such period.
<TABLE>
<CAPTION>
FOUR MONTHS FOUR MONTHS
TEN MONTHS ENDED YEAR ENDED ENDED ENDED
DECEMBER 30, DECEMBER 28, APRIL 27, MAY 3,
1995 1996 1996 1997
-------------------------- ---------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
AMOUNT % AMOUNT % AMOUNT % AMOUNT
--------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 34,481 100.0% $ 82,993 100.0% $ 13,488 100.0% $ 35,567
Cost of goods sold................. 22,107 64.1 54,379 65.5 9,024 66.9 21,640
--------------- --------- ----------- --------- ----------- --------- -----------
Gross profit................. 12,374 35.9 28,614 34.5 4,464 33.1 13,927
--------------- --------- ----------- --------- ----------- --------- -----------
Selling, distribution and marketing
expenses:
Selling and distribution....... 4,751 13.8 8,090 9.7 1,804 13.4 3,500
Trade promotions and other
marketing.................... 3,732 10.8 9,075 10.9 1,457 10.8 5,277
--------------- --------- ----------- --------- ----------- --------- -----------
Total selling, distribution and
marketing expenses............... 8,483 24.6 17,165 20.6 3,261 24.2 8,777
General and administrative
expenses......................... 1,526 4.4 3,618 4.4 931 6.9 1,799
Amortization of intangibles and
other assets..................... 452 1.3 1,316 1.6 193 1.4 623
--------------- --------- ----------- --------- ----------- --------- -----------
Total operating expense............ 10,461 30.3 22,099 26.6 4,385 32.5 11,199
--------------- --------- ----------- --------- ----------- --------- -----------
Operating income............. 1,913 5.6 6,515 7.9 79 0.6 2,728
Amortization of deferred financing
fees............................. 67 0.2 259 0.3 604 4.5 149
Interest expense, net.............. 1,125 3.3 3,800 4.6 460 3.4 1,647
--------------- --------- ----------- --------- ----------- --------- -----------
Income (loss) before
extraordinary item and
income taxes............... 721 2.1 2,456 3.0 (985) (7.3) 932
Income tax expense................. -- -- 1,209 1.5 -- -- 433
--------------- --------- ----------- --------- ----------- --------- -----------
Income (loss) before
extraordinary item......... 721 2.1 1,247 1.5 (985) (7.3) 499
Extraordinary loss on early
extinguishment of debt........... -- -- 604 0.7 -- -- --
--------------- --------- ----------- --------- ----------- --------- -----------
Net income (loss)............ $ 721 2.1% $ 643 0.8% $ (985) (7.3)% $ 499
--------------- --------- ----------- --------- ----------- --------- -----------
--------------- --------- ----------- --------- ----------- --------- -----------
<CAPTION>
<S> <C>
%
---------
<S> <C>
Net sales.......................... 100.0%
Cost of goods sold................. 60.8
---------
Gross profit................. 39.2
---------
Selling, distribution and marketing
expenses:
Selling and distribution....... 9.8
Trade promotions and other
marketing.................... 14.8
---------
Total selling, distribution and
marketing expenses............... 24.7
General and administrative
expenses......................... 5.1
Amortization of intangibles and
other assets..................... 1.8
---------
Total operating expense............ 31.5
---------
Operating income............. 7.7
Amortization of deferred financing
fees............................. 0.4
Interest expense, net.............. 4.6
---------
Income (loss) before
extraordinary item and
income taxes............... 2.6
Income tax expense................. 1.2
---------
Income (loss) before
extraordinary item......... 1.4
Extraordinary loss on early
extinguishment of debt........... --
---------
Net income (loss)............ 1.4%
---------
---------
</TABLE>
FOUR MONTHS ENDED MAY 3, 1997 COMPARED TO FOUR MONTHS ENDED APRIL 27, 1996
NET SALES in the four months ended May 3, 1997, increased 164% to $35.6
million from $13.5 million in the four months ended April 27, 1996. The sales
increase was due mainly to the sales of products arising from the businesses
acquired in the Kozy Kitten Acquisition on April 29, 1996, which were $13.6
million in the four months ended May 3, 1997. Sales of Old Windy Hill's other
products also increased, due principally to additional private label dog food
business and gains in branded economy cat food.
GROSS PROFIT as a percentage of net sales was 39.2% in the 1997 period as
compared to 33.1% in the prior period. The gross margin improvement was due
principally to a higher proportion of cat food sales as a percentage of total
net sales, which have a higher gross margin than dog food. As a result of the
Kozy Kitten Acquisition, cat food sales increased to 40% of total net sales in
the 1997 period from 23% of total net sales in the prior period.
41
<PAGE>
OPERATING INCOME as a percentage of net sales was 7.7% in the 1997 period as
compared to 0.6% in the prior period. The increase was attributable to the
increase in the gross margin and a decline in operating expenses as a percentage
of sales. The sales of products arising from the Kozy Kitten Acquisition did not
require a commensurate increase in operating expenses and, as a result,
operating expenses as a percentage of sales dropped to 31.5% in the 1997 period,
as compared to 32.5% in the prior period.
INTEREST EXPENSE, NET in the 1997 period increased to $1.6 million versus
$0.5 million in the prior period. The increase in interest expense was due to
the additional debt incurred to finance the Kozy Kitten Acquisition.
NET INCOME for the 1997 period was $0.5 million, compared to a net loss of
$1.0 million in the 1996 period. The profit improvement was principally a result
of the additional sales and gross profit generated by the businesses acquired in
the Kozy Kitten Acquisition.
YEAR ENDED DECEMBER 28, 1996 COMPARED TO TEN MONTHS ENDED DECEMBER 30, 1995
NET SALES in the year ended December 28, 1996, increased 141% to $83.0
million from $34.5 million in the ten months ended December 30, 1995. The sales
increase was due to the sales of products arising from the businesses acquired
in the Kozy Kitten Acquisition, which were $39.3 million in the 1996 period, and
the effect of the two additional months of operations.
GROSS PROFIT as a percentage of net sales was 34.5% in the 1996 period as
compared to 35.9% in the 1995 period. Gross margin decreased, due to the effect
of higher ingredient costs only partially offsetting the impact of a greater
proportion of high margin cat food as a percentage of total sales. Prices of
major ingredients, such as corn and soybean meal, increased sharply during the
year. For example, during the 1996 period corn prices increased over 60% from
approximately $3.25 per bushel to approximately $5.25 per bushel due to adverse
weather conditions. In addition, soybean meal prices increased over 20% from
approximately $204 per bale to $250 per bale. While Old Windy Hill was able to
implement price increases, such increases generally lagged behind the increase
in raw ingredient costs and were not sufficient to offset such higher costs.
OPERATING INCOME as a percentage of net sales was 7.9% in the 1996 period as
compared to 5.6% in the 1995 period. This increase was primarily due to a
decline in operating expenses as a percentage of sales. The sales of products
arising from the Kozy Kitten Acquisition did not require a commensurate increase
in operating expenses, and as a result, operating expenses as a percentage of
sales dropped to 26.6% in 1996, as compared to 30.3% in the prior period.
INTEREST EXPENSE, NET in the 1996 period grew to $3.8 million versus $1.1
million in the 1995 period. The increase in interest expense was due to the
additional debt incurred to finance the Kozy Kitten Acquisition.
NET INCOME for the 1996 period was $0.6 million, compared to $0.7 million in
the 1995 period. Net income declined, despite the increase in operating profit,
due to the incurrence of income tax expense and an extraordinary loss in the
1996 period. Prior to becoming a corporation in April 29, 1996, Old Windy Hill
was a limited liability company and income taxes were the responsibility of the
individual members of Old Windy Hill. The extraordinary loss in the 1996 period
resulted from early extinguishment of debt when Old Windy Hill refinanced its
debt in conjunction with the Kozy Kitten Acquisition.
42
<PAGE>
HUBBARD
The following table sets forth for the periods indicated the components of
Hubbard's statements of operations expressed in dollar amounts and as a
percentage net of sales for such period.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------------------------------
1995 1996 1997
---------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................................. $ 87,736 100.0% $ 102,268 100.0% $ 108,523 100.0%
Cost of sales............................................. 67,052 76.4 80,658 78.9 87,768 80.9
----------- --------- --------- --------- --------- ---------
Gross profit........................................ 20,864 23.6 21,610 21.1 20,755 19.1
----------- --------- --------- --------- --------- ---------
Operating expenses:
Warehouse and delivery.................................. 246 0.3 200 0.2 188 0.2
Selling and advertising................................. 6,469 7.4 7,035 6.9 6,924 6.4
General and administrative.............................. 5,743 6.5 5,917 5.8 6,099 5.6
----------- --------- --------- --------- --------- ---------
Total operating expenses............................ 12,458 14.2 13.152 12.9 13,212 12.2
----------- --------- --------- --------- --------- ---------
Operating income.......................................... 8.226 9.4 8.458 8.2 7,544 7.0
Interest income........................................... 790 0.9 774 0.8 867 0.8
Equity in earnings of joint ventures...................... 1,356 1.5 981 1.0 976 0.9
Other income (expenses)................................... 5 -- 10 -- 71 --
----------- --------- --------- --------- --------- ---------
Income before income taxes.......................... 10,377 11.8 10,223 10.1 9,458 8.7
Income tax expense........................................ 4,133 4.7 3,935 3.8 3,684 3.4
----------- --------- --------- --------- --------- ---------
Net income.......................................... $ 6,244 7.1% $ 6,288 6.3% $ 5,773 5.3%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
NET SALES in the year ended April 30, 1997 increased 6.1% to $108.5 million
from $102.3 million in the year ended April 30, 1996. The increase was due to a
7.6% increase in average selling prices, partially offset by a 1.5% decline in
sales tonnage. Average selling prices were higher due to price increases
implemented during the year to offset the impact of higher ingredient costs.
Sales tonnage declined due to lower contract manufacturing volumes, as several
pet food manufacturers for which Hubbard was manufacturing product experienced
volume declines.
GROSS PROFIT as a percentage of net sales was 19.1% in 1997 as compared to
21.1% in the prior year. The decline was due to higher ingredient costs. During
the first nine months of the period, prices of principal ingredients, such as
corn and flour, increased sharply. While Hubbard was able to implement price
increases, such increases were not sufficient to offset the higher costs. During
the three months ended April 30, 1997 ingredient costs began to decline and
gross profit as a percentage of sales increased.
OPERATING INCOME as a percentage of net sales was 7.0% of net sales in 1997
as compared to 8.2% in the prior year. The reduction was due to the decline in
the gross profit margin. The impact of lower gross margins was partially offset
by an increase in sales.
YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
NET SALES in the year ended April 30, 1996 increased 16.6% to $102.3 million
from $87.7 million in the year ended April 30, 1995. The increase was due to a
14.0% increase in sales tonnage and a 2.7% increase in average selling prices.
The increase in sales tonnage was principally due to increased business
associated with the acquisition in 1996 of the Hillburn dog biscuit plant.
Volumes for other product lines also showed increases, as Hubbard was able to
use its expanded dog biscuit position to generate additional sales growth for
other pet food items. Average selling prices were higher due to an improved
sales mix toward higher priced biscuits and price increases to cover ingredient
cost increases.
GROSS PROFIT as a percentage of net sales was 21.1% in 1996 as compared to
23.6 % in the prior year. During the latter half of fiscal 1996, principal
ingredient costs began to escalate. While Hubbard was able
43
<PAGE>
to implement price increases, such increases generally lagged behind the
increase in raw ingredient costs and were not sufficient to offset the higher
costs and maintain the 1995 gross margin.
OPERATING INCOME as a percentage of net sales was 8.2% in 1996 as compared
to 9.4% in the prior year. The decline was primarily due to the decline in the
gross margin. The impact of lower gross margins was partially offset by lower
operating expenses which declined to 12.9% of sales in 1996 from 14.2% of sales
in 1995. Operating expenses did not increase at the same rate as sales, due to
the fixed nature of some of these expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred substantial indebtedness in connection with the
Transaction. Interest payments on the Notes and the Senior Bank Facilities will
represent significant cash requirements for the Company. As of April 30, 1997,
on a pro forma basis, after giving effect to the Transaction, the Financing, and
the AF Sale, the Company would have had $120 million in aggregate principal
amount of indebtedness outstanding under the Notes and $15 million of borrowings
under the Term Loan Facility and availability of (i) $20 million under the
Working Capital Facility and (ii) $45 million under the Acquisition Facility.
The Company will be required to make periodic payments of interest on the Notes
and the Senior Bank Facilities. See "Description of Notes" and "Description of
the Senior Bank Facilities."
On August 31, 1997, the Company acquired its partner's 50% interest in the
joint venture at Maumee for $1.8 million. The Company plans to complete the
expansion of the capacity of its three biscuit plants by the first half of 1998.
Capital expenditures required for such expansion is expected to be $3.5 million.
As of August 2, 1997, the Company has not made any additional material
commitments for capital expenditures over the next twelve months. See "Business
- -- Strategy for Growth."
The Company's historical liquidity needs were primarily for debt service
payments on its borrowings, working capital and capital expenditures. Capital
expenditures for Old Windy Hill were $.4 million for the four months ended May
3, 1997 and $1.1 million in both the 10 months ended December 30, 1995 and the
year ended December 28, 1996. Capital expenditures for Hubbard were
approximately $2.6 million, $3.8 million and $2.4 million for the years ended
April 30, 1995, 1996, and 1997, respectively. In addition, Hubbard Milling spent
$6.1 million on the acquisition of the Hillburn dog biscuit facility and
equipment in fiscal 1995. Capital expenditure requirements historically have
been financed with internally generated funds and bank loans and have been
primarily related to refurbishment and improvement of machinery and equipment.
The Company's future liquidity needs will be primarily for debt service
obligations, working capital and capital expenditures. The Company's primary
sources of liquidity are cash flows from operations and borrowings under the
Working Capital Facility. The Company anticipates that its working capital
requirements, capital expenditures and acquisition of the remaining interest in
the Maumee joint venture in 1997 will be satisfied through a combination of
available cash, credit availability under the Working Capital Facility, and cash
flow from operations. The Company believes that its cash flow from operations
and availability under the Working Capital Facility will be sufficient to meet
its capital requirements and obligations for the next twelve months.
44
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is one of the leading manufacturers of private label and economy
branded pet food products. Based on its production volume, including that of its
joint ventures, management believes that the Company is the second largest
producer of private label dry pet food products overall and the leader in
private label dog biscuits, accounting for approximately 25% of all private
label dog biscuit tonnage produced in 1996. The Company's private label products
are broadly distributed through all channels of distribution and consists of
sales to over 500 customers including national and regional grocery chains, mass
merchandisers, membership clubs, specialty pet store chains, and farm and feed
store chains. The Company also manufactures and markets economy dry dog and cat
food products that are sold predominantly to grocery store chains under its KOZY
KITTEN, TRAIL BLAZER, and TUFFY'S brand names. These brands generally have the
leading or number two share in the regional areas in which they compete. In
addition, approximately 11% of the Company's sales are to contract manufacturing
for other pet food companies. To sell its products and to service its customers,
the Company utilizes both an in-house sales force and a network of independent
brokers who represent the Company on a non-exclusive basis pursuant to letter
agreements. The Company operates 14 manufacturing plants, nine of which are
wholly owned and five of which are operated under joint venture agreements. The
Company's plants, located throughout the United States, enable the Company to
provide an efficient nationwide distribution of a broad range of quality
products for all price points to all distribution channels. For the twelve
months ended March 31, 1997, the Company had pro forma sales and EBITDA of
$222.5 million and $29.1 million, respectively.
The Company's principal executive office is located at Two Maryland Farms,
Brentwood, Tennessee 37027. The Company's telephone number is (615) 373-7774.
INDUSTRY OVERVIEW
The pet food industry in which the Company competes is a large and growing
industry. In terms of retail sales, it is a $9.3 billion industry that grew at a
compound annual rate of approximately 5% from 1991 to 1995. As of 1995, there
were approximately 55 million dogs and 68 million cats in U.S. households and
this number has been growing at approximately a 1.3% compound annual rate.
Certain segments have grown at even faster rates. The private label and economy
segments of this industry represent approximately 35% of total industry sales
and grew at a compound annual rate of approximately 12% over the same period.
The super premium segment, which is comprised of high priced items offering
superior nutrition, palatability, and digestibility, represents approximately
16% of total industry sales and grew at a compound annual rate of approximately
10% over the same period. Growth in the private label and economy segments has
been driven by the lower prices of these products relative to branded products,
improved product quality, and increased retail support for private label items
in all distribution channels. Within the super premium segment, growth has been
driven by pet owners' increased awareness and concern about pet diets and
nutrition and the growth of the pet specialty retail stores, which have focused
on promoting and supporting the super premium products. These trends are
expected to continue and, as a result, the Company believes that these segments
should continue to grow at a faster rate than the overall pet food industry.
The industry's growth has occurred primarily outside of the traditional
retail grocery channel, whose share of pet food sales has declined over the last
10 years from over 80% to approximately 60%. Most of the growth has been
captured by mass merchandisers, which have gained share by selling items
produced by private label manufacturers that are comparable in quality to the
national brands but sell at a lower price, and by pet specialty stores, which
carry the faster growing super premium products that are not available in the
retail grocery channel. The Company believes this shift away from the retail
grocery channel will continue, but at a slower rate, as the grocery stores
respond with higher quality private label products and their own super premium
products.
45
<PAGE>
An emphasis on improving product quality has led private label manufacturers
to upgrade their manufacturing plants and production processes. This improvement
in quality, combined with a trend among a number of branded pet food companies
to outsource their manufacturing in order to focus on their marketing and brand
building activities, has resulted in more contract manufacturing opportunities
for private label producers. The Company believes that the trends toward better
product quality and production outsourcing will continue.
Within the total pet food industry, dog and cat food account for
approximately 58% and 42% of sales, respectively. Dog food is sold predominantly
in large bags, ranging in size from 18 to 25 pounds, while cat food is mainly
sold in cans or three to four pound bags. Due to the different nutritional needs
of cats and dogs, dog food is less expensive on a per pound basis than cat food.
The pet food industry can also be segmented according to product types.
Approximately 50% of the industry is dry products, 35% is wet or canned
products, and the remaining 15% is in treats and semi-moist products. The
Company does not produce any wet or canned pet food products.
COMPETITIVE STRENGTHS
Management believes that the following characteristics contribute to the
Company's position as a leading manufacturer of pet food products in the United
States and serve as a foundation for the Company's business strategy.
- LEADING MARKET POSITIONS. The Company has a strong position in the private
label segment of the pet food industry. Within this segment, the Company
is the leading manufacturer of dog biscuits and semi-moist pet foods and
the second largest manufacturer of dry pet food products. The Company's
strength in private label products is complemented by a strong regional
presence in economy branded dry pet food products. The Company's TRAIL
BLAZER and KOZY KITTEN in the South and TUFFY'S in the Upper Midwest have
the leading or number two position in the segments in which they compete.
The Company believes that its positions in the private label and economy
branded pet food segments provide a strong platform from which to expand
its business.
- COMPREHENSIVE AND QUALITY PRODUCT LINE. The Company's leading market
positions are supported by a comprehensive product mix. Specifically, the
Company offers full product lines of dry dog food (180 formulations), dry
cat food (38 formulations), dog biscuits (64 formulations), semi-moist dog
food (6 formulations), semi-moist cat food (8 formulations), and dog and
cat treats (32 formulations). The Company believes that its broad
portfolio of private label and economy branded products makes it
well-positioned to take advantage of growth in certain segments of the pet
food industry. In addition, the Company's products are well-known for
their high quality in terms of nutritional content, palatability, and
digestibility as well as their overall value to both retailers and end-use
consumers. The Company's ability to fully service its customer's product
needs with a full line of quality product offerings has enabled it to
compete effectively against national branded pet food offerings and gain
leading market positions.
- LOW COST MANUFACTURING. The Company has an extensive manufacturing network
consisting of 14 manufacturing facilities that are strategically
positioned to be near major consumer markets, raw and packaging material
suppliers and low cost labor sources. These facilities enable the Company
to service customers at competitive prices on a national basis. The
Company's facilities currently have approximately 20% excess capacity,
which represents an integral resource for growing the Company's business.
- STABLE BASE OF CASH FLOW. The Company's broad product line and leading
market positions provide it with a stable base of cash flow. Over the last
four years, the Company has produced an average EBITDA(1) margin of
approximately 12%. The Company believes that its cash flow performance has
been driven by multiple factors, including strong demand for higher margin
pet
- ------------------------------
(1) EBITDA is a non-GAAP measure, as computed by the Company and may not be
comparable to similarly-titled measures reported by other companies.
46
<PAGE>
food products, significant expansion of the Company's customer base,
selective acquisitions, low working capital requirements, increased
manufacturing efficiency and reduced operating costs. The Company's strong
cash flow provides resources that can be used to pursue its growth
strategy.
STRATEGY FOR GROWTH
The Company believes that it is well positioned for volume and profit
growth, given its competitive strengths and the growth trends in certain
segments of the pet food industry. Its objective is to be the leading supplier
to all channels of distribution of private label pet food products for all price
points and economy branded pet food products by pursuing the following
strategies:
- CAPITALIZE ON LEADERSHIP POSITION IN DOG BISCUITS. The Company is the
leader in private label dog biscuits, accounting for approximately 30% of
all private label dog biscuit tonnage produced in 1996. It operates three
dedicated biscuit manufacturing plants strategically located throughout
the United States. The Company's strategy is to capitalize on its current
leadership position by (i) offering a greater variety of premium specialty
biscuit formulations and (ii) increasing capacity at its three biscuit
plants by approximately 15% to service more private label customers.
- EXPAND PRESENCE IN MASS MERCHANDISING AND PET SPECIALTY RETAIL CHANNELS.
Most of the recent growth in the pet food industry has occurred in the
mass merchandising and pet specialty retail channels. The Company plans to
increase sales to these channels by providing a broader range of pet foods
to its current private label customers as well as by offering these
products to new private label accounts.
- INCREASE CONTRACT MANUFACTURING BUSINESS. Approximately 11% of the
Company's sales are to other pet food manufacturers who have contracted
out their manufacturing in order to better focus on their marketing and
brand building activities. Increasingly, these companies are using outside
contract manufacturers to satisfy their production requirements. The
Company believes that its strategically located, broad network of
manufacturing plants, excess capacity, and ability to produce quality
products at competitive prices enable it to capitalize on this trend and
to increase its contract manufacturing business.
- INCREASE PENETRATION OF SUPER PREMIUM PET FOOD PRODUCTS. Super premium pet
food products have been one of the fastest growing segments of the pet
food industry. The Company believes there is an opportunity to market
super premium products to retail grocery chains, which have been
requesting such products in order to grow their pet food sales. The
Company also plans to supply specialty pet stores, which want private
label super premium alternatives to the national brands.
- BROADEN USAGE OF THE KOZY KITTEN BRAND. The Company's KOZY KITTEN brand
has a leading position in economy cat foods, but the business has
historically been concentrated primarily in the South. The Company plans
to use the Hubbard facilities and distribution resources to strengthen its
KOZY KITTEN cat food business on the East and West coasts. The Company is
also developing a line of economy cat treats using KOZY KITTEN as an
umbrella brand. The cat treat segment has been a fast growing segment of
the cat food industry, and the Company sees strong growth potential for an
economy cat treat under an established brand name.
- MAKE STRATEGIC SELECTED ACQUISITIONS. The Company believes there are
opportunities to acquire additional pet food businesses at attractive
prices. Most of these businesses are established, privately-held companies
that would be a strategic complement to the Company's existing business in
terms of products, geographic scope, and distribution channels. The
Company and its owners have substantial experience in making strategic
acquisitions. While the Company actively considers strategic acquisitions,
it does not have any current or pending plans, negotiations, arrangements
or understandings, with respect to any material acquisitions other than
preliminary discussions. The Company has not entered into any agreements
with respect to any material acquisitions.
47
<PAGE>
HISTORY
Old Windy Hill was formed by Dartford in February 1995 to acquire the pet
food assets of Martha White, a predominantly flour and baking mix company that
had been sold to The Pillsbury Company, as an acquisition platform for acquiring
other economy branded products and private label pet food companies. In April
1996, Old Windy Hill acquired the KOZY KITTEN economy cat food brand and the
TUFFY'S economy dog and cat food brands from H.J. Heinz Company ("Heinz").
PRODUCTS
The Company is one of the leading manufacturers of private label and economy
branded pet food products in the United States. The Company produces and sells
primarily dry pet food products. Dry pet food generally consists of a variety of
bite size pieces containing various food nutrients and ingredients that provide
specified levels of carbohydrates, proteins, fats and vitamins. The Company
sells dry pet food under private label and its economy proprietary brand names.
The Company's private label product range includes super premium, premium,
economy and generic products. These products differ according to nutritional
content, overall food quality and price.
DRY DOG FOOD (44% of 1996 sales). The Company believes it is the second
largest producer of private label dry dog food in the country. The Company's
private label products are complemented by its dog food brands which include
TRAIL BLAZER and TUFFY'S. Both are economy brands, which are premium products
comparable to the national brands in quality but which sell at a lower price.
TRAIL BLAZER is the number two economy brand in the South, while TUFFY'S is a
leading economy brand in the Upper Midwest. Dry dog food represents the
Company's broadest product line, consisting of approximately 180 formulations.
The Company manufactures and sells a number of varieties of dry dog food,
including high protein, chunk style, gravy style, premium blended, and puppy
food.
DRY CAT FOOD (25% of 1996 sales). The Company believes it is the second
largest producer of private label dry cat food in the country. The Company's cat
food brands include KOZY KITTEN and G. WHISKERS. Both brands are economy brands,
which are comparable in quality to the national brands but sell at a lower
price. The two brands give the Company the leading position in economy cat food
in the South. Dry cat food represents the Company's second broadest product line
consisting of approximately 40 formulations. The Company manufactures and sells
a variety of flavors, including poultry, fish, tuna and blended.
DOG BISCUITS (23% of 1996 sales). The Company believes it is the leading
producer of private label dog biscuits in the United States, accounting for
approximately 25% of all private label dog biscuit production. Dog biscuits are
grain and flour based dog treats which are formed in various "bone-like" shapes.
Most of the Company's dog biscuit products are sold as private label products
and the remainder are sold under the TRAIL BLAZER brand name in the South. Dog
biscuits are generally served as snacks rather than as meals and come in a
variety of sizes and flavors. The Company produces over 60 dog biscuit
formulations.
SEMI-MOIST FOODS AND TREATS (7% of 1996 sales). Semi-moist products are
moist, soft and chewy pet food products that come in a variety of flavors for
both dogs and cats. These products are sold both as private label items and as
branded products. The Company's brands include TRAIL BLAZER dog treats, which
are sold in the South and BONKERS cat treats, which are sold throughout the
United States.
MARKETING, SALES AND DISTRIBUTION
The Company's marketing program for its proprietary brands emphasizes
retailer trade promotions, in-store advertising and couponing in retailer
flyers. Consumer promotions primarily consist of special packaging and in-pack
coupons designed to generate trial usage and increase purchase frequency.
Because of the value positioning of its brands, the Company does not use any
media advertising.
The Company sells its products using both a direct sales force and a network
of independent brokers. The Company's private label products are sold by a
direct sales force who focus their selling activities on category managers and
merchandise buyers at retail accounts. The direct sales force
48
<PAGE>
consists of six regional sales managers, a national sales manager, and a
marketing manager under the responsibility of a vice president for private label
sales.
The Company's branded products are sold through a network of 70 independent
brokers who represent the Company on a non-exclusive basis pursuant to letter
agreements. These brokers call and service retail accounts, which are primarily
grocery chains. These brokers are supervised by eight regional sales managers,
who report to a national sales manager for branded products.
Customer orders are currently received and processed at Mankato, Minnesota
and Brentwood, Tennessee. The Company plans to centralize these functions in
Brentwood after an appropriate transition period to avoid disruption or
deterioration in customer service.
The Company's system of 14 manufacturing facilities and 13 public warehouses
provide national distribution coverage. The Company's products are distributed
from its plants either directly to the customer's warehouses or through one of
its public warehouses using independent freight carriers. In addition, customers
may pick up products directly from the Company's plants.
CUSTOMERS
The Company's principal customers are retailers and wholesalers of pet food.
Retail grocery stores represent the Company's largest customer category,
accounting for 60% of sales in 1996. Customers in this category include both
national retail grocery chains and wholesale grocery buying groups servicing
regional grocery chains. Farm feed stores, mass merchandisers and pet specialty
stores represent the Company's other principal retail customers. These
categories accounted for 16%, 5% and 4%, respectively, of the Company's sales in
1996. The Company is not dependent upon either a single customer or a limited
number of customers for a major part of its sales. No single customer accounts
for more than 10% of its sales.
In addition to retailers and wholesalers of pet food, the Company sells
products to other pet food manufacturers under various co-packing agreements.
Sales under co-packing agreements represented 11% of the Company's 1996 sales.
COMPETITION
The pet food industry is fragmented and highly competitive. The Company's
sales represent less than 3% of the total U.S. pet food market. In the private
label and economy branded segments, the Company's major competitors include
Doane Products Company, a national private label producer whose principal
customer is Wal-Mart Stores, Inc., American Nutrition Inc., a regional private
label producer with plants in the western United States, and Sunshine Mills,
Inc., a producer of economy and private label pet food products with plants in
the southeastern and eastern regions of the United States. It competes with a
significant number of companies of varying sizes, including divisions or
subsidiaries of larger companies. The major competitors with branded offerings
include companies such as Ralston Purina Co., Heinz, Nestle S.A., Mars, Inc.,
and Colgate-Palmolive Company. Brands owned by these companies make up
approximately 60% of the total U.S. pet food market.
The Company competes with other pet food companies on the basis of quality
and price. It believes that it differentiates itself from its branded
competitors by offering comparable products at lower prices and that it
differentiates itself from other private label dry pet food producers by
offering higher quality products, a broader product line, and national
production and distribution capabilities.
RAW MATERIALS
The principal raw materials required for the Company's manufacturing
operations are bulk commodity grains and food stocks, including corn, soybean
meal, wheat flour and middlings, meat and bone meal, and corn gluten meal. The
Company generally purchases raw materials one to three months in advance. Its
raw material requirements are generally purchased from sources near its
manufacturing facilities in order to minimize the high transportation costs
associated with transporting bulk commodity products. As a result, raw material
costs may vary among its manufacturing facilities due to local supply
49
<PAGE>
and transportation costs. The Company is not dependent upon either a single
vendor or a limited number of vendors for a material part of its raw material
requirements. The Company does not maintain long term contracts with any of its
suppliers.
The Company's manufacturing operations also use packaging material, which
include paper bags, cartons, poly bags, and corrugated boxes. These supplies are
purchased on a centralized basis to take advantage of economies of scale. The
Company purchases packaging materials from a variety of suppliers and
alternative sources of supply are readily available.
MANUFACTURING FACILITIES
The Company operates 14 manufacturing plants, 10 of which are wholly owned
and four of which are managed under joint venture agreements in which the
Company owns a 50% equity interest. The plants are strategically located to be
near major customer markets, raw and packaging materials suppliers, and low cost
labor sources. In addition, the plants are highly automated facilities with a
low overhead structure and are currently operating at approximately 80% of
capacity, based on a three-shift, five-day production schedule.
<TABLE>
<CAPTION>
LOCATION PRINCIPAL PRODUCTS OWNERSHIP STATUS SQUARE FOOTAGE
- ---------------- -------------------------------------------------------- ------------------ ----------------
<S> <C> <C> <C>
Allentown, PA Dry Dog/Cat Food Owned 35,000
Butler, MO Dry Dog/Cat Food Joint Venture 37,500
Caldwell, ID Dry Dog/Cat Food Joint Venture 27,900
Cartersville, GA Dry Dog/Cat Food Joint Venture 44,100
DeGraff, MN Dry Dog/Cat Food Owned 19,850
Delavan, WI Semi-Moist Food/Treats Owned 55,000
Hereford, TX Dry Dog/Cat Food Joint Venture 40,000
Hillburn, NY Dog Biscuits Owned 93,000
Inman, KS Dry Dog/Cat Food Owned 33,644
LeSueur, MN Dry Dog/Cat Food/Dog Biscuits Owned 160,000
Maumee, OH Dry Dog/Cat Food Owned 72,915
McKenzie, TN Dry Dog/Cat Food Owned 57,000
Perham, MN Dry Dog/Cat Food/Semi-Moist Food/Treats Owned 218,000
Portland, IN Dry Dog/Cat Food/Dog Biscuits Owned 120,000
----------------
Total 1,013,909
</TABLE>
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. In general, the Company has
utilized joint ventures as a means of increasing production capacity while
minimizing capital requirements and operating risks. The operating costs,
earnings, and cash flows of each joint venture generally are shared equally by
the Company and its joint venture partner. Management authority is vested in a
committee comprised of a representative of each party. Either party can
terminate a joint venture after an appropriate notice period. One joint venture
has a six month notice period and the other joint ventures have a twelve month
notice period. Upon termination, the Company has the option of buying the other
party's interest in each of the joint ventures at Butler and Cartersville. On
August 31, 1997, the Company purchased from Andersons, Inc. (which is not an
affiliate of the Company or Holdings) the remaining 50% interest in its joint
venture at Maumee for a purchase price of $1.8 million. During the year ended
April 30, 1997, the joint ventures (including the Maumee joint venture) had
total sales of $45.0 million and pretax earnings of approximately $2.4 million.
The Company accounts for the joint ventures using the equity method of
accounting.
TRADEMARKS
The Company owns a number of registered trademarks including TRAIL BLAZER,
TUFFY'S, BONKERS, and G. WHISKERS. In addition, the Company has a royalty-free
licensing agreement with Heinz that allows it to use the KOZY KITTEN brand for
dry and semi-moist cat food until April 29, 2006. At any time between April 29,
2001 and April 29, 2006, the Company has an irrevocable right to purchase the
brand from
50
<PAGE>
Heinz for a net cash payment of $2.5 million subject to a perpetual royalty-free
license back to Heinz for use in canned cat food. The Company is not aware of
any fact that would negatively impact the continuing use of either the KOZY
KITTEN trademark and trade name or any of its own trademarks and trade names. To
date, no consideration has been paid by the Company to Heinz for the use of the
KOZY KITTEN trademark.
EMPLOYEES
As of April 30, 1997, the Company had a total of 686 employees in
manufacturing and 85 employees in administrative positions including personnel
at two of the Company's manufacturing joint ventures. None of the Company's
employees are union members. The Company believes that its relations with its
employees are generally excellent.
CERTAIN REGULATORY MATTERS
PUBLIC HEALTH. The Company is subject to the Food, Drug and Cosmetic Act
and regulations promulgated thereunder by the Food and Drug Administration (the
"FDA"). This comprehensive regulatory program governs, among other things, the
manufacturing, composition and ingredients, labeling, packaging and safety of
pet food. The Company is subject to regulation by certain other governmental
agencies, including the U.S. Department of Agriculture.
The operations and products of the Company are also subject to state and
local regulation through such measures as licensing of plants, enforcement by
state health agencies of various state standards and inspection of facilities.
Enforcement actions for violations of federal, state and local regulations may
include seizure and condemnation of products, cease and desist orders,
injunctions or monetary penalties. Management believes that the Company's
facilities and practices are in, and sufficient to maintain, material compliance
with applicable government regulations, although there can be no assurances in
this regard, and that in the past, the Company did not experience any violations
of such governmental regulations which had a material impact on the Company's
operations.
EMPLOYEE SAFETY REGULATIONS. The Company is subject to certain health and
safety regulations, including regulations issued pursuant to the Occupational
Safety and Health Act. These regulations require the Company to comply with
certain manufacturing, health and safety standards to protect its employees from
accidents. Management believes that the Company is in material compliance with
these regulations and that in the past, the Company did not experience any
violations of these regulations which had a material impact on the Company's
operations.
INSURANCE. The Company maintains general liability, product liability,
property, workers compensation and other insurance in accounts and on terms that
it believes are customary for companies in the pet food industry.
ENVIRONMENTAL. The business operations of the Company and the ownership and
operation of real property by the Company are subject to numerous and changing
federal, state and local environmental laws and regulations pertaining to the
discharge of materials into the environment and the handling and disposition of
wastes (including solid and hazardous wastes) or otherwise relating to
protection of the environment.
Certain environmental assessments of the Company's properties conducted in
connection with the Transaction revealed elevated levels of certain metals and
organic compounds in soil and groundwater that may require investigation or
remediation. Pursuant to the Acquisition Agreements, the Sellers have agreed to
indemnify the Company for certain losses or liabilities up to $10 million for
claims made within 18 months following the Closing Date. In the case of any
losses relating to certain environmental matters, only 50% of any such loss is
included in such indemnification provision. Management believes that the amounts
required for any such remediation would not have a material adverse effect on
the financial condition or results of operations of the Company and that in the
past the Company did not experience any violations of these regulations which
had a material impact on the Company's operations. See "Risk Factors --
Environmental Matters."
LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is involved in various
legal proceedings in which its exposure is not considered material to the
Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names and positions of the directors and executive
officers of the Company. All directors hold office until the next annual meeting
of the Company and until their successors are duly elected and qualified. All
officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------------------ --- -----------------------------------------------
<S> <C> <C>
Ian R. Wilson......................................... 67 Chairman of the Board of Directors and Chief
Executive Officer
Robert V. Dale........................................ 61 President and Director
Ray Chung............................................. 49 Executive Vice President and Director
James B. Ardrey....................................... 39 Executive Vice President
F. Donald Cowan, Jr................................... 51 Vice President, Operations
Donald L. Gadd........................................ 41 Vice President, Finance
Vaughn Oakley......................................... 49 Vice President, Sales
M. Laurie Cummings.................................... 34 Vice President and Secretary
Kase Lawal............................................ 42 Director
Stephen C. Sherrill................................... 44 Director
Stephen F. Edwards.................................... 34 Director
Donald Welge.......................................... 61 Director
</TABLE>
IAN R. WILSON--CHAIRMAN AND CHIEF EXECUTIVE OFFICER. Mr. Wilson is the
Managing Partner of Dartford, a private investment partnership focused on the
food and beverage industries. Mr. Wilson was formerly Chairman and Chief
Executive Officer of Windmill, a leading specialty miller and supplier of
branded consumer products which he founded in March 1989. Mr. Wilson was also
formerly Chairman and Chief Executive Officer of Wyndham, a major cookie company
he founded in 1985 and positioned as the leading popular priced cookie company
in the United States. From 1983 to 1984 Mr. Wilson was the Chairman and Chief
Executive Officer of Castle & Cooke, Inc. (Dole Food Company, Inc.), an
international food and real estate concern. Prior to Castle & Cooke, Inc., Mr.
Wilson spent 25 years with The Coca-Cola Company, initially in South Africa,
where he was Vice President--Area Manager for Southern Africa, and he also
served in a series of international operating management positions. Ultimately,
Mr. Wilson served as Vice Chairman of the Coca-Cola Company and President of the
Pacific Group. Mr. Wilson's past and present service as a director includes
membership on the boards of Van de Kamp's, Aurora, Novell, Inc., Revlon, Inc.,
Crown Zellerbach Corporation, Castle & Cooke, Inc., Wilson Bottling Corporation,
Golden State Foods, New Age Beverages, Ltd., and CAMAC Holdings, Inc. ("CAMAC").
ROBERT V. DALE--PRESIDENT AND DIRECTOR. Prior to the completion of the
Transaction, Mr. Dale had served as President of Old Windy Hill since 1995. From
1985 to 1994, Mr. Dale was the President of Martha White, a major producer and
marketer of branded consumer flour, corn meal and baking mix products. Prior to
this position, Mr. Dale was President of Beatrice Specialty Products Division, a
diversified food division of Beatrice Companies, Inc., that had acquired Martha
White in 1975. Mr. Dale's past and present service as a director includes
membership on the boards of Third National Bank of Nashville, Cracker Barrel Old
Country Store, Inc., Zatarain's, Inc., Van de Kamp's and Mid-State Automotive
Distributors, Inc. He has served as President of the National Soft Wheat Millers
Association and President of the American Corn Millers Federation.
RAY CHUNG--EXECUTIVE VICE PRESIDENT AND DIRECTOR. Mr. Chung is a partner of
Dartford. Prior to forming Dartford with Mr. Wilson, Mr. Chung served as
Executive Vice President and Chief Financial Officer of Wyndham from 1989 to
1995 and Windmill from 1985 to 1990. Mr. Chung also served as Vice
President--Finance for the Kendall Company from May 1984 to September 1985,
which at that time was
52
<PAGE>
a subsidiary of the Colgate-Palmolive Company. Before joining the Kendall
Company, Mr. Chung was Vice President of Finance for Riviana Foods, Inc. between
1981 and 1984, the largest rice milling and marketing company in the United
States. Mr. Chung is also a director of Aurora.
JAMES B. ARDREY--EXECUTIVE VICE PRESIDENT. Mr. Ardrey is a partner of
Dartford. Since 1995, he has been Executive Vice President and Director of Van
de Kamp's. From January 1993 to February 1995, Mr. Ardrey was a consultant to
Windmill, conducting its divesture program. Over the period 1984 to 1992, Mr.
Ardrey was an investment banker with PaineWebber Incorporated, serving as
Managing Director from 1990 to 1992. Prior to joining PaineWebber, Mr. Ardrey
was a consultant for Booz, Allen & Hamilton. Mr. Ardrey is also a director of
Aurora.
F. DONALD COWAN, JR.--VICE PRESIDENT, OPERATIONS. Prior to the completion
of the Transaction, Mr. Cowan had served as Vice President of Operations for Old
Windy Hill since 1995. Prior to joining Old Windy Hill, Mr. Cowan was Vice
President of Operations for Martha White. From 1987 to 1995, Mr. Cowan held
various positions at Martha White, including Vice President of Operations. From
1984 to 1986, Mr. Cowan was Director of Purchasing for Beatrice Foods' Grocery
Products Division and Senior Grain Merchant at Cook Industries.
DONALD L. GADD--VICE PRESIDENT, FINANCE. Prior to the completion of the
Transaction, Mr. Gadd had served as Vice President, Finance of Old Windy Hill
since 1995. Prior to joining Old Windy Hill, Mr. Gadd was Controller for Martha
White from 1990 to 1995. From 1987 to 1990, Mr. Gadd was Assistant Secretary for
DESA International, an industrial tools company, where he was responsible for
tax and corporate financial reporting. Prior to joining DESA International, Mr.
Gadd was a Manager with Ernst & Young LLP. He is a certified public accountant
in the state of Tennessee.
VAUGHN OAKLEY--VICE PRESIDENT, SALES AND MARKETING. Prior to the completion
of the Transaction, Mr. Oakley had served as Vice President, Sales and Marketing
for Old Windy Hill since 1995. Prior to joining Old Windy Hill, Mr. Oakley was
Vice President of Business Development at Martha White. Since 1976, Mr. Oakley
has held sales and marketing positions of increasing responsibility at Martha
White, including Vice President of Sales. Before joining Martha White, he was a
sales supervisor with the Carnation Company.
M. LAURIE CUMMINGS--VICE PRESIDENT AND SECRETARY. Ms. Cummings is a partner
of Dartford. Ms. Cummings was Vice President, Controller and Treasurer for
Windmill from 1989 to 1995. Between 1987 and 1990, Ms. Cummings was the
Controller and Assistant Treasurer of Wyndham. Ms. Cummings currently serves as
Vice President of WHPF, Van de Kamp's and Aurora.
STEPHEN C. SHERRILL--DIRECTOR. Since its formation in 1995, Mr. Sherrill
has been a principal of BRS. 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., Holdings,
Restaurant Associates Corp., and Bloch & Guggenheimer/Burns & Ricker, Inc.
STEPHEN F. EDWARDS--DIRECTOR. Since its formation in 1995, Mr. Edwards has
been a principal of BRS. Mr. Edwards was an officer of Citicorp Venture Capital
from 1993 through 1994. From 1988 through 1991, he was an associate of Citicorp
Venture Capital. Prior to joining Citicorp Venture Capital, Mr. Edwards worked
with Citicorp/Citibank in various corporate finance positions. Mr. Edwards is a
director of Holdings and Town Sports International, Inc.
KASE LAWAL--DIRECTOR. Since 1986, Mr. Lawal has been Chairman and Chief
Executive Officer of CAMAC, a company with interests in energy exploration,
development, engineering and consulting. Investments in the food and beverage
industry, environmental sector, oil-field service and supply, real estate and
financial institutions are also a significant part of CAMAC. Mr. Lawal serves as
a director of International Tool and Supply plc, a major supplier of oil field
equipment to international operators. He also serves as a director of Old Windy
Hill and serves as Chairman of Allied Energy Corporation,
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<PAGE>
Houston, Texas, an oil and gas company. Mr. Lawal currently serves as Vice
Chairman of African Renaissance Holdings Ltd., a major South African investment
company.
DONALD WELGE--DIRECTOR. Mr. Welge is President and Chief Executive Officer
of Gilster-Marylee Corporation, one of the largest private label manufacturers
of dry grocery packaged foods in the country, and has served in this position
since 1971. Mr. Welge joined Gilster-Marylee Corporation in 1957 and has held
various positions of increasing responsibility during his tenure.
DIRECTOR COMPENSATION
Directors of the Company are not expected to receive compensation for their
services as directors. Directors of the Company are entitled to reimbursement of
their reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the board of directors or committees thereof.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth a summary of the compensation paid or accrued
by Old Windy Hill in the fiscal years ended December 31, 1995 and 1996 to its
Chief Executive Officer and its four most highly compensated executive officers:
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
------------------------
<S> <C> <C> <C>
NAME POSITION 1995 1996
- -------------------------------------- --------------------------------- ----------- -----------
Ian R. Wilson......................... Chief Executive Officer -- --
Robert V. Dale........................ President $ 132,853(1) $ 183,276(1)
F. Donald Cowan, Jr................... Vice President, Operations 118,979(2) 150,273(2)
Donald L. Gadd........................ Vice President, Finance 48,553(3) 95,662(3)
Vaughn Oakley......................... Vice President, Sales 101,145(4) 129,603(4)
</TABLE>
- ------------------------
(1) Includes 401(k) matching payments of $7,810 and $4,742 in 1995 and 1996,
respectively.
(2) Includes 401(k) matching payments of $6,435 and $3,408 in 1995 and 1996,
respectively.
(3) Includes 401(k) matching payments of $3,510 and $1,808 in 1995 and 1996,
respectively.
(4) Includes 401(k) matching payments of $5,268 and $2,741 in 1995 and 1996,
respectively.
EMPLOYMENT AGREEMENTS.
On April 29, 1996, Old Windy Hill entered into employment agreements (the
"Employment Agreements") with each of Robert V. Dale, F. Donald Cowan, Jr.,
Donald L. Gadd and Vaughn Oakley (collectively, the "Executives"). The rights
and obligations of the Employment Agreements were assumed by the Company in
connection with the Transaction. Pursuant to the Employment Agreements, Mr. Dale
will serve as President of the Company and receive an annual base salary of
$190,000 (subject to annual adjustment); Mr. Cowan will serve as Vice President,
Operations of the Company and receive an annual base salary of $150,000 (subject
to annual adjustment); Mr. Gadd will serve as Vice President, Finance of the
Company and receive an annual base salary of $120,000 (subject to annual
adjustment); and Mr. Oakley will serve as Vice President, Sales of the Company
and receive an annual base salary of $130,000 (subject to annual adjustment). In
addition to the base salary, each Executive is eligible to be paid a bonus
pursuant to the terms and conditions of any bonus policy of the Company in
effect and applicable to such Executive.
The Employment Agreements also provide that the terms of such agreements
expire on May 1, 1998, however on April 29, 1997 and on each anniversary
thereafter, the term of each of the Employment Agreements was and will be
automatically extended for one additional year (the "Automatic Extension") so
that such term ends two years after any such anniversary, unless notice by
either the Company or the Executive to terminate is given 30 days prior to the
Automatic Extension. If the Company terminates an
54
<PAGE>
Executive without cause, such Executive shall be entitled to receive all
compensation due under his Employment Agreement until the end of the current two
year term of his Employment Agreement.
In addition, the Employment Agreements provide that for one year following
an Executive's termination of employment with the Company, unless such
termination was without cause, such Executive may not compete with or solicit
employees from the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company includes
Messrs. Wilson, Chung, and Sherrill. Mr. Wilson is the Chairman of the
Compensation Committee and is the Chief Executive Officer and Chairman of the
Board of the Company. Mr. Chung is an Executive Vice President and director of
the Company. Messrs. Wilson and Chung are both directors and executive officers
of Aurora and Mr. Wilson is chairman of the compensation committee of the board
of directors of Aurora. Messrs. Wilson and Chung are both executive officers of
Van de Kamp's. In addition, Mr. Wilson is a director of Van de Kamp's and is
chairman of the compensation committee of the board of directors of Van de
Kamp's.
55
<PAGE>
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
All of the issued and outstanding shares of common stock of the Company are
beneficially owned by Holdings. The Class A Common Stock (the "Common Stock") is
the only class of Holdings's that currently possesses voting rights. The Class B
Common Stock (the "Class B Common Stock") currently does not possess voting
rights(1) and is convertible into Common Stock on a one to one share basis.
There are 3,131 shares of Holdings's Common Stock outstanding on a fully diluted
basis assuming the issuance of 22.5 shares of Class B Common Stock which have
been reserved for issuance to management. The following table sets forth certain
information regarding the beneficial ownership of the Common Stock of Holdings,
by each person who beneficially owns more than 5% of Holdings's Common Stock,
and by the directors and certain executive officers of Holdings, individually,
and by the directors and executive officers of Holdings as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF SHARES OF
NAME AND ADDRESS OF OWNER COMMON STOCK(2) COMMON STOCK(2)
- -------------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
5% STOCKHOLDERS:
Bruckmann, Rosser, Sherrill & Co., L.P. .............................. 1,391(3) 44.4%
126 East 56th Street
29th Floor
New York, NY 10022
Windy Hill Pet Food Company L.L.C..................................... 867 27.7%
456 Montgomery Street
Suite 2200
San Francisco, CA 94104
PNC Capital Corp...................................................... 310(4) 9.9%
One PNC Plaza, 19th Floor
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Dartford Partnership L.L.C............................................ 282(5) 9.0%
456 Montgomery Street
Suite 2200
San Francisco, CA 94104
OFFICERS AND DIRECTORS:
Ian R. Wilson(6)...................................................... 1,149 36.7%
Robert V. Dale(7)..................................................... 946 30.2%
Ray Chung(6).......................................................... 1,149 36.7%
James B. Ardrey(6).................................................... 282 9.0%
F. Donald Cowan, Jr................................................... 45 1.4%
Donald L. Gadd........................................................ 45 1.4%
Vaughn Oakley......................................................... 45 1.4%
M. Laurie Cummings(6)................................................. 282 9.0%
Kase Lawal(8)......................................................... 867 27.7%
Stephen C. Sherrill(9)................................................ 1,391 44.4%
Stephen F. Edwards(9)................................................. 1,391 44.4%
Donald Welge(10)...................................................... 867 27.7%
All directors and executive officers of
Holdings as a group (12 persons).................................... 2,754 87.9%
</TABLE>
56
<PAGE>
- ------------------------
(1) The Class B Common Stock does not possess voting rights until $17 million
of capital has been returned to the holders of Common Stock.
(2) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power
to dispose, or direct the disposition of, a security.
(3) Includes shares held by certain other entities and individuals affiliated
with BRS. BRS disclaims the beneficial ownership of such shares.
(4) Includes 27.77 shares of Class B Common Stock.
(5) Consists solely of shares of Class B Common Stock.
(6) Mr. Wilson is the managing partner of Dartford and Messrs. Chung and Ardrey
and Ms. Cummings are partners of Dartford and as such, may be deemed to have
the power to vote or dispose of the Class B Common Stock held by Dartford.
Messrs. Wilson, Chung, and Ardrey and Ms. Cummings disclaim the existence of
a group and disclaim beneficial ownership of Class B Common Stock held by
Dartford. Messrs. Wilson and Chung are managing members of Windy Hill LLC
and as such, may be deemed to have the power to vote or dispose of the
Common Stock held by Windy Hill LLC. Messrs. Wilson and Chung disclaim the
existence of a group and disclaim beneficial ownership of Common Stock held
by Windy Hill LLC.
(7) Includes 79 shares of Class B Common Stock. Mr. Robert V. Dale is a managing
member of Windy Hill LLC and as such, may be deemed to have beneficial
ownership of the Common Stock held by Windy Hill LLC. Mr. Dale disclaims
beneficial ownership of the Common Stock held by Windy Hill LLC.
(8) Mr. Kase Lawal is a director of CAMAC International, Ltd. which is a
managing member of Windy Hill LLC and as such, may be deemed to have the
power to vote or dispose of the shares of Common Stock held by Windy Hill
LLC. Mr. Lawal disclaims beneficial ownership of the Common Stock held by
Windy Hill LLC.
(9) Includes shares held by BRS and certain other entities and individuals
affiliated with BRS. Messrs. Sherrill and Edwards each disclaim beneficial
ownership of such shares. The address for such persons is c/o BRS & Co., 126
East 56th St., New York, New York 10022.
(10) Mr. Donald Welge is the President and Chief Executive Officer of
Gilster-Marylee Corporation which is a managing member of Windy Hill LLC and
as such, may be deemed to have the power to vote or dispose of the Common
Stock held by Windy Hill LLC. Mr. Donald Welge disclaims beneficial
ownership of Common Stock held by Windy Hill LLC.
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<PAGE>
CERTAIN RELATED TRANSACTIONS
Holdings beneficially owns all of the outstanding shares of capital stock of
the Company. The BRS Group, Windy Hill LLC, PNC and Dartford, through their
respective ownership interests in Holdings, beneficially own shares of the
capital stock of the Company. Dartford, through its ownership interest in Windy
Hill LLC, also has an indirect ownership interest in the shares of the common
stock of the Company. To the Company's knowledge, no conflicts of interest exist
between the Company and Dartford. In the ordinary course of business, PNC may
have performed financial and banking services for, and the BRS Group may have
made investments in, entities that do business with or compete with the Company.
STOCKHOLDERS AGREEMENT
Holdings, BRS, certain affiliates of BRS (together with BRS, the "BRS
Group") Windy Hill LLC, PNC, Dartford and members of management of the Company,
including Robert V. Dale, F. Donald Cowan, Jr., Donald L. Gadd, and Vaughn
Oakley (the "Management") have entered into a stockholders agreement dated April
29, 1996 (the "Stockholders Agreement"). The Stockholders Agreement provides,
among other things, that the board of directors of the Company shall be
identical to that of Holdings. Under such agreement, the BRS Group and Windy
Hill LLC each have the power to designate two directors, (ii) the holders of
Class B Common Stock have the power to designate one director, provided that its
designee shall be Robert V. Dale as long as Mr. Dale is president of WHPF, (iii)
until 1998, Kase Lawal and Donald Welge shall serve as directors, thereafter,
any replacement members of Mr. Lawal and Mr. Welge must be reasonably acceptable
to the designees of the BRS Group and Windy Hill LLC; (iv) PNC, or such other
persons holding in the aggregate a majority of the shares of Common Stock and
Class B Common Stock acquired by PNC on April 29, 1996 and May 21, 1997 (the
"PNC Shares"), is entitled to designate one director for so long as PNC or
certain affiliates of PNC or their respective directors, officers or employees
hold at least 25% individually or in the aggregate of the PNC Shares, and (v)
either the BRS Group or Windy Hill LLC is entitled to designate an additional
director for so long as either of such party's ownership interest in the Common
Stock is equal to 110% of the ownership interest of the Common Stock of the
other party. Pursuant to the Stockholders Agreement, the BRS Group is entitled
to appoint an additional director. The Company believes that the terms of the
agreement were as favorable to the Company as could have been received from
disinterested third parties.
MANAGEMENT SERVICES AGREEMENTS
The Company is a party to an Amended and Restated Management Services
Agreement, dated as of May 2, 1997, with Dartford pursuant to which Dartford
will provide 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. The
annual management fee for these services is $1 million. The Company believes
that the fees and terms of the agreement were as favorable to the Company as
could have been received from disinterested third parties.
The Company is also a party to a Management Services Agreement, dated May
21, 1997, with Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS & Co."), an
affiliate of BRS. Pursuant to this agreement, BRS & Co. will be paid $500,000 on
April 29, 2001 for management, financial and other corporate advisory services
rendered by BRS & Co. in connection with the Kozy Kitten Acquisition. The
Company believes that the fees and terms of the agreement were as favorable to
the Company as could have been received from disinterested third parties.
REGISTRATION RIGHTS AGREEMENT
Holdings, the BRS Group and certain principals, Windy Hill LLC, PNC,
Dartford, and members of management of the Company including F. Donald Cowan,
Robert V. Dale, Donald L. Gadd and Vaughn Oakley have entered into a
registration rights agreement dated April 29, 1997 (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement and subject to
certain time restrictions, the BRS Group, Windy Hill LLC or PNC may request
registration of the Common Stock under the Securities
58
<PAGE>
Act (a "Demand Registration"). The Registration Rights Agreement also provides
that the BRS Group, Windy Hill LLC and PNC will be given an opportunity to have
the Common Stock owned by such parties included in any registration statement
filed by Holdings relating to any of the Common Stock (a "Piggyback
Registration"). In addition, the Registration Rights Agreement provides that
Holdings, the BRS Group, Windy Hill LLC and PNC will not affect any public sale
or distribution of equity securities of Holdings during the seven days prior to
and the 180-day period beginning on the effective date of any Demand
Registration or Piggyback Registration. The Company believes that the terms of
the agreement were as favorable to the Company as could have been received from
disinterested third parties.
OTHER RELATED ARRANGEMENTS
On April 29, 1996, BRS and Dartford entered into a letter agreement pursuant
to which they agreed that for so long as BRS or its affiliates own at least 25%
of its initial investment in Holdings, Dartford will not sell or transfer its
interests in Windy Hill LLC, without the prior consent of BRS.
In connection with the Kozy Kitten Acquisition, Old Windy Hill paid (i)
Dartford $525,000 in consideration of the general management, financial and
other corporate advisory services rendered by Dartford, (ii)PNC $255,000 as a
deferred financing fee relating to subordinated debt financing provided by PNC
and (iii) PNC Securities Corp., an affiliate of PNC, a fee of $715,000 in
connection with financing provided by PNC Bank. In connection with the Kozy
Kitten Acquisition, Old Windy Hill borrowed $8.5 million under a senior
subordinated debt facility with PNC. Such facility was repaid in full in
connection with the Transaction.
In consideration of general management, financial and other corporate
advisory services rendered by Dartford and BRS to Old Windy Hill in connection
with the Transaction, Dartford and BRS were paid $1,300,000 and $650,000,
respectively on the Closing Date.
CONFLICTS OF INTEREST POLICY
The Company maintains a conflicts of interest policy applicable to every
officer and employee of the Company. The conflicts of interest policy requires
the officers and employees of the Company to avoid situations which create or
lead to the development of an actual conflict of interest or appearance of a
conflict of interest.
Under the Company's conflicts of interest policy employees are prohibited
from: (i) accepting outside employment, including (a) as an independent
contractor or consultant with any competitor of the Company, (b) as an
independent contractor or consultant with any customer or supplier of the
Company without the prior written approval of the employee's President or Vice
President, or (c) any engagement that may lead the employee to compete with the
Company's products or services or may enhance the marketability of or otherwise
support a competitor's products or services; (ii) accepting outside
directorships, including (a) as a director of a competitor or (b) as a director
of any customer or supplier or a company which enhances the marketability or
otherwise supports a competitor's products or services; (iii) owning a financial
interest in any customer, supplier, or competitor that may cause divided loyalty
or even the appearance of divided loyalty; (iv) accepting gifts, payments,
loans, or other favors of substantial value from a customer, supplier, or
competitor of the Company including business meals, travel or entertainment from
a customer, supplier, or competitor of a magnitude that it would give the
appearance of impropriety. Subsection (iv) also applies to the immediate family
of the employee.
The Company's conflicts of interest policy requires the employee to disclose
to the Company all inventions, improvements, formulas, recipes, articles, or
discoveries relating to the Company's business conceived by the employee during
his or her employment with Company whether or not it was developed during
regular business hours. Further, the Company's conflicts of interest policy
provides that even if an activity does not fall into any of the specific
examples set forth in the policy, the employee should take the precaution of
clearing with his or her supervisor any activity which might potentially pose a
conflict of interest. Any conflicts reported under this provision must be
documented by the employee's supervisor and forwarded to the President or a Vice
President of the Company within 72 hours of notification by the employee. The
President or Vice President of the Company must review the submitted matter and
respond to the employee in writing as to the Company's position.
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DESCRIPTION OF SENIOR BANK FACILITIES
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Company's Senior Bank Facilities, which
are available upon request from the Company.
SENIOR BANK FACILITIES
The Credit Agreement, dated as of May 21, 1997, 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, provides the
Company with senior secured credit facilities (the "Senior Bank Facilities") in
an aggregate principal amount not to exceed $85 million.
The Senior Bank Facilities consist of (a) a senior secured term loan
facility providing for term loans to the Company in a principal amount not to
exceed $20 million (the "Term Loan Facility"), (b) a credit facility providing
for revolving loans to the Company for permitted acquisitions in a principal
amount not to exceed $45 million (the "Acquisition Facility"), and (c) a working
capital revolving credit 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 and stated amount at any time not to
exceed $20 million a portion of which may be represented by letters of credit
and not more than $5 million of which may be represented by swing line loans
(the "Working Capital Facility"), the Working Capital Facility and the
Acquisition Facility (collectively referred to as the "Revolving Facility").
The full amount of the Term Loan Facility was drawn in a single drawing at
the Closing and amounts repaid or prepaid under the Term Loan Facility may not
be reborrowed. The full amount of the Acquisition Facility was drawn at the
Closing but amounts repaid under the Acquisition Facility may be reborrowed.
Loans and letters of credit under the Revolving Facility will be available for
borrowing at any time after the Closing and prior to the date six and one-half
years thereafter.
The Term Loan Facility will amortize in quarterly installments over six and
one-half years beginning in the fourth quarter of fiscal year 1997.
The Company will be required to make mandatory prepayments of loans, subject
to certain exceptions in amounts equal to (a) 100% of the net proceeds of (i)
certain dispositions of material assets, (ii) any sale and lease-back for
proceeds in excess of a certain threshold, or (iii) the issuance of equity or
the incurrence of certain indebtedness other than the Offering by Holdings, the
Company or any of its subsidiaries and (b) 75% of excess cash flow of the
Company after giving effect to debt service on the Senior Bank Facilities and
the Notes, which, commencing on the Company's fiscal year ending December 31,
1998, may be reduced to 50% depending on the Company's financial performance. At
the Company's option, loans may be prepaid, and Acquisition Facility and Working
Capital credit commitments may be permanently reduced, in whole or in part at
any time.
The obligations of the Company under the Senior Bank Facilities will be
unconditionally and irrevocably guaranteed by WHPF, Holdings and each of the
existing and future direct or indirect domestic subsidiaries of the Company
(collectively, the "Guarantors"). In addition, the Senior Bank Facilities will
be secured by first priority or equivalent security interests in (i) all capital
stock of the Company and each of the direct or indirect domestic subsidiaries of
the Company),(ii) a pledge of up to a certain percentage of the capital stock of
any foreign subsidiary, and (iii) the tangible and intangible assets of the
Company and the Guarantors.
At the Company's option, the interest rates per annum applicable to the
Senior Bank Facilities will be either the rate (grossed-up for maximum statutory
reserve requirements for eurocurrency liabilities) at which eurodollar deposits
for one, two, three or six months (as selected by the Company) are offered in
the interbank eurodollar market (the "Eurodollar Rate") plus a margin of 2.50%
or the Alternate Base
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Rate plus a margin of 1.50%, such margins being subject to reduction if certain
performance targets are achieved (the "Applicable Margin"). The Alternate Base
Rate is the higher of (a) the rate of interest publicly announced by CSFB as its
prime rate in effect at its principal office in New York City and (b) the
federal funds effective rate plus 0.50%.
The Company will pay (i) a per annum fee equal to 0.50% on the aggregate
undrawn portion of the Acquisition Facility and Working Capital Facility
commitments in respect of the Revolving Facility, which fee will be reduced if
the Company meets certain ratios involving its consolidated interest expense
ratio and consolidated total indebtedness ratio, (ii) a per annum fee on all
outstanding undrawn amounts under letters of credit equal to the Applicable
Margin for Eurodollar Rate Loans then in effect under the Working Capital
Facility, and (iii) a per annum fee bearing interest at 0.25% on the face amount
of each such letter of credit. Swing line loans will bear interest based at the
Alternate Base Rate plus the Applicable Margin.
The Senior Bank Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, or engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, under the Senior Bank
Facilities, the Company is required to comply with specified financial ratios
and tests, including minimum interest coverage, minimum fixed charge coverage,
and maximum leverage ratios and maximum capital expenditure amounts.
The Senior Bank Facilities also contain provisions that prohibit any
modification of the Indenture in any manner adverse to the banks, financial
institutions and other entities under the Senior Bank Facilities (the "Lenders")
and that limit the Company's ability to refinance the Notes without the consent
of such Lenders.
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DESCRIPTION OF NOTES
GENERAL
The New Notes are to be issued, and the Old Notes were issued, under an
Indenture, dated as of May 21, 1997 (the "Indenture"), between the Company and
Wilmington Trust Company, as Trustee (the "Trustee"), a copy of which is
available upon request to the Company. For purposes of the following summary,
the Old Notes and the New Notes shall be collectively referred to as the
"Notes." The following summary of certain provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture (including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended) and the Notes. Capitalized terms used
herein and not otherwise defined have the meanings set forth in "--Certain
Definitions."
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
address of the holders as such address appears in the Note Register.
The New 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 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.
TERMS OF NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $120.0 million aggregate principal amount, and will mature on May 15,
2007. Each Note will bear interest at the rate per annum shown on the front
cover of this Prospectus 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 November 15, 1997 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 such 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 (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>
PERIOD REDEMPTION 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 $42.0 million 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
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payment date); provided, however, that at least $78.0 million of the aggregate
principal amount of the Notes remain outstanding after each such 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 such 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 (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).
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at May 15, 2002 (such redemption price being described under "-- Optional
Redemption") plus (2) all required interest payments due on such Note through
May 15, 2002, computed using a discount rate equal to the Treasury Rate plus 50
basis points over (B) the principal amount of such 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)
which 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.
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 shall deem 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 such 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 April 30, 1997 on a pro forma
basis after giving effect to the Transaction, the Financing and the AF Sale, the
aggregate amount of the Company's Senior Indebtedness would have been
approximately $15 million (excluding unused commitments of $65 million under the
Senior Bank Facilities). 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 such proceeding) on, and fees and other
amounts owing in respect of, the Bank Indebtedness and all other Indebtedness of
the Company, whether outstanding on the Issue Date or thereafter issued, unless,
in the instrument creating or evidencing the
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same is outstanding, 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 (i) any obligation of the
Company to any Subsidiary, (ii) any liability for Federal, state, foreign, local
or other taxes owed or owing by the Company, (iii) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (iv)
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 (v) 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 PARI PASSU 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 Secured Indebtedness 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 (i) any Senior Indebtedness
is not paid when due in cash or Cash Equivalents or (ii) any other default on
Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full in cash or Cash Equivalents. However, the
Company may pay any such amounts without regard to the foregoing if the Company
and the Trustee receive written notice approving such payment from the
Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) 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 such notice as may be required to effect such 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 such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full in
cash or Cash Equivalents). Notwithstanding the provisions described in the
immediately preceding sentence, unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Notes after the end of such 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 such
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
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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, such 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 such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such 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 Noteholders, 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 the 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 the Notes will have the right to require the Company
to repurchase all or any part of such 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): (i)prior to the first public offering of Voting Stock of the
Company, Holdings or WHPF, 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,
Holdings or WHPF, as the case may be, any merger, consolidation, liquidation or
dissolution of the Company, Holdings or WHPF, as the case may be, any direct or
indirect transfer of securities by any Permitted Holder or otherwise (for
purposes of this clause (i) and clause (ii) 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 (as defined), directly or indirectly, a
majority of the voting power of the Voting Stock of the parent corporation);
(ii) following the first public offering of Voting Stock of the Company,
Holdings or WHPF, 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 clause (i) above,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such 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, Holdings or WHPF, as the case may be; provided that the Permitted
Holders beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the Voting Stock of the Company, Holdings or WHPF, 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, Holdings or WHPF, as the case may be, (for purposes of
this clause (ii), such other person shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation, if such
other person "beneficially owns" (as defined in this clause (ii)), directly or
indirectly, more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not have the
right or ability by voting
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power, contract or otherwise to elect or designate for election a majority of
the board of directors of such parent corporation); or (iii)during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose
election by such 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 such 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 such Change of Control, the Company shall mail a notice to each
holder of record of the Notes with a copy to the Trustee stating: (i) that a
Change of Control has occurred and that such holder has the right to require the
Company to purchase such 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 a record
date to receive interest on the relevant interest payment date); (ii) the
circumstances and relevant facts and financial information concerning such
Change of Control; (iii) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and (iv) 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 of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall 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 Senior Credit Agreement. Future
Senior Indebtedness of the Company and its Subsidiaries may contain prohibitions
of certain events that would constitute a Change of Control or require such
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 such Senior Indebtedness, even if the Change
of Control itself does not, due to the financial effect of such 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.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. Even if sufficient funds were otherwise
available, the terms of the Senior Credit Agreement generally prohibit the
Company's prepayment of the Notes prior to their scheduled maturity.
Consequently, if the Company is not able to prepay the Bank Indebtedness 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 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, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) 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.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Subsidiaries may Incur the following Indebtedness: (i) Bank Indebtedness
provided that the aggregate principal amount of Indebtedness Incurred pursuant
to this clause (i) does not exceed an amount outstanding at any time
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equal to $80.0 million less the aggregate amount of permanent reductions of
commitments and repayments of principal thereof (without duplication of
repayments required as a result of such reductions of commitments); provided,
however, in the event that the AF Sale is not consummated simultaneously with
the Transaction, the application of the AF Sale Proceeds shall not be deemed a
permanent reduction of commitment thereunder; (ii) Indebtedness (A) of the
Company to any Wholly-Owned Subsidiary and (B) of any Subsidiary to the Company
or any Wholly-Owned Subsidiary; (iii) Indebtedness represented by the Notes, any
Indebtedness (other than the Indebtedness described in clauses (i)-(ii) above)
outstanding on the date of the Indenture and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iii) or this
paragraph (b); (iv) Indebtedness represented by the Note Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i) above; (v)
Indebtedness under Currency Agreements and Interest Rate Agreements which 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 (vi) Indebtedness of the Company or any
of its Subsidiaries (which may comprise Bank Indebtedness) in an aggregate
principal amount at any time outstanding not in excess of $15.0 million.
(c) Notwithstanding any other provision of this covenant, the Company shall
not Incur any Indebtedness (i) pursuant to paragraph (b) above if the proceeds
thereof are used, directly or indirectly, to repay, prepay, redeem, defease,
retire, refund or refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Obligations or (ii) pursuant to paragraph (a) or (b) 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.
(d) The Company shall not Incur any Secured Indebtedness which is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with such Secured Indebtedness for so long
as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Subsidiary, directly or indirectly, to (i) 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 (A) dividends or distributions payable in its Capital Stock
(other than Disqualified Stock) and (B) dividends or distributions payable to
the Company or another Subsidiary (and, if such Subsidiary is not a Wholly-Owned
Subsidiary, to its other stockholders on a pro rata basis), (ii) 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,
(iii) 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 (iv) 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 such Subsidiary makes such Restricted Payment: (1) a
Default shall have occurred and be continuing (or would result therefrom); or
(2) the Company could not Incur at least an additional $1.00 of Indebtedness
pursuant to paragraph (a) under "Limitation on Indebtedness"; or (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
declared (the amount so expended, if other than in cash, to be determined in
good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution of the Board of Directors) or made
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subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the Issue Date to the end of the most recent fiscal quarter ending
prior to the date of such Restricted Payment as to which financial results are
available (but in no event more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such 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 the
Issue Date (other than an issuance or sale to a Subsidiary of the 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 such plan or trust Incurs any Indebtedness to or
Guaranteed by the Company to finance the acquisition of such Capital Stock, such
aggregate amount shall be limited to any increase in the Consolidated Net Worth
of the Company resulting from principal repayments made by such plan or trust
with respect to Indebtedness Incurred by it to finance the purchase of such
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 the Issue Date 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
such conversion or exchange).
(b) The provisions of paragraph (a) shall not prohibit: (i) 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 (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from clause (3)(B) of paragraph (a); (ii) 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 such purchase
or redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) 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 such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments; (iv)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision; provided,
however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; (v) payment of dividends or other distributions by the
Company for the purposes set forth in clauses (A) through (D) below; provided,
however, that any such dividend or distribution described in clauses (A) and (B)
will be excluded in the calculation of the amount of Restricted Payments and any
such dividend or distribution described in clauses (C) and (D) will be included
in the calculation of the amount of Restricted Payments: (A) in amounts equal to
the amounts required for Holdings and WHPF 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 Holdings and WHPF to pay Federal, state
and local income taxes to the extent such income taxes are attributable to the
income of the Company and its Subsidiaries; (C) in amounts equal to amounts
expended by the Company, Holdings or WHPF to repurchase Capital Stock of the
Company, Holdings or WHPF owned by employees (including former employees) of the
Company or its Subsidiaries or 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 WHPF or Holdings to the Company as a result of resales of such
repurchased shares of Capital Stock; and (D) distributions to Holdings
commencing in 2004 in amounts equal to the interest payments under the
Convertible Subordinated Promissory Note issued to Heinz Pet Products Company
and in 2006 up to
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$10.0 million to be applied toward the repayment of the outstanding principal
amount thereunder; provided, however, in the case of clause (D), no Event of
Default shall have occurred or be continuing at the time of such payment or as a
result thereof; or (vi) any repurchase of equity interest deemed to occur upon
exercise of stock options if such equity interests represent a portion of the
exercise price of such options.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM SUBSIDIARIES. The Company
shall not, and shall not permit any of its Subsidiaries to, create or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other obligation
owed to the Company, (ii) make any loans or advances to the Company or (iii)
transfer any of its property or assets to the Company; except: (A) any
encumbrance or restriction pursuant to an agreement in effect on the Issue Date,
including those arising under the Senior Credit Documents; (B) 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 such
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 such Subsidiary was acquired by the Company); (C)
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 clauses (A) or (B) or this clause (C) or contained in
any amendment, supplement or modification (including an amendment and
restatement) to an agreement referred to in clauses (A) or (B) or this clause
(C); 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 such agreements; (D) in the case of clause (iii), any
encumbrance or restriction (1) 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, (2) 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
(3) contained in security agreements securing Indebtedness of a Subsidiary to
the extent such encumbrance or restrictions restrict the transfer of the
property subject to such security agreements; (E) any such restriction imposed
by applicable law; (F) 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 such Subsidiary pending the
closing of such sale or disposition; and (G) purchase obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired.
LIMITATION ON SALES OF ASSETS. (a) The Company shall not, and shall not
permit any Subsidiary to, make any Asset Disposition unless (i) the Company or
such 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 such Asset Disposition at least equal to the fair
market value of the shares and assets subject to such Asset Disposition, (ii) at
least 85% of the consideration thereof received by the Company or such
Subsidiary is in the form of cash and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
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 such Asset Disposition or the receipt of such 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 such 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
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the date of such Asset Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such 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 Noteholders
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 such Net Available Cash after application in accordance with clauses
(A), (B) and (C), to (x) acquire Additional Assets (other than Indebtedness and
Capital Stock) or (y) 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 such Net
Available Cash or, if the Company has made an Offer pursuant to clause (C), six
months from the date such Offer is consummated; provided, however, that, 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; provided, further, however that the foregoing proviso will
not apply to the AF Sale Proceeds in the event the AF Sale is not consummated
simultaneously with the Transaction. 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 which 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 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).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption of Indebtedness (other than Disqualified Stock) of the
Company or any Subsidiary and the release of the Company or such Subsidiary from
all liability on such Indebtedness in connection with such Asset Disposition and
(y) 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.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C), 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 (a)(iii)(D) above.
(c) 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 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. (a) 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: (i) the terms of such Affiliate Transaction are no less
favorable to the Company or such Subsidiary, as the case may be, than those that
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate; (ii) in the event such Affiliate
Transaction
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involves an aggregate amount in excess of $1.0 million, the terms of such
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 such
Board, if any (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above); and (iii)
in the event such 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 such Affiliate
Transaction is fair to the Company or such Subsidiary, as the case may be, from
a financial point of view.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"-- Limitation on Restricted Payments" (and in the case of Permitted
Investments, only those described in clauses (v), (vi), (ix) and (x) of the
definition of Permitted Investments), (ii) 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, (iii) payment of compensation to, and indemnity provided on behalf of,
employees, officers, directors or consultants (excluding the Management Services
Agreements) in the ordinary course of business, (iv) 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,
(v) any transaction between the Company and a Wholly-Owned Subsidiary or between
Wholly-Owned Subsidiaries or (vi) the payment of certain fees under the
Management Services Agreements as in effect on the Issue Date.
LIMITATION ON SALE OF SUBSIDIARY CAPITAL STOCK. The Company (i) 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 (ii) will not permit any
Subsidiary to issue any of its Capital Stock (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Wholly-Owned Subsidiary; provided, however, that
the foregoing shall not prohibit such conveyance, sale, lease or other
disposition of all the Capital Stock of a Subsidiary if the net cash proceeds
from such 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 such
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 which are otherwise required pursuant to Section 13
and 15(d) of the Exchange Act. Such requirements may also be satisfied, prior to
July 20, 1997, with the filing with the Commission of a registration statement
under the Securities Act that contains the foregoing information (including
financial statements) and by providing copies thereof to the Trustee and the
holders. 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 which Incurs
Indebtedness or which is a guarantor of Indebtedness Incurred pursuant to clause
(b)(i) of the covenant described under "-- Limitation on Indebtedness" to
execute and deliver to the Trustee a Note Guarantee pursuant to which such
Subsidiary 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 in the Indenture. 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,
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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
such other business activities which are incidental or related thereto and, in
the event the AF Sale is not consummated simultaneously with the Transaction,
the animal feed business of Hubbard Milling.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) 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;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been Incurred by the Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company would
be able to Incur at least an additional $1.00 of Indebtedness pursuant to
paragraph (a) of "-- Limitation on Indebtedness"; (iv) immediately after giving
effect to such transaction, the Successor Company will have Consolidated Net
Worth in an amount which is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and (v) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such 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 its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (1) 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 (2) 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 (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) 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,
(iii) the failure by the Company to comply with its obligations under "-- Merger
and Consolidation" above, (iv) 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" above or under covenants described under "Certain Covenants"
above (in each case, other than a failure to purchase Notes which shall
constitute an Event of Default under clause (ii) above), other than "-- Merger
and Consolidation", (v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in the Indenture, (vi) 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 such default shall not have been cured or such acceleration
rescinded within a 10-day period (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) 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
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Subsidiary and such judgment or decree shall remain undischarged or unstayed for
a period of 60 days after such judgment becomes final and non-appealable (the
"judgment default provision") or (ix) 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 (iv) and (v) 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 such default within the time specified in clauses (iv) and (v) hereof after
receipt of such 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, such 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 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 such 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 (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) 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 such request within such 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 Noteholders.
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 which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
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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, (i) reduce the amount of Notes
whose holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the principal of or
extend the Stated Maturity of any Note, (iv) 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, (v) make any Note
payable in money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of the Notes, (vii) impair the right of any holder to receive payment
of principal of and interest on such 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 such holder's Notes or (viii) make any change in the amendment
provisions which 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, to 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 Code, or in a manner
such that the uncertificated Notes are described in Section 163(f) (2) (B) of
the Code), to add Guarantees with respect to the Notes, to secure the Notes, to
add to the covenants of the Company for the benefit of the Noteholders or to
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 Commission 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 such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such 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 such 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 such amendment.
However, the failure to give such 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 in clauses (iii) and
(iv) 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
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exercises its covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Subsidiaries), or (viii) or (ix) under "Events of Default"
above or because of the failure of the Company to comply with clause (iii) or
(iv) under "Certain Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance 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 such 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 such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
Wilmington Trust Company is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
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
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Subsidiary in a
Related Business; (ii) the Capital Stock of a Person that becomes a Subsidiary
as a result of the acquisition of such Capital Stock by the Company or another
Subsidiary; or (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Subsidiary; provided, however, that, in the case
of clauses (ii) and (iii), such Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such 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 and Subsidiary Stock", "-- Limitation on Restricted Payments"
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 such 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.
"AF Sale Proceeds" means the net proceeds received by the Company from the
sale of its animal feed business, less $5 million used to repay the term loan
facility under the Senior Credit Agreement.
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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 (i) 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, (ii) a disposition of inventory or
Temporary Cash Investments in the ordinary course of business, (iii) 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, (iv) the sale of other
assets so long as the fair market value of the assets disposed of pursuant to
this clause (iv) 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, (v) 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 (vi) 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 "-- 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 such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by the
amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Documents and any Indebtedness that is incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) Indebtedness under such Senior Credit Documents
including Indebtedness that refinances such Indebtedness, as amended from time
to time, including principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for postfiling
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, cash collateralization of letters of
credit).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City or Wilmington, Delaware are authorized
or required by law to close.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"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
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payment of rent or any other amount due under such lease prior to the first date
such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any domestic commercial bank the long-term debt of which is rated at the time
of acquisition thereof at least "A" or the equivalent thereof by Standard &
Poor's Ratings Group, or "A" or the equivalent thereof by Moody's Investors
Service, Inc., and having capital and surplus in excess of $500.0 million; (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (i), (ii) and (iii) entered into
with any bank meeting the qualifications specified in clause (iii) above; (v)
commercial paper rated at the time of acquisition thereof at least "A-2" or the
equivalent thereof by Standard & Poor's Ratings Group or "P-2" or the equivalent
thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by
a nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus, to the extent deducted in calculating such Consolidated
Net Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense, in each case for such period,
and (v) other non-cash charges reducing Consolidated Net Income (excluding any
such 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, (i) the
aggregate amount of "earnout" payments paid in cash during such period in
connection with acquisitions previously made by the Company and (ii) non-cash
items increasing Consolidated Net Income for such period.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any of its Subsidiaries
has Incurred any Indebtedness since the beginning of such 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 such period shall
be calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any of its Subsidiaries shall have made any Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
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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 such Asset
Disposition for such period (or, if the Capital Stock of any Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Subsidiary to the extent the Company
and its continuing Subsidiaries are no longer liable for such Indebtedness after
such sale), (3) if since the beginning of such 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 which 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 such 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 such period and (4) if since the
beginning of such 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 such 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 such period, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such 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 such 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 such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Subsidiaries, plus, to the extent not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations and imputed interest with respect to Attributable Indebtedness, (ii)
amortization of debt discount and debt issuance cost (other than those debt
discounts and debt issuance costs incurred on the Issue Date), (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Company or any such Subsidiary
under any Guarantee of Indebtedness or other obligation of any other Person,
(vii) net costs associated with Currency Agreements and Interest Rate Agreements
(including amortization of fees), (viii) the product of (A) 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 (B) 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 (ix)
the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such 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 such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Subsidiary, except that (A) subject
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to the limitations contained in clause (iv) below, the Company's equity in the
net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such 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 (iii) below) and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income;(ii) 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 such acquisition; (iii) any net
income (loss) of any Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Subsidiary, directly or indirectly, to the Company, except
that (A) subject to the limitations contained in (iv) below, the Company's
equity in the net income of any such Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Subsidiary during such 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 (B) the Company's equity in a net loss of any such Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
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) which are not sold or 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; (v) any extraordinary gain
or loss; and (vi) 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 (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, 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
such Person which 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
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) 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 of Holdings on the Issue Date.
"Equity Offering" means any public or private sales of equity securities
(excluding Disqualified Stock) of the Company, Holdings or WHPF.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holdings" means Windy Hill Pet Food Holdings, Inc., a Delaware corporation.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, Notes or other similar instruments, (iii) all obligations of
such 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 (i), (ii) and (v)) 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, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such 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, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, provided, however,
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons, (vii) all Indebtedness of other
Persons to the extent Guaranteed by such Person, (viii) 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 (ix) 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
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outstanding balance at such 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 such date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement, but excluding
any debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person.
"Issue Date" means the date on which the Old Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Services Agreements" means (i) the Management Services Agreement
dated as of April 29, 1996 between Old Windy Hill and Dartford Partnership
L.L.C. (and its permitted successors and assigns thereunder) as amended as of
May 2, 1997 and (ii) the Management Services Agreement dated as of April 29,
1996 between Old Windy Hill and Bruckman, Rosser, Sherrill & Co., Inc. (and its
permitted successors and assigns thereunder), in each case without giving effect
to any amendment or other modification thereto.
"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 (i) 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,
(ii) all payments made on any Indebtedness which 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, (iii) 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, (iv) 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 (v) 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 such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
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incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Note Guarantee" means any guarantee which may from time to time be executed
and delivered by a Subsidiary of the Company pursuant to the provisions of the
covenant described under "Certain Covenants --Future Note Guarantors." Each such
Note Guarantee will have subordination provisions equivalent to those contained
in the Indenture.
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means the Equity Investors and their respective
Affiliates.
"Permitted Investment" means (i) any Investment in a Subsidiary of the
Company or a Person which will, upon making such Investment, become a
Subsidiary; provided, however, that the primary business of such Subsidiary is a
Related Business; (ii) 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 such Person's primary
business is a Related Business; (iii) any Investment in Temporary Cash
Investments; (iv) 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; (v) 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; (vi) loans or advances to employees made in
the ordinary course of business of the Company or such Subsidiary; (vii) 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; (viii) Investments the payment for
which consists exclusively of equity securities (exclusive of Disqualified
Stock) of the Company; (ix) any Investment existing on the Issue Date, (x) loans
or advances to employees and directors to purchase equity securities of the
Company, Holdings or WHPF; provided that the aggregate amount of such loans and
advances shall not exceed $2.0 million at any time outstanding; (xi) 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"; (xii) prepayment and other credits to suppliers made in the
ordinary course of business consistent with the past practices of the Company
and its Subsidiaries; (xiii) 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
(xiv) any Investment in another Person provided that the aggregate Investments
made pursuant to this clause (xiv) 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.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
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"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Subsidiary and Indebtedness of any
Subsidiary that refinances Indebtedness of another Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness, provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the sum of the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced (plus the
amount of any premium required to be paid in connection therewith and plus
reasonable fees and expenses in connection therewith); provided further that
Refinancing Indebtedness shall not include Indebtedness of a Subsidiary which
refinances Indebtedness of the Company.
"Related Business" means the pet food business and such other business
activities which are incidental or related thereto.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and the Company or a Subsidiary leases it from such Person.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Agreement" means the Credit Agreement dated as of May 21,
1997, among Windy Hill Pet Food Acquisition Co., and the lenders parties
thereto.
"Senior Credit Documents" means the collective reference to the Senior
Credit Agreement, the notes issued pursuant thereto, the Guarantee, the
Collateral Agreement and the Patent and Trademark Security Agreement (each as
defined in the Senior Credit Agreement) and each of the mortgages and other
security agreements, guarantees and other instruments and documents executed and
delivered pursuant to any of the foregoing or the Senior Credit Agreement, in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amounts of
available borrowing thereunder provided that such increase in borrowing is
permitted by the covenant described under the caption "-- Limitation on
Indebtedness" or adding Subsidiaries of the Company as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement whether by the same or any
other agent, lender or group of lenders.
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"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank PARI PASSU 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 which is not Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following: (i) 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,
(ii) 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 which 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), (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) 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.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"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.
"Voting Stock" of a Person means all classes of Capital Stock of such Person
then outstanding and normally entitled to vote in the election of directors or
managers.
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"Wholly-Owned Subsidiary" means a Subsidiary of the Company, all of the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or another Wholly-Owned Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited upon issuance with, or on
behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC, or
will remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participation (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Note, DTC will credit the accounts of Participants who
elect to exchange Old Notes with an interest in the Global Note and (ii)
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
interest of Participants), the Participants and the Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interest in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer Notes or to
pledge the Notes as collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Securities, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
giving of any directions, instruction or approval to the Trustee thereunder. As
a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant
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would authorize holders owning through such Participants to take such action or
would otherwise act upon the instruction of such holders. Neither the Company
nor the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on,
any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interest in the Global Note (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. Payments by the Participants and the Indirect Participants to
the beneficial owners of interests in the Global Note will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the Notes represented by the Global Note. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchasers entered into an exchange and
registration rights agreement (the "Exchange and Registration Rights Agreement")
on May 21, 1997. Pursuant to the Exchange and Registration Rights Agreement, the
Company agreed to (i) file with the Commission on or prior to 60 days after the
date of issuance of the Old Notes (the "Issue Date") a registration statement on
an appropriate form under the Securities Act (the "Exchange Offer Registration
Statement") relating to a registered exchange offer (the "Exchange Offer") for
the Old Notes under the Securities Act and (ii) use its best efforts to cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of the Old Notes who are not prohibited by any
law or policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Old Notes for an issue of a second series of notes
(the "New Notes"), identical in all material respects to the Old Notes (except
that the New Notes will not contain terms with respect to transfer restrictions)
that would be registered under the Securities Act. The Company will keep the
Exchange Offer open for not less than 30 days (or longer, if required by law)
after the date notice of the Exchange Offer is mailed to the holders of the Old
Notes. If (i) applicable interpretations of the staff of the Commission do not
permit the Company to effect the Exchange Offer as contemplated thereby or (ii)
for any other reason the Exchange Offer is not consummated within 180 days after
the Issue Date or (iii) any holder either (A) is not eligible to participate in
the Exchange Offer or (B) participates in the Exchange Offer and does not
receive freely transferrable New Notes in exchange for tendered Old Notes, the
Company will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities by
such holders who satisfy certain conditions relating to, among other things, the
provision of information in connection with the Shelf Registration Statement.
For purposes of the foregoing, "Transfer Restricted Securities" means each Old
Note until (i) the date on which such Old Note has been exchanged for a freely
transferable New Note in the Exchange Offer, (ii) the date on which such Old
Note has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) the date on which such
Old Note is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
The Company will use its best efforts to have the Exchange Offer
Registration Statement and, if applicable, a Shelf Registration Statement (each
a "Registration Statement") declared effective by the Commission as promptly as
practicable after the filing thereof. Unless the Exchange Offer would not be
permitted by a policy of the Commission, the Company will commence the Exchange
Offer and will use its best efforts to consummate the Exchange Offer as promptly
as practicable, but in any event prior to 180 days after the Issue Date. If
applicable, the Company will use its best efforts to keep the Shelf Registration
Statement effective for a period of three years after the Issue Date, subject to
certain exceptions, including suspending the effectiveness thereof for certain
valid business reasons. If (i) the applicable Registration Statement is not
filed with the Commission on or prior to 60 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 150 days after the Issue Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of Commission's
staff, if later, within 45 days after publication of the change in law or
interpretation), (iii) the Exchange Offer is not consummated on or prior to 180
days after the Issue Date, or (iv) the Shelf Registration Statement is filed and
declared effective within 150 days after the Issue Date (or in the case of a
Shelf Registration Statement required to be filed in response to a change in law
or the applicable interpretations of Commission's staff, if later, within 45
days after publication of the change in law or interpretation), but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 60 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
will generally be obligated to pay liquidated damages to each
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holder of Transfer Restricted Securities, during the period of such Registration
Default, in an amount equal to $0.192 per week per $1,000 principal amount of
the Old Notes constituting Transfer Restricted Securities held by such holder
until the applicable Registration Statement is filed or declared effective, the
Exchange Offer is consummated or the Shelf Registration Statement again becomes
effective, as the case may be; provided, however, no liquidated damages shall be
payable for a Registration Default under clause (iii) above if a Shelf
Registration Statement covering resales of the Transfer Restricted Securities
for which the Exchange Offer was intended shall have been declared effective.
All accrued liquidated damages shall be paid to holders in the same manner as
interest payments on the Old Notes on semi-annual payment dates which correspond
to interest payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement will also provide that the
Company (i) shall make available for a period of 90 days after the consummation
of the Exchange Offer a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such New
Notes and (ii) shall pay all expenses incident to the Exchange Offer (including
the expenses of one counsel to the holders of the Old Notes) and will indemnify
certain holders of the Old Notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act. 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 Exchange and
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of the Old Notes that wishes to exchange such Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any New Notes to be received
by it will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Notes
and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company or Holdings or if it is an affiliate, it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
If a holder is not a broker-dealer, it will be required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the New
Notes. If a holder is a broker-dealer that will receive New 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 will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
Holders of the Old Notes will be required to make certain representations to
the Company (as described above) in order to participate in the Exchange Offer,
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Old Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells Old
Notes pursuant to the Shelf Registration Statement generally will 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 Exchange and Registration Rights Agreement which
are applicable to such a holder (including certain indemnification obligations).
For so long as the Old Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Old Notes
the information required by paragraph (d)(4) of Rule 144A under the Securities
Act ("Rule 144A"). The Company will provide a copy of the Exchange and
Registration Rights Agreement to prospective purchasers of Old Notes identified
to the Company by any Initial Purchaser upon request.
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The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relevant to the Exchange Offer, but does not purport to be a
complete analysis of all potential tax effects. It is based upon the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated and proposed thereunder, judicial authority and
current administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis. There are no Treasury Regulations, judicial
decisions or other authority that have considered a transaction closely
comparable to the Exchange Offer, and there can be no assurance that the
Internal Revenue Service will not take a contrary position to the positions
taken herein. The description does not consider the effect of any application
foreign, state, local or other tax laws or estate or gift tax considerations. No
rulings will be sought from the Internal Revenue Service with respect to the
federal income tax consequences of the Exchange Offer. The legal conclusions
expressed in this summary are the opinions of Richards & O'Neil, LLP, counsel to
the Company.
THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not constitute a material modification of the terms of the Old Notes and,
therefore, such exchange will not constitute an exchange for federal income tax
purposes. Accordingly, such exchange will have no federal income tax
consequences to holders of New Notes.
EACH HOLDER SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
Based on interpretations by the Commission set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant to
the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Notes directly from the
Company or (iii) broker-dealers who acquired 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 such Notes
are acquired in the ordinary course of such holders' business, and such holders
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 such Notes;
provided that broker-dealers ("Participating Broker-Dealers") receiving New
Notes in the Exchange Offer will be subject to a prospectus delivery requirement
with respect to resales of such New Notes. To date, the Commission 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 the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Old Notes to the Initial Purchasers) with
the prospectus contained in the Exchange Offer Registration Statement. Pursuant
to the Exchange and Registration Rights Agreement, the Company has agreed to
permit Participating Broker-Dealers if any, subject to similar prospectus
delivery requirements to use this Prospectus in connection with the resale of
such New Notes. The Company has agreed that, for a period of 180 days after the
Expiration Date, it 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.
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Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
the Company as set forth in "The Exchange Offer--Purpose and Effect of the
Exchange Offer." In addition, each holder who is a broker-dealer and who
receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New 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.
The Company has 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) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Exchange and Registration Rights Agreement.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Richards & O'Neil, LLP, New York, New York in reliance, as to matters with
respect to Minnesota law, upon the opinion of Leonard, Street and Deinard,
Minneapolis, Minnesota.
EXPERTS
The financial statements of Old Windy Hill as of May 3, 1997, December 28,
1996 and December 30, 1995, for the four-month period ended May 3, 1997, for the
year ended December 28, 1996, and for the ten month period ended December 30,
1995, included in this Prospectus, have been audited by KPMG Peat Marwick LLP,
independent accountants, as stated in their report appearing herein.
The financial statements of Hubbard as of April 30, 1997, 1996, and 1995,
and for each of the years in the three-year period ended April 30, 1997,
included in this Prospectus, have been audited by KPMG Peat Marwick LLP,
independent accountants, as stated in their report appearing herein.
The statement of revenue and certain expenses of Certain Acquired Product
Lines of the Heinz Pet Products Division of Star-Kist Foods, Inc. for the years
ended May 1, 1996 and May 3, 1995, included in this Prospectus have been audited
by Coopers & Lybrand L.L.P., independent accountants, as stated in their report
appearing herein.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
WINDY HILL PET FOOD COMPANY, INC.
Independent Auditors' Report............................................................................ F-2
Balance Sheets as of May 3, 1997, December 28, 1996 and December 30, 1995............................... F-3
Statements of Operations for the four month period ended May 3, 1997, the year ended December 28, 1996
and the ten month period ended December 30, 1995...................................................... F-4
Statements of Stockholder's Equity for the four month period ended May 3, 1997, the year ended December
28, 1996 and the ten month period ended December 30, 1995............................................. F-5
Statements of Cash Flows for the four month period ended May 3, 1997, the year ended December 28, 1996
and the ten month period ended December 30, 1995...................................................... F-6
Notes to Financial Statements........................................................................... F-7
HUBBARD MILLING COMPANY
Independent Auditors' Report............................................................................ F-19
Balance Sheets as of April 30, 1997, 1996 and 1995...................................................... F-20
Statements of Earnings for the years ended April 30, 1997, 1996 and 1995................................ F-21
Statements of Cash Flows for the years ended April 30, 1997, 1996 and 1995.............................. F-22
Notes to Financial Statements........................................................................... F-23
STAR-KIST FOODS, INC.
Report of Independent Accountants....................................................................... F-33
Statement of Revenue and Certain Expenses of Certain Acquired Product Lines for
the years ended May 1, 1996 and May 3, 1995........................................................... F-34
Notes to Statement of Revenue and Certain Expenses of Certain Acquired Product Lines.................... F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Windy Hill Pet Food Company, Inc.:
We have audited the accompanying balance sheets of Windy Hill Pet Food
Company, Inc. (a wholly owned subsidiary of Windy Hill Pet Food Holdings, Inc;
formerly Windy Hill Pet Food Company, LLC) as of May 3, 1997, December 28, 1996
and December 30, 1995, and the related statements of operations, stockholder's
equity and cash flows for the four month period ended May 3, 1997, for the year
ended December 28, 1996 and for the period from inception (March 1, 1995)
through December 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Windy Hill Pet Food Company,
Inc. as of May 3, 1997, December 28, 1996 and December 30, 1995, and the results
of its operations and its cash flows for the four month period ended May 3,
1997, for the year ended December 28, 1996 and for the period from inception
through December 30, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
June 6, 1997
San Francisco, California
F-2
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
BALANCE SHEETS
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28, DECEMBER 30,
1997 1996 1995
--------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 893 $ 570 $ 327
Accounts receivable (less allowance of $56, $48 and $20,
respectively)..................................................... 6,715 8,224 2,750
Accounts receivable--other.......................................... 14 19 179
Inventories (Note 4)................................................ 5,098 5,141 1,720
Prepaid expenses.................................................... 1,051 811 398
Deferred tax assets (Note 8)........................................ -- 30 --
--------- -------------- --------------
Total current assets............................................ 13,771 14,795 5,374
Property, plant and equipment, net (Note 5)........................... 22,386 22,484 6,201
Goodwill and other intangible assets, net (Note 6).................... 51,158 51,515 14,556
Other assets.......................................................... 3,339 3,431 1,353
--------- -------------- --------------
Total assets (Note 7)........................................... $ 90,654 $ 92,225 $ 27,484
--------- -------------- --------------
--------- -------------- --------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdrafts..................................................... $ 2,173 $ 977 $ --
Current portion of long term debt (Note 7).......................... 5,800 5,800 1,500
Senior secured revolving debt facility (Note 7)..................... 4,000 2,000 --
Accounts payable.................................................... 7,822 8,839 3,591
Income taxes payable................................................ 24 -- --
Accrued liabilities................................................. 909 2,699 281
Deferred tax liability--current..................................... 50 -- --
--------- -------------- --------------
Total current liabilities....................................... 20,778 20,315 5,372
Senior secured term debt (Note 7)..................................... 32,850 35,750 15,500
Senior subordinated note (Note 7)..................................... 7,580 7,551 --
Deferred tax liability (Note 8)....................................... 2,581 2,252 --
Other liabilities (Note 11)........................................... 334 325 --
--------- -------------- --------------
Total liabilities............................................... 64,123 66,193 20,872
--------- -------------- --------------
Stockholder's equity (Note 12):
Common stock, $0.01 par value; 10,000 shares authorized;
100 shares issued and outstanding................................. -- -- --
Paid in capital..................................................... 25,681 25,681 5,891
Retained earnings................................................... 850 351 721
--------- -------------- --------------
Total stockholder's equity...................................... 26,531 26,032 6,612
--------- -------------- --------------
Commitments and contingent liabilities (Notes 4, 7, 9 and 13)
Total liabilities and stockholder's equity...................... $ 90,654 $ 92,225 $ 27,484
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
FOR THE FOUR MONTH PERIOD ENDED MAY 3, 1997, THE YEAR ENDED DECEMBER 28, 1996
AND
THE TEN MONTH PERIOD ENDED DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTH TEN MONTH
PERIOD ENDED PERIOD ENDED
MAY 3, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Net sales......................................................... $ 35,567 $ 82,993 $ 34,481
Cost of goods sold................................................ 21,640 54,379 22,107
------------- -------------- --------------
Gross profit................................................ 13,927 28,614 12,374
------------- -------------- --------------
Selling, distribution and marketing expenses:
Selling and distribution.................................... 3,500 8,090 4,751
Trade promotions and other marketing........................ 5,277 9,075 3,732
------------- -------------- --------------
Total selling, distribution and marketing expenses.......... 8,777 17,165 8,483
General and administrative expenses............................... 1,799 3,618 1,526
Amortization of intangibles and other assets...................... 623 1,316 452
------------- -------------- --------------
Total operating expenses.................................... 11,199 22,099 10,461
------------- -------------- --------------
Operating income............................................ 2,728 6,515 1,913
Interest income................................................... (20) (65) (30)
Interest expense.................................................. 1,667 3,825 1,155
Amortization of deferred financing expense........................ 132 259 67
Other bank and financing expenses................................. 17 40 --
------------- -------------- --------------
Income before income taxes and extraordinary item........... 932 2,456 721
Income tax expense (Note 8)....................................... 433 1,209 --
------------- -------------- --------------
Income before extraordinary item............................ 499 1,247 721
Extraordinary loss on early extinguishment of debt (Note 7)....... -- 604 --
------------- -------------- --------------
Net income.................................................. $ 499 $ 643 $ 721
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE FOUR MONTH PERIOD ENDED MAY 3, 1997, THE YEAR ENDED DECEMBER 28, 1996
AND
THE TEN MONTH PERIOD ENDED DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
MEMBERS' ------------------------ PAID IN RETAINED
CAPITAL SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ----------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Member 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 Company,
Inc. (Note 1 and Note 12)........................ (5,891) 23 -- 5,891 -- --
Deferred tax liability recognized.................. -- -- -- -- (1,013) (1,013)
Capital contribution from Windy Hill Pet Food
Holdings, Inc., net of syndication costs of
$210............................................. -- 77 -- 19,790 -- 19,790
Net income......................................... -- -- -- -- 643 643
----------- ----- ----- -------------- ----------- ---------
Balance at December 28, 1996....................... -- 100 -- 25,681 351 26,032
Net income......................................... -- -- -- -- 499 499
----------- ----- ----- -------------- ----------- ---------
Balance at May 3, 1997............................. $ -- 100 $ -- $ 25,681 $ 850 $ 26,531
----------- ----- ----- -------------- ----------- ---------
----------- ----- ----- -------------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTH PERIOD ENDED MAY 3, 1997, THE YEAR ENDED DECEMBER 28, 1996
AND
THE TEN MONTH PERIOD ENDED DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTH TEN MONTH
PERIOD ENDED PERIOD ENDED
MAY 3, DECEMBER 28, DECEMBER 30,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 499 $ 643 $ 721
Adjustments to reconcile net income to cash provided by
operating activities:
Loss on early extinguishment of debt....................... -- 604 --
Depreciation and amortization.............................. 1,282 2,719 787
Deferred income taxes...................................... 409 1,209 --
Changes in assets and liabilities, net of effects from
businesses acquired:
Decrease/(Increase) in accounts receivable, net........ 1,514 (3,941) (960)
Decrease/(Increase) decrease in inventories............ 43 (454) 352
(Increase) in prepaid expenses......................... (240) (412) (34)
(Decrease)/Increase in accounts payable and accrued
liabilities.......................................... (2,807) 6,336 847
Increase in income taxes payable....................... 24 -- --
------- -------------- --------------
Net cash provided by operating activities........................ 724 6,704 1,713
------- -------------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment..................... (389) (1,091) (1,120)
Additions to other assets and other intangible assets.......... (308) (357) (321)
Payment for acquisition of businesses, net of cash acquired.... -- (56,768) (22,165)
------- -------------- --------------
Net cash used in investing activities............................ (697) (58,216) (23,606)
------- -------------- --------------
Cash flows from financing activities:
Proceeds from senior secured revolving and term debt........... 4,000 48,000 17,000
Proceeds from senior subordinated note......................... -- 8,500 --
Repayment of borrowings........................................ (4,900) (21,450) --
Capital contributions.......................................... -- 19,000 6,000
Debt and equity issuance costs................................. -- (3,272) (780)
Increase in bank overdrafts.................................... 1,196 977 --
------- -------------- --------------
Net cash provided by financing activities........................ 296 51,755 22,220
------- -------------- --------------
Net increase in cash and cash equivalents........................ 323 243 327
Cash and cash equivalents, beginning of period................... 570 327 --
------- -------------- --------------
Cash and cash equivalents, end of period......................... $ 893 $ 570 $ 327
------- -------------- --------------
------- -------------- --------------
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the respective period ended:
Interest....................................................... $ 2,331 $ 3,759 $ 1,179
------- -------------- --------------
------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 1--THE COMPANY
ORGANIZATION
Windy Hill Pet Food Company, Inc. (the "Company"), a Delaware corporation,
is a privately held pet food company. The Company is a wholly owned subsidiary
of Windy Hill Pet Food Holdings, Inc. ("Holdings"), which is also a Delaware
corporation. The Company commenced operations March 1, 1995 under its previous
ownership structure as Windy Hill Pet Food Company, LLC (the "LLC"). In
connection with the Company's acquisition of certain brands from Heinz Pet
Products in April 1996, as further described in Note 3, the LLC's net assets
were contributed at net book value to Holdings. The Company was capitalized with
senior secured term debt and a senior subordinated note (Note 7), and a capital
infusion from Holdings (Note 12).
OPERATIONS
The Company manufactures and sells dog and cat food products and treats
which are sold across the United States. The products are manufactured in
McKenzie, Tennessee and Perham, Minnesota. The principal trademarks under which
the products are sold are Kozy Kitten-Registered Trademark-, Trail
Blazer-Registered Trademark-, Tuffy's-Registered Trademark-, G.
Whiskers-Registered Trademark- and Bonkers-Registered Trademark-.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by the Company in preparation of the 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 Company uses the accrual basis of accounting in the preparation
of its financial statements.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in December.
Accordingly, the results of operations reflect activity for the year ended
December 28, 1996 and for the ten month period March 1, 1995 (commencement of
operations) through December 30, 1995. Also included in this report are the
Company's financial statement as of and for the four month period ended May 3,
1997. Certain prior year amounts have been reclassified to conform with the
current period's presentation.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments 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-7
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation expense is computed using the straight line method
over the estimated useful lives of the individual assets ranging from four to
thirty years (see Note 5). Costs for major renewal and additions are
capitalized, while repairs and maintenance costs are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets include trademarks, goodwill and certain identifiable
intangible assets. Trademarks and goodwill are being amortized over twenty to
forty years using the straight line method. Other intangible assets are being
amortized using the straight line method over three to five years. Amortization
of goodwill and other intangible assets charged against income during the four
month period ended May 3, 1997, the year ended December 28, 1996 and the ten
month period ended December 30, 1995 was $546,000, $1,111,000 and $294,000,
respectively.
OTHER ASSETS
Other assets consist of deferred loan acquisition costs, packaging design
costs and other miscellaneous assets. Deferred loan acquisition costs of the
senior subordinated note are being amortized using the interest method over the
term of the note. Deferred loan acquisition costs of the senior secured debt are
being amortized using the straight line method over the terms of the debt.
Amortization of deferred loan costs charged against income during the four month
period ended May 3,1997, the year ended December 28, 1996 and the ten month
period ended December 30, 1995 was $132,000, $259,000 and $67,000, respectively.
Amortization of packaging design costs charged against income during the four
month period ended May 3, 1997, the year ended December 28, 1996 and the ten
month period ended December 30, 1995 was $77,000, $205,000 and $158,000,
respectively.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For the purposes of financial reporting, the Company has determined that the
fair value of the financial instruments approximates book value at May 3, 1997,
December 28, 1996 and December 30, 1995, based on terms currently available to
the Company in financial markets for similar instruments.
DISCLOSURE ABOUT LONG-LIVED ASSET VALUATION
Statement of Financial Accounting Standards No. 121 (Statement 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. The Company has evaluated the carrying value for
evidence of impairment, and management believes at May 3, 1997, there were no
indications of impairment.
The Company 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
F-8
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
May 3, 1997, December 28, 1996 and December 30, 1995.
INCOME TAXES
The Company 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 the
carrying amounts and the tax basis of assets and liabilities.
NOTE 3--BUSINESS ACQUISITIONS
On February 28, 1995, LLC acquired substantially all of the assets and
liabilities of the pet food division of Martha White Foods for $21,000,000. The
acquisition has been accounted for by the purchase method of accounting. To
finance the acquisition, a senior debt revolving facility was established with a
bank from which $16,000,000 was drawn at closing. In addition, $6,000,000 of
limited liability company interests were issued.
On April 29, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of the Kozy Kitten-Registered Trademark- and
Tuffy's-Registered Trademark- dry pet food brands from Heinz Pet Products
("Heinz"), a division of Heinz, Inc. The purchase price was $52,500,000 which
included a contractually agreed upon amount of non-cash 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
$2,500,000. The acquired assets also included a manufacturing facility in
Perham, Minnesota. The acquisition was accounted for using the purchase method
of accounting.
In order to effect the acquisition and to refinance the $17,000,000 of
existing debt of LLC at April 29, 1996, the Company entered into a series of
financings, as further described in Note 7. The financings included (i) a net
equity capital contribution of $19,800,000 from Holdings (Note 12), (ii) senior
secured term debt of $43,000,000 and a senior secured revolving debt facility of
$9,000,000, and (iii) issuance of a senior subordinated note in the gross amount
of $8,500,000.
F-9
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
The purchase prices of the acquired business have been allocated to tangible
and intangible assets as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash paid to acquire businesses........................................ $ 52,500 $ 21,000
Other direct acquisition costs......................................... 4,257 1,486
--------- ---------
56,757 22,486
Cost assigned to net tangible assets................................... (19,282) (7,371)
--------- ---------
Cost assigned to intangible assets..................................... $ 37,475 $ 15,115
--------- ---------
--------- ---------
</TABLE>
A portion of other acquisition costs reflected in the 1995 acquisition, in
the amount of $321,000, was recorded in the year ended December 28, 1996.
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.
Following is a summarized statement of operations which reflects activity
for the Company subsequent to the acquisition of the Heinz pet food brands (in
thousands):
<TABLE>
<CAPTION>
FOUR MONTH EIGHT MONTH
PERIOD ENDED PERIOD ENDED
MAY 3, 1997 DECEMBER 30, 1996
(AUDITED) (UNAUDITED)
------------- -------------------
<S> <C> <C>
Net sales................................................ $ 35,567 $ 69,505
Gross profit............................................. 13,927 24,151
Selling, distribution and marketing expenses............. 8,777 13,903
Operating income......................................... 2,728 6,439
Income before taxes...................................... 932 2,839
Net income............................................... $ 499 $ 1,629
</TABLE>
Had the Heinz acquisition taken place at January 1, 1996, the unaudited pro
forma net sales and income before income taxes would have been $96,600,000 and
$5,762,000 for the year ended December 31, 1996.
F-10
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 4--INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28, DECEMBER 30,
1997 1996 1995
--------- -------------- --------------
<S> <C> <C> <C>
Raw materials...................................... $ 1,230 $ 1,253 $ 338
Packaging supplies................................. 2,267 2,339 850
Finished goods..................................... 1,601 1,549 532
--------- ------- -------
$ 5,098 $ 5,141 $ 1,720
--------- ------- -------
--------- ------- -------
</TABLE>
At May 3, 1997, the Company had commitments to purchase raw materials
aggregating approximately $5,228,000.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28, DECEMBER 30, DEPRECIABLE
1997 1996 1995 LIFE (YEARS)
--------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Land................................ $ 203 $ 203 $ 128 --
Machinery and equipment............. 17,043 17,043 4,572 15
Buildings and improvements.......... 6,266 6,266 1,681 30
Furniture and fixtures.............. 238 238 75 10
Transportation equipment............ 70 70 14 4
Construction-in-progress............ 399 11 --
--------- -------------- -------
24,219 23,831 6,470
Less accumulated depreciation....... (1,833) (1,347) (269)
--------- -------------- -------
$ 22,386 $ 22,484 $ 6,201
--------- -------------- -------
--------- -------------- -------
</TABLE>
NOTE 6--GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28, DECEMBER 30,
1997 1996 1995
--------- -------------- --------------
<S> <C> <C> <C>
Goodwill.......................................... $ 7,588 $ 7,588 $ 1,794
Trademarks........................................ 45,000 45,000 13,000
Other intangibles................................. 521 332 56
--------- -------------- --------------
53,109 52,920 14,850
Less accumulated amortization..................... (1,951) (1,405) (294)
--------- -------------- --------------
$ 51,158 $ 51,515 $ 14,556
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
F-11
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 7--LONG TERM DEBT
Long term debt includes the following (in thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28, DECEMBER 30,
1997 1996 1995
--------- -------------- --------------
<S> <C> <C> <C>
SENIOR SECURED DEBT
Senior secured revolving debt; weighted average interest rate of 8.39%
at December 30, 1995; principal due in annual installments through
December 31, 2001; floating interest rate at the prime rate plus .50%
or alternatively, the one, three or six month Eurodollar rate plus
2.50%, payable quarterly or at the termination of the Eurodollar
contract interest period. ............................................ $ -- $ -- $ 17,000
Senior secured tranche A-1 debt, interest is variable, (8.44% at May
3, 1997 and 8.29% at December 28, 1996), principal due in quarterly
installments through April 30, 2003; floating interest rate at the
prime rate plus 1.75%, or alternatively, the one, two, three or six
month Eurodollar rate plus 2.75%, payable quarterly or at the
termination of the Eurodollar contract interest period. .............. 24,650 27,550 --
Senior secured tranche A-2 debt, interest is variable, (8.44% at May
3, 1997 and 8.29% at December 28, 1996), principal due in quarterly
installments beginning January 31, 2000 through April 30, 2003;
floating interest at the prime plus 1.75%, or alternatively, the one,
two, three or six month Eurodollar rate plus 2.75%, payable quarterly
or at the termination of the Eurodollar contract interest period. .... 14,000 14,000 --
SENIOR SUBORDINATED NOTE
Senior subordinated note issued April 29, 1996; coupon interest rate
of 12.0% with interest payable quarterly; matures on April 29, 2004;
net of original issue discount of $920,000. .......................... 7,580 7,551 --
--------- -------------- --------------
46,230 49,101 17,000
Less: current portion............................................. (5,800) (5,800) (1,500)
--------- -------------- --------------
Long-term debt.................................................... $ 40,430 $ 43,301 $ 15,500
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
F-12
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 7--LONG TERM DEBT (CONTINUED)
Annual principal payments for the next five years and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
May-December 1997................................................. $ 2,900
1998.............................................................. 5,800
1999.............................................................. 5,800
2000.............................................................. 5,800
2001.............................................................. 5,800
Thereafter........................................................ 20,130
---------
$ 46,230
---------
---------
</TABLE>
As a result of the acquisition of certain brands from Heinz (Note 3), the
$17,000,000 of senior secured debt outstanding at December 30, 1995 was
refinanced. In connection with the retirement of debt, $604,000 of deferred loan
acquisition costs were written off as an extraordinary item in the statement of
operations for the year ended December 28, 1996. No income tax effect is
reflected, as the write-off was attributable to the members of LLC.
SENIOR SECURED DEBT
On April 29, 1996, the Company and Holdings entered into a Credit and
Guarantee Agreement ("the Agreement") with several banks for $43,000,000 of
senior secured term and revolving debt. 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 is guaranteed by Holdings and the Company. The
Agreement contains optional prepayment provisions with no premium. Substantially
all the assets of the Company are pledged as collateral for the debt.
The Agreement includes $9,000,000 of available borrowing under a revolving
debt facility, of which $2,500,000 is reserved to support the Trademark License
and Option Agreement (Note 3). The available borrowings are also subject to
limitations related to aggregate inventory and accounts receivable levels. At
May 3, 1997 and December 28, 1996, the Company had an outstanding balance of
$4,000,000 and $2,000,000, respectively, under the revolver. The unused
borrowing availability was $2,500,000 and $4,500,000, after adjustment for the
reserve related to the Trademark License and Option Agreement at May 3, 1997 and
December 28, 1996, respectively. The Agreement requires a commitment fee of
0.50% per annum payable quarterly on the unused portions of the revolving debt
facility.
The Agreement includes restrictive covenants which limit additional
borrowing, cash dividends, and capital expenditures while also requiring the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants at May 3, 1997.
SENIOR SUBORDINATED NOTE
On April 29, 1996, the Company issued a senior subordinated note (the
"Note") in the gross amount of $8,500,000 to a bank. The Note can 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.
F-13
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 7--LONG TERM DEBT (CONTINUED)
The Note includes a provision for warrants for 10% of the stock of Holdings
with a nominal exercise price. The warrants are subject to anti-dilution
covenants. The warrants expire the later of ten years from the date of issuance
or four years after the Note has been repaid. The warrants are freely assignable
and detachable. The holder of the Note also has 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 Note.
The value assigned to the warrants as of the issuance date was $1,000,000 and
was recorded at Holdings and contributed to the Company as paid in capital. The
capital contribution was recorded by the Company with a corresponding discount
to the value of the Note. The discount is being amortized over the eight year
life of the Note. Accumulated amortization as of May 3, 1997 and December 28,
1996 was $80,000 and $51,000, respectively.
The Note includes restrictive covenants which limit cash dividends, loans
and investments and capital expenditures while also requiring the Company to
maintain certain financial ratios. The Company was in compliance with these
covenants at May 3, 1997.
INTEREST RATE HEDGE AGREEMENT
The Company entered into an interest rate collar agreement (the "Collar") in
order to reduce the impact of changes in interest rates on its floating rate
term debt. The Collar consists of a floor rate and a cap rate. 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 applicable margin
rates are set quarterly; applicable margin rates for the periods presented are
2.50%. The cost of the Collar was $74,000, which is recorded in other assets in
the accompanying balance sheets, and is being amortized over the life of the
agreement. Amortization expense for the four month period and year ended May 3,
1997 and December 26, 1996 totaled $8,000 and $43,000, respectively. As of May
3, 1997, the Company had total variable interest rate debt outstanding in the
amount of $42,650,000 of which $25,000,000 was covered by the Collar. The
Company has exposure to credit loss in the event of non-performance by the other
parties to the agreement; however, the Company does not anticipate any credit
losses related to the Collar.
NOTE 8--INCOME TAXES
The Company files a federal income tax return on a consolidated basis with
Holdings. 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 rules
in each state. The Company's income tax provision was computed as if all income
tax returns were filed on a separate company basis.
LLC filed separate federal and state information returns only. LLC's taxable
income or loss was reportable by the individual members of the LLC. Deferred tax
assets and liabilities were calculated on the differences between the tax bases
of the assets and liabilities and the book bases at April 29, 1996, the date on
which LLC contributed its assets and liabilities to the Company through
Holdings. A $1,013,000 deferred income tax liability associated with such
differences was recognized by Holdings, and is reflected as a reduction in
retained earnings as of that date.
F-14
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 8--INCOME TAXES (CONTINUED)
The provision for income taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28,
1997 1996
----------- --------------
<S> <C> <C>
Current tax expense:
Federal.......................................................... $ 7 $ --
State............................................................ 17 --
----- -------
Total current provision.............................................. 24 --
----- -------
Deferred tax expense:
Federal.......................................................... 345 938
State............................................................ 64 271
----- -------
Total deferred provision............................................. 409 1,209
----- -------
Total provision for income taxes..................................... $ 433 $ 1,209
----- -------
----- -------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28,
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets--current -- 30
Deferred tax assets--noncurrent:
Loss carryforwards........................................ $ 578 $ 693
Other..................................................... 7 --
------- -------
Total deferred tax assets--noncurrent......................... 585 693
------- -------
Deferred tax liabilities--current (50) --
Deferred tax liabilities--noncurrent:
Goodwill.................................................. (2,891) (2,743)
Other..................................................... (275) (202)
------- -------
Total deferred tax liabilities--noncurrent.................... (3,166) (2,945)
------- -------
Net deferred tax liability.................................... $ (2,631) $ (2,222)
------- -------
------- -------
</TABLE>
The Company has not recorded a valuation allowance for its deferred tax
assets. Management believes that the Company's deferred tax assets will more
likely than not be realized.
At May 3, 1997, the Company has federal net operating loss carryforwards of
approximately $1,450,000. These losses can be used to offset future taxable
income through the year 2011. The Company is a loss corporation as defined in
section 382 of the Internal Revenue Code. Therefore, if certain substantial
changes of the Company's ownership should occur, there could be significant
annual limitations on the amount of net operating loss carryforwards which can
be utilized.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate of
34% to the Company's pretax income of $932,00 and
F-15
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 8--INCOME TAXES (CONTINUED)
$2,839,000 for the four month period ended May 3, 1997 and for the eight month
period ended December 28, 1996, respectively, as a result of the following
differences (in thousands):
<TABLE>
<CAPTION>
MAY 3, DECEMBER 28,
1997 1996
----------- --------------
<S> <C> <C>
Provision for income taxes at U.S. statutory rate.................... $ 317 $ 965
Increase in rate resulting from:
State tax provision, net of federal benefit...................... 75 179
Nondeductible expenses........................................... 41 65
----- -------
$ 433 $ 1,209
----- -------
----- -------
</TABLE>
NOTE 9--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 2000.
Future annual minimum lease payments under these leases are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- --------------------------------------------------------------------------------------
<S> <C>
1997 $ 319
1998 284
1999 241
2000 83
2001 --
Thereafter.................................................................... --
---------
$ 927
---------
---------
</TABLE>
Rent expense was $145,427, $248,000 and $159,000 for the four month period
ended May 3, 1997, for the year ended December 28, 1996 and for the ten month
period ended December 30, 1995, respectively.
NOTE 10--SAVINGS PLANS
The Company maintains a defined contribution plan for all employees with
eligibility conditioned upon full-time employment. The Company makes annual
contributions based on 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
expense for the four months ended May 3, 1997, for the year ended December 28,
1996 and the ten month period ended December 30, 1995 was $102,000, $206,000 and
$72,000, respectively. Eligible employees are also given the opportunity to make
their own contributions to the plan on a tax deferred basis.
F-16
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 11--RELATED PARTY TRANSACTIONS
The Company has a management services agreement with Dartford Partnership,
LLC ("Dartford") to provide consulting services and management oversight on
financial and operational matters. The Company paid fees totaling $167,000 and
$458,000 to Dartford, a member of LLC, during the four month period ended May 3,
1997 and the year ended December 28, 1996, respectively. The annual management
fee prior to the acquisition of the Heinz pet food brands and for the ten month
period ended December 30, 1995 was $250,000. The charges are included in general
and administrative expenses in the statements of operations.
In connection with the acquisition of the Heinz pet food brands, a fee in
the amount of $500,000 is payable to a stockholder of Holdings for services
rendered to facilitate the acquisition. The fee is due on April 29, 2001 or
earlier under certain conditions. The fee has been recorded on the accompanying
balance sheet as an other liability at a discounted value. The accretion of the
interest factor for the four month period ended May 3, 1997 and for the year
ended December 28, 1996 was $9,000 and $15,000, respectively.
The Company paid certain members of LLC fees totaling $525,000 during the
year ended December 28, 1996 and $420,000 during the ten month period ended
December 30, 1995. 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 12--STOCKHOLDER'S EQUITY
The authorized capital stock of the Company consists of 10,000 shares of
common stock, no par value, of which 100 shares were issued and outstanding and
held by Holdings as of May 3, 1997 and December 28, 1996. On April 29, 1996, LLC
contributed its members' capital of $5,891,000, which is net of syndication
costs of $109,000, to Holdings (Note 1). Holdings in turn contributed this
capital to the Company.
In conjunction with the acquisition of the Heinz pet food brands, Holdings
contributed additional capital to the Company in the amount of $19,790,000,
which is net of syndication costs of $210,000 (Note 3).
NOTE 13--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 would
not have a material adverse effect on the Company's financial condition or
results of operations.
NOTE 14--SUBSEQUENT EVENTS
On May 21, 1997, Windy Hill Pet Food Company, Inc., and its newly created
subsidiary, Windy Hill Pet Food Acquisition Co. ("WHAC"), merged with Hubbard
Milling Company ("Hubbard"). Hubbard is a privately held company which
manufactures and sells pet food and animal feed products across the United
States. Hubbard's corporate headquarters are in Mankato, Minnesota, and it
operates 26 manufacturing facilities. Hubbard was the surviving entity and
immediately changed its name to Windy
F-17
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF WINDY HILL PET FOOD HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 3, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
NOTE 14--SUBSEQUENT EVENTS (CONTINUED)
Hill Pet Food Company, Inc. (New Windy Hill). Upon consummation of the merger,
the company contributed its assets to New Windy Hill and changed its name to
WHPF, Inc.
The Company and WHAC acquired 100% of the stock of Hubbard for cash. The
acquisition of Hubbard will be accounted for by the purchase method of
accounting. The purchase price was $148,000,000 (including cash acquired of
$15,000,000) and is subject to adjustment based on conditions stated in the
merger agreement. The principal components of the preliminary purchase price
allocation are: working capital and other assets ($6 million), property, plant
and equipment ($49 million), assets held for sale ($50 million) and goodwill
($43 million). The acquisition, along with the refinancing of the Company's
current debt (Note 7), was financed with (i) a capital contribution of
$10,000,000 from Holdings, (ii) senior subordinated notes of $120,000,000, and
(iii) senior secured term debt facility of $20,000,000 and a senior secured
revolving debt facility of $45,000,000.
Immediately subsequent to the merger on May 21, 1997, New Windy Hill sold
the Animal Feed Division of Hubbard to Feed-Rite (US) Animal Feeds, Inc. The net
proceeds from the sale of $50,000,000 was used to retire $5,000,000 of the
senior secured term debt facility and prepay $45,000,000 of the senior secured
revolving debt facility.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hubbard Milling Company:
We have audited the accompanying balance sheets of Pet Food Division (a
division of Hubbard Milling Company) as of April 30, 1997, 1996 and 1995, and
the related statements of earnings and cash flows each of the years in the
three-year period ended April 30, 1997. 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 Pet Food Division (a
division of Hubbard Milling Company) at April 30, 1997, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
June 6, 1997
Minneapolis, Minnesota
F-19
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------
ASSETS 1997 1996 1995
- --------------------------------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Current assets:
Cash and short-term investments, at cost which approximates
market..................................................... $ 15,006,116 $ 13,846,705 $ 11,882,585
Trade receivables, less allowance for doubtful accounts of
$274,000, $258,500 and $224,221, respectively.............. 5,356,769 5,773,101 4,999,458
Inventories.................................................. 5,372,905 5,762,544 6,194,481
Prepaid expenses............................................. 59,764 102,155 177,467
--------------- -------------- --------------
Total current assets....................................... 25,795,554 25,484,505 23,253,991
--------------- -------------- --------------
Property, plant and equipment, at cost:
Land......................................................... 1,348,540 1,340,063 1,345,190
Buildings.................................................... 12,904,693 12,085,731 11,641,431
Equipment.................................................... 35,986,524 34,658,895 32,395,959
--------------- -------------- --------------
50,239,757 48,084,689 45,382,580
Less accumulated depreciation................................ (25,164,947) (21,575,369) (18,902,486)
--------------- -------------- --------------
25,074,810 26,509,320 26,480,094
Construction in progress..................................... 174,959 117,342 1,422,542
--------------- -------------- --------------
Net property, plant and equipment.......................... 25,249,769 26,626,662 27,902,636
--------------- -------------- --------------
Investments in and advances to joint ventures and
partnerships................................................. 4,190,414 4,756,956 2,342,012
Other assets................................................... 4,082,569 5,227,497 4,366,328
--------------- -------------- --------------
$ 59,318,306 $ 62,095,620 $ 57,864,967
--------------- -------------- --------------
--------------- -------------- --------------
<CAPTION>
LIABILITIES AND INVESTMENT AND ADVANCES BY PARENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses...................... $ 7,341,254 $ 8,686,131 $ 7,274,333
Associates' profit sharing trust, bonus and savings plan... 226,909 1,944,507 1,614,852
Income tax payable......................................... 262,430 223,144 25,862
--------------- -------------- --------------
Total current liabilities.............................. 7,830,593 10,853,782 8,915,047
Deferred credits............................................. 2,393,560 1,565,007 2,864,497
Accrued postretirement and pension expense................... 1,610,471 1,423,852 1,085,814
--------------- -------------- --------------
Total liabilities...................................... 11,834,624 13,842,641 12,865,358
--------------- -------------- --------------
Investment and advances by Parent............................ 47,483,682 48,252,979 44,999,609
Contingencies................................................
--------------- -------------- --------------
$ 59,318,306 $ 62,095,620 $ 57,864,967
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales................................................... 108,523,031 $ 102,268,658 $ 87,736,386
Cost of sales............................................... 87,767,776 80,658,065 67,052,037
---------------- ---------------- ----------------
Gross profit............................................ 20,755,255 21,610,593 20,684,349
---------------- ---------------- ----------------
Operating expenses:
Warehouse and delivery.................................... 188,327 200,119 245,690
Selling and advertising................................... 6,924,434 7,035,518 6,468,689
General and administrative................................ 6,098,926 5,917,179 5,743,380
---------------- ---------------- ----------------
Total operating expenses................................ 13,211,687 13,152,816 12,457,759
---------------- ---------------- ----------------
Operating income........................................ 7,543,568 8,457,777 8,226,590
---------------- ---------------- ----------------
Other income:
Interest.................................................. 867,180 774,582 789,672
Equity in earnings of joint ventures...................... 976,179 980,576 1,355,832
Other..................................................... 80,865 36,910 46,207
---------------- ---------------- ----------------
Total other income...................................... 1,924,224 1,792,068 2,191,711
---------------- ---------------- ----------------
Income before other expenses and income taxes........... 9,467,792 10,249,845 10,418,301
Other expenses.............................................. 10,778 26,456 41,124
---------------- ---------------- ----------------
Earnings before income taxes............................ 9,457,014 10,223,389 10,377,177
Income tax expense.......................................... 3,683,678 3,935,682 4,133,387
---------------- ---------------- ----------------
Net earnings............................................ 5,773,336 $ 6,287,707 $ 6,243,790
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------------- --------------- ---------------
Cash flows from operating activities:
Net earnings................................................ 5,773,336 $ 6,287,707 $ 6,243,790
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation.............................................. 3,755,973 3,490,004 3,060,395
Amortization of goodwill and other intangible assets...... 269,623 265,668 31,797
Deferred income taxes..................................... 1,112,636 (1,916,094) 503,931
Deferred compensation..................................... 180,147 152,519 724,434
(Gain) loss on disposal of property, plant and
equipment............................................... (1,017) 22,418 22,036
Change in assets and liabilities excluding effects of
acquisitions:
(Increase) decrease in trade receivables.................. 416,332 (773,643) (925,844)
Decrease in inventories................................... 389,639 431,937 662,535
Decrease in prepaid expenses.............................. 42,391 75,312 351,511
(Increase) decrease in other assets....................... 411,220 (662,752) (226,584)
Increase (decrease) in accounts payable and accrued
expenses................................................ (1,158,260) 1,749,836 1,490,813
Increase (decrease) in income taxes payable............... 39,286 197,282 (286,302)
Increase (decrease) in other current liabilities.......... (1,717,598) 329,655 423,347
--------------- --------------- ---------------
Total adjustments....................................... 3,740,372 3,362,142 5,832,069
--------------- --------------- ---------------
Net cash provided by operating activities............... 9,513,708 9,649,849 12,075,859
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment..... 27,599 946 167,663
Additions to property, plant and equipment.................. (2,405,805) (3,839,178) (2,607,308)
Payments and advances for acquisitions, joint ventures and
partnerships.............................................. 566,542 (813,160) (10,597,258)
--------------- --------------- ---------------
Net cash used in investing activities................... (1,811,664) (4,651,392) (13,036,903)
--------------- --------------- ---------------
Cash flows from financing activities:
Increase (decrease) in intercompany account................. (6,542,633) (3,034,337) 4,890,319
--------------- --------------- ---------------
Net cash provided by (used by) financing activities..... (6,542,633) (3,034,337) 4,890,319
--------------- --------------- ---------------
Net increase in cash and cash equivalents............... 1,159,411 1,964,120 3,929,275
Cash and cash equivalents at beginning of period.............. 13,846,705 11,882,585 7,953,310
--------------- --------------- ---------------
Cash and cash equivalents at end of period.................... $ 15,006,116 $ 13,846,705 $ 11,882,585
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION AND BASIS OF STATEMENT PRESENTATION
Pet Food Division ("Pet Food" or the "Company") is a division of Hubbard
Milling Company ("Hubbard"). Pet Food is a North American manufacturer and
marketer of private label dog and cat food.
The accompanying financial statements do not necessarily reflect the
financial position and results of operations of Pet Food in the future, or what
the financial position and results of operations would have been had it been an
independent entity during the periods presented.
RECEIVABLES
The Company provides an allowance for estimated collection losses. The
estimated losses are based on a review of the current status of existing
receivables in conjunction with historical collection experience.
INVENTORIES
Inventories are valued substantially at the lower of cost (first in, first
out) or market.
PROPERTY, DEPRECIATION AND AMORTIZATION
The cost of buildings and equipment is capitalized and charged to earnings
utilizing the straight-line method of depreciation over the estimated useful
lives of the related assets. The cost of significant improvements to properties
is similarly depreciated, while the cost of repairs and routine maintenance is
charged to earnings as incurred. Goodwill is generally amortized over a period
of 15 years. Other intangible assets are amortized over the life of the related
assets.
PENSION PLANS
The Company has defined benefit plans covering substantially all of its
associates. The benefits are based on years of service and associate
compensation. The Company's funding policy is to contribute annually the amount
recommended by its actuaries. Contributions are intended to provide not only for
benefits attributed to service to-date but also for those expected to be earned
in the future.
OTHER POSTRETIREMENT BENEFITS
The Company has adopted Statement of Financial Accounting Standards (SFAS)
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions."
SFAS 106 requires the accrual of postretirement benefits over the years the
associates provide service to the date of their first eligibility for such
benefits. The Company is fully reserved to cover anticipated costs.
INCOME TAXES
The Company follows the practice of recognizing the income tax effects of
transactions in the year in which they enter into the determination of
accounting income, regardless of when they are recognized for income tax
purposes. Accordingly, income tax expense includes charges and credits for
deferred income taxes and the accumulated deferred income taxes are recorded in
the accompanying balance sheets.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
109 "Accounting for Income Taxes." SFAS 109 requires that deferred tax
liabilities and assets be established based on the
F-23
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
difference between the financial and income tax carrying values of assets and
liabilities using existing tax rates.
STATEMENTS OF CASH FLOWS
Investments are valued at cost which approximates market. Short-term
investments with maturities of 60 days or less and investments which can be
redeemed immediately are considered cash equivalents.
CASH PAID FOR INCOME TAXES:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
$ 2,747,334 $ 7,933,594 $ 4,777,076
</TABLE>
The noncash investment activity during the fiscal year ended April 30, 1996
of $1,601,784 was for a transfer of property, plant & equipment to a joint
venture.
ACCOUNTING ESTIMATES
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 periods. Actual results could differ from those estimates.
F-24
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(2) SUPPLEMENTAL ASSET AND LIABILITY INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Inventories:
Raw materials.................................................... $ 1,015,665 $ 980,509 $ 1,090,260
Finished and in-process goods.................................... 2,005,206 2,205,168 2,070,094
Packaging and supplies........................................... 2,352,034 2,576,867 3,034,127
-------------- ------------- -------------
Total inventories.............................................. $ 5,372,905 $ 5,762,544 $ 6,194,481
-------------- ------------- -------------
-------------- ------------- -------------
Other assets:
Goodwill......................................................... $ 3,357,027 $ 3,615,663 $ 3,871,113
Other intangible assets.......................................... 104,158 114,574 123,696
Deferred taxes................................................... -- 464,085 --
Restricted insurance deposits.................................... 288,886 229,971 --
Other............................................................ 332,498 803,204 371,519
-------------- ------------- -------------
Total other assets............................................. $ 4,082,569 $ 5,227,497 $ 4,366,328
-------------- ------------- -------------
-------------- ------------- -------------
Accounts payable and accrued expenses:
Accounts payable................................................. $ 4,368,548 $ 5,496,369 $ 4,912,216
Accrued insurance................................................ 1,246,563 1,631,510 841,987
Accrued vacation................................................. 889,363 852,068 612,890
Other............................................................ 836,780 706,184 907,240
-------------- ------------- -------------
Total accounts payable and accrued expenses.................... $ 7,341,254 $ 8,686,131 $ 7,274,333
-------------- ------------- -------------
-------------- ------------- -------------
Deferred credits:
Deferred taxes................................................... $ 648,551 $ -- $ 1,452,009
Deferred compensation............................................ 1,745,009 1,565,007 1,412,488
-------------- ------------- -------------
Total deferred credits......................................... $ 2,393,560 $ 1,565,007 $ 2,864,497
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
(3) INVESTMENT AND ADVANCES BY PARENT
Investment and advances by parent represents Hubbard's ownership interest in
the recorded net assets of Pet Food. All cash transactions and intercompany
transactions flow through this account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period.................................. $ 48,252,979 $ 44,999,609 $ 33,865,500
Net earnings.................................................... 5,773,336 6,287,707 6,243,790
Net intercompany activity....................................... (6,542,633) (3,034,337) 4,890,319
-------------- -------------- --------------
Balance at end of period.................................... $ 47,483,682 $ 48,252,979 $ 44,999,609
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-25
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(4) RELATED PARTY TRANSACTIONS
Transactions with Hubbard include certain disbursements by Hubbard on behalf
of Pet Food and charges for certain operating expenses including insurance,
bonus, profit sharing, corporate aircraft, corporate accounting, information
services and office services.
Expenses are charged based upon the specific identification of applicable
costs, and in certain instances, a proportional cost allocation based on
proportional headcount. Management believes that the basis of all such charges
is reasonable. The amount of general and administrative expenses charged by
Hubbard to Pet Food is as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
$ 2,872,473 $ 2,201,489 $ 2,358,819
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Sales to and purchases from the Hubbard Animal Feed Division amounted to the
following:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 3,492,207 $ 3,631,688 $ 3,161,613
------------- ------------- -------------
------------- ------------- -------------
Purchases........................................................... $ 909,291 $ 601,549 $ 407,835
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(5) ACQUISITIONS
On April 3, 1995, the Company acquired substantially all the manufacturing
assets of Triumph Pet Industries, Inc. for cash. The facility manufactures and
markets pet biscuit products. The acquisition has been accounted for as a
purchase and included in the accompanying financial statements from the date of
purchase.
The components of cash used for the acquisition, as reflected in the
statement of cash flows, were as follows:
<TABLE>
<S> <C>
Fixed assets.................................................. $ 6,147,745
Inventory..................................................... 1,314,038
Prepaid expenses.............................................. 127,231
Goodwill...................................................... 3,680,000
Noncompete agreements......................................... 100,000
-----------
$11,369,014
-----------
</TABLE>
Assuming the acquisition had been made on May 1, 1994, pro forma net sales
in fiscal year 1995 and earnings of the Company would have been $98,549,343 and
$6,772,418, respectively.
(6) INCOME TAXES
The Company is part of a consolidated federal income tax return with Hubbard
and is allocated a federal tax provision as if the Company filed a separate
return. The state tax provision is allocated by applying a weighted-average
state tax rate to the Company's federal taxable income.
F-26
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(6) INCOME TAXES (CONTINUED)
Income tax expense is comprised of the following components:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current tax expense:
Federal........................................................... $ 2,268,403 $ 6,294,306 $ 3,435,412
State............................................................. 472,021 1,450,830 754,759
Deferred federal and state.......................................... 943,254 (3,809,454) (56,784)
------------- ------------- -------------
Total income tax expense........................................ $ 3,623,678 $ 3,935,682 $ 4,133,387
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Income tax expense on earnings before income taxes differs from the amounts
derived by applying the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------------------
1997 PERCENT 1996 PERCENT
------------- OF PRETAX ------------- OF PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Computed "expected" federal tax expense...................... $ 3,309,955 35.0% $ 3,475,952 34.0%
State income tax, net of federal income tax benefit.......... 406,652 4.3% 480,499 4.7%
Other, net................................................... (32,929) (0.3%) (20,769) (0.2%)
------------- ----------- ------------- -----------
Total income tax expense................................. $ 3,683,678 39.0% $ 3,935,682 38.5%
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30, 1995
--------------------------
<S> <C> <C> <C> <C>
PERCENT
OF PRETAX
AMOUNT EARNINGS
------------- -----------
Computed "expected" federal tax expense...................... $ 3,632,012 35.0%
State income tax, net of federal income tax benefit.......... 487,727 4.7%
Other, net................................................... 13,648 0.1%
------------- -----------
Total income tax expense................................. $ 4,133,387 39.8%
------------- -----------
------------- -----------
</TABLE>
F-27
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(6) INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities result from temporary differences
in the carrying values of assets and liabilities for financial statement and
income tax purposes. The deferred tax assets and liabilities relate to the
following asset and liability accounts:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets related to:
Associate and retiree benefit accruals............................ $ 1,696,798 $ 1,289,462 $ 1,183,228
Inventory......................................................... 538,599 616,518 727,405
Other accrued expenses............................................ 360,773 494,844 175,892
Allowance for doubtful accounts................................... 109,600 103,400 89,688
Other, net........................................................ 67,688 598,132 97,096
-------------- ------------- -------------
Total deferred tax assets....................................... $ 2,773,458 $ 3,102,356 $ 2,273,309
-------------- ------------- -------------
-------------- ------------- -------------
Deferred tax liabilities related to:
Property, plant and equipment................................... (2,340,332) (2,509,652) (2,822,069)
Other, net...................................................... (1,081,677) (128,619) (903,249)
-------------- ------------- -------------
Total deferred tax liabilities.................................. (3,422,009) (2,638,271) (3,725,318)
-------------- ------------- -------------
-------------- ------------- -------------
Net deferred tax assets (liabilities)........................... (648,551) $ 464,085 (1,452,009)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
SFAS 109 also requires consideration of a valuation allowance if it is "more
likely than not" that benefits of deferred tax assets will not be realized.
Management has determined, based on prior earnings history and anticipated
earnings, that no valuation allowance is necessary at April 30, 1997, 1996, or
1995.
F-28
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(7) ASSOCIATE BENEFIT PLANS
The Company has two noncontributory, defined benefit pension plans covering
hourly and salaried associates. Total pension expense for the plans for the
years ended April 30, 1997, 1996 and 1995 was $159,290, $211,914 and $193,546,
respectively.
The following tables set forth the funded status of the pension plans and
the amount recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
APRIL 30, 1997
-------------------------------------------
<S> <C> <C> <C>
HOURLY SALARIED
PLAN PLAN TOTAL
------------- ------------- -------------
Actuarial present value of benefit obligations:
Vested............................................................ $ 4,312,313 $ 3,502,569 $ 7,814,882
Nonvested......................................................... 243,606 200,333 443,939
------------- ------------- -------------
Accumulated benefit obligation.................................. 4,555,919 3,702,902 8,258,821
Effect of projected future salary increases......................... 24,928 656,313 681,241
------------- ------------- -------------
Projected benefit obligation.................................... 4,580,847 4,359,215 8,940,062
Market value of plan assets......................................... 4,327,689 4,848,895 9,176,584
------------- ------------- -------------
Plan assets in (deficit) excess of projected benefit
obligation.................................................... (253,158) 489,680 236,522
Unrecognized net transition asset................................... (229,225) (295,599) (524,824)
Unrecognized prior service cost..................................... 168,572 90,740 259,312
Unrecognized net loss (gain)........................................ 499,731 (421,792) 77,939
------------- ------------- -------------
Prepaid pension cost (pension liability)........................ $ 185,920 $ (136,971) $ 48,949
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
-------------------------------------------
<S> <C> <C> <C>
HOURLY SALARIED
PLAN PLAN TOTAL
------------- ------------- -------------
Actuarial present value of benefit obligations:
Vested............................................................ $ 3,800,501 $ 2,693,190 $ 6,493,691
Nonvested......................................................... 199,035 147,002 $ 346,037
------------- ------------- -------------
Accumulated benefit obligation.................................. 3,999,536 2,840,192 6,839,728
Effect of projected future salary increases......................... 42,593 538,180 580,773
------------- ------------- -------------
Projected benefit obligation.................................... 4,042,129 3,378,372 7,420,501
Market value of plan assets......................................... 3,938,066 3,638,533 7,576,599
------------- ------------- -------------
Plan assets in (deficit) excess of projected benefit
obligation.................................................... (104,063) 260,161 156,098
Unrecognized net transition asset................................... (260,765) (281,621) (542,386)
Unrecognized prior service cost..................................... 171,088 85,210 256,298
Unrecognized net loss (gain)........................................ 349,934 (192,126) 157,808
------------- ------------- -------------
Prepaid pension cost (pension liability)........................ $ 156,194 $ (128,376) $ 27,818
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-29
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(7) ASSOCIATE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
APRIL 30, 1995
-------------------------------------------
<S> <C> <C> <C>
HOURLY SALARIED
PLAN PLAN TOTAL
------------- ------------- -------------
Actuarial present value of benefit obligations:
Vested............................................................ $ 3,073,766 $ 2,020,267 $ 5,094,033
Nonvested......................................................... 191,633 129,893 $ 321,526
------------- ------------- -------------
Accumulated benefit obligation.................................. 3,265,399 2,150,160 5,415,559
Effect of projected future salary increases......................... 27,779 404,386 432,165
------------- ------------- -------------
Projected benefit obligation.................................... 3,293,178 2,554,546 5,847,724
Market value of plan assets......................................... 3,140,553 2,655,823 5,796,376
------------- ------------- -------------
Plan assets in (deficit) excess of projected benefit
obligation.................................................... (152,625) 101,277 (51,348)
Unrecognized net transition asset................................... (280,934) (283,665) (564,599)
Unrecognized prior service cost..................................... 127,238 84,928 212,166
Unrecognized net loss (gain)........................................ 409,465 (50,292) 359,173
------------- ------------- -------------
Prepaid pension cost (pension liability)........................ $ 103,144 $ (147,752) $ (44,608)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The net periodic pension cost components were as follows:
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Service cost--benefits earned during the year........................... $ 108,381 $ 156,150 $ 264,531
Interest cost on projected benefit obligation........................... 330,229 307,990 638,219
Gain on plan assets..................................................... 91,312 (175,232) (83,920)
Net amortization and other components................................... (449,558) (209,982) (659,540)
------------ ------------ ------------
Total pension expense for the year ended April 30, 1997............. $ 80,364 $ 78,926 $ 159,290
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned during the year.............................. $ 103,112 $ 131,845 $ 234,957
Interest cost on projected benefit obligation.............................. 290,642 237,334 527,976
Gain on plan assets........................................................ (368,043) (534,211) (902,254)
Net amortization and other components...................................... 70,016 239,891 309,907
----------- ----------- -----------
Total pension expense for the year ended April 30, 1996................ $ 95,727 $ 74,859 $ 170,586
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
Service cost--benefits earned during the year............................... $ 81,541 $ 97,412 $ 178,953
Interest cost on projected benefit obligation............................... 252,525 191,678 444,203
Loss on plan assets......................................................... 211,690 94,462 306,152
Net amortization and other components....................................... (456,371) (318,175) (774,546)
---------- ---------- -----------
Total pension expense for the year ended April 30, 1995................. $ 89,385 $ 65,377 $ 154,762
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-30
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(7) ASSOCIATE BENEFIT PLANS (CONTINUED)
The principal actuarial assumptions used were:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
-------------------------- --------------------------
<CAPTION>
HOURLY SALARIED HOURLY SALARIED
PLAN PLAN PLAN PLAN
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Discount rate at period end............................................... 7.5% 7.5% 7.5% 7.5%
Long-term rate of compensation increase................................... 5.0% 5.0% 5.0% 5.0%
Long-term rate of return on plan assets................................... 8.0% 8.0% 8.0% 8.0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED
APRIL 30, 1995
--------------------------
<CAPTION>
HOURLY SALARIED
PLAN PLAN
----------- -------------
<S> <C> <C>
Discount rate at period end................................................................... 8.0% 8.0%
Long-term rate of compensation increase....................................................... -- 5.0%
Long-term rate of return on plan assets....................................................... 8.0% 8.0%
</TABLE>
The Company sponsors a profit sharing plan covering all salaried associates
and office clerical associates, with the exception of commissioned associates.
Contributions and costs are determined by Hubbard's Board of Directors and are
allocated to each participating associate in the proportion of the individual
associate's salary to the aggregate salaries of all participating associates.
Contribution expense for the years ended April 30, 1997, 1996 and 1995 was
$198,500, $0 and $286,980, respectively. In addition, the Company sponsors a
non-contributory 401(k) plan for its associates.
(8) OTHER POSTRETIREMENT BENEFITS
The Company provides health care benefits for eligible retired associates
and their covered dependents and spouses. Associates must be 55 years old 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 in effect is not
funded.
Under SFAS 106, postretirement benefit expense included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
--------------------------------------
<S> <C> <C> <C>
1997 1996 1995
-------------- --------- -----------
Current service cost..................................................... 26,510 $ 21,947 $ 38,400
Interest on accumulated benefit obligation............................... 104,661 99,946 84,371
Amortization of unrecognized net gain.................................... (70,092) (33,269) --
-------------- --------- -----------
Total postretirement benefits expense................................ 61,079 $ 88,624 $ 122,771
-------------- --------- -----------
-------------- --------- -----------
</TABLE>
F-31
<PAGE>
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1997, 1996 AND 1995
(8) OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The accumulated postretirement obligation included the following components:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -------------
Eligible active plan participants................................... 1,215,459 $ 968,118 $ 964,542
Retirees............................................................ 79,569 46,491 53,450
Other active plan participants...................................... 161,007 130,450 108,490
------------- ------------- -------------
Accumulated postretirement benefit obligation................... 1,456,035 $ 1,145,059 $ 1,126,482
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 8%. The assumed health care cost trend rate used to measure the
obligation was 8% for 1997, and 8% thereafter. A one-percentage point increase
in the assumed health care cost trend rate would have increased the expense for
the year ended April 30, 1997 by $20,413 and the accumulated postretirement
obligation by $207,732.
(9) CONTINGENCIES
The Company is a party to several lawsuits and claims arising out of the
conduct of its business. While the ultimate results of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not expect that these matters will have a material adverse effect on the
financial position or results of operations of the Company.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Star-Kist Foods, Inc.
Newport, Kentucky:
We have audited the statement of revenue and certain expenses of Certain
Acquired Product Lines, as described in Note 1, of the Heinz Pet Products
Division of Star-Kist Foods, Inc. (the "Company"), for the years ended May 1,
1996 and May 3, 1995. This financial statement is the responsibility of
Star-Kist Foods, Inc. management. Our responsibility is to express an opinion on
this special purpose statement 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 the significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 1 to the statement, the accompanying statement presents
a carved-out portion of the results of operations of the Heinz Pet Products
Division of Star-Kist Foods, Inc.. The operations covered by the statement of
revenue and certain expenses referred to above have no separate legal status or
existence. The accompanying statement was prepared, as described in Note 1, for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in a registration of securities in a
Regulation 144A filing for subordinated debt, and subsequent inclusion in a
Registration Statement on Form S-4, of Windy Hill Pet Food Company, Inc. Various
costs incurred by the Company were allocated to the Acquired Product Lines based
on estimates, as described in the notes to the statement. Accordingly, the
resulting statement is not necessarily indicative of the costs and expenses that
would have resulted if the Acquired Product Lines had been operated as a
separate entity.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses, as described in Note
1, of the Acquired Product Lines for each of the years ended May 1, 1996 and May
3, 1995, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
May 1, 1997
F-33
<PAGE>
HEINZ PET PRODUCTS
DIVISION OF STAR-KIST FOODS, INC.
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF CERTAIN ACQUIRED PRODUCT LINES
FOR THE YEARS ENDED MAY 1, 1996 AND MAY 3, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 1, MAY 3,
1996 1995
--------- ---------
<S> <C> <C>
Net sales.................................................................................. $ 35,864 $ 37,217
Cost of product sold....................................................................... 24,523 20,692
--------- ---------
Gross profit............................................................................. 11,341 16,525
--------- ---------
Selling and distribution expenses.......................................................... 3,872 3,849
Marketing expenses......................................................................... 938 967
General and administrative expenses........................................................ 1,839 2,297
--------- ---------
6,649 7,113
--------- ---------
Revenue in excess of certain expenses.................................................... $ 4,692 $ 9,412
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-34
<PAGE>
HEINZ PET PRODUCTS
DIVISION OF STAR-KIST FOODS, INC.
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
OF CERTAIN ACQUIRED PRODUCT LINES
1. BASIS OF PRESENTATION:
In April 1996, Windy Hill Pet Food Company, Inc. ("Windy Hill") acquired the
Kozy Kitten Dry, Kozy Kitten Moist, Tuffy's, and Vet's Dry pet food product
lines (the "Acquired Product Lines") from Star-Kist Foods, Inc. (the "Company").
The accompanying statement of revenues and certain expenses of the Acquired
Product Lines represent a carved-out portion of the results of operations of the
Heinz Pet Products Division of the Company. These revenues and certain expenses
may not necessarily be indicative of the results of operations of the Acquired
Products Lines had they existed on a stand-alone basis. Certain expenses are the
result of the allocation of total expenses incurred by the Company and certain
expenses of its Parent Company, H.J. Heinz Company, to the Acquired Product
Lines. All of the allocations and estimates in the financial statements, as
described in Note 2, are based on assumptions that Company management believes
are reasonable.
The accompanying statement of revenue and certain expenses has been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments and
eliminations, consisting only of normal recurring adjustments, necessary to
present fairly the statement of revenue and certain expenses of the Acquired
Product Lines for the year ended May 1, 1996 and May 3, 1995, have been
included.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. COST OF PRODUCT SOLD: Cost of product sold is comprised of standard costs
and also includes amounts for purchase price variances, yield variances, labor
variances, and fixed and variable overhead variances. The fixed and variable
manufacturing variances are allocated to the product lines based on the
percentage of their volume of production to total production. This percentage is
determined by dividing production of product line goods by total production on a
plant by plant basis.
Cost of product sold in 1996, as a percentage of sales, is greater than in
1995 principally due to the Company's transfer of the production of Kozy Kitten
Dry product from one of its plants to another plant, which had higher costs of
production.
B. SELLING AND DISTRIBUTION EXPENSES: Selling and distribution expenses
include storage, and certain brokerage costs, which are allocated based on the
percentage of net sales to total sales. Also included in selling and
distribution expenses are delivery costs, which are allocated based on the
percentage of forecasted sales to total sales. These percentages are determined
by dividing product line net or forecasted sales by total net or forecasted
sales.
C. GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
include costs such as incentive bonuses, non-direct salary and related benefit
expenses, and depreciation. These costs are allocated to product lines based on
their percentage of net sales to total sales. This percentage is determined by
dividing product line net sales by total net sales.
D. INTEREST COSTS: The accompanying statement of revenue and certain
expenses does not include an allocation of interest charges. An intercompany
interest charge has not historically been provided for product lines, due to the
inherent difficulty in distinguishing the specific components of the Company's
and its Parent Company's capital structure attributable to product lines.
E. USE OF ESTIMATES: 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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-35
<PAGE>
ANNEX A TO PROSPECTUS
FORM OF
TRANSFEREE LETTER OF REPRESENTATION
Windy Hill Pet Food Company, Inc.
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Dear Sirs:
This certificate is delivered to request a transfer of $ principal
amount of the 9 3/4% Senior Subordinated Notes due 2007 (the "Notes") of Windy
Hill Pet Food Company, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
Taxpayer ID Number: ____________________________________________________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as amended
(the "Securities Act"), purchasing for our own account or for the account of
such an institutional "accredited investor" at least $250,000 principal
amount of the Notes, and we are acquiring the Notes not with a view to, or
for offer or sale in connection with, any distribution in violation of the
Securities Act. We have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Notes and invest in or purchase securities similar to the
Notes in the normal course of our business. We, and any accounts for which
we are acting, are each able to bear the economic risk of our or its
investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on
behalf of any investor account for which we are purchasing Notes to offer,
sell or otherwise transfer such Notes prior to the date which is two years
after the later of the date of original issue and the last date on which the
Company or any affiliate of the Company was the owner of such Notes (or any
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to
the Company, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) in a transaction complying
with the requirements of Rule 144A under the Securities Act, to a person we
reasonably believe is a qualified institutional buyer under Rule 144A (a
"QIB") that purchases for its own account or for the account of a QIB and to
whom notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales that occur outside the United States
within the meaning of Regulation S under the Securities Act, (e) to an
institutional "accredited investor" (within the meaning of Rule 501(a)(1),
(2), (3) and (7) under the Securities Act) that is purchasing for its own
account or for the account of such an institutional "accredited investor,"
in each case in a minimum principal amount of Notes of $250,000 or (f)
pursuant to any other available exemption from the registration requirements
of the Securities
A-1
<PAGE>
Act, subject in each of the foregoing cases to any requirement of law that
the disposition of our property or the property of such investor account or
accounts be at all times within our or their control and in compliance with
any applicable state securities laws. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. If any
resale or other transfer of the Notes is proposed to be made pursuant to
clause (e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the
form of this letter to the Company and the Trustee, which shall provide,
among other things, that the transferee is an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) and (7) under the
Securities Act and that is acquiring such Notes for investment purposes and
not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Company and the Trustee reserve the right prior to the
offer, sale or other transfer prior to the Resale Termination Date of the
Notes pursuant to clause (d), (e) or (f) above to require the delivery of an
opinion of counsel, certifications and/or other information satisfactory to
the Company and the Trustee.
TRANSFEREE: __________________________
By: __________________________________
A-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- -------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 13
The Transaction....................... 18
Use of Proceeds....................... 21
Capitalization........................ 21
The Exchange Offer.................... 22
Selected Historical Financial Data.... 30
Pro Forma Financial Information....... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 40
Business.............................. 45
Management............................ 52
Security Ownership.................... 56
Certain Related Transactions.......... 58
Description of Senior Bank
Facilities.......................... 60
Description of Notes.................. 62
Exchange and Registration Rights
Agreement........................... 87
Certain United States Federal Income
Tax Considerations.................. 89
Plan of Distribution.................. 89
Legal Matters......................... 90
Experts............................... 90
Index to Financial Statements......... F-1
Annex A -- Form of Transferee Letter
of Representation................... A-1
</TABLE>
PROSPECTUS
EXCHANGE OFFER FOR ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES
DUE 2007 OF
WINDY HILL PET FOOD
COMPANY, INC.
[LOGO]
SEPTEMBER 11, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Unless prohibited or limited in a corporation's articles or bylaws,
Section302A.521 of the Minnesota Business Corporation Act ("MBCA") requires
indemnification of a person made or threatened to be made a party to a
proceeding by reason of the former or present official capacity of such person,
against judgments, penalties, fines, settlements and reasonable expenses
(including attorney's fees and disbursements) incurred by such person in
connection with a threatened or pending proceeding if the person (1) has not
been indemnified by another organization or employee benefit plan for the same
judgments, penalties or fines; (2) acted in good faith; (3) received no improper
personal benefit and statutory procedure has been followed in the case of any
conflict or interest by a director; (4) in the case of a criminal proceeding,
and no reasonable cause to believe the conduct was unlawful; and (5) reasonably
believed the conduct to be in the best interests of the corporation or, in the
case of conduct occurring in such person's official capacity for another
organization, reasonably believed the conduct was not opposed to the best
interests of the corporation. Section 302A.521, subd. 3, requires payment by the
Company of reasonable expenses in advance of final disposition of the proceeding
in certain instances.
Article VIII of the Company's Bylaws provides that the Company shall
indemnify any director, officer or employee of the Company made or threatened to
be made a party to a proceeding by reason of the former or present official
capacity of the person in accordance with the MBCA.
As permitted by Section 302A.251, subd. 4, of the MBCA, Article IX of the
Articles of Incorporation of the Company (the "Articles") eliminates the
liability of the directors of the Company for monetary damages arising from
breach of fiduciary duties as a member of the Company's Board of Directors
except: (1) for any breach of the director's duty of loyalty to the corporation
or its shareholders; (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) under Section 302A.559
or 80A.23; (4) for any transaction from which the director derived an improper
personal benefit; or (5) for any act or omission occurring prior to the date
when the provision in the Articles became effective.
The foregoing statements are subject to the detailed provisions of Section
302A.52 of the MBCA, Article VII of the Bylaws of the Company and Article IX of
the Articles, as applicable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Merger Agreement, dated as of March 21, 1997, by and among Hubbard Milling Company, Windy Hill Pet Food
Co., Inc. and Windy Hill Pet Food Acquisition Co. (the "Merger Agreement")**
2.2 Amendment to Merger Agreement, dated as of March 31, 1997**
2.3 Articles of Merger, dated May 21, 1997, of Windy Hill Pet Food Acquisition Co. into Hubbard Milling
Company**
2.4 Stock Purchase Agreement, dated as of April 22, 1997, by and between Windy Hill Pet Food Company, Inc.
and the shareholders of Armour Corporation**
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.6 Asset Purchase Agreement, dated as of April 25, 1997, by and among Windy Hill Pet Food Company, Inc.,
Windy Hill Pet Food Acquisition Co. and Feed-Rite (US) Animal Feeds, Inc.**
2.7 Asset Purchase Agreement, dated as of April 17, 1996, among Heinz Pet Products Company, a division of
Star-Kist Foods, Inc., H.J. Heinz Company, Perk Foods Co., Incorporated, ProMark International, Inc.,
Windy Hill Pet Food Holdings, Inc. and Windy Hill Pet Food Company, Inc.**
2.8 Amendment to Asset Purchase Agreement, dated as of April 26, 1996, among Heinz Pet Products Company, a
Star-Kist Foods, Inc., Perk Foods Co., Incorporated, ProMark International, Inc., H.J. Heinz Company,
Windy Hill Pet Food Holdings, Inc. and Windy Hill Pet Food Company, Inc.**
3.1 Certificate of Amended and Restated Articles of Incorporation of Windy Hill Pet Food Company, Inc.**
3.2 By-Laws of Windy Hill Pet Food Company, Inc.**
4.1 Indenture, dated as of May 21, 1997, between Windy Hill Pet Food Company, Inc. and Wilmington Trust
Company**
4.2 Form of Exchange Note (contained in Exhibit 4.1 hereto)**
4.3 Registration Rights Agreement, dated May 21, 1997, between Windy Hill Pet Food Company, Inc., Chase
Securities Inc. and Credit Suisse First Boston Corporation**
4.4 Global Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to the Depository Trust
Company and registered in the name of Cede & Co. in the principal amount of $120,000,000**
5.1 Opinion of Richards & O'Neil, LLP regarding legality of New Notes
8.1 Opinion of Richards & O'Neil, LLP regarding certain tax matters
10.1 Distribution Agreement, dated May 21, 1997, by and between Windy Hill Pet Food Company, Inc. and
Feed-Rite (US) Animal Feeds, Inc.**
10.2 License Agreement, dated May 21, 1997, by and between Feed-Rite (US) Animal Feeds, Inc. and Windy Hill
Pet Food Company, Inc.**
10.3 Guaranty Agreement, dated April 25, 1997, among Feed-Rite Ltd., Windy Hill Pet Food Acquisition Co. and
Windy Hill Pet Food Company, Inc.**
10.4 Memorandum of Agreement, dated as of May 21, 1997, among Windy Hill Pet Food Company, Inc., Windy Hill
Pet Food Acquisition Co. and Feed-Rite (US) Animal Feeds, Inc.**
10.5 Assignment of Trademarks, dated May 21, 1997, by Windy Hill Pet Food Company, Inc. to Feed-Rite (US)
Animal Feeds, Inc.**
10.6 Employee Benefits Agreement, dated May 21, 1997, by and between Windy Hill Pet Food Company, Inc. and
Feed-Rite (US) Animal Feeds, Inc.**
10.7 Disbursing Agreement, dated as of May 21, 1997, by and among Hubbard Milling Company, Richard P. Confer,
Windy Hill Pet Food Company, Inc. and Norwest Bank of Minnesota, N.A.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.8 Term Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to BankBoston, N.A. in the
principal amount of $1,505,882.35**
10.9 Term Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to SouthTrust Bank of
Alabama, National Association in the principal amount of $1,505,882.35**
10.10 Term Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to First Source Financial LLP
in the principal amount of $1,505,882.35**
10.11 Term Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to NationsBank of Tennessee,
N.A. in the principal amount of $1,505,882.35**
10.12 Acquisition Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to BankBoston, N.A. in
the principal amount of $3,388,235.30**
10.13 Acquisition Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to First Source
Financial LLP in the principal amount of $3,388,235.30**
10.14 Acquisition Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to SouthTrust Bank of
Alabama, National Association in the principal amount of $3,388,235.30**
10.15 Acquisition Note, dated May 21, 1997, issued by Windy Hill Pet Food Company, Inc. to NationsBank of
Tennessee, N.A. in the principal amount of $3,388,235.30**
10.16 Credit Agreement, dated as of May 21, 1997, among Windy Hill Pet Food Acquisition Co., the several banks
and other financial institutions from time to time parties thereto, Credit Suisse First Boston, as
Administrative Agent, and The Chase Manhattan Bank, as Documentation Agent**
10.17 Guarantee and Collateral Agreement, dated as of May 21, 1997, made by Windy Hill Pet Food Holdings,
Inc., WHPF Inc., Armour Corporation, Windy Hill Pet Food Company, Inc., each of the signatories thereto
in favor of Credit Suisse First Boston, as Administrative Agent for the banks and other financial
institutions, and The Chase Manhattan Bank, as Documentation Agent**
10.18 Consent and Release of Lenders, dated May 19, 1997, related to the credit facility, dated as of April
29, 1996, by and among Windy Hill Pet Food Company, Inc., Windy Hill Pet Food Holdings, Inc. and their
subsidiaries, NationsBank of Tennessee, N.A. as Administrative Agent and PNC Bank, National Association,
as Documentation Agent**
10.19 Consent and Release of PNC Capital Corp., dated May 20, 1997, related to the Note Purchase Agreement
dated as of April 29, 1996 between Windy Hill Pet Food Company, Inc. and PNC Capital Corp.**
10.20 Statement of Understanding regarding Pet Food Joint Venture, dated June 1, 1984, between The Andersons
and Hubbard Milling Company**
10.21 Supplement No. 1 to Statement of Understanding regarding Pet Food Joint Venture, dated as of May 31,
1989, between The Andersons and Hubbard Milling Company**
10.22 Supplement No. 2 to Statement of Understanding regarding Pet Food Joint Venture, dated as of November
27, 1990, between The Andersons and Hubbard Milling Company**
10.23 Supplement No. 3 to Statement of Understanding regarding Pet Food Joint Venture, dated as of November
18, 1992, between The Andersons and Hubbard Milling Company**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.24 Supplement No. 4 to Statement of Understanding regarding Pet Food Joint Venture, dated as of November 9,
1994, between The Andersons and Hubbard Milling Company**
10.25 Supplement No. 5 to Statement of Understanding regarding Pet Food Joint Venture, dated as of January 16,
1997, between The Andersons and Hubbard Milling Company**
10.26 Statement of Understanding regarding Pet Food Joint Venture, dated as of January 28, 1988, between
Merrick Pet Foods and Hubbard Milling Company**
10.27 Joint Venture Agreement, dated as of January 9, 1992, between MFA, Inc. and Hubbard Milling Company**
10.28 Joint Venture Agreement, dated as of July 28, 1993, between J.R. Simplot Company and Hubbard Milling
Company**
10.29 Joint Venture Agreement, dated as of April 7, 1995, between Flint River Mills, Inc. and Hubbard Milling
Company**
10.30 Statement of Understanding regarding Pet Food Ventures, dated as of August 10, 1993, between Phelps
Industries, Inc. and Hubbard Milling Company**
10.31 Purchase Agreement, dated May 16, 1997, among the Windy Hill Pet Food Acquisition Co., Chase Securities
Inc., and Credit Suisse First Boston Corporation**
10.32 Trademark License and Option Agreement, dated April 29, 1996, among Windy Hill Pet Food Company, Inc.,
Promark International, Inc., Heinz Pet Products Company, a division of Star-Kist Foods, Inc. and H.J.
Heinz Company**
10.33 Trademark License Agreement, dated April 29, 1996, between Windy Hill Pet Food Company, Inc. and Heinz
Pet Products Company, a division of Star-Kist Foods, Inc.**
10.34 License Agreement, dated April 29,1996, between Park Foods Co., Incorporated and Windy Hill Pet Food
Company, Inc.**
10.35 Transition Storage and Handling Agreement, dated as of April 29, 1996, between Heinz Pet Products
Company, a division of Star-Kist Foods, Inc. and Windy Hill Pet Food Company, Inc.**
10.36 Transition Services Agreement, dated as of April 29, 1996, among Heinz Pet Products Company, a division
of Star-Kist Foods, Inc., H.J. Heinz Company of Canada, Ltd., and Windy Hill Pet Food Company, Inc.**
10.37 Lease Agreement, dated as of May 16, 1997, between W. Fred Williams, Trustee for the Benefit of
Highwoods/Tennessee Holdings, L.P., as Lessor and Windy Hill Pet Food Company, Inc., as Lessee**
10.38 Lease Agreement, dated as of February 25, 1995, between Eastpark, L.P., as Lessor and Windy Hill Pet
Food Company, Inc. as Successor in interest to P.F.B. Partnership, as Lessee**
10.39 Software License Agreement, dated April 29, 1996, between Agri-Data System, Inc. and Windy Hill Pet Food
Company, Inc.**
10.40 Employment Agreement, dated April 29, 1996, by and between Windy Hill Pet Food Company, Inc. and Robert
V. Dale**
10.41 Employment Agreement, dated April 29, 1996, by and between Windy HIll Pet Food Company, Inc. and Donald
L. Gadd**
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.42 Employment Agreement, dated April 29, 1996, by and between Windy Hill Pet Food Company, Inc. and F.
Donald Cowan, Jr.**
10.43 Employment Agreement, dated April 29, 1996, by and between Windy Hill Pet Food Company, Inc. and Vaughn
R. Oakley**
10.44 Amended and Restated Management Services Agreement, dated as of May 2, 1997 between Windy Hill Pet Food
Company, Inc. and Dartford Partnership L.L.C.**
10.45 Letter Agreement, dated April 29, 1996, between Windy Hill Pet Food Company, Inc. and Bruckmann, Rosser,
Sherrill & Co., Inc.**
10.46 Letter Agreement, dated May 21, 1997, among WHPF, Inc., Windy Hill Pet Food Company, Inc. and Bruckmann,
Rosser, Sherrill & Co., Inc.**
12.1 Statement of Computation of Ratios**
23.1 Consent of KPMG Peat Marwick L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Richards & O'Neil, LLP (included in Exhibit 5.1 and Exhibit 8.1 hereto)
25.1 Statement of Eligibility on Form T-1 of Wilmington Trust Company**
99.1 Exchange Agent Agreement, dated September 8, 1997, between Windy Hill Pet Food Company, Inc. and
Wilmington Trust Company
99.2 Form of Letter of Transmittal**
99.3 Form of Notice of Guarantee Delivery**
</TABLE>
- ------------------------
** Previously filed with the Commission
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(i) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(ii) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration
II-5
<PAGE>
ITEM 22. UNDERTAKINGS (CONTINUED)
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offer.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Brentwood, State of Tennessee, on September 9, 1997.
WINDY HILL PET FOOD COMPANY, INC.
By: /s/ ROBERT V. DALE
-----------------------------------------
Name: Robert V. Dale
Title: PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROBERT V. DALE
- ------------------------------ President and Director September 9 1997
Robert V. Dale
Executive Vice President
/s/ RAY CHUNG (Principal financial and
- ------------------------------ accounting officer) and September 9, 1997
Ray Chung Director
/s/ IAN R. WILSON
- ------------------------------ Chairman of the Board September 9, 1997
Ian R. Wilson
/s/ STEPHEN C. SHERRILL
- ------------------------------ Director September 9, 1997
Stephen C. Sherrill
/s/ STEPHEN F. EDWARDS
- ------------------------------ Director September 9, 1997
Stephen F. Edwards
/s/ KASE LAWAL
- ------------------------------ Director September 9, 1997
Kase Lawal
/s/ DONALD WELGE
- ------------------------------ Director September 9, 1997
Donald Welge
<PAGE>
[LETTERHEAD OF RICHARDS & O'NEIL, LLP]
(212) 207-1200
September 9, 1997
Windy Hill Pet Food Company, Inc.
Two Maryland Farms
Brentwood, Tennessee 37027
Dear Sir or Madam:
We have acted as counsel for Windy Hill Pet Food Company, Inc., a
Minnesota corporation (the "Company"), in connection with the proposed
exchange by the Company of an aggregate principal amount of up to
$120,000,000 of its 9 3/4% Senior Subordinated Notes due 2007 (the "OLD
NOTES") for a like principal amount of its 9 3/4% Senior Subordinated Notes
due 2007 (the "New Notes"). The New Notes are to be issued pursuant to an
Indenture, dated as of May 21, 1997 (the "Indenture"), between the Company
and Wilmington Trust Company, as trustee (the "Trustee").
We have examined, among other things, the Certificate of
Incorporation, as amended, of the Company; the By-Laws of the Company; the
Indenture; the proposed form of New Note; and the Registration Statement on
Form S-4 (File No. 33-30261) filed by the Company with the Securities and
Exchange Commission (the "SEC") on June 27, 1997, as amended by Amendment No.
1 to the Registration Statement on Form S-4 filed with the SEC on August 27,
1997 and Amendment No. 2 to the Registration Statement on Form S-4 that the
Company has filed with the Commission on the date hereof, with respect to the
registration of the offer to exchange the Old Notes for the New Notes (the
Registration Statement, as amended at the time it became effective, being
referred to herein as the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act").
<PAGE>
Windy Hill Pet Food
Company, Inc.
September 9, 1997
Page 2
In rendering the opinion below, we have assumed, without any
independent investigation or verification of any kind: (i) the genuineness of
all signatures on, and the authenticity and completeness of, all documents
submitted to us as originals and the conformity to original documents and
completeness of all documents submitted to us as certified, conformed, or
photostatic copies; (ii) that the Indenture has been duly authorized,
executed, and delivered by the Trustee; and (iii) that the New Notes will be
duly authenticated by the Trustee.
As to various questions of fact material to our opinion, we have
relied upon the representations and warranties made in the Indenture and the
other documents executed and delivered in connection therewith and upon
certificates and other documents of officers of the Company and of public
officials and have made such other inquiries as we have deemed necessary.
We do not purport to be experts in, or to express any opinion
herein concerning, the law of any jurisdiction other than the State of New
York and the United States of America. We express no opinion as to the law of
the State of New York applicable to securities or "blue sky" matters.
In rendering the opinion set forth below, we have, with your
permission, with respect to the due authorization of the New Notes
by the Company under Minnesota law, relied exclusively upon, without
independent investigation or verification of any kind, the opinion of Messrs.
Leonard, Street and Deinard, local counsel to the Company, attached hereto as
Exhibit A and our opinion in such paragraph is subject to the limitations and
exceptions set forth therein.
Based on and subject to the foregoing, and having regard for such
legal considerations as we have deemed relevant, we are of the opinion that
the New Notes have been duly authorized for issuance and, subject to the
Registration Statement becoming effective under the Securities Act and to
compliance with any applicable state securities laws, when executed, issued,
delivered, and exchanged in accordance with the provisions of the Indenture
(including the provisions thereof relating to authentication of the New Notes
by the Trustee), will be entitled to the benefits of the Indenture and will
be valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the binding nature and
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent transfer and
<PAGE>
Windy Hill Pet Food
Company, Inc.
September 9, 1997
Page 3
conveyance laws and other similar laws of general application relating to or
affecting the rights and remedies of creditors generally or by general
principles of equity, whether applied by a court of law or equity.
The opinions set forth above are subject to the following
additional limitations, qualifications and exceptions:
1. Certain remedial and exculpatory provisions contained in the
Indenture and the New Notes may be unenforceable (including (i) the right to
indemnification or contribution in the context of a violation of federal
securities laws, and (ii) under certain circumstances, provisions declaring
that the failure to exercise or the delay in exercising rights or remedies
will not operate as a waiver of any such right or remedy); and
2. No opinion is expressed as to the enforceability of provisions
which purport to establish consent to the subject matter jurisdiction of any
court.
The opinions set forth herein are as of the date of this letter and
we render no opinion as to the effect of any matter which may occur
subsequent to the date hereof.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to our Firm under "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Richards & O'Neil, LLP
<PAGE>
EXHIBIT A
[LETTERHEAD OF LEONARD, STREET AND DEINARD]
September 9, 1997
Windy Hill Pet Food Company, Inc.
Two Maryland Farms
Brentwood, Tennessee 37027
Laidies and Gentlemen:
We have acted as special Minnesota counsel to Windy Hill Pet Food
Company, Inc., a Minnesota corporation (the "Company), in connection with the
proposed exchange by the Company of an aggregate pricipal amount of up to
$120,000,000 of its 9 3/4% Senior Subordinated Notes due 2007 for a like
principal amount of its 9 3/4% Senior Subordinated Notes due 2007 (the "New
Notes"), pursuant to an S-4 Registration Statement (the "Registration
Statement"). The New Notes are to be issued pursuant to an Indenture dated
as of May 21, 1997 between the Company and Wilmington Trust Company, as
trustee.
As to various matters of fact material to this opinion, we have relied
upon factual representations made by the Company and upon certificates of
officers of the Company or of public officials. We have also examined the
originals or copies of such corporate documents and records and other
certificates, opinions and instruments and have made such other investigation
as we have deemed relevant or necessary as a basis for the opinions
hereinafter expressed.
We have examined the Registration Statement of the Company on Form S-4
and the exhibits thereto, as filed with the Securities and Exchange
Commission on September 9, 1997 (Registration No. 333-30261). We have
reviewed such questions of law and examined such corporate records,
certificates and other documents as we have considered
<PAGE>
September 9, 1997
Page 2
necessary and appropriate for the purposes of this opinion. We have assumed
and have not independently verified that (i) the New Notes will be executed
on behalf of the Company, and (ii) the signatures on all executed documents
are genuine, all certified copies conform to the originals thereof, and all
certificates containing relevant facts are correct.
Based upon the foregoing and subject to the qualifications and
limitations stated herein, it is our opinion that (i) the Company has been
duly incorporated and is an existing corporation in good standing under the
laws of the State of Minnesota with corporate power and authority to own its
properties and conduct its business as described in the Propspectus, and (ii)
the New Notes have been duly authorized, and when executed, will be validly
issued.
We express no opinion with respect to laws other than those of the
State of Minnesota and the federal laws of the United States of America and
we assume no responsibility as to applicability thereto or the effect thereon
of the laws of any other jurisdiction.
We are furnishing this opinion to you solely for your benefit in
connection with the exchange of the New Notes. Other than with respect to
any opinion issued by Messrs. Richards & O'Neil, LLP, who shall be entitiled
to rely on this opinion to the extent required as the same relates to matters
of Minnesota law, this opinion is not to be used, circulated, quoted or
otherwise referred to for any other purpose and no one other than you is
entitled to rely on this opinion. This opinion speaks only as of the date
hereof and we hereby disclaim any duty to update any statements made herein.
We hereby consent to the filing of this opinion as part of an exhibit
to the Registration Statement.
Very truly yours,
/s/ LEONARD, STREET AND DEINARD
Thomas D. Feinberg
/cm
<PAGE>
September 9, 1997
Windy Hill Pet Food Company, Inc.
Two Maryland Farms
Brentwood, Tennessee 37027
Ladies and Gentlemen:
We have acted as counsel to Windy Hill Pet Food Company, Inc., a
Minnesota corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission"), under
the Securities Act of 1933, as amended (the "Act"), of a Registration
Statement on Form S-4 (No. 333-30261), as amended by Amendment No. 1 to
Registration Statement on Form S-4 and Amendment No. 2 to Registration
Statement on Form S-4, that the Company has filed with the Commission (the
Registration Statement as amended at the time it became effective being
referred to herein as the "Registration Statement"), which includes therein a
form of prospectus (the "Prospectus"), relating to the proposed offer (the
"Exchange Offer") to exchange $120,000,000 aggregate principal amount of the
Company's 9 3/4% Senior Subordinated Notes due 2007 (the "Old Notes") for a
like principal amount of the Company's outstanding 9 3/4% Senior Subordinated
Notes due 2007 (the "New Notes") (New Notes and Old Notes referred to herein
collectively, as the "Notes").
In connection with our review of the Notes and the proposed Exchange
Offer and for the purposes of rendering the opinions (the "Opinions") set forth
under the Caption "Certain Federal Income Tax Considerations" in the Prospectus,
we have examined (i) the Prospectus; (ii) the Indenture, dated as of May 21,
1997, between the Company and Wilmington Trust Company, as trustee, (the
"Indenture"), pursuant to which the Old Notes were, and the New Notes will be,
issued; (iii) the Letter of Transmittal and related documents
<PAGE>
Windy Hill Pet Food Company, Inc.
September 9, 1997
Page 2
filed as exhibits to the Registration Statement; (iv) the form of certificate
which will evidence the New Notes; and (v) such other documents and agreements
as we deemed appropriate and necessary to satisfy ourselves with respect to the
Opinions expressed in the Prospectus.
Our Opinions are based on the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations ("Regulations")
promulgated under the Code, published rulings of the Internal Revenue Service,
and court decisions, all as in effect on the date of this letter (or, in the
case of certain Regulations published in proposed form as of such date). We
have assumed (i) the accuracy, and continuing accuracy, of the facts set forth
in the Prospectus and (ii) the binding effect on the parties of the Indenture
and all documents included as exhibits to the Indenture.
Subject to the foregoing and the qualifications set forth below, we
are of the opinion that the statements in the Prospectus under the caption
"Certain Federal Income Tax Considerations" are correct as to statements of law
and accurately reflect the advice and opinions ascribed therein to Richards &
O'Neil, LLP.
Our Opinions represent only our best judgment as to the probable
federal income tax consequences relating to the Exchange Offer and are not
binding on the Internal Revenue Service or the courts. We express no opinion
concerning any matters other than the federal income tax laws as described in
the Prospectus.
We hereby consent to the inclusion of this opinion as an exhibit to
the Registration Statement and to the references to our firm under the captions
"Certain Federal Income Tax Considerations" in the Prospectus. In giving such
consent, we do not hereby concede that we are within the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Richards & O'Neil, LLP
<PAGE>
[KPMG PEAT MARWICK LETTERHEAD]
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Windy Hill Pet Food Company, Inc.
We consent to the use of our reports (dated June 6, 1997 with respect to
Windy Hill Pet Food Company, Inc. and June 6, 1997 with respect to the Pet
Food Division (a division of Hubbard Milling Company)) included herein and to
the reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG Peat Marwick LLP
San Francisco, California
September 9, 1997
<PAGE>
[Logo of Coopers & Lybrand]
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-30261) of our report dated May 1, 1997, on our audits of the
Statement of Revenue and Certain Expenses of Certain Acquired Product Lines
of the Heinz Pet Products Division of Star-Kist Foods, Inc. for the years
ended May 1, 1996 and May 3, 1995. We also consent to the references to our
firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Cincinnati, Ohio
September 9, 1997
<PAGE>
EXHIBIT 99.1
WINDY HILL PET FOOD COMPANY, INC.
TWO MARYLAND FARMS
BRENTWOOD, TN 37027
September 8, 1997
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0007
Ladies and Gentlemen:
Windy Hill Pet Food Company (the "Company"), a Delaware corporation,
hereby appoints Wilmington Trust Company ("Wilmington Trust") to act as
exchange agent (the "Exchange Agent") in connection with an exchange offer by
the Company to exchange an aggregate principal amount of up to $120,000,000
of its 9 3/4% Senior Subordinated Notes due 2007 (the "New Notes"), which
have been registered under the Securities Act of 1933, as amended, for a like
principal amount of its outstanding 9 3/4% Senior Subordinated Notes due 2007
(the "Old Notes"). The terms and conditions of the exchange offer are set
forth in a prospectus, dated June 27, 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and in the related Letter
of Transmittal, which together constitute the "Exchange Offer." Capitalized
terms used herein and not defined shall have the respective meanings ascribed
thereto in the Prospectus.
On the basis of the representations, warranties and agreements of the
Company and Wilmington Trust contained herein and subject to the terms and
conditions hereof, the following sets forth the agreement between the Company
and Wilmington Trust, as Exchange Agent for the Exchange Offer:
1. APPOINTMENT AND DUTIES AS EXCHANGE AGENT.
(a) The Company hereby authorizes Wilmington Trust to act as Exchange
Agent in connection with the Exchange Offer and Wilmington Trust agrees to act
as Exchange Agent in connection with the Exchange Offer. As Exchange Agent,
Wilmington Trust will perform those services as are outlined herein or which are
customarily performed by an exchange agent in connection with an exchange offer
of like nature, including, but not limited to, accepting tenders of the Old
Notes.
(b) The Company acknowledges and agrees that Wilmington Trust has been
retained pursuant to this Agreement to act solely as Exchange Agent in
connection with the Exchange Offer, and in such capacity, Wilmington Trust shall
perform such duties as are
<PAGE>
outlined herein and which are specifically set forth in the section of the
Prospectus captioned "The Exchange Offer" and in the Letter of Transmittal;
provided, however, that in no way will Wilmington Trust's general duty to act in
good faith and without gross negligence or willful misconduct be discharged by
the foregoing.
(c) Wilmington Trust will use reasonable efforts to examine each of the
Letters of Transmittal (or electronic instructions transmitted by the Depository
Trust Corporation (the "DTC Transmissions") and certificates for the Old Notes
and any other documents delivered or mailed to Wilmington Trust (or received by
Harris Trust Co. on behalf of Wilmington Trust) by or for holders of the Old
Notes (or any Book-Entry Confirmations (as set forth in the Prospectus) received
by Wilmington Trust with respect to the Old Notes), to ascertain whether: (i)
the Letters of Transmittal and any such other documents are executed and
completed in accordance with the instructions set forth therein (or that the DTC
Transmission contains the proper information required to be set forth therein)
and (ii) the Old Notes have otherwise been properly tendered (or that the
Book-Entry Confirmations are in due and proper form and contain the information
required to be set forth therein). In each case where the Letters of
Transmittal or any other documents have been improperly completed or executed
(or the DTC Transmissions are not in due and proper form or omit certain
information) or certificates for the Old Notes are not in proper form for
transfer (or the Book-Entry Confirmations are not in due and proper form or omit
certain information) or some other irregularity in connection with the tender or
acceptance of the Old Notes exists, Wilmington Trust will notify the Company of
the irregularity and will take any other action as the Company shall direct to
cause such irregularity to be corrected. Notwithstanding the above, Wilmington
Trust shall not be under any duty to give any notification of any irregularities
in tenders or incur any liability for failure to give any such notification.
(d) With the approval of the President, any Executive Vice President, any
Vice President or the Treasurer or any Assistant Treasurer of the Company (such
approval, if given orally, to be confirmed in writing) or any other party
designated by any such officer, Wilmington Trust is authorized to waive any
irregularities in connection with any tender of the Old Notes pursuant to the
Exchange Offer.
(e) Tenders of the Old Notes may be made only as set forth in the Letter
of Transmittal and in the section of the Prospectus captioned "The Exchange
Offer" and the Old Notes shall be considered properly tendered only when
tendered in accordance with such procedures set forth therein. Notwithstanding
the provisions of this paragraph, the Old Notes which the President, any
Executive Vice President, any Vice President or the Treasurer, any Assistant
Treasurer or any other designated officer of the Company, shall approve (such
approval, if given orally, to be confirmed in writing) as having been properly
tendered shall be considered to be properly tendered.
(f) Wilmington Trust shall advise the Company with respect to any Old
Notes received as soon as possible after 5:00 p.m., New York City time, on the
Expiration Date and accept its instructions with respect to disposition of such
Old Notes.
<PAGE>
(g) Wilmington Trust shall (i) ensure that each Letter of Transmittal and,
if required pursuant to the terms of the Exchange Offer, the related Old Notes
or a bond power are executed (with signatures guaranteed where required) by the
parties in accordance with the terms of the Exchange Offer; (ii) ensure that the
Old Notes tendered in part are tendered in principal amounts of $1,000 and
integral multiples thereof; and (iii) deliver certificates for the Old Notes
tendered in part to the transfer agent for split-up and shall return any
untendered Old Notes or Old Notes which have not been accepted by the Company to
the holders of such Old Notes (or in the case of Old Notes tendered by
book-entry transfer, such non-exchanged Old Notes will be credited to an account
maintained with the Book-Entry Transfer Facility) promptly after the expiration
or termination of the Exchange Offer.
(h) Upon acceptance by the Company of any Old Notes duly tendered pursuant
to the Exchange Offer (such acceptance if given orally, to be confirmed in
writing), Wilmington Trust will cause the New Notes in exchange therefor to be
issued as promptly as possible (subject to receipt from the Company of
appropriate certificates under the related Indenture) and Wilmington Trust will
deliver such New Notes on behalf of the Company at the rate of $1,000 principal
amount of New Notes for each $1,000 principal amount of the Old Notes tendered
as promptly as possible after acceptance by the Company of the Old Notes for
exchange and notice (such notice if given orally, to be confirmed in writing) of
such acceptance by the Company; provided, however, that in all cases, the Old
Notes tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by Wilmington Trust of certificates for such Old Notes (or a
Book-Entry Confirmation), a completed and executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other required
documents (or a properly completed DTC Transmission). Unless otherwise
instructed by the Company, Wilmington Trust shall issue the New Notes only in
denominations of $1,000 or any integral multiple thereof.
(i) Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and the conditions set forth in the Prospectus and the
Letter of Transmittal, the Old Notes tendered pursuant to the Exchange Offer may
be withdrawn at any time on or prior to the Expiration Date in accordance with
the terms of the Exchange Offer.
(j) Notice of any decision by the Company not to exchange any Old Notes
tendered shall be given by the Company either orally (if given orally, to be
confirmed in writing) or in a written notice to Wilmington Trust.
(k) If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer -- Certain Conditions to the Exchange Offer" or otherwise,
Wilmington Trust shall, upon notice from the Company (such notice if given
orally, to be confirmed in writing), promptly after the expiration or
termination of the Exchange Offer return such certificates for unaccepted Old
Notes (or effect appropriate Book-Entry Confirmations), together with any
related
-3-
<PAGE>
required documents and the Letters of Transmittal (or DTC Transmissions)
relating thereto that are in Wilmington Trust's possession, to the persons who
deposited such certificates.
(l) Certificates for reissued Old Notes, unaccepted Old Notes or New Notes
shall be forwarded by (a) first-class certified mail, return receipt requested
under a blanket surety bond obtained by Wilmington Trust, at the Company's
expense, protecting Wilmington Trust and the Company from loss or liability
arising out of the non-receipt or non-delivery of such certificates or (b) by
registered mail insured by Wilmington Trust, at the Company's expense,
separately for the replacement value of each such certificate.
(m) Wilmington Trust is not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, commercial
bank, trust company or other nominee or to engage or use any person to solicit
tenders.
(n) As Exchange Agent, Wilmington Trust:
(i) shall have no duties or obligations other than those specifically
set forth in the Prospectus, the Letter of Transmittal or herein or as may be
subsequently agreed to in writing;
(ii) will make no representations and will have no responsibilities as
to the validity, value or genuineness of any of the certificates for the Old
Notes deposited pursuant to the Exchange Offer, and will not be required to and
will make no representation as to the validity, value or genuineness of the
Exchange Offer; PROVIDED, HOWEVER, that in no way will Wilmington Trust general
duty to act in good faith and without gross negligence or willful misconduct be
limited by the foregoing;
(iii) shall not be obligated to take any legal action hereunder which
might in Wilmington Trust's reasonable judgment involve any expense or
liability, unless Wilmington Trust shall have been furnished with reasonable
indemnity;
(iv) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to Wilmington Trust and reasonably believed
by Wilmington Trust to be genuine and to have been signed by the proper party or
parties;
(v) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which Wilmington Trust believes
in good faith to be genuine and to have been signed or represented by a proper
person or persons acting in a fiduciary or representative capacity and
Wilmington Trust examines and reasonably concludes that such evidence properly
establishes such authority;
-4-
<PAGE>
(vi) may rely on and shall be protected in acting upon written or oral
instructions from the President, any Executive Vice President, any Vice
President, the Treasurer, any Assistant Treasurer or any other designated
officer of the Company;
(vii) may consult with its own counsel with respect to any questions
relating to Wilmington Trust's duties and responsibilities and the written
advice or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken by
Wilmington Trust hereunder in good faith and in accordance with the written
advice or opinion of such counsel; and
(viii) shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to whether to tender or refrain from tendering all or any
portion of its Old Notes or as to the market value, decline or appreciation in
market value of any Old Notes that may or may not occur as a result of the
Exchange Offer or as to the market value of the New Notes.
(o) Wilmington Trust shall take such action as may from time to time be
requested by the Company to furnish copies of the Prospectus, Letter of
Transmittal and the Notice of Guaranteed Delivery or such other forms as may be
approved from time to time by the Company, to all persons requesting such
documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for tendering into (or withdrawing from) the Exchange Offer.
The Company will furnish you with copies of such documents at your request.
(p) Wilmington Trust shall advise orally and promptly thereafter confirm
in writing to the Company and such other person or persons as the Company may
request, daily (and more frequently during the week immediately preceding the
Expiration Date and if otherwise reasonably requested) up to and including the
Expiration Date, the aggregate principal amount of the Old Notes which have been
duly tendered pursuant to and in compliance with the terms of the Exchange Offer
and the items received by Wilmington Trust pursuant to the Exchange Offer and
this Agreement, separately reporting and giving cumulative totals as to items
properly received and items improperly received. In addition, Wilmington Trust
will also provide, and cooperate in making available to the Company, or any such
other person or persons upon request (such request if made orally, to be
confirmed in writing) made from time to time, such other information as the
Company may reasonably request. Such cooperation shall include, without
limitation, the granting by Wilmington Trust to the Company, and such person or
persons as the Company may request, access to those persons on Wilmington
Trust's staff who are responsible for receiving tenders, in order to ensure that
immediately prior to the Expiration Date the Company shall have received
adequate information in sufficient detail to enable the Company to decide
whether to extend the Exchange Offer. Wilmington Trust shall prepare a final
list of all persons whose tenders were accepted, the aggregate principal amount
of the Old Notes tendered, the aggregate principal amount of the Old Notes
accepted and deliver said list to the Company.
-5-
<PAGE>
(q) Letters of Transmittal, Book-Entry Confirmations, DTC Transmissions
and Notices of Guaranteed Delivery shall be stamped by Wilmington Trust as to
the date and the time of receipt thereof and shall be preserved by Wilmington
Trust for a period of time at least equal to the period of time Wilmington Trust
preserves other records pertaining to the transfer of securities, or one year,
whichever is longer, and thereafter shall be delivered by Wilmington Trust to
the Company. Wilmington Trust shall dispose of unused Letters of Transmittal
and other surplus materials by returning them to the Company.
(r) Wilmington Trust hereby expressly waives any lien, encumbrance or
right of set-off whatsoever that Wilmington Trust may have with respect to funds
deposited with it for the payment of transfer taxes by reasons of amounts, if
any, borrowed by the Company, or any of its subsidiaries or affiliates pursuant
to any loan or credit agreement with Wilmington Trust or for compensation owed
to Wilmington Trust hereunder or for any other matter.
2. COMPENSATION.
In consideration of Wilmington Trust's acceptance of the appointment set
forth in Paragraph 1 above, the Company agrees to (i) pay Wilmington Trust a fee
for all services rendered under the foregoing appointment of $3,000 and (ii)
reimburse Wilmington Trust for any reasonable out-of-pocket expenses incurred as
Exchange Agent in performing the services described herein including the
reasonable fees or disbursements of its legal counsel.
3. INDEMNIFICATION.
(a) The Company hereby agrees to protect, defend, indemnify and hold
harmless Wilmington Trust against and from any and all costs, losses,
liabilities, expenses (including reasonable counsel fees and disbursements)
taxes, penalties, and claims imposed upon or asserted against Wilmington Trust
on account of any action taken or omitted to be taken by Wilmington Trust in
connection with its acceptance of or performance of its duties under this
Agreement and the documents related thereto as well as the reasonable costs and
expenses of defending itself against any claim or liability arising out of or
relating to this Agreement and the documents related thereto. This
indemnification shall survive the release, discharge, termination, and/or
satisfaction of this Agreement. Anything in this Agreement to the contrary
notwithstanding, the Company shall not be liable for indemnification or
otherwise for any loss, liability, cost or expense to the extent arising out of
Wilmington Trust's bad faith, gross negligence or willful misconduct.
Wilmington Trust shall notify the Company with respect to any claim against
Wilmington Trust, by letter, of the written assertion of a claim against
Wilmington Trust or of any other action commenced against Wilmington Trust,
promptly after Wilmington Trust has received any such written assertion or has
been served with a summons in connection therewith; provided, however, that the
right of Wilmington Trust to indemnification shall be reduced in the event of
Wilmington Trust's failure to give timely notice only to the extent the Company
is prejudiced thereby.
-6-
<PAGE>
The Company shall be entitled to participate at its own expense in the defense
of any such claim or other action, and, if the Company so elects, the Company
may assume the defense of any pending or threatened action against Wilmington
Trust in respect of which indemnification may be sought hereunder, in which case
the Company shall not thereafter be responsible for the fees and disbursements
of legal counsel for Wilmington Trust under this paragraph; provided that the
Company shall not be entitled to assume the defense of any such action if the
named parties to such action include both the Company and Wilmington Trust and
representation of both parties by the same legal counsel would, in the written
opinion of counsel for Wilmington Trust, be inappropriate due to actual or
potential conflicting interests between them. It is understood that the Company
shall not be liable under this paragraph for the fees and disbursements of more
than one legal counsel for Wilmington Trust.
(b) Wilmington Trust agrees that, without the prior written consent of the
Company (which consent shall not be unreasonably withheld), it will not settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification could be sought
in accordance with the indemnification provision of this Agreement (whether or
not Wilmington Trust or the Company or any of its directors, officers and
controlling persons is an actual or potential party to such claim, action or
proceeding).
4. TAX INFORMATION.
The Company understands that Wilmington Trust is required, in certain
instances, to deduct 31% with respect to interest paid on the New Notes and
proceeds from the sale, exchange, redemption or retirement of the New Notes from
holders of the New Notes who have not supplied their correct Taxpayer
Identification Number or required certification. Such funds will be turned over
by Wilmington Trust to the Internal Revenue Service.
5. GOVERNING LAW.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
6. NOTICES.
Any communication or notice provided for hereunder shall be in writing and
shall be given (and shall be deemed to have been given upon receipt) by delivery
in person, telecopy, or overnight delivery or by registered or certified mail
(postage prepaid, return receipt requested) to the applicable party at the
addresses indicated below:
-7-
<PAGE>
If to Wilmington Trust:
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Telecopier No: (302) 651-8882
Attention: Bruce Bisson, Account Manager
If to the Company:
Two Maryland Farms
Brentwood, Tennessee
Telecopier No.: (615) 373-9152
Attention: Robert V. Dale, President
or, as to each party, at such other address as shall be designated by such party
in a written notice complying as to delivery with the terms of this Section.
7. PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement. Without limitation to
the foregoing, the parties hereto expressly agree that no holder of the Old
Notes or the New Notes shall have any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
8. COUNTERPARTS; SEVERABILITY.
This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which when so
executed shall be deemed an original, and all of such counterparts shall
together constitute one and the same agreement. If any term or other provision
of this Agreement or the application thereof is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the agreements contained herein is not affected
in any manner adverse to any party. Upon such determination that any term or
provision or the application thereof is invalid, illegal or unenforceable, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the agreements contained herein may be performed
as originally contemplated to the fullest extent possible.
-8-
<PAGE>
9. HEADINGS.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10. ENTIRE AGREEMENT; AMENDMENT.
This Agreement constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof. This Agreement may not be amended or
modified nor may any provision hereof be waived except in writing signed by each
party to be bound thereby.
11. TERMINATION.
This Agreement shall terminate upon the earlier of (a) the 90th day
following the expiration, withdrawal, or termination of the Exchange Offer, (b)
the close of business on the date of actual receipt of written notice by
Wilmington Trust from the Company stating that this Agreement is terminated, (c)
one year following the date of this Agreement, or (d) the time and date on which
this Agreement shall be terminated by mutual consent of the parties hereto.
12. MISCELLANEOUS.
Wilmington Trust hereby acknowledges receipt of the Prospectus and the
Letter of Transmittal and the Notice of Guaranteed Delivery and further
acknowledges that it has examined each of them. Any inconsistency between this
Agreement, on the one hand, and the Prospectus and the Letter of Transmittal and
the Notice of Guaranteed Delivery (as they may be amended or supplemented from
time to time), on the other hand, shall be resolved in favor of the latter three
documents, except with respect to the duties, liabilities and indemnification of
Wilmington Trust as Exchange Agent which shall be controlled by this Agreement.
-9-
<PAGE>
Kindly indicate your willingness to act as Exchange Agent and Wilmington
Trust's acceptance of the foregoing provisions by signing in the space provided
below for that purpose and returning to the Company a copy of this Agreement so
signed, whereupon this Agreement and Wilmington Trust's acceptance shall
constitute a binding agreement between Wilmington Trust and the Company.
Very truly yours,
WINDY HILL PET FOOD COMPANY, INC.
By: /s/ Robert V. Dale
-------------------------------
Name: Robert V. Dale
Title: President
Accepted and agreed to as of
the date first written above:
WILMINGTON TRUST COMPANY
By: /s/ Bruce L. Bisson
-----------------------------
Name: Bruce L. Bisson
Title: Vice President
