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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 33-30261
WINDY HILL PET FOOD COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 41-0323270
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(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
</TABLE>
Highwoods Plaza II
103 Powell Court, Suite 200
Brentwood, TN 37027
(Address of Principal Executive Office, Including Zip Code)
(615) 373-7774
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None
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Securities registered pursuant to Section 12(g) of the Act
None (Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of Affiliate in Rule 405.) Not applicable.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Shares Outstanding
March 1, 1998
Common stock, $0.01 par value 100
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PART I
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ITEM 1: BUSINESS
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Business History
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On February 28, 1995, Windy Hill Pet Food Company, L.L.C. ("LLC") acquired
substantially all of the assets and liabilities of the pet food division of
Martha White Foods, Inc. for $21.0 million. To finance the acquisition, a
senior secured revolving debt facility was established with a bank from which
$16.0 million was drawn at closing. In addition, $6.0 million of limited
liability company interests were issued.
On April 29, 1996, Windy Hill Pet Food Company, Inc. ("Old Windy Hill"), a
wholly-owned subsidiary of Windy Hill Pet Food Holdings, Inc. ("Holdings"),
acquired substantially all of the assets and assumed certain liabilities of the
Kozy Kitten/R/ and Tuffy's/R/ dry pet food brands from Heinz Pet Products
("Heinz"), a division of Heinz, Inc. The purchase price was $52.5 million, which
included a contractually agreed upon amount of working capital (as defined in
the acquisition agreement). In conjunction with this acquisition, LLC's net
assets were contributed at net book value to Holdings. On April 29, 1996, in
order to effect the acquisition and to refinance the $17.0 million of existing
debt of LLC, Old Windy Hill entered into a series of financings, including (i) a
net capital contribution of $19.8 million from Holdings, (ii) senior secured
term debt of $43.0 million and a senior secured revolving debt facility of $9.0
million, and (iii) issuance of a senior subordinated note in the amount of $8.5
million.
On May 21, 1997, Windy Hill Pet Food Acquisition Co., a newly-formed indirect
subsidiary of Holdings, merged with and into Hubbard Milling Company
("Hubbard"), and Old Windy Hill purchased all of the capital stock of Armour
Corporation, a holding company which prior to the closing of the transaction
owned 5% of the capital stock of Hubbard and after the consummation of the
transaction owned 39% of the capital stock of Hubbard. Concurrently, Hubbard,
the surviving corporation in the merger, was renamed Windy Hill Pet Food
Company, Inc. (the "Company"), and Holdings transferred all the operating assets
and liabilities, including $27.0 million of equity and $51.0 million of
indebtedness (the "Existing Indebtedness") of Old Windy Hill to the Company.
The net purchase price of Hubbard and Armour Corporation stock was approximately
$131.1 million (net of cash acquired). For financial reporting purposes, these
transactions were accounted for as a purchase of Hubbard by Old Windy Hill. The
merger and repayment of Existing Indebtedness was financed with (i) a $9.8
million net capital contribution from Holdings, (ii) senior secured term debt of
$20.0 million and revolving debt of $45.0 million under a $65.0 million senior
secured debt facility, and (iii) proceeds from the issuance of $120.0 million of
senior subordinated notes. Immediately following the merger, the Company sold
its animal feed business to Feed-Rite (US) Animal Feeds, Inc., a subsidiary of
the Ridley Group. The net after tax proceeds, subject to certain adjustments,
were approximately $50.0 million. The proceeds were used to repay senior
secured debt.
On February 23, 1998, subsequent to the Company's fiscal year end, the Company
acquired all the assets of the pet food division (the "AGP Business") of
Consolidated Nutrition, L.C. ("Consolidated"). The assets acquired by the
Company include four plants located in the states of Alabama, Kansas, Missouri
and Nebraska. The Company intends to use the acquired assets
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to produce its current products. The purchase price was approximately $12.4
million. The Company financed the purchase of the AGP Business and related costs
with a $12.5 million borrowing under the terms of its senior secured revolving
debt facility.
Products and Markets
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The Company produces and markets private label and economy priced branded pet
food products. The pet food segments in which the Company competes are dog food
and cat food. Private label products are produced and distributed to 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 branded pet food products, including Kozy Kitten/R/ dry cat food, Trail
Blazer/R/ dry dog food, and Tuffy's/R/ dry dog and cat food, which are sold
primarily to grocery store chains. Also, Proclaim/R/ and Supreme/R/ dry dog food
brands are sold primarily to the feed channel.
Industry
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The Company participates in the pet food industry, which is a large and growing
industry. The retail market for pet food is primarily driven by the consumers'
desire for products with a value relationship of good quality at reasonable
prices and the consumers' increased awareness and concern about pet diets and
nutrition. The Company's primary product lines are dry pet food, semi-moist pet
food, and biscuits and treats.
Trademarks
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The Company's products are marketed under trademarks owned by or licensed to the
Company. The Company's trademarks are important assets as it pursues a strategy
of extending its branded presence throughout the country.
Competition
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The pet food industry is fragmented and highly competitive, with numerous brands
and products. The Company has many competitors for its various product lines and
competes in all its markets with national and regional companies. The Company's
sales represent less than 3% of the total U.S. pet food market, which had sales
in 1997 of $10.0 billion. According to an industry report dated January 1998,
the Company was ranked tenth in sales.
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 or higher quality products at lower prices and that it
differentiates itself from other private label pet food producers by offering
higher quality products, a broader product line, and national production and
distribution capabilities.
Quality Control
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Quality control processes at the Company's principal manufacturing facilities
and the corporate office emphasize applied research and technical services
directed at quality control and product improvement.
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The Company's products and manufacturing facilities are subject to various laws
and regulations administered by the United States Department of Agriculture, and
other federal, state, and local governmental agencies relating to the quality of
products, safety, and sanitation. The Company believes it complies with such
laws and regulations in all material respects.
Customers
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The Company's business is not dependent upon a single customer or a small number
of customers, the loss of which could have a material adverse effect on the
Company's operations.
Seasonality
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The Company has minimal seasonality among its product lines. Sales tend to be
slightly higher in the winter months due to pets' increased need for nutrition.
The Company experiences slight increases in its working capital cycle during the
fall as a result of this modest sales seasonality.
Raw Materials
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The principal raw materials used by the Company 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
from numerous independent suppliers. The Company's objective is to procure
ingredients meeting both the Company's production needs and its quality
standards at the lowest aggregate cost to the Company.
Environmental Matters
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The Company is subject to a number of federal, state, and local statutes, rules,
regulations and ordinances in the United States relating to the discharge of
materials into the environment and the handling and disposition of wastes
(including solid and hazardous wastes), or otherwise relating to the protection
of the environment. The Company maintains a program to monitor compliance with
environmental laws and is continually examining its methods of operation and
product packaging to lower its use of natural resources.
Research and Development
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The Company's primary research and development department is located in its
corporate offices in Brentwood, Tennessee. The department is responsible for
nearly all of the food research and product development for the Company. The
Company's research and development resources are focused on new product
development, product enhancement, process design and improvement, and packaging
and exploratory research in new business areas.
Employees
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As of March 1, 1998, the Company had a total of 957 employees. The hourly
employees at the Lincoln, Nebraska manufacturing facility are represented by the
American Federation of Grain Millers. None of the Company's other employees are
represented by a union. Management believes that its relations with its
employees are generally excellent.
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ITEM 2: PROPERTIES
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As of March 1, 1998, the Company operates 17 manufacturing facilities, thirteen
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 wholly owned
facilities total 1,243,000 square feet and the joint venture facilities total
162,000 square feet. The manufacturing facilities consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Approximate
Location Principal Products Ownership Status Square Footage
- -------- ------------------ ---------------- --------------
Allentown, PA Dry Dog/Cat Food Owned 60,000
Bern, KS Dry Dog/Cat Food Owned 48,000
Butler, MO Dry Dog/Cat Food Joint Venture 39,000
Caldwell, ID Dry Dog/Cat Food Joint Venture 19,000
Cartersville, GA Dry Dog/Cat Food Joint Venture 62,000
Delavan, WI Semi-Moist Food/Treats Owned 55,000
Dexter, MO Dry Dog/Cat Food Owned 100,000
Hereford, TX Dry Dog/Cat Food Joint Venture 42,000
Hillburn, NY Dog Biscuits Owned 95,000
Inman, KS Dry Dog/Cat Food Owned 45,000
LeSueur, MN Dry Dog/Cat Food/Dog Biscuits Owned 160,000
Lincoln, NE Dry Dog/Cat Food Owned 122,000
Maumee, OH Dry Dog/Cat Food Owned 80,000
McKenzie,TN Dry Dog/ Cat Food Owned 90,000
Perham, MN Dry Dog/ Cat Food/
Semi-Moist Food/Treats Owned 218,000
Portland, IN Dry Dog /Cat Food/Dog Biscuits Owned 130,000
Tuscaloosa, AL Dry Dog/Cat Food Owned 40,000
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Total 1,405,000
=========
</TABLE>
All of the Company's facilities are generally in good physical condition, are
well maintained, and are suitable for the manufacture of the particular product
line for which it is used. The Company is currently increasing production
capacity to accommodate estimated growth in certain product lines. New
production lines and associated equipment will be purchased and installed during
fiscal 1998.
The Company leases its 25,481 square foot headquarters office in Brentwood,
Tennessee pursuant to a lease that will expire during fiscal year 2004, subject
to one five-year renewal option.
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ITEM 3: LEGAL PROCEEDINGS
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The Company, in the ordinary course of business, is subject to litigation. 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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
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PART II
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ITEM 5: MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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There is no established public trading market for the Company's common stock.
All of its issued and outstanding shares of common stock are owned by Holdings.
No cash dividends have been declared since the incorporation of the Company. The
Company is restricted under its senior secured term debt facilities from
declaring dividends, with certain limited exceptions, including the payment of
Holdings' taxes and the payment of Holdings' fees and expenses in connection
with acquisitions.
ITEM 6: SELECTED FINANCIAL DATA
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The selected financial data presented below, as of December 27, 1997 and for the
year ended December 27, 1997 is derived from the Company's audited financial
statements. The selected financial data of Old Windy Hill as of December 28,
1996 and as of December 30, 1995 and for the year ended December 28, 1996 and
for the ten months ended December 30, 1995 is derived from the audited Balance
Sheets and Statements of Operations of Old Windy Hill. The selected financial
data should be read in conjunction with the Company's financial statements.
<TABLE>
<CAPTION>
Windy Hill Pet Food Company Old Windy Hill
--------------------------- -------------------------------------------------
Year ended Year ended Year ended
(dollars in thousands) December 27, 1997 December 28, 1996 December 30, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $164,288 $82,993 $34,481
Gross profit 51,000 28,614 12,374
Operating income 9,940 6,515 1,913
Net (loss) income (3,081) 643 721
Total assets 213,707 92,225 27,484
Total debt 137,000 51,101 17,000
</TABLE>
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the historical
financial information included in the Financial Statements and Notes to the
Financial Statements. Unless otherwise noted, years (1997, 1996, etc.) in this
discussion refer to the Company's December-ending fiscal years.
Results of Operations
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The following table sets forth for the periods indicated the percentage which
the items in the Statements of Operations bear to net sales and the percentage
change of such items compared to the indicated prior period. Certain amounts
from prior years have been reclassified to conform with the Company's current
year presentation. The Statement of Operations column for the year ended
December 27, 1997 combines the Company's operating period May 21, 1997 through
December 27, 1997 with Old Windy Hill's operating period December 29, 1996
through May 20, 1997. The Statement of Operations columns for the year ended
December 28, 1996 and the ten months ended December 30, 1995 reflect the
financial data of Old Windy Hill for the periods indicated.
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<TABLE>
<CAPTION>
Statements of Operations
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Increase Increase
Years ended Ten months ended (decrease) (decrease)
------------------------------------
December 27, December 28, December 30, 1996 to 1995 to
(dollars in thousands) 1997 1996 1995 1997 1996
----------------- ---------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $164,288 100.0% $ 82,993 100.0% $34,481 100.0% 98.0% 140.7%
Cost of goods sold 113,288 69.0 54,379 65.5 22,107 64.1 108.3 146.0
-------- ------- -------- ------ ------- ------ ------------ ------------
Gross profit 51,000 31.0 28,614 34.5 12,374 35.9 78.2 131.2
-------- ------- -------- ------ ------- ------ ------------ ------------
Selling, distribution and
marketing expenses:
Selling and distribution 13,442 8.2 8,090 9.7 4,751 13.8 66.2 70.3
Trade promotions 14,253 8.6 8,874 10.7 3,732 10.8 60.6 137.8
Consumer marketing 1,285 0.8 201 0.2 -- -- 539.3 0.0
-------- ------- -------- ------ ------- ------ ------------ ------------
Total selling, distribution and
marketing expenses 28,980 17.6 17,165 20.6 8,483 24.6 68.8 102.3
Amortization of goodwill and
other intangibles 3,208 2.0 1,316 1.6 452 1.3 143.8 191.2
General and administrative
expenses 7,624 4.6 3,618 4.4 1,526 4.4 110.7 137.1
Equity in earnings of
joint ventures (377) (0.2) -- 0.0 -- 0.0 0.0 0.0
Other expense 54 0.0 -- 0.0 -- 0.0 0.0 0.0
Transition related costs 1,571 1.0 -- 0.0 -- 0.0 0.0 0.0
-------- ------- -------- ------ ------- ------ ------------ ------------
Total operating expenses 41,060 25.0 22,099 26.6 10,461 30.3 85.8 111.3
-------- ------- -------- ------ ------- ------ ------------ ------------
Operating income 9,940 6.0 6,515 7.9 1,913 5.6 52.6 240.6
Interest income (175) (0.1) (65) (0.1) (30) 0.0 169.2 116.7
Interest expense 10,068 6.1 3,825 4.6 1,155 3.3 163.2 231.2
Amortization of debt
issuance costs 715 0.4 259 0.3 67 0.2 176.1 286.6
Other bank and financing
expenses 93 0.1 40 0.1 -- 0.0 132.5 0.0
-------- ------- -------- ------ ------- ------ ------------ ------------
(Loss) income before
income taxes (761) (0.5) 2,456 3.0 721 2.1 (131.0) 240.6
Income tax provision 26 0.0 1,209 1.5 -- 0.0 (97.8) 0.0
-------- ------- -------- ------ ------- ------ ------------ ------------
(Loss) income before
extraordinary item (787) (0.5) 1,247 1.5 721 2.1 (163.1) 73.0
Early extinguishment of debt,
net of tax 2,294 1.4 604 0.7 -- 0.0 279.8 0.0
-------- ------- -------- ------ ------ ------ -------------- -------------
Net (loss) income $ (3,081) (1.9)% $ 643 0.8% $ 721 2.1% (579.2)% (10.8)%
======== ======= ======== ====== ====== ====== ============== =============
</TABLE>
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YEAR ENDED DECEMBER 27, 1997 COMPARED TO THE YEAR ENDED DECEMBER 28, 1996
Net Sales. Net sales for the year ended December 27, 1997 were $164.3 million,
which were $81.3 million, or 98.0 %, higher than the 1996 period. The increase
was due to the following factors: (i) the inclusion of $65.1 million of Hubbard
sales subsequent to its acquisition in May 1997, (ii) a full year of sales of
the pet food business acquired from Heinz in April 1996 versus eight months of
sales in the prior year period, which added $14.2 million of sales, and (iii) a
$2.0 million sales increase in Old Windy Hill pet food products, principally in
private label and branded dog food product lines.
Gross Profit. Gross profit for the year ended December 27, 1997 was $51.0
million, or 31.0% of net sales, as compared to $28.6 million, or 34.5% of net
sales, for the same period in 1996. The lower gross margin was the result of
the inclusion of sales of Hubbard private label products, which generally have
lower gross margins than branded products. The decrease in gross margin was
partially offset by higher margins attributable to the branded product lines
acquired from Heinz and the inclusion of such branded product lines for twelve
months in 1997 versus eight months in 1996.
Selling, Distribution and Marketing Expenses. Selling, distribution and
marketing expenses decreased as a percentage of net sales to 17.6% in 1997 from
20.6% during 1996. The decrease was attributable to lower selling and
distribution expenses as a percentage of net sales resulting from realized
distribution efficiencies from both the Heinz and Hubbard acquisitions. In
addition, trade promotions were lower as a percentage of net sales resulting
from the inclusion of sales of Hubbard private label products, which generally
require lower trade promotional activity.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased as a result of the acquisition of the Heinz pet food
business in April of 1996 and the Hubbard acquisition in May of 1997.
General and Administrative Expenses. General and administrative expenses
increased to $7.6 million for the year ended December 27, 1997, or 110.7% higher
than 1996. The increase was due to additional staffing and infrastructure
required as a result of the Hubbard acquisition and the full year effect of the
acquisition of brands from Heinz.
Equity in Earnings of Joint Ventures. As part of the Hubbard acquisition, the
Company became a 50% equity partner in four joint ventures engaged in the
business of manufacturing pet food products. The $0.4 million of earnings
represents the Company's share in the operating profits of the joint ventures.
Transition Related Costs. Transition related expenses represent one time costs
incurred to integrate the Hubbard acquisition. These costs include transitional
employee compensation, relocation expenses, recruiting fees, training costs,
systems conversion costs, and other unique transition expenses.
Operating Income. Operating income increased to $9.9 million for the year ended
December 27, 1997, which was 52.6% higher than operating income of $6.5 million
in 1996. Operating income decreased as a percentage of net sales to 6.0% for
1997 compared to 7.9% for 1996.
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Operating income as a percentage of net sales, excluding one time transition
related costs, was 7.0% for 1997. The decline from the prior year was primarily
attributable to lower gross margins.
Interest Expense and Amortization of Debt Issuance Costs. The aggregate net
interest expense and amortization of debt issuance costs totaled $10.6 million
for 1997 compared to $4.0 million for 1996. The increase was due to the
additional debt incurred to finance the Heinz acquisition in April 1996 and the
Hubbard acquisition in May 1997.
Income Tax Provision. The 1997 income tax provision, as a percentage of loss
before taxes, was less than the expected benefit computed by applying the
expected tax rate because of non-deductible goodwill amortization associated
with the stock purchase of Hubbard.
Net (Loss) Income. The net loss during 1997 was $3.1 million, which was $3.7
million lower than the net income in 1996 of $0.6 million. The loss versus last
year was attributable to higher interest expense and amortization of debt
issuance costs and a higher extraordinary charge related to the early
extinguishment of Existing Indebtedness in conjunction with the financing of the
Hubbard acquisition.
YEAR ENDED DECEMBER 28, 1996 COMPARED TO THE TEN MONTHS ENDED DECEMBER 30, 1995
Net Sales. Net sales in the year ended December 28, 1996, increased 140.7% to
$83.0 million from $34.5 million in the ten months ended December 30, 1995. The
sales increase was due to the inclusion of sales in the amount of $39.3 million
arising from the brands acquired from Heinz and the effect of the two additional
months of operations.
Gross Profit. Gross profit as a percentage of net sales was 34.5% in 1996 as
compared to 35.9% in the 1995 period. The gross margin decreased as higher
ingredient costs outpaced the margin improvement generated by the inclusion of
higher margin sales of the brands acquired from Heinz. Prices of major
ingredients, such as corn and soybean meal, increased sharply during the year.
For example, during 1996 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
ton to $250 per ton. 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 entirely offset the higher costs.
Selling, Distribution and Marketing Expenses. Selling, distribution, and
marketing expenses decreased as a percentage of net sales to 20.6% in 1996 from
24.6% in 1995. The decrease was due to lower selling and distribution expenses
as the Company achieved efficiencies in its distribution network resulting from
the acquisition of the pet food brands from Heinz.
General and Administrative Expenses. General and administrative expenses
increased to $3.6 million in 1996 from $1.5 million in the 1995 period. The
increase was due to additional staffing and infrastructure required as a result
of the acquisition of brands from Heinz.
Operating Income. Operating income as a percentage of net sales was 7.9% in
1996 as compared to 5.6% in the 1995 period. The increase was primarily due to
a decline in operating expenses as a percentage of sales. The sales of products
arising from the Heinz acquisition did not require a
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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 and Amortization of Debt Issuance Costs. The aggregate net
interest expense and amortization of debt issuance costs in 1996 grew to $4.1
million versus $1.2 million in the 1995 period. The increase in interest
expense was due to the additional debt incurred to finance the acquisition of
brands from Heinz.
Income Tax Provision. The effective tax rate was higher than the statutory rate
because the Company incurred book losses in the first four months of 1996 under
its limited liability company structure. As such, the Company did not record a
tax expense during that period.
Net Income. Net income in 1996 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 1996.
The extraordinary loss in 1996 resulted from early extinguishment of debt when
Old Windy Hill refinanced its debt in conjunction with the Heinz acquisition.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 27, 1997, cash provided by operations was $8.2
million. The 1997 income before non-cash charges provided $7.9 million of cash.
Non-cash charges for 1997 totaled $11.0 million, including a write off of debt
issuance costs in the net of tax amount of $2.3 million associated with the
early extinguishment of Existing Indebtedness. The Company's current assets and
current liabilities have increased substantially from balances at December 28,
1996 as a result of the Hubbard acquisition.
Net cash used in investing activities was $88.9 million. The Hubbard purchase
used $131.1 million of cash. Immediately following the acquisition of Hubbard,
the Company sold its animal feed division and received net proceeds of
approximately $50.0 million. The Company also expended $4.2 million on capital
expenditures. The majority of the spending in 1997 was for machinery and
equipment to maintain and upgrade the Company's manufacturing facilities. The
Company expects to spend approximately $7.0 million in fiscal 1998. The Company
anticipates that these expenditures will be funded from internal sources and
available borrowing capacity.
During 1997, cash provided by financing activities was $80.8 million. On May
21, 1997, the Company incurred additional debt and raised additional equity to
fund the acquisition and the concurrent merger of Hubbard. After the merger and
sale, the Company's capital structure was as follows: (i) senior secured term
debt of $15.0 million, (ii) senior subordinated notes issued in the amount of
$120.0 million, and (iii) capital contributed from Holdings in the amount of
$35.5 million, of which $9.8 million was contributed at the time of the Hubbard
acquisition. The Company also has a $45.0 million senior secured acquisition
debt facility and a $20.0 million senior secured working capital debt facility.
As of December 27, 1997, the Company had $0.7 million of cash and cash
equivalents. The Company's primary sources of liquidity are cash from
operations and borrowings under its $20.0 million working capital debt facility.
At December 27, 1997, the Company had $2.0 million
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outstanding under its working capital debt facility. Based on current estimates
of cash flow and operating expenses, the Company believes that the available
borrowing capacity combined with cash provided by operations will provide the
Company with sufficient cash to fund operations as well as meet existing
obligations.
Year 2000 Compliance. The Company is currently in the process of modifying or
replacing its computer systems for the Year 2000 compliance. This activity is
expected to continue through 1999, and based on current cost estimates, is not
expected to have a material impact on the financial position or results of
operations of the Company in any given year.
Impact of New Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and display of comprehensive income and components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. This statement is effective for financial statements for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 will not
have any impact on the financial position or results of operations of the
Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This statement is effective for
financial statements for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 will not have any impact on the financial position or
results of operations of the Company.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------------------------------------------------------------------
Not applicable.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Reference is made to Item 14.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
12
<PAGE>
PART III
- --------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
The names, ages and positions of all directors and executive officers of Windy
Hill Pet Food Company, Inc., as of March 1, 1998 are listed below, followed by a
brief account of their business experience for at least the past five years.
Directors and officers serve in their positions until their resignation or
removal. Officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Ian R. Wilson 68 Chairman of the Board of Directors
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. 52 Vice President - Operations
Charles Dunleavy 53 Vice President - Finance
Vaughn Oakley 50 Vice President - Sales and Marketing
M. Laurie Cummings 34 Vice President and Secretary
Donald L. Gadd 41 Vice President - Administration
Kase Lawal 42 Director
Stephen C. Sherrill 43 Director
Stephen F. Edwards 33 Director
Donald Welge 61 Director
Preston G. Walsh 29 Director
</TABLE>
IAN R. WILSON - CHAIRMAN OF THE BOARD OF DIRECTORS
Mr. Wilson is the managing partner of Dartford Partnership, L.L.C. ("Dartford"),
a private investment partnership focused on the food and beverage industries.
Mr. Wilson was formerly Chairman and Chief Executive Officer of Windmill
Corporation ("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 Foods Inc. ("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 Plant Manager of Johannesburg and later Vice President -
Area Manager for Southern Africa, and 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 Novell,
Inc., Revlon, Inc., Crown Zellerbach Corporation, Castle & Cooke, Inc., Wilson
Bottling Corporation, Golden State Foods, Aurora Foods Inc. and Van de Kamp's,
Inc.
13
<PAGE>
ROBERT V. DALE - PRESIDENT AND DIRECTOR
Mr. Dale is the President and a Director of Windy Hill Pet Food Company, Inc.
Mr. Dale was formerly President of Martha White Foods, Inc. ("Martha White
Foods"), a baking mix and flour division of Windmill. Prior to Windmill, he was
President of Beatrice Specialty Products Division, a diversified food division
of Beatrice Companies, Inc., which bought Martha White Foods 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 Stores, Inc.,
Zatarain's, Inc. and Van de Kamp's, 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 in Dartford. Mr. Chung has previously served as a
Director, Executive Vice President and Chief Financial Officer of Windmill from
1989 to 1995 and as a Director, Executive Vice President and Chief Financial
Officer of Wyndham from 1985 to 1990. From May 1984 to September 1985, Mr. Chung
served as Vice President - Finance for the Kendall Company, which at the time
was a subsidiary of the Colgate-Palmolive Company. Between 1981 and 1984, Mr.
Chung served as Vice President - Finance for Riviana Foods, Inc. Both the
Kendall Company and Riviana Foods were subsidiaries of the Colgate Palmolive
Company at that time. Mr. Chung is an Executive Vice President of Van de Kamp's,
Inc. and an Executive Vice President and Director of Aurora Foods Inc.
JAMES B. ARDREY - EXECUTIVE VICE PRESIDENT
Mr. Ardrey is a partner in Dartford. From January 1993 to February 1995, Mr.
Ardrey was a consultant to Windmill, conducting its divestiture program. Over
the period 1984 to 1992, Mr. Ardrey was an investment banker with Paine Webber
Incorporated, serving as Managing Director from 1990 to 1992. Prior to joining
Paine Webber, Mr. Ardrey was a consultant with Booz, Allen & Hamilton. Mr.
Ardrey is also an Executive Vice President and a Director of Van de Kamp's, Inc.
and Aurora Foods Inc.
F. DONALD COWAN, JR. VICE PRESIDENT - OPERATIONS
Mr. Cowan has been Vice President of Operations for Windy Hill Pet Food Company,
Inc. since 1995. Prior to joining Windy Hill Pet Food Company, Inc., Mr. Cowan
was Vice President of Operations for Martha White Foods. From 1987 to 1995, Mr.
Cowan held various positions at Martha White Foods, 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.
CHARLES DUNLEAVY VICE PRESIDENT - FINANCE
Mr. Dunleavy joined Windy Hill Pet Food Company, Inc. in September 1997 as Vice
President of Finance. Prior to joining Windy Hill Pet Food Company, Inc., Mr.
Dunleavy was Vice President of Operations for Hudson Technologies, Inc. from
1993 to 1997. From 1989 to 1993,
14
<PAGE>
Mr. Dunleavy was the Managing Partner of the Detroit office of BDO Seidman,
LLP, a public accounting firm. From 1987 to 1989, he served as Chief Financial
Officer of Capitol Systems, Incorporated. Mr. Dunleavy was with Touche Ross (now
Deloitte & Touche) from 1969 to 1987, where he was admitted to the Partnership
in 1977.
VAUGHN OAKLEY - VICE PRESIDENT SALES AND MARKETING
Mr. Oakley has been Vice President of Sales and Marketing for Windy Hill Pet
Food Company, Inc. since 1995. Prior to joining the Company, Mr. Oakley was
Vice President of Business Development at Martha White Foods. From 1976 to
1995, Mr. Oakley held sales and marketing positions of increasing responsibility
at Martha White Foods, including Vice President of Sales. Before joining Martha
White Foods, he was a sales supervisor with the Carnation Company.
M. LAURIE CUMMINGS - VICE PRESIDENT AND SECRETARY
Ms. Cummings is a partner in Dartford. Ms. Cummings was Vice President,
Controller and Treasurer of Windmill from 1989 to 1995. Between 1987 and 1990,
Ms. Cummings was the Controller and Assistant Treasurer of Wyndham. Ms.
Cummings currently serves as a Vice President of Van de Kamp's, Inc. and Aurora
Foods Inc.
DONALD L. GADD - VICE PRESIDENT - ADMINISTRATION
Mr. Gadd has been Vice President of Administration for Windy Hill Pet Food
Company, Inc. since May 1997. Prior to his new assignment, Mr. Gadd was Vice
President of Finance for the Company from 1995 to May 1997. Prior to joining
the Company, Mr. Gadd was Controller for Martha White Foods 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.
KASE LAWAL - DIRECTOR
Since 1986, Mr. Lawal has been Chairman and Chief Executive Officer of CAMAC
Holdings, Inc. ("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 operations. He also serves as Chairman of
Allied Energy Corporation, 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.
STEPHEN C. SHERRILL - DIRECTOR
Since its formation in 1995, Mr. Sherrill has been a Principal of Bruckmann,
Rosser and Sherrill Co. ("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 &
15
<PAGE>
Garrison. Mr. Sherrill is a director of Galey & Lord, Inc., Jitney-Jungle Stores
of America, Inc., Restaurant Associates Corp., and Bloch & Guggenheimer/Burns &
Ricker, Inc., and Holdings.
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 Town Sports
International, Inc., and Holdings.
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.
PRESTON G. WALSH - DIRECTOR
Mr. Walsh is the Vice president of PNC Equity Management Corp., which he joined
in 1995. During 1994, Mr. Walsh was an associate with Crescent Capital Corp.
From 1992 through 1993, Mr. Walsh was a financial analyst with Brentwood
Associates, a venture capital and leveraged buyout firm. From 1990 to 1992, he
was a financial analyst in the merchant banking division of Morgan Stanley &
Co., Inc. Mr. Walsh is a Director of New England Audio, Inc. and Holdings.
16
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
- --------------------------------
The following Summary Compensation Table sets forth the compensation received by
the top five executives, including the Company's President, during the year
ended December 27, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
- --------------------------
<S> <C> <C> <C> <C>
Name and Principal Other
Position as of December 27, 1997 Year Salary (1) Bonus Compensation
- -------------------------------- ---- ---------- ----- ------------
Robert V. Dale 1997 $220,000 $51,250 $4,700
President and Director
F. Donald Cowan, Jr. 1997 $163,333 $40,000 $3,400
Vice President - Operations
Vaughn Oakley 1997 $143,333 $35,000 $2,700
Vice President - Sales
and Marketing
Charles Dunleavy 1997 $130,000 $ - $ -
Vice President - Finance
Donald L. Gadd 1997 $118,000 $28,000 $1,800
Vice President - Administration
</TABLE>
(1) Amounts have been annualized.
Other compensation represents Company contributions on behalf of the officers to
the Company's profit sharing plan.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Members of the compensation committee of the Board of Directors of the Company
are Messrs. Ian R. Wilson, Ray Chung and Stephen C. Sherrill. Mr. Wilson serves
as Chairman of the compensation committee.
The Company is party to a Management Services Agreement, as described in Item
13, with Dartford, a member of LLC, who is a shareholder of Holdings. Mr.
Wilson is the managing partner of Dartford.
In connection with the acquisition of the Heinz pet food brands and Hubbard, the
Company has paid to certain members of LLC and Holdings, who are also
represented on the Board of Directors and beneficial owners, fees for services
rendered in connection with the acquisitions and related financing of the
Company's acquisitions. These fees, as discussed in Item 13, included $1.8
million paid to Dartford, of which Mr. Wilson is the managing partner; and $0.7
million paid to BRS, of which Mr. Sherrill and Mr. Edwards are principals.
17
<PAGE>
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 merger. Pursuant to the Employment Agreements, Mr. Dale
serves as President of the Company and received an annual base salary of
$190,000 (subject to annual adjustment); Mr. Cowan serves as Vice President of
Operations of the Company and received an annual base salary of $150,000
(subject to annual adjustment); Mr. Gadd serves as Vice President of
Administration of the Company and received an annual base salary of $102,000
(subject to annual adjustment); and Mr. Oakley serves as Vice President of Sales
of the Company and received an annual base salary of $130,000 (subject to annual
adjustment). Effective September 1, 1997, Messrs. Dale's, Cowan's, Gadd's and
Oakley's salaries were adjusted to $250,000, $170,000, $130,000 and $150,000,
respectively. In addition to the base salary, each Executive is eligible to be
paid a bonus up to 70% of his respective base salary pursuant to the terms and
conditions of the 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, as of April 29, 1997 and on each anniversary
thereafter, the term of each of the Employment Agreements will automatically be
extended for one additional year (the "Automatic Extension") so that such term
ends two years after such anniversary, unless notice by either the Company or
the Executive to terminate is given 30 days prior to Automatic Extension. If
the Company terminates any Executive without cause, such Executive shall be
entitled to receive all compensation due under his Employment Agreement until
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.
Directors' Compensation
- -----------------------
Directors, all of whom are officers, employees or otherwise affiliates of the
Company, have not, as of March 1, 1998, and are not expected in the future, to
receive compensation for their service 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.
Incentive Compensation Plan
- ---------------------------
The Windy Hill Pet Food Holdings, Inc. Stockholders Agreement ("Stockholders
Agreement") dated as of April 29, 1996 and amended as of May 21, 1997, contains
an incentive compensation arrangement (the "Incentive Plan") as a means by which
certain key employees and other specifically designated persons ("Key
Personnel") of the Company, and/or affiliated with the Company, may be given an
opportunity to benefit from the appreciation in value of the
18
<PAGE>
Company. Under the Incentive Plan, Key Personnel were issued non-voting Class B
Common Stock of Holdings ("Class B Stock"), at a $.01 per share, as a means to
participate in the appreciation of the Company. The Class B Stock is subject to
vesting requirements based on terms of employment or other factors. A portion of
the vesting period was deemed achieved at date of issuance of the Class B Stock.
The holders of vested Class B Stock will be entitled to receive certain payments
or distributions based on the amounts paid or distributed to investors in
Holdings. In general, there will be no payments to holders of vested Class B
Stock until the Preferred Series A and B Stock of Holdings ("Preferred Stock")
and associated accrued and unpaid dividends on the Preferred Stock, and Class A
Common Stock of Holdings ("Class A Stock") have received their respective return
of capital. The type of payment will be cash or non-cash consideration,
depending on the type of distribution to the Holdings' investors. Shares of
Class B Stock are convertible into an equal number of shares of Class A Stock
once the Preferred Stock and Class A Stock have received their priority
distribution.
Based on management's assessment of the valuation of the Company at the date of
issuance of the Class B Stock, there was no excess value attributable to the
Class B stock and therefore, no accrual for compensation expense was necessary.
19
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
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' stock that currently possesses voting rights.
The Class B Common Stock (the "Class B Common Stock") currently does not possess
voting rights until $17.0 million of capital has been returned to the holders of
Holdings' Common Stock and is convertible into Common Stock on a one to one
share basis. As of March 1, 1998, there were 3,131 shares of Holdings' Common
Stock outstanding on a fully diluted basis. The following table sets forth
certain information regarding the expected beneficial ownership of the Common
Stock of Holdings, as of March 1, 1998, by each person who beneficially owns
more than 5% of Holdings' common stock, by the directors and certain executive
officers of Holdings, individually, and by the directors and executive officers
of Holdings as a group.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Percentage of
Shares of Shares of
Name and Address of Owner Common Stock (1) Common Stock (1)
- -------------------------- ---------------- ----------------
5% STOCKHOLDERS:
<S> <C> <C>
Bruckman, Rosser, Sherrill & Co., L.P. 1,391 (2) 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 (3) 9.9%
One PNC Plaza, 19th Avenue
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
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Shares of
OFFICERS AND DIRECTORS: Common Stock (1) Common Stock (1)
---------------- ----------------
<S> <C> <C>
Ian R. Wilson (5) 1,149 36.7%
Robert V. Dale (6) 946 30.2%
Ray Chung (5) 1,149 36.7%
James B. Ardrey (5) 282 9.0%
F. Donald Cowan, Jr. (4) 45 1.4%
Donald L. Gadd (4) 45 1.4%
Vaughn R. Oakley (4) 45 1.4%
Charles Dunleavy (4) 23 0.7%
M. Laurie Cummings (5) 282 9.0%
Kase Lawal (7) 867 27.7%
Stephen C. Sherrill (8) 1,391 44.4%
Stephen F. Edwards (8) 1,391 44.4%
Donald Welge (9) 867 27.7%
Preston G. Walsh (10) 310 9.9%
All directors and executive
officers of Holdings as a group (14 persons) 3,087 98.6%
</TABLE>
(1) 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.
(2) Includes shares held by certain other entities and individuals affiliated
with BRS. BRS disclaims the beneficial ownership of such shares.
(3) Includes 27.77 shares of Class B Common Stock.
(4) Consists solely of shares of Class B Common Stock.
(5) 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 Common Stock held by Dartford.
Messrs. Wilson and Chung are managing members of LLC. Messrs. Wilson and
Chung disclaim the existence of a group and disclaim beneficial ownership of
Common Stock held by LLC.
(6) Includes 79 shares of Class B Common Stock. Mr. Robert V. Dale is a managing
member of LLC and as such, may be deemed to have beneficial ownership of the
Common Stock held by LLC. Mr. Dale disclaims beneficial ownership of the
Common Stock held by LLC.
21
<PAGE>
(7) Mr. Kase Lawal is a director of CAMAC International, Ltd. which is a
managing member of LLC and as such, may be deemed to have the power to vote
or dispose of the shares of Common Stock held by LLC. Mr. Lawal disclaims
any beneficial ownership of the Common Stock held by LLC.
(8) 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.
(9) Mr. Donald Welge is the President and Chief Executive Officer of Gilster-
Marylee Corporation which is a managing member of LLC and as such, may be
deemed to have the power to vote or dispose of the Common Stock held by LLC.
Mr. Donald Welge disclaims beneficial ownership of Common Stock held by LLC.
(10)Mr. Preston Walsh is a Vice President of PNC Equity Management Corp., which
is a subsidiary of PNC Capital Corp. and disclaims beneficial ownership of
Holdings Common Stock and Class B Common Stock held by PNC Capital Corp.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
As of March 1, 1998, the Company has maintained business relationships and
engaged in certain transactions as described below.
The Company is 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. In fiscal
year 1997, the Company paid a total of $807,000 in management fees to Dartford,
a member of LLC, who is a shareholder of Holdings. The annual management fee
was $500,000 prior to the merger of Old Windy Hill and Hubbard and $1.0 million
after the merger of Old Windy Hill and Hubbard. The terms of the Amended and
Restated Management Services Agreement were negotiated among the equity
investors of Holdings. Dartford partners include Mr. Ian R. Wilson, Mr. Ray
Chung, Mr. James B. Ardrey and Ms. M. Laurie Cummings, who are directors and/or
executive officers of the Company.
In connection with the acquisitions of the Heinz pet food brands, Hubbard and
the AGP Business, the Company paid to certain members of LLC and shareholders of
Holdings, who are also represented on the Board of Directors and beneficial
owners, fees for services rendered in connection with the acquisitions and
related financing of the Company's acquisitions. The aggregate amount paid to
certain members of LLC and shareholders of Holdings was $2.7 million and was
funded by the proceeds of the financings. Of this $2.7 million, $2.0 million
was paid to Dartford (whose partners include executive officers and directors as
described in Item 10); and $0.7 million was paid to BRS, of which Mr. Sherrill
and Mr. Edwards are principals (both directors of the Company as described in
Item 10). The fee amounts were negotiated among the equity investors of
Holdings.
22
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
<S> <C> <C>
1. Financial Statements of the Company
Report of KPMG Peat Marwick LLP 31
Balance Sheets 32
Statements of Operations 33
Statements of Changes in Stockholder's Equity 34
Statements of Cash Flows 35
Notes to the Financial Statements 36 through 53
2. Financial Statement Schedule
Schedule IX - Valuation Reserves 54
3. Exhibits 55 through 56
</TABLE>
23
<PAGE>
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit
Number Exhibit
- ------- -------
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 "MergerAgreement") (incorporated by reference to
Exhibit 2.1 to the Windy Hill Pet Food Company, Inc.'s S-4 filed on
September 9, 1997 (the "S-4")).
2.2 Amendment to Merger Agreement, dated as of March 31, 1997 (incorporated
by reference to Exhibit 2.2 to the S-4).
2.3 Articles of Merger, dated May, 21, 1997, of Windy Hill Pet Food
Acquisition Co. into Hubbard Milling Company (incorporated by reference
to Exhibit 2.3 to the S-4).
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 (incorporated by reference to Exhibit 2.4 to the S-4).
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. (incorporated by reference to Exhibit
2.6 to the S-4).
2.7 Asset Purchase Agreement, dated as of April 17, 1996, among Heinz Pet
Products Company, a division of Star-Kist Foods, Inc., Perk Foods Co.,
Incorporated, ProMark International, Inc., Windy Hill Pet Food Holdings,
Inc. and Windy Hill Pet Food Company, Inc. (incorporated by reference to
Exhibit 2.7 to the S-4).
2.8 Amendment to Asset Purchase Agreement, dated as of April 26, 1996, among
Heinz Pet Products Company, a division of 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. (incorporated by reference to Exhibit 2.8 to the S-4).
3.1 Certificate of Amended and Restated Articles of Incorporation of Windy
Hill Pet Food Company, Inc. (incorporated by reference to Exhibit 3.1 to
the S-4).
3.2 By-Laws of Windy Hill Pet Food Company, Inc. (incorporated by reference
to Exhibit 3.2 to the S-4).
4.1 Indenture, dated as of May 21, 1997, between Windy Hill Pet Food
Company, Inc. and Wilmington Trust Company (incorporated by reference to
Exhibit 4.1 to the S-4).
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.2 Form of Exchange Note (contained in Exhibit 4.1 hereto) (incorporated by
reference to Exhibit 4.2 to the S-4).
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 (incorporated by reference to Exhibit 4.3 to the S-
4).
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 (incorporated by reference
to Exhibit 4.4 to the S-4).
10.1 Distribution Agreement, dated May 21, 1997, by and between Windy Hill
Pet Food Company, Inc. and Feed-Rite (US) Animal Feeds, Inc.
(incorporated by reference to Exhibit 10.1 to the S-4).
10.2 License Agreement, dated May 21, 1997, by and between Feed-Rite (US)
Animal Feeds, Inc. and Windy Hill Pet Food Company, Inc. (incorporated
by reference to Exhibit 10.2 to the S-4).
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.
(incorporated by reference to Exhibit 10.3 to the S-4).
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. (incorporated by reference to Exhibit 10.4 to
the S-4).
10.5 Assignment of Trademarks, dated May 21, 1997, by and between Windy Hill
Pet Food Company, Inc. to Feed-Rite (US) Animal Feeds, Inc.
(incorporated by reference to Exhibit 10.5 to the S-4).
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.
(incorporated by reference to Exhibit 10.6 to the S-4).
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. (incorporated by reference to
Exhibit 10.7 to the S-4) .
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
(incorporated by reference to Exhibit 10.8 to the S-4).
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 (incorporated by reference to Exhibit
10.9 to the S-4).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 (incorporated by reference to Exhibit 10.10 to the S-4).
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 (incorporated by reference to Exhibit 10.11 to the S-4).
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 (incorporated by reference to Exhibit 10.12 to the S-4).
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
$3,388,265.30 (incorporated by reference to Exhibit 10.13 to the S-4).
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 (incorporated by reference to Exhibit
10.14 to the S-4).
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 (incorporated by reference to Exhibit 10.15 to the S-
4).
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 (incorporated by reference to Exhibit 10.16 to the S-4).
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 (incorporated by reference to Exhibit 10.17 to the S-
4).
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 (incorporated by
reference to Exhibit 10.18 to the S-4).
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
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Food Company, Inc. and PNC Capital Corp. (incorporated by
reference to Exhibit 10.19 to the S-4).
10.26 Statement of Understanding regarding Pet Food Joint Venture, dated as of
January 28, 1988, between Merrick Pet Foods and Hubbard Milling Company
(incorporated by reference to Exhibit 10.26 to the S-4).
10.27 Joint Venture Agreement, dated as of January 9, 1992, between MFA, Inc.
and Hubbard Milling Company (incorporated by reference to Exhibit 10.27
to the S-4).
10.28 Joint Venture Agreement, dated as of July 28, 1993, between J.R. Simplot
Company and Hubbard Milling Company (incorporated by reference to
Exhibit 10.28 to the S-4).
10.29 Joint Venture Agreement, dated as of April 7, 1995, between Flint River
Mills, Inc. and Hubbard Milling Company (incorporated by reference to
Exhibit 10.29 to the S-4).
10.30 Statement of Understanding regarding Pet Food Ventures, dated as of
August 10, 1993, between Phelps Industries, Inc. and Hubbard Milling
Company (incorporated by reference to Exhibit 10.30 to the S-4).
10.31 Purchase Agreement, dated May 16, 1997, among Windy Hill Pet Food
Acquisition Co., Chase Securities, Inc., and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 10.31 to the S-4).
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 (incorporated by reference to Exhibit 10.32 to the S-4).
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. (incorporated by reference to Exhibit 10.33 to the
S-4).
10.34 License Agreement, dated April 29, 1996, between Park Foods Co.,
Incorporated and Windy Hill Pet Food Company, Inc. (incorporated by
reference to Exhibit 10.34 to the S-4).
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. (incorporated by reference to
Exhibit 10.35 to the S-4).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
(incorporated by reference to Exhibit 10.36 to the S-4).
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 (incorporated by
reference to Exhibit 10.37 to the S-4).
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 (incorporated by reference to Exhibit
10.38 to the S-4).
10.39 Software License Agreement, dated April 29, 1996, between Agri-Data
System, Inc. and Windy Hill Pet Food Company, Inc. (incorporated by
reference to Exhibit 10.39 to the S-4).
10.40 Employment Agreement, dated April 29, 1996, by and between Windy Hill
Pet Food Company, Inc. and Robert V. Dale (incorporated by reference to
Exhibit 10.40 to the S-4).
10.41 Employment Agreement, dated April 29, 1996, by and between Windy Hill
Pet Food Company, Inc. and Donald L. Gadd (incorporated by reference to
Exhibit 10.41 to the S-4).
10.42 Employment Agreement, dated April 29, 1996, by and between Windy Hill
Pet Food Company, Inc. and F. Donald Cowan, Jr. (incorporated by
reference to Exhibit 10.42 to the S-4).
10.43 Employment Agreement, dated April 29, 1996, by and between Windy Hill
Pet Food Company, Inc. and Vaughn R. Oakley (incorporated by reference
to Exhibit 10.43 to the S-4).
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. (incorporated by reference to Exhibit 10.44 to the S-4).
10.45 Letter Agreement, dated April 29, 1996, between Windy Hill Pet Food
Company, Inc. and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated
by reference to Exhibit 10.45 to the S-4).
10.46 Letter Agreement, dated May 21, 1997, among WHPF, Inc., Windy Hill Pet
Food Company, Inc. and Bruckmann, Rosser, Sherrill & Co., Inc.
(incorporated by reference to Exhibit 10.46 to the S-4).
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.47 Termination of Joint Venture at Maumee, Ohio, dated August 31, 1997, by
and between The Andersons, Inc. and Windy Hill Pet Food Company, Inc.
10.48 Lease, dated as of August 31, 1997, by and between The Andersons, Inc.
and Windy Hill Pet Food Company, Inc.
12.1 Statement of Computation of Ratios
27.1 Financial Data Schedule
99.1 Exchange Agent Agreement, dated September 8, 1997, between Windy Hill
Pet Food Company, Inc. and Wilmington Trust Company (incorporated by
reference to Exhibit 99.1 to the S-4).
99.2 Form of Letter of Transmittal (incorporated by reference to Exhibit 99.2
to the S-4).
99.3 Form of Notice of Guaranty Delivery (incorporated by reference to
Exhibit 99.3 to the S-4).
(b) Reports on Form 8-K
None.
</TABLE>
29
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINDY HILL PET FOOD COMPANY, INC.
By: /s/ Robert V. Dale
-------------------
Robert V. Dale President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 27, 1998.
/s/ Robert V. Dale
--------------
Robert V. Dale President and Director
(Principal Executive Officer)
/s/ Charles Dunleavy
----------------
Charles Dunleavy Vice President - Finance
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Ian R. Wilson Chairman of the Board of Directors
-------------
Ian R. Wilson
/s/ Ray Chung Director
---------
Ray Chung
/s/ Kase Lawal Director
----------
Kase Lawal
/s/ Stephen C. Sherrill Director
-------------------
Stephen C. Sherrill
/s/ Stephen F. Edwards Director
------------------
Stephen F. Edwards
/s/ Donald Welge Director
------------
Donald Welge
/s/ Preston G. Walsh Director
----------------
Preston G. Walsh
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholder
Windy Hill Pet Food Company, Inc.:
We have audited the accompanying balance sheets of Windy Hill Pet Food Company,
Inc. (an indirect wholly owned subsidiary of Windy Hill Pet Food Holdings,
Inc.) as of December 27, 1997 and December 28, 1996, and the related statements
of operations, stockholder's equity and cash flows for the years ended December
27, 1997 and 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 December 27, 1997 and December 28, 1996, and the results of its
operations and its cash flows for the years ended December 27, 1997 and December
28, 1996, and for the period from inception through December 30, 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
March 13, 1998
31
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
BALANCE SHEETS
(dollars in thousands)
32
<PAGE>
<TABLE>
<CAPTION>
Company Old Windy Hill
December 27, December 28,
1997 1996
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 731 $ 570
Accounts receivable (net of $372 and $48 allowance, respectively) 19,252 8,224
Accounts receivable - other 709 19
Inventories (Note 4) 13,312 5,141
Prepaid expenses 990 811
Current deferred tax asset (Note 11) 2,335 30
------------ --------------
Total current assets 37,329 14,795
Property, plant and equipment, net (Note 5) 60,774 22,484
Investments in joint ventures (Note 6) 3,527 -
Goodwill and other intangible assets, net (Note 7) 98,465 51,515
Other assets, net (Note 8) 13,612 3,431
----------- --------------
Total assets $ 213,707 $ 92,225
=========== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt (Note 9) $ 1,312 $ 5,800
Senior secured revolving debt facility (Note 9) 2,000 2,000
Accounts payable 20,178 9,816
Accrued liabilities 8,154 2,699
----------- --------------
Total current liabilities 31,644 20,315
Deferred tax liability (Note 11) 12,390 2,252
Senior secured term debt (Note 9) 13,688 35,750
Senior subordinated notes (Note 9) 120,000 7,551
Other liabilities 3,257 325
----------- --------------
Total liabilities 180,979 66,193
----------- --------------
Stockholder's equity:
Common stock, $0.01 par value; 10,000 shares authorized,
100 shares issued and outstanding - -
Paid-in capital 35,458 25,681
Retained earnings (accumulated deficit) (2,730) 351
----------- --------------
Total stockholder's equity 32,728 26,032
=========== ==============
Commitments and contingent liabilities (Notes 9, 12 and 16)
Total liabilities and stockholder's equity $ 213,707 $ 92,225
=========== ==============
</TABLE>
33
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Company Old Windy Hill
-----------------------------------------------------------------------------
Years ended Ten months ended
---------------------------------------
December 27, December 28, December 30,
1997 1996 1995
----------------- ------------------ -------------------
<S> <C> <C> <C>
Net sales $ 164,288 $ 82,993 $ 34,481
Cost of goods sold 113,288 54,379 22,107
----------------- ------------------ -------------------
Gross profit 51,000 28,614 12,374
----------------- ------------------ -------------------
Selling, distribution and marketing expenses:
Selling and distribution 13,442 8,090 4,751
Trade promotions 14,253 8,874 3,732
Consumer marketing 1,285 201 -
----------------- ------------------ -------------------
Total selling, distribution and
marketing expenses 28,980 17,165 8,483
Amortization of goodwill and other intangibles 3,208 1,316 452
General and administrative expenses 7,624 3,618 1,526
Equity in earnings of joint ventures (377) - -
Other expense 54 - -
Transition related costs (Note 10) 1,571 - -
----------------- ------------------ -------------------
Total operating expenses 41,060 22,099 10,461
----------------- ------------------ -------------------
Operating income 9,940 6,515 1,913
Interest income (175) (65) (30)
Interest expense 10,068 3,825 1,155
Amortization of debt issuance costs 715 259 67
Other bank and financing expenses 93 40 -
----------------- ------------------ -------------------
(Loss) income before income taxes and
extraordinary item (761) 2,456 721
Income tax provision 26 1,209 -
----------------- ------------------ -------------------
(Loss) income before extraordinary item (787) 1,247 721
Extraordinary loss on early extinguishment
of debt, net of tax of $1,529 in 1997 and
$0 in 1996 (Note 9) 2,294 604 -
----------------- ------------------ -------------------
Net (loss) income $ (3,081) $ 643 $ 721
================= ================== ===================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Retained
Common Additional Earnings
Members' Stock Paid-in (Accumulated
Capital Shares Capital Deficit) Total
-------------- --------- ------------ --------------- --------
<S> <C> <C> <C> <C> <C>
Capital contribution, net of
syndication costs of $109 $ 5,891 -- $ -- $ -- $ 5,891
Net income -- -- -- 721 721
-------------- --------- ------------ --------------- --------
Balance at December 30, 1995 5,891 -- -- 721 6,612
Contribution of Windy Hill Pet
Food Company, LLC members' capital
to Windy Hill Pet Food Company, Inc.
(Note 1) (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 cost of $210 -- 77 19,790 -- 19,790
Net income -- -- -- 643 643
-------------- --------- ------------ --------------- --------
Balance at December 28, 1996 -- 100 25,681 351 26,032
Contribution of Windy Hill
Pet Food Holdings, Inc., net
of syndication cost of $224 -- -- 9,777 -- 9,777
Net loss -- -- -- (3,081) (3,081)
-------------- --------- ------------ --------------- --------
Balance at December 27, 1997 $ -- 100 $ 35,458 $ (2,730) $32,728
============== ========= ============ =============== ========
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Company Old Windy Hill
---------------------------------------------------------------------------
Years ended Ten months ended
------------------------------------------
December 27, December 28, December 30,
1997 1996 1995
---------------- ------------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (3,081) $ 643 $ 721
Adjustments to reconcile net (loss)
income to cash provided by operating activities:
Depreciation and amortization 6,882 2,719 787
Deferred income taxes 2,197 1,209 --
Early extinguishment of debt, net of tax 2,294 604 --
Gain on sale of fixed assets 4 -- --
Equity in earnings of joint ventures (377) -- --
Operating advances from joint ventures 1,015 -- --
Change in assets and liabilities, net of
effects of businesses acquired:
Increase in accounts receivable (3,665) (3,941) (960)
(Increase) decrease in inventories (1,726) (454) 352
Increase in prepaid expenses (50) (412) (34)
Increase in accounts payable 313 6,250 847
Increase in accrued liabilities 4,436 1,063 --
---------------- ------------------- ------------------
Net cash provided by operating activities 8,242 7,681 1,713
---------------- ------------------- ------------------
Cash flows from investing activities:
Additions to property, plant and equipment (4,175) (1,091) (1,120)
Change to other non-current assets and liabilities (1,087) (357) (321)
Proceeds from sale of assets 51,704 -- --
Payment for acquisition of businesses,
net of cash acquired (135,350) (56,768) (22,165)
---------------- ------------------- ------------------
Net cash used in investing activities (88,908) (58,216) (23,606)
---------------- ------------------- ------------------
Cash flows from financing activities:
Proceeds from senior secured term and revolving
debt 71,500 48,000 17,000
Proceeds from senior subordinated notes 120,000 8,500 --
Repayment of borrowings (109,952) (21,450) --
Capital contributions from Holdings 10,000 19,000 6,000
Debt issuance and syndication costs (10,721) (3,272) (780)
---------------- ------------------- ------------------
Net cash provided by financing activities 80,827 50,778 22,220
---------------- ------------------- ------------------
Increase in cash and cash equivalents 161 243 327
Cash and cash equivalents, beginning of period 570 327 --
---------------- ------------------- ------------------
Cash and cash equivalents, end of period $ 731 $ 570 $ 327
================ =================== ==================
Supplemental cash flow disclosure:
Cash paid for interest $ 6,660 $ 3,759 $ 1,179
Income taxes paid $ 8,806 $ -- $ --
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
- --------------------
ORGANIZATION
Windy Hill Pet Food Company, Inc., (the "Company") a Minnesota corporation, is a
manufacturer of private label and economy branded pet food products. The
Company is an indirectly-owned subsidiary of Windy Hill Pet Food Holdings, Inc.
("Holdings"), which is a Delaware corporation. The Company commenced operations
March 1, 1995, under its previous ownership structure as Windy Hill Pet Food
Company, L.L.C. ("LLC"). In connection with the Company's acquisition of
certain brands from Heinz Pet Products ("Heinz") in April 1996, as further
described in Note 3, LLC's net assets were contributed at net book value to
Holdings. On May 21, 1997, Windy Hill Pet Food Acquisition Co., a newly formed
indirect subsidiary of Holdings, merged with and into Hubbard Milling Company
("Hubbard"), and Windy Hill Pet Food Company, Inc. ("Old Windy Hill") purchased
all of the stock of Armour Corporation. Concurrently, Hubbard, the surviving
corporation in the merger, was renamed Windy Hill Pet Food Company, Inc., and
Holdings transferred all of the operating assets and liabilities of Old Windy
Hill to the Company (Note 3). The Company was capitalized with a senior secured
term debt facility and senior subordinated notes (Note 9).
OPERATIONS
The Company manufactures and sells dog and cat food products and treats, which
are sold throughout the United States. The products are manufactured out of
thirteen plants, nine of which are wholly owned and four of which are managed
under joint venture agreements in which the Company owns a 50% equity interest.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The policies utilized by the Company in the 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.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday of December. Certain prior
year amounts have been reclassified to conform to the current year's
presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with a maturity of
three months or less to be cash equivalents.
37
<PAGE>
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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the individual assets ranging from four to thirty years. Costs
which improve an asset or extend its useful life are capitalized, while repairs
and maintenance costs are expensed as incurred. Leasehold improvements are
amortized over the estimated useful life of the property or over the terms of
the leases, whichever is shorter.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets include goodwill, trademarks and certain
identifiable intangible assets. Trademarks and goodwill are being amortized over
four to forty years using the straight-line method. Other intangible assets are
being amortized using the straight-line method over periods ranging from four to
five years. Amortization of goodwill and other intangible assets charged against
income during the years ended December 27, 1997 and December 28, 1996 and the
ten months ended December 30, 1995 was $2.9 million, $1.1 million and $294,000,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held for
disposal. The Company has evaluated the carrying value for evidence of
impairment, and management believes at December 27, 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 future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of the asset will be impacted if
estimated future operating cash flows are not achieved.
OTHER ASSETS
Other assets consist of debt issuance costs, packaging design costs, and other
miscellaneous assets. Debt issuance costs of the senior subordinated notes are
being amortized using the interest method over the term of the respective notes.
Debt issuance costs of the senior secured debt are being amortized using the
straight-line method over the terms of the related debt. Aggregate
38
<PAGE>
amortization of debt issuance costs and other assets charged against income in
the years ended December 27, 1997 and December 28, 1996 and the ten months ended
December 30, 1995 was $715,000, $259,000 and $67,000, respectively. Amortization
of packaging design costs charged against income in the years ended December 27,
1997 and December 28, 1996 and the ten months ended December 30, 1995 was
$283,000, $205,000 and $158,000, respectively.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the fair
value of its financial instruments approximates book value at December 27, 1997
and December 28, 1996, based on terms currently available to the Company in
financial markets for similar instruments.
CONCENTRATION OF CREDIT RISK
The Company sells its products to supermarkets, wholesalers and other retailers.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains reserves for potential credit
losses and had no significant concentration of credit risk at December 27, 1997
and December 28, 1996.
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 bases of assets and liabilities.
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
On April 29, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of the Kozy Kitten( and Tuffy's( dry pet food brands
(the "Heinz Business") from Heinz Pet Products ("Heinz"), a division of Heinz,
Inc. The purchase price was $52.5 million, which included a contractually
agreed upon amount of working capital (as defined in the agreement). In
conjunction with the acquisition, the Company and Heinz entered into a royalty-
free licensing agreement, which entitles the Company to use the Kozy Kitten
trademark and trade name for dry cat food until April 29, 2006. The Trademark
License and Option Agreement gives the Company the irrevocable right to purchase
the trademark and trade name from Heinz no earlier than April 29, 2001 and no
later than April 29, 2006 for a cash payment of $2.5 million. The acquired
assets also included a manufacturing facility in Perham, Minnesota. The
acquisition was accounted for using the purchase method of accounting and the
results of operations have been included since the date of acquisition.
In order to effect the Heinz Business acquisition and to refinance the $17.0
million of existing debt of LLC at April 29, 1996, the Company entered into a
series of financings, as further described in Note 9. The financings included
(i) a capital contribution of $19.8 million from Holdings, (ii) senior secured
term debt of $43.0 million and a senior secured revolving debt
39
<PAGE>
facility of $9.0 million, and (iii) issuance of a senior subordinated note in
the amount of $8.5 million.
The purchase price of the acquired Heinz Business has been allocated to tangible
and intangible assets as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash paid to acquire assets $52,500
Other acquistion costs 4,257
-------
56,757
Cost assigned to net tangible assets (19,282)
-------
Cost assigned to intangible assets $37,475
=======
</TABLE>
Concurrent with the 1996 purchase of assets, the Company and Heinz entered into
a five year co-packing agreement in which the Company will manufacture certain
pet food products for Heinz. The agreement requires Heinz to meet a minimum
supply amount at a co-packing rate which covers the variable costs of the pet
food products as well as an amount to cover a specified rate of fixed costs at
the Perham facility where the products are manufactured.
On May 21, 1997, Windy Hill Pet Food Acquisition Co. merged with and into
Hubbard, and Old Windy Hill purchased all of the capital stock of Armour
Corporation, a holding company which prior to the closing of the transaction
owned 5% of the capital stock of Hubbard and after the consummation of the
transaction owned 39% of the capital stock of Hubbard. Concurrently, Hubbard,
the surviving corporation in the merger, was renamed Windy Hill Pet Food
Company, Inc., and Old Windy Hill transferred all the operating assets and
liabilities, including $27.0 million of equity and $51.0 million of indebtedness
(the "Existing Indebtedness") of Old Windy Hill to the Company. The net
combined purchase price of Hubbard and the Armour Corporation stock was
approximately $131.1 million (net of cash acquired). For financial reporting
purposes, these transactions were accounted for as a purchase of Hubbard by Old
Windy Hill and the results of operations of Hubbard have been included since the
date of acquisition. The allocation of the purchase price has been finalized.
The acquisition and the repayment of Existing Indebtedness was financed with (i)
a $9.8 million net capital contribution from Holdings, (ii) term debt of $20.0
million and revolving debt of $45.0 million under a $65.0 million senior secured
debt facility, and (iii) proceeds from the issuance of $120.0 million of senior
subordinated notes. Immediately following the merger, the Company sold its
animal feed business to Feed-Rite (US) Animal Feeds, Inc., a subsidiary of the
Ridley Group. The net after tax proceeds, subject to certain adjustments, were
approximately $50.0 million. The net proceeds were used to repay $5.0 million
of the senior secured term debt and $45.0 million of net senior secured
revolving debt facility.
40
<PAGE>
The purchase price of the acquisition has been allocated to tangible and
intangible assets (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash paid to acquire business, net of cash acquired $131,052
Other acquistion costs 5,438
--------
136,490
Cost assigned to net tangible assets and assets held
for sale (86,305)
--------
Cost assigned to intangible assets $ 50,185
========
</TABLE>
The unaudited pro forma information below has been prepared assuming the
businesses were acquired December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Years ended
---------------------------------------
December 27, December 28,
1997 1996
------------------ ------------------
<S> <C> <C>
Net sales $ 208,100 $ 216,709
================== ==================
Income before taxes and
extraordinary item 882 4,465
================== ==================
Net (loss) income $ (1,625) $ 2,679
================== ==================
</TABLE>
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have
resulted had the acquisitions occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead and general and administrative expenses.
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------------ -------------------
<S> <C> <C>
Raw materials $ 3,004 $ 1,253
Packaging supplies 5,536 2,339
Finished goods 4,772 1,549
------------------ -------------------
$ 13,312 $ 5,141
================== ===================
</TABLE>
At December 27, 1997, the Company had commitments to purchase raw materials
aggregating approximately $13.2 million.
41
<PAGE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------------ ------------------
<S> <C> <C>
Land $ 2,663 $ 203
Machinery and equipment 42,882 17,043
Buildings and improvements 16,328 6,266
Furniture and fixtures 1,390 238
Computer equipment 127 70
Construction-in-progress 1,626 11
------------------ ------------------
65,016 23,831
Less accumulated depreciation (4,242) (1,347)
------------------ ------------------
$ 60,774 $ 22,484
================== ==================
</TABLE>
At December 27, 1997, the Company had commitments for facility construction and
related machinery and equipment purchases aggregating approximately $332,000.
NOTE 6 INVESTMENTS IN JOINT VENTURES
- -------------------------------------
The Company has a 50% equity interest in each of four manufacturing joint
ventures with each of the following joint venture partners, none of which are
affiliates of the Company or Holdings: Merrick PetFoods, Inc., MFA, Inc., J.R.
Simplot Company, and Flint River Mills, Inc. The Company accounts for the joint
ventures using the equity method of accounting.
NOTE 7 GOODWILL AND OTHER INTANGIBLE ASSETS
- --------------------------------------------
Goodwill and other intangible assets consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------------ ------------------
<S> <C> <C>
Goodwill $ 35,122 $ 7,588
Trademarks 66,807 45,000
Other intangibles 852 332
------------------ ------------------
102,781 52,920
Less accumulated amortization (4,316) (1,405)
------------------ ------------------
$ 98,465 $ 51,515
================== ==================
</TABLE>
42
<PAGE>
NOTE 8 OTHER ASSETS
- --------------------
Other assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------------ ------------------
<S> <C> <C>
Debt issuance costs $ 10,464 $ 2,978
Defined benefit pension plan asset 2,474 -
Packaging, plate cost and other costs 1,899 1,059
------------------ ------------------
14,837 4,037
Less accumulated amortization (1,225) (606)
------------------ ------------------
$ 13,612 $ 3,431
================== ==================
</TABLE>
43
<PAGE>
NOTE 9 - LONG TERM DEBT
- -----------------------
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------ ------------
<S> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A-1 debt; interest rate of 8.29% at December 28, 1996 $ -- $ 27,550
Senior secured tranche A-2 debt; interest rate of 8.29% at December 28, 1996 -- 14,000
Senior secured revolving debt facility - interest rate of 8.37% at December 28, 1996 -- 2,000
Senior secured term debt - interest rate of 8.38% at December 27, 1997; principal
due in quarterly installments through November 21, 2003; floating interest rate at
the prime rate plus 1.5% or, alternatively, the one, three or six month Eurodollar rate
plus 2.5% payable quarterly at the termination of the Eurodollar contract period 15,000 --
Senior secured revolving debt facility - interest rate of 10.0% at December 27, 1997;
principal due November 21, 2003; floating interest rate at the prime rate plus 1.50%
or alternatively, the one, three, or six month Eurodollar rate plus 2.50%; payable
quarterly or at the termination of the Eurodollar contract period 2,000 --
SENIOR SUBORDINATED NOTES
Senior subordinated note issued April 29, 1996; coupon interest rate of 12.0% with
interest payable quarterly; net of original issue discount of $949,000 -- 7,551
Senior subordinated notes issued May 15, 1997 at par value of $120,000; coupon interest
rate of 9.75% with interest payable each May 15 and November 15; matures on May 15, 2007 120,000 --
------------ ------------
137,000 51,101
Less: current portion of senior secured debt (1,312) (5,800)
current portion of senior secured revolving debt facility (2,000) (2,000)
------------- -------------
Long term debt $ 133,688 $ 43,301
============= =============
</TABLE>
Annual principal payments for the next five years and thereafter consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 3,312
1999 1,781
2000 2,156
2001 2,531
2002 2,906
Thereafter 124,314
------------
$ 137,000
============
</TABLE>
44
<PAGE>
SENIOR SECURED DEBT
Old Windy Hill and Holdings entered into a Credit and Guarantee Agreement, dated
April 29, 1996 (the "Agreement"), with several banks for $43.0 million of senior
secured term debt and a senior secured revolving debt facility. The proceeds
from the debt were used to acquire certain assets and brands from Heinz, pay
fees and expenses and fund working capital. The debt was guaranteed by Holdings
and Old Windy Hill. The Agreement contained optional prepayment provisions with
no premium. Substantially all of the assets of Old Windy Hill were pledged as
collateral for the debt.
The Agreement included $9.0 million of available borrowing under a senior
secured revolving debt facility, of which $2.5 million was reserved to support
the Trademark License and Option Agreement (Note 3). The available borrowings
were also subject to limitations related to aggregate inventory and accounts
receivable levels. The Agreement required a commitment fee of 0.50% per annum
payable quarterly on the unused portions of the revolving debt facility.
In conjunction with the acquisition of Hubbard, the Company entered into a
Credit Agreement, dated May 21, 1997 (the "Credit Agreement"), among Windy Hill
Pet Food Acquisition Co., Credit Suisse First Boston, The Chase Manhattan Bank
and the several banks and other financial institutions parties thereto, which
provided the Company with senior secured debt facilities (the `Senior Bank
Facilities") in the aggregate principal amount of $85.0 million. The proceeds
from the Senior Bank Facilities and the $120.0 million senior subordinated notes
were used to retire the senior secured term debt and the senior secured
revolving debt facility under the Agreement.
The Senior Bank Facilities consist of (i) a senior secured term loan facility
providing for term loans to the Company in a principal amount of $20.0 million
(the "Term Loan Facility"), (ii) an acquisition debt facility (the "Acquisition
Facility") providing revolving loans to the Company for permitted acquisitions
in a principal amount of $45.0 million, and (iii) a working capital revolving
debt facility providing for revolving loans to the Company and the issuance of
letters of credit for the account of the Company as well as swing line loans in
an aggregate principal amount of $20.0 million. The senior secured working
capital debt facility is subject to a commitment fee of 0.5% per annum payable
quarterly on the unused portions of the facility.
As a result of the Hubbard and Heinz acquisitions, the Existing Indebtedness and
the $17.0 million of existing debt of LLC were refinanced and in conjunction
with the retirement of those debt facilities, $2.6 million (together with
unamortized note discounts and other charges totaling $1.2 million in fiscal
1997) and $604,000 of debt issuance costs were written off as extraordinary
items in the statements of operations for the years ended December 27, 1997 and
December 28, 1996, respectively. The effective tax rate was applied to the
write-off for the year ended December 27, 1997, while no income tax effect was
reflected to the write-off for the year ended December 28, 1996, as the write-
off was attributable to the members of LLC.
The Credit Agreement includes restrictive covenants, which limit borrowings,
cash dividends, and capital expenditures, while also requiring the Company to
maintain certain financial ratios. The Company was in compliance with these
covenants at December 27, 1997.
45
<PAGE>
SENIOR SUBORDINATED NOTES
On April 29, 1996, Old Windy Hill issued a senior subordinated note (the "Old
Note") in the amount of $8.5 million to a bank. The Old Note could be prepaid
at any time, subject to a prepayment penalty of 4% in the first year, 3% in the
second year, 2% in the third year, and 1% in the fourth year, and no prepayment
penalty thereafter.
The Old Note included a provision for warrants for 10% of the stock of Holdings
with a nominal exercise price. The warrants were subject to anti-dilution
covenants. The warrants would have expired the later of ten years from the date
of issuance or four years after the Old Note has been repaid. The warrants were
freely assignable and detachable. The holder of the Old Note also had the right
to "put" the warrants or stock to Holdings, beginning after the earlier of five
years from the closing, a sale or merger of the Company, or an event of default
on the Old Note. The value assigned to the warrants as of the issuance date was
$1.0 million and was recorded at Holdings and contributed to Old Windy Hill as
paid in capital. The capital contribution was recorded by Old Windy Hill with a
corresponding discount to the value of the Old Note. The discount was being
amortized over eight years, or the life of the Old Note. Accumulated
amortization as of December 28, 1996 was $51,000. In conjunction with the
acquisition of Hubbard, the holder of the Old Note exercised its warrants for
common and preferred stock of Holdings and a note due from Holdings for
$416,667.
In conjunction with the acquisition of Hubbard on May 21, 1997, the Company
issued $120.0 million of senior subordinated notes (the New Notes). The
proceeds from the New Notes, along with the proceeds from the Senior Bank
Facilities and a capital contribution from Holdings (Note 3), were used to (i)
retire the senior secured term debt and the senior secured revolving debt
facility financed under the Agreement, (ii) retire the Old Note and (iii)
acquire Hubbard. In connection with the retirement of the Old Note, $606,000 of
debt issuance costs were written off as an extraordinary item in the statement
of operations for the year ended December 27, 1997. The effective tax rate was
applied to the extraordinary item.
The Company may redeem the New Notes at any time after May 15, 2002, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem up to $42.0 million of the New Notes at any time prior to May
15, 2002, subject to certain requirements, with the cash proceeds received from
one or more equity offerings (as defined), at a redemption price of 109.750%
together with accrued and unpaid interest. Upon a change of control (as
defined), the Company has an option at any time prior to May 15, 2002, to redeem
the New Notes at a redemption price of 100% plus the applicable premium (as
defined), together with accrued and unpaid interest. If the Company does not
redeem the New Notes or if the change of control occurs after May 15, 2002, the
Company is required to offer to repurchase the New Notes at a price equal to
101% together with accrued and unpaid interest.
The New Notes include restrictive covenants, which limit additional borrowings,
cash dividends, sale of assets, mergers and the sale of stock. The Company was
in compliance with these covenants at December 27, 1997.
46
<PAGE>
INTEREST RATE HEDGE AGREEMENTS
The Company uses interest rate collar agreements (the "Agreements") to reduce
the impact of changes in interest rates on its floating rate term debt.
Premiums paid for such Agreements are being amortized to debt issuance costs
over the terms of the Agreements. Unamortized premiums are included in other
assets in the balance sheets. Amounts to be paid or received, if any, under the
Agreements are recognized as an increase or decrease, respectively, in interest
expense. The counterparty to the Company's Agreements is a major financial
institution.
The current effective cap rate is set at 7.50% (plus the applicable margin).
The effective floor rate is set at 5.50% (plus the applicable margin). The
notional principal under the Agreements is $25.0 million. As of December 27,
1997, and December 28, 1996, the Company had total variable rate debt
outstanding in the amount of $17.0 million and $43.6 million, respectively. The
aggregate premiums paid for the Agreements was $103,000.
Under the Agreements, the Company would receive payments from the counterparty
if the three month LIBOR rate exceeds the cap rate and make payment to the
counterparties if the three month LIBOR rate falls below the floor rates. The
payments would be calculated based upon the respective notional principal
amount. During fiscal 1997 and 1996 the Company made no payments under the
Agreements. At December 27, 1997, the three-month LIBOR rate was 5.91%.
Risk associated with the Agreements include those associated with changes in
market value and interest rates. At December 27, 1997, the fair value of the
Company's interest rate collars was immaterial and management considers the
potential loss in future earnings and cash flows attributable to such Agreements
to be immaterial.
NOTE 10 - TRANSITION RELATED COSTS
- ----------------------------------
Transition related expenses represent one time costs incurred to integrate the
Hubbard acquisition. These costs include transitional employee compensation,
relocation expenses, recruiting fees, training costs, system conversion costs
and other unique transitional expenses. Transition related costs for the year
ended December 27, 1997 were approximately $1.6 million.
NOTE 11 - INCOME TAXES
- ----------------------
The Company files its 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 laws
in each state. The Company's income tax provision is computed as if all income
tax returns were filed on a separate company basis.
47
<PAGE>
The provision for income taxes is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Years ended
---------------------------------------
December 27, December 28,
1997 1996
------------------ ------------------
<S> <C> <C>
Current tax benefit:
Federal $ (8,593) $ -
State (1,598) -
------------------ ------------------
Total current benefit (10,191) -
------------------ ------------------
Deferred tax expense:
Federal (8,576) 938
State (1,589) 271
------------------ ------------------
Total deferred provision (10,165) 1,209
------------------ ------------------
Total income tax provision $ 26 $ 1,209
================== ==================
The Company's tax provision in 1997 reflects taxes paid on the gain
for tax purposes on the sale of the animal feed business as well as the
recognition of a $12.3 million reduction in deferred taxes established
for the gain at the time of the acquisition of Hubbard.
No income tax provision was recorded in fiscal 1995 as the Company's
Predecessor was organized as a limited liability Company.
December 27, December 28,
Deferred tax assets (liabilities) consist of the following: 1997 1997
------------------ -------------------
Deferred tax assets - current:
Post-retirement benefits $ 1,006 $ -
Accrued expenses 502 -
Package design costs 323 -
Other 504 30
------------------ ------------------
Total deferred tax assets - current 2,335 30
------------------ ------------------
Deferred tax assets - non-current
State taxes 666 -
Net operating losses - 693
------------------ ------------------
Total deferred tax assets - non-current 666 693
------------------ ------------------
Deferred tax liabilities - non-current:
Depreciation (7,805) -
Goodwill (4,144) (2,743)
Prepaid Pension (981) -
Other (126) (202)
------------------ ------------------
Total deferred tax liabilities - non-current (13,056) (2,945)
------------------ ------------------
Net deferred tax liability $ (10,055) $ (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 are more likely than
not to be realized.
48
<PAGE>
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences (dollars in thousands):
<TABLE>
<CAPTION>
Years ended
----------------------------------------
December 27, December 28,
1997 1996
------------------- -------------------
<S> <C> <C>
(Benefit) provision for income taxes at U.S.
statutory rate $ (259) $ 965
(Decrease) increase in tax resulting from:
Nondeductible expenses 314 65
State taxes, net of federal benefit (29) 179
------------------- -------------------
$ 26 $ 1,209
=================== ===================
</TABLE>
NOTE 12 - LEASES
- ----------------
The Company leases certain facilities, machinery and equipment under operating
lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2012.
Future annual minimum lease payments under these leases are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 890
1999 850
2000 748
2001 607
2002 604
Thereafter 2,037
-------------
$ 5,736
============
</TABLE>
Rent expense was $669,000 for the year ended December 27, 1997 and $248,000 for
the year ended December 28, 1996.
NOTE 13 - SAVINGS AND BENEFIT PLANS
- -----------------------------------
The Company maintains a defined contribution plan for all employees with
eligibility conditioned upon full time employment. The Company makes annual
contributions based upon a percent of the employee's annual taxable wages.
Vesting in the plan is according to a graduated scale of one third per year with
full vesting at the end of the third year of employment. The employer
contribution for the years ended December 27, 1997 and December 28, 1996 was
$369,000 and $206,000, respectively. Eligible employees are also given the
opportunity to make their own contributions to the plan on a tax deferred basis.
49
<PAGE>
EMPLOYEE BENEFIT PLANS
In connection with the acquisition of Hubbard, the Company acquired two
noncontributory, defined benefit pension plans covering hourly and salaried
employees. The following tables set forth the funded status of the pension
plans and the amount recognized in the Company's balance sheet as of December
27, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Hourly Salaried
Plan Plan Total
---------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 5,382 $ 9,739 $ 15,122
Nonvested 325 311 636
-------- -------- --------
Accumulated benefit obligation 5,707 10,050 15,758
Effect of projected future salary increases 1 939 940
-------- -------- --------
Projected benefit obligation 5,708 10,989 16,698
Market value of plan assets 5,894 15,323 21,217
-------- -------- --------
Plan assets in excess
of projected benefit obligation 186 4,334 4,519
Unrecognized net gain (596) (1,449) (2,045)
-------- -------- --------
( Pension liability) prepaid pension cost $ (410) $ 2,885 $ 2,474
======== ======== ========
The net periodic pension cost (benefit) components
were as follows for the year ended December 27, 1997 (dollars in thousands):
Service cost earned
during the year $ 54 $ 148 $ 202
Interest cost on projected
benefit obligation 277 531 808
Actual return on plan assets (1,340) (2,775) (4,115)
Deferred gain 987 1,882 2,869
-------- -------- --------
Pension (benefit) $ (22) $ (214) $ (236)
======== ======== ========
</TABLE>
50
<PAGE>
The principal actuarial assumptions used for December 27, 1997 were:
<TABLE>
<CAPTION>
Hourly Salaried
Plan Plan
--------- ----------
<S> <C> <C>
Discount rate 7.25% 7.25%
Long-term rate of compensation increase 5.0% 5.0%
Long-term rate of return on plan assets 8.0% 8.0%
</TABLE>
OTHER BENEFITS
In connection with the acquisition of Hubbard, the Company acquired a retiree
medical payment plan, which provides health care benefits for eligible retired
associates and their covered dependents and spouses. Employees must be 55 years
or older with 10 years of service upon retirement to be eligible for coverage
under the current plan. Depending on the date of retirement, the retiree must
pay the premium cost associated with health care coverage. The plan is not
funded.
The accumulated post-retirement obligation included the following components
(dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Retirees $ 2,046
Eligible active plan participants 114
Other active plan participants 672
---------
Accumulated post retirement benefit obligation 2,832
Unrecognized loss 318
---------
Accrued post-retirement benefit obligation $ 2,514
=========
</TABLE>
Under Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefit Other Than Pensions", postretirement
benefit expense included the following components (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current service $ 27
Interest on accumulated benefits obligation 111
-------
Total postretirement benefit expense $ 138
=======
</TABLE>
The discount rate used to determine the accumulated post-retirement benefit
obligation was 7.25%. The assumed health care cost trend rate used to measure
the obligation was 9.7% for 1997. A one-percentage point increase in the
assumed health care cost trend rate would have increased the 1997 accumulated
post-retirement obligation by $341,000.
51
<PAGE>
NOTE 14 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company is party to an Amended and Restated Management Services Agreement,
dated as of May 2, 1997, with Dartford Partnership, L.L.C. ("Dartford") pursuant
to which Dartford provides management oversight to the Company. Management
services provided by Dartford include, but are not limited to, operations
oversight, corporate and financial planning, identification of possible
acquisitions and advice on the financing thereof and definition and development
of business opportunities. The Company paid a total of $807,000 in management
fees to Dartford, a member of LLC, who is also a shareholder of Holdings. The
annual management fee was $500,000 prior to the merger of Old Windy Hill and
Hubbard, and $1.0 million after the merger of Old Windy Hill and Hubbard. The
terms of the Amended and Restated Management Services Agreement were negotiated
among the equity investors of Holdings.
In connection with the acquisitions of the Heinz pet food brands and Hubbard,
the Company paid to certain members of LLC and shareholders of Holdings, who are
also represented on the Board of Directors or officers of the Company and
beneficial owners, fees for services rendered in connection with the
acquisitions of Heinz pet food brands and Hubbard and related financing of
acquisitions. The aggregate amount paid to certain members of LLC and
shareholders of Holdings was $2.5 million and was funded by the proceeds of the
financings. Of this $2.5 million, $1.8 million was paid to Dartford and $0.7
million was paid to Bruckmann, Rosser, Sherrill & Co. The fee amounts were
negotiated among the equity investors of Holdings.
NOTE 15 INCENTIVE COMPENSATION PLAN
- ------------------------------------
The Windy Hill Pet Food Holdings, Inc. Stockholders Agreement ("Stockholders
Agreement") dated as of April 29, 1996 and amended as of May 21, 1997, contains
an incentive compensation arrangement (the "Incentive Plan") as a means by which
certain key employees and other specifically designated persons ("Key
Personnel") of the Company, and/or affiliated with the Company, may be given an
opportunity to benefit from the appreciation in value of the Company. Under the
Incentive Plan, Key Personnel were issued non-voting Class B Common Stock of
Holdings ("Class B Stock"), at a $.01 per share, as a means to participate in
the appreciation of the Company. The Class B Stock is subject to vesting
requirements based on terms of employment or other factors. A portion of the
vesting period was deemed achieved at date of issuance of the Class B Stock.
The holders of vested Class B Stock will be entitled to receive certain payments
or distributions based on the amounts paid or distributed to investors in
Holdings. In general, there will be no payments to holders of vested Class B
Stock until the Preferred Series A and B Stock of Holdings ("Preferred Stock")
and associated accrued and unpaid dividends on the Preferred Stock, and Class A
Common Stock of Holdings ("Class A Stock") have received their respective return
of capital. The type of payment will be cash or non-cash consideration,
depending on the type of distribution to the Holdings' investors. Shares of
Class B Stock are convertible into an equal number of shares of Class A Stock
once the Preferred Stock and Class A Stock have received their priority
distribution.
52
<PAGE>
Based on management's assessment of the valuation of the Company at the date of
issuance of the Class B Stock, there was no excess value attributable to the
Class B stock and therefore, no accrual for compensation expense was necessary.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the ultimate outcome of any existing litigation will not
have a material adverse effect on the Company's financial condition or results
of operations.
NOTE 17 - SUBSEQUENT EVENT
- -------------------------
On February 23, 1998, the Company acquired all of the assets of the pet food
division (the "AGP Business") of Consolidated Nutrition, L.C. The assets
acquired by the Company include four plants located in the states of Alabama,
Kansas, Missouri and Nebraska. The Company intends to use the acquired assets
to produce its current products. The purchase price was approximately $12.4
million. The acquisition was accounted for using the purchase method of
accounting. The Company financed the acquisition of the AGP Business and
related costs with a $12.5 million borrowing under the terms of its Acquisition
Facility.
53
<PAGE>
Schedule IX - Valuation Reserves
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
-------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Year
--------------------------------------- ------------- --------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
December 28, 1996 Allowance for doubtful accounts $ 20,000 $ 28,000 $ - $ - $ 48,000
======== ======== ======== ========== ========
December 27, 1997 Allowance for doubtful accounts $ 48,000 $ 49,000 $275,000 $ - $372,000
======== ======== ======== ========== ========
</TABLE>
54
<PAGE>
Exhibit 12.1
Windy Hill Pet Food Company, Inc.
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended
---------------------------------------
December 27, December 28,
1997 1996
------------------ ------------------
<S> <C> <C>
Income (loss) before income taxes $ (761) $ 2,456
Fixed charges:
Interest expense 10,068 3,825
Amortization of debt issuance costs 715 259
Interest portion of rentals 223 248
------------------ ------------------
Earnings available for fixed charges $ 10,245 $ 6,788
================== ==================
Fixed charges:
Interest expense $ 10,068 $ 3,825
Amortization of debt issuance costs 715 259
Interest portion of rentals 223 248
------------------ ------------------
$ 11,006 $ 4,332
================== ==================
Ratio of earnings to fixed charges (A) 1.57
================== ==================
</TABLE>
(1) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income (loss) before income taxes and fixed charges.
Fixed charges consist of interest expense, whether expensed or capitalized,
including amortization of debt issuance costs and the portion (one-third)
of rental expense that management believes is representative of the
interest component of rent expense.
(A) As a result of the loss before income taxes incurred during the year ended
December 27, 1997, the Company was unable to fully cover the indicated
fixed charges.
55
<PAGE>
EXHIBIT 10.47
AGREEMENT
---------
This Agreement dated as of the 31 day of August 1997, is entered into by
and between The Andersons, Inc. ("Andersons") a corporation organized under
the laws of the state of Ohio, and Windy Hill Pet Food Company, Inc., formerly
known as Hubbard Milling Company (for the purpose of this Agreement hereafter
referred to as "Hubbard"), a Minnesota corporation.
WITNESSETH
WHEREAS, the parties have engaged in business as a joint venture,
("Venture") pursuant to a Statement of Understanding dated June, 1, 1984, as
amended ("Statement of Understanding"); and
WHEREAS, the parties desire to dissolve and terminate the joint venture
relationship; and
WHEREAS, the parties have agreed upon a program of liquidation and
distribution.
IT, IS, THEREFORE, agreed as follows:
1. Dissolution. Pursuant to Item 30 of Statement of Understanding,
-----------
Hubbard and Andersons shall proceed to wind up and liquidate the affairs and
assets of Venture. The proceeds of such liquidation shall be applied and
distributed in the following order of priority:
(i) to payment of debts and liabilities of Venture and expenses of
liquidation;
(ii) to the setting up of a reserve in the amount of One Hundred
Thousand Dollars ($100,000.00) for contingent or unforseen
liabilities or obligations of Venture arising out of or in
connection with Venture; said reserves shall be paid over by
Hubbard to Andersons as escrow agent, to be held for the
purposes of disbursing such reserves in payment of any of the
aforementioned contingencies; on November 3, 1997, Andersons
shall distribute the balance thereof remaining in the manner
set forth in subparagraph (iii) below;
(iii) any balance remaining after the application of subparagraphs
(i) and (ii) of the Paragraph 1, to Hubbard.
In connection with such dissolution, Andersons shall transfer to
Hubbard its ownership interest in those assets of Venture which were formerly
jointly owned by the parties effective August 31, 1997 ("Termination Date").
Each party shall pay or receive those monies set forth in Exhibit A in
connection with such transfer. Upon each party's receipt of these payments,
then, Venture shall be dissolved effective Termination Date. As of Termination
Date, each party's rights and obligations under the Statement of Understanding
shall end.
2. Payment Term. Payment of amounts pursuant to subparagraph (iii) of
------------
Paragraph 1 above plus interest, if any, shall be made on Termination Date to
each party via wire transfer of funds to that party's account as follows:
Andersons: First Chicago NBD
One First National Plaza
Chicago, IL 60670-0196
ABA 071000013
Account #5690005
1
<PAGE>
Hubbard: NationsBank
ABA 061000052
Lock Box Account: 0102340297
For any delay in making payments beyond Termination Date, each party
shall receive interest on its payment computed daily at a per annum rate of
prime as set forth in the Wall Street Journal under "Money Market Rates".
-------------------
3. Payments of Debts. Venture books will be closed as of Termination
-----------------
Date. All debts of Venture will be paid or accrued, including all tax
liabilities payable by venture.
4. Distribution of Cash and Property. As of the Termination Date, the
--------------------
following shall occur Hubbard shall receive title to inventory and assets set
forth in Exhibit A, Item c. Venture's insurance coverage shall terminate as
of the date mutually agreed to by the parties.
5. Name. Hubbard and Andersons agree that neither party has acquired
----
any right to use the other party's name in connection with that party's
business activities because of Venture relationship.
6. Payments. Subsequent to termination Date and, except as otherwise
--------
provided in this Agreement, Hubbard and Andersons agree to share equally in
any payments or credits received by Venture.
7. Claims. Both parties acknowledge that, except for their rights under
------
Paragraph 9 of this Agreement, each party has no claims whatsoever against the
other party arising out of Venture. If either of the parties hereto shall
hereafter be held individually liable for a Venture debt or obligation of
Venture not paid or provided for under this Agreement including, but not
limited to, any environmental claims, such party shall have a claim over
against the other party for one-half of all amounts paid by that party
including any reasonable attorney fees. Each party shall promptly give the other
party notice of said claim. Both parties agree to cooperate on resolution of
such claims.
8. Indemnification. Effective as of Termination Date, Hubbard shall
---------------
indemnify and hold Andersons harmless against and from any and all claims,
demands, fines, suits, actions, proceedings, orders, decrees and judgments of
any kind or nature by anyone whomsoever and against and from any and all
costs, damages and expenses including attorney's fees in connection with or
resulting from loss of life, bodily or personal injury, property damage or
environmental damage of any nature, clean-up costs or fines arising directly
or indirectly from Hubbard's actions or its agents', successors' or assigns'
actions that occur on or after Termination Date.
Furthermore, effective as of Termination Date, Andersons shall
indemnify and hold Hubbard harmless against and from any and all claims,
demands, fines, suits, actions, proceedings, orders, decrees and judgments of
any kind or nature by anyone whomsoever and against and from any and all
costs, damages and expenses including attorney's fees in connection with or
resulting from loss of life, bodily or personal injury, property damage or
environmental damage of any nature, clean-up costs or fines arising directly
or indirectly from Andersons' actions or its agents', successors' or assigns'
actions on or after Termination Date.
Each party shall indemnify and hold harmless the other party from
liability for environmental liabilities as set forth in a certain Lease
between the parties of even date.
9. Books. Each party shall retain those Venture books which they were
-----
responsible for maintaining for a period of six years. Each party shall have
reasonable access to these books during normal business hours
2
<PAGE>
during this six-year period.
10. Tax Returns. The final federal income tax return for Venture
-----------
required by applicable law shall be prepared and filed by Hubbard after being
reviewed and accepted by Andersons. The final City of Maumee income tax return
for Venture required by applicable law shall be prepared and filed by
Andersons. The party responsible for filing each return shall be responsible
for filing before the applicable due date, including any extensions thereof,
as determined by the Termination Date. Each party shall bear its costs of
preparing such returns.
11. Notice of Dissolution. The parties shall execute, file and publish
---------------------
all certificates and notices suggested by counsel for the parties.
12. Arbitration. Any dispute between the parties shall be settled by
-----------
arbitration, pursuant to the rules of the American Arbitration Association.
Each party shall bear its own expense of said arbitration.
13. Benefit. This Agreement shall benefit and be binding upon the
-------
respective successors and assigns of the parties hereto.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate,
each copy to constitute an original.
WINDY HILL PET FOOD COMPANY, INC THE ANDERSONS, INC.
By: /s/ By: /s/
---------------------------- ---------------------------
Title: V.P. Finance Title: Pres PMG
------------------------- ------------------------
3
<PAGE>
EXHIBIT A TO JOINT VENTURE DISSOLUTION
SECTION 1--DISSOLUTION
a. Original cost of equipment purchase by Andersons $180,929.49
pursuant to paragraph 6
b. +Book value of Andersons interest in feed mill 32,705.41
warehouse pursuant to paragraph 7
c. +Book value of Andersons interest in equipment 227,055.83
purchased jointly by Hubbard and Andersons
pursuant to paragraph 14
--------------------------------------------- -----------
=/+SUB TOTAL OF ASSETS 440,690.73
d. +Inventory Deposit 524,348.25
============================================= ===========
= TOTAL OF ASSETS AND INVENTORY DEPOSIT 965,038.98
<PAGE>
DETAIL OF ASSETS INCLUDED IN EXHIBIT A ITEM a
- ---------------------------------------------
Install Flavor System 57,119.98
Modify/Install Screening & Grinding Equipment 24,924.06
Install Additional Conveyance Equipment 38,950.57
Modify Pet Food Warehouse 17,812.88
Purchase Technicon Product Analyzer 24,360.00
Install Add'n Stretch Wrap Equipment 17,762.00
----------
180,929.49
<PAGE>
DETAIL OF ASSETS INCLUDED IN EXHIBIT A ITEM c
FA280 DATE 08/11/97 COMPANY 4 - HUBBARD-ANDERSON JOINT VENTURE
TIME 16:05:54 FIXED ASSET - ASSET STATUS REPORT
PROCESS LEVEL : 41825 - HIBBARD-ANDERSON JOINT VENTURE
ASSET TYPE/SUBTYPE : 8LDG /
<TABLE>
<CAPTION>
ASSET COMP ASSET IN-SERV ASSET REM DEPR SALVAGE ASSET BOOK CURRENT PER YEAR TO DATE ASSET TO DATE
NUMBER NBR STATUS DATE LIFE LIFE METH VALUE COST (BASIS) VALUE DEPRECIATION DEPRECIATION DEPRECIATION
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
110890 -000 A QTY: 1
WAREHOUSE
*BOOK BASIS 07/01/84 216 60.0 STL 0.00 290823.00 71560.14 14312.03 0.00 219622.86
110895 -000 A QTY: 1
OFFICE ROOF
*BOOK BASIS 01/08/92 120 60.0 STL O.OO 7940.00 3970.00 794.00 0.00 3970.00
*** ASSET STATUS ACTIVE TOTALS
*BOOK BASIS 0.00 298763.00 75530.14 15106.03 0.00 223232.86
*** ASSET TYPE BLDG TOTALS
*BOOK BASIS 0.00 298763.00 75530.14 15106.03 0.00 2223232.86
ASSET TYPE/SUBTYPE = EQUIP /
123540 -000 A QTY: 1
TREATED WATER SYSTEM
*BOOK BASIS 05/31/91 60 0.0 STL 0.00 4531.20 0.00 0.00 0.00 4531.20
123546 -000 A QTY: 1
MODIFY FAT/ GRINDING SYSTEMS
*BOOK BASIS 09/01/89 84 0.0 STL 0.00 13804.66 0.00 0.00 0.00 13804.66
123560 -000 A QTY: 1
CAT FOOD 3 PART BLEND SYSTEM
*BOOK BASIS 01/01/92 120 60.0 STL 0.00 20589.61 10294.81 2058.96 0.00 10294.80
123657 -000 A QTY: 1
PALLETIZING SYSTEM
*BOOK BASIS 07/22/92 120 67.0 STL 0.00 87375.60 48784.71 8737.56 0.00 38590.89
123658 -000 A QTY: 1
STRETCH WRAPPER
*BOOK BASIS 07/22/92 120 67.0 STL 0.00 59539.38 33242.81 5953.94 0.00 26296.57
123679 -000 A QTY: 1
EASY OPEN BAG SEWING SYSTEM
*BOOK BASIS 01/12/93 84 36.0 STL 0.00 17355.17 7437.93 2479.31 0.00 9917.24
123766 -000 A QTY: 1
DANTEC DRYER MASTER
*BOOK BASIS 01/01/94 84 48.0 STL 0.00 81259.00 46433.71 11608.43 0.00 34825.29
</TABLE>
<PAGE>
DETAIL OF ASSETS INCLUDED IN EXHIBIT A ITEM c
<TABLE>
<CAPTION>
FA280 DATE 08/11/97 COMPANY 4 - HUBBARD-ANDERSON JOINT VENTURE PAGE 2
TIME 16:05:54 FIXED ASSET - ASSET STATUS REPORT
PROCESS LEVEL : 41825 - HIBBARD-ANDERSON JOINT VENTURE
ASSET TYPE/SUBTYPE : EQUIP /
ASSET COMP ASSET IN-SERV ASSET REM DEPR SALVAGE ASSET BOOK CURRENT PER YEAR TO DATE ASSET TO DATE
NUMBER NBR STATUS DATE LIFE LIFE METH VALUE COST (BASIS) VALUE DEPRECIATION DEPRECIATION DEPRECIATION
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
124045 -000 A QTY: 1
BATCHING COMPUTER SYSTEM
*BOOK BASIS 05/09/95 84 64.0 STL 0.00 59346.52 45216.40 8478.08 0.00 14130.12
124101 -000 A QTY: 1
SHRINK BUNDLER
*BOOK BASIS 02/16/96 120 110.0 STL O.OO 129217.67 118449.53 12921.77 0.00 10768.14
124143 -000 A QTY: 1
FAT TO EXTRUDER CONDITIONER
*BOOK BASIS 06/07/96 120 113.0 STL 0.00 26602.91 25051.07 2660.29 0.00 1551.84
124208 -000 A QTY: 1
COATING SYSTEM
*BOOK BASIS 04/14/97 84 84.0 STL 0.00 100980.34 100980.34 10819.32 0.00 0.00
124209 -000 A QTY: 1
OFFICE FURNACE
*BOOK BASIS 02/24/97 36 36.0 STL 0.00 3954.00 3954.00 1098.33 0.00 0.00
***ASSET STATUS ACTIVE TOTALS 0.00 604556.06 439845.31 66815.99 0.00 164710.75
*BOOK BASIS
123542 -000 F QTY: 1
MISC EQUIPMENT
*BOOK BASIS 07/01/84 60 0.0 STL 0.00 16668.00 0.00 0.00 0.00 16668.00
123543 -000 F QTY: 1
BONDER
*BOOK BASIS 06/01/85 60 0.0 STL 0.00 6943.00 0.00 0.00 0.00 6943.00
123544 -000 F QTY: 1
LIQUID DIGEST SYSTEM
*BOOK BASIS 12/01/87 84 0.0 STL 0.00 32973.00 0.00 0.00 0.00 32973.00
123545 -000 F QTY: 1
VENTILATION SYSTEM
*BOOK BASIS 12/01/87 84 0.0 STL 0.00 16122.00 0.00 0.00 0.00 16122.00
***ASSET STATUS FULLY DEPR TOTALS
*BOOK BASIS 0.00 72706.00 0.00 0.00 0.00 72706.00
***ASSET TYPE EQUIP TOTALS
*BOOK BASIS 0.00 677262.06 439845.31 66815.98 0.00 237416.75
</TABLE>
<PAGE>
DETAIL OF ASSETS INCLUDED IN EXHIBIT A ITEM c
FA280 DATE 08/11/97 COMPANY 4 - HUBBARD-ANDERSON JOINT VENTURE
TIME 16:05:54 FIXED ASSET - ASSET STATUS REPORT
PROCESS LEVEL : 41825 - HIBBARD-ANDERSON JOINT VENTURE
ASSET TYPE/SUBTYPE : FURN /
<TABLE>
<CAPTION>
ASSET COMP ASSET IN-SERV ASSET REM DEPR SALVAGE ASSET BOOK CURRENT PER YEAR TO DATE ASSET TO DATE
NUMBER NBR STATUS DATE LIFE LIFE METH VALUE COST (BASIS) VALUE DEPRECIATION DEPRECIATION DEPRECIATION
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
131335 -000 A QTY: 1
E-Z QUAL SOFTWARE
*BOOK BASIS 05/01/93 36 0.0 STL 0.00 2973.00 71560.14 0.00 0.00 2973.00
131499 -000 A QTY: 1
RJS MODEL 340 PRINTER
*BOOK BASIS 05/13/94 36 4.0 STL O.OO 2650.94 294.55 294.55 0.00 2356.39
*** ASSET STATUS ACTIVE TOTALS
*BOOK BASIS 0.00 5623.94 294.55 294.55 0.00 5329.39
*** ASSET SUBTYPE FURN / TOTALS
*BOOK BASIS 0.0 0 5623.94 294.55 294.55 0.00 5329.39
ASSET TYPE/SUBTYPE = EQUIP / COMP
131405 -000 A QTY: 1
COMPUCONNECT 486-33 #94228
*BOOK BASIS 11/30/93 36 0.0 STL 0.00 2677.28 0.00 0.00 0.00 2677.28
131805 -000 A QTY: 1
PENTIUM 120 #65115891
*BOOK BASIS 12/02/96 36 35.0 STL 0.00 1.00 0.97 0.33 0.00 0.03
*** ASSET STATUS ACTIVE TOTALS
*BOOK BASIS 0.00 2678.28 0.97 0.33 0.00 2677.31
*** ASSET SUBTYPE FURN / COMP TOTALS
*BOOK BASIS 0.00 2678.28 0.97 0.33 0.00 2677.31
***ASSET TYPE FURN TOTALS
*BOOK BASIS 0.00 8302.22 295.52 294.88 0.00 8006.70
***ASSET TYPE/SUBTYPE = HNDLG
140852 -000 A QTY: 1
TOYOTA FORKLIFT
*BOOK BASIS 07/01/93 36 0.0 STL 0.00 19204.69 0.00 0.00 0.00 19204.69
140863 -000 A QTY: 1
OTTAWA 1972 YARD TRACTOR
*BOOK BASIS 09/24/93 36 0.0 STL 0.00 12431.25 0.00 0.00 0.00 12431.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FA280 DATE 08/11/97 COMPANY 4 - HUBBARD-ANDERSON JOINT VENTURE PAGE 4
TIME 16:05:54 FIXED ASSET - ASSET STATUS REPORT
PROCESS LEVEL : 41825 - HIBBARD-ANDERSON JOINT VENTURE
ASSET TYPE/SUBTYPE : HNDLG /
ASSET COMP ASSET IN-SERV ASSET REM DEPR SALVAGE ASSET BOOK CURRENT PER YEAR TO DATE ASSET TO DATE
NUMBER NBR STATUS DATE LIFE LIFE METH VALUE COST (BASIS) VALUE DEPRECIATION DEPRECIATION DEPRECIATION
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
*** ASSET STATUS ACTIVE TOTALS
*BOOK BASIS 0.00 31635.94 0.00 0.00 0.00 31635.94
140623 -000 F QTY: 1
TOYOTA FORKLIFT MODEL42-4FGC
*BOOK BASIS 12/01/87 60 0.0 STL O.OO 14310.00 0.00 0.00 0.00 14310.00
140624 -000 F QTY: 1
TOYOTA FORKLIFT
*BOOK BASIS 09/01/89 60 0.0 STL O.OO 19955.96 0.00 0.00 0.00 19955.96
*** ASSET STATUS ACTIVE TOTALS
*BOOK BASIS 0.00 34265.96 0.00 0.00 0.00 34265.96
*** ASSET TYPE HNDLG TOTALS
*BOOK BASIS 0.00 65901.90 0.00 0.00 0.00 65901.90
*** PROCESS LEVEL 41825 TOTALS
*BOOK BASIS 0.00 1050229.18 515670.97 82216.90 0.00 534558.21
*** COMPANY 4 TOTALS
*BOOK BASIS 0.00 1050229.18 515670.97 82216.90 0.00 534558.21
</TABLE>
<PAGE>
EXHIBIT 10.48
LEASE
-----
THIS LEASE AGREEMENT (hereinafter "Lease"), dated as of August 31, 1997, is
made and entered into by and between The Andersons, Inc., an Ohio corporation
whose principal place of business is P.O. Box 119,480 W. Dussel Drive, Maumee,
Ohio 43537 (hereinafter called "LESSOR") and Windy Hill Pet Food Company, Inc.,
a Minnesota Corporation formerly known as Hubbard Milling Company, having its
principal place of business at Two Maryland Farms, Suite 301, Brentwood,
Tennessee 37027-2487 (hereinafter called "LESSEE").
W I T N E S S E T H
WHEREAS, LESSOR is desirous of leasing certain real estate to LESSEE, and
LESSEE is willing to lease said real estate from LESSOR upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of Premises to be demised, the rents to be
paid and of the other covenants, conditions, warranties and agreements
hereinafter set forth, it is hereby agreed as follows:
1. PREMISES DEMISED. LESSOR shall and by these presents does hereby lease,
----------------
demise, and rent unto LESSEE, and LESSEE by these presents does hereby take and
hire from LESSOR certain real property and improvements shown in Exhibit A and
equipment listed in Exhibit B being located as part of The Anderson' Illinois
Avenue Complex, 425 Illinois Avenue, situated in the City of Maumee, County of
Lucas, State of Ohio, together with all hereditaments, appurtenances and
easements thereto (hereinafter called "Premises"), and together with
nonexclusive easements for parking, vehicular and pedestrian traffic for the
benefit of Premises.
2. COMMENCEMENT OF TERM AND RENTAL PAYMENTS. This Lease shall be for a
----------------------------------------
period of fifteen years commencing on September 1, 1997 and terminating on the
anniversary date of the commencement date fifteen (15) years thereafter, unless
sooner terminated or extended as hereinafter provided. LESSEE shall have the
right to terminate the Lease without payment of any sums to LESSOR at any time
during the lease term upon not less than one hundred eighty (180) days prior
written notice to LESSOR.
3. USE. LESSEE shall operate on Premises a pet food processing and
---
packaging facility. Any changes in use shall require LESSOR's prior written
consent with such consent not to be unreasonably withheld.
4. CONSTRUCTION OF IMPROVEMENTS. If LESSEE decides to make additional
----------------------------
improvements to Premises, LESSEE may make such improvements, at LESSEE's
expense, in the area shown in green on Exhibit A. LESSEE shall submit to LESSOR,
forty-five (45) days prior to commencing construction of said improvements, one
(1) set of plans and specifications of all LESSEE'S work to be done to construct
said improvements, prepared in accordance with all applicable laws, codes and
regulations. LESSOR shall notify LESSEE as to such parts of same as shall not
meet LESSOR'S reasonable approval; provided, however, LESSOR'S notification
hereunder must be within fifteen (15) business days of receipt or be deemed
waived, thereby constituting approval. LESSOR'S approval shall be in addition to
any approvals required by local, state or federal laws to commence such
improvements.
1
<PAGE>
LESSOR shall cooperate with LESSEE at LESSOR's expense in the
performing by LESSEE of any alteration by LESSEE hereunder. Upon the request of
LESSEE, LESSOR shall join in any application for any permits, certificates, or
approvals required to be obtained by LESSEE in connection therewith.
Notwithstanding anything herein to the contrary, LESSEE shall not be required to
furnish plans to LESSOR, or obtain LESSOR's prior consent, with respect to any
interior alterations solely or to the extent involving painting, carpeting,
decorating or wall covering or a cumulative estimated cost of less than one
hundred thousand dollars ($100,000.00). LESSOR hereby agrees that it shall not
require LESSEE to pay any sums to LESSOR or incur any charges imposed by LESSOR
in connection with the granting of any consent by LESSOR in connection
therewith.
LESSEE agrees that it shall act such that its contractors shall be in
harmony with local activities concerning the appropriate labor situation at or
about Premises.
When the construction of any additional improvements is completed by
LESSEE, said improvements shall become part of the Premises subject to the terms
of this Lease.
5. RENT. LESSEE shall pay to LESSOR at P.O. Box 119, Maumee, Ohio, 43537,
----
as rental for Premises, the annual rents shown below, payable in equal monthly
installments in advance on or before the first day of each calendar month as
provided herein for the term of this Lease, with adjustments for fractional
months:
Annual Rent Mo.Installment
----------- --------------
Lease Years 1 thru 15 $114,678.24 $ 9,556.52
Any rental payment paid beyond fifteen (15) days in default shall have
interest thereon at prime rate plus two percent (2%), not to exceed the highest
non-usurious rate permitted by law. Prime rate shall be defined as the base rate
on corporate loans at large money center commercial banks as listed under Money
Rates in the Wall Street Journal.
-------------------
6. BUSINESS OPERATION. LESSEE shall keep and maintain Premises in good
------------------
order and repair; keep all mechanical equipment free of vibrations and noise
beyond what is occurring on the date hereof and in good working order and
condition; not commit or permit waste or a nuisance upon Premises; not permit or
cause odors to emanate or be dispelled from Premises beyond what is occurring on
the date hereof; not permit loading or unloading or the parking or standing of
vehicles outside Premises; not permit any noxious, toxic or corrosive fuel, gas,
dust, or dirt on Premises beyond what is occurring on the date hereof; police
its Premises and use the sewer system in a proper manner so as to reasonably
avoid clogging.
7. TAXES. LESSEE shall pay promptly and before they become delinquent, all
-----
taxes, assessments and other impositions, general and special, that become due
at any time during the term of this Lease upon or against Premises, including
the land and all buildings, furniture, fixtures, equipment and improvements now
or hereafter thereon which may be lawfully assessed and payable either in the
name of LESSOR or LESSEE, but excluding therefrom all inheritance, franchise,
excise, profit, gross receipts, rental, capital gains, capital stock, sales,
transfer, succession, unincorporated business, gains, estate, gift, and income
taxes paid or payable by LESSOR. The tax obligation shall be prorated from date
of commencement to date of termination. LESSEE shall receive copy of tax bill
and calculation of amount payable at least fifteen (15) days prior to the date
LESSOR expects payment.
2
<PAGE>
In the event future assessments are payable in installments, LESSEE
shall have the right to pay same over the longest available installment period
and LESSEE shall not be obligated to pay any such installments due and payable
outside the term hereof or outside any extended terms if extended by LESSEE.
(a) The real property taxes and assessments applicable to Premises
shall be calculated as follows:
(1) With respect to the land, LESSEE'S share shall be the
applicable real estate taxes and assessments multiplied by a
fraction, the numerator being the Lucas County assessed
value of land comprising Premises and the denominator being
the Lucas County assessed value of Parcel Number 36-02858
including Premises and,
(2) With respect to buildings and improvements on Premises,
LESSEE'S share shall be the applicable taxes and assessments
of such buildings and improvements of Parcel Number 36-02858
multiplied by a fraction, the numerator of which shall be
the Lucas County assessed value of LESSEE'S improvements to
Premises and the denominator of which shall be the Lucas
County assessed value of all improvements on Parcel Number
36-02858 including Premises.
(b) The Ohio personal property taxes applicable to machinery,
equipment, furniture and fixtures on Premises owned by LESSOR shall be allocated
as follows: LESSEE's share shall be the applicable personal property taxes (as
computed on the annual return filed by LESSOR) multiplied by a fraction, the
numerator of which shall be the rounded number of whole months LESSEE has access
to Premises under the terms of this Lease, beginning with the effective date of
Lease, and the denominator being twelve(12). The annual personal property tax
due on such assets owned by LESSEE and located on Premises shall be LESSEE's
sole responsibility.
LESSOR shall provide LESSEE with reasonable documentation with respect
to the tax obligations hereunder. In the event that LESSOR pays any taxes on
behalf of LESSEE, LESSEE shall reimburse LESSOR for such payments pursuant to
the terms of any invoice sent to LESSOR to LESSEE. LESSOR shall refund any over
payment.
LESSEE shall have the right at its own cost and expense to initiate
and prosecute any proceedings permitted by law for the purpose of obtaining an
abatement or of otherwise contesting the validity or amount of taxes assessed to
or levied upon Premises and, if required by law, LESSEE may take such action in
the name of LESSOR who shall cooperate with LESSEE to such extent as LESSEE may
reasonably require to the end that such proceedings may be brought to a
successful conclusion; provided, however, that LESSEE shall fully indemnify and
hold LESSOR harmless from all loss, cost, damage and expense incurred.
LESSOR hereby agrees that LESSOR shall, at its sole cost and expense,
use its best efforts to cause the subdivision of Premises in order to obtain a
separate tax parcel from the remainder of LESSOR's property to be completed
promptly and in accordance with all applicable legal requirements. LESSOR shall
promptly commence such subdivision application and shall keep LESSEE prised of
the status thereof on regular basis.
3
<PAGE>
Upon the subdivision of the Premises from the remainder of LESSOR's
property, subparagraph a(1) above shall no longer be of any force or effect and
LESSEE shall from and after such date pay all taxes and assessments payable with
respect to the land comprising the Premises and LESSOR shall pay all taxes and
assessments payable with respect to its real property.
8. UTILITY CHARGES. LESSEE shall pay promptly as and when the same becomes
---------------
due and payable all rents, rates and charges for water, sewer, electricity, gas,
fuel, heat and power and other utilities supplied to Premises or used by LESSEE
in connection therewith using the same method for calculating as LESSOR used
prior to termination of the joint venture. Where any utilities are not
separately metered to the Premises, LESSOR shall bill LESSEE on a monthly basis
for all utilities utilized by LESSEE on the Premises. LESSEE shall pay LESSOR
for such utilities in accordance with the terms of such invoices.
In the event a utility easement is necessary to provide utility
service necessary for LESSEE'S use, LESSOR agrees to execute any reasonable
utility easement grant reasonably acceptable to LESSEE and LESSOR shall minimize
any service disruption caused thereby. LESSOR shall have no responsibility or
bear any cost with respect to such installation or the maintenance or repair of
any utility lines. Utility charges shall be calculated using methodology
previously used during joint venture.
LESSOR may suspend, delay or stop any utility services to be furnished
or provided by it under the provisions of this Article whenever necessary by
reason of fire, storm, explosion, strike, lockout, labor dispute, casualty or
accident, lack or failure of sources of supply of labor, fuel supply, acts of
God or the public enemy, riots, interferences by civil or military authorities
in compliance with the laws of the United States of America or with any
governmental laws, orders, rules and regulations, or by reason of any other
cause beyond LESSOR'S control, or for emergency or for inspection, cleaning,
repairs, replacements, alterations, or renewals that LESSOR is required by law
or by the terms hereof to perform. LESSOR shall use reasonable efforts to insure
that any such stoppage or interruption shall be made at such times and in such
manner as shall not unreasonably interfere with LESSEE's use of Premises. LESSOR
agrees to endeavor to minimize the occurrence and severity of such disruptions,
to diligently prosecute the cure thereof, and to inform LESSEE in writing of the
progress of such repairs on a regular basis.
Notwithstanding anything herein to the contrary, if any interruption
in service related to LESSOR's actions continues for five (5) consecutive
business days following delivery of notice thereof from LESSEE to LESSOR, and if
such interruption causes all or part of Premises to be untenantable for the
conduct of LESSEE's business, then for each day from the first day of such
interruption until such portion of Premises is no longer untenantable, the rent
with respect to the portion(s) of Premises so rendered untenantable shall be
abated by one (1) day. If any such interruption in service continues for a
period in excess of sixty (60) days, LESSEE may cancel this Lease by delivering
notice to LESSOR.
9. MECHANIC'S LIENS. LESSOR and LESSEE covenant each with the other that
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each party ordering labor or materials for use on or about Premises or LESSOR's
Illinois Avenue Complex shall defend and hold the other harmless against any
loss, cost, damage or expense including reasonable attorney's fees due to any
lien filed against Premises or LESSOR'S Illinois Avenue Complex, as the case may
be, on account of non-payment or dispute with respect to labor or materials
furnished in connection with construction referred to herein or any other
construction on Premises or Illinois Avenue Complex and such party shall cause
no judgment to lie against Premises or Illinois Complex. The party against whom
such lien is filed shall notify the other within fifteen (15) days of its notice
of filing and said lien shall be removed within sixty (60) days thereafter or
protected by bond or surety, should such party so affected desire to contest
such lien.
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10. INDEMNITY.
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(a) LESSEE shall protect, defend, indemnify, save and hold harmless
LESSOR, its officers, directors, shareholders, agents, servants, employees,
employees of agents, successors and assigns, against and from any and all
claims, demands, fines, suits, actions, proceedings, orders, decrees and
judgments of any kind or nature by, or in favor of, anyone whomsoever, and
against and from any and all reasonable costs, damages and expenses, including
reasonable attorney's fees, resulting from, or in connection with:
(1) Loss of life, bodily or personal injury or property damage
arising, directly or indirectly, out of, or from, or on account of,
any accident or other occurrence in, upon, at or from Premises after
date hereof, or occasioned in whole or in part through the use and
occupancy of Premises or any improvements therein or appurtenances
thereto after date hereof, or by any act or omission of LESSEE or any
subtenant, concessionaire or licensee of LESSEE, or their respective
employees, agents or contractors in, upon, at or from Premises or its
appurtenances unless due to the sole negligence or willful acts of
LESSOR, its agents, employees or contractors.
(2) Any environmental liability resulting from (i) any Release
(as hereafter defined), in any way arising out of action of LESSEE,
its agents, servants, officers, directors or partners, of any
Contaminant at Premises or emanating from Premises to adjacent
properties or the surrounding environment during the term of this
Lease; (ii) during the term of this Lease, any generation, transport,
storage, disposal, treatment or other handling of any Contaminant at
Premises, in any way arising out of actions of LESSEE, its agents,
servants, officers, directors or partners, including, but not limited
to, any and all off-site transport, storage, disposal, treatment or
other handling of any Contaminant generated, produced, used and/or
originating in whole or in part from Premises; and (iii) any
activities, in any way arising out of actions of LESSEE, its agents,
servants, officers, directors or partners, at Premises during the term
of this Lease that in any way might be alleged to fail to comply with
any Requirements of Law.
(b) LESSOR shall indemnify and hold harmless LESSEE, its officers,
directors, shareholders, agents, servants, employees, employees of agents,
successors and assigns from and against all claims, demands, damages, costs and
expenses, including attorneys' fees, (including, but not limited to, attorneys'
fees to enforce LESSOR's obligation of indemnification under this paragraph)
arising from or relating to any environmental liability resulting from (1) any
Release (as hereinafter defined), in any way arising out of actions of LESSOR,
its agents, servants, officers, directors or partners, of any Contaminant at
Premises or emanating from Premises to adjacent properties or the surrounding
environment prior to June 1, 1984 or subsequent to Term of this Lease; (2) prior
to June 1, 1984 or subsequent to the Term of this Lease, any generation,
transport, storage, disposal, treatment or other handling of any Contaminant at
Premises, in any way arising out of actions of LESSOR, its agents, servants,
officers, directors or partners, including, but not limited to, any and all off-
site transport, storage, disposal, treatment or other handling of any
Contaminant generated, produced, used and/or originating in whole or in part
from Premises; and (3) any activities, in any way arising out of actions of
LESSOR, its agents, servants, officers, directors or partners, at Premises that
in any way might be alleged to fail to comply with any Requirements of Law prior
to June 1, 1984 or subsequent to term of this Lease.
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(c) Each party shall indemnify and hold harmless the other party,
its officers, directors, shareholders, agents, servants, employees of agents,
successors and assigns from and against, to the extent of fifty percent (50%)
of; all claims, demands, damages, costs and expenses, including attorneys' fees,
(including, but not limited to, attorneys' fees to enforce that party's
obligation of indemnification under this paragraph) arising from or relating to
any environmental liability resulting from (1) any Release (as hereinafter
defined), in any way arising out of actions of either party, its agents,
servants, officers, directors or partners, of any Contaminant at Premises or
emanating from Premises to adjacent properties or the surrounding environment
from June 1, 1984 through August 31, 1997; (2) from June 1, 1984 to August 31,
1997, any generation, transport, storage, disposal, treatment or other handling
of any Contaminant at Premises, in any way arising out of actions of either
party, its agents, servants, officers, directors or partners, including, but not
limited to, any and all off-site transport, storage, disposal, treatment or
other handling of any Contaminant generated, produced, used and/or originating
in whole or in part from Premises; and (3) from June 1, 1984 through August 31,
1997, any activities, in any way arising out of actions of either party, its
agents, servants, officers, directors or partners, at Premises that in any way
might be alleged to fail to comply with any Requirements of Law.
(d) Notwithstanding anything herein to the contrary, LESSOR shall
protect, indemnify, defend, save and hold harmless LESSEE, its officers,
shareholders, agents, servants, employees, employees of agents, successors and
assigns from and against any and all claims, demands, fines, suits, actions,
proceedings, orders, decrees and judgments of any kind and nature by, or in
favor of; anyone whomsoever, and against and from any and all costs, damages,
and expenses, including, without limitation, attorneys' fees and disbursements,
resulting from or in connection with any liability resulting from any leaching
or migration of any Contaminant of any kind on, beneath, above or into Premises
emanating from adjacent properties or the surrounding environment, including,
without limitation, LESSOR's property.
(e) LESSEE, and all those claiming by, through and under LESSEE,
shall store their property in and shall occupy and use Premises and any
improvements therein and appurtenances thereto, solely at their own risk, and
LESSEE, and all those claiming by, through or under LESSEE, hereby release
LESSOR, to the full extent permitted by law, from all claims of every kind,
including loss of life, personal or bodily injury, damage to merchandise,
equipment, fixtures or other property, or damage to business or for business
interruption, arising, directly or indirectly, out of, or from, or on account
of, such occupancy and use, or resulting from any future condition or state of
repair thereof unless due to the sole negligence or willful acts of LESSOR, its
agents, employees or contractors.
(f) LESSOR shall not be responsible or liable at any time to LESSEE,
or to those claiming by, through or under LESSEE, for any loss of life, bodily
or personal injury, or damage to property or business, or for business
interruption, that may be occasioned by any failure by any tenants or occupants
of LESSOR's premises to comply with any of the terms of their leases or
agreements or that may be occasioned by or through the acts, omissions or
negligence of any other persons, or any other tenants or occupants of any of
LESSOR'S property.
(g) LESSOR shall not be responsible or liable at any time for any
defects, latent or otherwise, in any buildings or improvements on Premises or
any of the equipment, machinery, utilities, appliances or apparatus therein
listed in Exhibits A or B or utilized on Premises by LESSEE, nor shall LESSOR be
responsible or liable at any time for loss of life, or injury or damage to any
person or to any property or business of LESSEE, or those claiming by, through
or under LESSEE, caused by, or resulting from, the bursting, breaking, leaking,
running, seeping, overflowing or backing up of water, steam, gas, sewage, snow
or ice in any part of Premises or caused by, or resulting from, acts of God or
the element, or resulting from any defect or negligence in the occupancy,
construction, operation or use of any buildings
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or improvements in Premises or any of the equipment, fixtures, machinery,
appliances or apparatus therein unless due to the sole negligence or willful
acts of LESSOR, its agents, employees or contractors.
(h) To the extent LESSEE has actual knowledge, LESSEE shall give
prompt notice to LESSOR in case of fire or other casualty or accidents to
Premises, or of any defects therein or in any of its fixtures, machinery or
equipment.
(i) For the purposes of paragraphs 10(a)(2), 10(b), 10(c) and 10(d),
the following definitions shall apply: (i) "Contaminant" shall mean any
substance or waste containing hazardous substances, pollutants, and contaminants
as those terms are defined in the federal Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C., Section 9601, et seq. and any
substance similarly defined or identified in any other federal, provincial or
state laws, rules or regulations governing the manufacture, import, use,
handling, storage, processing, release or disposal of substances or wastes
deemed hazardous, toxic, dangerous or injurious to public health or to the
environment. This definition includes friable asbestos, petroleum or petroleum-
based products and polychlorinated biphenyls; (ii) "Requirements of Law" shall
mean any federal, state or local law, rule, regulation, permit, agreement, order
or other binding determination of any governmental authority relating to the
environment, health, or safety; and (iii) "Release" shall have the same meaning
as in the federal Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C., Section 9601, et seq.
(j) The provisions of this Article 10 shall apply and become
effective from and after the date LESSOR shall deliver possession of Premises to
LESSEE in accordance with the terms of this Lease and shall survive the
expiration or earlier termination of this Lease. Such indemnities by LESSOR and
LESSEE are conditioned upon the following: in the event of any claim which may
give rise to liability under the foregoing indemnities, the indemnified party
shall (i) give the indemnifying party prompt notice of such claim; (ii)
cooperate with the indemnifying party in the defense of such claim; (iii) not
settle such claim without the indemnifying party's prior written consent, which
consent will not be unreasonable withheld or delayed; and (iv) permit the
indemnifying party to defend any such claim with counsel selected by the
indemnifying party, subject to the indemnified party's reasonable approval.
(k) In case of any action or proceeding brought against the
indemnified party, the indemnified party covenants to defend such action or
proceeding by counsel reasonably satisfactory to the indemnified party. Both
parties agree immediately to notify the other of any legal action(s) brought
relevant to this Lease or Premises hereby leased.
Notwithstanding anything herein to the contrary, neither party shall
have any liability for any consequential damages suffered by the other party or
any party claiming through the other party.
11. INSURANCE. LESSEE shall maintain all risk property insurance covering
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all structures, improvements, fixtures and equipment, furnishings, stock and
supplies, and physical property now or in the future located on or constituting
a part of Premises leased to LESSEE, and which is owned, leased, or under the
care, custody or control of LESSEE. Said insurance shall list LESSOR as a loss
payee as its interests may appear. In the event of a loss, each party shall
receive its applicable portion of the insurance proceeds for the property owned
by LESSOR and LESSEE. Said insurance shall provide that it will not be subject
to cancellation, termination or change except after at least thirty (30) days'
prior written notice of such cancellation or change to LESSOR; and if LESSEE
fails to comply with such requirement, LESSOR may obtain such insurance with
prior notice to LESSEE and keep the same in effect and LESSEE shall pay LESSOR
the premium cost thereof twenty (20) days after demand with interest at the rate
of twelve percent (12%) per annum. LESSEE shall have the right to use "blanket"
insurance coverage.
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LESSEE shall maintain Comprehensive or Commercial General Liability
Insurance covering LESSEE'S operations throughout the effective period of this
Lease; such policy or policies shall name LESSOR as an additional insured, shall
include premises, operations and products and completed operations coverage and
shall contain a contractual liability endorsement covering the indemnification
obligation assumed by LESSEE pursuant to the Section of this Lease entitled
"INDEMNITY" and an endorsement providing personal injury liability coverage. For
Comprehensive General Liability Insurance, the limits of such insurance for
injury to or death of any one person shall be not less than $1,000,000; the
limits for injury or death of more than one person in any one accident shall be
not less than $3,000,000; and the limits for damage to property shall be in an
amount not less than $1,000,000. For commercial General Liability Insurance, the
limits shall be:
$3,000,000 General Aggregate
$1,000,000 Per Occurrence
$3,000,000 Products/Completed Operations Aggregate
$1,000,000 Products/Completed Operations Occurrence
or in the absence of aggregate limits as noted, excess liability providing
limits of $2,000,000 per occurrence for premises, operations, products and
completed operations exposures and containing a follow form or contractual
liability endorsement. Said insurance shall provide that it will not be subject
to cancellation, termination or change except after at least thirty (30) days'
prior written notice of such cancellation or change to LESSOR; and if LESSEE
fails to comply with such requirement, LESSOR may obtain such insurance with
prior notice to LESSEE and keep the same in effect and LESSEE shall pay LESSOR
the premium cost thereof twenty (20) days after demand with interest at the rate
of twelve percent (12%) per annum.
LESSEE shall provide LESSOR with proof of the foregoing property and
liability insurance by mailing certificates of insurance to LESSOR, c/o Law
Department, P.O. Box 119, Maumee, Ohio, 43537. For the term of this Lease, such
certificates shall be renewed annually on the policies' anniversary dates.
LESSEE and LESSOR shall secure an appropriate clause in, or an
endorsement upon, each fire or extended coverage policy obtained by it and
covering Premises and the personal property, fixtures and equipment located
therein or thereon (in the case of LESSEE), and LESSOR's real property, or the
personal property, fixtures and equipment located therein or thereon (in the
case of LESSOR) pursuant to which the respective insurance companies waive
subrogation or permit the insured, prior to any loss, to agree with a third
party to waive any claim it might have against said third party. The waiver of
subrogation or permission for waiver of any claim hereinbefore referred to shall
extend to the agents of each party and its employees and, in the case of LESSEE,
shall also extend to all other persons and entities occupying or using Premises
in accordance with the terms of this Lease.
LESSEE and LESSOR (for itself and on behalf of anyone claiming through
or under it by way of subrogation or otherwise) hereby waives any rights it may
have against the other party and such party's servants, agents and employees, on
account of any loss or damage occasioned to such party, its property, Premises
or its contents, or LESSOR's real property or its contents.
12. REPAIRS. LESSEE shall, at all times, and at its own cost and expense,
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put, keep, replace and maintain in thorough repair and good, safe, and
substantial order and condition all real estate, buildings, improvements and
equipment listed in Exhibit A and any buildings, improvements and equipment
erected on the area marked in green on Exhibit A, in a reasonably diligent
manner to maintain a first-class, high quality facility or forming a part
thereof (including any equipment which is an integral part of the building
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structure), structural and non-structural, extraordinary and ordinary, and
LESSEE shall likewise at all times and at its own costs and expense, put, keep,
replace and maintain all personal property and equipment attached to or used in
connection with Premises in operating condition. Lessee shall have no obligation
for repairs caused by Lessor's own negligence or willful misconduct during the
term of this Lease.
In the event any improvement or equipment listed in Exhibit A becomes
no longer serviceable or repairable as a result of normal wear and tear or
obsolescence, in the commercially reasonable judgment of LESSEE and LESSOR, said
item shall be returned to LESSOR for disposition free of this Lease. No
adjustment in rent shall be made for any such items returned to LESSOR. LESSOR
shall have sixty (60) days to remove such items returned to LESSOR from
Premises. In the event such item is not removed within this time frame, LESSEE
shall have the right, at its sole option, to dispose of this improvement or
equipment and deduct and retain all costs associated with such disposition of
improvements or equipment from any proceeds of the disposition with any excess
to be paid over to LESSOR. LESSEE, at its sole discretion, may replace the
improvement or machinery or substitute other improvements or machinery at its
cost; however, such replacement and substitute assets shall be and remain the
sole property of LESSEE, free and clear of any mortgages, liens, security
interests, claims or other encumbrances of LESSOR and shall not be subject to
the terms of this Lease.
13. ALTERATIONS. LESSEE may make alterations, additions and improvements
-----------
to Premises from time to time necessary or in the opinion of LESSEE, advisable.
Any structural alterations and improvements shall require LESSOR'S prior
approval of LESSEE'S plan and specification not to be unreasonably withheld or
delayed and shall be subject to the provisions of Article 4.
All trade fixtures, signs, equipment, furniture or personal property
of whatever kind and nature kept or installed on the Premises by LESSEE shall
not become the property of LESSOR or a part of the realty no matter how affixed
to the Premises and may be removed by LESSEE at any time, except as provided in
Article 20.
14. DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS. If Premises shall be
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rendered in LESSOR'S reasonable judgment untenantable by fire or other casualty
during the term of this Lease or during any extension of the term, to the extent
of fifty (50%) percent or more of the insurable value of the improvements on
Premises, LESSOR, as evidenced by notice in writing given to LESSEE within
thirty (30) days after the occurrence of either of such damage or destruction,
may elect to terminate this Lease as of the date of the damage. In the event
LESSOR elects to terminate, LESSEE, at LESSOR'S option, shall remove equipment,
and improvements installed by it from Premises, LESSEE shall have no other
restoration obligation and the rent shall be apportioned as of the date of the
casualty. If LESSOR elects not to terminate, or damage is less than fifty
percent (50%), rent will abate while the improvements are being restored by
LESSOR and LESSEE with LESSOR being responsible for restoring the building and
improvements and equipment owned by it and LESSEE being responsible for
restoring improvements and equipment owned by it; provided, however, that LESSOR
shall be under an affirmative obligation to restore Premises commencing within
sixty (60) days after such casualty, provided all necessary permits are
obtained, but in no event completed later than six (6) months thereafter. Upon
commencement of production of pet food, rental payments will recommence. In any
event, LESSOR shall be entitled to all proceeds of insurance (except for
proceeds payable with respect to improvements and equipment owned by LESSEE) and
right of recovery against insurers on policies covering such damage or
destruction. Prior to the substantial completion of LESSOR's repair obligations
set forth herein, LESSOR shall provide LESSEE and LESSEE's contractors and
agents access to Premises to perform work in order to ready Premises for the
conduct of LESSEE's business, provided that such parties do not materially
interfere with the repairs remaining to be made by LESSOR pursuant to the terms
hereof.
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The term untenantable shall mean that LESSEE is unable to use Premises
or such portion thereof for the conduct of its business in the normal course,
including, without limitation, that LESSEE is unable to access Premises or
services are not being delivered thereto.
15. COMPLIANCE WITH LAWS. LESSEE shall use and occupy Premises so as to
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comply with all applicable laws and regulations of governmental bodies having
jurisdiction. LESSEE may contest, by appropriate proceedings, the validity or
applicability to Premises of any legal requirement; and LESSOR shall cooperate
with LESSEE in such proceedings at LESSEE's reasonable cost.
LESSOR hereby represents that as of the date hereof; Premises complies
with all applicable laws. LESSOR hereby agrees to promptly cure any condition
that would make the representation in the previous sentence untrue.
16. ASSIGNMENT AND SUBLEASING. LESSEE agrees not to assign or transfer
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this Lease or hypothecate Premises or any part thereof without the written
consent of LESSOR, such consent not to be unreasonably withheld or delayed. Any
assignment, transfer, hypothecation of this Lease without LESSOR'S consent shall
entitle LESSOR to re-enter and repossess Premises. In the event of any
assignment, sublease, transfer, hypothecation or assignment with LESSOR'S
consent, LESSEE shall still remain primarily liable for the obligations created
hereby, and all obligations of this Lease shall remain in full force and effect
as to LESSEE.
No merger, consolidation or other form of reorganization of LESSEE
shall affect LESSEE's obligations under this Lease unless consent is given by
LESSOR in writing.
Any assignment or subleasing by LESSEE shall require LESSOR'S prior
written consent not to be unreasonably withheld or delayed, provided that no
part of Premises shall be sublet or assigned for use for a purpose which is
unlawful, dangerous, noxious or offensive. No assignment or subleasing by LESSEE
shall affect or diminish the obligation of LESSEE to perform all of the
covenants required to be performed by LESSEE under the terms of this Lease.
LESSOR shall have the right to assign this Lease, provided such
assignee shall agree to assume all of LESSOR'S covenants and obligations
hereunder. Upon such assignment and assumption, LESSOR shall be fully released
from all obligations under this Lease.
If LESSOR fails to grant, or deny consent to a proposed assignment or
subletting within thirty (30) days following LESSEE's request therefor, such
consent shall be deemed to be granted.
Notwithstanding anything in this Lease to the contrary, LESSEE may at
any time without the consent of LESSOR, assign, sublet or otherwise transfer
this Lease or any portion thereof to (i) any entity into which LESSEE is merged
or with which LESSEE is consolidated; (ii) any entity which shall control, be
under the control of; or be under control with LESSEE (any such entity shall be
referred to herein as a Related Entity"), with the term "control" meaning
ownership of more than fifty percent (50%) of the outstanding voting stock of a
corporation or other majority equity and controlling interest if not a
corporation; or (iii) any purchaser of all or substantially all of LESSEE's or
any Related Entity's assets (or any purchaser of all or substantially all of
LESSEE's business at Premises), whether by asset or stock sale.
Notwithstanding anything in this Lease to the contrary, a subtenant or
assignee of whatever tier may further sublet Premises or any portion thereof or
assign its interest in this Lease (or a sublease hereunder) upon the same terms
and conditions as apply to LESSEE.
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17. MORTGAGING OF LEASEHOLD ESTATE.
------------------------------
(a) LESSEE shall have the right to mortgage or pledge this Lease
provided that such mortgage or pledge is subordinate to any fee mortgage now or
hereafter placed upon LESSOR's fee interest in Premises. If LESSEE shall desire
to mortgage such leasehold interest, LESSOR shall agree to such reasonable
modifications of this Lease as are customary in connection with the mortgaging
of leasehold estates which does not affect the terms or materially affect the
benefits of this Lease. Any such leasehold mortgage shall be subordinate to any
fee mortgage.
(b) No union of the interests of LESSOR and LESSEE herein shall result
in a merger of this Lease in the fee interest.
18. DEFAULT.
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(a) The following events shall be deemed to be events of default by
LESSEE under this Lease:
(1) LESSEE fails to pay any installment of rent or other
obligation hereunder involving the payment of money and the failure
continues for ten (10) days after LESSOR's mailing of notice in
accordance with the terms hereof that the same is past due.
(2) LESSEE fails to comply with any term, provision or covenant
of this Lease other than as described in subsection (a) above, and
does not cure the failure within fifteen (15) days of written notice
thereof to LESSEE except as provided below.
(3) LESSEE or any guarantor of the obligations under this Lease
becomes insolvent, makes a transfer in fraud of its creditors, or
makes an assignment for the benefit of creditors.
(4) LESSEE or any guarantor of its obligations under this Lease
files a petition for bankruptcy under any federal or state law or
statute or LESSEE or any guarantor of its obligations under this Lease
is adjudged bankrupt or insolvent in proceedings filed against LESSEE
or any guarantor of its obligations under this Lease and is not stayed
or dismissed within thirty (30) days.
(5) A Receiver or Trustee is appointed for Premises or for all or
substantially all of the assets of LESSEE or any guarantor of its
obligations under this Lease and is not stayed or dismissed within
thirty (30) days.
(b) If any of the above events of default occur and are continuing,
LESSOR may pursue the following alternative remedies:
(1) This Lease and the term hereof shall, upon a date specified
by LESSOR to LESSEE in a notice, wholly cease and terminate with the
same force and effect as if the date so specified were the date set
forth above as the date of the expiration of the original term of this
Lease. At that or any later time, LESSOR may re-enter Premises by
reasonable force or otherwise as permitted by law, and have the same
possession as of its former estate, and
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may recover possession thereof in the manner prescribed by the statute
governing summary proceedings, or similar statutes (but LESSEE shall
remain liable to LESSOR as provided below). LESSOR may recover such
possession without having to make any demand for the rent, any re-
entry for condition broken, or any notice to quit possession or other
notice prescribed by statute, and LESSEE expressly waives all rights
to any such demand, re-entry or notice to quit possession or other
statutory notices or prerequisites. LESSOR must use reasonable efforts
to mitigate damages.
(2) LESSEE's failure to observe any term, covenant, or condition
of the Lease other than the payment of rent shall not be deemed a
default within the meaning of Article 18, so long as LESSEE, after
receiving any notice as specified herein, proceeds to cure the default
as soon as reasonably possible and continues to take all steps
reasonably necessary to complete the curing of such default within a
reasonable period of time under all prevailing circumstances. No
default shall be deemed to continue if and so long as LESSEE proceeds
to cure it in good faith or is delayed in or prevented from curing it
by facts or circumstances beyond LESSEE's control.
(3) In case of such re-entry, termination of Lease and/or
dispossession by summary proceedings or otherwise the rent shall be
paid up to the time of re-entry, dispossession, and/or termination of
Lease, together with all reasonable expenses LESSOR may incur for
legal expenses, attorneys' fees, brokerage, and putting the Premises
in such condition as LESSEE under the provisions hereof is required to
maintain, or for preparing the same for re-rental in all circumstances
up to a maximum liability of six (6) months rent hereunder.
(4) Mention in this Lease of any particular remedy shall not
preclude LESSOR from any other remedy, in law or in equity. LESSEE
hereby expressly waives all rights of redemption granted by or under
any present or future law if it is lawfully evicted or dispossessed
for any cause provided herein or if LESSOR lawfully obtains possession
of Premises as provided herein, by reason of LESSEE's violation of any
covenant or condition of this Lease.
(5) If LESSOR defaults in the performance of any of its
obligations hereunder, LESSEE hereby expressly reserves all of its
rights, powers, privileges and remedies that LESSEE may have at law or
in equity with respect to any damages suffered or incurred by LESSEE
in connection therewith or as a result thereof.
19. OPTION TO EXTEND.
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(a) LESSOR does hereby grant to LESSEE the right, privilege and option
to extend this Lease for one (1) additional term of five (5) years upon the same
terms and conditions as herein contained, except rent.
Such option to extend may be exercised by LESSEE giving at least one
hundred eighty (180) days notice prior to completion of the term to LESSOR as
herein provided; provided, however, LESSEE is not in monetary or material non-
monetary default beyond applicable notice or cure periods at the time of such
exercise.
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(b) In the event LESSEE exercises its option to extend the term of
this Lease, the rent which LESSEE shall pay during the extended term shall be
$126,146.06 per annum.
(c) The fixed rent, shall be due and payable to LESSOR in equal
monthly installments commencing with the first month of the extended term of
this Lease.
20. END OF TERM. Upon completion of the term or any extended term, LESSEE
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shall peacefully and quietly surrender possession of Premises in its current
condition, normal wear and tear and damage by casualty excepted, to LESSOR.
LESSEE shall remove from the Premises on or prior to the expiration or earlier
termination all of its personal property situated thereon and shall repair any
damage caused by the removal. Property not so removed shall become the property
of LESSOR and LESSOR shall have no other restoration obligation or liability.
In the event that LESSEE has made any improvements in the area shown
in green in Exhibit A, at the end of the Lease term, or the renewal term,
LESSOR shall pay LESSEE the net book value of these improvements at the end of
the applicable term utilizing a thirty (30) year straight line depreciation
schedule or Two Hundred Thousand Dollars ($200,000.00) whichever is lower. If
the Lease is terminated for any reason prior to the end of the Lease term,
(except for default by LESSOR), including a default by LESSEE, LESSEE shall
have no right to such payment.
21. FINANCIAL VIABILITY. While this Lease is in effect, LESSEE shall
-------------------
provide LESSOR, on an annual basis, with copies of its financial statement,
certified by an independent auditor within ninety (90) days of its year end.
Each statement shall indicate that LESSEE is a going concern and not in default
on any of its material obligations, including but not limited to, loans, leases,
trade payables, pension deposits and tax payments.
22. CONDEMNATION. In the event that part of Premises shall be taken or
------------
condemned pursuant to applicable law such that:
(a) The part so taken includes the building (or any part thereof)
located on Premises, or
(b) The part so taken eliminates or significantly affects access to
any public street or highway, or
(c) A part is taken and remainder is insufficient for conduct of
LESSEE's business, or
(d) The total Premises is taken,
then and in any of those events, LESSEE shall have the option to terminate this
Lease by written notice to LESSOR as herein provided within thirty (30) days
from the date of the physical taking. If this Lease is terminated, rent shall be
apportioned as of the date of the taking.
In the event of a taking where LESSEE elects not to terminate or where
LESSEE has no right of termination, the rent shall be thereafter reduced based
upon the percentage of impact on LESSEE'S business operation reasonably
attributable to such taking as established by LESSEE'S books and records kept on
consistent and good accounting standards, provided LESSEE has not been
reasonably compensated for such loss by its good faith effort to obtain same in
condemnation proceedings as of the date of such
13
<PAGE>
taking. To the extent practicable, LESSOR shall restore improvements paid for by
LESSOR and LESSEE shall restore improvements paid for by LESSEE.
In any event, both parties shall have the right to pursue a
condemnation award, and shall cooperate with each other to do so, with LESSEE
being entitled to any award for value of lease, lost business, moving and
relocation expenses and the taking of the improvements on Premises paid for by
LESSEE and LESSOR being entitled to all other amounts awarded, including, but
not limited to, all amounts awarded for land value and improvements paid for by
LESSOR.
23. QUIET ENJOYMENT. LESSOR covenants that LESSOR has full right and
---------------
lawful authority to enter into this Lease for the full term hereof; and that
LESSOR is lawfully seized of the entire Premises hereby demised and that at all
times when this Lease is in effect, LESSEE shall lawfully, quietly and
peacefully enjoy Premises and shall not be disturbed or hindered.
LESSOR does hereby indemnify and save and hold LESSEE harmless from
any and all loss, cost, damage or expense, including but not limited to,
reasonable attorneys fees arising from such action impacting its interest in
Premises hereunder.
24. HOLDING OVER. In the event LESSEE continues to occupy Premises after
------------
the last day of the term herein created, or after the last day of any extension
of said term, and LESSOR elects to accept rent thereafter, a tenancy from month
to month upon same terms and conditions with respect only to the portion so
occupied shall be created and not for any longer period.
25. SERVICE OF NOTICE. All notices as provided herein shall be served by
-----------------
registered or certified United States mail, return receipt requested, postage
prepaid, to the following address:
LESSOR: The Andersons, Inc.
c/o Legal Department
P.O. Box 119
480 W. Dussel Drive
Maumee, OH 43537
LESSEE: Windy Hill Pet Food Company, Inc.
Two Maryland Farms
Suite 301
Brentwood, TN 37027-2487
Notices may also be delivered (i) by Federal Express, Express Mail or
other reputable overnight courier, for delivery on the next business morning, or
(ii) by hand (with receipt acknowledged). Copies of all notices delivered to
LESSEE shall be delivered in the identical manner to Richards & O'Neil, L.L.P.,
885 Third Avenue, New York, New York 10022, Attention: Ann F. Chamberlain, Esq.
All notices properly addressed shall be deemed served (i) on the next business
day after the date of dispatch, if delivered by Federal Express, Express Mail or
other reputable overnight courier, (ii) five (5) business days after being
mailed in the above manner, and (iii) on the date delivered, if delivered by
hand, except that notice of change of address shall not be deemed served until
received by the addressee. Notices delivered by the attorneys for the parties
shall be deemed sufficient if sent in the manner provided herein.
Any change with respect to this service of Notice shall similarly be
by registered or certified United States mail, Return Receipt Requested or in
the other methods provided for herein.
14
<PAGE>
26. APPLICATION. This Lease shall inure to the benefit of and is binding
-----------
on the successors and assigns of LESSOR and LESSEE.
In the event a conflict between the printed body of this Lease and the
typewritten modifications or addendums, the typewritten modifications or
addendums shall control.
27. EFFECTIVE DATE. This Lease shall become effective when signed by all
--------------
parties hereto upon the date of the last party signing or initialing hereunder.
28. OFFER. The offer extended by one party's signing this Agreement shall
-----
expire after thirty (30) days unless accepted, rejected or revoked prior to such
expiration.
29. SUBORDINATION. This Lease is subject and subordinate to all mortgages
-------------
placed by LESSOR which may now or hereafter affect the real property of which
Premises form a part, and to all renewals, modifications, consolidations,
replacements and extensions thereof. In confirmation of such subordination,
LESSEE shall execute promptly any certificate that LESSOR may reasonably
request. Simultaneous with the delivery by LESSEE of any agreement in
furtherance of a request of subordination, there shall be delivered to LESSEE an
agreement in writing reasonably satisfactory to LESSEE in due form for
recording, executed by the owner of the mortgage that this Lease is to be
subordinated to, which agreement shall provide, in effect, that in any action
brought by the holder of said mortgage to foreclose the same, LESSEE will not be
made a party defendant therein and this Lease will not be terminated as a result
of such foreclosure action, and mortgagee shall recognize LESSEE as tenant upon
all terms and conditions hereof provided that at such time herein LESSEE shall
not be in default beyond applicable notice and cure periods with respect to the
performance by it of the terms, covenants and conditions contained in this Lease
on LESSEE'S part to be kept and performed. Should LESSOR fail to make the
payments of interest or amortization that should become due upon any mortgage
that this Lease shall be subordinated to, LESSEE may make such payments and the
amount so paid by LESSEE, together with interest thereon, may be deducted from
the rent next becoming due hereunder. LESSOR hereby reserves the right to assign
the rental payments hereunder as collateral security to the mortgage holder of
the mortgage.
LESSOR represents that as of the date hereof (i) LESSOR owns Premises
in fee simple and (ii) no superior leases or mortgages currently affect
Premises.
30. ACCESS TO PREMISES. LESSOR shall have the right to inspect Premises
------------------
and gain access with respect thereto during all reasonable business hours of
LESSEE. Except in an emergency and/or to save life or property (in which case
LESSOR shall give LESSEE prompt notice thereafter), LESSOR agrees to provide at
least twenty-four (24) hours' notice to LESSEE of such access or inspection. The
provisions of Article 10 herein shall be applicable to this Article 30. LESSOR,
its contractors, employees or agents, shall have a right of access in accordance
with the terms of this Article 30 to certain storage bins on the attached
Exhibit C and to perform its work in a certain Service Agreement of even date.
31. ENTIRE AGREEMENT. This Lease is the entire agreement between the
----------------
parties and no modification thereof shall be made except in writing, signed by
the parties.
32. SEVERABILITY. If any clause, sentence, paragraph or part of this
------------
Lease shall for any reason be adjudged by any court of competent jurisdiction to
be invalid or unenforceable, such judgment shall not affect, impair or
invalidate the remainder of this Lease, but shall be confined in its operation
to the
15
<PAGE>
clause, sentence, paragraph or part thereof directly involved in the controversy
in which such judgment shall have been rendered, and in all other respects this
Lease shall continue in full force and effect. This Lease shall be governed by
the laws of the state of Ohio.
33. RECORDING. LESSEE shall not cause this Lease to be recorded without
---------
first obtaining the consent of LESSOR, except that a short form Memorandum of
Lease giving date of the commencement of the Lease, a description of Premises
leased, and a designation as to the form of this Lease shall be entered into by
and between the parties and placed of record provided that such short form
Memorandum shall not include any of the provisions of this Lease with respect to
the rentals herein provided.
34. MISCELLANEOUS.
-------------
(a) If there is any payment required to be made by LESSEE under this
Lease for which no time period is stated within which the payment must be made,
such payment shall be due within fifteen (15) days after demand by LESSOR.
(b) It is the intention of LESSOR and LESSEE to create the
relationship of landlord and tenant, and no other relationship whatsoever, and
nothing herein shall be construed to make LESSOR and LESSEE partners or joint
venturers, or to render either party hereto liable for any of the debts or
obligations of the other party.
(c) Each party hereto shall at any time and from time to time as
requested by the other party, upon not less than ten (10) days' prior written
notice, execute, acknowledge, and deliver to the other a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), certifying the dates to which the rent
and other charges, if any, have been paid, and stating whether or not, to the
best knowledge of the signer (but without having made any investigation), the
other party is in default beyond any applicable grace periods provided herein in
performance of any of its obligations under this Lease, and if so, specifying
each such default of which the signer may have knowledge (but without having
made any investigation), it being intended that any such statement delivered
pursuant hereto may be relied upon by others with whom the party requesting such
certificate may be dealing.
(d) Notwithstanding anything herein to the contrary, if due to
LESSOR's failure to perform any of its obligations under this Lease, LESSEE
shall be unable for at least five (5) consecutive business days to operate its
business in all or any portion of Premises, the rent with respect to that
portion of Premises so rendered unusable for the conduct of LESSEE's business
shall be reduced on a per diem basis for each day from the first day of such
interruption until Premises is no longer unusable for the conduct of LESSEE's
business and LESSOR has delivered notice thereof to LESSEE. The remedies
provided to LESSEE herein are in addition to all other remedies available to
LESSEE under this Lease, at law or in equity.
(e) LESSEE and LESSOR each hereby represents and warrants that it has
full right, power and authority to enter into this Lease and that the person
executing this Lease on behalf of LESSEE and LESSOR, respectively, is duly
authorized to do so.
(f) The captions of this Lease are for convenience of reference only,
and in no way define, limit or describe the scope or intent of this Lease or in
any way affect this Lease.
16
<PAGE>
(g) LESSEE and LESSOR each represents and warrants to the other party
that such party has had no dealings or negotiations with any broker or agent in
connection with this Lease. LESSEE and LESSOR each hereby indemnifies and holds
the other party harmless of and from any claims, actions, damages, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees,
and disbursements) that may arise from any claim for a brokerage commission or
finder's fee by any person, firm or corporation claiming through the
indemnifying party. This paragraph shall survive the expiration or sooner
termination of this Lease.
(h) The payment by LESSEE of any item of rent or performance of any
obligation of LESSEE hereunder with knowledge of any breach of any covenant of
this Lease by LESSOR shall not be deemed a waiver thereof, and payment or
performance of the same by LESSEE shall be without prejudice to LESSEE's right
to pursue any remedy against LESSOR provided for at law or in this Lease.
(i) This Lease may be executed in counterparts, all of which taken
together shall constitute one and the same original, and the execution of
separate counterparts by LESSEE and LESSOR shall bind LESSEE and LESSOR as if
they had executed the same counterparts.
(j) LESSEE may place signs on Premises subject to LESSOR's prior
written consent not to be unreasonably withheld. Such signs shall comply with
local signage regulations.
(k) Each party shall, at any time and from time to time, execute,
acknowledge and deliver such further instruments and documents and take such
other actions as may be reasonably requested by the other in order to carry out
the intent and purposes of this Lease.
(1) LESSOR shall use its best efforts to minimize any interference
with the conduct of LESSEE's business at Premises, including without limitation,
by the operation of LESSOR's business on LESSOR's property.
17
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands this 29th day of
August, 1997.
LESSOR:
Signed and delivered THE ANDERSONS, INC
in the presence of:
/s/Julie Ann Dibble By: /s/ Clim J Anderson
- ----------------------------------- -------------------------------------
/s/ Elizabeth J. Hall Title: Pres PMG
- ----------------------------------- ----------------------------------
Signed and delivered LESSEE:
in the presence of: ------
/s/ Linda Fisher WINDY HILL PET FOOD COMPANY
- ----------------------------------- ------------
By: /s/
- ----------------------------------- -------------------------------------
Title: V.P. Finance
----------------------------------
STATE OF OHIO )
COUNTY OF LUCAS ) ss:
Before me, a Notary Public in and for said State and County, personally
appeared Chris Anderson, the President, Processing & Manufacturing Group of
The Andersons, Inc., an Ohio corporation, who acknowledged that he being
thereunto duly authorized, did sign the foregoing instrument in behalf of said
corporation and by authority of its board of directors on behalf of the
corporation and that the same is the free act and deed of said officer and of
said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 29th
day of August, 1997.
(SEAL) /s/ Julie Ann Dibble
--------------------
Notary Public
JULIE ANN DIBBLE
Notary public, State of Ohio
My Commission Expires 8-20-2000
STATE OF TENNESSEE )
COUNTY OF WILLIAMSON ) ss:
Before me, a Notary Public in and for said State and County, personally appeared
Don Gadd, the Vice President, Finance, of Windy Hill Pet Food Company, Inc., a
Minnesota corporation, who acknowledged' that he being thereunto duly
authorized, did sign the foregoing instrument in behalf of said corporation and
by authority of its board of directors on behalf of the corporation and that the
same is the free act and deed of said officer and of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 2nd day
of September, 1997.
(SEAL) /s/ Sally Peltz
---------------
Notary Public
My Commission Expires May 11,1999
18
<PAGE>
EXHIBIT A
MAP
19
<PAGE>
EXHIBIT B
ASSETS BEING LEASED TO WINDY HILL
<TABLE>
<S> <C> <C> <C> <C>
366 2932 BUILDINGS 0100021866 BULK & BAGGED FEED STOR & SHIP
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100021867 BULK & BAGGED FEED STOR & SHIP
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100022067 CONTROL ROOM ADDITION
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100021967 SPRINKLER SYSTEM
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100021868 BULK & BAGGED FEED STOR & SHIP
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100022068 CONTROL ROOM ADDITION
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100021968 SPRINKLER SYSTEM
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100021869 BULK & BAGGED FEED STOR & SHIP
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100022170 ADDTN'L BLDG DUMP SINK @ COR
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100207971 GRINDING HOUSE ADDTN'L STORAGE
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100327972 SYSTEM STORING BULK INGREDIENT
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834577 BOILER ROOM BLDG TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835477 CONCRETE BLOCK WALLS
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100836777 DIRECT ANDERSONS CHARGES
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835277 ELECT - BUILDING TEI # 85001
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834877 ELECTRIC ROOM TEI JOB #40801
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835677 ELECTRICAL TEI JOB #96111
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834977 EMPLOYEE ROOM TEI JOB #41002
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835077 EXTRUDER ROOM TEI JOB #41602
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835177 FREIGHT ELEVATOR TEI JOB # 65002
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834677 MIL CONTROL ROOM TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834277 MILL BUILDING TEI JOB #25001
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834377 MILL EXTENSION BLDG TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834077 MILL EXTENSION FDN TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100823977 MILL FOUNDATION TEI JOB # 1002-1
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835377 MULTIPLE BLDG SUBCONTRACT
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100823877 RECEIVING TUNNEL JOB #9002
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835577 SUSPENDED CEILING TEI JOB #96103
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834777 TRUCK LOAD-OUT OFFICE TEI JOB
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834177 TRUCK SCALE FDN TEI JOB # 18031
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834477 WAREHOUSE BUILDING TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100836778 DIRECT ANDERSONS CHARGES
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835278 ELECTRICAL - BUILDING
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835678 ELECTRICAL TEI JOB # 96111
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834978 EMPLOYEE ROOM TEI JOB #41002
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100881978 EXTERNAL PAINTING TEI JOB #9610
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100881878 GLASS & GLAZING TEI JOB # 96105
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100882078 INSULATION TEI#96125 J0B#700
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834278 MILL BUILDING TEI JOB #25001
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100834378 MILL EXTENSION BLDG TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835378 MULTIPLE BLDG SUBCONTRACT
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100882178 VENTS TEI JOB #26020 JOB # 700
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100835679 ELECTRICAL TEI
- -------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100882079 INST INSULATION ON INSIDE N.W.
- -------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
EXHIBIT B
ASSETS BEING LEASED TO WINDY HILL
<TABLE>
<S> <C> <C> <C> <C>
306 2932 BUILDINGS 0100894079 OVERHEAD GARAGE DOOR W/INSTALL
- --------------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0100987680 INST EMERGENCY EXIT ON SOUTH
- --------------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0101002280 INST HEATING EXIT ON SOUTH
- --------------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0101113483 CONSRUCT CANOPY OVER FEEDMILL
- --------------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0101113283 NEW ROOF OVER EXTRUDER ROOM
- --------------------------------------------------------------------------------------------------------------
306 2932 BUILDINGS 0101113383 NEW ROOF OVER OLD FEEDMILL WHSE
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100022769 BULK PROPANE TANK
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100368972 9104-04 MELROE BOBCAT LOADER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100416874 10 FENWALL EXTINGUISHERS
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100505574 TYLER PORTABLE SIEVE SHAKER W/
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100796176 ULTRAVIOLET LAMP
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836677 DIRECT ANDERSON CHARGES
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836077 MACHINERY GEN. ITEMS TEI# 50
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836577 MACH. INSTALLATION TEI# 96120
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836177 RECEIVING MACHINERY TEI# 51
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100835877 SUMP PUMP-MILL FOUNDATION TEI
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100835777 SUMP PUMP-REC. TUNNEL TEI#
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836277 TRUCK LOAD-OUT MACH TEI# 64001
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100835977 TRUCK SCALE TEI#33001-33006
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836478 AIR COMPRESSOR, PLUMBING, ETC
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100823278 CENCO INFRARED MOIST. BAL.#266
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100845178 COMPACT BENCH SCALE 1000 LB CP
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100881578 CONTROL PANELS TEI JOB#65003
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836678 DIRECT ANDERSON CHARGES
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100840578 FENWAL PROTECT FOR FEED GRINDG
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100841178 LINCOLN LUBRIGUN W/PUMP, DRUM
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836078 MACHINERY GEN. ITEMS TEI# 500
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100817578 MILL. WILEY NO.4 MOTOR DRIVEN
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836178 RECEIVING MACHINERY TEI# 5100
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100839678 ROLL-EZY ROLLING LADDER,12 STP
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836278 TRUCK LOAD-OUT MACH TEI#64001
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100835978 TRUCKSCALE TEI#33001-33006
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100940379 INSULATION OF PIPES
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100836079 MACHINERY GENERAL ITEMS
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100822879 PRODUCTION CONTROL CENTER FIRE
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100945480 AIR OPERATED BIN HOIST ASSEMBL
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100910380 CATWALKS, LADDERS, STAIRS
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100896480 ELECT DEMAND METERS-COMPONENTS
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100962880 EVA. OF TOTAL FEED MILL AIR SY
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100974780 EXTEND COMPRESSED AIR SERVICE
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100988480 MOTOROLA PAGER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100988580 MOTOROLA PAGER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100995480 MOTOROLA POCKET PAGER
- ----------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100993780 MOTOROLA POCKET PAGER
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE>
EXHIBIT B
ASSETS BEING LEASED TO WINDY HILL
<TABLE>
<S> <C> <C> <C> <C>
306 2942 MACH & EQP 0100940680 PLATFORM AT BIN 34 & BIN 35
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100958580 PORTA POWER-PORT HYDRAUL JACK
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100913680 ROTATE HEAD SECTION OF LEG #1
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100913680 THREE TRASH BUGGIES
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0100946980 TWO 2-WAY RADIOS @ 1960.16 EA
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & E P 0101037781 BLACK & DECKER SUPER GRINDER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101021381 INST ACCESS PLATFORM FOR SCREW
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101022181 INST INSPECTION DRS W/SAFETY
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101038581 INST NEW SPOUTING & GATES FR
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101002081 INSTALL SAFETY SHUTOFF SWITCH
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101022081 PETFOOD BIN #43 TO PACKER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101007981 PURCH & INSTL NEW AIR COMPRESS
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101029881 REPL 15 HP MOTOR ON BULK LOAD-
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101037681 SNAP-ON #CG2500 BSB PULLER SET
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101106983 1 1/2 TON AIR HOIST IN MIL BSM
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101106883 1/2 TON AIR HOIST IN EXTRUDER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101088783 BADGER 2" TURBOMETER FOR BOILR
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101088683 BADGER 2" TURBOMETER FOR BOILER
- --------------------------------------------------------------------------------------------------------------
306 2942 MACH & EQP 0101106783 DRILL PRESS FOR FEED MAINTENNC
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100027966 BULK & BAGGED FEED STOR & SHIP
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100027967 BULK & BAG FEED STOR & SHIPPNG
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100027968 BULK & BAG FEED STOR & SHIPPNG
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100027969 BULK & BAG FEED STOR & SHIPPNG
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100307471 ADD'TL MACH - BAGGING LINE
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100205171 BENCH SCALE
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100307472 ADD'TL MACH - BAGGING LINE
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100328072 SYSTEM STORING BULK INGREDIENT
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100328073 SYSTEM STORING BULK INGREDIENT
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837477 BAGGING MACHINERY TEI#63001
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100838277 DIRECT ANDERSON CHARGES
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837377 EXTRUDING MACHINERY
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837177 FORMULATION MACHINERY
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837977 FUEL OIL & PROPANE SYSTEM
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837877 HOT WATER SYSTEM TEI# 72010
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837677 MECHANICAL GEN. ITEMS
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100838077 MISC. LIQUIDS SYSTEMS TEI#
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100838177 PROCESS PIPING TEI# 96123
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837777 STEAM EQUIPMENT TEI# 71001-
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837478 BAGGING MACHINERY TEI# 63001-
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100838278 DIRECT ANDERSON CHARGES
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837378 EXTRUDING MACHINERY TEI#55001
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837178 FORMULATION MACHINERY
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837678 MECHANICAL GEN ITEMS TEI#70001
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100838078 MISC. LIQUID SYSTEMS TEI #74001
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
EXHIBIT B
ASSETS BEING LEASED TO WINDY HILL
<TABLE>
<S> <C> <C> <C> <C>
306 2950 PROCESSNG 0100838178 PROCESS PIPING TEI#96123
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100837778 STEAM EQUIPMENT TEI#71001-7103
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100882678 TOLEDO SCALE COMPUTER SYSTEM
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100856878 VIBRA SCREW BIN ACTIVATORS FOR
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100910479 CHANGES TO 5 & 10 LB BAG LINE
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100940479 CHANGES TO MIXER
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100893979 EXTRUDER ROOM EXHAUST FAN
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100901279 FINAL SCREENG SHAKER-BULK LOAD
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100926179 FINAL SCREENING SHAKER-FABRI
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100926279 FINAL SCREENING SHAKER-FABRIC
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100896579 MODIFICATION OF LIQUID SYSTEM
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100882679 TOLEDO SCALE COMPUTER SYSTEM
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100888979 WENGER FEED SYS & PRE-CONDITNR
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100977380 DESIGN, FABRICATE-INSTALL NEW
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100901280 FINAL SCREENG SHAKER-BULK LOAD
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100976780 INST HIGH-LEVEL CUT-OFF ON FAT
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100901080 INST SPOUT MAGNETS FOR BAGGING
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100948080 INSTALL BIN AERATION SYSTEM IN
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100977280 INSTALL NEW SURGE TANK IN MAIN
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100947480 REDESIGN FINES CONVEYOR TO THE
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100994980 REPL 15 H.P. MOTORS W/10 H.P.
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100947580 REROUTE SPOUTING FROM BINS 54,
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100913780 SYS TO RETURN MATERIAL FR MIXR
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100882681 COMPLETE TOLEDO SCALE COMPUTER
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101026381 INST HI-AMP STOP SWITCH ON PET
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101031981 INST SPLIT SPOUT DISCHARGE FRM
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101002181 INST TEMPERATURE & FEED RATE
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100948081 INSTALL BIN AERATION SYSTEM IN
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101021481 REPL VARIABLE SPEED DRIVE ON
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0100994981 REPLACE 15 H.P. MOTORS W/10 H.
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101029781 REVISE MOTOR THERMAL DETECTOR
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101069382 BEMIS AUTOMATIC BAG PLACER
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101069682 INST NEW SEPARATE STACK- #2
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101065782 NEW BOILER & FEED PUMP PURCH &
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101069483 DESIGN & INST NEW PROCESS WATR
- --------------------------------------------------------------------------------------------------------------
306 2950 PROCESSNG 0101148383 INSULATE ALL 2" (AND LARGER) S
- --------------------------------------------------------------------------------------------------------------
306 2962 POLL CONT 0100836377 DUST COLLECTION SYSTEM
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
EXHIBIT C
MAP
24
<PAGE>
ADDENDUM TO LEASE
This Addendum to Lease dated this __ day of __, 1997 is by and between The
Andersons, Inc. ("LESSOR") and Windy Hill Pet Food Company, Inc. ("LESSEE").
1. LESSOR hereby gives, grants and conveys to LESSEE the nonexclusive
right and easement for access, use, ingress and egress to and from the parking
areas, driveways, roadways, curbcuts and entrances of the property contiguous
and adjacent to Premises (hereinafter "Andersons Property" which is further
described in Exhibit A attached hereto) for use by vehicular and pedestrian
traffic by LESSEE'S customers, invitees, employees, agents, servants and
independent contractors in common with others. LESSOR shall not obstruct or
block any such access, ingress or egress nor the visibility or sight line of
Premises by any improvements within a 200 foot radius of Premises except
temporarily for repairs or construction or for brief time periods because of
rail traffic. LESSOR shall endeavor to minimize same. This provision shall be a
covenant running with the land.
WITNESSED: LESSOR:
/s/ Julie Dibble THE ANDERSONS, INC
________________________________ /s/ Chris J. Anderson
/s/ Elizabeth J. Hall By: _________________________________
________________________________ President PMG
(As to Lessor) Title _______________________________
LESSEE:
WINDY HILL PET FOOD COMPANY, INC.
/s/Linda Fisher /s/
______________________________ By: __________________________________
______________________________ V. P. Finance
(As to Lessee) Title: ________________________________
19
<PAGE>
EXHIBIT A
MAP
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from balance
sheets and statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 10-MOS
<FISCAL-YEAR-END> DEC-27-1997 DEC-28-1996 DEC-30-1995
<PERIOD-START> DEC-29-1996 DEC-31-1995 FEB-28-1995
<PERIOD-END> DEC-27-1997 DEC-28-1996 DEC-30-1995
<CASH> 731 570 327
<SECURITIES> 0 0 0
<RECEIVABLES> 20,277 8,291 2,929
<ALLOWANCES> 372 48 20
<INVENTORY> 13,312 5,141 1,720
<CURRENT-ASSETS> 37,329 14,795 5,374
<PP&E> 65,016 23,831 6,470
<DEPRECIATION> 4,242 1,347 269
<TOTAL-ASSETS> 213,707 92,225 27,484
<CURRENT-LIABILITIES> 31,644 20,315 5,372
<BONDS> 120,000 7,551 0
35,458 25,681 5,891
0 0 0
<COMMON> 0 0 0
<OTHER-SE> (2,730) 351 721
<TOTAL-LIABILITY-AND-EQUITY> 213,707 92,225 27,484
<SALES> 164,288 82,993 34,481
<TOTAL-REVENUES> 164,288 82,993 34,481
<CGS> 113,288 54,379 22,107
<TOTAL-COSTS> 142,268 71,544 30,590
<OTHER-EXPENSES> 12,653 5,132 2,008
<LOSS-PROVISION> 60 36 7
<INTEREST-EXPENSE> 10,068 3,825 1,155
<INCOME-PRETAX> (761) 2,456 721
<INCOME-TAX> 26 1,209 0
<INCOME-CONTINUING> (787) 1,247 721
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 2,294 604 0
<CHANGES> 0 0 0
<NET-INCOME> (3,081) 643 721
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
