<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1998
REGISTRATION NO. 333-61027
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DOANE PET CARE ENTERPRISES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2047 76-0472875
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
103 POWELL COURT, SUITE 200
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
THOMAS R. HEIDENTHAL
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
103 POWELL COURT, SUITE 200
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
ALAN P. BADEN DAVID P. OELMAN
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER 600 TRAVIS, SUITE 4200
1001 FANNIN HOUSTON, TEXAS 77002
HOUSTON, TEXAS 77002 (713) 220-4200
(713) 758-2222
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1998
PROSPECTUS
, 1998
[LOGO]
SHARES
DOANE PET CARE ENTERPRISES, INC.
COMMON STOCK
Of the shares of Class A Common Stock, par value $0.0001 per
share, of Doane Pet Care Enterprises, Inc. (the "Company") offered hereby (the
"Offering"), shares are being sold by the Company and
shares are being sold by certain selling stockholders (the
"Selling Stockholders"). The Company has two classes of common stock, Class A
Common Stock and Class B Common Stock (collectively, the "Common Stock"), which
are identical except that Class B Common Stock, which is convertible into Class
A Common Stock, has no voting rights. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock offered hereby will be between $ and $ per share. For
information relating to the factors considered in determining the initial public
offering price, see "Underwriting."
Application has been made to list the Common Stock on
under the symbol " ."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO THE DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
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Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters (as defined below) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ which will be paid by the
Company.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to additional shares
of Common Stock at the Price to the Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If the option is
exercised in full, the total Price to the Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock offered hereby are being offered by Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch & Co., Schroder & Co.
Inc. and Chase Securities Inc. (collectively, the "Underwriters") when, as and
if delivered to and accepted by the Underwriters against payment therefor and
subject to certain prior conditions, including their right to reject orders in
whole or in part. It is expected that delivery of the share certificates
representing the Common Stock will be made in New York, New York, on or about
, 1998.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
CHASE SECURITIES INC.
<PAGE> 3
[A SERIES OF PICTURES REPRESENTING
COMPANY MANUFACTURING FACILITIES
AND PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) assumes an initial offering price of $ per share, (ii)
assumes that the Underwriters' over-allotment option is not exercised and (iii)
gives effect to the Company's five-for-one stock split effected immediately
prior to the Offering. Unless the context indicates otherwise, references in
this Prospectus to the Company mean Doane Pet Care Enterprises, Inc. and its
subsidiaries. The Company's pro forma financial and operating data set forth
herein gives effect to the acquisition (the "Windy Hill Acquisition") of Windy
Hill Pet Food Holdings, Inc. and its subsidiaries ("Windy Hill") in August 1998,
the acquisition (the "IPES Acquisition") of IPES IBERICA, S.A. ("IPES") in April
1998 and the Refinancing Transactions (as defined herein). Investors should
carefully consider the information set forth in "Risk Factors."
THE COMPANY
The Company is the largest manufacturer of dry pet food in the United
States, producing approximately 26% of the total volumes sold in 1997 on a pro
forma basis. The Company manufactures products for store brands owned by retail
customers (also known as private labels), contract manufactures products for
national branded pet food companies and produces and sells under regional brands
owned by the Company.
The Company manufactures for its customers a full range of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. The Company provides products that meet customer
specifications across all retail channels and price points, from super premium
to value products. Accordingly, the Company manufactures store brands for over
350 customers in the United States, including the three largest mass
merchandisers, the five largest grocery companies and the largest national pet
specialty retailer. The Company also manufactures dry pet food and treats for
four of the six largest national branded pet food companies through
co-manufacturing agreements pursuant to which the Company produces, packages and
ships a portion of such companies' products.
The Company has the most extensive manufacturing and distribution network
in the industry, providing it with certain operational, cost and competitive
advantages. The Company manufactures and distributes its products in the United
States through 32 combination manufacturing and distribution facilities and nine
additional distribution centers. The number and strategic location of the
Company's facilities reduce distribution expenses, which represent a meaningful
portion of the delivered cost of pet food due to its bulk and weight relative to
its selling price. The Company's extensive network can further reduce expenses
by enabling certain of its customers to bypass their distribution centers and
deliver directly to their stores. Direct store delivery service currently
accounts for approximately 45% of the Company's sales by volume.
The Company has achieved strong internal growth. From 1992 to 1997, the
Company increased sales volumes at a compound annual growth rate of 10.3%,
exclusive of acquisitions. The Company believes its growth is primarily due to
an increase in consumer acceptance of store brands and an increase in volume
co-manufactured for national pet food companies. In addition, the Company has
been the primary supplier of store brand pet food to WalMart Stores Inc.
("Wal*Mart") since 1970. The Company manufactures and distributes, under a
direct store delivery program, a variety of products for Wal*Mart including its
store brand, Ol' Roy, which is the largest selling brand of dry pet food in the
United States by volume. In 1997, sales to Wal*Mart, including its Sam's Club
division, accounted for 39% of the Company's sales on a pro forma basis.
THE PET FOOD INDUSTRY
The U.S. pet food industry is a $10 billion industry that has grown at a
compound annual rate of 5% from 1992 to 1997 in terms of volume. Growth in the
dry pet food and the biscuit and treats segments of the industry has exceeded
the growth of the overall pet food industry by capturing market share from other
segments, including canned pet food. Dry pet food sales have grown at a rate of
6.4% per year from 1992 to 1997 and accounted for approximately $5.2 billion of
sales in the industry in 1997. Dry pet food has increased its market share from
49.2% to 52.0% over the same period. The biscuit and treats segment has grown at
a rate
3
<PAGE> 5
of 6.3% per year from 1992 to 1997 and has increased its market share from 12.1%
to 12.8% over the same period.
Improved product quality and increased retailer support have generally
enabled store brands to gain market share from national brands in many
traditional branded categories, including pet food. Sales of store brand pet
food accounted for in excess of 20% of the total pet food market in 1997 and
have grown at a compound annual growth rate in excess of 7.5% over the past five
years. Store brands have increased market share in each of the segments of the
pet food industry over the past five years. In 1997, store brands represented
approximately 29%, 29%, 23%, 18% and 17% of total sales volume of biscuits and
treats, dry dog, dry cat, canned dog and canned cat food, respectively. Store
brands now encompass a full range of pet food products at all price points,
including economy, premium and super premium.
RECENT DEVELOPMENTS
Refinancing Transactions. In November 1998, the Company refinanced its
capital structure pursuant to a series of transactions collectively referred to
herein as the "Refinancing Transactions:"
-- Windy Hill was merged into Doane Pet Care Company, the Company's
principal operating subsidiary ("Doane");
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its 10 5/8% Senior Notes due 2006 (the "Senior
Notes");
-- Windy Hill completed a cash tender offer for $46 million principal
amount of its 9 3/4% Senior Subordinated Notes due 2007 (the "Windy Hill
Notes"), which tender offer was required by a change of control
provision in the indenture governing such notes;
-- Doane completed an exchange offer (the "Exchange Offer") of $150 million
principal amount of its 9 3/4% Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes") for the remaining approximately $63 million
principal amount of Senior Notes and all of the remaining approximately
$74 million principal amount of Windy Hill Notes; and
-- Doane entered into a new senior credit facility (the "New Credit
Facility") with a syndicate of financial institutions providing for
total commitments of $345 million. Doane borrowed $292 million under the
New Credit Facility to fund the cash requirements of the Refinancing
Transactions, repay borrowings under and retire its previous credit
facilities, repay other debt and repay a bridge financing incurred in
connection with the tender offer for the Windy Hill Notes.
Windy Hill Acquisition. In August 1998, the Company acquired Windy Hill for
approximately 8.0 million shares of Common Stock and the assumption of $183.5
million of indebtedness. Windy Hill is a leading manufacturer of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. With Windy Hill, the Company is the largest
manufacturer of dog biscuits in the United States. In 1997, Windy Hill generated
pro forma net sales, EBITDA and a net loss of $304.0 million, $26.7 million and
$3.9 million, respectively.
The Windy Hill Acquisition strengthens the Company's presence in the dry
pet food and dog biscuit market segments, provides revenue synergies and
enhances the Company's position as a low-cost manufacturer and distributor of
pet food products. The Company believes the Windy Hill Acquisition provides the
opportunity for revenue growth by (i) enabling the Company to offer regional
brands, semi-moist, soft dry and canned pet food products to its traditional
customer base and (ii) enabling Windy Hill to offer soft treats and other
specialized dry food products to its traditional customer base. With the
addition of Windy Hill's 19 plants, the Company believes cost savings can be
achieved through optimizing production schedules and lowering distribution costs
by reducing the distance products are shipped. The Windy Hill Acquisition also
provides the Company with the opportunity to achieve cost savings by obtaining
purchasing synergies and eliminating redundant overhead functions.
4
<PAGE> 6
IPES Acquisition. In April 1998, the Company acquired IPES for $26.2
million (net of cash purchased of $1.9 million) and the assumption of
indebtedness of $1.9 million. IPES, located in Spain, is a manufacturer of both
store and regional brands. In fiscal 1997, IPES had net sales, EBITDA and net
income of $21.1 million, $3.8 million and $1.0 million, respectively. The
Company believes that the IPES Acquisition, together with the Company's
investment in the Italian pet food manufacturer, Effeffe, S.p.a., provides the
Company with a platform for growth in Europe.
STRATEGY
The Company's business objective is to increase revenues and earnings and
to enhance its leadership position within the pet food industry. The key
elements of the strategy to achieve the Company's business objective are as
follows:
Continue to be the Low Cost Quality Provider in the Pet Food Industry. The
Company believes it is the low cost provider of quality dry pet food. The
Company believes its position as the largest manufacturer of dry pet food
provides it with certain economies of scale, including production efficiencies
and packaging purchasing leverage. In addition, the number and strategic
location of the Company's facilities enhance the Company's position as the low
cost provider by reducing transportation costs for raw materials and finished
goods. The Company also maintains in-house engineering, machining and
fabrication capabilities that enable the Company to design, construct and
maintain facilities on a cost-effective basis.
Leverage Distribution System. The Company's manufacturing and distribution
network enables it to service customers on a national basis and facilitates the
Company's direct store delivery program, the scope of which the Company believes
is unique in the industry. In addition, the Company has developed capabilities
that allow it to provide vendor managed inventory services ("VMI") to certain
key customers. VMI allows the Company to communicate on-line with its customers,
evaluate their inventory status and place orders on their behalf. The Company
intends to leverage its manufacturing and distribution network by expanding
sales of its full range of pet food products to its existing customers. For
example, the Company recently completed the construction of a soft treat
manufacturing facility, which will enable the Company to offer soft treats to
its traditional customer base, and intends to expand sales of certain products
acquired in the Windy Hill Acquisition including semi-moist, soft dry, canned
and regional brands to its existing customers.
Provide a Full Range of Pet Food Products. The Company offers customers a
full range of pet food products for both dogs and cats, including dry, canned,
semi-moist, soft dry, soft treats and dog biscuits. By offering a full range of
products under a variety of brand formats (store, co-manufactured national and
regional brands) and price points, the Company can be a significant source for
its customers' total pet food requirements. This enables customers to realize
administrative and distribution savings by aggregating a variety of products and
brands into a single shipment.
Focus on Diversified Brand Formats. The Company believes that store,
co-manufactured national and regional brand formats offer significant growth
opportunities. Sales of store brands have exceeded the overall growth in the pet
food industry. The Company believes this growth will continue due to (i) an
increased awareness of retailers concerning the advantages of store brands,
including enhanced margins and customer loyalty, (ii) improved quality,
innovation and variety of store brand products and (iii) increasingly informed
and value-conscious consumers. The Company believes co-manufactured national
brands offer growth opportunities as national branded pet food companies
increasingly take advantage of the Company's low-cost status, quality products,
extensive plant network and logistics capabilities. The Company believes that
the regional brands acquired with the Windy Hill Acquisition complement its
existing product lines and intends to capitalize on demand for such brands
within the Company's existing customer base.
Acquire Additional Pet Food Companies. To supplement its internal growth,
the Company has acquired eight pet food companies over the last three years. The
Company believes that there are substantial opportunities in the United States
and abroad to acquire additional pet food companies. The Company will continue
to seek accretive acquisitions that offer complementary product lines,
geographic scope, additional distribution channels and cost saving
opportunities.
5
<PAGE> 7
Expand International Presence. The Company believes substantial
opportunities exist to increase sales in international markets. The Company
believes that the approximately $9.3 billion European pet food market is
particularly attractive due to the strength and demand for store brand products
and the strong growth of dry pet food products. The Company is currently
expanding its manufacturing and distribution capabilities in Spain and Italy and
intends to pursue acquisitions of additional pet food companies and expand its
product offerings. In addition, the Company believes that an opportunity exists
to expand export sales to the Pacific Rim and South America.
THE OFFERING
Common Stock offered by:
The Company........................... shares
The Selling Stockholders(1)........... shares
Total............................ shares
Common Stock to be outstanding after the
Offering................................... shares(2)
Use of Proceeds............................ The net proceeds to the Company
from the Offering will be used to
repay borrowings under the New
Credit Facility and to repurchase
the outstanding preferred stock.
See "Use of Proceeds."
Proposed ____ symbol....................... "___"
- ------------------------------
(1) Includes shares of Common Stock to be issued by the Company upon the
exercise by the Underwriters of warrants that were previously held by
certain of the Selling Stockholders. See "Certain Transactions."
(2) Does not include (i) shares of Common Stock issuable upon exercise of
options outstanding under the Company's stock option plans and (ii)
shares of Common Stock issuable upon exercise of outstanding warrants
with an exercise price of $0.002 per share. See "Management -- Stock Option
and Stock Purchase Plans" and "Principal and Selling Stockholders."
RISK FACTORS
Prior to making an investment in the Common Stock offered hereby,
prospective purchasers of the Common Stock should take into account the specific
risks set forth under "Risk Factors" as well as the other information set forth
in this Prospectus.
6
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The summary historical financial information for the periods ended
September 30, 1995 and December 31, 1995, 1996 and 1997 are derived from the
consolidated financial statements of the Company included elsewhere in this
Prospectus. The summary historical information for the nine month period ended
September 30, 1997 and as of and for the nine month period ended September 30,
1998 are derived from the unaudited consolidated financial statements of the
Company that in the opinion of management reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial condition and results of operations as of such dates and for such
periods. The results for the nine month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year.
The unaudited condensed pro forma as adjusted income statement data give effect
to the Windy Hill Acquisition, including the pro forma effects of each of the
transactions included in the pro forma financial statements of Windy Hill, the
IPES Acquisition, the Refinancing Transactions and the Offering as if each of
such transactions had occurred on January 1, 1997. The unaudited pro forma as
adjusted balance sheet gives effect to the Refinancing Transactions and the
Offering and the use of proceeds therefrom, in each case as if such transactions
had occurred on September 30, 1998. Such pro forma data are presented for
illustrative purposes only and do not purport to represent the Company's actual
results if such events had occurred at the dates indicated, nor do such data
purport to project the results of operations for any future period. The
information set forth below is qualified in its entirety and should be read in
conjunction with the consolidated financial statements and notes thereto of the
Company, the financial statements and notes thereto of Windy Hill, "Unaudited
Condensed Pro Forma Financial Statements," "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
-------------- ------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
NINE MONTHS THREE MONTHS --------------------------------- ---------------------------------
ENDED ENDED PRO FORMA PRO FORMA
SEPTEMBER 30, DECEMBER 31, AS ADJUSTED AS ADJUSTED
1995 1995 1996 1997 1997 1997 1998 1998
-------------- ------------ -------- -------- ----------- -------- -------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $303,633 $114,958 $513,217 $564,741 $885,681 $411,399 $462,991 $641,674
Gross profit.......... 56,239 17,774 66,441 81,845 153,425 58,522 84,408 127,748
Unusual items(2)...... 9,440 -- -- -- -- -- -- --
Non-recurring
transition
cost(3)............. -- -- -- -- 1,571 -- 4,311 12,767
Income from
operations.......... 20,566 7,613 24,911 31,984 51,963 22,219 28,781 35,157
Interest expense,
net................. 3,611 5,806 22,471 22,463 35,724 16,973 19,444 26,793
Non-recurring finance
charge(4)........... -- -- 4,815 -- 4,486 -- -- --
Income (loss) before
extraordinary
items(5)............ $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 6,993 $ 3,381 $ 6,340 $ 3,851
Basic earnings per
share............... $ -- $ $ $ $ $ $ $
Basic weighted average
shares
outstanding......... --
Diluted earnings per
share...............
Diluted weighted
average shares
outstanding.........
OTHER DATA:
EBITDA(6)............. $ 33,804 $ 10,063 $ 35,264 $ 43,216 $ 71,446 $ 30,290 $ 40,364 $ 53,746
Adjusted EBITDA(6).... $ 43,244 $ 10,063 $ 40,079 $ 43,216 $ 77,503 $ 30,290 $ 44,675 $ 66,513
Depreciation and
amortization
expense............. 3,694 2,359 15,972 12,141 23,221 8,880 12,392 17,746
Capital
expenditures(7)..... 4,224 1,297 7,901 14,437 18,612 12,933 14,132 18,749
Pet food sold
(thousands of
tons)............... 774 288 1,189 1,237 1,829 896 1,025 1,338
</TABLE>
(footnotes on next page)
7
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,833 $ 3,833
Working capital........................................... 50,656 60,174
Total assets.............................................. 664,772 670,128
Total debt................................................ 423,666 386,372
Stockholders' equity...................................... 67,276 152,245
</TABLE>
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(1) The Company was formed by a group of investors in 1995 to acquire Doane (the
"1995 Acquisition"). For financial statement purposes, the 1995 Acquisition
was accounted for as a purchase acquisition effective October 1, 1995. The
effects of the 1995 Acquisition have been reflected in the Company's
consolidated assets and liabilities at that date. As a result, the Company's
consolidated financial statements for the periods subsequent to September
30, 1995 are presented on the successor's new basis of accounting, while
financial statements for September 30, 1995 and prior periods are presented
on the predecessor's historical cost basis of accounting. See Note 1 of the
Consolidated Financial Statements of the Company.
(2) Represents non-recurring bonus payments to senior management in connection
with the 1995 Acquisition.
(3) Represents certain non-recurring transition expenses in connection with the
Windy Hill Acquisition.
(4) Non-recurring finance charges include $4,815 and $4,486 of interim bridge
debt financing costs that were incurred in conjunction with the issuance of
the Senior Notes in 1996 and the Refinancing Transactions in 1998,
respectively.
(5) Income before extraordinary items of the Company's predecessor does not
include any provision for federal income taxes. Prior to the 1995
Acquisition, Doane was organized as a subchapter S corporation.
Consequently, Doane did not pay federal, state or local income taxes except
in those states that did not recognize subchapter S status or that required
the payment of franchise taxes based on income.
(6) EBITDA for any relevant period presented above is defined as earnings before
interest expense net, income taxes, depreciation and amortization. Adjusted
EBITDA represents EBITDA as defined plus non-recurring expenses and
transition costs. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating income as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because management believes that certain investors may
find it useful. See "Unaudited Condensed Pro Forma Financial Statements" and
the Company's Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus.
(7) Capital expenditures excludes payments for acquisitions.
8
<PAGE> 10
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
Prospectus, including, without limitation, statements under "Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding planned capital expenditures,
the availability of capital resources to fund capital expenditures, the
Company's financial position, business strategy and other plans and objectives
for future operations, are forward-looking statements. The words "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "will," "may" and
similar expressions are intended to identify forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. There are numerous uncertainties inherent
in estimating the cost of raw materials and labor, including many factors beyond
the control of the Company. Additional important factors that could cause actual
results to differ materially from the Company's expectations are disclosed below
and elsewhere in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by such factors.
RISK FACTORS
LEVERAGE; RESTRICTIVE COVENANTS
The Company is highly leveraged and will continue to be highly leveraged
following the consummation of the Offering. At September 30, 1998, on a pro
forma basis, the Company would have had approximately $386.4 million in
aggregate principal amount of outstanding indebtedness (excluding trade payables
and other accrued liabilities). See "Capitalization." Subject to the
restrictions in the New Credit Facility and the indenture governing the Senior
Subordinated Notes (the "Note Indenture"), the Company may incur additional
indebtedness from time to time to finance working capital, capital expenditures,
acquisitions or for other purposes.
The level of the Company's indebtedness will have important consequences to
common stockholders, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for other purposes, (ii) the Company's ability to obtain additional debt
financing in the future for working capital, capital expenditures, general
corporate purposes or other purposes may be impaired, (iii) a portion of the
Company's borrowings under the New Credit Facility will be at a floating rate of
interest, which could result in higher interest expense in the event of an
increase in interest rates, (iv) the New Credit Facility and the Note Indenture
contain financial and other restrictive covenants that could limit the Company's
operating and financial flexibility and, if violated, would result in an event
of default that could preclude the Company's access to credit under the New
Credit Facility or otherwise have a material adverse effect on the Company and
(v) the level of the Company's indebtedness could limit its flexibility in
reacting to changes in its industry and economic conditions generally.
The New Credit Facility and the Note Indenture restrict, among other
things, the Company's ability to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with, or otherwise acquire, any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company.
See "Description of Senior Subordinated Notes" and "Description of New Credit
Facility." The New Credit Facility also requires the Company to maintain
specified financial ratios and satisfy certain financial condition tests. The
Company's ability to meet such financial ratios and tests can be affected by
events beyond its control, and there can be no assurance that the Company will
meet such tests. A breach of any of these covenants could result in a default
under the New Credit Facility or the Note Indenture. Upon the occurrence of an
event of default under the New Credit Facility, the lenders could elect to
declare all amounts outstanding under the New Credit Facility, together with
accrued interest, to be immediately due and payable. If the Company were unable
to repay those amounts, the lenders could proceed against the collateral granted
to them to secure that indebtedness. If the Senior Subordinated Notes and the
indebtedness under the New Credit Facility were to be accelerated, there can be
no assurance that the assets of the
9
<PAGE> 11
Company would be sufficient to repay in full that indebtedness. See "Description
of New Credit Facility" and "Description of Senior Subordinated Notes." In
connection with the New Credit Facility, the Company has pledged to the lenders
substantially all of its assets. If an event of default occurs under the New
Credit Facility, the lenders have the right to foreclose upon such collateral.
These restrictions could limit the ability of the Company to effect future
financings or may otherwise restrict corporate activities.
Future acquisition or development activities may require the Company to
alter its capitalization significantly. These changes in capitalization may
significantly increase the leverage of the Company. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
If the Company is unable to generate sufficient cash flow from operations in the
future to service its indebtedness and to meet its other commitments, the
Company will be required to adopt one or more alternatives, such as refinancing
or restructuring its indebtedness, selling material assets or operations or
seeking to raise additional debt or equity capital. There can be no assurance
that any of these actions could be effected on a timely basis or on satisfactory
terms or that these actions would enable the Company to continue to satisfy its
capital requirements. The terms of the Company's indebtedness, including the New
Credit Facility and the Note Indenture, also may prohibit the Company from
taking such actions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON CERTAIN CUSTOMERS
For the years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998, sales to Wal*Mart and Sam's Club accounted for approximately
63%, 61% and 57%, respectively, of the Company's net sales. For the year ended
December 31, 1997 on a pro forma basis, sales to Wal*Mart and Sam's Club
accounted for an aggregate of 39.0% of the Company's net sales. A portion (3.8%)
of the Company's sales to Wal*Mart and Sam's Club for the year ended December
31, 1997 on a pro forma basis was attributable to branded pet food products
manufactured and distributed by the Company for national pet food companies. The
Company does not have a long-term contract with Wal*Mart, Sam's Club or any
other customer. A significant decrease in business from either Wal*Mart or Sam's
Club would have a material adverse effect on the Company's results of
operations, financial condition and cash flows. In addition, the Company's
results of operations would be negatively impacted to the extent that Wal*Mart
or Sam's Club is unable to make payments on outstanding accounts receivable. See
"Business -- Customers."
RAW MATERIALS AND PACKAGING COSTS
The Company's financial results depend to a large extent on the cost of raw
materials and packaging and the ability of the Company to pass along to its
customers increases in these costs. Historically, market prices for commodity
grains and food stocks have fluctuated in response to a number of factors,
including changes in United States government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing and harvesting seasons. Fluctuations in paper prices have resulted
from changes in supply and demand, general economic conditions and other
factors. In the event of any increases in raw materials costs, the Company would
be required to increase sales prices for its products in order to avoid margin
deterioration. There can be no assurance as to the timing or extent of the
Company's ability to implement future price adjustments in the event of
increased raw material costs or as to whether any price increases implemented by
the Company may affect the volumes of future shipments. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Raw Materials and Packaging." Although
the Company manages the price risk created by market fluctuations by hedging
portions of its primary commodity product purchases, there can be no assurance
that the Company's results of operations will not be exposed to volatility in
the commodity markets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "-- Inflation and Changes
in Prices."
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<PAGE> 12
HEDGING
The Company manages price risk created by market fluctuations by hedging
portions of its primary commodity products purchases, principally through
exchange traded futures and options contracts that are designated as hedges. The
terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity.
The Company's policy does not permit speculative commodity trading. Futures
and options contracts are accounted for as hedges, and gains and losses are
recognized in the period realized as part of the cost of products sold and in
the cash flows. Although the Company manages the price risk of market
fluctuations by hedging portions of its primary commodity product purchases,
there can be no assurance that the Company's results of operations will not be
exposed to volatility in the commodity markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"-- Inflation and Changes in Prices."
ACQUISITION STRATEGY
The Company's acquisition strategy is based on identifying and acquiring
businesses engaged in manufacturing and distributing pet food products in
markets where the Company currently does not operate or businesses with products
that would complement the Company's product mix. The Company will evaluate
specific acquisition opportunities based on prevailing market and economic
conditions. The Company's lack of experience in new markets it may enter through
future acquisitions could have an adverse effect on the Company's results of
operations and financial condition. Acquisitions may require investment of
operational and financial resources and could require integration of dissimilar
operations, assimilation of new employees, diversion of management time and
resources, increases in administrative costs, potential loss of key employees of
the acquired company and additional costs associated with debt or equity
financing. Any future acquisition by the Company could have an adverse effect on
the Company's results of operations or could result in dilution to existing
shareholders, including those purchasing shares of Common Stock in this
Offering. The Company may encounter increased competition for acquisitions in
the future, which could result in acquisition prices the Company does not
consider acceptable. There can be no assurance that the Company will find
suitable acquisition candidates at acceptable prices or succeed in integrating
any acquired business into the Company's existing business or in retaining key
customers of acquired businesses. There can be no assurance that the Company
will have sufficient available capital resources to execute its acquisition
strategy. See "Business -- Business Strategy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
INTEGRATION OF RECENT ACQUISITIONS
There can be no assurance that the Company will succeed in integrating
Windy Hill into the Company's existing business. In addition, the Company may
experience a loss of certain customers as a result of the Windy Hill
Acquisition. If the expected operating efficiencies from the Windy Hill
Acquisition do not materialize, if the Company fails to integrate the Windy Hill
Acquisition into its existing operations, if the costs of such integration
exceed expectations or if the Company experiences unexpected costs or
liabilities at Windy Hill, the Company's operating results and financial
condition could be materially and adversely affected. There can also be no
assurance that the Company will succeed in integrating other recent
acquisitions, including acquisitions made by Windy Hill, into the Company's
existing operations. See "Unaudited Condensed Pro Forma Financial Statements"
and "Business -- Recent Developments."
COMPETITION
The pet food industry is highly competitive. The companies that produce and
market the major national branded pet foods are national or international
conglomerates that are substantially larger than the Company and possess
significantly greater financial and marketing resources than the Company. The
store brand pet food products sold by the Company's customers compete for access
to shelf space with national branded products on the basis of quality and price.
National branded products compete principally through advertising
11
<PAGE> 13
to create brand awareness and loyalty, and, increasingly, on price. The Company
experiences price competition from national branded manufacturers. To the extent
that there is significant price competition from the national branded
manufacturers or such manufacturers significantly increase their presence in the
store brand market, the Company's operating results and cash flow could be
adversely affected. The Company also competes with regional branded
manufacturers and other store brand manufacturers. See "Business --
Competition."
INTERNATIONAL OPERATIONS
The Company operates a portion of its business and markets products
internationally and plans to increase its international marketing and business
activities. The Company is, therefore, subject to and will increasingly become
subject to, the risks customarily attendant to international operations and
investments in foreign countries. These risks include nationalization,
expropriation, war and civil disturbance, restrictive action by local
governments, limitation on repatriation of earnings, change in foreign tax laws
and change in currency exchange rates, any of which could have an adverse effect
on the Company's operations in such countries. Interruption of the Company's
international operations could have a material adverse effect on its financial
condition and results of operations.
The Company may, from time to time, conduct a portion of its business in
currencies other than the United States dollar, thus subjecting the Company's
results to fluctuations in foreign currency exchange rates. There can be no
assurance that the Company will be able to protect itself against such
fluctuations in the future.
CONTROL OF THE BOARD OF DIRECTORS
In connection with the Windy Hill Acquisition, the Company, Doane,
Summit/DPC Partners, L.P. ("Summit"), Summit Capital Inc. ("SCI"), Chase
Manhattan Investment Holdings, Inc. ("CMIHI") and an affiliate thereof, DLJ
Merchant Banking Partners, L.P. ("DLJMB") and certain of its affiliates, all of
Windy Hill's former stockholders and certain other stockholders of the Company
(collectively, the "Stockholders") entered into an Investors' Agreement (the
"Investors' Agreement"). The Investors' Agreement provides that the Board of
Directors of the Company (the "Board" or "Board of Directors") will consist of
eight members, one being the Chief Executive Officer of the Company. Other than
the Chief Executive Officer, each of the remaining seven directors will be
designated by one or a combination of the Stockholders, subject to certain
percentage ownership requirements. Through their control of the Board of
Directors, the Stockholders will be in a position to control the policies,
management and affairs of the Company and to effectively prevent or cause a
change in control of the Company. The Stockholders will not have the right to
designate individuals to the Board of Directors if their Percentage Ownership
(as defined in the Investors' Agreement) of Common Stock is reduced below 5%.
Immediately after the Offering, the Stockholders will own in the aggregate
approximately % of the outstanding Common Stock. See "Certain
Transactions -- Investors' Agreement." It is expected that the Board of
Directors will be expanded to ten members after the consummation of the
Offering.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in part upon the continued services of its
highly skilled personnel involved in management, production and distribution,
and, in particular, upon the efforts and abilities of its executive management
group. The loss of service of any of the members of its executive management
group could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has entered into employment
agreements with members of its executive management group. The Company does not
have key-person life insurance covering any of its employees. The success of the
Company also depends upon its ability to attract and retain additional highly
qualified employees. See "Management."
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<PAGE> 14
ENVIRONMENTAL, REGULATORY AND SAFETY MATTERS; PRODUCT RECALL
The Company is subject to a broad range of federal, state and local laws
and regulations intended to protect the public health and the environment,
including those governing discharges to the air and water, the storage of
petroleum substances and chemicals, the handling and disposal of solid or
hazardous wastes and the remediation of contamination associated with releases
of hazardous substances. The Company is also subject to regulation by the
Occupational Safety and Health Administration ("OSHA"), the Food and Drug
Administration ("FDA") and the United States Department of Agriculture ("DOA")
and by various state and local authorities. Violations of these regulatory
requirements can result in administrative, civil or criminal penalties being
levied against the Company or in a cease and desist order against operations
that are not in compliance.
On October 30, 1998 the Company initiated a product recall for certain dry
dog food manufactured at its Temple, Texas plant. The recall covers dry dog food
manufactured at its Temple plant between July 1 and August 31, 1998 and does not
apply to dry dog food manufactured at other plants or the Company's dry cat
food, biscuits, treats or canned products. The recall resulted from reported
sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated aflatoxins in corn, which is an ingredient in dry dog
food. Aflatoxins are compounds produced from certain kinds of crop molds that
can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
is currently unable to estimate the cost of the recall. The Company does not
believe that the recall will have a material impact on the Company's financial
condition or results of operations.
The Company believes that its operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that such requirements will not change in the future or that the
Company will not incur significant costs in the future (i) to comply with such
requirements, (ii) to effect future recalls or (iii) in connection with the
effect on the Company's business of such matters. See
"Business -- Environmental, Regulatory and Safety Matters; Product Recall."
INTERESTS OF UNDERWRITERS
DLJMB, an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC"), will receive approximately $ million in proceeds of the Offering
as a Selling Stockholder. CMIHI, an affiliate of CSI, will receive approximately
$ million in proceeds of the Offering as payment for redemption of 200,000
shares of preferred stock. Affiliates of CMIHI and DLJSC will receive proceeds
from the Offering in connection with the repayment of the New Credit Facility.
Each of CSI and DLJSC will receive underwriting discounts and commissions in
connection with the Offering. See "Certain Transactions" and "Underwriting."
Pursuant to the Investors' Agreement, DLJMB has the right to designate one
representative to the Board of Directors (the "DLJMB Designee"), and CMIHI has
the right to designate one representative to the Board of Directors (the "Chase
Designee"). In addition, one representative to the Board of Directors shall be
designated by the mutual agreement of all of the following: the DLJMB Designee,
the Chase Designee and George B. Kelly (so long as Mr. Kelly is one of the two
Summit-Investor Designees (as defined herein) or, if Mr. Kelly is not then one
of the two Summit-Investor Designees, by any of the Summit-Investor Designees).
See "Certain Transactions -- Investors' Agreement."
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. ("NASD"), DLJSC may be deemed to be an
"affiliate" of the Company and to have a "conflict of interest" with the Company
by virtue of the fact that affiliates of DLJSC may be deemed to beneficially own
greater than 10% of the voting stock of the Company. Under Rule 2720, when a
member of the NASD proposes to underwrite or otherwise assist in the
distribution of an affiliate's securities in a public offering, the price to
public at which such securities are to be distributed to the public must not be
lower than that recommended by a "qualified independent underwriter," who must
participate in the preparation of the registration statement and the prospectus
and who must exercise the usual standards of due diligence with
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<PAGE> 15
respect thereto. A "qualified independent underwriter" within the meaning of
such rules will assume the responsibilities of acting as such in pricing the
Offering and conducting due diligence. See "Underwriting."
ABSENCE OF PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company intends to list the Common Stock on the ,
there can be no assurance that an active trading market will develop or continue
upon completion of the Offering. The initial public offering price of the Common
Stock will be determined by negotiations among the Company, the Selling
Stockholders and the representatives of the Underwriters (including the
qualified independent underwriter) and may not be indicative of the market price
of the Common Stock after the Offering. For a discussion of the factors to be
considered in determining the initial public offering price, see "Underwriting."
The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly and yearly operating
results, the success of the Company's business strategy, general trends in the
pet food industry, cost of raw materials, competition and other factors. In
addition, stock markets experience extreme price and volume fluctuations that
are unrelated or disproportionate to the operating performance of affected
companies. A broad fluctuation in the market in which the Company's securities
is traded may adversely affect the market price of the Common Stock.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales of substantial amounts of Common Stock in the public market
subsequent to the Offering, or the perception that such sales may occur, could
adversely affect the market price of the Common Stock. Upon consummation of the
Offering, the Company will have shares of Common Stock outstanding
( shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the shares of Common Stock outstanding not
being registered in the Offering will be "restricted securities" within the
meaning of Rule 144 under the Securities Act and will be eligible for resale
subject to the volume, manner of sale, holding period and other limitations of
Rule 144. Certain stockholders of the Company have been granted registration
rights. See "Certain Transactions -- Investors' Agreement." In addition, options
to purchase shares of Common Stock are exercisable prior to or upon
consummation of the Offering. The Company, the executive officers and directors
of the Company, certain other stockholders and the Selling Stockholders have
agreed not to sell any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days from the
date of this Prospectus without the prior written consent of DLJSC. See "Shares
Eligible for Future Sale" and "Underwriting."
ANTITAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and Bylaws, each as
amended, contain various provisions, including certain notice provisions,
provisions prohibiting the taking of stockholder action by written consent and
provisions authorizing the Company to issue preferred stock, that may make it
more difficult for a third party to acquire, or may discourage acquisition bids
for, control of the Company and could limit the price that certain investors
might be willing to pay in the future for shares of Common Stock. After the
Offering, the ownership by Summit, DLJMB and CMIHI, together with the beneficial
ownership of Common Stock of the Company's officers, directors and their
affiliates, of a substantial number of shares of Common Stock could also
discourage such bids. See "Description of Capital Stock -- Antitakeover
Provisions" and "Principal and Selling Stockholders."
The Company's Board of Directors is authorized to issue, from time to time,
without any action on the part of the Company's stockholders, up to
shares of preferred stock in one or more series, with such relative rights,
powers, preferences, limitations and restrictions as are determined by the Board
of Directors at the time of issuance. Accordingly, the Board of Directors is
empowered to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. In the event of such issuance, the
preferred stock could be utilized, under either circumstance, as a method of
discouraging, delaying or preventing a change in control of the Company. See
"Description of Capital Stock -- Preferred Stock" and "-- Antitakeover
Provisions."
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<PAGE> 16
NO ANTICIPATED DIVIDENDS
The Company expects to retain cash generated from future operations to
support its cash needs and does not anticipate the payment of any dividends on
the Common Stock for the foreseeable future. In addition, dividends or
distributions by the Company may be restricted by the New Credit Facility, the
Note Indenture and other indebtedness that may be incurred by the Company. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DILUTION
Investors in the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of (based on
the initial public offering price of per share). See "Dilution."
YEAR 2000
The Company has conducted a comprehensive review of its computer software
to identify the systems that could be affected by the "year 2000" issue. The
year 2000 issue results from computer programs being written using two digits
(rather than four) to define the applicable year. As a result, certain of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This calculation could result
in a major system failure or miscalculations.
The Company has made an assessment of year 2000 compliance and reviewed its
business application software which resulted in plans to either replace or
upgrade all essential business software at an estimated cost of $3.5 million.
The Company is currently reviewing its administrative hardware and software
(networks, communications and security systems) and the software related to
manufacturing equipment. The Company has implemented a program to confirm year
2000 compliance with all third parties with which the Company has material
relationships.
As of September 30, 1998, the Company had incurred costs of approximately
$2.4 million in connection with year 2000 compliance. The Company intends to
test and verify its year 2000 compliance by July 1999, including third party
compliance. Management believes that a failure to complete its year 2000
compliance, or a failure by parties with whom the Company has material
relationships to complete year 2000 compliance by such date could have a
material adverse effect on the Company's financial condition and results of
operations. The Company believes that it can provide the resources necessary to
ensure year 2000 compliance prior to the year 2000. However, should the Company
be delayed in its compliance with year 2000, the Company may experience a
decrease in efficiency that could have a material adverse effect on results of
operations. The Company also believes that a sufficient number of suppliers
exist if the Company's current suppliers are delayed in their efforts to achieve
year 2000 compliance, thereby minimizing risk to the Company. The Company has
developed contingency plans that include moving production within its plant
network, securing additional ingredient storage facilities and transferring
procurement to year 2000 compliant suppliers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."
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<PAGE> 17
THE COMPANY
The Company was formed in 1995 by a group of investors led by SCI, DLJMB,
CMIHI and certain members of existing management to acquire Doane for an
aggregate purchase price of $249.1 million, including existing indebtedness. Bob
L. Robinson, a director of the Company and Doane, Terry W. Bechtel, a Vice
President of Doane, Dick Weber, Managing Director of Field Sales of Doane, and
Earl Clements, Central Regional Director -- Production of Doane, are the only
four persons from such existing management who are still affiliated with the
Company. Doane had previously been a manufacturer of dry pet food for 37 years.
In April 1998, the Company acquired IPES for $26.2 million (net of cash
purchased of $1.9 million) and the assumption of indebtedness of $1.9 million.
In August 1998, the Company acquired Windy Hill for approximately 8.0
million shares of Common Stock and the assumption of $183.5 million of
indebtedness. Windy Hill was a manufacturer of pet food products based in
Tennessee. In November 1998 Windy Hill was merged into Doane.
Windy Hill was formed in February 1995 by a group of investors led by
Dartford Partnership L.L.C. to acquire substantially all of the assets and
liabilities of the pet food division of Martha White Foods, Inc. for $21.0
million. In April 1996, Windy Hill acquired the assets and liabilities
associated with certain pet food product lines of Heinz Inc. for a purchase
price of $52.5 million. In May 1997, Windy Hill acquired Hubbard Milling Company
("Hubbard") for a net purchase price of $131.1 million. Subsequent to such
acquisition, Windy Hill sold the animal feed division of Hubbard for a sales
price of approximately $50.0 million, net of taxes. In February 1998, Windy Hill
acquired all of the assets of the AGP pet food division ("AGP") of Consolidated
Nutrition, L.C. for a purchase price of approximately $12.4 million. In April
1998, Windy Hill acquired certain pet food assets and certain liabilities
associated with the NuPet division of Nulaid Foods, Inc. ("NuPet") for a
purchase price of approximately $3.1 million. In June 1998, Windy Hill acquired
Deep Run Packing Company, Inc. ("Deep Run") for a net purchase price of
approximately $16.4 million.
The Company is incorporated under the laws of the State of Delaware. The
Company's principal executive offices are located at 103 Powell Court, Suite
200, Brentwood, Tennessee 37027, and its telephone number at such offices is
(615) 373-7774.
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<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated at
approximately $139.0 million (or $ million if the Underwriters'
over-allotment option is exercised).
The Company intends to use the proceeds of the Offering to repay
approximately $81.3 million of borrowings under the New Credit Facility and
$57.8 million to repurchase the preferred stock of Doane. The remainder of the
proceeds will be used for general corporate purposes. Borrowings under the New
Credit Facility carry floating rates of interest that, as of November 30, 1998,
equaled a weighted average of 8.5% per annum, and are due as follows: (i)
borrowings of $75 million under the Tranche A Facility have a final maturity of
March 31, 2005, (ii) borrowings of $85 million under the Tranche B Facility have
a final maturity of December 31, 2005, (iii) borrowings of $85 million under the
Tranche C Facility have a final maturity of December 31, 2006 and (iv)
borrowings under the revolver have a final maturity of March 31, 2005.
Borrowings under the New Credit Facility to be repaid with the proceeds of
this Offering were incurred in November 1998 in order to fund the cash
requirements of the Refinancing Transactions, repay borrowings under and retire
the Company's previous credit facilities, repay other debt and repay a bridge
financing incurred in connection with the tender offer for the Windy Hill Notes.
DIVIDEND POLICY
The Company does not intend to pay cash dividends on the Common Stock in
the foreseeable future. The Company currently intends to retain its cash for the
continued growth of its business. In addition, the New Credit Facility and the
Note Indenture restrict the ability of Doane to pay dividends to the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 19
DILUTION
The net tangible book value of the Company as of September 30, 1998 was
$ per share of Common Stock. Net tangible book value per share is determined
by dividing the tangible net worth of the Company (tangible assets less total
liabilities) by the total number of outstanding shares of Common Stock. After
giving effect to the sale of the shares offered hereby and the receipt of the
estimated net proceeds (after deducting estimated underwriting discounts and
commissions and estimated expenses of the Offering), the net tangible book value
of the Company at September 30, 1998 would have been $ per share. This
represents an immediate increase in the net tangible book value of $ per
share to existing stockholders and an immediate dilution (i.e., the difference
between the initial public offering price and the pro forma net tangible book
value after the Offering) to new investors purchasing Common Stock in the
Offering. The following table illustrates the per share dilution to new
investors purchasing Common Stock in the Offering of $
per share:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................... $
Net tangible book value per share at September 30,
1998................................................. $
Increase per share attributable to new investors.......
Pro forma net tangible book value per share after the Offering........
--------
Dilution per share to new investors................................... $
========
</TABLE>
The following table sets forth, as of September 30, 1998, the number of
shares of Common Stock purchased from the Company, the total consideration paid
therefor and the average price per share paid by existing stockholders
(including the stockholders that received shares of Common Stock in the Windy
Hill Acquisition) and by new investors:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
New investors.......................
--------- ------ ---------- ------
Total..................... 100.0% $ $100.0%
========= ====== ========== ======
</TABLE>
The foregoing computations assume no exercise of outstanding stock options
under the Company's stock option plans. Options covering a total of
shares of Common Stock are outstanding under the 1996 Stock Option Plan, and
have a weighted average exercise price of $ per share. See
"Management -- Stock Option and Stock Purchase Plans." In the event the
shares currently subject to outstanding options under the 1996 Stock
Option Plan and outstanding warrants were included in the foregoing
calculations, the net tangible book value per share before the Offering would be
$ , the pro forma net tangible book value per share after the Offering
would be $ and the dilution per share to new investors would be
$ . In addition, the average price per share paid by existing
stockholders would increase to $ per share.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of September 30, 1998, (i) the
historical capitalization of the Company, (ii) the pro forma capitalization of
the Company after giving effect to the Refinancing Transactions and (iii) the
pro forma as adjusted capitalization of the Company after giving effect to the
Offering. See "Description of New Credit Facility" and "Description of Senior
Subordinated Notes." This table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the Company
and Windy Hill and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt(3):
Existing credit facilities......................... $ 96,557 $ -- $ --
New Credit Facility................................ 286,867 205,607
IPES Debt.......................................... 25,318 25,318 25,318
Industrial Revenue Bonds........................... 8,496 8,496 8,496
Senior Notes....................................... 160,000 -- --
Senior Subordinated Notes(4)....................... 146,951 146,951
Windy Hill Notes................................... 120,000 -- --
Other.............................................. 13,295 -- --
-------- -------- --------
Total debt(3)................................. 423,666 467,632 386,372
Senior Exchangeable Preferred Stock, 10,000,000 shares
authorized; 1,200,000 shares issued and outstanding;
no shares issued and outstanding, pro forma as
adjusted(5)........................................... 35,898 35,898 --
Stockholders' equity:
Common Stock, par value $0.0001 per share,
shares authorized;
shares issued and outstanding;
shares issued and outstanding, pro forma;
shares issued and outstanding, pro
forma as adjusted(6)(7).......................... 2 2 2
Additional paid-in capital......................... 73,544 73,544 212,544
Accumulated other comprehensive income............. 472 472 472
Accumulated deficit................................ (6,742) (37,985) (60,773)
-------- -------- --------
Total stockholders' equity.................... 67,276 36,033 152,245
-------- -------- --------
Total capitalization........................ $526,840 $539,563 $538,617
======== ======== ========
</TABLE>
- ------------------------------
(1) To give effect to the Refinancing Transactions and the application of the
proceeds therefrom.
(2) As adjusted to give effect to the Offering and the application of the
proceeds therefrom.
(3) Total debt includes current portion of long-term debt.
(4) The Senior Subordinated Notes have an aggregate principal amount of $150
million and have been recorded at their principal amount less unamortized
discounts of approximately $3.0 million.
(5) The preferred stock had an initial liquidation preference of $30.0 million
(accreted liquidation value of $45.6 million at September 30, 1998) and was
sold as a unit with warrants to purchase shares of Common Stock of the
Company for aggregate consideration of $30.0 million. Approximately $12.9
million of such consideration was allocated to the value of the warrants and
is recorded as stockholders' equity.
(6) The Company has two classes of Common Stock, Class A Common Stock and Class
B Common Stock. As of November 30, 1998, there were approximately 20.1
million shares of Class A Common Stock outstanding and approximately 2.9
million shares of Class B Common Stock outstanding. Class A and Class B
Common Stock are identical except that Class B Common Stock has no voting
rights. All of the shares of Class B Common Stock are owned by CMIHI and are
convertible into Class A Common Stock at the holder's election. References
to shares of Common Stock in the table above and throughout this Prospectus
are to the Company's Class A Common Stock and Class B Common Stock on a
combined basis.
(7) Does not include warrants convertible into approximately 6.8 million shares
of Common Stock and approximately 2.0 million shares of Common Stock
issuable upon exercise of options outstanding under the Company's 1996 Stock
Option Plan. See "Management -- Stock Option and Stock Purchase Plans."
19
<PAGE> 21
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma financial
statements consist of (i) the unaudited pro forma condensed combined statements
of operations of the Company and Windy Hill for the fiscal year ended December
31, 1997 and for the nine months ended September 30, 1998 and related notes,
(ii) the unaudited pro forma condensed consolidated balance sheet of the Company
as of September 30, 1998 and related notes, (iii) the unaudited pro forma
condensed consolidated statements of operations of the Company for the fiscal
year ended December 31, 1997 and for the nine months ended September 30, 1998,
and related notes (iv) the unaudited pro forma condensed consolidated statements
of operations of Windy Hill for the fiscal year ended December 27, 1997 and for
the seven months ended August 2, 1998. The unaudited pro forma financial
statements of the Company give effect to the IPES Acquisition as if such
transaction had occurred on January 1, 1997. The unaudited pro forma financial
statements of Windy Hill give effect to the acquisitions of Hubbard, AGP, NuPet,
Deep Run and the purchase by Windy Hill of certain joint venture interests held
by third parties as if such transactions had occurred on January 1, 1997. The
condensed combined unaudited pro forma statements of operations give effect to
the pro forma results of the Company and Windy Hill for the entire periods
indicated as if the Refinancing Transactions and the Offering had occurred on
January 1, 1997. The combined unaudited pro forma balance sheet gives effect to
the Refinancing Transactions, the Offering and the use of proceeds therefrom, in
each case as if such transactions had occurred on September 30, 1998.
The historical data of the Company for the fiscal year ended December 31,
1997 have been derived from the Company's audited consolidated financial
statements and the historical data for the nine months ended September 30, 1998
have been derived from the unaudited interim financial statements of the
Company. The historical data of Windy Hill have been derived from its audited
financial statements for the year ended December 27, 1997 and the historical
data for the seven months ended August 2, 1998 have been derived from Windy
Hill's interim unaudited financial statements.
The unaudited condensed consolidated pro forma financial statements are
based on assumptions and include adjustments as explained in the notes thereto.
The unaudited condensed consolidated pro forma financial statements are not
necessarily indicative of the actual financial results if the transactions
described in the preceding paragraph had been effective on and as of the dates
indicated and should not be indicative of operations in future periods or as of
future dates. The unaudited condensed consolidated pro forma financial
statements should be read in conjunction with the notes thereto and the
historical audited and unaudited consolidated financial statements of the
Company, Windy Hill and Hubbard and the notes thereto included elsewhere in this
Prospectus.
20
<PAGE> 22
CONDENSED COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS COMBINED
COMPANY WINDY FOR COMBINED FOR REFINANCING COMPANY
(SEE HILL (SEE WINDY HILL COMPANY TRANSACTIONS PRO FORMA
TABLE 1-A) TABLE 2-A) ACQUISITION PRO FORMA AND OFFERING AS ADJUSTED(G)
---------- ---------- ----------- --------- --------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $585,837 $304,041 $(4,197)(a) $885,681 $ -- $885,681
Cost of goods sold............... 500,815 231,441 -- 732,256 -- 732,256
-------- -------- ------- -------- ------- --------
Gross profit..................... 85,022 72,600 (4,197) 153,425 -- 153,425
Operating expenses:
Promotion and distribution... 32,956 37,377 (4,197)(a) 66,136 -- 66,136
Selling, general and
administrative............. 19,240 16,507 (1,692)(b) 34,055 (300)(b) 33,755
Non-recurring transition costs... -- 1,571 -- 1,571 -- 1,571
-------- -------- ------- -------- ------- --------
Income from operations....... 32,826 17,145 1,692 51,663 300 51,963
Interest expense, net............ 24,457 19,183 -- 43,640 (7,916)(c) 35,724
Non-recurring finance charge..... -- -- -- -- 4,486(e) 4,486
Equity in earnings of joint
ventures....................... (186) (480) -- (666) -- (666)
Other expense, net............... (148) 66 -- (82) -- (82)
-------- -------- ------- -------- ------- --------
Income (loss) before taxes... 8,703 (1,624) 1,692 8,771 3,730 12,501
Income tax expense (benefit)..... 3,242 18 831(d) 4,091 1,417(d) 5,508
-------- -------- ------- -------- ------- --------
Income (loss) before
extraordinary items........ $ 5,461 $ (1,642) $ 861 $ 4,680 $ 2,313 $ 6,993
======== ======== ======= ======== ======= ========
Basic and diluted earnings per
share.......................... $ 0.49
Basic and diluted weighted
average number of shares
outstanding.................... 14,188
EBITDA(f)........................ $ 71,446
========
Adjusted EBITDA(f)............... $ 77,503
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
21
<PAGE> 23
CONDENSED COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
PRO FORMA PRO FORMA ADJUSTMENTS FOR COMBINED
COMPANY WINDY HILL FOR COMBINED REFINANCING COMPANY
(SEE (SEE WINDY HILL COMPANY TRANSACTIONS PRO FORMA
TABLE 1-B) TABLE 2-B) ACQUISITION PRO FORMA AND OFFERING AS ADJUSTED(G)
---------- ---------- ----------- --------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $468,977 $175,111 $(2,414)(a) $641,674 $ -- $641,674
Cost of goods sold............ 383,131 130,795 513,926 -- 513,926
-------- -------- ------- -------- ------- --------
Gross profit.................. 85,846 44,316 (2,414) 127,748 -- 127,748
Operating expenses:
Promotion and
distribution........... 30,688 19,874 (2,414)(a) 48,148 -- 48,148
Selling, general and
administrative......... 21,230 12,014 (1,343)(b) 31,901 (225)(b) 31,676
Non-recurring transition
costs....................... 4,311 8,456 12,767 -- 12,767
-------- -------- ------- -------- ------- --------
Income from operations... 29,617 3,972 1,343 34,932 225 35,157
Interest expense, net......... 19,920 11,194 31,114 (4,321)(c) 26,793
Equity in earnings of joint
ventures.................... (111) (463) (574) (574)
Other expense, net............ (182) (87) (269) (269)
-------- -------- ------- -------- ------- --------
Income before taxes...... 9,990 (6,672) 1,343 4,661 4,546 9,207
Income tax expense
(benefit)................... 3,397 (420) 652(d) 3,629 1,727(d) 5,356
-------- -------- ------- -------- ------- --------
Income before
extraordinary items.... $ 6,593 $ (6,252) $ 691 $ 1,032 $ 2,819 $ 3,851
======== ======== ======= ======== ======= ========
Basic and diluted earnings per
share....................... $ 0.24
Basic and diluted weighted
average number of shares
outstanding................. 16,360
EBITDA(f)..................... $ 53,746
========
Adjusted EBITDA(f)............ $ 66,513
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
22
<PAGE> 24
CONDENSED COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(a) Adjustment to reclassify $4,197 for the year ended December 31, 1997 and
$2,414 for the seven months ended August 2, 1998 of Windy Hill's cash
discounts to net sales from promotion and distribution expenses to conform
the accounting policies of Windy Hill to those of the Company.
(b) Adjustments to selling, general and administrative expenses to eliminate
certain non-recurring fees and expenses and recognize additional
amortization of goodwill resulting from the Windy Hill Acquisition are set
forth below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
RESULTING FROM THE WINDY HILL ACQUISITION:
Headcount reductions.................................. $1,381 $1,132
Advisory fees......................................... 807 583
Amortization of goodwill ($19.9 million amortized over
40 years)............................................ (496) (372)
------ ------
$1,692 $1,343
====== ======
</TABLE>
The Company has determined that the services performed by certain former
employees of Windy Hill will no longer be required and those services will
be performed by existing employees of the Company whose costs are in the
historical income statement of the Company. The financial advisory fees for
Dartford Partnership L.L.C. were terminated upon the consummation of the
RESULTING FROM THE OFFERING:
Advisory fees................................... $ 300 $ 225
====== ======
The obligation to pay financial advisory fees for Summit Capital and DLJSC
will terminate upon the consummation of the Offering in accordance with the
terms of the financial advisory fee agreements.
(c) Pro forma as adjusted interest expense, which includes amortization of
deferred financing costs, has been calculated on pro forma debt levels and
applicable interest rates after giving effect to the Refinancing
Transactions and the Offering and the application of the net proceeds to
the Company therefrom. The table below presents pro forma as adjusted
interest expense noted with the respective interest rates:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
New Credit Facility ($205.6 million estimated at
8.35%)............................................... $ 17,226 $12,919
Senior Subordinated Notes ($150.0 million at 9.75%)... 14,984 11,238
IPES Debt ($25.3 million at 6.50%).................... 1,646 1,234
Industrial Revenue Bonds ($8.5 million at a blended
rate of 6.70%)....................................... 602 452
Amortization of deferred financing costs ($9.7 million
amortized over seven to ten years)................... 1,266 950
-------- -------
$ 35,724 $26,793
Less historical interest expense...................... 43,640 31,114
-------- -------
Adjustment............................................ $ (7,916) $(4,321)
======== =======
</TABLE>
The effect of a 0.25% change in the annual interest rate of the New Credit
Facility would change pro forma interest expense by $514 for the year ended
December 31, 1997 and $386 for the nine months ended September 30, 1998.
23
<PAGE> 25
(d) Reflects an adjustment to income tax expense to tax effect the pro forma
adjustments at the combined state and federal statutory rate of 38% for the
year ended December 31, 1997 and for the nine months ended September 30,
1998. In calculating the tax adjustment, the goodwill amortization as
calculated in (b) above has not been tax effected as it is non-deductible
for tax purposes.
(e) Represents non-recurring interim bridge debt financing costs that were
expensed concurrently with the issuance of the New Credit Facility.
(f) EBITDA for any relevant period presented above is defined as earnings
before interest expense net, income taxes, depreciation and amortization.
Adjusted EBITDA represents EBITDA as defined plus non-recurring expenses
and transition costs. EBITDA is not a measure recognized by generally
accepted accounting principles and should not be considered in isolation or
as a substitute for operating income, as an indicator of liquidity or as a
substitute (or net cash) provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because management believes that certain investors may
find it useful.
(g) The Windy Hill Acquisition provides the Company with the opportunity to
achieve cost savings in the following areas which have not been reflected
in the Pro Forma Statement of Operations:
(i) Selling, general and administrative expense primarily due to
headcount reductions not reflected in footnote (b);
(ii) Purchasing cost savings through economies of scale and raw material
cost savings through formula rationalizations; and
(iii) Distribution cost savings, improved efficiencies and reduced
overtime through optimizing production schedules at the network of
32 domestic manufacturing facilities.
24
<PAGE> 26
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR PRO FORMA COMPANY
COMPANY REFINANCING COMPANY ADJUSTMENTS PRO FORMA
HISTORICAL TRANSACTIONS PRO FORMA FOR OFFERING AS ADJUSTED
---------- ------------ --------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,833 $ -- $ 3,833 $ $ 3,833
Trade and other accounts receivable, net......... 86,759 -- 86,759 86,759
Inventories...................................... 52,901 -- 52,901 52,901
Deferred income tax benefits..................... 6,562 7,470(a) 16,964 509(d) 17,473
2,932(b)
Prepaid expenses and other assets................ 16,333 -- 16,333 16,333
-------- -------- -------- -------- --------
Total current assets......................... 166,388 10,402 176,790 509 177,299
Property, plant and equipment, net................... 201,665 -- 201,665 201,665
Goodwill, net........................................ 263,368 -- 263,368 263,368
Other assets......................................... 33,351 11,126(a) 29,251 (1,455)(d) 27,796
(15,226)(b)
-------- -------- -------- -------- --------
Total assets................................. $664,772 $ 6,302 $671,074 $ (946) $670,128
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt........... $ 8,859 $ 1,393(a) $ 10,252 $ 10,252
Accounts payable................................. 64,782 -- 64,782 64,782
Accrued liabilities.............................. 42,091 -- 42,091 42,091
-------- -------- -------- -------- --------
Total current liabilities.................... 115,732 1,393 117,125 117,125
Long-term debt, excluding current installments....... 414,807 42,573(a) 457,380 (81,260)(c) 376,120
Post-retirement benefit liability.................... 6,562 -- 6,562 6,562
Other long term liabilities.......................... 1,753 -- 1,753 1,753
Deferred income tax liability........................ 22,744 (4,024)(a) 16,323 16,323
(2,397)(b)
-------- -------- -------- -------- --------
Total liabilities............................ 561,598 37,545 599,143 (81,260) 517,883
Preferred Stock...................................... 35,898 -- 35,898 (35,898)(c) --
Stockholders' equity
Common Stock..................................... 2 -- 2 2
Additional paid-in capital....................... 73,544 73,544 139,000(c) 212,544
Accumulated other comprehensive income............... 472 -- 472 472
Accumulated deficit.............................. (6,742) (21,346)(a) (37,985) (21,842)(c) (60,773)
(9,897)(b) (946)(d)
-------- -------- -------- -------- --------
Total stockholders' equity................... 67,276 (31,243) 36,033 116,212 152,245
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity... $664,772 $ 6,302 $671,074 $ (946) $670,128
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
25
<PAGE> 27
DOANE PET CARE ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
(a) Reflects the proceeds to the Company from the Refinancing Transactions and
the application of proceeds therefrom:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources:
New Credit Facility.................................. $286,867
Senior Subordinated Notes............................ 146,951
--------
Total sources..................................... $433,818
========
Uses:
Repayment of existing credit facilities.............. $ 96,557
Repayment of Senior Notes............................ 160,000
Repayment of Windy Hill Notes........................ 120,000
Repayment of other debt.............................. 13,295
Deferred debt financing costs........................ 11,126
Costs of early extinguishment of debt................ 28,354
Non-recurring finance charge......................... 4,486
--------
Total uses........................................ $433,818
========
</TABLE>
The costs of early extinguishment of debt ($28,354) and the non-recurring
finance charge ($4,486) have been reflected as a charge to retained
earnings of $32,840 net of a tax benefit of $11,494 and will be charged to
operations upon the consummation of the Refinancing Transactions.
(b) Reflects the impact on retained earnings of the write-off of financing
costs of $15,226, net of a tax benefit of $5,329 associated with existing
credit facilities, the Senior Notes and the Windy Hill Notes. The
adjustment has not been reflected in the Pro Forma Statement of Operations
and will be charged to operations upon the consummation of the Refinancing
Transactions.
(c) Reflects the assumed proceeds to the Company from the Offering and the
application of proceeds therefrom:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources:
The Offering......................................... $150,000
--------
Total sources..................................... $150,000
========
Uses:
Repayment of New Credit Facility..................... $ 81,260
Repayment of preferred stock......................... 35,898
Underwriting discounts and related expenses.......... 11,000
Costs of early extinguishment of debt................ 21,842
--------
Total uses........................................ $150,000
========
</TABLE>
One-third of the preferred stock will be repurchased at 114.0% pursuant to
the terms of the Certificate of Designations under which the preferred
stock was issued, and the other two-thirds will be repurchased on the open
market at the prevailing market prices.
The costs of early extinguishment of debt has been reflected as a charge to
retained earnings of $21,842 and will be charged to operations upon the
consummation of the Offering.
(d) Reflects the impact on retained earnings of the write-off of financing
costs of $1,455, net of a tax benefit of $509, associated with the New
Credit Facility. The adjustment has not been reflected in the Pro Forma
Statement of Operations and will be charged to operations upon the
consummation of the Offering.
26
<PAGE> 28
TABLE 1-A
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMPANY IPES ADJUSTMENTS FOR PRO FORMA
HISTORICAL(a) HISTORICAL(b) IPES ACQUISITION COMPANY
------------- ------------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.............................. $564,741 $21,096 $ -- $585,837
Cost of goods sold..................... 482,896 17,636 283(c) 500,815
-------- ------- ------- --------
Gross profit........................... 81,845 3,460 (283) 85,022
Operating expenses:
Promotion and distribution........... 31,876 1,080 -- 32,956
Selling, general and
administrative.................... 17,985 788 467(d) 19,240
-------- ------- ------- --------
Income from operations............ 31,984 1,592 (750) 32,826
Interest expense, net.................. 22,463 117 1,877(e) 24,457
Equity in earnings of joint venture.... (186) -- -- (186)
Other (income) expense, net............ 84 (232) -- (148)
-------- ------- ------- --------
Income before taxes............... 9,623 1,707 (2,627)(f) 8,703
Income tax expense..................... 3,389 674 (821) 3,242
-------- ------- ------- --------
Income before extraordinary
items........................... $ 6,234 $ 1,033 $(1,806) $ 5,461
======== ======= ======= ========
EBITDA(g).............................. $ 46,784
========
Adjusted EBITDA(g)..................... $ 46,784
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
27
<PAGE> 29
TABLE 1-B
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMPANY IPES ADJUSTMENTS FOR PRO FORMA
HISTORICAL(A) HISTORICAL(B) IPES ACQUISITION COMPANY
------------- ------------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $462,991 $5,986 $ -- $468,977
Cost of goods sold........................ 378,583 4,480 68(c) 383,131
-------- ------ ----- --------
Gross profit.............................. 84,408 1,506 (68) 85,846
Operating expenses:
Promotion and distribution.............. 30,381 307 -- 30,688
Selling, general and administrative..... 20,935 184 111(d) 21,230
Non-recurring transition costs.......... 4,311 -- -- 4,311
-------- ------ ----- --------
Income from operations.................. 28,781 1,015 (179) 29,617
Interest expense, net..................... 19,444 28 448(e) 19,920
Equity in earnings of joint venture....... (111) -- -- (111)
Other income, net......................... (118) (64) -- (182)
-------- ------ ----- --------
Income before taxes.................. 9,566 1,051 (627) 9,990
Income tax expense........................ 3,226 367 (196)(f) 3,397
-------- ------ ----- --------
Income before extraordinary items.... $ 6,340 $ 684 $(431) $ 6,593
======== ====== ===== ========
EBITDA(g)................................. $ 41,690
========
Adjusted EBITDA(g)........................ $ 46,001
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
28
<PAGE> 30
DOANE PET CARE ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) The Company's historical financial statements for the nine months ended
September 30, 1998 include the results of Windy Hill for the period from
August 4, 1998 to September 30, 1998 and the results of IPES for the period
from April 18, 1998 to September 30, 1998.
(b) Includes results for IPES for the entire year for the year ended December
31, 1997 and for the period January 1, 1998 to April 17, 1998 (the date of
acquisition) for the nine-month period ended September 30, 1998.
(c) Adjustment to reflect $283 for the year ended December 31, 1997 and $68 for
the nine months ended September 30, 1998 of additional depreciation
resulting from the write-up of property, plant and equipment to fair value
related to the IPES Acquisition.
(d) Adjustment to reflect $467 for the year ended December 31, 1997 and $111
for the nine months ended September 30, 1998 of additional goodwill and
intangible amortization resulting from the IPES Acquisition.
(e) Adjustments to interest expense to reflect the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Effect of additional financing incurred in connection with
the IPES Acquisition ($25.3 million at a blended rate of
6.5%)..................................................... $1,803 $430
Additional amortization of deferred financing cost resulting
from the IPES Acquisition................................. 74 18
------ ----
$1,877 $448
====== ====
</TABLE>
(f) Reflects an adjustment to income tax expense to tax effect the pro forma
adjustments at the combined federal and state statutory rate of 38% for the
year ended December 31, 1997 and for the nine months ended September 30,
1998. In calculating the tax adjustment, the goodwill amortization as
calculated in (d) above has not been tax effected as it is non-deductible
for tax purposes.
(g) EBITDA for any relevant period presented above is defined as earnings
before interest expense, net income taxes, depreciation and amortization.
Adjusted EBITDA represents EBITDA as defined plus nonrecurring expenses and
transition costs. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because management believes that certain investors may
find it useful.
29
<PAGE> 31
TABLE 2-A
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
<TABLE>
<CAPTION>
PRO FORMA
OTHER ADJUSTMENTS
WINDY HILL HUBBARD AGP DEEP RUN ACQUISI- FOR PRO FORMA
HISTORICAL(A) HISTORICAL(B) HISTORICAL(C) HISTORICAL(D) TIONS(E) ACQUISITIONS WINDY HILL
------------- ------------- ------------- ------------- -------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $164,288 $42,332 $46,194 $28,667 $ 22,560 $ -- $304,041
Cost of goods sold........ 113,288 32,222 43,809 23,400 19,806 (1,084)(f) 231,441
-------- ------- ------- ------- -------- ------- --------
Gross profit.............. 51,000 10,110 2,385 5,267 2,754 1,084 72,600
Operating expenses:
Promotion and
distribution........ 28,980 4,583 749 1,548 1,517 -- 37,377
Selling, general and
administrative...... 10,886 1,156 1,832 1,340 496 797(g) 16,507
Non-recurring transition
costs................... 1,571 -- -- -- -- -- 1,571
-------- ------- ------- ------- -------- ------- --------
Income from
operations.......... 9,563 4,371 (196) 2,379 741 287 17,145
Interest expense, net..... 12,241 -- -- 58 -- 6,884(h) 19,183
Equity in earnings of
joint ventures.......... (377) (467) -- -- -- 364(i) (480)
Other expense, net........ 93 (60) 41 2 (10) -- 66
-------- ------- ------- ------- -------- ------- --------
Income before taxes... (2,394) 4,898 (237) 2,319 751 (6,961) (1,624)
Income tax expense
(benefit)............... (574) -- -- -- -- 592(j) 18
-------- ------- ------- ------- -------- ------- --------
Income (loss) before
extraordinary items..... $ (1,820) $ 4,898 $ (237) $ 2,319 $ 751 $(7,553) $ (1,642)
======== ======= ======= ======= ======== ======= ========
EBITDA(k)................. $ 26,660
========
Adjusted EBITDA(k)........ $ 28,231
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
30
<PAGE> 32
TABLE 2-B
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SEVEN MONTHS ENDED AUGUST 2, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR WHPF
WINDY HILL AGP DEEP RUN OTHER RECLASSIFICATIONS PRO FORMA
HISTORICAL(A) HISTORICAL(C) HISTORICAL(D) ACQUISITIONS(E) AND ACQUISITIONS COMBINED
------------- ------------- ------------- --------------- --------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $151,460 $5,651 $13,740 $4,260 $ -- $175,111
Cost of goods sold.......... 110,367 5,419 11,782 3,418 (191)(f) 130,795
-------- ------ ------- ------ ------- --------
Gross profit................ 41,093 232 1,958 842 191 44,316
Operating expenses:
Promotion and
distribution.......... 18,934 30 673 237 -- 19,874
Selling, general and
administrative........ 10,857 302 590 164 101(g) 12,014
Non-recurring transition
costs..................... 8,456 -- -- -- -- 8,456
-------- ------ ------- ------ ------- --------
Income from
operations............ 2,846 (100) 695 441 90 3,972
Interest expense, net....... 10,226 5 2 (3) 964(h) 11,194
Equity in earnings of joint
ventures.................. (568) -- -- -- 105(i) (463)
Other expense, net.......... -- 15 (102) -- -- (87)
-------- ------ ------- ------ ------- --------
Income before taxes..... (6,812) (120) 795 444 (979) (6,672)
Income tax expense
(benefit)................. (331) -- -- -- (89)(j) (420)
-------- ------ ------- ------ ------- --------
Income (loss) before
extraordinary items... $ (6,481) $ (120) $ 795 $ 444 $ (890) $ (6,252)
======== ====== ======= ====== ======= ========
EBITDA(k)................... $ 10,116
========
Adjusted EBITDA(k).......... $ 18,572
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
31
<PAGE> 33
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(a) Windy Hill Pet Food Holdings, Inc. ("Windy Hill") was a private holding
company which owned 100% of its subsidiary, Windy Hill Pet Food Company,
Inc.
(b) Includes results of Hubbard for the period from January 1, 1997 to May 21,
1997 (the date of acquisition) for the fiscal year ended December 27, 1997.
(c) Includes results for AGP for the entire year for the fiscal year ended
December 27, 1997, and for the period from January 1, 1998 to February 23,
1998 (the date of acquisition) for the seven-month period ended August 2,
1998.
(d) Includes results for Deep Run for the entire year for the year ended
December 27, 1997 and for the period January 1, 1998 to June 1, 1998 (the
date of acquisition) for the seven-month period ended August 2, 1998.
(e) Other acquisitions include the purchase of NuPet and the remaining 50%
interest not previously owned in the Cartersville, Georgia and the Maumee,
Ohio joint ventures. For the fiscal year ended December 27, 1997, results
of NuPet and Cartersville are included for the entire year and results of
Maumee are included from January 1, 1997 to August 31, 1997 (the date of
acquisition). For the seven month period ended August 2, 1998, results of
NuPet are included for the period January 1, 1998 to March 30, 1998 (the
date of acquisition) and results of Cartersville are included from January
1, 1998 to February 28, 1998 (the date of acquisition).
(f) Adjustment to cost of goods sold to reflect $1,084 for the year ended
December 27, 1997 and $191 for the seven months ended August 2, 1998 of
reductions in depreciation expense resulting from the Hubbard, AGP, Deep
Run, NuPet, Cartersville and Maumee acquisitions (the "WH Acquisitions").
(g) Adjustments to selling, general and administrative expense reflect $797 for
the year ended December 27, 1997 and $101 for the seven months ended August
2, 1998 of additional amortization of goodwill resulting from the WH
Acquisitions.
(h) Adjustment to interest expense to reflect the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 27, 1997 AUGUST 2, 1998
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Windy Hill Notes ($84 million at 9.75%)................. $3,231 $ --
Credit facility ($12.5 million at 8.17%)................ 1,021 162
Credit facility ($20.5 million at 10%).................. 2,050 801
Additional amortization of deferred financing cost
resulting from the WH Acquisitions.................... 582 1
------ ----
$6,884 $964
====== ====
</TABLE>
For the fiscal year ended December 31, 1997, the interest adjustment for
the Windy Hill Notes associated with the Hubbard acquisition includes
interest for the period January 1, 1997 to May 21, 1997 (the date of the
acquisition). The interest adjustment for the credit facility associated
with the AGP, NuPet and Deep Run acquisitions includes interest for the
entire period.
For the seven months ended August 2, 1998, the interest adjustment for the
credit facility includes interest for AGP, NuPet and Deep Run from the
beginning of the year through their dates of acquisition.
(i) To eliminate equity in earning of joint ventures for the months prior to
acquisition.
(j) Reflects an adjustment to income tax expense (benefit) to tax effect the
pro forma adjustments at the combined state and federal rate of 39% for
Windy Hill for the year ended December 27, 1997 and for the seven months
ended August 2, 1998. In calculating the tax adjustment, approximately $740
and $90 of the goodwill as calculated in (g) above for the year ended
December 27, 1997 and for the seven months ended August 2, 1998,
respectively, has not been tax effected as it is non-deductible for tax
purposes.
(k) EBITDA for any relevant period presented above is defined as earnings before
interest expense, net income taxes, depreciation and amortization. Adjusted
EBITDA represents EBITDA as defined plus non-recurring expenses and
transition costs. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because management believes that certain investors may
find it useful.
32
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data, except for pet food sold, as of
December 31, 1995, 1996 and 1997 and for the years ended December 31, 1996 and
1997, for the nine months ended September 30, 1995 and for the three months
ended December 31, 1995 are derived from the audited consolidated financial
statements of the Company included elsewhere in this Prospectus. The selected
financial data presented below as of December 31, 1993 and 1994 and for the
years ended December 31, 1993 and 1994 are derived from consolidated financial
statements of the Company not included in this Prospectus. The selected
consolidated financial data as of and for the nine months ended September 30,
1997 and 1998 are derived from the unaudited financial statements of the Company
that in the opinion of management reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations of the Company as of such dates and for such
periods. The results for the nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year.
The information set forth below is qualified in its entirety and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of the Company
and notes thereto, the financial statements of Windy Hill and notes thereto and
the financial statements of Hubbard and notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
----------------------------------- ---------------------------------------------------------
THREE NINE MONTHS
YEAR ENDED NINE MONTHS MONTHS YEAR ENDED ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, SEPTEMBER 30,
------------------- SEPTEMBER 30, DECEMBER 31, -------------------- -------------------
1993 1994 1995 1995 1996 1997 1997 1998
-------- -------- ------------- ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................. $345,804 $377,018 $303,633 $ 114,958 $513,217 $564,741 $411,399 $462,991
Cost of goods sold......... 280,498 308,622 247,394 97,184 446,776 482,896 352,877 378,583
-------- -------- -------- --------- -------- -------- -------- --------
Gross profit............... 65,306 68,396 56,239 17,774 66,441 81,845 58,522 84,408
Operating Expenses:
Promotion and
distribution........... 23,566 23,007 17,675 6,484 26,480 31,876 23,798 30,381
Selling, general and
administrative......... 11,296 11,550 8,558 3,677 15,050 17,985 12,505 20,935
Unusual items(2)......... -- -- 9,440 -- -- -- -- --
Non-recurring transition
cost(3)................ -- -- -- -- -- -- -- 4,311
-------- -------- -------- --------- -------- -------- -------- --------
Income from
operations........... 30,444 33,839 20,566 7,613 24,911 31,984 22,219 28,781
Interest expense, net...... 1,707 2,494 3,611 5,806 22,471 22,463 16,973 19,444
Non-recurring finance
charge(4)................ -- -- -- -- 4,815 -- -- --
Equity in earnings of joint
venture.................. -- -- -- -- -- (186) (117) (111)
Other expense, net......... (67) (11) (8) 29 (2) 84 65 (118)
-------- -------- -------- --------- -------- -------- -------- --------
Income before taxes.... 28,804 31,356 16,963 1,778 (2,373) 9,623 5,298 9,566
Income tax expense
(benefit)................ 276 356 217 754 (855) 3,389 1,917 3,226
-------- -------- -------- --------- -------- -------- -------- --------
Income (loss) before
extraordinary item(5).... $ 28,528 $ 31,000 $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 3,381 $ 6,340
======== ======== ======== ========= ======== ======== ======== ========
Basic earnings per share...
Basic weighted average
shares outstanding.......
Diluted earnings per
share....................
Diluted weighted average
shares outstanding.......
OTHER DATA:
Cash flows provided by
(used in) operating
activities............... $ 25,820 $ 39,250 $ 12,954 $ 2,711 $ 18,583 $ 20,972 $ 9,603 $ 16,017
Cash flows provided by
(used in) investing
activities............... 4,070 12,368 (3,677) (209,346) (11,489) (15,161) (13,192) (51,973)
Cash flows provided by
(used in) financing
activities............... (17,768) (16,808) (20,568) 204,635 (8,644) (5,811) 3,589 39,564
EBITDA(6).................. 35,103 38,613 24,364 10,063 35,264 43,216 30,290 40,364
Adjusted EBITDA(6)......... 35,103 38,613 33,804 10,063 40,079 43,216 30,290 44,675
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
----------------------------------- ---------------------------------------------------------
THREE NINE MONTHS
YEAR ENDED NINE MONTHS MONTHS YEAR ENDED ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, SEPTEMBER 30,
------------------- SEPTEMBER 30, DECEMBER 31, -------------------- -------------------
1993 1994 1995 1995 1996 1997 1997 1998
-------- -------- ------------- ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization expense..... 4,526 4,660 3,694 2,359 15,972 12,141 8,880 12,392
Capital expenditures(7).... 4,119 12,159 4,224 1,297 7,901 14,437 12,933 14,132
Pet food sold (thousands of
tons).................... 897 942 774 288 1,189 1,237 896 1,025
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 31,194 $ 35,410 $ 38,894 $ 26,123 $ 25,645 $ 50,656
Total assets................................ 117,962 142,710 309,584 338,293 338,184 664,772
Total debt.................................. 32,776 68,436 209,738 206,603 200,410 423,666
Preferred stock............................. -- -- 18,414 24,160 30,545 35,898
Stockholders' equity........................ 50,148 31,759 40,111 33,247 33,946 67,276
</TABLE>
- ---------------
(1) The Company was formed by a group of investors in 1995 to acquire Doane (the
"1995 Acquisition"). For financial statement purposes, the 1995 Acquisition
was accounted for as a purchase acquisition effective October 1, 1995. The
effects of the 1995 Acquisition have been reflected in the Company's
consolidated assets and liabilities at that date. As a result, the Company's
consolidated financial statements for the periods subsequent to September
30, 1995 are presented on the successor's new basis of accounting, while
financial statements for September 30, 1995 and prior periods are presented
on the predecessor's historical cost basis of accounting. See Note 1 of the
Consolidated Financial Statements of the Company.
(2) Represents non-recurring bonus payments to senior management in connection
with the 1995 Acquisition.
(3) Represents certain non-recurring transition expenses in connection with the
Windy Hill Acquisition.
(4) Non-recurring finance charge includes $4,815 of interim bridge debt
financing costs that were incurred in conjunction with the issuance of the
Senior Notes in 1996.
(5) Income before extraordinary items of the Company's predecessor does not
include any provision for federal income taxes. Prior to the 1995
Acquisition, Doane was organized as a subchapter S corporation.
Consequently, Doane did not pay federal, state or local income taxes except
in those states that did not recognize subchapter S status or that required
the payment of franchise taxes based on income.
(6) EBITDA for any relevant period presented above is defined as net income plus
interest expense net income taxes, depreciation and amortization. Adjusted
EBITDA represents EBITDA as defined plus unusual items, nonrecurring
expenses and transition costs. EBITDA is not a measure recognized by
generally accepted accounting principles and should not be considered in
isolation or as a substitute for operating income, as an indicator of
liquidity or as a substitute for net cash provided by operating activities,
which are determined in accordance with generally accepted accounting
principles. EBITDA is included because management believes that certain
investors may find it useful. See "Unaudited Condensed Pro Forma Financial
Statements" and the Company's Consolidated Financial Statements and the
notes thereto included elsewhere in this Prospectus.
(7) Capital expenditures exclude payments for acquisitions.
34
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORY OF THE COMPANY
The Company was formed in 1995 by a group of investors led by SCI, DLJMB,
CMIHI and certain members of existing management to acquire Doane for an
aggregate purchase price of $249.1 million, including existing indebtedness.
Doane had previously been a manufacturer of dry pet food for 37 years. The
Company's sole asset and activities are its ownership of the common stock of
Doane. The Company has no other operations. In April 1998, the Company acquired
IPES for $26.2 million (net of cash purchased of $1.9 million) and the
assumption of indebtedness of $1.9 million.
In August 1998, the Company acquired Windy Hill for approximately 8.0
million shares of Common Stock and the assumption of $183.5 million of
indebtedness. Windy Hill was merged into Doane in November 1998. Windy Hill was
a manufacturer of pet food products based in Tennessee.
Windy Hill was formed in February 1995 by a group of investors led by
Dartford Partnership L.L.C. to acquire substantially all of the assets and
liabilities of the pet food division of Martha White Foods, Inc. for $21.0
million. In April 1996, Windy Hill acquired the assets and liabilities
associated with certain pet food product lines of Heinz Inc. for a purchase
price of $52.5 million. In May 1997, Windy Hill acquired Hubbard for a net
purchase price of $131.1 million. Subsequent to such acquisition, Windy Hill
sold the animal feed division of Hubbard for a sales price of approximately
$50.0 million, net of taxes. In February 1998, Windy Hill acquired all of the
assets of AGP for a purchase price of approximately $12.4 million. In April
1998, Windy Hill acquired certain pet food assets and certain liabilities
associated with NuPet for a purchase price of approximately $3.1 million. In
June 1998, Windy Hill acquired Deep Run for a net purchase price of
approximately $16.4 million.
THE REFINANCING TRANSACTIONS
In November 1998, the Company refinanced its capital structure pursuant to
the following Refinancing Transactions:
-- Windy Hill was merged into Doane;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its Senior Notes;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of Windy Hill Notes, which tender offer was required by a change
of control provision in the indenture governing such notes;
-- Doane completed the Exchange Offer of $150 million principal amount of
its Senior Subordinated Notes for the remaining approximately $63
million principal amount of Senior Notes and all of the remaining
approximately $74 million principal amount of Windy Hill Notes; and
-- Doane entered into the New Credit Facility with a syndicate of financial
institutions providing for total commitments of $345 million. Doane
borrowed $292 million under the New Credit Facility to fund the cash
requirements of the Refinancing Transactions, repay borrowings under and
retire its previous credit facilities, repay other debt and repay bridge
financing incurred in connection with the tender offer for the Windy
Hill Notes.
OVERVIEW
The Company is the largest manufacturer of dry pet food in the United
States, producing approximately 26% of the total volumes sold in 1997 on a pro
forma basis. The Company manufactures products for store brands owned by retail
customers (also known as private labels), contract manufactures products for
national branded pet food companies and produces and sells under regional brands
owned by the Company.
35
<PAGE> 37
The Company manufactures for its customers a full range of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. The Company provides products that meet customer
specifications across all retail channels and price points, from super premium
to value products. Accordingly, the Company manufactures store brands for over
350 customers in the United States, including the three largest mass
merchandisers, the five largest grocery companies and the largest national pet
specialty retailer. The Company also manufactures dry pet food and treats for
four of the six largest national branded pet food companies through
co-manufacturing agreements pursuant to which the Company produces, packages and
ships a portion of such companies' products. The Company's engineering services
group designs and builds extruders, conveyors, dryers and other parts and
equipment, including replacement parts, for pet food manufacturing facilities of
the Company and third parties.
The Company derives substantially all of its revenue from the sale of dry
pet food products. Historically, approximately 85% to 90% of pet food cost of
goods sold has been comprised of raw material and packaging costs with labor,
insurance, utilities and depreciation comprising the remainder. Historically,
market prices for commodity grains and food stocks have fluctuated in response
to a number of factors, including changes in United States government farm
support programs, changes in international agricultural and trading policies and
weather conditions during the growing and harvesting seasons.
The Company manages the price risk created by market fluctuations by
hedging portions of its primary commodity products purchases on an on-going and
continuous basis, principally through exchange traded futures and options
contracts. The Company implemented a hedging policy in 1996 that does not permit
trading in commodities not utilized by the Company. All futures and options
activity is based on the projected requirements of the Company. The term of such
contracts is generally less than one year. Settlement of positions are either
through financial settlement with the exchanges or via exchange for the physical
commodity in which case the Company delivers the contract against the
acquisition of the physical commodity.
The Company accounts for its futures and options contracts as hedges and
gains and losses are recognized in the period realized as part of the cost of
products sold. The Company's deferred net futures and options position is
reported on the balance sheet as a current asset for net loss positions and as a
deferred credit for net gain positions. In addition to futures and options, the
Company also contracts for future physical procurement, in which case unrealized
gains and losses are deferred to the applicable accounting period. Typically,
maturities vary and do not exceed twelve months. The Company has hedged over
half of its corn and soybean meal requirements through December 31, 1998. Corn
and soybean meal are the two principal commodities used by the Company in the
manufacture of pet food. Unrealized losses of $2.6 million were deferred on
outstanding hedging contracts at September 30, 1998. See "Business -- Raw
Materials and Packaging."
The sales and expenses of two of the Company's subsidiaries are denominated
in foreign currencies. The Company may encounter exchange rate risk to the
extent that the values of such currencies fluctuate. The Company does not
currently hedge, and does not anticipate hedging, against adverse foreign
currency fluctuations.
Operating expenses consist of promotion and distribution expenses and
selling, general and administrative expenses. Promotion and distribution
expenses are primarily (i) brokerage fees, (ii) promotions, volume incentive
discounts and rebates paid to customers and (iii) freight and distribution
expenses. The Company's selling, general and administrative expenses represent
salaries and related expenses, amortization expense and other corporate overhead
costs. These expenses typically do not increase proportionately with increases
in volume and product sales.
The Company's sales are somewhat seasonal. The Company typically
experiences an increase in net sales during the first and fourth quarters of
each year, as is typical in the pet food industry. The seasonality of the pet
food business is generally attributable to cooler weather, which results in
increased dog food consumption.
36
<PAGE> 38
RESULTS OF OPERATIONS
The following discussion is based on the historical financial statements of
the Company and the notes thereto included elsewhere in this Prospectus. The
results for the three month period ended December 31, 1995, the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998 and
September 30, 1997 reflect the 1995 Acquisition, which was accounted for using
the purchase method of accounting. The total purchase price of $249.1 million,
including existing indebtedness (exclusive of fees and expenses of approximately
$13.0 million), was allocated to the assets and liabilities acquired based upon
their respective fair values. As a result, beginning October 1, 1995, the
Company recorded expenses for depreciation and amortization significantly in
excess of historical levels recorded by the predecessor. In addition, the
results of operations of the Company have been significantly affected by the
impact of the financing of the 1995 Acquisition, including interest expense on
the indebtedness incurred in connection with a credit facility and the Senior
Notes. Net income for Doane prior to the 1995 Acquisition does not include any
provision for federal income taxes. Prior to the 1995 Acquisition, predecessor
was organized as a subchapter S corporation. Consequently, predecessor did not
pay federal, state or local income taxes except in those states that did not
recognize subchapter S status or that required the payment of franchise taxes
based on income.
The historical combined results of operations of the Company for the
twelve-month period ended December 31, 1995, the years ended December 31, 1996
and December 31, 1997 and the nine-month periods ended September 30, 1997 and
September 30, 1998 are not directly comparable to the results of operations of
predecessor due to the effects of the 1995 Acquisition.
<TABLE>
<CAPTION>
COMBINED
TWELVE-MONTH NINE MONTHS NINE MONTHS
PERIOD ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $418,591 100.0% $513,217 100.0% $564,741 100.0% $411,399 100.0% $462,991 100.0%
Cost of goods sold................ 344,578 82.3 446,776 87.1 482,896 85.5 352,877 85.8 378,583 81.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit...................... 74,013 17.7 66,441 12.9 81,845 14.5 58,522 14.2 84,408 18.2
Operating expenses:
Promotion and distribution....... 24,159 5.8 26,480 5.2 31,876 5.6 23.798 5.8 30,381 6.6
Selling, general and
administrative................. 12,235 2.9 15,050 2.9 17,985 3.2 12,505 3.0 20,935 4.5
Unusual items.................... 9,440 2.3 -- -- -- -- -- -- --
Non-recurring transition costs... -- -- -- -- -- -- -- -- 4,311 0.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from operations......... 28,179 6.7 24,911 4.8 31,984 5.7 22,219 5.4 28,781 6.2
Interest expense, net............. 9,417 2.2 22,471 4.4 22,463 4.0 16,973 4.1 19,444 4.2
Non-recurring finance charge...... -- -- 4,815 0.9 -- -- -- -- -- --
Equity in earnings of joint
ventures......................... -- -- -- -- (186) (0.0) (117) 0.0 (111) (0.0)
Other expense, net................ 21 0.0 (2) (0.0) 84 0.0 65 0.0 (118) (0.0)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before (loss) taxes..... 18,741 4.5 (2,373) (0.5) 9,623 1.7 5,298 1.3 9,566 2.0
Income tax expense (benefit)...... 971 0.2 (855) (0.2) 3,389 0.6 1,917 0.5 3,226 0.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income (loss).............. $ 17,770 4.3% $ (1,518) (0.3)% $ 6,234 1.1% $ 3,381 0.8 $ 6,340 1.3%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Net Sales. Net sales for the nine-month period ended September 30, 1998
increased 12.5% to $463.0 million from $411.4 million in the same period in
1997. Included in this increase are $51.6 million in sales attributable to the
Windy Hill Acquisition and the IPES Acquisition (collectively, the
"Acquisitions"). Excluding the Acquisitions, pet food net sales increased 1.9%
to $386.8 million from $379.6 for the same period in 1997. Of this increase, the
volume-related increases of 3.9% were offset by price declines of 1.9%
attributable to the pass-through of certain raw material cost decreases to
customers. Non-manufactured product revenues declined as a percentage of total
revenues from 6.5% to 4.2%.
Gross profit. Gross profit for the nine-month period ended September 30,
1998 increased 44.5% (21.7% of which was attributable to the Acquisitions) to
$84.4 million from $58.5 million for the same period in 1997. Approximately
19.7% resulted from improvements in pet food margins due to reductions in
certain raw
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<PAGE> 39
material costs, and approximately 4.2% was due to increased pet food tons sold.
Promotion and distribution expenses. Promotion and distribution expenses
increased 27.7% (20.6% of which was attributable to the Acquisitions) to $30.4
million for the nine-month period ended September 30, 1998 from $23.8 million
for the same period in 1997. The balance of the increase resulted from increases
in variable sales promotions, incentive discounts and brokerage costs on
increased pet food tons sold.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 67.2% (30.2% of which was attributable to the
Acquisitions) to $20.9 million for the nine-month period ended September 30,
1998 from $12.5 million for the same period in 1997. The balance of the increase
resulted from increases in (i) salaries and related fringe benefits, (ii)
professional fees and (iii) amortization and depreciation. These increases are
primarily due to additional staffing and infrastructure required as a result of
growth in the Company's business and the acquisition of Windy Hill.
Non-recurring transition costs. Non-recurring transition costs represent
expenses incurred in connection with the merger and integration of Windy Hill
with the Company. These costs include compensation for transitional personnel,
severance and bonus expense, relocation expenses, recruiting and training
expenses, systems conversion and other unique transition expenses.
Income from operations. Income from operations for the nine-month period
ended September 30, 1998 increased 29.7% (17.1% of which was attributable to the
Acquisitions) to $28.8 million (6.2% of net sales) from $22.2 million (5.4% of
net sales) in the same period in 1997. The balance of the increase was
principally due to improved pet food margins and volume gains, which were offset
in part by the increase in non-recurring transition costs.
Interest expense, net. Net interest expense for the nine-month period ended
September 30, 1998 increased 14.1% to $19.4 million from $17.0 million in the
same period in 1997 primarily due to $208.8 million of debt incurred in
connection with the Acquisitions.
Net income. Net income for the nine-month period ended September 30, 1998
increased to $6.3 million from $3.4 million in the same period in 1997. The
Acquisitions represented $0.4 million of this increase, and the balance was
principally due to improved pet food margins and increased pet food tons sold.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales for 1997 increased 10.0% to $564.7 million from $513.2
million in 1996. Pet food net sales increased 9.1% to $524.7 million for 1997
from $480.8 million in 1996. Of this amount, approximately 4.3% was due to
increases in tons sold, and the balance was principally the result of price
increases implemented in late 1996 to mitigate increases in raw material costs
that occurred throughout 1996. Net sales of non-manufactured products increased
in 1997 due to distribution of additional products that was partially offset by
a decrease in net sales of engineering products due to the focusing of the
Company's efforts on internal engineering projects at Everson, Pennsylvania,
Washington Court House, Ohio and Miami, Oklahoma.
Gross profit. Gross profit for 1997 increased 23.2% to $81.8 million from
$66.4 million in 1996. Of this amount, 16.8% represents improvements in pet food
margins due to the aforementioned price increases and reductions in the cost of
certain raw materials in the latter part of 1997. The balance of the gross
profit improvement is largely due to the additional non-manufactured products.
Gross profit increased as a percentage of net sales to 14.5% for 1997 from 12.9%
in 1996.
Promotion and distribution expense. Promotion and distribution expense
increased to $31.9 million in 1997 from $26.5 million in 1996 due to increases
in sales promotions, volume incentive discounts and brokerage costs resulting
from increased pet food tons sold.
Selling, general and administrative expense. Selling, general and
administrative expense increased to $18.0 million in 1997 from $15.1 million in
1996 due to (i) increases in salaries and related fringe benefits associated
with annual wage increases, additional personnel and increased bonuses due to
improved
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<PAGE> 40
performance, (ii) increases in property taxes on new and expanded facilities and
(iii) increases in expenses associated with the installation of new information
systems.
Income from operations. Income from operations for 1997 increased 28.4% to
$32.0 million from $24.9 million in 1996. Income from operations as a percentage
of net sales increased to 5.7% for 1997 from 4.8% in 1996, due to improved pet
food margins and additional non-manufactured products sales.
Interest expense. Net interest expense remained unchanged at $22.5 million
for 1997 and 1996. Interest expense reductions resulting from payments on the
Term Loan Facility (as defined below) were largely offset by additional interest
expense on proceeds from the Industrial Development Bonds that were used to
finance the construction of the new Miami, Oklahoma facility. Interest expense
as a percentage of net sales decreased to 4.0% from 4.4% in 1996.
Net income. Net income for 1997 increased to $6.2 million from a net loss
of $1.5 million in 1996, primarily as a result of increased pet food margins and
additional non-manufactured products sales.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED TWELVE MONTH PERIOD ENDED
DECEMBER 31, 1995
Net sales. Net sales for 1996 increased 22.6% to $513.2 million from $418.6
million in the twelve month period ended December 31, 1995. Pet food net sales
increased 24.0% to $480.8 million for 1996 from $387.6 million in the twelve
month period ended December 31, 1995, primarily due to increased pet food
tonnage sold and price increases implemented throughout the year in response to
higher raw material costs. Net sales of non-manufactured products increased due
to distribution of additional items.
Gross profit. Gross profit for 1996 was negatively impacted by increases in
the costs of most raw materials. The cost increases were partially offset by an
increase in pet food tonnage sold and price increases implemented throughout the
year. Gross profit for 1996 was also negatively impacted by $1.9 million due to
increased depreciation resulting from the write-up of assets in connection with
the 1995 Acquisition. Gross profit as a percentage of net sales for the periods
declined from 17.7% in 1995 to 12.9% for 1996, primarily due to decreased
margins on pet food sales.
Promotion and distribution expense. Promotion and distribution expense
increased to $26.5 million in 1996 from $24.2 million in the twelve month period
ended December 31, 1995. This increase was primarily attributable to increases
in promotions, volume incentive discounts, rebates and brokerage fees resulting
from increased pet food tons sold.
Selling, general and administrative expense. Selling, general and
administrative expense increased to $15.1 million in 1996 from $12.2 million for
the twelve month period ended December 31, 1995, primarily due to additional
depreciation and amortization expenses in the amount of $2.6 million incurred in
connection with the 1995 Acquisition.
Income from operations. Income from operations decreased 11.6%, or $3.3
million, to $24.9 million for 1996 from $28.2 million in the twelve month period
ended December 31, 1995. Income from operations as a percentage of net sales
decreased to 4.8% for 1996 from 6.7% in the twelve month period ended December
31, 1995, primarily as a result of lower pet food margins and increased
depreciation and amortization expense.
Non-recurring finance charge. In the year ended December 31, 1996, $4.8
million in non-recurring interim debt financing costs were written off
concurrent with the issuance of the Doane Senior Notes.
Interest expense. Net interest expense increased to $22.5 million for 1996
from $9.4 million in the twelve month period ended December 31, 1995 due to the
debt incurred to finance the 1995 Acquisition.
Net income. Net income (loss) decreased to ($1.5) million for 1996 from
$17.8 million in the twelve month period ended December 31, 1995, as a result of
lower pet food margins, increased interest, depreciation and amortization
expenses and non-recurring financing fees.
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<PAGE> 41
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, capital expenditures
and working capital requirements from cash flow from operations, bank borrowings
and bonds. The Acquisitions were funded through bank borrowings and the issuance
of Common Stock. The Company had working capital of $50.7 million at September
30, 1998. Net cash provided by operating activities was $9.6 million and $16.0
million for the nine months ended September 30, 1997 and 1998, respectively, and
$15.7 million, $18.6 million and $21.0 million for the twelve month period ended
December 31, 1995, and for the years ended December 31, 1996 and 1997,
respectively. Net cash provided by (used for) borrowings was approximately $2.7
million, $38.2 million, $139.7 million, $(9.0) million and $(6.7) million,
respectively, for such periods.
During the three year period ended December 31, 1997, the Company spent
$27.9 million on capital expenditures, of which $21.6 million was used to
acquire and construct additional manufacturing capacity, including a new
manufacturing facility, a renovated manufacturing facility and five new
production lines in existing facilities and $6.3 million was used to maintain
existing manufacturing facilities. During the nine months ended September 30,
1998, the Company spent $14.1 million on capital expenditures, of which $12.4
million was used for expansion.
It is expected that existing manufacturing facilities will not be
sufficient to meet the Company's anticipated volume growth. The Company has
continued to examine alternatives for expanding its business either through
construction of additional manufacturing capacity or acquisition of
manufacturing assets. Such potential acquisitions could include acquisitions of
operating companies. The Company intends to finance such expansions or
acquisitions with borrowings under existing or expanded credit facilities, or
the issuance of additional equity.
On April 17, 1998, the Company acquired IPES for $26.2 million (net of cash
purchased of $1.9 million) and the assumption of indebtedness of $1.9 million.
The Company financed the IPES Acquisition through non-recourse borrowings in
Spain for $21.3 million of the purchase price and borrowings under a credit
facility for the remainder.
On August 3, 1998, the Company acquired Windy Hill for approximately 8.0
million shares of Common Stock and the assumption of $183.5 million of
indebtedness.
On November 12, 1998, the Company completed the Refinancing Transactions.
As part of the Refinancing Transactions, the Company entered into the New Credit
Facility, which provides for total commitments of $345.0 million. As of November
30, 1998, the Company had outstanding borrowings of $275.0 million and $2.4
million of outstanding letters of credit under the New Credit Facility.
The Company is highly leveraged and has significant cash requirements for
debt service relating to the New Credit Facility, the Senior Subordinated Notes,
the IPES debt and industrial development bonds. The Company's ability to borrow
is limited by the New Credit Facility and the limitations on the incurrence of
indebtedness in the Note Indenture. The Company anticipates that its operating
cash flow, together with amounts available to it under the New Credit Facility
and new bonds, will be sufficient to finance working capital requirements, debt
service requirements and capital expenditures through the first nine months of
1999.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in
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<PAGE> 42
earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss, is reported in earnings immediately. Accounting for foreign
currency hedges is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change.
The Company will adopt SFAS 133 beginning in fiscal 1999. The Company has
not determined the impact that SFAS 133 will have on its financial statements
and believes that such determination will not be meaningful until closer to the
date of initial adoption.
YEAR 2000
The Company has conducted a comprehensive review of its computer software
to identify the systems that could be affected by the "year 2000" issue. The
year 2000 issue results from computer programs being written using two digits
(rather than four) to define the applicable year. As a result, certain of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This calculation could result
in a major system failure or miscalculations.
The Company has made an assessment of year 2000 compliance and reviewed its
business application software which resulted in plans to either replace or
upgrade all essential business software at an estimated cost of $3.5 million.
The Company is currently reviewing its administrative hardware and software
(networks, communications and security systems) and the software related to
manufacturing equipment. The Company has implemented a program to confirm year
2000 compliance with all third parties with which the Company has material
relationships.
As of September 30, 1998, the Company had incurred costs of approximately
$2.4 million in connection with year 2000 compliance. The Company intends to
test and verify its year 2000 compliance projects by July 1999, including third
party compliance. Management believes that a failure to complete its year 2000
compliance, or a failure by parties with whom the Company has material
relationships to complete year 2000 compliance by such date, could have a
material adverse effect on the Company's financial condition and results of
operations. The Company believes that it can provide the resources necessary to
ensure year 2000 compliance prior to the year 2000. However, should the Company
be delayed in its compliance with year 2000, the Company may experience a
decrease in efficiency that could have a material adverse effect on results of
operations. The Company also believes that a sufficient number of suppliers
exist if the Company's current suppliers are delayed in their efforts to achieve
year 2000 compliance thereby minimizing risk to the Company. The Company has
developed contingency plans that include moving production within its plant
network, securing additional ingredient storage facilities and transferring
procurement to year 2000 compliant suppliers.
COMMITMENTS AND CONTINGENCIES
On October 30, 1998 the Company initiated a product recall for certain dry
dog food manufactured at its Temple, Texas plant between July 1 and August 31,
1998. The recall covers dry dog food manufactured at its Temple plant and does
not apply to dry dog food manufactured at other plants or the Company's dry cat
food, biscuits, treats or canned products. The recall resulted from reported
sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated aflatoxins in corn, which is an ingredient in dry dog
food. Aflatoxins are compounds produced from certain kinds of crop molds that
can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
is currently unable to estimate the cost of the product recall. The Company does
not believe that the recall will have a material impact on the Company's
financial condition or results of operations. See "Risk
Factors -- Environmental, Regulatory and Safety Matters; Product Recall."
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<PAGE> 43
The Company believes that its operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that such requirements will not change in the future or that the
Company will not incur significant costs in the future to comply with such
requirements or to effect future recalls. See "Business -- Environmental,
Regulatory and Safety Matters; Product Recall."
EURO
Effective January 1, 1999, eleven of the fifteen countries comprising the
European Union will begin a transition to a single monetary unit, the "Euro,"
which is scheduled to be completed by July 1, 2002. The Company is currently
considering options to ensure that its European subsidiaries can operate
effectively in the Euro. The Company's subsidiaries in Italy and Spain may incur
significant costs in conversion of their systems to the Euro. The Company is
unable to predict whether such costs can be passed on to customers. The
customers of these subsidiaries may also begin conducting operations using the
Euro prior to the completion of the conversion of the systems of such
subsidiaries. Delays in conversion could have a material adverse effect on the
results of the operations of these subsidiaries. In addition, the introduction
of the Euro may increase competition, as manufacturers in other European
countries become able to compete more easily in the Company's markets.
Management does not believe that the implementation of the Euro will have a
material effect on the Company's operations or financial condition taken as a
whole.
INFLATION AND CHANGES IN PRICES
The Company's financial results depend to a large extent on the cost of raw
materials and packaging and the ability of the Company to pass along to its
customers increases in these costs. Historically, market prices for commodity
grains and food stocks have fluctuated in response to a number of factors,
including changes in United States government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing and harvesting seasons. Fluctuations in paper prices have resulted
from changes in supply and demand, general economic conditions and other
factors. In the event of any increases in raw materials costs, the Company may
be required to increase sales prices for its products in order to avoid margin
deterioration. There can be no assurance as to the timing or extent of the
Company's ability to implement future price adjustments in the event of
increased raw material costs or as to whether any price increases implemented by
the Company may affect the volumes of future shipments.
The Company manages the price risk created by market fluctuations by
hedging portions of its primary commodity product purchases, principally through
exchange traded futures and options contracts that are designated as hedges. The
terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity. The Company's policy
does not permit speculative commodity trading. Although the Company manages the
price risk of market fluctuations by hedging portions of its primary commodity
product purchases, there can by no assurance that the Company's results of
operations will not be exposed to volatility in the commodity market. See
"Overview" and "Business -- Raw Materials and Packaging."
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<PAGE> 44
BUSINESS
OVERVIEW
The Company is the largest manufacturer of dry pet food in the United
States, producing approximately 26% of the total volumes sold in 1997 on a pro
forma basis. The Company manufactures products for store brands owned by retail
customers (also known as private labels), contract manufactures products for
national branded pet food companies and produces and sells under regional brands
owned by the Company.
The Company manufactures for its customers a full range of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. The Company provides products that meet customer
specifications across all retail channels and price points, from super premium
to value products. Accordingly, the Company manufactures store brands for over
350 customers in the United States, including the three largest mass
merchandisers, the five largest grocery companies and the largest national pet
specialty retailer. The Company also manufactures dry pet food and treats for
four of the six largest national branded pet food companies through
co-manufacturing agreements pursuant to which the Company produces, packages and
ships a portion of such companies' products.
The Company has the most extensive manufacturing and distribution network
in the industry, providing it with certain operational, cost and competitive
advantages. The Company manufactures and distributes its products in the United
States through 32 combination manufacturing and distribution facilities and nine
additional distribution centers. The number and strategic location of the
Company's facilities reduce distribution expenses, which represent a meaningful
portion of the delivered cost of pet food due to its bulk and weight relative to
its selling price. The Company's extensive network can further reduce expenses
by enabling certain of its customers to bypass their distribution centers and
deliver directly to their stores. Direct store delivery service currently
accounts for approximately 45% of the Company's sales by volume.
The Company has achieved strong internal growth. From 1992 to 1997, the
Company increased sales volumes at a compound annual growth rate of 10.3%,
exclusive of acquisitions. The Company believes its growth is primarily due to
an increase in consumer acceptance of store brands and an increase in volume co-
manufactured for national pet food companies. In addition, the Company has been
the primary supplier of store brand pet food to Wal*Mart since 1970. The Company
manufactures and distributes, under a direct store delivery program, a variety
of products for Wal*Mart including its store brand, Ol' Roy, which is the
largest selling brand of dry pet food in the United States by volume. In 1997,
sales to Wal*Mart, including its Sam's Club division, accounted for 39% of the
Company's sales on a pro forma basis.
THE PET FOOD INDUSTRY
The U.S. pet food industry is a $10 billion industry that has grown at a
compound annual rate of 5% from 1992 to 1997 in terms of volume. Growth in the
dry pet food and the biscuit and treats segments of the industry has exceeded
the growth of the overall pet food industry by capturing market share from other
segments, including canned pet food. Dry pet food sales have grown at a rate of
6.4% per year from 1992 to 1997 and accounted for approximately $5.2 billion of
sales in the industry in 1997. Dry pet food has increased its market share from
49.2% to 52.0% over the same period. The biscuit and treats segment has grown at
a rate of 6.3% per year from 1992 to 1997 and has increased its market share
from 12.1% to 12.8% over the same period.
Improved product quality and increased retailer support have generally
enabled store brands to gain market share from national brands in many
traditional branded categories, including pet food. Sales of store brand pet
food accounted for in excess of 20% of the total pet food market in 1997 and
have grown at a compound annual growth rate in excess of 7.5% over the past five
years. Store brands have increased market share in each of the segments of the
pet food industry over the past five years. In 1997, store brands represented
approximately 29%, 29%, 23%, 18% and 17% of total sales volume of biscuits and
treats, dry dog, dry cat, canned dog and canned cat food, respectively. Store
brand volume share of canned dog and cat food increased from 10% to 18% and from
9% to 17% from 1992 to 1997, respectively. Store brands now encompass a full
range of pet food products at all price points, including economy, premium and
super premium.
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<PAGE> 45
RECENT DEVELOPMENTS
Refinancing Transactions. In November 1998, the Company refinanced its
capital structure pursuant to the following Refinancing Transactions:
-- Windy Hill was merged into Doane;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its Senior Notes;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of Windy Hill Notes, which tender offer was required by a change
of control provision in the indenture governing such notes;
-- Doane completed the Exchange Offer of $150 million principal amount of
its Senior Subordinated Notes for the remaining approximately $63
million principal amount of Senior Notes and all of the remaining
approximately $74 million principal amount of Windy Hill Notes; and
-- Doane entered into the New Credit Facility with a syndicate of financial
institutions providing for total commitments of $345 million. Doane
borrowed $292 million under the New Credit Facility to fund the cash
requirements of the Refinancing Transactions, repay borrowings under and
retire its previous credit facilities, repay other debt and repay bridge
financing incurred in connection with the tender offer for the Windy
Hill Notes.
Windy Hill Acquisition. In August 1998, the Holdings acquired Windy Hill
for approximately 8.0 million shares of Common Stock and the assumption of
$183.5 million of indebtedness. Windy Hill is a leading manufacturer of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. With Windy Hill, the Company is the largest
manufacturer of dog biscuits in the United States. In 1997, Windy Hill generated
pro forma net sales, EBITDA and a net loss of $304.0 million, $26.7 million and
$3.9 million, respectively.
The Windy Hill Acquisition strengthens the Company's presence in the dry
pet food and dog biscuit market segments, provides revenue synergies and
enhances the Company's position as a low-cost manufacturer and distributer of
pet food products. The Company believes the Windy Hill Acquisition provides the
opportunity for revenue growth by (i) enabling the Company to offer regional
brands, semi-moist, soft dry and canned pet food products to its traditional
customer base and (ii) enabling Windy Hill to offer soft treats and other
specialized dry food products to its traditional customer base. With the
addition of Windy Hill's 19 plants, the Company believes cost savings can be
achieved through optimizing production schedules and lowering distribution costs
by reducing the distance products are shipped. The Windy Hill Acquisition also
provides the Company with the opportunity to achieve cost savings by obtaining
purchasing synergies and eliminating redundant overhead functions.
IPES Acquisition. In April 1998, the Company acquired IPES for $26.2
million (net of cash purchased of $1.9 million) and the assumption of
indebtedness of $1.9 million. IPES, located in Spain, is a manufacturer of both
store and regional brands. In fiscal 1997, IPES had net sales, EBITDA and net
income of $21.1 million, $3.8 million and $1.0 million, respectively. The
Company believes that the IPES Acquisition, together with the Company's
investment in the Italian manufacturer, Effeffe, S.p.a., provides the Company
with a platform for growth in Europe.
STRATEGY
The Company's business objective is to increase revenues and earnings and
to enhance its leadership position within the pet food industry. The key
elements of the strategy to achieve the Company's business objective are as
follows:
Continue to be the Low Cost Quality Provider in the Pet Food Industry. The
Company believes it is the low cost provider of quality dry pet food. The
Company believes its position as the largest manufacturer of dry pet food
provides it with certain economies of scale, including production efficiencies
and packaging
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<PAGE> 46
purchasing leverage. In addition, the number and strategic location of the
Company's facilities enhances the Company's position as the low cost provider by
reducing transportation costs for raw materials and finished goods. The Company
also maintains in-house engineering, machining and fabrication capabilities that
enable the Company to design, construct and maintain facilities on a
cost-effective basis.
Leverage Distribution System. The Company's manufacturing and distribution
network enables it to service customers on a national basis and facilitates the
Company's direct store delivery program, the scope of which the Company believes
is unique in the industry. In addition, the Company has developed capabilities
that allow it to provide VMI to certain key customers. VMI allows the Company to
communicate on-line with its customers, evaluate their inventory status and
place orders on their behalf. The Company intends to leverage its manufacturing
and distribution network by expanding sales of its full range of pet food
products to its existing customers. For example, the Company recently completed
the construction of a soft treat manufacturing facility, which will enable the
Company to offer soft treats to its traditional customer base, and intends to
expand sales of certain products acquired in the Windy Hill Acquisition
including semi-moist, soft dry, canned and regional brands to its existing
customers.
Provide a Full Range of Pet Food Products. The Company offers customers a
full range of pet food products for both dogs and cats, including dry, canned,
semi-moist, soft dry, soft treats and dog biscuits. By offering a full range of
products under a variety of brand formats (store, co-manufactured national and
regional brands) and price points, the Company can be a significant source for
its customers' total pet food requirements. This enables customers to realize
administrative and distribution savings by aggregating a variety of products and
brands into a single shipment.
Focus on Diversified Brand Formats. The Company believes that store,
co-manufactured national and regional brand formats offer significant growth
opportunities. Sales of store brands have exceeded the overall growth in the pet
food industry. The Company believes this growth will continue due to (i) an
increased awareness of retailers concerning the advantages of store brands,
including enhanced margins and customer loyalty, (ii) improved quality,
innovation and variety of store brand products and (iii) increasingly informed
and value-conscious consumers. The Company believes co-manufactured national
brands offer growth opportunities as national branded pet food companies
increasingly take advantage of the Company's low-cost status, quality products,
extensive plant network and logistics capabilities. The Company believes that
the regional brands acquired with the Windy Hill Acquisition complement its
existing product lines and intends to capitalize on demand for such brands
within the Company's existing customer base.
Acquire Additional Pet Food Companies. To supplement its internal growth,
the Company has acquired eight pet food companies over the last three years. The
Company believes that there are substantial opportunities in the United States
and abroad to acquire additional pet food companies. The Company will continue
to seek accretive acquisitions that offer complementary product lines,
geographic scope, additional distribution channels and cost saving
opportunities.
Expand International Presence. The Company believes substantial
opportunities exist to increase sales in international markets. The Company
believes that the approximately $9.3 billion European pet food market is
particularly attractive due to the strength and demand for store brand products
and the strong growth of dry pet food products. The Company is currently
expanding its manufacturing and distribution capabilities in Spain and Italy and
intends to pursue acquisitions of additional pet food companies and expand its
product offerings. In addition, the Company believes that an opportunity exists
to expand export sales to the Pacific Rim and South America.
PRODUCTS AND SERVICES
The Company provides its customers with comprehensive pet food category
management services designed to expand each customer's pet food product lines
and to improve the category's profitability. Category management services
include product development and testing, packaging design services and
assistance in formulating pricing and marketing strategies in connection with
their store brand programs. The Company sells its products as store brands owned
by customers (also known as private labels) and regional brands owned by the
Company and contract manufactures products for national pet food companies. The
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<PAGE> 47
Company's store brand program involves the formulation and supply of a wide
variety of high quality pet food products, including dry, canned, semi-moist,
soft dry and soft treats, as well as dog biscuits, that are comparable in
quality to, but lower in cost than, competing branded pet food products. For
national brand customers, the Company manufactures dry pet food and biscuits to
such customers' specifications and standards. The regional brands are used for
economy priced products that are generally marketed as a complement to
customers' store brand programs. Accordingly, the Company is able to provide
customers with a single source for store brands, certain co-manufactured
national brands and regional brands. The Company is able to ship all such
product offerings together, giving customers the ability to address a
substantial portion of their pet food requirements from one source.
The Company manufactures dry pet food under approximately 350 store brands,
including Kirkland Signature, Retriever, Dura Life, Great Choice, Hy Vee, Ol'
Roy, Exceed, Maxximum Nutrition, Remarkable, Pathmark, Pet Club, PMI-Nutrition,
Special Kitty and Sportsman's Choice. The Company also co-manufactures branded
pet food products for national pet food companies in accordance with such
companies' specifications and standards. The Company's regional brands include
Kozy Kitten(R), G. Whiskers(R), Trail Blazer(R), and Tuffy's(R), which are sold
to allow the Company's customers to broaden their product offerings and to
provide them with a single source for their pet food requirements.
In addition to its pet food products, the Company sells products
manufactured by third parties and maintains an engineering group. A description
of each of the Company's product lines is set forth below:
Dry Pet Food Products (82.0% of 1997 Pro Forma Net Sales)
The Company is the largest manufacturer of dry pet food products in the
United States. The Company produces, markets and distributes a wide selection of
high quality dry pet food products predominantly for dogs and cats. The dog food
product line includes high protein, chunk style, premium blended, puppy food and
gravy style products. The dog food product line has accounted for the largest
portion of the Company's dry pet food shipments over the past three years, with
such products representing approximately 84.1% of the Company's dry pet food
shipments (tonnage) in 1997 on a pro forma basis. The Company's cat food lines
accounted for approximately 15.9% of the Company's dry pet food shipments
(tonnage) in 1997 on a pro forma basis.
Biscuits and Treats (9.6% of 1997 Pro Forma Net Sales)
The Company is the largest manufacturer of dog biscuits in the United
States and is also a leading supplier of soft treats. Biscuits undergo a
different manufacturing process from dry pet food that primarily involves baking
rather than the use of extruders.
Semi-Moist, Soft Dry and Canned Pet Food (4.0% of 1997 Pro Forma Net Sales)
In connection with the Windy Hill Acquisition, the Company has expanded its
operations into the semi-moist, soft dry and canned pet food segments.
Semi-moist, soft dry and canned products are distinguishable from dry pet food
based on their higher moisture levels, the manufacturing technology used to
process such products and their higher costs of packaging.
Non-Manufactured Products (3.7% of 1997 Pro Forma Net Sales)
Sales of non-manufactured products include sales of cat litter, canned pet
products and pet treats produced by third parties. The Company receives these
items at its manufacturing facilities and warehouses and aggregates them with
the Company's products into truckload quantities for combined shipment to
certain customers. The Company provides this service as a part of its direct
shipment program and receives a handling fee for this service.
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<PAGE> 48
Engineering Services Group
The Company's engineering services group designs and builds extruders,
conveyors, dryers and other parts and equipment, including replacement parts,
for pet food manufacturing facilities of the Company and third parties. The
engineering services group also includes a repair staff that is available to
service and repair machinery and equipment at the Company's production
facilities, giving the Company the ability to make timely repairs, thereby
minimizing downtime. The Company's in-house engineers generally design and
supervise plant construction, thereby reducing plant construction costs and
ensuring consistent manufacturing processes and quality control. The Company
believes that its engineering services group provides it services at a lower
cost and more efficiently than could be obtained from third parties.
SALES AND DISTRIBUTION
The Company's direct sales force seeks new accounts and works directly with
mass merchandisers, membership clubs, feed stores and specialty pet stores. The
Company also uses independent food brokers. The Company also generates new
business through the expansion of its product line and the development of new
marketing programs to existing customers.
Most of the Company's products are distributed utilizing its customers'
transportation networks. Several of the Company's largest customers utilize the
Company as a "just-in-time" supplier and maintain trailers at the Company's
manufacturing and distribution facilities. The trailers are loaded and shipped
either directly to individual stores or to customers' distribution centers.
Those customers that ship product directly from the Company's manufacturing
facilities to their retail outlets are able to reduce their inventory, freight
and handling costs by avoiding shipment to a customer distribution center. Those
customers that use their own transportation fleet are able to utilize their
trucks that would otherwise be empty to backhaul a load of pet food on return to
their distribution center or directly to another store. The ability of the
Company to ship directly to certain of its customers is a key consideration in
locating the Company's manufacturing facilities and is a significant competitive
advantage.
The Company's customers not utilizing their own fleet either arrange their
own transportation or have the Company arrange transportation on a contract
basis through common carriers. The Company does not own or operate any
transportation equipment.
The Company has developed capabilities that allow it to provide VMI service
to certain key customers. VMI allows the Company to communicate on-line with its
customers, evaluate their inventory status then place the order for the
customer. The Company utilizes VMI for both direct store and warehouse
deliveries. VMI's benefits include shorter lead-time, higher inventory turns,
and reduced out-of-stock positions.
CUSTOMERS
The Company manufactures store brands for over 350 customers. Store brand
customers include mass merchandisers such as Wal*Mart and Costco, specialty pet
stores such as PetsMart and grocery chains such as Safeway, Food Lion, Kroger,
Publix and Lucky's. In addition, the Company manufactures products for farm and
feed stores including Tractor Supply and Purina Mills and national branded pet
food companies such as Iams, Heinz, Kal-Kan and Nestle.
For the year ended December 31, 1997 on a pro forma basis, sales to
Wal*Mart and Sam's Club accounted for an aggregate of 39.0% of the Company's net
sales. A portion (3.8%) of the Company's sales to Wal*Mart and Sam's Club for
the year ended December 31, 1997 on a pro forma basis was attributable to
branded pet food products manufactured and distributed by the Company for
national pet food companies. The Company has been the primary supplier of
private label dry pet food products to Wal*Mart since 1970 and to Sam's Club
since 1990. The Company utilizes a computerized order and distribution system to
ship product directly to virtually all domestic Wal*Mart stores, a majority of
which are located within 250 miles of the Company's facilities. The direct ship
program, which reduces customer inventory, handling and warehouse expenses, is
enhanced by the number and strategic locations of the Company's facilities. The
Company also offers direct shipment programs and electronic data interchange
systems to its other larger customers.
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<PAGE> 49
The loss of any significant customer, or customers which in the aggregate
represent a significant portion of the Company's sales, would have an adverse
impact on the Company's operating results and cash flows. See "Risk
Factors -- Dependence on Certain Customers."
COMPETITION
The pet food business is highly competitive. The companies that produce and
market the major national branded pet foods are national or international
conglomerates that are substantially larger than the Company and possess
significantly greater financial and marketing resources than the Company. The
store brand pet food products sold by the Company's customers compete for access
to shelf space with national branded products on the basis of quality and price.
National branded products compete principally through advertising to create
brand awareness and loyalty. The Company could experience price competition from
national branded manufacturers. To the extent that there is significant price
competition from the national branded manufacturers or such manufacturers
significantly increase their presence in the store brand segment, the Company's
operating results and cash flow could be adversely affected. The Company also
competes with regional branded manufacturers and other store brand
manufacturers.
The Company believes that it differentiates itself from the national
branded dry pet food manufacturers by offering comparable products at lower
prices giving retailers the opportunity for greater pet food category
profitability. The Company believes that it differentiates itself from other
store brand dry pet food manufacturers by offering higher quality products,
national production and distribution capabilities and a reputation for
increasing customers' store brand dry pet food sales.
RAW MATERIALS AND PACKAGING
The principal raw materials required for the Company's manufacturing
operations are bulk commodity grains and foodstocks, including corn, soybean
meal, wheat middlings, meat and bone meal, and corn gluten meal. The Company
generally purchases raw materials one to three months in advance. The Company
purchases the raw material requirements of each of its manufacturing facilities
locally due to the high freight cost of transporting bulk commodity products. As
a result, raw material costs may vary substantially among manufacturing
facilities due to local supply and demand and varying freight costs. Raw
materials are generally purchased from large national commodity companies and
local grain cooperatives. The Company does not maintain long-term contracts with
any of its suppliers; however, the Company believes that alternative sources of
supply are readily available.
The Company manages the price risk created by market fluctuations by
hedging portions of its primary commodity products purchases, principally
through exchange traded futures and options contracts that are designated as
hedges. The terms of such contracts are generally less than one year. Settlement
of positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity. The Company's
hedging policy does not permit speculative commodity trading. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Packaging is a material component of the Company's raw material costs. The
Company has five main suppliers of packaging and believes that additional
suppliers of packaging are available. A majority of the Company's requirements
are not covered by long term contracts with any of its packaging suppliers.
The Company generally prices its pet food products based on the cost of raw
materials, packaging and certain other costs plus a conversion charge (which
includes a profit factor). The Company periodically adjusts prices based on
fluctuations in raw material and packaging costs. There can be no assurance that
future price increases will be obtained in the event of increased raw material
costs. See "Risk Factors -- Raw Materials and Packaging Costs" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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RESEARCH AND DEVELOPMENT
The Company's research and development department consists of a staff of
chemists and nutritionists, a central laboratory used for research and
development and laboratories at each of the Company's production facilities used
for quality control. The Company is continually developing new products. The
research and development department formulates the mix of raw materials and
vitamins and minerals and tests the nutritional content of new products.
Independent commercial kennels and catteries are used for comparison taste tests
to nationally branded products to assure digestibility and palatability as well
as to substantiate the nutritional content of new products.
Quality control is an integral part of the Company's research and
development. The Company maintains a program of testing raw materials to ensure
nutritional adequacy and to test for the presence of bacteria and other harmful
substances. The Company continuously tests pet food production at each of its
plants by analyzing the finished pet food product against formulas and
regulatory requirements. Packaging is inspected to ensure print quality, proper
dimensions and compliance with labeling regulations.
FACILITIES
The Company's corporate headquarters are located in Brentwood, Tennessee.
The Company owns combination manufacturing and distribution facilities in the
following states: one each in New York, Virginia, Indiana, Tennessee, South
Carolina, Georgia, Iowa, Oklahoma, Nebraska, Colorado and Texas; two each in
Ohio, Wisconsin, Minnesota, Missouri, Alabama and Kansas; and three each in
Pennsylvania and California. The Company also has a 50% joint interest in
facilities located in Butler, Missouri; Caldwell, Idaho; Hereford, Texas; and
Italy. The Company is in the process of building a state of the art facility in
Clinton, Oklahoma. The Company also owns a facility in Spain. In addition, the
Company owns or leases nine warehouses.
The manufacturing facilities are generally located in rural areas in
proximity to customers, raw materials and transportation networks, including
rail transportation. Management believes the number and strategic locations of
its manufacturing facilities enhance its position as the low cost producer by
reducing freight costs for raw material and finished goods and facilitating
direct store delivery programs. The rural locations also minimize land and labor
costs. Management believes it is able to construct new manufacturing facilities
at a lower cost than competitors due to the Company's engineering services group
which designs and constructs most of the necessary production equipment.
ENVIRONMENTAL, REGULATORY AND SAFETY MATTERS; PRODUCT RECALL
The Company is subject to a wide range of federal, state and local
environmental laws and regulations, including those governing discharges to the
air and water, the storage of petroleum substances and chemicals, the handling
and disposal of solid or hazardous wastes, and the remediation of contamination
arising from spills and releases. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil, and even
criminal penalties as well as, in certain instances, the issuance of
injunctions. The Company has not been subject to any material environmental
liabilities and compliance of its business and operations with environmental
laws and regulations has not had a material adverse effect on the Company's
capital expenditures, earnings, or competitive position. Environmental laws and
regulations have changed substantially in recent years and the Company believes
that the trend of more expansive and more strict environmental legislation and
regulations will continue. While the Company believes it is in substantial
compliance with applicable environmental and worker safety laws, there can be no
assurance that additional costs for compliance will not be incurred in the
future or that such costs will not be material.
The Company's business involves the use of aboveground and underground
storage tanks. Under applicable laws and regulations, the Company is responsible
for the proper use, maintenance and abandonment of regulated storage tanks owned
or operated by it, and for remediation of subsurface soils and groundwater
impacted by releases from such existing or abandoned aboveground or underground
storage tanks. The Company is also subject to laws and regulations governing
remediation, recycling, or disposal. The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), also known as the "Superfund"
law, and analogous state laws impose liability, without regard to fault or the
legality
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<PAGE> 51
of the original conduct, on certain classes of persons who are considered
statutorily responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of a facility where a
hazardous substance release occurred and companies that disposed or arranged for
the disposal of hazardous substances. Persons who are or were responsible for
the releases of hazardous substances under CERCLA may be subject to joint,
several and retroactive liability for the costs of environmental response
measures. While there can be no assurance of the position that may be taken by
any environmental agency with respect to the Company's past operations in
connection with any CERCLA site, the Company has not received, nor does it
expect to receive, any notice that it is or will be designated a potentially
responsible party to any CERCLA site.
The Company currently owns or leases, and in connection with its
acquisition program will in the future own or lease, properties that in some
instances have been used for pet food manufacturing or feed mill operations for
many years. Although the Company has utilized operating and disposal practices
that were standard in the industry at the time, it is possible that
environmentally sensitive materials such as new and used oils, solvents,
petroleum substances, and raw chemical ingredients may have been spilled or
released on or under the properties owned or leased by the Company or on or
under other locations where such materials were taken for disposal. In addition,
many of these properties have been operated by third parties whose use, handling
and disposal of such environmentally sensitive materials or similar wastes were
not under the Company's control. These properties and the waste materials
spilled, released or otherwise found thereon may be subject to CERCLA, the
federal Resource Conservation and Recovery Act, and analogous state laws. Under
such laws, the Company could be required to remove or remediate previously
spilled or released waste materials (including such materials spilled or
released by prior owners or operators), or property contamination (including
groundwater contamination caused by prior owners or operators), or to perform
monitoring or remedial activities to prevent future contamination (including
releases from underground storage tanks or aboveground bulk petroleum storage
facilities). Moreover, some of the Company's manufacturing facilities are
located within industrial areas. In the past, nearby industries have suffered
releases of hazardous substances to the environment that are the subject of
CERCLA investigations. It is possible that these neighboring environmental
activities may have impacted some of the Company's properties. The Company has
not been advised, nor does it expect to be advised, by any environmental agency
that it is considered a potentially responsible party for the neighboring
environmental conditions, and the Company has no reason to believe that such
conditions would have a material adverse effect on the Company.
The manufacturing and marketing of the Company's products are subject to
regulation by federal regulatory agencies, including the Occupational Safety and
Health Administration ("OSHA"), the Food and Drug Administration ("FDA") and the
United States Department of Agriculture ("DOA"), and by various state and local
authorities. The FDA also regulates the labeling of the Company's products.
Substantial administrative, civil, and criminal penalties may be imposed for
violations of OSHA, FDA, and DOA regulations, and violations may be restrained
through injunction proceedings. The Company procures and maintains the necessary
permits and licenses in order to operate its facilities and considers itself to
be in material compliance with applicable OSHA, DOA, and FDA requirements.
On October 30, 1998 the Company initiated a product recall for certain dry
dog food manufactured at its Temple, Texas plant. The recall covers dry dog food
manufactured at its Temple plant between July 1 and August 31, 1998 and does not
apply to dry dog food manufactured at other plants or the Company's dry cat
food, biscuits, treats or canned products. The recall resulted from reported
sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated aflatoxins in corn, which is an ingredient in dry dog
food. Aflatoxins are compounds produced from certain kinds of crop molds that
can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
is currently unable to estimate the cost of the recall. The Company does not
believe that the recall will have a material impact on the Company's financial
condition or results of operations.
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The Company believes that its operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that such requirements will not change in the future or that the
Company will not incur significant costs in the future (i) to comply with such
requirements, (ii) to effect future recalls or (iii) in connection with the
effect on the Company's business of such matters.
TRADEMARKS
Certain of the Company's brands are protected by trademark registrations in
the United States and in certain foreign markets. The Company believes that its
registered trademarks are adequate to protect such brand names.
EMPLOYEES
As of November 30, 1998, the Company had approximately 2,436 employees, of
which approximately 301 were management and administrative personnel and
approximately 2,135 were manufacturing personnel. Of this number, 394 employees
in five of the Company's plants are represented by labor unions. The collective
bargaining agreement with respect to the Birmingham, Alabama plant covers 93
employees and expires on January 20, 2001. The collective bargaining agreement
with the Joplin, Missouri plant covers 189 employees and expires in January
1999. The collective bargaining agreement with the Muscatine, Iowa plant covers
45 employees and expires in December 1999. The collective bargaining agreement
with respect to the NuPet plant in Ripon, California covers 24 employees and
expires in October 2000, subject to renewal for subsequent one year terms. The
collective bargaining agreement with respect to the AGP plant in Lincoln,
Nebraska covers 43 employees and expires in July 1999. The Company considers its
relations with its employees to be satisfactory.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its financial condition or
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the current
directors of the Company and executive officers of the Company and Doane. The
Board of Directors is currently composed of eight members, and it is expected
that it will be expanded to ten members after the consummation of the Offering.
The Board of Directors is expected to be divided into three classes in
connection with the consummation of the Offering, with the terms of the
directors of each class expiring at the Company's Annual Meeting of Stockholders
as follows: 2000 (Class I), 2001 (Class II) and 2002 (Class III). It is expected
that the Board of Directors will be expanded to ten members after the
consummation of the Offering. Certain of the Company's directors are designated
pursuant to an Investors' Agreement. See "Certain Transactions -- Investors'
Agreement." Officers serve at the discretion of the Board of Directors. For
information regarding employment agreements with the executive officers of the
Company, see "-- Employment and Termination Agreements."
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
George B. Kelly(1).......... 49 Chairman of the Board and Director
Douglas J. Cahill........... 38 Chief Executive Officer, President and Director
Thomas R. Heidenthal........ 47 Senior Vice President and Chief Financial Officer
F. Donald Cowan, Jr......... 52 Senior Vice President, Operations of Doane
Richard A. Hannasch......... 45 Vice President, Strategic Planning and Marketing
of
Doane
Richard D. Wohlschlaeger.... 45 Vice President, Customer Development of Doane
David L. Horton............. 37 Vice President, Fulfillment of Doane
Terry W. Bechtel............ 56 Vice President, Co-Manufacturing Business
Development of Doane
Charles W. Dunleavy......... 54 Vice President, Finance of Doane
Timothy S. Shaver........... 47 Vice President, Production of Doane
Peter T. Grauer(1).......... 52 Director
M. Walid Mansur(2).......... 39 Director
Bob L. Robinson............. 61 Director
Jeffrey C. Walker(1)(2)..... 43 Director
Ray Chung(2)................ 50 Director
Stephen C. Sherrill......... 45 Director
</TABLE>
- ------------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.
George B. Kelly has been Chairman of the Board of the Company since June
1995. Mr. Kelly has been the Chairman of the Board of SCI since July 1990. Mr.
Kelly currently is a director of Alegis Group, Inc., Billboard Acquisition
Company, LLC, Independent Gas Company Holdings and Sevenday International, Inc.
Douglas J. Cahill became Chief Operating Officer of the Company in
September 1997, began serving as President of the Company in January 1998 and
began serving as Chief Executive Officer of the Company in June 1998. He has
been a director of the Company since August 1998. Prior to joining the Company,
Mr. Cahill served as President of Olin Corporation's Winchester Division,
Corporate Vice President of Olin Corporation and held various other positions
with Olin Corporation during the period from July 1984 through September 1997.
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Thomas R. Heidenthal became Senior Vice President and Chief Financial
Officer of the Company in March 1997. Prior to joining the Company, Mr.
Heidenthal served as Vice President Finance and Administration of TA
Instruments, Inc. from August 1990 to February 1997.
F. Donald Cowan, Jr. served as Vice President of Operations for Windy Hill
before joining the Company in August 1998 as Senior Vice President, Operations
of Doane. Prior to joining Windy Hill in 1995, Mr. Cowan was Vice President of
Operations for Martha White Foods, Inc. From 1987 to 1995, Mr. Cowan held
various positions at Martha White Foods, Inc. including Vice President of
Operations.
Richard A. Hannasch joined the Company in October 1996 and has served as
Vice President, Strategic Planning of Doane since June 1998 and Vice President
of Marketing of Doane since November 1997. Prior to joining the Company, Mr.
Hannasch served as Director, Business Development for Ralston Purina Company's
International Division and held various other positions at Ralston Purina
Company from September 1978 to October 1996.
Richard D. Wohlschlaeger joined the Company in April 1993 and has served as
Vice President, Customer Development of Doane since November 1997. Prior to
joining the Company, Mr. Wohlschlaeger held various other positions at Ralston
Purina Company from March 1976 to April 1993, including Group Director, Trade
Marketing and Eastern Division Sales Director.
David L. Horton joined the Company in November 1997 as Vice President,
Fulfillment of Doane. Prior to joining the Company, Mr. Horton served as Vice
President of Manufacturing and Engineering of Olin Corporation's Winchester
Division and held various other positions with Olin Corporation from January
1984 to November 1997.
Terry W. Bechtel has served as Vice President, Co-Manufacturing Business
Development of Doane since November 1997. Mr. Bechtel joined the Company in June
1973 and served as Vice President, Administration of Doane from March 1990 until
October 1997, and as Vice President, Sales of Doane from September 1976 through
February 1990.
Charles W. Dunleavy served as Vice President of Finance for Windy Hill
before joining the Company in August 1998 as Vice President, Finance of Doane.
Prior to joining Windy Hill in September 1997, Mr. Dunleavy was Vice President
of Operations for Hudson Technologies, Inc. from 1993 to 1997. From 1989 to
1993, Mr. Dunleavy was the Managing Partner of the Detroit office of BDO
Seidman, LLP, a public accounting firm.
Timothy S. Shaver served as Director of Plant Operations for Windy Hill
before joining the Company in August 1998 as Vice President, Production of
Doane. Prior to joining Windy Hill in 1997, Mr. Shaver was the Director of Plant
Operations for Hubbard Milling Company from 1986 to 1997.
Peter T. Grauer has been a director of the Company since October 5, 1995
and has been a Managing Director of DLJ Merchant Banking, Inc. since September
1992. Mr. Grauer is a director of Total Renal Care Holdings Inc., Decision One
Holdings, Inc., Nebco Evans Holdings, Inc., Bloomberg L.P., Thermadyne Holdings,
LLC and Formica Corporation.
M. Walid Mansur has been a director of the Company since October 5, 1995.
Mr. Mansur has served as the president of Drafil Investments Inc. since 1990 and
has been a managing director of Aspen Venture Partners since 1993.
Bob L. Robinson joined the Company in August 1960 and served as President
and Chief Executive Officer of the Company until his resignation effective June
30, 1998. Mr. Robinson became a director of the Company on October 5, 1995.
Prior to being named President and Chief Executive Officer, Mr. Robinson served
as Executive Vice President from January 1976 through February 1992.
Jeffrey C. Walker has been a director of the Company since April 1996. Mr.
Walker has been Managing General Partner of Chase Capital Partners, the private
equity investment arm of The Chase Manhattan
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Corporation, since 1988, and a General Partner thereof since 1984. Mr. Walker is
a director of the Monet Group, Inc., 800-Flowers, Guitar Center, House of Blues
and Domaine.
Ray Chung became a director of the Company in August 1998. He is a partner
in Dartford Partnership, L.L.C. ("Dartford") and an Executive Vice President of
Aurora Foods Inc. Mr. Chung previously served as Executive Vice President and a
director of Windy Hill. Mr. Chung served as a director, Executive Vice President
and Chief Financial Officer of Windmill Corporation from 1989 to 1995 and as a
director, Executive Vice President and Chief Financial Officer of Wyndham Foods
Inc. from 1985 to 1990. From May 1984 to September 1985, Mr. Chung served as
Vice President -- Finance for the Kendall Company. Between 1981 and 1984, Mr.
Chung served as Vice President -- Finance for Riviana Foods, Inc. Both the
Kendall Company and Riviana Foods, Inc. were subsidiaries of the
Colgate-Palmolive Company at the time.
Stephen C. Sherrill became a director of the Company in August 1998. He has
been a Principal of Bruckmann, Rosser and Sherrill Co. ("BRS") since its
formation in 1995. Mr. Sherrill previously served as a director of Windy Hill.
Mr. Sherrill was an officer of Citicorp Venture Capital from 1983 through 1994.
Previously, he was an associate at the New York law firm of Paul, Weiss,
Rifkind, Wharton & Garrison. Mr. Sherrill is a director of Galey & Lord, Inc.,
Jitney-Jungle Stores of America, Inc., Restaurant Associates Corp., and Bloch &
Guggenheimer/Burns & Ricker, Inc.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company and certain other persons serving as executive
officers for the fiscal year ended December 31, 1997 who earned $100,000 or more
in combined salary and bonus during such year (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL ----------------------- OPTIONS/SARS ALL OTHER
IN THE COMPANY YEAR SALARY BONUS (#) COMPENSATION(2)
<S> <C> <C> <C> <C> <C>
Douglas J. Cahill(3).......... 1997 $ 91,667 $100,000 500,000 $ 304,092(4)(5)
President and Chief
Executive Officer
Thomas R. Heidenthal.......... 1997 145,833 93,000 250,000 46,533(4)
Senior Vice President and
Chief Financial Officer
Terry W. Bechtel.............. 1997 198,000 45,000 -- 2,270
Vice President,
Co-Manufacturing and 1996 198,000 45,000 160,000 2,100
Business Development of
Doane 1995 198,000 45,000 -- 1,350,561(6)
Bob L. Robinson(7)............ 1997 366,000 569,294 -- 2,270
1996 366,000 420,289 625,000 2,100
1995 366,000 575,784 -- 4,048,265(8)
Earl R. Clements(9)........... 1997 168,000 75,000 -- 2,270
1996 168,000 46,200 160,000 2,100
1995 168,000 75,000 -- 1,350,561(6)
</TABLE>
- ---------------
(1) All amounts shown were paid by Doane, the Company's operating subsidiary.
Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for each executive officer.
(2) Amount includes health and life insurance premiums paid by the Company on
behalf of the executive officer.
(3) Mr. Cahill served as the Company's Chief Operating Officer from September
1997 to January 1998, became the Company's President in January 1998 and
became the Company's Chief Executive Officer in
54
<PAGE> 56
July 1998. Annual Compensation amounts represent compensation for the portion of
1997 of which Mr. Cahill was employed by the Company.
(4) Includes relocation expenses and gross up for taxes of $128,335 for Mr.
Cahill and $44,641 for Mr. Heidenthal.
(5) Includes a sign-on bonus of $175,000 for Mr. Cahill.
(6) Includes a payment of $1,348,469 made by the Company to such person in
connection with the 1995 Acquisition.
(7) Mr. Robinson served as the Company's Chief Executive Officer until his
resignation effective June 30, 1998. Upon his resignation, options for
252,500 shares of Common Stock were terminated. See "-- Stock Option
Exercises" and "-- Employment and Termination Agreements."
(8) Includes a payment of $4,046,173 made by the Company to Mr. Robinson in
connection with the 1995 Acquisition.
(9) Mr. Clements served as Vice President, Production during 1997.
EMPLOYMENT AND RETIREMENT AGREEMENTS
The Company entered into employment agreements with Messrs. Cahill,
Heidenthal, Bechtel and Clements, effective January 1, 1998. The terms of such
employment agreements are substantially similar except for salary and bonus
amounts. Mr. Cahill's current base salary is $400,000 with a base bonus of 100%
of base salary. Mr. Heidenthal's current base salary is $225,000 with a base
bonus of 70% of base salary and Mr. Bechtel's current base salary is $168,000
with a base bonus of 40% of base salary. Earnings targets are established
annually by the Company's Board of Directors under the Executive Officers bonus
plan. The base bonus is linked to achievement of targeted earnings. There is no
cap on additional bonuses in such employment agreements. Each employment
agreement provides for a term of two to three years with automatic one year
extensions. Such agreements are subject to early termination by the Company for
cause without severance. The employment agreements for Messrs. Bechtel and
Clements provide (i) that terminations due to death or disability, or without
cause, entitle the executive to receive severance payments equal to one year's
base salary and bonus and (ii) for a one year non-competition agreement
commencing upon termination for any reason. The employment agreements of Messrs.
Heidenthal and Cahill contain similar provisions except that the severance and
non-competition terms are each two years. Pursuant to his employment agreement
Mr. Cahill was paid a sign-on bonus of $175,000 and an additional $175,000 at
the first anniversary of his date of hire.
The Company entered into an Early Retirement Agreement and Release (the
"Retirement Agreement") with Mr. Robinson effective June 30, 1998 pursuant to
which Mr. Robinson resigned from employment with the Company. Pursuant to the
Retirement Agreement, the Company will continue to pay Mr. Robinson his base
salary, at the rate in effect on the Retirement Date (June 30, 1998), through
December 31, 1998. The Company will also pay Mr. Robinson an annual bonus for
1998 in the amount of $800,000, which bonus will be in lieu of any bonus Mr.
Robinson would be entitled to receive under the terms of his employment
agreement with the Company effective as of September 1, 1994. Effective as of
the Retirement Date, options for 90,000 shares of Common Stock issued under the
terms of two stock option agreements dated November 1, 1996 became fully vested.
COMPENSATION OF DIRECTORS
No compensation has been paid by the Company to its directors prior to the
Offering. Upon completion of the Offering, directors who are not employees of
the Company will receive directors fees to be determined by the Board of
Directors.
Certain directors of the Company are partners or directors of entities that
received fees in connection with the Windy Hill Acquisition, the Exchange Offer,
the tender offer for the Senior Notes and the repayment of bridge financing
incurred in connection with the tender offer for the Windy Hill Notes and will
receive
55
<PAGE> 57
underwriting discounts and commissions in connection with this Offering. See
"Certain Transactions" and "Principal and Selling Stockholders."
COMMITTEES
The Company's Board of Directors has recently established Audit and
Compensation Committees. The Audit Committee consists of Messrs. Mansur, Chung
and Walker, each of whom is a non-employee director of the Company. The Audit
Committee meets separately with representatives of the Company's independent
auditors and with representatives of senior management in performing its
functions. The Audit Committee reviews the general scope of audit coverages, the
fees charged by the independent auditors, matters relating to the Company's
internal control systems, and other matters related to audit functions.
The Compensation Committee consists of Messrs. Grauer, Kelly and Walker,
each of whom is a non-employee director of the Company. The Compensation
Committee administers the Company's Stock Option Plan, and in this capacity
makes all option grants or awards to Company employees, including executive
officers, under the plan. In addition, the Compensation Committee is responsible
for making recommendations to the Board of Directors with respect to the
compensation of the Company's Chief Executive Officer and its other executive
officers, and is responsible for the establishment of policies dealing with
various compensation and employee benefit matters for the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For transactions with Compensation Committee members Grauer and Kelly, see
"Certain Transactions -- Transactions with DLJMB and its Affiliates" and
"-- Transactions with SCI."
STOCK OPTION AND STOCK PURCHASE PLANS
Effective as of November 1, 1996, the Company adopted the Company's
Management Stock Purchase Plan (the "1996 Management Stock Purchase Plan") and
the Company's 1996 Stock Option Plan, as amended (the "1996 Stock Option Plan").
The Company plans to adopt the 1998 Stock Option Plan (the "1998 Stock Option
Plan") in connection with the Offering. The Company's stock option plans are
intended to encourage certain employees of the Company to develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company.
Effective as of June 19, 1997, the Company adopted the 1997 Management
Stock Purchase Plan (the "1997 Management Stock Purchase Plan"). Pursuant to the
1996 Management Stock Purchase Plan and the 1997 Management Stock Purchase Plan,
625,000 shares of Common Stock of the Company were sold for $2.00 per share to
certain key employees, including sales of 250,000 shares to Mr. Heidenthal and
15,000 shares to Mr. Bechtel.
STOCK OPTION GRANTS
The following table sets forth, as of December 31, 1997, certain
information as to options granted in 1997 under the 1996 Stock Option Plan to
the Named Executive Officers. As of November 30, 1998, 622,500 stock options had
been exercised by the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
---------------------------------------------------------- -----------------
NUMBER OF % OF TOTAL EXERCISE
SECURITIES OPTIONS PRICE
UNDERLYING OPTIONS GRANTED TO PER EXPIRATION
NAME GRANTED(#) EMPLOYEES SHARE DATE 5% 10%
---- ------------------ ---------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Cahill(1)...... 500,000 56.8% $3.50 2007
Thomas R. Heidenthal...... 250,000 28.4 2.00 2007
</TABLE>
56
<PAGE> 58
- ---------------
(1) Mr. Cahill was granted options under the 1996 Stock Option Plan to purchase
125,000 shares of Common Stock at $2.00 per share on May 1, 1998.
STOCK OPTION EXERCISES
The following table sets forth certain information with respect to
exercises by the Company's Named Executive Officers of stock options during
fiscal year 1997 and the value of all unexercised employee stock options as of
December 31, 1997 held by such officers.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(2)
ACQUIRED ---------------------------- ----------------------------
NAME ON EXERCISE(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C>
Douglas J. Cahill........... -- -- 500,000 $ -- $ --
Thomas R. Heidenthal........ -- 38,750 211,250 -- --
Terry W. Bechtel............ -- 50,400 109,600 -- --
Bob L. Robinson(3).......... -- 282,500 342,500 -- --
Earl R. Clements............ -- 50,400 109,600 -- --
</TABLE>
- ---------------
(1) None of the identified persons exercised options during the fiscal year
ended December 31, 1997.
(2) The value of unexercised in-the-money options is based upon the initial
public offering price.
(3) Effective as of Mr. Robinson's retirement on June 30, 1998, options for
90,000 shares of Common Stock issued under the terms of two stock option
agreements dated November 1, 1996 became fully vested and the remaining
unexercised options were terminated.
OTHER COMPENSATORY ARRANGEMENTS
Employee Retirement Plan. On May 31, 1998, the Company terminated its
Employee Retirement Plan (the "Retirement Plan"). The Retirement Plan was a
non-contributory, tax qualified plan that provided retirement benefits based on
the employee's tenure with the Company and average monthly compensation. The
Company is currently structuring a plan for liquidating the Retirement Plan and
anticipates providing a lump sum payment which former plan participants may
elect to contribute to the newly established Doane Products Company Savings and
Investment Plan (see "-- 401(k) Plans") or to use to purchase annuities.
401(k) Plans. As of June 1, 1998 the Company adopted the Doane Products
Company Savings and Investment Plan for eligible employees not covered by
collective bargaining arrangements and the Doane Products Company Savings and
Investment Plan -- Union Plan for eligible union employees at the Joplin,
Missouri plant. The plans are intended to be qualified retirement plans under
the Internal Revenue Code. Both plans permit employee contributions between 1%
and 15% of pre-tax earnings subject to annual dollar limits set by the IRS, an
annual employer profit sharing contribution of $400 for each eligible
participant and a variety of investment options. The Doane Products Company
Savings and Investment Plan also includes an employer matching contribution in
an amount equal to 50% of participant contribution, up to 6% of compensation.
Vesting for the employer match is 25% per year for each full year of service.
Non-Qualified Salary Continuation Agreements. The Company has entered into
agreements with all Named Executive Officers to provide benefits to such
employees or their beneficiaries in the event of the death of the employee or
retirement by the employee at age 65 or on or after age 55 with 20 years of
service with the Company. If the employee remains employed until age 65, the
employee (or the employee's beneficiary) will receive an annual retirement
benefit payable for 10 years in accordance with a specified formula. If the
employee terminates employment before age 65 but after age 55 and with 10 years
of service with the Company, the employee's retirement benefit will be reduced
in accordance with percentages specified in the agreement, depending upon the
employee's age at retirement ranging from 100% at age 65 to 55.8% at age 55.
57
<PAGE> 59
CERTAIN TRANSACTIONS
INVESTORS' AGREEMENT
In connection with the Windy Hill Acquisition, the Company, Doane, Summit,
SCI, CMIHI and an affiliate thereof, DLJMB and certain of its affiliates, all of
the stockholders of Windy Hill and certain other shareholders of the Company
(collectively, the "Stockholders") entered into the Investors' Agreement. The
Investors' Agreement contains provisions concerning the governance of the
Company and Doane, restrictions on the transferability of the securities of the
Company and Doane acquired by the Stockholders and registration rights for such
securities. The governance provisions of the Investors' Agreement provide that
the Board of Directors of the Company will consist of eight members, of whom one
will be designated by DLJMB (the "DLJMB Designee"), two will be designated by
SCI on behalf of the Summit-Investors (as defined in the Investors' Agreement)
(each such designee, a "Summit-Investor Designee"), one will be designated by
CMIHI (the "Chase Designee"), one will be designated by Windy Hill Pet Food
Company L.L.C. on behalf of the Windy Hill Investors (as defined in the
Investors' Agreement), one will be designated by BRS on behalf of the Windy Hill
Investors (each of the two foregoing designees, a "Windy Hill Designee"), one
will be the Chief Executive Officer of the Company and one will be designated by
the mutual agreement of all of the following (or such subset of the following
that is then entitled to be designated to the Board of Directors in accordance
with the Investors' Agreement): the DLJMB Designee, the Chase Designee and
George B. Kelly (so long as Mr. Kelly is one of the two Summit-Investor
Designees) or, if Mr. Kelly is not then one of the two Summit-Investor
Designees, by any of the Summit-Investor Designees. At any time the number of
shares of Common Stock owned of record by the Summit-Investors is less than 50%
of the number of shares of Common Stock owned as of the date of the Investors'
Agreement (in each case, disregarding stock splits, recapitalizations and
similar adjustments in number of shares and stock dividends), the
Summit-Investors will only have the right to designate one individual. At any
time the number of shares of Common Stock owned of record by the Windy Hill
Investors is less than 50% of the number of shares of Common Stock owned as of
the date of the Investors' Agreement (in each case, disregarding stock splits,
recapitalizations and similar adjustments in number of shares and stock
dividends), the Windy Hill Investors will only have the right to designate one
individual. Notwithstanding the foregoing, at any time any of DLJMB's, CMIHI's,
the Summit-Investors' or the Windy Hill Investors' respective Percentage
Ownership (as defined in the Investors' Agreement) is less than 5%, such person
or group shall not have the further right to designate any individual to the
Board pursuant to the Investors' Agreement. In addition, until the earlier of
one year after the date of the Investors' Agreement and the date the Windy Hill
Investors no longer have the right to designate any individual to the Board,
Windy Hill Pet Food Company L.L.C. will have the right to designate one Board
observer. The Investors' Agreement also provides that the board of directors of
Doane will be comprised of the individuals who are serving as directors on the
Company's Board.
The Investor's Agreement also provides for certain registration rights for
the benefit of the Stockholders. The Company shall not be obligated to effect
more than three demand registrations for the Summit-Investors, collectively,
three demand registrations for the DLJ Entities (as defined in the Investors'
Agreement), collectively, three demand registrations for the Windy Hill
Investors, collectively, and three demand registrations for CMIHI. Following the
date the Company is eligible to use Form S-2 or S-3 for registration of its
securities, demand registrations on Form S-2 or S-3 for the DLJ Entities, CMIHI,
the Summit-Investors and the Windy Hill Investors shall be unlimited. The
Stockholders also have piggy-back registration rights if the Company proposes to
register any of its Common Stock or warrants, or if Doane proposes to register
any of its preferred stock under the Securities Act.
TRANSACTIONS WITH DLJMB AND ITS AFFILIATES
In 1995, DLJSC entered into a financial advisory agreement with the Company
and Doane. The financial advisory agreement provides for an annual retainer fee
of $100,000 plus reimbursable expenses; such agreement will terminate upon
consummation of the Offering.
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<PAGE> 60
In connection with the 1995 Acquisition, DLJMB purchased 1,000,000 shares
of preferred stock and warrants to purchase 5,643,660 shares of Common Stock for
an aggregate purchase price of $25 million. In December 1997, DLJMB and certain
of its affiliates sold their shares of preferred stock to DLJSC, who thereupon
sold such shares to qualified institutional buyers (as defined in Rule 144A
under the Securities Act). DLJMB will receive proceeds from the Offering of
$ million as a Selling Stockholder in the Offering (assuming an initial
public offering price of $ per share). DLJMB is also a party to the
Investors' Agreement. See "-- Investors' Agreement." Pursuant to the Investors'
Agreement, DLJMB has designated Mr. Grauer to the Board of Directors of the
Company.
DLJMB is an affiliate of DLJSC and DLJ Capital Funding, Inc. ("DLJ
Capital"). DLJSC and DLJ Capital and their affiliates perform various investment
banking and commercial banking services from time to time for the Company. DLJ
Capital serves as an agent bank and a lender to the Company under the New Credit
Facility. DLJSC will serve as lead manager in connection with this Offering and
served as financial advisor to the Company in connection with the Windy Hill
Acquisition. DLJSC also served as dealer manager in connection with the tender
offer for the Senior Notes and for the Exchange Offer. DLJ Bridge Finance, Inc.,
an affiliate of DLJSC, also provided, together with an affiliate of CMIHI, a
bridge loan to the Company in connection with the Refinancing Transactions.
DLJSC received $1.0 million in connection with the Windy Hill Acquisition, and
DLJSC and DLJ Capital received approximately $3.8 million in connection with the
Refinancing Transactions. DLJSC, DLJ Capital and their affiliates have received,
and will receive, customary compensation for acting in the foregoing capacities.
TRANSACTIONS WITH SCI
SCI is the general partner of Summit, which is the owner of 3,600,000
shares of Common Stock of the Company. In addition to certain payments of fees
and reimbursements for out-of-pocket expenses in connection with the 1995
Acquisition, SCI has entered into a management advisory agreement with Doane for
a term of five years or until such time as the Company consummates an initial
public offering of its Common Stock resulting in the receipt by the Company of
at least $35 million in gross proceeds, whichever is shorter, and pursuant to
which Doane will pay SCI an annual fee of $200,000 plus reimbursable expenses;
such agreement will terminate upon consummation of the Offering.
SCI received fees of $2.0 million in connection with the Windy Hill
Acquisition. SCI and Summit are also parties to the Investors' Agreement.
Pursuant to the Investors' Agreement, SCI has designated Messrs. Kelly and
Mansur to the Board of Directors of the Company. See "-- Investors' Agreement."
TRANSACTIONS WITH CMIHI AND AFFILIATES
CMIHI is an affiliate of Chase Securities Inc. ("CSI") and The Chase
Manhattan Bank ("Chase"). CMIHI and an affiliate of CMIHI own (i) 200,000 shares
of the Doane Preferred Stock which will be repurchased by the Company in
connection with the Offering, (ii) 535,000 shares of Class A Common Stock and
2,915,000 shares of Class B (non-voting) Common Stock and (iii) warrants to
purchase 1,128,730 shares of Common Stock. CMIHI and CSI received fees of
$1,000,000 and $500,000, respectively, in connection with the Windy Hill
Acquisition. CMIHI will receive proceeds from the Offering through the
repurchase of the preferred stock (approximately $ million). Jeffrey C.
Walker, a director of the Company, is the Managing General Partner of Chase
Capital Partners, which is an affiliate of CMIHI. In addition, CMIHI is a party
to the Investor's Agreement as described above.
CSI, Chase and their affiliates perform various investment banking and
commercial banking services from time to time for the Company and its
affiliates. Chase serves as an agent bank and a lender to the Company under the
New Credit Facility. Chase also acted as agent bank and a lender under Windy
Hill's prior credit facility, which was repaid in connection with the
Refinancing Transactions. CSI acted as an Initial Purchaser of the May 1997
offering of the Windy Hill Notes, and will act as an Underwriter in connection
with the Offering. CSI acted as financial advisor to Windy Hill in connection
with the Windy Hill Acquisition. CSI also acted as dealer manager in connection
with the Exchange Offer. An affiliate of CMIHI also provided, together with an
affiliate of DLJSC, a bridge loan to the Company in connection with the
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<PAGE> 61
Refinancing Transactions. CSI, Chase and their affiliates received approximately
$3.9 million in connection with the Refinancing Transactions. CSI, Chase and
their affiliates have received, and will receive, customary compensation for
acting in the foregoing capacities.
TRANSACTIONS WITH M. WALID MANSUR
M. Walid Mansur, a director of the Company and Doane, was paid $500,000 for
services rendered in connection with the 1995 Acquisition and related
financings. Mr. Mansur owns 1,750,000 shares of Common Stock, Mr. Mansur's
spouse, Laura Hawkins Mansur, owns 2,015,000 shares of the Common Stock and
375,000 shares of Common Stock are held in trust for their children.
OTHER TRANSACTIONS
In addition to the fees paid to CMIHI, DLJSC and SCI in connection with the
Windy Hill Acquisition, Dartford Partners and BRS received fees of $3.0 million
and $1.0 million, respectively. BRS also was paid $500,000 at the closing of the
Windy Hill Acquisition, representing a deferred transaction fee earned by BRS in
connection with Windy Hill's acquisition of certain assets from Heinz in April
1996.
WARRANT EXERCISES
At or prior to the closing of the Offering, certain Selling Stockholders
will sell warrants to purchase shares of Common Stock to the
Underwriters. The warrants purchased by the Underwriters from such Selling
Stockholders will be exercised for a number of shares of Common Stock equal to
the number of shares underlying the warrants reduced by the product of the
number of shares underlying such warrants and a fraction, the numerator of which
is $0.002 per share and the denominator of which is the initial public offering
price (or shares assuming an initial public offering price of
$ per share). All such shares of Common Stock obtained by the Underwriters
as a result of the exercise of the warrants will be offered by the Underwriters
in the Offering. Unless the context otherwise requires, shares of Common Stock
sold in the Offering by the Underwriters as a result of the exercise of warrants
purchased from the Selling Stockholders are treated as if the corresponding
number of shares of Common Stock were sold by the Selling Stockholders.
The Company believes that the terms of the transactions described above
were no less favorable to the Company than could have been obtained from
unaffiliated parties.
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<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 30, 1998, and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each director,
(ii) each Named Executive Officer, (iii) each person who is known by the Company
to own beneficially 5% or more of the Common Stock and (iv) all directors and
executive officers as a group. Unless otherwise indicated, each person has sole
voting and dispositive power over the shares indicated as owned by such person.
Certain of the Company's principal stockholders are parties to the Investors
Agreement. See "Certain Transactions -- the Investors' Agreement."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE SHARES TO BE SOLD OWNED AFTER THE
OFFERING IN THE OFFERING OFFERING
-------------------- ----------------- -------------------
NAME(1) NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Summit(2)............................. 3,600,000 15.6% %
DLJMB(3).............................. 5,643,660 19.7
CMIHI(4).............................. 4,578,730 19.0
BRS .................................. 3,606,715 15.7
Dartford(5)........................... 2,935,862 12.8
Laura Hawkins Mansur(6)............... 4,140,000 18.0
Peter T. Grauer(3).................... 5,643,660 19.7
George B. Kelly(2).................... 3,600,000 15.6
Jeffrey C. Walker(4).................. 4,578,730 19.0
Ray Chung(5).......................... 2,935,862 12.8
Stephen C. Sherrill(7)................ 3,606,715 15.7
M. Walid Mansur(6).................... 4,140,000 18.0
Bob L. Robinson....................... 1,372,500 6.0
Douglas J. Cahill..................... 250,000 1.1
Thomas R. Heidenthal(8)............... 288,750 1.3
Earl R. Clements(8)................... 400,400 1.7
Terry W. Bechtel(8)................... 315,400 1.4
All parties to the Investors Agreement
as a group.......................... 28,968,800 96.1
All executive officers and directors
as a group (15 persons)............. 27,083,271 89.9
</TABLE>
- ------------------------------
(1) The address of Summit/DPC Partners, L.P. and Mr. Kelly is 8 Greenway Plaza,
Suite 714, Houston, Texas 77046. The address of DLJMB and Mr. Grauer is 277
Park Avenue, New York, New York 10172. The address of CMIHI and Mr. Walker
is 380 Madison Avenue, 12th floor, New York, New York 10017. The address of
Bruckmann, Rosser, Sherill & Co., L.P. is 126 East 56th Street, New York,
New York 10022. The address of Windy Hill Pet Food Company L.L.C. is 456
Montgomery, Suite 2200, San Francisco, California 94109. The address of Mr.
Robinson, Mr. Cahill, Mr. Heidenthal, Laura Hawkins Mansur and Mr. Mansur is
103 Powell Court, Suite 200, Brentwood, Tennessee 37027.
(2) Summit is a limited partnership of which SCI serves as the general partner.
Mr. Kelly, a director of the Company, is Chairman of the Board and a
stockholder of SCI. Mr. Kelly may be deemed to beneficially own the shares
indicated because of Mr. Kelly's affiliation with Summit. Mr. Kelly
disclaims beneficial ownership of such shares within the meaning of Rule
13d-3 of the Exchange Act.
(3) All of the shares indicated as owned by DLJMB are shares that may be
acquired by DLJMB within 60 days pursuant to the exercise of warrants. Of
the shares indicated, warrants to purchase 2,658,435, 1,188,700, 68,920,
1,072,050 and 655,555 shares are held by DLJ Merchant Banking Partners,
L.P., DLJ International Partners, C.V., DLJ Offshore Partners, C.V., DLJ
Merchant Banking Funding, Inc. and DLJ First ESC L.L.C., respectively. DLJMB
is a limited partnership, the general partner of which is DLJ Merchant
Banking, Inc., an affiliate of DLJSC. Mr. Grauer is a director of the
Company and serves as a Managing Director of DLJ Merchant Banking, Inc. and,
as such, may be deemed to beneficially own
61
<PAGE> 63
such shares. Mr. Grauer disclaims beneficial ownership of such shares within
the meaning of Rule 13d-3 of the Exchange Act. The shares to be sold in the
Offering include shares of Common Stock to be issued by the Company
upon the exercise by the Underwriters of warrants to purchase shares of
Common Stock previously held by DLJMB. See "Certain Transactions."
(4) Represents shares held by CMIHI and related parties. Of the 4,578,730 shares
indicated as owned by CMIHI, (i) 535,000 represent shares of Class A Common
Stock, (ii) 2,915,000 represent shares of Class B Common Stock and (iii)
1,128,730 are shares issuable within 60 days upon exercise of warrants.
CMIHI is an affiliate of The Chase Manhattan Corporation. Mr. Walker, a
director of the Company, is Managing General Partner of Chase Capital
Partners, an affiliate of The Chase Manhattan Corporation, and may be deemed
to beneficially own the shares indicated as owned by CMIHI. Mr. Walker
disclaims beneficial ownership of 2,760,000 shares of Common Stock and
warrants to purchase 902,985 shares of Common Stock within the meaning of
Rule 13d-3 of the Exchange Act.
(5) Of the shares indicated as owned by Dartford, 618,165 are held in the name
of Dartford and 2,317,697 are held in the name of Windy Hill Pet Food
Company, L.L.C., an entity controlled by Dartford. Mr. Chung, a director of
the Company, is a partner in Dartford and a managing member of Windy Hill
Pet Food Company, L.L.C. and may be deemed to beneficially own the shares
indicated as owned by Dartford. Mr. Chung disclaims beneficial ownership of
such shares within the meaning of Rule 13d-3 of the Exchange Act.
(6) Of the shares indicated as owned by Mr. and Mrs. Mansur, 1,750,000 are held
in Mr. Mansur's name, 2,015,000 are owned by Mrs. Mansur and 375,000 are
held in trust for their children. The shares held by Mrs. Mansur and the
Mansurs' children may be deemed to be beneficially owned by Mr. Mansur; Mr.
Mansur disclaims beneficial ownership of such shares within the meaning of
Rule 13d-3 of the Exchange Act. The shares held by Mr. Mansur and the
Mansurs' children may be deemed to be beneficially owned by Mrs. Mansur;
Mrs. Mansur disclaims beneficial ownership of such shares within the meaning
of Rule 13d-3 of the Exchange Act.
(7) Includes shares held by BRS and certain other entities and individuals
affiliated with BRS. Mr. Sherrill, a director of the Company, is a principal
of BRS and may be deemed to beneficially own the shares indicated as owned
by BRS. Mr. Sherrill disclaims beneficial ownership of such shares within
the meaning of Rule 13d-3 of the Exchange Act.
(8) Amounts include 38,750 options granted to Thomas R. Heidenthal and 50,400
options granted to each of Terry W. Bechtel and Earl R. Clements, all of
which are exercisable within 60 days.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $0.0001 per share, and 10,000,000 shares of preferred
stock, par value $0.01 per share ("Preferred Stock"). As of November 30, 1998,
22,865,210 shares of Common Stock were outstanding, and no shares of Preferred
Stock were outstanding. Prior to the Offering, there has been no public market
for the Common Stock. Although the Company intends to apply to list the Common
Stock on the , there can be no assurance that a market for the Common
Stock will develop or, if developed, will be sustained. See "Risk Factors --
Absence of Public Market" and "Dilution."
The following descriptions of certain provisions of the Restated
Certificate of Incorporation of the Company, as amended and restated (the
"Charter"), and the Bylaws, are intended only as a summary and do not purport to
be complete and are qualified in their entirety by reference to such documents,
which are included as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The Company's Common Stock consists of two classes, Class A and Class B.
The Class A and Class B Common Stock are identical in all respects except that
the Class B Common Stock has no voting rights. The Class B Common Stock is
convertible into shares of Class A Common Stock at any time at the option of the
holder thereof. References to Common Stock in this Prospectus are references to
Class A and Class B Common Stock on a combined basis. Each holder of Class A
Common Stock is entitled to one vote for each share of Class A Common Stock held
of record on all matters submitted to a vote of stockholders. The holders of
Class A Common Stock do not have cumulative voting rights in the election of
directors. Subject to any preferences accorded to the holders of the Preferred
Stock, if and when issued pursuant to authorization of the Board of Directors,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors of the Company out of legally
available funds. The Company has never paid cash dividends on its Common Stock
and does not intend to pay dividends for the foreseeable future. In addition,
the New Credit Facility and the Note Indenture contain provisions that restrict
the Company from paying dividends on the Common Stock. See "Description of New
Credit Facility" and "Description of Senior Subordinated Notes." Upon
liquidation, dissolution or winding up of the Company, after payments of debts,
expenses and the liquidation preference plus any accrued dividends on any
outstanding shares of Preferred Stock, the holders of Common Stock will be
entitled to share ratably in all remaining assets of the Company. The holders of
Common Stock have no preemptive, subscription, redemptive or conversion rights.
The outstanding shares of Common Stock are, and the shares of Common Stock being
sold in the Offering will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Charter authorizes the Board of Directors, without stockholder
approval, to issue shares of Preferred Stock, from time to time, in one or more
series and to fix the number of shares and rights, preferences and limitations
thereof of each such series. Among the specific matters that may be determined
by the Board of Directors are the designations, preferences, dividend rights,
conversion rights, voting powers, redemption rights and liquidation preferences
of each such series. It is not possible to state the actual effect of the
authorization of the Preferred Stock upon the rights of holders of the Common
Stock until the Board of Directors determines the respective rights of the
holders of one or more series of the Preferred Stock. Such effects, however,
might include: (i) restrictions on dividends on Common Stock if dividends on the
Preferred Stock are in arrears; (ii) dilution of the voting power of the Common
Stock to the extent that a series of the Preferred Stock would have voting
rights; (iii) the holders of Common Stock not being entitled to share in the
Company's assets upon dissolution until satisfaction of any liquidation
preference guaranteed to the Preferred Stock; and (iv) potential dilution of the
equity of holders of Common Stock to the extent that a series of the Preferred
Stock might be convertible into Common Stock. The Company has no present plans
to issue any Preferred Stock.
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Holders of Common Stock have no preemptive rights to purchase or otherwise
acquire any Preferred Stock that may be issued in the future. Each series of
Preferred Stock, could, as determined by the Board of Directors at the time of
issuance, rank, with respect to dividends, redemption and liquidation rights,
senior to the Common Stock.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to make
more difficult or to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of the Company's management. If, in the exercise of its
fiduciary obligations, the Board of Directors were to determine that a takeover
proposal was not in the Company's best interest, such shares could be issued
pursuant to authorization by the Board of Directors without stockholder approval
in one or more transactions that might prevent or make more difficult or costly
the completion of the takeover transaction by diluting the voting or other
rights of the proposed acquiror or insurgent stockholder group, by creating a
substantial voting block in institutional or other hands that might undertake to
support the position of the incumbent Board of Directors, by effecting an
acquisition that might complicate or preclude the takeover or otherwise. In this
regard, the Charter grants the Board of Directors broad power to establish the
rights and preferences of the authorized and unissued Preferred Stock, one or
more series of which could be issued entitling holders (i) to vote separately as
a class on any proposed merger or consolidation, (ii) to cast a proportionately
larger vote together with the Common Stock on any such transaction or for all
purposes, (iii) to elect directors having terms of office or voting rights
greater than those of other directors, (iv) to convert Preferred Stock into a
greater number of shares of Common Stock or other securities, (v) to demand
redemption at a specified price under prescribed circumstances related to a
change of control for the Company or (vi) to exercise other rights designed to
impede a takeover. See " -- Antitakeover Provisions." The issuance of shares of
Preferred Stock pursuant to the authority of the Board of Directors described
above may adversely affect the rights of holders of Common Stock.
ANTITAKEOVER PROVISIONS
The Charter and Bylaws of the Company contain provisions that could have an
antitakeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors of the
Company and in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. The provisions are designed to
reduce the vulnerability of the Company to an unsolicited proposal for a
takeover of the Company that does not contemplate the acquisition of all of its
outstanding shares or an unsolicited proposal for the restructuring or sale of
all or part of the Company. The provisions are also intended to discourage
certain tactics that may be used in proxy fights. The provisions may deprive the
stockholders of opportunities to sell shares of Common Stock at prices higher
than the prevailing market prices; however, the Board of Directors believes
that, as a general rule, such takeover proposals would not be in the best
interest of the Company and its stockholders. Set forth below is a description
of such provisions in the Charter and Bylaws.
Classified Board of Directors. The classification of directors will have
the effect of making it more difficult for stockholders to change the
composition of the Board of Directors. At least two annual meetings of
stockholders generally will be required to effect a change in a majority of the
Board of Directors. Such a delay may help ensure that the Company's directors,
if confronted by a stockholder attempting to force a proxy contest, a tender or
exchange offer or an extraordinary corporate transaction, would have sufficient
time to review the proposal as well as any available alternatives to the
proposal and to act in what they believe to be the best interests of the
stockholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
Board of Directors would be beneficial to the Company and its stockholders and
whether a majority of the Company's stockholders believes that such a change
would be desirable. Pursuant to the Charter, the provisions relating to the
classification of directors may only be amended by the affirmative vote of
eighty percent of the voting power of the then outstanding shares of capital
stock entitled to vote thereon ("Voting Stock").
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Removal of Directors Only for Cause. Pursuant to the Charter, directors can
be removed from office only for cause (as defined therein) and only by the
affirmative vote of eighty percent of the Voting Stock other than at the
expiration of their term of office. Vacancies on the Board of Directors may be
filled only by a majority vote of the remaining directors and not by the
stockholders.
Number of Directors. The Charter provides that the entire Board of
Directors will consist of not less than members, the exact number
to be set from time to time by resolution of the Board of Directors.
Accordingly, the Board of Directors, and not the stockholders, has the authority
to determine the number of directors and could delay any stockholder from
obtaining majority representation on the Board of Directors by enlarging the
Board of Directors and filling the new vacancies with its own nominees until the
next stockholder election.
No Written Consent of Stockholders. The Charter also provides that, subject
to the terms of any Preferred Stock, any action required or permitted to be
taken by the stockholders of the Company must be taken at a duly called annual
or special meeting of stockholders and may not be taken by written consent. In
addition, special meetings may only be called by (i) the Chairman of the Board,
(ii) the President, (iii) the Board of Directors pursuant to a resolution
adopted by a majority of the then-authorized number of directors or (iv) the
holders of at least 50% of the outstanding Voting Stock.
Amendment of the Bylaws. The Charter provides that the Board of Directors,
by a majority vote, may adopt, alter, amend or repeal provisions of the Bylaws.
Preferred Stock. As described above under "-- Preferred Stock," the Board
of Directors may designate and issue shares of Preferred Stock without
stockholder approval under certain circumstances. As a result, the Preferred
Stock could be issued quickly with terms designed to make more difficult a
proposed takeover of the Company or the removal of its management. The Board of
Directors will make any determination to issue such shares based on its judgment
as to the best interests of the Company and its stockholders.
Advance Notice of Director Nominations and Stockholder Proposals. The
Charter provides that the only business (including election of directors) that
may be considered at an annual meeting of holders of Common Stock, in addition
to business proposed (or persons nominated to be directors) by the directors of
the Company, is business proposed (or persons nominated to be directors) by
holders of Common Stock who comply with the notice and disclosure requirements
set forth in the Charter. In general, the Charter requires that a stockholder
give the Company notice of proposed business or nominations no later than 60
days before the annual meeting of holders of Common Stock (meaning the date on
which the meeting is first scheduled and not postponements or adjournments
thereof) or (if later) ten days after the first public notice of the annual
meeting is sent to holders of Common Stock. In general, the notice must also
contain information about the stockholder proposing the business or nomination,
the stockholder's interest in the business, and (with respect to nominations for
director) information about the nominee of the nature ordinarily required to be
disclosed in public proxy statements. The stockholder also must submit a letter
from each of the stockholder's nominees stating the nominee's acceptance of the
nomination and indicating the nominee's intention to serve as director if
elected.
Section 203 of the Delaware General Corporation Law. The Company is subject
to Section 203 of the Delaware General Corporation Law, which prohibits Delaware
corporations from engaging in a wide range of specified transactions with any
interested stockholder. The latter term is defined to include any person, other
than such corporation and any of its majority-owned subsidiaries, who owns 15%
or more of any class or series of stock entitled to vote generally in the
election of directors, unless, among other exceptions, the transaction is
approved by (i) the Board of Directors prior to the date the interested
stockholder obtained such status or (ii) the holders of two-thirds of the
outstanding shares of each class or series of stock entitled to vote generally
in the election of directors, not including those shares owned by the interested
stockholder.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have
shares of Common Stock outstanding ( shares if the Underwriters'
over-allotment option is exercised in full). Of these outstanding shares of
Common Stock, shares to be sold in this Offering will be freely
tradeable without restriction or further registration under the Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Act ("Rule 144") described below. The remaining shares
of Common Stock outstanding after the Offering will be "restricted securities"
within the meaning of Rule 144 under the Act and may not be sold in a public
distribution except in compliance with the registration requirements of the Act
or an applicable exemption under the Act, including an exemption pursuant to
Rule 144 thereunder. Restricted securities are eligible for sale in the public
market pursuant to Rule 144 no sooner than one year from the date of
acquisition. In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year (including
the holding period of any prior owner except an affiliate) is entitled to sell
in "broker's transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of: (i) one percent of the number of shares of
Common Stock outstanding (approximately shares immediately after
the Offering); or (ii) generally, the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the required filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain "manner of sale" provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate), is entitled to sell such shares without having
to comply with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
The Company has granted certain stockholders registration rights. See
"Certain Transactions -- Investors' Agreement."
As of November 30, 1998, there were 2,025,750 options to purchase shares of
Common Stock issued and outstanding of which 350,010 are currently exercisable.
In addition, the Company plans to adopt the 1998 Stock Option Plan in connection
with the Offering. See "Management -- Executive Compensation -- Stock Option and
Stock Purchase Plans, "-- Stock Option Grants" and "-- Stock Option Exercises."
DESCRIPTION OF NEW CREDIT FACILITY
As part of the Refinancing Transactions, the Company entered into the New
Credit Facility with a syndicate of banks, as lenders, and Chase, as
administrative agent, DLJ Capital, as syndication agent, and Mercantile Bank
National Association, as documentation agent. DLJ Capital and Chase served as
the co-arrangers of the New Credit Facility. Each of Chase and DLJ Capital is an
affiliate of one of the Underwriters. The New Credit Facility consists of a
$245.0 million term loan facility (the "Term Loan Facility") and a $100.0
million revolving credit facility (the "Revolving Credit Facility"). The
Revolving Credit Facility will enable the Company to obtain revolving credit
loans and issue letters of credit for the account of the Company from time to
time for working capital, permitted acquisitions and general corporate purposes.
As of November 30, 1998 the Company had borrowed $245.0 million under the Term
Loan Facility and $30.0 million under the Revolving Credit Facility. In
addition, at such date the Company had $2.4 million of letters of credit
outstanding under the Revolving Credit Facility. Loans under the New Credit
Facility will bear interest at: (i) the prime rate of the administrative agent
(or, if higher, the secondary market rate for certificates of deposit plus 1% or
the federal funds rate plus 0.5%) plus a specified margin based on the type of
loan and the then current ratio of senior debt to EBITDA (the "Applicable
Margin") or (ii) the Eurodollar rate plus the Applicable Margin. The Company
will also pay certain fees with respect to the New Credit Facility. The Term
Loan Facility consists of three tranches with terms between six and one-half
years and eight years, unless terminated sooner upon an event of default (as
defined in the New Credit Facility). The Term Loan Facility must be repaid in
quarterly installments commencing on March 31, 1999. The principal
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amounts under the Term Loan Facility shall be repaid, as follows: (i)
approximately $11.7 million in each of the calendar years 1999 and 2000, (ii)
approximately $14.2 million in each of the calendar years 2001, 2002, 2003 and
2004, (iii) $85.8 million in the calendar year 2005 and (iv) $79.0 million in
2006. The Revolving Credit Facility has a term of six and one-half years, unless
terminated sooner upon an event of default, and outstanding revolving credit
loans will be payable on such date or such earlier date as may be accelerated
following the occurrence of any event of default.
The New Credit Facility contains various covenants that will restrict the
Company from taking various actions and that will require the Company to achieve
and meet certain financial tests, including meeting a consolidated leverage
ratio, a consolidated senior debt ratio, a consolidated interest coverage ratio
and a consolidated fixed charge coverage ratio. The New Credit Facility includes
covenants relating to balance sheet, fixed charge coverage, interest coverage
and leverage ratios and limitations on, among other things, capital and other
permitted expenditures, liens, indebtedness, guarantees, mergers, acquisitions,
disposition of assets, dividends, changes in business activities and certain
corporate activities.
The New Credit Facility also contains events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties in any material respect, cross default and cross
acceleration to certain other indebtedness, bankruptcy, ERISA, material
judgments and certain changes in control of the Company.
The Company and certain restricted subsidiaries are required to guarantee
amounts outstanding under the New Credit Facility. The indebtedness incurred
pursuant to the New Credit Facility is secured by a first priority lien on
substantially all of the material assets of the Company and its restricted
domestic subsidiaries.
DESCRIPTION OF SENIOR SUBORDINATED NOTES
On November 12, 1998, Doane issued $150 million in aggregate principal
amount of its 9 3/4% Senior Subordinated Notes under the Note Indenture, a copy
of which has been filed as an exhibit to the registration statement of which
this Prospectus is a part. The following summary of certain provisions of the
Note Indenture and the Senior Subordinated Notes does not purport to be
complete, is subject to, and is qualified in its entirety by reference to, the
provisions of the Note Indenture and the Senior Subordinated Notes.
The Senior Subordinated Notes are general unsecured obligations and are
subordinated in right of payment to all senior indebtedness and senior in right
of payment to any current or future indebtedness of Doane that, by its terms, is
subordinated to the Senior Subordinated Notes. The payment of obligations of
each subsidiary guarantor are subordinated to the payment of senior indebtedness
of such subsidiary guarantor. The Senior Subordinated Notes are limited to $150
million aggregate principal amount and mature on May 15, 2007. The Senior
Subordinated Notes accrue interest at the rate of 9 3/4% payable semiannually on
May 15 and November 15 of each year.
Doane may redeem the Senior Subordinated Notes at any time on or after May
15, 2002, in whole or in part, at the option of Doane, at the redemption prices
set forth below, plus accrued and unpaid interest, if any, to the redemption
date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002...................................................... 104.875%
2003...................................................... 103.250%
2004...................................................... 101.625%
2005 and thereafter....................................... 100.000%
</TABLE>
In addition, prior to May 15, 2000 Doane may redeem up to 35% of the
aggregate principal amount of the Senior Subordinated Notes with the proceeds of
one or more Equity Offerings (as defined in the Note Indenture), at a redemption
price equal to 109.75% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the redemption date; provided, however, that at
least 65% in aggregate principal amount of the Senior Subordinated Notes remain
outstanding immediately after each such redemption. At any time prior to May 15,
2002, the Senior Subordinated Notes may also be redeemed in whole, but not in
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part, at the option of Doane upon the occurrence of a Change in Control (as
defined herein) at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined in the Note Indenture) and the
unpaid accrued interest, if any, to the date of redemption.
Upon the occurrence of any of the following events (each, a "Change of
Control"), each holder of the Senior Subordinated Notes will have the right to
require the Company to repurchase all or any part of such holder's Senior
Subordinated Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase: (i) prior to the first public offering of Voting Stock (as defined in
the Note Indenture) of the Company, the Permitted Holders (as defined in the
Note Indenture) cease to be the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), directly or indirectly, of majority voting power of the Voting Stock of
the Company, whether as a result of issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by any Permitted Holder or otherwise; (ii)
following the first public offering of Voting Stock of the Company, any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than one or more Permitted Holders, is or becomes the beneficial owner, directly
or indirectly, of more than 35% of the total voting power of the Voting Stock of
the Company; provided that the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the Voting Stock of the Company than such other person and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company; or (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
The Note Indenture contains restrictive covenants that, among things,
impose limitations (subject to certain exceptions) on Doane with respect to (i)
limitations on incurrence of indebtedness, (ii) limitations on restricted
payments, (iii) restrictions on distributions from subsidiaries, (iv) sales of
assets and subsidiary capital stock, (v) affiliate transactions and (vi) lines
of business.
Events of Default (as defined in the Note Indenture) include: (i) a default
for 30 days in the payment of interest on the Senior Subordinated Notes when the
same becomes due and payable; (ii) a default in payment of principal on the
Senior Subordinated Notes when the same becomes due and payable at maturity,
upon optional redemption pursuant to the Note Indenture, upon declaration or
otherwise; (iii) failure by Doane to comply with other agreements in the Note
Indenture or the Senior Subordinated Notes, in certain cases subject to notice
and lapse of time; (iv) certain accelerations of other indebtedness of Doane or
its subsidiaries if the amount accelerated (or so unpaid) exceeds $5 million and
such acceleration or failure to pay is not rescinded or cured within a 10-day
period; (v) certain events of bankruptcy or insolvency with respect to Doane or
any significant subsidiary; (vi) certain final, non-appealable judgments or
decrees for the payment of money in excess of $5 million; and (vii) the failure
of any subsidiary guarantee to be in full force and effect or the denial or
disaffirmation by any subsidiary guarantor of its obligations under the Note
Indenture or the Senior Subordinated Notes in certain cases. If an Event of
Default occurs and is continuing, the trustee or the holders of at least 25% in
principal amount of the Senior Subordinated Notes may declare all the Senior
Subordinated Notes to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default that will result in the Senior
Subordinated Notes being due and payable immediately upon the occurrence of such
Events of Default.
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UNDERWRITING
Subject to the terms and subject to the conditions of an Underwriting
Agreement, dated , 1998 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), who are represented by DLJSC,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Schroder & Co. Inc. and CSI
(the "Representatives"), have severally agreed to purchase from the Company and
the Selling Stockholders the respective number of shares of Common Stock set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Schroder & Co. Inc..........................................
Chase Securities Inc........................................
---
Total.............................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow to certain other
dealers, a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase, from time to time, in whole or in part, up to
additional shares of Common Stock at the initial public offering price
less underwriting discounts and commissions. The Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
Offering. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
its pro rata share of such additional shares based on such Underwriter's
percentage underwriting commitment in the Offering as indicated in the preceding
table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, such other securities, in cash
or otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of DLJSC. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to, and each
of its executive officers, directors and certain stockholders of the Company
(including the Selling Stockholders) has agreed not to make any demand for, or
exercise any right with
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respect to, the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock without DLJSC's
prior written consent.
Of the Common Stock offered hereby, up to 5% of the shares will be directed
to, and may be purchased by, employees of the Company and others, subject to
certain restrictions of the NASD.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiations among the Company,
representatives of the Selling Stockholders and the Representatives. The factors
to be considered in determining the initial public offering price include the
history of and the prospects for the industry in which the Company competes, the
past and present operations of the Company, the historical results of operations
of the Company, the prospects for future earnings of the Company, the recent
market prices of securities of generally comparable companies and the general
condition of the securities markets at the time of the Offering.
Application will be made to list the Common Stock on the . In order
to meet the requirements for listing the Common Stock on the , the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
laws, rules and regulations of such jurisdiction. Persons into whose possession
this Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such offer or solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise or if DLJSC receives a
report that indicates that the clients of such syndicate members have "flipped"
the Common Stock. These activities may stabilize or maintain the market price of
the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities and may end any of these activities at
any time.
Each of DLJSC and CSI and their affiliates have performed financial
advisory, investment banking and commercial banking services for the Company in
the past and received compensation in connection therewith. In addition, DLJMB,
an affiliate of DLJSC, is a Selling Stockholder in the Offering and an affiliate
of CSI will receive proceeds of the Offering as consideration for redemption of
its shares of preferred stock. Peter Grauer, a Managing Director at DLJMB, and
Jeffrey Walker, Managing General Partner of Chase Capital Partners are members
of the Company's Board of Directors. For a more complete description of these
relationships and services, see "Risk Factors -- Interest of Underwriters,"
"Certain Transactions" and "Principal and Selling Stockholders."
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the NASD, DLJSC may
be deemed to be an "affiliate" of the Company and to have a "conflict of
interest" with the Company by virtue of the fact that affiliates of DLJSC may be
deemed to beneficially own greater than 10% of the voting stock of the Company.
Under Rule 2720, when a member of the NASD, such as DLJSC, proposes to
underwrite or otherwise assist in the distribution of an affiliate's securities
in a public offering, the price to public at which such securities are to be
distributed to the public must not be lower than that recommended by a
"qualified independent
70
<PAGE> 72
underwriter," who must participate in the preparation of the registration
statement and the prospectus and who must exercise the usual standards of due
diligence with respect thereto. In accordance with such requirements,
(the "QIU") has agreed to act as the qualified independent underwriter in
connection with the Offering, has participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part
and has exercised the usual standards of due diligence with respect thereto. The
price to public of the Common Stock when sold will be no lower than that
recommended by the QIU. In addition, the Company has agreed to indemnify the QIU
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments which the QIU may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters in connection with the sale of the Common Stock offered
hereby will be passed upon for the Underwriters by Andrews & Kurth L.L.P.,
Houston, Texas.
EXPERTS
The consolidated financial statements of Doane Pet Care Enterprises, Inc.
as of December 31, 1997 and 1996 and for each of the years in the three-year
period ended December 31, 1997, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Windy Hill Pet Food Holdings, Inc.
as of December 27, 1997 and December 28, 1996 and for the period from inception
(March 1, 1995) through December 30, 1995 and for the years ended December 28,
1996 and December 27, 1997 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Pet Food Division (a division of Hubbard
Milling Company) as of April 30, 1997 and 1996 and for each of the years in the
three-year period ended April 30, 1997, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
71
<PAGE> 73
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. However, the Company's operating subsidiary, Doane, is
subject to the reporting requirements of the Exchange Act. The Company has filed
with the Commission a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offer and sale of
Common Stock pursuant to this Prospectus. This Prospectus, filed as a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement or the exhibits and schedules thereto in accordance
with the rules and regulations of the Commission and reference is hereby made to
such omitted information. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document filed as an exhibit to the
Registration Statement are summaries of the terms of such contracts, agreements
or documents and are not necessarily complete. Reference is made to each such
exhibit for a more complete description of the matters involved and such
statements shall be deemed qualified in their entirety by such reference. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621-2511. Such materials also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. For further information pertaining to the Common Stock
offered by this Prospectus and the Company, reference is made to the
Registration Statement.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
72
<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DOANE PET CARE ENTERPRISES, INC.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997 and September 30, 1998 (unaudited) and
Consolidated Pro Forma Balance Sheet as of September
30, 1998 (unaudited)................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997 and for the nine
months ended September 30, 1997 and 1998 (unaudited)... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the nine
months ended September 30, 1997 and 1998 (unaudited)... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997 and for
the nine months ended September 30, 1998 (unaudited)... F-6
Notes to Consolidated Financial Statements................ F-7
WINDY HILL PET FOOD HOLDINGS, INC.
Independent Auditors' Report.............................. F-23
Consolidated Balance Sheets as of December 28, 1996,
December 27, 1997 and June 27, 1998 (unaudited)........ F-24
Consolidated Statements of Operations for the ten months
ended December 30, 1995, for the years ended December
28, 1996 and December 27, 1997, and for the six months
ended June 28, 1997 and June 27, 1998 (unaudited)...... F-25
Consolidated Statements of Changes in Stockholders' Equity
for the ten months ended December 30, 1995, for the
years ended December 28, 1996 and December 27, 1997,
and for the six months ended June 28, 1997 and June 27,
1998 (unaudited)....................................... F-26
Consolidated Statements of Cash Flows for the ten months
ended December 30, 1995, for the years ended December
28, 1996 and December 27, 1997, and for the six months
ended June 28, 1997 and June 27, 1998 (unaudited)...... F-27
Notes to Consolidated Financial Statements................ F-28
HUBBARD MILLING COMPANY
Independent Auditors' Report.............................. F-45
Balance Sheets as of April 30, 1995, 1996 and 1997........ F-46
Statements of Earnings for the years ended April 30, 1995,
1996 and 1997.......................................... F-47
Statements of Cash Flows for the years ended April 30,
1995, 1996 and 1997.................................... F-48
Notes to Financial Statements............................. F-49
</TABLE>
F-1
<PAGE> 75
When the transaction referred to in Note 2 of the Notes to Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
Board of Directors
Doane Pet Care Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Doane Pet
Care Enterprises, Inc. -- Successor as of December 31, 1997 and 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
of Doane Pet Care Enterprises, Inc. -- Successor for the years ended December
31, 1997 and 1996 and for the three month period ended December 31, 1995, and
the consolidated statements of income, stockholders' equity and cash flows of
Doane Pet Care Enterprises, Inc. -- Predecessor for the nine months ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Doane Pet Care Enterprises,
Inc. -- Successor at December 31, 1997 and 1996, and the results of operations
and cash flows of Doane Pet Care Enterprises, Inc. -- Successor for the years
ended December 31, 1997 and 1996 and for the three month period ended December
31, 1995 and of Doane Pet Care Enterprises, Inc. -- Predecessor for the nine
month period ended September 30, 1995 in conformity with generally accepted
accounting principles.
Houston, Texas
February 13, 1998, except as to
Note 2, which is as of .
F-2
<PAGE> 76
DOANE PET CARE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998
-------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ -- $ -- $ 3,833 $ 3,833
Trade accounts receivable, net of
allowances................................ 68,279 66,369 86,759 86,759
Inventories.................................. 30,737 32,426 52,901 52,901
Deferred income tax benefits................. 881 1,252 6,562 16,964
Prepaid expenses and other assets............ 6,487 2,298 16,333 16,333
-------- -------- -------- --------
Total Current Assets................. 106,384 102,345 166,388 176,790
Property, plant, and equipment, net............ 93,083 99,994 201,665 201,665
Goodwill, net of amortization.................. 126,068 122,882 263,368 263,368
Other assets, net.............................. 12,758 12,963 33,351 29,251
-------- -------- -------- --------
Total Assets......................... $338,293 $338,184 $664,772 $671,074
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt....... $ 10,417 $ 11,667 $ 8,859 $ 10,252
Accounts payable............................. 51,303 42,422 64,782 64,782
Accrued liabilities.......................... 18,541 22,611 42,091 42,091
-------- -------- -------- --------
Total current liabilities............ 80,261 76,700 115,732 117,125
Long-term debt, excluding current
installments................................. 196,186 188,743 414,807 457,380
Post-retirement benefit liability.............. 4,030 4,081 6,562 6,562
Deferred income tax liability.................. 409 4,169 22,744 16,323
Other long-term liabilities.................... 1,753 1,753
-------- -------- -------- --------
Total liabilities.................... 280,886 273,693 561,598 599,143
Senior exchangeable preferred stock, 10,000
shares authorized, 1,200 shares issued....... 24,160 30,545 35,898 35,898
Stockholders' equity:
Common stock, par value $.0001, 50,000 shares
authorized, 14,000, 14,375 and 23,013
shares issued and outstanding,
respectively.............................. 1 1 2 2
Additional paid-in capital................... 40,824 41,674 73,544 73,544
Accumulated other comprehensive income....... -- -- 472 472
Accumulated deficit.......................... (7,578) (7,729) (6,742) (37,985)
-------- -------- -------- --------
Total stockholders' equity........... 33,247 33,946 67,276 36,033
-------- -------- -------- --------
Total liabilities and stockholders'
equity............................. $338,293 $338,184 $664,772 $671,074
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 77
DOANE PET CARE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ----------------------------------------------------------------
NINE MONTH
NINE MONTH THREE MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------
1995 1995 1996 1997 1997 1998
------------- ------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $303,633 $114,958 $513,217 $564,741 $411,399 $462,991
Cost of goods sold................. 247,394 97,184 446,776 482,896 352,877 378,583
-------- -------- -------- -------- -------- --------
Gross profit....................... 56,239 17,774 66,441 81,845 58,522 84,408
Operating expenses:
Promotion and distribution....... 17,675 6,484 26,480 31,876 23,798 30,381
Selling, general and
administrative................. 8,558 3,677 15,050 17,985 12,505 20,935
Non-recurring transition costs... 9,440 -- -- -- -- 4,311
-------- -------- -------- -------- -------- --------
Income from operations..... 20,566 7,613 24,911 31,984 22,219 28,781
Interest expense, net.............. 3,611 5,806 22,471 22,463 16,973 19,444
Non-recurring finance charge....... -- -- 4,815 -- -- --
Equity in earnings of joint
venture.......................... -- -- -- (186) (117) (111)
Other (income) expense, net........ (8) 29 (2) 84 65 (118)
-------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................... 16,963 1,778 (2,373) 9,623 5,298 9,566
Income tax expense (benefit)....... 217 754 (855) 3,389 1,917 3,226
-------- -------- -------- -------- -------- --------
Net income (loss).......... $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 3,381 $ 6,340
======== ======== ======== ======== ======== ========
Net income (loss) applicable to
common stock..................... -- $ (314) $ (7,264) $ (151) $ (1,323) $ 989
Basic and diluted net income (loss)
per common share................. -- $ (0.02) $ (0.53) $ (0.01) $ (0.9) $ 0.6
Pro forma earnings data
(unaudited)......................
Net income as reported............. $ 16,746
Pro forma adjustment for federal
and state income tax expense..... 5,861
--------
Pro forma net income............... $ 10,885
========
Pro forma basic net income per
common share..................... $ 189
======== ======== ======== ======== ======== ========
Weighted average shares
outstanding...................... 57,500 13,750 13,757 14,188 14,126 16,360
======== ======== ======== ======== ======== ========
</TABLE>
F-4
<PAGE> 78
DOANE PET CARE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ---------------------------------------------------------------
NINE MONTH
NINE MONTH THREE MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------
1995 1995 1996 1997 1997 1998
------------- ------------ ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 3,381 $ 6,340
Items not requiring (providing) cash:
Depreciation and amortization............. 3,694 2,359 15,972 12,141 8,880 12,392
Loss on sale of property and equipment.... 10 -- 26 115 85 --
Deferred income tax expense (benefit)..... -- 1,102 (855) 3,389 1,937 2,871
Equity in foreign joint venture........... -- -- -- (186) (117) (111)
Other..................................... (93) 23 282 51 (127) (304)
Changes in:
Accounts receivable..................... 1,800 (7,620) (21,176) 1,910 11,012 5,401
Inventories............................. (2,424) (2,954) (3,141) (1,689) (394) (138)
Prepaid expenses and other.............. (498) (571) (5,479) 3,818 4,232 (6,409)
Accounts payable........................ (11,526) 4,084 32,155 (8,881) (15,568) (3,777)
Accrued expenses........................ 5,245 7,034 2,317 4,070 (3,718) (248)
Other................................... -- (1,770) -- -- -- --
-------- --------- --------- -------- -------- -------
Net cash provided by operating
activities......................... 12,954 2,711 18,583 20,972 9,603 16,017
-------- --------- --------- -------- -------- -------
Cash flows from investing activities:
Proceeds from sale of property and
equipment................................. 571 -- 26 39 25 72
Capital expenditures, including interest
capitalized............................... (4,224) (1,297) (7,901) (14,437) (12,933) (14,132)
Acquisition related payments................ -- (207,961) (1,087) -- -- --
Investment in foreign joint venture......... -- -- (1,979) -- -- (26,190)
Purchase of Industrial Development Bonds.... -- -- -- -- -- (9,000)
Other....................................... (24) (88) (548) (763) (284) (2,723)
-------- --------- --------- -------- -------- -------
Net cash used in investing
activities......................... (3,677) (209,346) (11,489) (15,161) (13,192) (51,973)
-------- --------- --------- -------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.... (7,225) 204,348 163,136 5,698 4,919 34,121
Increase in debt issuance costs............. -- -- (5,909) (468) (468) --
Retirement of prior indebtedness............ -- (46,013) -- -- -- --
Net borrowings under short-term credit
agreements................................ 595 (6,800) -- -- -- --
Net borrowings (repayments) under revolving
credit agreement.......................... -- -- 1,475 (1,475) 6,100 9,710
Principal payments on long-term debt........ (786) (4,400) (167,746) (10,416) (7,812) (5,614)
Dividends paid.............................. (13,152) -- -- --
Proceeds from issuance of preferred stock... -- 17,075 -- --
Proceeds from issuance of Common Stock...... -- 40,425 400 850 850 1,347
-------- --------- --------- -------- -------- -------
Net cash provided by (used in)
financing activities............... (20,568) 204,635 (8,644) (5,811) 3,589 39,564
-------- --------- --------- -------- -------- -------
Effect of exchange rates on cash..... -- -- -- -- -- 225
-------- --------- --------- -------- -------- -------
Increase (decrease) in cash and cash
equivalents........................ (11,291) (2,000) (1,550) -- -- 3,833
Cash and cash equivalents, beginning of
period...................................... 14,841 3,550 1,550 -- -- --
-------- --------- --------- -------- -------- -------
Cash and cash equivalents, end of period...... $ 3,550 $ 1,550 $ -- $ -- $ -- $ 3,833
======== ========= ========= ======== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 79
DOANE PET CARE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER
--------------- PAID-IN ------------------ COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT INCOME EARNINGS TOTAL
------ ------ ------- ------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994... 100... $50 $ -- (42,500) $(34,000) $ $ 65,709 $ 31,759
Net income.................. -- -- -- -- -- 16,746 16,746
Dividends declared.......... -- -- -- -- -- (13,152) (13,152)
------ --- ------- ------- -------- ---- -------- --------
Balances, September 30,
1995........................ 100 $50 $ -- (42,500) $(34,000) $ $ 69,303 $ 35,353
====== === ======= ======= ======== ==== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balances, October
1, 1995.................... -- $-- $ -- -- $ -- $ $ -- $ --
Issuance of common stock... 13,750 1 40,424 -- -- -- 40,425
Net income................. -- -- -- -- -- 1,024 1,024
Preferred stock
dividends............... -- -- -- -- -- (1,069) (1,069)
Accretion of preferred
stock................... -- -- -- -- -- (269) (269)
------ --- ------- ------- -------- ---- -------- --------
Balances, December 31,
1995....................... 13,750 1 40,424 -- -- (314) 40,111
Stock rights exercised..... 250 -- 400 -- -- -- 400
Net loss................... -- -- -- -- -- (1,518) (1,518)
Preferred stock
dividends............... -- -- -- -- -- (4,670) (4,670)
Accretion of preferred
stock................... -- -- -- -- -- (1,076) (1,076)
------ --- ------- ------- -------- ---- -------- --------
Balances, December 31,
1996....................... 14,000 1 40,824 -- -- (7,578) 33,247
Stock rights exercised..... 375 -- 850 -- -- -- 850
Net income................. -- -- -- -- -- 6,234 6,234
Preferred stock
dividends............... -- -- -- -- -- (5,308) (5,308)
Accretion of preferred
stock................... -- -- -- -- -- (1,077) (1,077)
------ --- ------- ------- -------- ---- -------- --------
Balances, December 31,
1997....................... 14,375 1 41,674 -- -- (7,729) 33,946
Stock compensation
expense................. -- -- 250 -- -- -- -- 250
Stock options exercised.... 680 -- 1,347 -- -- -- 1,347
Issuance of common stock
in connection with the
acquisition of Windy
Hill.................... 7,958 1 30,273 -- -- -- -- 30,274
Net income (unaudited)..... -- -- -- -- -- 6,340 6,340
Other comprehensive
income.................. -- -- -- -- -- 472 472
Preferred stock
dividends............... -- -- -- -- -- (4,546) (4,546)
Accretion of preferred
stock................... -- -- -- -- -- (807) (807)
------ --- ------- ------- -------- ---- -------- --------
Balances, September 30,
1998....................... 23,013 $ 2 $73,544 -- $ -- $472 $ (6,742) $ 67,276
====== === ======= ======= ======== ==== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 80
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, 1998 (UNAUDITED) DECEMBER 31, 1997, 1996 AND 1995
(ALL INFORMATION RELATED TO THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND
1998 IS UNAUDITED.)
(1) ACQUISITIONS
On October 5, 1995, Doane Pet Care Enterprises, Inc. a newly organized
Delaware corporation acquired Doane Pet Care Company (formerly Doane Products
Company). The purchase price was $249.1 million, including existing
indebtedness. The acquisition was financed with a senior credit facility which
provides term loan borrowings of $90 million and revolving loan borrowings of up
to $25 million, $120 million of senior subordinated increasing rate notes, and
$30 million of 14.25% Senior Exchangeable Preferred Stock. The cost of the
acquisition has been allocated on the basis of the estimated fair value of the
assets acquired and liabilities assumed. The allocation resulted in goodwill of
approximately $129 million. The goodwill is being amortized over 40 years on a
straight-line basis.
For financial statement purposes, the Acquisition was accounted for as a
purchase acquisition effective October 1, 1995. The effects of the acquisition
have been reflected in the Company's assets and liabilities at that date. As a
result, the Company's financial statements for the periods subsequent to
September 30, 1995 are presented on the Successor's new basis of accounting,
while financial statements for September 30, 1995 and prior periods are
presented on the Predecessor's historical cost basis of accounting.
In connection with the Acquisition, the Company recorded certain merger
related expenses of $9,440 consisting primarily of bonus payments to certain
members of management, which have been charged to operations as of September 30,
1995.
(2) STOCK DIVIDEND
The Company will effect a 5 for 1 stock dividend immediately prior to the
initial public offering. The consolidated financial statements, including all
references to the number of shares of common stock and all per share
information, have been adjusted to reflect the common stock dividend.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company manufactures dry pet foods and operates a machine shop and a
structural steel fabrication plant. The Company extends unsecured credit in the
form of current accounts receivable, principally to large distributors and
retailers throughout the United States, with credit extended to one customer
approximating 70%, 65% and 46% of accounts receivable at December 31, 1996 and
1997, and September 30, 1998 (unaudited), respectively.
Principles of Consolidation
In November 1996, the Company formed a UK holding company, DPC
International, Ltd., a wholly-owned subsidiary of Doane Products Company, to
account for its 50% investment in a foreign joint venture. The Company is
accounting for its investment under the equity method of accounting. The
accompanying consolidated financial statements for December 31, 1996 and 1997,
and September 30, 1998 (unaudited), include the accounts of Doane and its
wholly-owned subsidiary. All inter-company transactions and balances have been
eliminated.
Basis of Presentation
Certain reclassifications have been made to the fiscal 1995 and 1996
consolidated financial statements to conform with the fiscal 1997 presentation.
F-7
<PAGE> 81
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements as of September 30,
1998 and for the nine months ended September 30, 1997 and 1998 have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The operating results for interim
periods are not necessarily indicative of results to be expected for an entire
year.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents consist primarily
of repurchase agreements and certificates of deposit.
Inventories
All inventories are valued at the lower of cost or market. Cost is
determined using the FIFO method.
Property and Equipment
Property and equipment are depreciated over the estimated useful life of
each asset ranging from three to forty years. Annual depreciation is computed
using the straight-line method.
In fiscal 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long Lived Assets to be Disposed Of (SFAS 121).
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. When such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. The adoption of SFAS 121 did not have a material impact on the Company's
consolidated financial statements.
Income Taxes
Effective October 1, 1995, concurrent with the Acquisition and the
Company's change from an S Corporation for federal income tax purposes to a C
Corporation, the Successor Company began applying the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS
109). Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities. These deferred taxes are measured by applying current tax laws.
The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired in the Acquisition and is being amortized by the
straight-line method over 40 years. The Company's policy is to periodically
evaluate such cost to determine whether there has been any impairment in value.
Accumulated amortization was $4,046, $7,300 and $9,740 at December 31, 1996 and
1997, and September 30, 1998 (unaudited), respectively.
Recognition of Revenue
Revenue is recognized at the time the product is shipped.
F-8
<PAGE> 82
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commodity Hedges
The Company manages price risk created by market fluctuations by hedging
portions of its primary commodity products purchases, principally through
exchange traded futures and options contracts which are designated as hedges.
The terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity.
The Company's policy does not permit speculative commodity trading. Futures
and options contracts are accounted for as hedges, and gains and losses are
recognized in the period realized as part of the cost of products sold and in
the cash flows. The deferred net futures and options position is reported on the
balance sheet as a current asset for net loss positions and as a deferred credit
for net gain positions. In addition to futures and options, the Company also
contracts for future physical procurement, in which case unrealized gains and
losses are deferred to the applicable accounting period. Typically, maturities
vary and do not exceed twelve months.
Deferred losses on these outstanding contracts were $5,398, $917 and $2,605
at December 31, 1996 and 1997, and September 30, 1998 (unaudited), respectively.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Pro Forma Financial Data
Pro forma net income per common share and pro forma income taxes are set
forth herein because the Predecessor Company previously operated as a subchapter
S Corporation.
Pro forma net income per share of common stock is calculated based on net
income reduced by pro forma income taxes, divided by the weighted average number
of shares of common stock outstanding.
Pro forma income taxes reflect federal income taxes that would have been
incurred had the Predecessor Company been subject to such taxes. Such amounts
have been deducted from net income in the accompanying statements of income,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The pro forma consolidated balance sheet as of September 30, 1998 reflects
the pro forma adjustments for the Refinancing Transactions and the application
of proceeds therefrom. The Company completed a cash tender offer for $97,000
principal amount of its Senior Notes, completed an exchange offer of $150,000
principal amount of Senior Subordinated Notes due 2007 for the remaining $63,000
amount of Senior Notes and all of the remaining $74,000 principal amount of
Windy Hill Subordinated Notes, and entered into a new Senior Credit Facility
with a syndicate of financial institutions providing for total commitments of
$345,000. The Company used $286,867 of borrowings under the new Senior Credit
Facility to repay borrowings under existing credit facilities and a bridge loan.
The bridge loan had been incurred to finance in part a cash tender offer for the
Windy Hill Subordinated Notes required by a change of control provision in the
indenture governing such notes. In the change of control offer, Windy Hill had
purchased $46,000 of the Windy Hill Subordinated Notes.
Financial Instruments
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and
F-9
<PAGE> 83
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
therefore cannot be determined with precision. The Company believes that the
carrying amounts of its current assets, current liabilities and long-term debt
approximate the fair value of such items.
Net Income (Loss) Per Common Share
In fiscal 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). In
accordance with SFAS 128, basic net income (loss) per common share is computed
based upon the weighted average number of common shares outstanding during each
period. Net income (loss) is decreased (increased) by unpaid cumulative
preferred stock dividends and the accretion of the preferred stock in
calculating net income (loss) attributable to the common shareholder.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company adopted SFAS 130 in the fiscal year ending December 31, 1998. The
Company's total comprehensive earnings, which consist of foreign currency
translation adjustments, are as follows for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income (loss) applicable to common stock................ $1,069 $(1,323)
Other comprehensive income.................................. 472 --
------ -------
Total comprehensive income (loss)........................... $1,541 $(1,323)
====== =======
</TABLE>
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness, as
well as the ineffective portion of the gain or loss, is reported in earnings
immediately. Accounting for foreign currency hedges is similar to the accounting
for fair value an cash flow hedges. If the derivative instrument is not
designated as a hedge, the gain or loss is recognized in earnings in the period
of change.
F-10
<PAGE> 84
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company will adopt SFAS 133 beginning in fiscal 2000. The Company has
not determined the impact that SFAS 133 will have on its financial statements
and believes that such determination will not be meaningful until closer to the
date of initial adoption.
(4) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................................... $ 7,268 $ 8,449 $11,466
Packaging materials................................. 10,609 10,735 24,007
Finished goods...................................... 12,860 13,242 17,428
------- ------- -------
$30,737 $32,426 $52,901
======= ======= =======
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 3,987 $ 4,037 $ 7,639
Buildings and improvements.......................... 25,395 29,439 54,569
Machinery and equipment............................. 65,377 76,442 149,399
Furniture and fixtures.............................. 1,932 2,536 6,094
Automotive equipment................................ 1,000 1,016 1,462
Construction in progress............................ 3,504 1,972 16,735
------- ------- --------
101,195 115,442 235,898
Less accumulated depreciation....................... 8,112 15,448 34,233
------- ------- --------
$93,083 $99,994 $201,665
======= ======= ========
</TABLE>
(6) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and commissions............................. $ 3,223 $ 4,714 $ 8,844
Accrued interest..................................... 6,379 6,223 6,922
Rebates and other promotions......................... 7,510 9,064 12,828
Other................................................ 1,429 2,610 13,497
------- ------- -------
$18,541 $22,611 $42,091
======= ======= =======
</TABLE>
F-11
<PAGE> 85
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1996 1997 1998
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Senior Credit Facility........................... $ 46,603 $ 34,712 $ 42,600
Senior Notes..................................... 160,000 160,000 160,000
Windy Hill Credit Facility....................... -- -- 53,957
Windy Hill Subordinated Notes.................... -- -- 120,000
Promissory Note.................................. -- -- 13,295
Industrial Development Revenue Bonds (net of
reserve funds)................................. -- 5,698 8,496
Debt -- Foreign Subsidiaries..................... -- -- 25,318
-------- -------- --------
206,603 200,410 423,666
Less current maturities.......................... 10,417 11,667 8,859
-------- -------- --------
$196,186 $188,743 $414,807
======== ======== ========
</TABLE>
Senior Credit Facility
In connection with the Acquisition, the Company entered into a senior
credit facility effective October 5, 1995 (the Senior Credit Facility) with
several lending institutions. The Senior Credit Facility, as amended, provides
for an aggregate principal amount of loans of up to $85,000 consisting of
$60,000 in aggregate principal amount of term loans (the Term Loan Facility) and
a $25,000 revolving credit facility (the Revolving Credit Facility).
The Term Loan Facility matures on September 30, 2000 and is due in
quarterly installments in increasing amounts, ranging from $2,100 to $3,700,
commencing September 30, 1996. The Senior Credit Facility provides for mandatory
prepayments of the Term Loan Facility based on certain performance targets as
well as proceeds of asset sales which are subject to certain permitted
exceptions. The Revolving Credit Facility matures on September 30, 2000. Prior
to the amendment of the Senior Credit Facility as discussed below, the Company
was required to reduce borrowings under the Revolving Credit to $10,000 or less
for 30 consecutive days during the fiscal years ended September 30, 1996 and
1997, and to $7,500 or less for 30 consecutive days during each fiscal year
ended September 30 thereafter.
Indebtedness under the Senior Credit Facility bears interest at a rate
based, at the Company's option, upon (i) the Base Rate plus 1.50% with respect
to Base Rate Loans and (ii) the LIBOR Rate for one, two, three or six months
plus 2.75% with respect to LIBOR Rate Loans; provided, however, the interest
rates are subject to reductions in the event the Company meets certain
performance targets. The Revolving Credit Facility bore interest at 9.5% and
9.3% for the years ended December 31, 1996 and 1997, respectively. The Term Loan
Facility bore interest at a weighted average rate of 8.47% for the period from
October 5, 1995 to December 31, 1995, and 7.95% and 8.44% for the years ended
December 31, 1996 and 1997, respectively.
The Company is required to pay a commitment fee based on the committed
undrawn amount of the Revolving Credit Facility during the preceding quarter
equal to .375% per annum, payable in arrears on a quarterly basis during 1996
and equal to .5% per annum, payable in arrears on a quarterly basis, thereafter;
provided, such fee may be reduced after 1996 to as low as .25% based on certain
performance targets.
The Senior Credit Facility is secured by substantially all of the assets of
the Company and a pledge of all of the Company's common stock held by DPCAC.
The Senior Credit Facility requires the Company to meet certain financial
tests, including minimum cash flow, minimum cash flow coverage ratio and maximum
leverage ratios. The Senior Credit Facility also contains covenants which, among
other things, will limit the incurrence of additional indebtedness, the nature
of the business of the Company and its subsidiaries, investments, leases of
assets, ownership of subsidiaries,
F-12
<PAGE> 86
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividends, transaction with affiliates, asset sales, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements.
The Company had approximately $24,225 available under the revolving credit
agreement at December 31, 1997 which expires in 1999.
Effective April 13, 1998, the Company amended its senior credit facility
pursuant to the Second Amended and Restated Revolving Credit and Term Loan
Agreement (the "Amended Senior Credit Facility"). Under the Amended Senior
Credit Facility funding was increased under the "Term Loan Facility" from the
outstanding balance of $31,795 to $41,794 and a new $7,000 purchase money
facility was created, which may be drawn upon at a later time. The "Revolving
Credit Facility" remains at $25,000. The term of the Amended Senior Credit
Facility has been extended from September 30, 2000 to September 30, 2001.
Concurrent with the extension of the term of the facility, the amortization of
the Term Loan Facility has been extended and quarterly principal payments
reduced, initially from $2,917 to $2,500.
The Company has the option to draw funds at either a Base Rate of LIBOR
Rate plus an Applicable Margin, which margin is determined from a pricing grid
predicated upon the ratio of Consolidated Total Debt to Consolidated EBITDA. In
general the LIBOR margins have decreased by .375% and the Base Rate margins have
decreased by .5%.
The predecessor agreement required the Company to cause the aggregate
principal amount of all Revolving Credit and Swing Loans to be less than $7,500
for a minimum period of 30 consecutive days each fiscal year, which provision,
together with the Excess Cash Flow Recapture provision, has been eliminated.
Additionally, certain financial covenants have been amended consistent with the
extended term of the facility.
Bridge Notes
The bridge notes (the Bridge Notes) matured on October 5, 1996 and bore
interest at a floating rate equal to the sum of (i) the prime rate, (ii) 5.00%,
and (iii) an additional percentage amount, equal to 1.00% effective from March
30, 1996 and increasing by .50% effective from and including each quarterly
anniversary of such date until the Bridge Notes are paid in full; provided that
the interest rate shall not exceed 20% per annum. On March 4, 1996, the Bridge
Notes were repaid with the proceeds from the issuance of the Senior Notes. The
Bridge Notes bore interest at a rate of 13.50% per annum at December 31, 1995
and for the period January 1, 1996 to March 4, 1996. In connection with this
debt refinancing, the Company incurred a $4,815 non-recurring finance charge to
write-off debt issuance costs associated with the Bridge Notes.
Senior Notes
The Senior Notes (the Senior Notes) bear interest at the rate of 10.625%
per annum, payable semiannually on March 1 and September 1 of each year,
commencing on September 1, 1996. The Senior Notes are redeemable, at the
Company's option, in whole or in part, from time to time, on or after March 1,
2001, initially at 105.313% of their principal amount and thereafter at prices
declining to 100% at March 1, 2004 until maturity, in each case together with
accrued and unpaid interest to the redemption date. In addition, at any time on
or prior to March 1, 1999, the Company may redeem up to 35% of the aggregate
principal amount of the Notes originally issued with the net cash proceeds of
one or more public equity offerings, at 109.625% of their principal amount,
together with accrued and unpaid interest, if any, to the redemption date;
provided that at least $104,000 in principal amount of the Senior Notes remain
outstanding immediately after any such redemption.
The Senior Notes are general senior unsecured obligations of the Company,
ranking senior to all subordinated indebtedness of the Company and ranking pari
passu in right of payment to all other senior indebtedness of the Company.
Lenders under the Senior Credit Facility have claims with respect to the assets
constituting collateral for such indebtedness that are effectively senior and
right of payment to the claims of holders of the Senior Notes. The Senior Notes
were issued pursuant to the Note Indenture which contains covenants restricting
or limiting the ability of the Company and its subsidiaries to pay dividends or
make other
F-13
<PAGE> 87
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restricted payments, incur additional indebtedness and issue preferred stock,
create liens, incur dividends and other payment restrictions affecting
subsidiaries, enter into mergers or consolidations, make asset sales, enter into
transactions with affiliates, and engage in other lines of business. Under
certain circumstances, the Company is required to offer to purchase all
outstanding Senior Notes at a purchase price in cash equal to 100% of their
principal amount, plus accrued and unpaid interest to the date of repurchase,
with the proceeds of certain asset sales. Upon a Change of Control (as defined
in the Note Indenture) each holder of Senior Notes will have the right to
require the Company to repurchase all or any part of such holder's Senior Notes
at a purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest to the date of purchase.
Industrial Revenue Bonds, Ottawa County, Oklahoma
On March 12, 1997 the Company issued $6,000 of industrial development
revenue bonds (the "Bonds") through the Ottawa County Finance Authority in
Miami, Oklahoma. The Bonds bear interest at the rate of 7.25% payable on each
December 1 and June 1, commencing December 1, 1997. The Bonds are subject to
mandatory redemption prior to maturity, in part, at a redemption price of 100%
of the principal amount thereof, plus accrued interest to the redemption date,
in varying principal amounts on June 1 of each year from 2007 through 2017. The
Bonds are general secured obligations of the Company, ranking senior to all
subordinated indebtedness of the Company and on a parity in right of payment
with all other senior indebtedness of the Company. The Bonds are additionally
secured by a Mortgage and Security Agreement.
On July 24, 1998, the $9,000 Oklahoma Development Finance Authority,
Industrial Development Revenue Bonds, Series 1998 (Doane Products Company
Clinton, Oklahoma Project) (the "Bonds") were issued by the Oklahoma Development
Finance Authority. The net proceeds of the issuances were loaned to the Company
to finance the Company's acquisition and construction of a new dry pet food
manufacturing facility in Clinton, Oklahoma. At September 30, 1998 $2,798 had
been drawn down by the Company. The Bonds bear interest at the rate of 6.25%
payable on each of January 15 and July 15, commencing January 15, 1999. The
Bonds are subject to mandatory redemption prior to maturity, in part, at a
redemption price of 100% of the principal amount thereof, plus accrued interest
to the redemption date, in varying principal amounts on July 15 of each year
from 2018 through 2023. The Bonds are general obligations of the Company and
rank on parity in right of payment with all other senior indebtedness of the
Company. The Bonds, which approximate fair value, are secured by the Clinton,
Oklahoma manufacturing facility and certain related equipment. The
above-referenced Bonds were purchased by the Company's wholly owned subsidiary,
DPC Funding Corp., which has changed its name to Doane/Windy Hill Joint Venture
Corp. It is anticipated that such entity will attempt to sell the Bonds. See
Subsequent Events in Note 19 below.
*****
Aggregate annual maturities of long-term debt at December 31, 1997 were:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998........................................................ $11,667
1999........................................................ 11,667
2000........................................................ 11,378
Thereafter.................................................. 165,698
</TABLE>
On November 12, 1998, the Company refinanced the Senior Credit Facility,
the Windy Hill Credit Facility, a Windy Hill bridge loan facility, the Windy
Hill Subordinated Notes and its Senior Notes. See discussion of subsequent
events at Note 19 below.
F-14
<PAGE> 88
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SENIOR EXCHANGEABLE PREFERRED STOCK
The Company has authorized 10,000 shares of Senior Exchangeable Preferred
Stock of which the Company issued 1,200 shares in connection with the financing
of the Acquisition.
The Senior Exchangeable Preferred Stock has an initial liquidation
preference of $25.00 per share (aggregate initial liquidation preference is
$30,000). The Senior Exchangeable Preferred Stock was recorded at the net
proceeds of $17,075 after deducting $12,925 paid to DPCAC for warrants of DPCAC
which were issued in conjunction with the Senior Exchangeable Preferred Stock.
The excess of the liquidation preference over the carrying value is being
accreted quarterly over a twelve year period ended September 30, 2007 by a
direct reduction to retained earnings.
Dividends on the Senior Exchangeable Preferred Stock are payable quarterly
at the rate of 14.25% per annum per share. Dividends on the Senior Exchangeable
Preferred Stock accrete to the liquidation value of the Senior Exchangeable
Preferred Stock and, at the option of the holders of a majority of the shares of
Senior Exchangeable Preferred Stock, may be paid through the issuance of
additional shares of Senior Exchangeable Preferred Stock on each dividend
payment date through September 30, 2000. The Company does not expect to pay
dividends on the Senior Exchangeable Preferred Stock in cash for any period
prior to September 30, 2000. Cumulative dividends on Senior Exchangeable
Preferred Stock that have not been paid at December 31, 1996 and 1997, and
September 30, 1998 (unaudited), are $5,739, $11,047 and $12,510, respectively
and are included in the carrying amount of the Senior Exchangeable Preferred
Stock. As of December 31, 1997, and September 30, 1998 (unaudited), the
cumulative accretion to redemption value and cumulative dividends on the Senior
Exchangeable Preferred Stock are $2,422 and $3,229, respectively and $11,047 and
$15,591, respectively.
Prior to September 30, 1998, the Company may, at its option, redeem up to
one-third of the then outstanding Senior Exchangeable Preferred Stock with the
net proceeds of an initial public offering of its common stock at a redemption
price of 114% of the then liquidation value of the Senior Exchangeable Preferred
Stock, plus accrued and unpaid dividends. On and after September 30, 2000, the
Company may, at its option, redeem the Senior Exchangeable Preferred Stock in
whole or in part at redemption prices per share set forth below, together with
accrued and unpaid dividends:
<TABLE>
<CAPTION>
YEAR PERCENT OF
BEGINNING LIQUIDATION
SEPTEMBER 30, VALUE
- ------------- -----------
<S> <C> <C>
2000............................................................... 107.125%
2001............................................................... 105.700
2002............................................................... 104.275
2003............................................................... 102.850
2004............................................................... 101.425
2005............................................................... 100.000
2006............................................................... 100.000
</TABLE>
The Company will be required to redeem all outstanding shares of Senior
Exchangeable Preferred Stock on September 30, 2007 at 100% of the then
liquidation value, together with accrued and unpaid dividends.
The Senior Exchangeable Preferred Stock will be exchangeable, in whole or
in part, at the option of the Company on any dividend payment date for 14.25%
Junior Subordinated Exchange Debentures.
In the event of a change of control, as defined, the holders of Senior
Exchangeable Preferred Stock have the right to require the Company to redeem
such Senior Exchangeable Preferred Stock, in whole or in part, at a price equal
to 101% of the then liquidation value together with any unpaid dividends.
The terms of the Senior Exchangeable Preferred Stock prohibit (i) the
payment of dividends on securities ranking on a parity with or junior to the
Senior Exchangeable Preferred Stock and (ii) redemption,
F-15
<PAGE> 89
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repurchase or acquisition of any Junior Securities with certain exceptions, in
each case, unless full cumulative dividends have been paid on the Senior
Exchangeable Preferred Stock.
Holders of the Senior Exchangeable Preferred Stock have limited voting
rights customary for preferred stock, and the right to elect two additional
directors upon certain events such as the Company failing to declare and pay
dividends on any six consecutive dividend payment dates.
(9) STOCK OPTION AND STOCK PURCHASE PLANS
Effective as of November 1, 1996, the Company adopted the 1996 Management
Stock Option Plan, as amended (the "1996 Stock Option Plan"). The maximum number
of options that may be granted under the 1996 Stock Option Plan is 3,750,000.
The options vest based on the attainment of performance levels as defined by the
plan. Set forth below is certain information regarding such issuances, exercises
and cancellations of options in each of the indicated fiscal years.
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE EXERCISE PRICE
--------- ----------------------
<S> <C> <C>
Balance at December 31, 1994................................ -- $ --
Fiscal 1995:
Granted................................................... -- --
Exercised................................................. -- --
Cancelled................................................. -- --
---------
Balance at December 31, 1995................................ -- --
Fiscal 1996:
Granted................................................... 1,873,750 2.04
Exercised................................................. -- --
Cancelled................................................. -- --
---------
Balance at December 31, 1996................................ 1,873,750 2.04
Fiscal 1997:
Granted................................................... 880,000 2.97
Exercised................................................. -- --
Cancelled................................................. (161,250) 2.00
--------- -----
Balance at December 31, 1997................................ 2,592,500 $2.35
========= =====
</TABLE>
The 2,592,500 options outstanding as of December 31, 1997 had exercise
prices ranging between $2.00 and $4.00, a weighted average exercise price of
$2.35, and a weighted average remaining contract life of 8.99 years. At December
31, 1997, options to purchase 827,675 shares were exercisable with exercise
prices ranging between $2.00 and $4.00, and a weighted average exercise price of
$2.34.
The Company has elected to continue to follow APB Opinion No. 25; however,
if the Company adopted SFAS 123, the Company's net income and earnings per share
for the years ended December 31, 1996, and December 31, 1997 would have been
reduced as follows:
<TABLE>
<CAPTION>
1996 1997
----------------------- -----------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA
----------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income.............................. $(7,264) $(7,359) $ (151) $ (481)
Basic earnings per share................ (0.52) (0.52) (0.01) 0.03
Diluted earnings per share.............. (0.52) (0.52) (0.01) 0.03
</TABLE>
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the minimum value method of SFAS 123 under the assumptions of a risk free rate
of 5.75% and an expected life of options of 6 years. The Company has no
F-16
<PAGE> 90
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
present plans to pay dividends on its Common Stock. The effects of applying SFAS
123 as calculated above may not be representative of the effects on reported net
income for future years.
For the nine months ended September 30, 1998, the Company recorded
compensation expense of $250 as an addition to additional paid-in-capital in
connection with stock option grants under the 1996 Stock Option Plan.
Effective November 1, 1996, the Company adopted the 1996 Management Stock
Purchase Plan (the "1996 Plan"). The 1996 Plan provides that officers and other
key employees may be granted an aggregate of 250,000 rights to purchase one
share of the Company's common stock at $2 per share. Effective June 19, 1997,
the Company adopted the 1997 Management Stock Purchase Plan (the "1997 Plan")
which authorized the Company to grant an additional 375,000 rights to officers
and key employees to purchase one share of the Company's common stock at $2 per
share. In fiscal 1996 and 1997, 250,000 and 375,000 shares were purchased under
the plans.
(10) MAJOR CUSTOMER
For the nine months ended September 30, 1995, one customer accounted for
approximately 65% of the Predecessor Company's total revenue. For the three
months ended December 31, 1995, the years ended December 31, 1996 and 1997, and
the unaudited nine months ended September 30, 1998, the same customer accounted
for approximately 65%, 63%, 61% and 57%, respectively, of the Successor
Company's total revenue. The Company does not have a long-term contract with
this customer.
(11) INCOME TAXES
The Predecessor had elected under both Federal and certain state income tax
laws to be taxed as an S Corporation. Under this election, the Company's taxable
income was taxed to the stockholders on their individual income tax returns. The
provision for income taxes reflects the accrual of corporation income taxes due
in states which do not recognize the S Corporation status.
Effective October 1, 1995, concurrent with the Acquisition, the Company
changed from an S Corporation for Federal income tax purposes to a C Corporation
and began applying the provisions of SFAS 109.
The Company elected to step up the tax basis in the assets acquired.
Goodwill recorded in the acquisition is deductible for tax purposes over 15
years.
The components of income tax expense (benefit) are:
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal....................................... $ (318) $ -- $ --
State......................................... (30) -- --
Deferred:
Federal....................................... 1,102 (855) 3,084
State......................................... -- -- 305
------ ----- ------
Total income tax expense (benefit).... $ 754 $(855) $3,389
====== ===== ======
</TABLE>
The difference between the statutory rate and the effective tax rate is a
result of nondeductible meals and entertainment expenses and other miscellaneous
expenses.
F-17
<PAGE> 91
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- --------
<S> <C> <C>
CURRENT DEFERRED
Deferred tax assets:
Accounts receivable....................................... $ 19 $ 40
Inventory................................................. 286 291
Accruals and provisions................................... 576 921
------- --------
Current deferred tax asset........................ $ 881 $ 1,252
======= ========
NONCURRENT DEFERRED
Deferred tax assets -- net operating loss carryforwards..... 8,656 10,093
------- --------
8,656 10,093
Deferred tax liabilities:
Tax over book amortization.................................. (4,088) (5,751)
Difference between book and tax basis of property and
equipment................................................. (4,977) (8,511)
------- --------
(9,065) (14,262)
Net noncurrent deferred tax liability....................... (409) (4,169)
------- --------
Total net deferred tax asset (liability).......... $ 472 $ (2,917)
======= ========
</TABLE>
There is no valuation allowance as of fiscal year ended December 31, 1997.
It is the opinion of management that future operations will more likely than not
generate taxable income to realize deferred tax assets.
At December 31, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $27,000 which are available to
offset future taxable income, if any, through 2011.
(12) EMPLOYEE BENEFIT PLANS
The Company has a defined benefit, noncontributory pension plan (terminated
on May 31, 1998) covering substantially all non-bargaining employees. Benefits
under the plan are based on the employee's compensation during the five most
highly compensated consecutive years during the ten years preceding normal
retirement date. The Company's funding policy for the plan is to make the
minimum annual contribution required by applicable regulations.
Net periodic pension cost for the Company's defined benefit pension plans
consisted of the following components for the years ended:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ------------------------------------------
NINE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost (benefits) earned..... $ 714 $ 237 $1,059 $ 1,276
Interest cost on projected benefit
obligation....................... 515 197 781 903
Actual return on plan assets....... (1,509) (377) (906) (1,914)
Net amortization and deferral...... 997 180 71 983
------- ----- ------ -------
Net periodic pension cost.......... $ 717 $ 237 $1,005 $ 1,248
======= ===== ====== =======
</TABLE>
F-18
<PAGE> 92
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 7.0% 7.0%
Rate of increase in compensation levels..................... 5.5% 5.5% 5.5%
Expected long-term rate of return on plan assets............ 7.5% 7.5% 7.5%
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying balance sheets as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $ (7,940) $ (8,936)
======== ========
Accumulated benefits...................................... $ (8,172) $ (9,192)
======== ========
Projected benefits........................................ $(13,060) $(14,818)
Plan assets at fair value................................. 12,428 14,557
-------- --------
Projected benefit obligation in excess of plan
assets.......................................... (632) (261)
Items not yet recognized in earnings:
Unrecognized net loss (gain).............................. (45) (1,144)
Unrecognized net asset at December 31, 1986, being
recognized over 14.49 to 17.95 years................... 333 313
-------- --------
Pension liability recognized in the balance
sheet........................................... $ (344) $ (1,092)
======== ========
</TABLE>
The Company sponsors a defined contribution postretirement plan which
provides medical coverage for eligible retirees and their dependents (as defined
in the plan). On October 1, 1995, the Company adopted SFAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The following sets
forth the plans' funded status reconciled with the amount shown in the Company's
consolidated balance sheets and consolidated statements of income on an accrual
basis rather than a pay-as-you-go (cash) basis as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents..................................... $ 825 $ 824
Fully eligible active plan participants..................... 356 382
Other active plan participants.............................. 316 363
------ ------
Accrued postretirement benefit cost......................... $1,497 $1,569
====== ======
</TABLE>
F-19
<PAGE> 93
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net periodic postretirement benefit cost
included the following components:
Service cost -- benefits attributed to service
during the period.......................... $ 17 $ 17 $ 18
Interest cost on accumulated postretirement
benefit obligation......................... 100 104 102
---- ---- ----
Net periodic postretirement benefit
cost................................ $117 $121 $120
==== ==== ====
</TABLE>
For measurement purposes, per capita claims costs for participants over age
65 were assumed to increase at a 7.07% and 6.50% annual rate for 1996 and 1997,
respectively; the rate was assumed to decrease gradually to 4.0% for 2001 and
remain at that level thereafter. The medical cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed medical cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by $214 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended 1997 by $18.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% for December 31, 1996 and 1997.
As of June 1, 1998 the Company adopted the Doane Products Company Savings
and Investment Plan for eligible employees not covered by collective bargaining
arrangements and the Doane Products Company Savings and Investment Plan -- Union
Plan for eligible union employees at the Joplin, Missouri plant. The plans are
intended to be qualified retirement plans under the Internal Revenue Code. Both
plans permit employee contributions between 1% and 15% of pre-tax earnings
subject to annual dollar limits set by the IRS, an annual employer profit
sharing contribution of $400 for each eligible participant and a variety of
investment options. The Doane Products Company Savings and Investment Plan also
includes an employer matching contribution in an amount equal to 50% of
participant contribution, up to 6% of compensation. Vesting for the employer
match is 25% per year for each full year of service.
(13) DEFERRED COMPENSATION AGREEMENTS AND SALARY CONTINUATION PLAN
The Company has deferred compensation agreements with two individuals which
provide, upon retirement, annual payments to be paid over ten consecutive years.
The liability is approximately $1,190, $1,150, and $1,117 at December 31, 1996
and 1997 and September 30, 1998 (unaudited), respectively.
The Company also has a salary continuation plan in which there were
twenty-three and twenty-two participants at December 31, 1996 and 1997,
respectively. Participants in the plan, who reach age fifty-five and have ten
years of service with the Company, become vested as to benefits which are
payable in ten equal annual installments after retirement. The Company has
recorded an expected future liability equal to the present value of future
payments under this plan. The liability is approximately $1,343, $1,362, and
$1,347 at December 31, 1996 and 1997 and September 30, 1998 (unaudited),
respectively.
F-20
<PAGE> 94
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) ADDITIONAL CASH FLOW INFORMATION
The following is additional cash flow information for the nine month period
ended September 30, 1995, for the three month period ended December 31, 1995,
and for the years ended December 31, 1996 and 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited).
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- -----------------------------------------------------------
NINE MONTH
NINE MONTH THREE MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------
1995 1995 1996 1997 1997 1998
------------- ------------ ------------ ------------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
Additional cash payment
information:
Interest paid (net of amounts
capitalized)................... $5,114 $192 $21,028 $21,924 $ -- $ 9,572
Income taxes paid (refunded)..... 302 (51) 351 -- -- --
Common stock issued in connection
with the acquisition of Windy
Hill........................... -- -- -- -- -- 30,300
</TABLE>
(15) COMMITMENTS AND CONTINGENCIES
The Company is party, in the ordinary course of business, to certain claims
and litigation. In management's opinion, the resolution of such matters is not
expected to have a material impact on the financial condition or results of
operations of the Company.
On October 30, 1998 the Company initiated a product recall for certain dry
dog food manufactured at its Temple, Texas plant. The recall covers dry dog food
manufactured at its Temple plant between July 1 and August 31, 1998 and does not
apply to dry dog food manufactured at other plants or the Company's dry cat
food, biscuits, treats or canned products. The recall resulted from reported
sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated aflatoxins in corn which, is an ingredient in dry dog
food. Aflatoxins are compounds produced from certain kinds of crop molds that
can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
is currently unable to estimate the cost of the recall. The Company does not
believe that the recall will have a material impact on the Company's financial
condition or results of operations.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $141,741 $137,215 $132,445 $153,340
Gross margins...................................... 19,016 18,885 20,623 23,321
Net income......................................... 995 481 1,905 2,853
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $122,000 $116,132 $127,256 $147,829
Gross margins...................................... 18,247 15,416 14,508 18,270
Net income (loss).................................. (1,650) (236) (609) 977
</TABLE>
F-21
<PAGE> 95
DOANE PET CARE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) NON-RECURRING TRANSITION EXPENSES
Non-recurring transition expenses for the nine months ended September 30,
1998 (unaudited) represent non-recurring costs incurred in connection with the
acquisition and integration of Windy Hill with the Company. These costs include
compensation for transitional personnel, severance and bonus expense, relocation
expenses, recruiting and training expenses, systems conversion and other unique
transition expenses.
(18) BUSINESS ACQUISITIONS (UNAUDITED)
Ipes Iberica, S.A. Acquisition
On April 17, 1998 the Company purchased 100% of the outstanding stock of
Ipes Iberica, S.A. ("Ipes") for $28.3 million. Ipes is a private label pet food
manufacturer located in Spain with 1997 net sales of $21.1 million. The
transaction was financed through a $20.9 million non recourse facility provided
by the HSBC Investment Bank, Plc. in Spain, and $7.4 million from the Company's
Senior Credit Facility.
Windy Hill Acquisition
On August 3, 1998, the Company acquired Windy Hill for 7,958,000 shares of
Common Stock and the assumption of $183.5 million of indebtedness. Windy Hill is
a leading manufacturer of pet food products. Windy Hill manufactures products
for both dogs and cats, including dry, canned, semi-moist, soft dry and soft
treats and dog biscuits. With Windy Hill, the Company is the largest
manufacturer of dog biscuits in the United States. This acquisition has been
accounted for as a purchase with the purchase price and direct acquisition costs
allocated based on fair value of assets acquired and liabilities assumed.
Goodwill of approximately $19,000 was recorded in connection with this
transaction. The goodwill is being amortized over 40 years on a straight-line
basis.
The unaudited pro forma information below has been prepared assuming Windy
Hill and Ipes were acquired January 1, 1997:
<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Net Sales................................................... $885,681 $641,674
Income before taxes
and extraordinary item.................................... 8,771 4,661
Net income (loss)........................................... $ 2,386 $ 1,032
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisition occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead, and general and administrative expenses.
(19) SUBSEQUENT EVENTS (UNAUDITED)
On November 12, 1998, the Company refinanced the Senior Credit Facility,
the Windy Hill Credit Facility, a Windy Hill bridge loan facility, the Windy
Hill Subordinated Notes and its Senior Notes (the "Refinancing Transactions").
The pro forma effects of the Refinancing Transactions have been reflected in the
pro forma consolidated balance sheet as of September 30, 1998.
F-22
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Windy Hill Pet Food Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Windy Hill
Pet Food Holdings, Inc. as of December 28, 1996 and December 27, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the ten-month period ended December 30, 1995, and for the years ended
December 28, 1996 and December 27, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Windy Hill
Pet Food Holdings, Inc. as of December 28, 1996 and December 27, 1997, and the
results of their operations and their cash flows for the years then ended and
for the ten-month period ended December 30, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
March 13, 1998
F-23
<PAGE> 97
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 570 $ 731 $ 1,063
Accounts receivable (net of $48, $372 and $386 allowance,
respectively).......................................... 8,224 19,252 21,894
Accounts receivable -- other.............................. 19 1,694 1,716
Inventories (Note 4)...................................... 5,141 13,312 17,181
Prepaid expenses.......................................... 811 990 1,356
Current deferred tax asset (Note 11)...................... 30 2,335 2,394
------- -------- --------
Total current assets.............................. 14,795 38,314 45,604
Property, plant and equipment, net (Note 5)................. 22,484 60,774 79,277
Investments in joint ventures (Note 6)...................... -- 3,527 1,975
Goodwill and other intangible assets, net (Note 7).......... 51,515 98,465 108,570
Other assets, net (Note 8).................................. 3,431 13,612 15,617
------- -------- --------
Total assets...................................... $92,225 $214,692 $251,043
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 9)................ $ 5,800 $ 1,312 $ 1,937
Senior secured revolving debt facility (Note 9)........... 2,000 2,000 --
Accounts payable.......................................... 9,816 20,178 21,140
Accrued liabilities....................................... 2,699 8,154 10,750
------- -------- --------
Total current liabilities......................... 20,315 31,644 33,827
Accrued interest -- non-current (Note 9).................... 962 2,595 3,458
Deferred tax liability (Note 11)............................ 1,867 12,390 13,004
Senior secured term debt (Note 9)........................... 35,750 13,688 44,223
Senior subordinated notes (Note 9).......................... 7,551 120,000 120,000
PIK A promissory notes (Note 9)............................. 3,750 3,750 3,750
PIK A-1 promissory note (Note 9)............................ -- 417 417
Convertible subordinated promissory note (Note 9)........... 10,500 10,500 10,500
Other liabilities........................................... 325 3,257 4,788
------- -------- --------
Total liabilities................................. 81,020 198,241 233,967
------- -------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 45,000 shares
authorized, 4,167 shares issued and outstanding,
liquidation preference of $4,163 (Note 16)............. 3,750 4,167 4,167
Class A common stock, $0.01 par value; 5,000 shares
authorized, 2,540 shares issued and outstanding (Note
16).................................................... -- -- --
Class B common stock, $0.01 par value; 2,000 shares
authorized, 569 shares issued and outstanding (Note
16).................................................... -- -- --
Additional paid-in capital (Note 16)...................... 7,681 16,624 16,624
Accumulated deficit....................................... (226) (4,340) (3,715)
------- -------- --------
Total stockholders' equity........................ 11,205 16,451 17,076
------- -------- --------
Commitments and contingent liabilities (Notes 9, 12 and 17)
Total liabilities and stockholders' equity........ $92,225 $214,692 $251,043
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 98
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
TEN MONTH YEARS ENDED ENDED
PERIOD ENDED --------------------------- -------------------
DECEMBER 30 DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27,
1995 1996 1997 1997 1998
------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $34,481 $82,993 $164,288 $60,323 $127,791
Cost of good sold 22,107 54,379 113,288 39,330 92,580
------- ------- -------- ------- --------
Gross profit................... 12,374 28,614 51,000 20,993 35,211
------- ------- -------- ------- --------
Operating expenses:
Promotion and distribution.......... 8,483 17,165 28,980 13,581 16,217
Selling, general and
administrative.................... 1,978 4,934 10,886 4,171 8,943
Non-recurring transition costs (Note
10)............................... -- -- 1,571 107 513
------- ------- -------- ------- --------
Total operating expenses....... 10,461 22,099 41,437 17,859 25,673
------- ------- -------- ------- --------
Operating income............... 1,913 6,515 9,563 3,134 9,538
Interest expense, net.................... 1,192 4,981 12,241 4,424 8,561
Equity in earnings of joint ventures..... -- -- (377) (29) (485)
Other expenses, net...................... -- 40 93 31 58
------- ------- -------- ------- --------
Income (loss) before income
taxes and extraordinary
item......................... 721 1,494 (2,394) (1,292) 1,404
Income tax expense (benefit)............. -- 824 (574) (514) 779
------- ------- -------- ------- --------
Income (loss) before
extraordinary item........... 721 670 (1,820) (778) 625
Extraordinary loss on early
extinguishment of debt, net of tax of
$0 in 1996 and $1,529 in 1997 (Note
9)..................................... -- 604 2,294 2,294 --
------- ------- -------- ------- --------
Net income (loss).............. $ 721 $ 66 $ (4,114) $(3,072) $ 625
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 99
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B PREFERRED RETAINED
COMMON STOCK COMMON STOCK STOCK EARNINGS
MEMBERS' --------------- --------------- --------------- PAID-IN (ACCUMULATED
CAPITAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
-------- ------ ------ ------ ------ ------ ------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Members' capital contribution,
net of syndication costs of
$109........................ $5,891 -- $ -- -- $ -- -- $ -- $ -- $ -- $ 5,891
Net income.................... -- -- -- -- -- -- -- -- 721 721
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 30,
1995........................ 5,891 -- -- -- -- -- -- -- 721 6,612
Contribution of Windy Hill Pet
Food Company, LLC members'
capital to Windy Hill Pet
Food Holdings, Inc. (Note
1).......................... (5,891) 500 -- -- -- 3,750 3,750 2,141 -- --
Deferred tax liability
recognized.................. -- -- -- -- -- -- -- -- (1,013) (1,013)
Capital contribution from
Windy Hill Pet Food
Holdings, Inc., net of
syndication cost of $210.... -- 500 -- 301 -- -- -- 4,540 -- 4,540
Warrants issued (Note 16)..... -- -- -- -- -- -- -- 1,000 -- 1,000
Net income.................... -- -- -- -- -- -- -- -- 66 66
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 28,
1996........................ -- 1,000 -- 301 -- 3,750 3,750 7,681 (226) 11,205
Contribution, net of
syndication cost of $224.... -- 1,429 -- 240 -- -- -- 9,776 -- 9,776
Warrants exercised (Note
16)......................... -- 111 -- 28 -- 417 417 (833) -- (416)
Net loss...................... -- -- -- -- -- -- -- -- (4,114) (4,114)
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 27,
1997........................ -- 2,540 -- 569 -- 4,167 4,167 16,624 (4,340) 16,451
Net loss (unaudited).......... -- -- -- -- -- -- -- -- 625 625
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at June 27, 1998
(unaudited)................. $ -- 2,540 $ -- 569 $ -- 4,167 $4,167 $16,624 $(3,715) $17,076
====== ===== ===== === ===== ===== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 100
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH
TEN MONTH YEARS ENDED PERIODS ENDED
PERIOD ENDED --------------------------- --------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 721 $ 66 $ (4,114) $ (3,072) $ 625
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Depreciation and amortization..... 787 2,719 6,882 2,543 4,470
Interest expense -- non-current... -- 962 1,633 1,077 1,365
Deferred income taxes............. -- 824 2,582 5,809 923
Early extinguishment of debt, net
of tax.......................... -- 604 2,294 2,294 --
Gain on sale of fixed assets...... -- -- 4 -- --
Equity in earnings of joint
ventures........................ -- -- (377) (29) (485)
Operating advances from joint
ventures........................ -- -- 1,015 84 1,063
Change in assets and liabilities,
net of effects of businesses
acquired:
(Increase) decrease in accounts
receivable................... (960) (3,941) (4,650) 1,348 540
(Increase) decrease in
inventories.................. 352 (454) (1,726) (243) 2,123
Increase in prepaid expenses.... (34) (412) (50) 66 (960)
Increase (decrease) in accounts
payable...................... 847 6,250 313 (3,121) (1,390)
Increase (decrease) in accrued
liabilities.................. -- 1,063 4,436 17,150 2,262
-------- -------- --------- --------- --------
Net cash provided by
operating activities....... 1,713 7,681 8,242 23,906 10,537
-------- -------- --------- --------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment......................... (1,120) (1,091) (4,175) (944) (3,700)
Change to other non-current assets
and liabilities................... (321) (357) (1,087) (2,534) (678)
Proceeds from sale of assets......... -- -- 51,704 49,889 --
Payment for acquisition of
businesses, net of cash
acquired.......................... (22,165) (56,768) (135,350) (138,528) (34,523)
-------- -------- --------- --------- --------
Net cash used in investing
activities................. (23,606) (58,216) (88,908) (92,117) (38,901)
-------- -------- --------- --------- --------
Cash flows from financing activities:
Proceeds from senior secured term and
revolving debt.................... 17,000 48,000 71,500 189,917 34,000
Proceeds from senior subordinated
notes............................. -- 8,500 120,000 -- --
Proceeds from PIK A promissory
notes............................. -- 3,750 -- -- --
Proceeds from convertible
subordinated promissory note...... -- 10,500 -- -- --
Repayment of borrowings.............. -- (21,450) (109,952) (109,952) (5,263)
Capital contributions................ 6,000 4,750 10,000 9,583
Debt issuance and syndication
costs............................. (780) (3,272) (10,721) (10,565) (41)
-------- -------- --------- --------- --------
Net cash provided by (used
in) financing activities... 22,220 50,778 80,827 78,983 28,696
-------- -------- --------- --------- --------
Increase (decrease) in cash and cash
equivalents.......................... 327 243 161 10,772 332
Cash and cash equivalents, beginning of
period............................... -- 327 570 570 731
-------- -------- --------- --------- --------
Cash and cash equivalents, end of
period............................... $ 327 $ 570 $ 731 $ 11,342 $ 1,063
======== ======== ========= ========= ========
Supplemental cash flow disclosure:
Cash paid for interest............... $ 1,179 $ 3,759 $ 6,660 $ 3,391 $ 3,757
Income taxes paid.................... $ -- $ -- $ 8,806 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 101
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All information related to the six-month periods ended June 28, 1997 and
June 27, 1998 is unaudited.)
NOTE 1 -- THE COMPANY
Organization
Windy Hill Pet Food Holdings, Inc. ("Holdings"), a Delaware corporation, is
a private holding company formed in April 1996 to invest in pet food processing
operations. Holdings owns 100% of its indirect subsidiary, Windy Hill Pet Food
Company, Inc. (the "Company"), which is a Minnesota corporation. The Company
commenced operations March 1, 1995, under its previous ownership structure as
Windy Hill Pet Food Company, L.L.C. ("LLC"). In connection with the Company's
acquisition of certain brands from Heinz Pet Products ("Heinz") in April 1996,
as further described in Note 3, LLC's net assets were contributed at net book
value to Holdings.
On May 21, 1997, Windy Hill Pet Food Acquisition Co., a newly formed
indirect subsidiary of Holdings, merged with and into Hubbard Milling Company
("Hubbard"), and Windy Hill Pet Food Company, Inc. ("Old Windy Hill") purchased
all of the stock of Armour Corporation. Concurrently, Hubbard, the surviving
corporation in the merger, was renamed Windy Hill Pet Food Company, Inc., and
Holdings transferred all of the operating assets and liabilities of Old Windy
Hill to the Company (Note 3). The Company was capitalized with a senior secured
term debt facility and senior subordinated notes (Note 9).
Operations
The Company manufactures and sells dog and cat food products and treats,
which are sold throughout the United States. The products are manufactured out
of thirteen plants, nine of which are wholly-owned and four of which are managed
under joint venture agreements in which the Company owns a 50% equity interest.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by Holdings in the preparation of the consolidated
financial statements conform to generally accepted accounting principles and
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual amounts could differ from these
estimates and assumptions. The accompanying consolidated financial statements
include the accounts of Holdings and its subsidiaries. All significant
intercompany balances have been eliminated in consolidation.
Fiscal Year
Holdings' fiscal year ends on the last Saturday of December. Certain prior
year amounts have been reclassified to conform to the current year's
presentation.
Cash and Cash Equivalents
Holdings considers all highly liquid financial instruments with a maturity
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in first-out (FIFO) method. Inventories include the
cost of raw materials, packaging, labor and manufacturing overhead.
F-28
<PAGE> 102
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the individual assets ranging from four to thirty
years. Costs which improve an asset or extend its useful life are capitalized,
while repairs and maintenance costs are expensed as incurred. Leasehold
improvements are amortized over the estimated useful life of the property or
over the terms of the leases, whichever is shorter.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets include goodwill, trademarks and
certain identifiable intangible assets. Trademarks and goodwill are being
amortized over four to forty years using the straight-line method. Other
intangible assets are being amortized using the straight-line method over
periods ranging from four to five years. Amortization of goodwill and other
intangible assets charged against income during the ten-month period ended
December 30, 1995, the years ended December 28, 1996 and December 27, 1997 and
for the unaudited six-month periods ended June 28, 1997 and June 27, 1998 was
$0.3 million, $1.1 million, $2.9 million, $0.8 million and $1.8 million,
respectively.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held for
disposal. Holdings has evaluated the carrying value for evidence of impairment,
and management believes at December 27, 1997, there were no indications of
impairment.
Holdings assesses the recoverability of long-lived assets by determining
whether the recorded balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of impairment, if any, is measured based upon projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of the asset will be impacted if
estimated future operating cash flows are not achieved.
Other Assets
Other assets consist of debt issuance costs, packaging design costs, and
other miscellaneous assets. Debt issuance costs of the senior subordinated notes
are being amortized using the interest method over the term of the respective
notes. Debt issuance costs of the senior secured debt are being amortized using
the straight-line method over the terms of the related debt. Aggregate
amortization of debt issuance costs and other assets charged against income in
the ten-month period ended December 30, 1995, the years ended December 28, 1996
and December 27, 1997, and the unaudited six-month periods ended June 28, 1997
and June 27, 1998 was $67,000, $259,000, $715,000, $154,000, and $486,000,
respectively. Amortization of packaging design costs charged against income was
$158,000, $205,000, $283,000, $120,000 and $230,000, for the same periods
respectively.
Disclosure About Fair Value of Financial Instruments
For purposes of financial reporting, Holdings has determined that the fair
value of its financial instruments approximates book value at December 28, 1996,
December 27, 1997, and June 27, 1998 (unaudited) based on terms currently
available to the Company in financial markets for similar instruments.
F-29
<PAGE> 103
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company sells its products to supermarkets, wholesalers and other
retailers. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and had no significant concentration of credit risk at
December 28, 1996, December 27, 1997, and June 27, 1998 (unaudited).
Income Taxes
Holdings records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. This method of accounting for income taxes uses an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between he
carrying amounts and the tax bases of assets and liabilities.
NOTE 3 -- BUSINESS ACQUISITIONS
On April 29, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of the Kozy Kitten(R) and Tuffy's(R) dry pet food
brands (the "Heinz Business") from Heinz Pet Products ("Heinz"), a division of
Heinz, Inc. The purchase price was $52.5 million, which included a contractually
agreed upon amount of working capital (as defined in the agreement). In
conjunction with the acquisition, the Company and Heinz entered into a
royalty-free licensing agreement, which entitles the Company to use the Kozy
Kitten trademark and trade name for dry cat food until April 29, 2006. The
Trademark License and Option Agreement gives the Company the irrevocable right
to purchase the trademark and trade name from Heinz no earlier than April 29,
2001 and no later than April 29, 2006 for a cash payment of $2.5 million. The
acquired assets also included a manufacturing facility in Perham, Minnesota. The
acquisition was accounted for using the purchase method of accounting and the
results of operations have been included since the date of acquisition.
In order to effect the Heinz Business acquisition and to refinance the
$17.0 million of existing debt of LLC at April 29, 1996, the Company entered
into a series of financings, as further described in Note 9. The financings
included (i) a capital contribution of $19.8 million from Holdings, (ii) senior
secured term debt of $43.0 million and a senior secured revolving debt facility
of $9.0 million, and (iii) issuance of a senior subordinated note in the amount
of $8.5 million.
The purchase price of the acquired Heinz Business has been allocated to
tangible and intangible assets as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash paid to acquire assets................................. $ 52,500
Other acquisition costs..................................... 4,257
--------
56,757
Cost assigned to net tangible assets........................ (19,282)
--------
Cost assigned to intangible assets.......................... $ 37,475
========
</TABLE>
Concurrent with the 1996 purchase of assets, the Company and Heinz entered
into a five year co-packing agreement in which the Company will manufacture
certain pet food products for Heinz. The agreement requires Heinz to meet a
minimum supply amount at a co-packing rate which covers the variable costs of
the pet food products as well as an amount to cover a specified rate of fixed
costs at the Perham facility where the products are manufactured.
On May 21, 1997, Windy Hill Pet Food Acquisition Co. merged with and into
Hubbard, and Old Windy Hill purchased all of the capital stock of Armour
Corporation, a holding company which prior to the closing of
F-30
<PAGE> 104
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the transaction owned 5% of the capital stock of Hubbard and after the
consummation of the transaction owned 39% of the capital stock of Hubbard.
Concurrently, Hubbard, the surviving corporation in the merger, was renamed
Windy Hill Pet Food Company, Inc., and Old Windy Hill transferred all the
operating assets and liabilities, including $27.0 million of equity and $51.0
million of indebtedness (the "Existing Indebtedness") of Old Windy Hill to the
Company. The net combined purchase price of Hubbard and the Armour Corporation
stock was approximately $131.1 million (net of cash acquired). For financial
reporting purposes, these transactions were accounted for as a purchase of
Hubbard by Old Windy Hill and the results of operations of Hubbard have been
included since the date of acquisition. The allocation of the purchase price has
been finalized.
The acquisition and the repayment of Existing Indebtedness was financed
with (i) a $9.8 million net capital contribution from Holdings, (ii) term debt
of $20.0 million and revolving debt of $45.0 million under a $65.0 million
senior secured debt facility, and (iii) proceeds from the issuance of $120.0
million of senior subordinated notes. Immediately following the merger, the
Company sold its animal feed business to Feed-Rite (US) Animal Feeds, Inc., a
subsidiary of the Ridley Group. The net after tax proceeds, subject to certain
adjustments, were approximately $50.0 million. The net proceeds were used to
repay $5.0 million of the senior secured term debt and $45.0 million of net
senior secured revolving debt facility.
The purchase price of the acquisitions have been allocated to tangible and
intangible assets as follows (in thousands):
<TABLE>
<CAPTION>
HUBBARD
--------
<S> <C>
Cash paid to acquire business, net of cash acquired......... $131,052
Other acquisition costs..................................... 5,438
--------
136,490
Cost assigned to net tangible assets and assets held for
sale...................................................... (86,305)
--------
Cost assigned to intangible assets.......................... $ 50,185
========
</TABLE>
The unaudited pro forma information below has been prepared assuming the
businesses were acquired December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Net sales.......................................... $208,100 $216,709
======== ========
Income before taxes and extraordinary item......... 882 4,465
======== ========
Net income......................................... $ (1,625) $ 2,679
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisitions occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead and general and administrative expenses.
F-31
<PAGE> 105
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................ $ 1,253 $ 3,004 $ 3,787
Packaging supplies....................... 2,339 5,536 8,230
Finished goods........................... 1,549 4,772 4,597
------- ------- -------
$ 5,141 $13,312 $16,614
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments to purchase raw materials
aggregating approximately $13.2 million.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.......................................... $ 203 $ 2,663 $ 2,968
Machinery and equipment....................... 17,043 42,882 56,393
Buildings and improvements.................... 6,266 16,328 19,781
Furniture and fixtures........................ 238 1,390 1,517
Computer equipment............................ 70 127 155
Construction-in-progress...................... 11 1,626 5,098
------- ------- -------
23,831 65,016 85,912
Less accumulated depreciation............... 1,347 4,242 (6,636)
------- ------- -------
$22,484 $60,774 $79,276
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments for facility construction
and related machinery and equipment purchases aggregating approximately
$332,000.
NOTE 6 -- INVESTMENTS IN JOINT VENTURES
The Company has a 50% equity interest in each of four manufacturing joint
ventures with each of the following joint venture partners, none of which are
affiliates of the Company or Holdings: Merrick PetFoods, Inc., MFA, Inc., J.R.
Simplot Company, and Flint River Mills, Inc. See Note 3. The Company accounts
for the joint ventures using the equity method of accounting.
F-32
<PAGE> 106
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill...................................... $ 7,588 $ 35,122 $ 46,948
Trademarks.................................... 45,000 66,807 66,807
Other intangibles............................. 332 852 852
------- -------- --------
52,920 102,781 114,607
Less accumulated amortization............... 1,405 4,316 6,037
------- -------- --------
$51,515 $ 98,465 $108,570
======= ======== ========
</TABLE>
NOTE 8 -- OTHER ASSETS
Other assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs........................... $2,978 $10,464 $10,464
Defined benefit pension plan asset............ -- 2,474 2,923
Packaging, plate cost and other costs......... 1,059 1,899 4,171
------ ------- -------
4,037 14,837 17,558
Less accumulated amortization............... 606 1,225 1,941
------ ------- -------
$3,431 $13,612 $15,617
====== ======= =======
</TABLE>
F-33
<PAGE> 107
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LONG TERM DEBT
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A-1 debt; interest rate of
8.29% at December 28, 1996.......................... $27,550 $ -- $ --
Senior secured tranche A-2 debt; interest rate of
8.29% at December 28, 1996.......................... 14,000 -- --
Senior secured revolving debt facility -- interest
rate of 8.37% at December 28, 1996.................. 2,000 -- --
Senior secured term debt -- interest rate of 8.38% at
December 27, 1997; principal due in quarterly
installments through November 21, 2003; floating
interest rate at the prime rate plus 1.5% or,
alternatively, the one, three or six month
Eurodollar rate plus 2.5% payable quarterly at the
termination of the Eurodollar contract period....... -- 15,000 46,160
Senior secured revolving debt facility -- interest
rate of 10.0% at December 27, 1997; principal due
November 21, 2003; floating interest rate at the
prime rate plus 1.50% or alternatively, the one,
three, or six month Eurodollar rate plus 2.50%;
payable quarterly or at the termination of the
Eurodollar contract period.......................... -- 2,000 --
SENIOR SUBORDINATED NOTES
Senior subordinated note issued April 29, 1996; coupon
interest rate of 12.0% with interest payable
quarterly; net of original issue discount of
$949,000............................................ 7,551 -- --
Senior subordinated notes issued May 15, 1997 at par
value of $120,000; coupon interest rate of 9.75%
with interest payable each May 15 and November 15;
matures on May 15, 2007............................. -- 120,000 120,000
PROMISSORY NOTES
PIK A promissory notes issued April 29, 1996; coupon
interest rate of (i) 10% per annum through April 29,
2003 and (ii) interest payable at 12.0% per annum
from April 30, 2003 through December 31, 2005;
compounded semi-annually with interest payable
annually beginning April 29, 2004; matures on
December 31, 2005, with original principal and
accrued interest through April 29, 2003............. 3,750 3,750 3,750
PIK A-1 promissory note issued May 21, 1997, effective
April 29, 1996; coupon interest rate of (i) 10% per
annum through April 29, 2003 and (ii) interest
payable at 12.0% per annum from April 30, 2003
through December 31, 2005; compounded semi-annually
with interest payable annually beginning April 29,
2004; matures on December 31, 2005, with original
principal and accrued interest through April 29,
2003................................................ -- 417 417
</TABLE>
F-34
<PAGE> 108
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible subordinated promissory note issued April
29, 1996; coupon interest rate of (i) 10% per annum
through April 29, 2003 and (ii) interest payable at
12.0% per annum from April 30, 2003 through April
29, 2006; compounded semi-annually with interest
payable annually beginning April 29, 2004; matures
on April 29, 2006, with original principal and
accrued interest through April 29, 2003............. 10,500 10,500 10,500
------- -------- --------
65,351 151,667 180,827
Less: current portion of senior secured debt.......... 5,800 1,312 1,937
current portion of senior secured revolving debt
facility........................................ 2,000 2,000 --
------- -------- --------
Long term debt........................................ $57,551 $148,355 $178,890
======= ======== ========
</TABLE>
Annual principal payments for the next five years and thereafter consist of
the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 27,
1997
------------
<S> <C>
1998........................................................ $ 3,312
1999........................................................ 1,781
2000........................................................ 2,156
2001........................................................ 2,531
2002........................................................ 2,906
Thereafter.................................................. 138,981
--------
$151,667
========
</TABLE>
Senior Secured Debt
Old Windy Hill and Holdings entered into a Credit and Guarantee Agreement,
dated April 29, 1996 (the "Agreement"), with several banks for $43.0 million of
senior secured term debt and a senior secured revolving debt facility. The
proceeds from the debt were used to acquire certain assets and brands from
Heinz, pay fees and expenses and fund working capital. The debt was guaranteed
by Holdings and Old Windy Hill. The Agreement contained optional prepayment
provisions with no premium. Substantially all of the assets of Old Windy Hill
were pledged as collateral for the debt.
The Agreement included $9.0 million of available borrowing under a senior
secured revolving debt facility, of which $2.5 million was reserved to support
the Trademark License and Option Agreement (Note 3). The available borrowings
were also subject to limitations related to aggregate inventory and accounts
receivable levels. The Agreement required a commitment fee of 0.50% per annum
payable quarterly on the unused portions of the revolving debt facility.
In conjunction with the acquisition of Hubbard, the Company entered into a
Credit Agreement, dated May 21, 1997 (the "Credit Agreement"), among Windy Hill
Pet Food Acquisition Co., Credit Suisse First Boston, The Chase Manhattan Bank
and the several banks and other financial institutions parties thereto, which
provided the Company with senior secured debt facilities (the "Senior Bank
Facilities") in the aggregate principal amount of $85.0 million. The proceeds
from the Senior Bank Facilities and the $120.0 million senior subordinated notes
were used to retire the senior secured term debt and the senior secured
revolving debt facility under the Agreement.
F-35
<PAGE> 109
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Bank Facilities consist of (i) a senior secured term loan
facility providing for term loans to the Company in a principal amount of $20.0
million (the "Term Loan Facility"), (ii) an acquisition debt facility (the
"Acquisition Facility") providing revolving loans to the Company for permitted
acquisitions in a principal amount of $45.0 million, and (iii) a working capital
revolving debt facility providing for revolving loans to the Company and the
issuance of letters of credit for the account of the Company as well as swing
line loans in an aggregate principal amount of $20.0 million. The senior secured
working capital debt facility is subject to a commitment fee of 0.5% per annum
payable quarterly on the unused portions of the facility.
As a result of the Hubbard and Heinz acquisitions, the Existing
Indebtedness and the $17.0 million of existing debt of LLC were refinanced and
in conjunction with the retirement of those debt facilities, $604,000 (together
with unamortized note discounts and other charges totaling $1.2 million in
fiscal 1997) and $2.6 million of debt issuance costs were written off as
extraordinary items in the statements of operations for the years ended December
28, 1996 and December 27, 1997, respectively. The effective tax rate was applied
to the write-off for the year ended December 27, 1997, while no income tax
effect was reflected to the write-off for the year ended December 28, 1996, as
the write-off was attributable to the members of LLC.
The Credit Agreement includes restrictive covenants, which limit
borrowings, cash dividends, and capital expenditures, while also requiring the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants at December 27, 1997.
Senior Subordinated Notes
On April 29, 1996, Old Windy Hill issued a senior subordinated note (the
"Old Note") in the amount of $8.5 million to a bank. The Old Note could be
prepaid at any time, subject to a prepayment penalty of 4% in the first year, 3%
in the second year, 2% in the third year, and 1% in the fourth year, and no
prepayment penalty thereafter.
The Old Note included a provision for warrants for 10% of the stock of
Holdings with a nominal exercise price. The warrants were subject to
anti-dilution covenants. The warrants would have expired the later of ten years
from the date of issuance or four years after the Old Note has been repaid. The
warrants were freely assignable and detachable. The holder of the Old Note also
had the right to "put" the warrants or stock to Holdings, beginning after the
earlier of five years from the closing, a sale or merger of the Company, or an
event of default on the Old Note. The value assigned to the warrants as of the
issuance date was $1.0 million and was recorded at Holdings and contributed to
Old Windy Hill as paid in capital. The capital contribution was recorded by Old
Windy Hill with a corresponding discount to the value of the Old Note. The
discount was being amortized over eight years, or the life of the Old Note.
Accumulated amortization as of December 28, 1996 was $51,000. In conjunction
with the acquisition of Hubbard, the holder of the Old Note exercised its
warrants for common and preferred stock of Holdings and a note due from Holdings
for $416,667.
In conjunction with the acquisition of Hubbard on May 21, 1997, the Company
issued $120.0 million of senior subordinated notes (the New Notes). The proceeds
from the New Notes, along with the proceeds from the Senior Bank Facilities and
a capital contribution from Holdings (Note 3), were used to (i) retire the
senior secured term debt and the senior secured revolving debt facility financed
under the Agreement, (ii) retire the Old Note and (iii) acquire Hubbard. In
connection with the retirement of the Old Note, $606,000 of debt issuance costs
were written off as an extraordinary item in the statement of operations for the
year ended December 27, 1997. The effective tax rate was applied to the
extraordinary item.
The Company may redeem the New Notes at any time after May 15, 2002, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem up to $42.0 million of the New Notes at any time prior to May
15, 2002, subject to certain requirements, with the cash proceeds received from
one or more equity offerings (as defined), at a redemption price of 109.750%
together with accrued and unpaid interest. Upon a change of control (as
defined), the Company has an option at any time
F-36
<PAGE> 110
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prior to May 15, 2002, to redeem the New Notes at a redemption price of 100%
plus the applicable premium (as defined), together with accrued and unpaid
interest. If the Company does not redeem the New Notes or if the change of
control occurs after May 15, 2002, the Company is required to offer to
repurchase the New Notes at a price equal to 101% together with accrued and
unpaid interest.
The New Notes include restrictive covenants, which limit additional
borrowings, cash dividends, sale of assets, mergers and the sale of stock. The
Company was in compliance with these covenants at December 27, 1997.
PIK A Promissory Notes
On April 29, 1996, Holdings issued $3,750,000 in PIK A promissory notes
("PIK A Notes") to shareholders of Holdings. The PIK A Notes can be prepaid at
any time without penalty. The PIK A Notes include restrictive covenants, which
limit cash dividends and distributions.
PIK A-1 Promissory Note
On May 21, 1997, in conjunction with the exercise of the warrants by the
holder of the Old Note, Holdings issued a $416,667 PIK A-1 Note ("PIK A-1
Note"). The PIK A-1 Note can be prepaid at any time without penalty. The PIK A-1
Note includes restrictive covenants, which limit cash dividends and
distributions.
Convertible Subordinated Promissory Note
On April 29, 1996, Holdings issued a $10.5 million convertible subordinated
promissory note ("Promissory Note") to Heinz. The Promissory Note can be prepaid
at any time without penalty. The Promissory Note includes restrictive covenants,
which limit cash dividends and distributions.
Interest Rate Hedge Agreements
The Company uses interest rate collar agreements (the "Agreements") to
reduce the impact of changes in interest rates on its floating rate term debt.
Premiums paid for such Agreements are being amortized to debt issuance costs
over the terms of the Agreements. Unamortized premiums are included in other
assets in the balance sheets. Amounts to be paid or received, if any, under the
Agreements are recognized as an increase or decrease, respectively, in interest
expense. The counterparty to the Company's Agreements is a major financial
institution.
The current effective cap rate is set at 7.50% (plus the applicable
margin). The effective floor rate is set at 5.50% (plus the applicable margin).
The notional principal under the Agreements is $25.0 million. As of December 28,
1996, and December 27, 1997, the Company had total variable rate debt
outstanding in the amount of $43.6 million and $17.0 million, respectively. The
aggregate premiums paid for the Agreements was $103,000.
Under the Agreements, the Company would receive payments from the
counterparty if the three-month LIBOR rate exceeds the cap rate and make payment
to the counterparties if the three-month LIBOR rate falls below the floor rates.
The payments would be calculated based upon the respective notional principal
amount. During fiscal 1996 and 1997 the Company made no payments under the
Agreements. At December 27, 1997, the three-month LIBOR rate was 5.91%.
Risk associated with the Agreements include those associated with changes
in market value and interest rates. At December 27, 1997, the fair value of the
Company's interest rate collars was immaterial and management considers the
potential loss in future earnings and cash flows attributable to such Agreements
to be immaterial.
F-37
<PAGE> 111
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- TRANSITION RELATED COSTS
Transition related expenses represent one time costs incurred to integrate
the Hubbard acquisition. These costs include transitional employee compensation,
relocation expenses, recruiting fees, training costs, system conversion costs
and other unique transitional expenses. Transition related costs for the year
ended December 27, 1997 were approximately $1.6 million.
NOTE 11 -- INCOME TAXES
Holdings files a federal income tax return on a consolidated basis with its
wholly-owned subsidiaries. State income tax returns are filed by Holdings and
the Company on a separate company basis or on a combined basis depending on the
particular laws in each state. Holdings' income tax provision is computed as if
all income tax returns were filed on a consolidated basis.
The income tax expense (benefit) is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
TEN MONTH YEARS ENDED
PERIOD ENDED ---------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense:
Federal.......................................... $ -- $ -- $ 7,763
State............................................ -- -- 1,443
---- ---- -------
Total current provision.................. -- -- 9,206
---- ---- -------
Deferred tax expense (benefit):
Federal.......................................... -- 641 (8,249)
State............................................ -- 183 (1,531)
---- ---- -------
Total deferred expense (benefit)......... -- 824 (9,780)
---- ---- -------
Total income tax expense (benefit)....... $ -- $824 $ (574)
==== ==== =======
</TABLE>
Holdings' tax provision in 1997 reflects taxes paid on the gain for tax
purposes on the sale of the animal feed business as well as the recognition of a
$12.3 million reduction in deferred taxes established for the gain at the time
of the acquisition of Hubbard.
F-38
<PAGE> 112
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets -- current:
Post-retirement benefits.................................. $ -- $ 1,006
Accrued expenses.......................................... -- 502
Package design costs...................................... -- 323
Other..................................................... 30 504
------- --------
Total deferred tax assets -- current.............. 30 2,335
------- --------
Deferred tax assets -- non-current:
Loss carryforwards........................................ 1,078 --
State taxes............................................... -- 666
------- --------
Total deferred tax assets -- non-current.......... 1,078 666
------- --------
Deferred tax liabilities -- non-current:
Depreciation.............................................. (202) (7,805)
Goodwill.................................................. (2,743) (4,144)
Prepaid pension........................................... -- (981)
Other..................................................... -- (126)
------- --------
Total deferred tax liabilities -- non-current..... (2,945) (13,056)
------- --------
Net deferred tax liability........................ $(1,837) $(10,055)
======= ========
</TABLE>
Holdings has not recorded a valuation allowance for its deferred tax
assets. Management believes that Holdings' deferred tax assets are more likely
than not to be realized.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
(Benefit) provision for income taxes at U.S.
statutory rate..................................... $638 $(814)
(Decrease) increase in tax resulting from:
Nondeductible expenses............................. 65 314
State taxes, net of federal benefit................ 121 (74)
---- -----
$824 $(574)
==== =====
</TABLE>
NOTE 12 -- LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2012.
F-39
<PAGE> 113
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future annual minimum lease payments under these leases at December 27,
1997 are summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 890
1999........................................................ 850
2000........................................................ 748
2001........................................................ 607
2002........................................................ 604
Thereafter.................................................. 2,037
------
$5,736
======
</TABLE>
Rent expense was $159,000, $248,000, $669,000, $160,000, and $412,000 for
the ten-month period ended December 30, 1995, the years ended December 28, 1996
and December 27, 1997, and for the unaudited six-month periods ended June 28,
1997 and June 27, 1998, respectively.
NOTE 13 -- SAVINGS AND BENEFIT PLANS
The Company maintains a defined contribution plan for all employees with
eligibility conditioned upon full time employment. The Company makes annual
contributions based upon a percent of the employee's annual taxable wages.
Vesting in the plan is according to a graduated scale of one third per year with
full vesting at the end of the third year of employment. The employer
contribution for the ten month period ended December 30, 1995, the years ended
December 28, 1996 and December 27, 1997, and the unaudited six-month periods
ended June 28, 1997 and June 27, 1998 was $72,000, $206,000 and $369,000, $0,
and $0, respectively. Eligible employees are also given the opportunity to make
their own contributions to the plan on a tax deferred basis.
Employee Benefit Plans
In connection with the acquisition of Hubbard, the Company succeeded in
interest to two noncontributory, defined benefit pension plans covering hourly
and salaried employees. The following tables set forth the funded status of the
pension plans and the amount recognized in the Company's balance sheet as of
December 27, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------- -------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested.............................................. $ 5,382 $ 9,739 $15,122
Nonvested........................................... 325 311 636
------- ------- -------
Accumulated benefit obligation.............. 5,707 10,050 15,758
Effect of projected future salary increases........... 1 939 940
------- ------- -------
Projected benefit obligation................ 5,708 10,989 16,698
Market value of plan assets........................... 5,894 15,323 21,217
------- ------- -------
Plan assets in excess of projected benefit
obligation................................ 186 4,334 4,519
Unrecognized net gain................................. (596) (1,449) (2,045)
------- ------- -------
(Pension liability) prepaid pension cost.... $ (410) $ 2,885 $ 2,474
======= ======= =======
</TABLE>
F-40
<PAGE> 114
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------- -------- -------
<S> <C> <C> <C>
The net periodic pension cost (benefit) components
were as follows for the year ended December 27, 1997
(dollars in thousands):
Service cost earned during the year................. $ 54 $ 148 $ 202
Interest cost on projected benefit obligation....... 277 531 808
Actual return on plan assets........................ (1,340) (2,775) (4,115)
Deferred gain....................................... 987 1,882 2,869
------- ------- -------
Pension (benefit)........................... $ (22) $ (214) $ (236)
======= ======= =======
</TABLE>
The principal actuarial assumptions used for December 27, 1997 were:
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN
------ --------
<S> <C> <C>
Discount rate............................................... 7.25% 7.25%
Long-term rate of compensation increase..................... 5.0% 5.0%
Long-term rate of return on plan assets..................... 8.0% 8.0%
</TABLE>
Other Benefits
In connection with the acquisition of Hubbard, the Company acquired a
retiree medical payment plan, which provides health care benefits for eligible
retired associates and their covered dependents and spouses. Employees must be
55 years or older with 10 years of service upon retirement to be eligible for
coverage under the current plan. Depending on the date of retirement, the
retiree must pay the premium cost associated with health care coverage. The plan
is not funded.
The accumulated post-retirement obligation included the following
components (dollars in thousands):
<TABLE>
<S> <C>
Retirees.................................................... $2,046
Eligible active plan participants........................... 114
Other active plan participants.............................. 672
------
Accumulated post-retirement benefit obligation.... 2,832
Unrecognized loss........................................... 318
------
Accrued post-retirement benefit obligation........ $2,514
======
</TABLE>
Under Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, postretirement
benefit expense included the following components (dollars in thousands):
<TABLE>
<S> <C>
Current service............................................. $ 27
Interest on accumulated benefits obligation................. 111
----
Total postretirement benefit expense.............. $138
====
</TABLE>
The discount rate used to determine the accumulated post-retirement benefit
obligation was 7.25%. The assumed health care cost trend rate used to measure
the obligation was 9.7% for 1997. A one-percentage point increase in the assumed
health care cost trend rate would have increased the 1997 accumulated post-
retirement obligation by $341,000.
F-41
<PAGE> 115
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- RELATED PARTY TRANSACTIONS
The Company is party to an Amended and Restated Management Services
Agreement, dated as of May 2, 1997, with Dartford Partnership, L.L.C.
("Dartford") pursuant to which Dartford provides management oversight to the
Company. Management services provided by Dartford include, but are not limited
to, operations oversight, corporate and financial planning, identification of
possible acquisitions and advice on the financing thereof and definition and
development of business opportunities. In the ten-month period ended December
30, 1995, and the years ended December 28, 1996 and December 27, 1997, the
Company paid a total of $250,000, $458,000 and $807,000, respectively, in
management fees to Dartford, a member of LLC, who is also a shareholder of
Holdings. The annual management fee was $250,000 prior to the acquisition of the
Heinz Pet Food Brands, $500,000 prior to the merger of Old Windy Hill and
Hubbard, and $1.0 million after the merger of Old Windy Hill and Hubbard. The
terms of the Amended and Restated Management Services Agreement were negotiated
among the equity investors of Holdings.
In connection with the acquisitions of the Heinz pet food brands and
Hubbard, the Company paid to certain members of LLC and shareholders of
Holdings, who are also represented on the Board of Directors or officers of the
Company and beneficial owners, fees for services rendered in connection with the
acquisitions of Heinz pet food brands and Hubbard and related financing of
acquisitions. The aggregate amount paid to certain members of LLC and
shareholders of Holdings was $2.5 million and was funded by the proceeds of the
financings. Of this $2.5 million, $1.8 million was paid to Dartford and $0.7
million was paid to Bruckmann, Rosser, Sherrill & Co. The fee amounts were
negotiated among the equity investors of Holdings.
The Company paid certain members of LLC fees totaling $420,000 during the
ten-month period ended December 30, 1995 and $525,000 during the year ended
December 28, 1996. The fees were paid for services provided in identifying,
negotiating and consummating the Company's acquisitions. The fees were included
in the costs of the acquisitions.
NOTE 15 -- INCENTIVE COMPENSATION PLAN
The Windy Hill Pet Food Holdings, Inc. Stockholders Agreement
("Stockholders Agreement") dated as of April 29, 1996 and amended as of May 21,
1997, contains an incentive compensation arrangement (the "Incentive Plan") a
means by which certain key employees and other specifically designated persons
("Key Personnel") of the Company, and/or affiliated with the Company, may be
given an opportunity to benefit from the appreciation in value of the Company.
Under the Incentive Plan, Key Personnel were issued non-voting Class B Common
Stock of Holdings ("Class B Stock"), at a $.01 per share, as a means to
participate in the appreciation of the Company. The Class B Stock is subject to
vesting requirements based on terms of employment or other factors. A portion of
the vesting period was deemed achieved at date of issuance of the Class B Stock.
The holders of vested Class B Stock will be entitled to receive certain
payments or distributions based on the amounts paid or distributed to investors
in Holdings. In general, there will be no payments to holders of vested Class B
Stock until the Preferred Series A and B Stock of Holdings ("Preferred Stock")
and associated accrued and unpaid dividends on the Preferred Stock, and Class A
Common Stock of Holdings ("Class A Stock") have received their respective return
of capital. The type of payment will be cash or non-cash consideration,
depending on the type of distribution to the Holdings' investors. Shares of
Class B Stock are convertible into an equal number of shares of Class A Stock
once the Preferred Stock and Class A Stock have received their priority
distribution.
Based on management's assessment of the valuation of the Company at the
date of issuance of the Class B Stock, there was no excess value attributable to
the Class B stock and therefore, no accrual for compensation expense was
necessary.
F-42
<PAGE> 116
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- STOCKHOLDERS' EQUITY
On February 28, 1995, under Old Windy Hill's previous ownership structure,
LLC was initially capitalized with a capital contribution from its members in
the gross amount of $6.0 million. Offering costs associated with this capital
contribution were $109,000. In connection with the acquisition of the Heinz
Business (Note 3), LLC contributed its capital in the net amount of $5.9 million
to Holdings. In exchange for the net capital contribution, LLC was issued Series
B preferred stock and 500 shares of Class A common stock.
On April 29, 1996, Holdings was capitalized with LLC's net capital
contribution and an additional capital contribution from its shareholders in the
gross amount of approximately $4.8 million. Offering costs associated with this
capital contribution were $210,000. The aggregate equity capital along with the
PIK A Notes and the Promissory Note were contributed to the Company and used to
fund the Company's acquisition of certain assets from Heinz.
On May 21, 1997, the shareholders of Holdings contributed an additional
gross capital contribution of $10.0 million. Offering costs associated with this
capital contribution were $224,000. In connection with the acquisition of
Hubbard (Note 3), Holdings contributed its additional capital in the net amount
of approximately $9.8 million to the Company. In exchange for the net capital
contribution, the shareholders were issued 1,428.6 shares of Class A common
stock.
Preferred Stock
Each holder of preferred stock is entitled to a cumulative 10% annual stock
dividend on the stated value through April 29, 2003. Thereafter, each holder is
entitled to a cumulative 12% annual return on the stated value. Each share of
preferred stock (i) is not entitled to vote, with few exceptions, (ii) can be
redeemed at the option of Holdings, and (iii) possess anti-dilution privileges.
The stock dividend is payable upon the Board of Directors' approval and payment
is also restricted by the Credit Agreement. In addition, when the holder of the
Old Note exercised its warrants, the holder was issued 416.667 shares of Series
B preferred stock of Holdings. The Company also has authorized 45,000 shares of
Series A preferred stock with no shares issued.
Common Stock
In addition to the Company's issued and outstanding Class A common stock,
the Company has also authorized 2,000 shares of Class B common stock, with 569
shares issued and outstanding. Under the securities purchase agreements dated
April 29, 1996 and May 21, 1997, certain officers and Dartford were issued Class
B common stock, par value $0.01 per share. In addition, when the holder of the
Old Note exercised its stock warrants, the holder was issued 111.11 shares of
Class A common stock of Holdings and 27.77 shares of Class B common stock of
Holdings.
Warrants
On April 28, 1996, warrants were issued to a bank affiliate (Note 9), which
entitled the holder to purchase up to 10% of the stock of Holdings at a nominal
exercise price. The holder of the warrants was also the holder of the Old Note.
The warrants were subject to anti-dilution covenants. The warrants expired the
later of ten years from closing or four years after the Old Note was repaid. The
holder of the warrants also had the right to "put" the warrants or stock to
Holdings at a price as specified in the agreement, beginning after the earlier
of five years from the closing, a sale or merger of the Company, or an event of
default on the Old Note.
On May 21, 1997, in conjunction with the merger of Hubbard and Old Windy
Hill and payment of the Old Note, the holder of the warrants exercised the
warrants in exchange for 416.667 shares of Series B preferred stock of Holdings,
111.11 shares of Class A common stock of Holdings, 27.77 shares of Class B
F-43
<PAGE> 117
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock of Holdings and was issued a PIK A-1 Promissory Note of Holdings in
the principal amount of $416,667.
NOTE 17 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, the ultimate outcome of any existing litigation will
not have a material adverse effect on the Company's financial condition or
results of operations.
NOTE 18 -- SUBSEQUENT EVENT (UNAUDITED)
On February 23, 1998, the Company acquired all of the assets of the pet
food division (the "AGP Business") of Consolidated Nutrition, L.C. The assets
acquired by the Company include four plants located in the states of Alabama,
Kansas, Missouri and Nebraska. The Company intends to use the acquired assets to
produce its current products. The purchase price was approximately $12.4
million. The acquisition was accounted for using the purchase method of
accounting. The Company financed the acquisition of the AGP Business and related
costs with a $12.5 million borrowing under the terms of its Acquisition
Facility.
F-44
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hubbard Milling Company:
We have audited the accompanying balance sheets of Pet Food Division (a
division of Hubbard Milling Company) as of April 30, 1995, 1996 and 1997, and
the related statements of earnings and cash flows for each of the years in the
three-year period ended April 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pet Food Division (a
division of Hubbard Milling Company) at April 30, 1995, 1996 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
June 6, 1997
Minneapolis, Minnesota
F-45
<PAGE> 119
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and short-term investments, at cost which
approximates market........................... $ 11,882,585 $ 13,846,705 $ 15,006,116
Trade receivables, less allowance for doubtful
accounts of $274,000, $258,500 and $224,221,
respectively.................................. 4,999,458 5,773,101 5,356,769
Inventories...................................... 6,194,481 5,762,544 5,372,905
Prepaid expenses................................. 177,467 102,155 59,764
------------ ------------ ------------
Total current assets..................... 23,253,991 25,484,505 25,795,554
Property, plant and equipment, at cost:
Land............................................. 1,345,190 1,340,063 1,348,540
Buildings........................................ 11,641,431 12,085,731 12,904,693
Equipment........................................ 32,395,959 34,658,895 35,986,524
------------ ------------ ------------
45,382,580 48,084,689 50,239,757
Less accumulated depreciation...................... (18,902,486) (21,575,369) (25,164,947)
------------ ------------ ------------
26,480,094 26,509,320 25,074,810
Construction in progress........................... 1,422,542 117,342 174,959
------------ ------------ ------------
Net property, plant and equipment................ 27,902,636 26,626,662 25,249,769
Investments in and advances to joint ventures and
partnerships..................................... 2,342,012 4,756,956 4,190,414
Other assets....................................... 4,366,328 5,227,497 4,082,569
------------ ------------ ------------
$ 57,864,967 $ 62,095,620 $ 59,318,306
============ ============ ============
LIABILITIES AND INVESTMENT AND ADVANCES BY PARENT
Current liabilities:
Accounts payable and accrued expenses............ $ 7,274,333 $ 8,686,131 $ 7,341,254
Associates' profit sharing trust, bonus and
savings plan.................................. 1,614,852 1,944,507 226,909
Income tax payable............................... 25,862 223,144 262,430
------------ ------------ ------------
Total current liabilities................ 8,915,047 10,853,782 7,830,593
Deferred credits................................... 2,864,497 1,565,007 2,393,560
Accrued postretirement and pension expense......... 1,085,814 1,423,852 1,610,471
------------ ------------ ------------
Total liabilities........................ 12,865,358 13,842,641 11,834,624
Investment and advances by Parent.................. 44,999,609 48,252,979 47,483,682
------------ ------------ ------------
Contingencies...................................... $ 57,864,967 $ 62,095,620 $ 59,318,306
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 120
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Net sales........................................... $87,736,386 $102,268,658 $108,523,031
Cost of sales....................................... 67,052,037 80,658,065 87,767,776
----------- ------------ ------------
Gross profit.............................. 20,684,349 21,610,593 20,755,255
Operating expenses:
Warehouse and delivery............................ 245,690 200,119 188,327
Selling and advertising........................... 6,468,689 7,035,518 6,924,434
General and administrative........................ 5,743,380 5,917,179 6,098,926
----------- ------------ ------------
Total operating expenses.................. 12,457,759 13,152,816 13,211,687
Operating income.................................. 8,226,590 8,457,777 7,543,568
Other income:
Interest.......................................... 789,672 774,582 867,180
Equity in earnings of joint ventures.............. 1,355,832 980,576 976,179
Other............................................. 46,207 36,910 80,865
----------- ------------ ------------
Total other income........................ 2,191,711 1,792,068 1,924,224
Income before other expenses and income taxes..... 10,418,301 10,249,845 9,467,792
Other expenses...................................... 41,124 26,456 10,778
Earnings before income taxes...................... 10,377,177 10,223,389 9,457,014
Income tax expense.................................. 4,133,387 3,935,682 3,683,678
----------- ------------ ------------
Net earnings...................................... $ 6,243,790 $ 6,287,707 $ 5,773,336
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 121
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
----------------------------------------
1995 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................................... $ 6,243,790 $ 6,287,707 $ 5,773,336
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation.................................... 3,060,395 3,490,004 3,755,973
Amortization of goodwill and other intangible
assets........................................ 31,797 265,668 269,623
Deferred income taxes........................... 503,931 (1,916,094) 1,112,636
Deferred compensation........................... 724,434 152,519 180,147
(Gain) loss on disposal of property, plant and
equipment..................................... 22,036 22,418 (1,017)
Change in assets and liabilities excluding effects
of acquisitions:
(Increase) decrease in trade receivables........ (925,844) (773,643) 416,332
Decrease in inventories......................... 662,535 431,937 389,639
Decrease in prepaid expenses.................... 351,511 75,312 42,391
(Increase) decrease in other assets............. (226,584) (662,752) 411,220
Increase (decrease) in accounts payable and
accrued expenses.............................. 1,490,813 1,749,836 (1,158,260)
Increase (decrease) in income taxes payable..... (286,302) 197,282 39,286
Increase (decrease) in other current
liabilities................................... 423,347 329,655 (1,717,598)
------------ ----------- -----------
Total adjustments.......................... 5,832,069 3,362,142 3,740,372
------------ ----------- -----------
Net cash provided by operating
activities............................... 12,075,859 9,649,849 9,513,708
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property, plant and
equipment....................................... 167,663 946 27,599
Additions to property, plant and equipment......... (2,607,308) (3,839,178) (2,405,805)
Payments and advances for acquisitions, joint
ventures and partnerships....................... (10,597,258) (813,160) 566,542
------------ ----------- -----------
Net cash used in investing activities...... (13,036,903) (4,651,392) (1,811,664)
------------ ----------- -----------
Cash flows from financing activities:
Increase (decrease) in intercompany account........ 4,890,319 (3,034,337) (6,542,633)
------------ ----------- -----------
Net cash provided by (used by) financing
activities............................... 4,890,319 (3,034,337) (6,542,633)
------------ ----------- -----------
Net increase in cash and cash
equivalents.............................. 3,929,275 1,964,120 1,159,411
------------ ----------- -----------
Cash and cash equivalents at beginning of period..... 7,953,310 11,882,585 13,846,705
============ =========== ===========
Cash and cash equivalents at end of period........... $ 11,882,585 $13,846,705 $15,006,116
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 122
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information and Basis of Statement Presentation
Pet Food Division ("Pet Food" or the "Company") is a division of Hubbard
Milling Company ("Hubbard"). Pet Food is a North American manufacturer and
marketer of private label dog and cat food.
The accompanying financial statements do not necessarily reflect the
financial position and results of operations of Pet Food in the future, or what
the financial position and results of operations would have been had it been an
independent entity during the periods presented.
Receivables
The Company provides an allowance for estimated collection losses. The
estimated losses are based on a review of the current status of existing
receivables in conjunction with historical collection experience.
Inventories
Inventories are valued substantially at the lower of cost (first in, first
out) or market.
Property, Depreciation and Amortization
The cost of buildings and equipment is capitalized and charged to earnings
utilizing the straight-line method of depreciation over the estimated useful
lives of the related assets. The cost of significant improvements to properties
is similarly depreciated, while the cost of repairs and routine maintenance is
charged to earnings as incurred. Goodwill is generally amortized over a period
of 15 years. Other intangible assets are amortized over the life of the related
assets.
Pension Plans
The Company has defined benefit plans covering substantially all of its
associates. The benefits are based on years of service and associate
compensation. The Company's funding policy is to contribute annually the amount
recommended by its actuaries. Contributions are intended to provide not only for
benefits attributed to service to-date but also for those expected to be earned
in the future.
Other Postretirement Benefits
The Company has adopted Statement of Financial Accounting Standards (SFAS)
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions."
SFAS 106 requires the accrual of postretirement benefits over the years the
associates provide service to the date of their first eligibility for such
benefits. The Company is fully reserved to cover anticipated costs.
Income Taxes
The Company follows the practice of recognizing the income tax effects of
transactions in the year in which they enter into the determination of
accounting income, regardless of when they are recognized for income tax
purposes. Accordingly, income tax expense includes charges and credits for
deferred income taxes and the accumulated deferred income taxes are recorded in
the accompanying balance sheets.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
109 "Accounting for Income Taxes." SFAS 109 requires that deferred tax
liabilities and assets be established based on the difference between the
financial and income tax carrying values of assets and liabilities using
existing tax rates.
F-49
<PAGE> 123
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows
Investments are valued at cost which approximates market. Short-term
investments with maturities of 60 days or less and investments which can be
redeemed immediately are considered cash equivalents.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for income taxes....................... $4,777,076 $7,933,594 $2,747,334
</TABLE>
The noncash investment activity during the fiscal year ended April 30, 1996
of $1,601,784 was for a transfer of property, plant & equipment to a joint
venture.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(2) SUPPLEMENTAL ASSET AND LIABILITY INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Inventories:
Raw materials.................................. $1,090,260 $ 980,509 $1,015,665
Finished and in-process goods.................. 2,070,094 2,205,168 2,005,206
Packaging and supplies......................... 3,034,127 2,576,867 2,352,034
---------- ---------- ----------
Total inventories...................... $6,194,481 $5,762,544 $5,372,905
========== ========== ==========
Other assets:
Goodwill....................................... $3,871,113 $3,615,663 $3,357,027
Other intangible assets........................ 123,696 114,574 104,158
Deferred taxes................................. -- 464,085 --
Restricted insurance deposits.................. -- 229,971 288,886
Other.......................................... 371,519 803,204 332,498
---------- ---------- ----------
Total other assets..................... $4,366,328 $5,227,497 $4,082,569
========== ========== ==========
Accounts payable and accrued expenses:
Accounts payable............................... $4,912,216 $5,496,369 $4,368,548
Accrued insurance.............................. 841,987 1,631,510 1,246,563
Accrued vacation............................... 612,890 852,068 889,363
Other.......................................... 907,240 706,184 836,780
---------- ---------- ----------
Total accounts payable and accrued
expenses............................. $7,274,333 $8,686,131 $7,341,254
========== ========== ==========
Deferred credits:
Deferred taxes................................. $1,452,009 $ -- $ 648,551
Deferred compensation.......................... 1,412,488 1,565,007 1,745,009
---------- ---------- ----------
Total deferred credits................. $2,864,497 $1,565,007 $2,393,560
========== ========== ==========
</TABLE>
F-50
<PAGE> 124
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENT AND ADVANCES BY PARENT
Investment and advances by parent represents Hubbard's ownership interest
in the recorded net assets of Pet Food. All cash transactions and intercompany
transactions flow through this account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period................ $33,865,500 $44,999,609 $48,252,979
Net earnings.................................. 6,243,790 6,287,707 5,773,336
Net intercompany activity..................... 4,890,319 (3,034,337) (6,542,633)
----------- ----------- -----------
Balance at end of period...................... $44,999,609 $48,252,979 $47,483,682
</TABLE>
(4) RELATED PARTY TRANSACTIONS
Transactions with Hubbard include certain disbursements by Hubbard on
behalf of Pet Food and charges for certain operating expenses including
insurance, bonus, profit sharing, corporate aircraft, corporate accounting,
information services and office services.
Expenses are charged based upon the specific identification of applicable
costs, and in certain instances, a proportional cost allocation based on
proportional headcount. Management believes that the basis of all such charges
is reasonable. The amount of general and administrative expenses charged by
Hubbard to Pet Food is as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
- ------------------------------------
1995 1996 1997
- ---------- ---------- ----------
<S> <C> <C>
$2,358,819 $2,201,489 $2,872,473
</TABLE>
Sales to and purchases from the Hubbard Animal Feed Division amounted to
the following:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales............................................ $3,161,613 $3,631,688 $3,492,207
Purchases........................................ $ 407,835 $ 601,549 $ 909,291
</TABLE>
(5) ACQUISITIONS
On April 3, 1995, the Company acquired substantially all the manufacturing
assets of Triumph Pet Industries, Inc. for cash. The facility manufactures and
markets pet biscuit products. The acquisition has been accounted for as a
purchase and included in the accompanying financial statements from the date of
purchase.
The components of cash used for the acquisition, as reflected in the
statement of cash flows, were as follows:
<TABLE>
<S> <C>
Fixed assets................................................ $ 6,147,745
Inventory................................................... 1,314,038
Prepaid expenses............................................ 127,231
Goodwill.................................................... 3,680,000
Noncompete agreements....................................... 100,000
-----------
$11,369,014
===========
</TABLE>
F-51
<PAGE> 125
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Assuming the acquisition had been made on May 1, 1994, pro forma net sales
in fiscal year 1995 and earnings of the Company would have been $98,549,343 and
$6,772,418, respectively.
(6) INCOME TAXES
The Company is part of a consolidated federal income tax return with
Hubbard and is allocated a federal tax provision as if the Company filed a
separate return. The state tax provision is allocated by applying a
weighted-average state tax rate to the Company's federal taxable income.
Income tax expense is comprised of the following components:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Current tax expense:
Federal....................................... $3,435,412 $ 6,294,306 $2,268,403
State......................................... 754,759 1,450,830 472,021
Deferred federal and state...................... (56,784) (3,809,454) 943,254
---------- ----------- ----------
Total income tax expense.............. $4,133,387 $ 3,935,682 $3,683,678
========== =========== ==========
</TABLE>
Income tax expense on earnings before income taxes differs from the amounts
derived by applying the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30, 1995
----------------------
PERCENT
OF PRETAX
AMOUNT EARNINGS
---------- ---------
<S> <C> <C>
Computed "expected" federal tax expense..................... $3,632,012 35.0%
State income tax, net of federal income tax benefit......... 487,727 4.7%
Other, net.................................................. 13,648 0.1%
---------- ----
Total income tax expense.......................... $4,133,387 39.8%
========== ====
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------
1996 1997
---------------------- ----------------------
PERCENT PERCENT
OF PRETAX OF PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Computed "expected" federal tax expense... $3,475,952 34.0% $3,309,955 35.0%
State income tax, net of federal income
tax benefit............................. 480,499 4.7% 406,652 4.3%
Other, net................................ (20,769) (0.2%) (32,929) (0.3%)
---------- ---- ---------- ----
Total income tax expense........ $3,935,682 38.5% $3,683,678 39.0%
========== ==== ========== ====
</TABLE>
F-52
<PAGE> 126
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities result from temporary
differences in the carrying values of assets and liabilities for financial
statement and income tax purposes. The deferred tax assets and liabilities
relate to the following asset and liability accounts:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets related to:
Associate and retiree benefit accruals...... $ 1,183,228 $ 1,289,462 $ 1,696,798
Inventory................................... 727,405 616,518 538,599
Other accrued expenses...................... 175,892 494,844 360,773
Allowance for doubtful accounts............. 89,688 103,400 109,600
Other, net.................................. 97,096 598,132 67,688
----------- ----------- -----------
Total deferred tax assets........... $ 2,273,309 $ 3,102,356 $ 2,773,458
=========== =========== ===========
Deferred tax liabilities related to:
Property, plant and equipment............... (2,822,069) (2,509,652) (2,340,332)
Other, net.................................. (903,249) (128,619) (1,081,677)
----------- ----------- -----------
Total deferred tax liabilities...... (3,725,318) (2,638,271) (3,422,009)
Net deferred tax assets
(liabilities)..................... $(1,452,009) $ 464,085 $ (648,551)
=========== =========== ===========
</TABLE>
SFAS 109 also requires consideration of a valuation allowance if it is
"more likely than not" that benefits of deferred tax assets will not be
realized. Management has determined, based on prior earnings history and
anticipated earnings, that no valuation allowance is necessary at April 30,
1995, 1996, or 1997.
F-53
<PAGE> 127
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) ASSOCIATE BENEFIT PLANS
The Company has two noncontributory, defined benefit pension plans covering
hourly and salaried associates. Total pension expense for the plans for the
years ended April 30, 1997, 1996 and 1995 was $159,290, $211,914 and $193,546,
respectively.
The following tables set forth the funded status of the pension plans and
the amount recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
APRIL 30, 1995
------------------------------------
HOURLY SALARIED
PLAN PLAN TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................. $3,073,766 $2,020,267 $5,094,033
Nonvested.......................................... 191,633 129,893 321,526
Accumulated benefit obligation.................. 3,265,399 2,150,160 5,415,559
Effect of projected future salary increases.......... 27,779 404,386 432,165
Projected benefit obligation....................... 3,293,178 2,554,546 5,847,724
Market value of plan assets.......................... 3,140,553 2,655,823 5,796,376
Plan assets in (deficit) excess of projected
benefit obligation.............................. (152,625) 101,277 (51,348)
Unrecognized net transition asset.................... (280,934) (283,665) (564,599)
Unrecognized prior service cost...................... 127,238 84,928 212,166
Unrecognized net loss (gain)......................... 409,465 (50,292) 359,173
Prepaid pension cost (pension liability)........... $ 103,144 $ (147,752) $ (44,608)
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------------------------
HOURLY SALARIED
PLAN PLAN TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................. $3,800,501 $2,693,190 $6,493,691
Nonvested.......................................... 199,035 147,002 $ 346,037
Accumulated benefit obligation.................. 3,999,536 2,840,192 6,839,728
Effect of projected future salary increases.......... 42,593 538,180 580,773
Projected benefit obligation....................... 4,042,129 3,378,372 7,420,501
Market value of plan assets.......................... 3,938,066 3,638,533 7,576,599
Plan assets in (deficit) excess of projected
benefit obligation.............................. (104,063) 260,161 156,098
Unrecognized net transition asset.................... (260,765) (281,621) (542,386)
Unrecognized prior service cost...................... 171,088 85,210 256,298
Unrecognized net loss (gain)......................... 349,934 (192,126) 157,808
Prepaid pension cost (pension liability)........... $ 156,194 $ (128,376) $ 27,818
</TABLE>
F-54
<PAGE> 128
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
APRIL 30, 1997
------------------------------------
HOURLY SALARIED
PLAN PLAN TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................. $4,312,313 $3,502,569 $7,814,882
Nonvested.......................................... 243,606 200,333 443,939
Accumulated benefit obligation.................. 4,555,919 3,702,902 8,258,821
Effect of projected future salary increases.......... 24,928 656,313 681,241
Projected benefit obligation....................... 4,580,847 4,359,215 8,940,062
Market value of plan assets.......................... 4,327,689 4,848,895 9,176,584
Plan assets in (deficit) excess of projected
benefit obligation.............................. (253,158) 489,680 236,522
Unrecognized net transition asset.................... (229,225) (295,599) (524,824)
Unrecognized prior service cost...................... 168,572 90,740 259,312
Unrecognized net loss (gain)......................... 499,731 (421,792) 77,939
Prepaid pension cost (pension liability)........... $ 185,920 $ (136,971) $ 48,949
</TABLE>
The net periodic pension cost components were as follows:
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Service cost benefits earned during the year......... $ 81,541 $ 97,412 $ 178,953
Interest cost on projected benefit obligation........ 252,525 191,678 444,203
Loss on plan assets.................................. 211,690 94,462 306,152
Net amortization and other components................ (456,371) (318,175) (774,546)
---------- ---------- ----------
Total pension expense for the year ended
April 30, 1995........................... $ 89,385 $ 65,377 $ 154,762
========== ========== ==========
Service cost benefits earned during the year......... $ 103,112 $ 131,845 $ 234,957
Interest cost on projected benefit obligation........ 290,642 237,334 527,976
Gain on plan assets.................................. (368,043) (534,211) (902,254)
Net amortization and other components................ 70,016 239,891 309,907
---------- ---------- ----------
Total pension expense for the year ended
April 30, 1996........................... $ 95,727 $ 74,859 $ 170,586
========== ========== ==========
Service cost benefits earned during the year......... $ 108,381 $ 156,150 $ 264,531
Interest cost on projected benefit obligation........ 330,229 307,990 638,219
Gain on plan assets.................................. 91,312 (175,232) (83,920)
Net amortization and other components................ (449,558) (209,982) (659,540)
---------- ---------- ----------
Total pension expense for the year ended
April 30, 1997........................... $ 80,364 $ 78,926 $ 159,290
========== ========== ==========
</TABLE>
F-55
<PAGE> 129
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The principal actuarial assumptions used were:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------
1995 1996
----------------- -----------------
HOURLY SALARIED HOURLY SALARIED
PLAN PLAN PLAN PLAN
------ -------- ------ --------
<S> <C> <C> <C> <C>
Discount rate at period end......................... 8.0% 8.0% 7.5% 7.5%
Long-term rate of compensation increase............. -- 5.0% 5.0% 5.0%
Long-term rate of return on plan assets............. 8.0% 8.0% 8.0% 8.0%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30, 1997
-------------------
HOURLY SALARIED
PLAN PLAN
-------- --------
<S> <C> <C>
Discount rate at period end................................. 7.5% 7.5%
Long-term rate of compensation increase..................... 5.0% 5.0%
Long-term rate of return on plan assets..................... 8.0% 8.0%
</TABLE>
The Company sponsors a profit sharing plan covering all salaried associates
and office clerical associates, with the exception of commissioned associates.
Contributions and costs are determined by Hubbard's Board of Directors and are
allocated to each participating associate in the proportion of the individual
associate's salary to the aggregate salaries of all participating associates.
Contribution expense for the years ended April 30, 1995, 1996 and 1997 was
$286,980, $0 and $198,500, respectively. In addition, the Company sponsors a
non-contributory 401(k) plan for its associates.
(8) OTHER POSTRETIREMENT BENEFITS
The Company provides health care benefits for eligible retired associates
and their covered dependents and spouses. Associates must be 55 years old or
older with 10 years of service upon retirement to be eligible for coverage under
the current plan. Depending on the date of retirement, the retiree must pay the
premium cost associated with health care coverage. The plan in effect is not
funded.
Under SFAS 106, postretirement benefit expense included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current service cost................................. $ 38,400 $ 21,947 $ 26,510
Interest on accumulated benefit obligation........... 84,371 99,946 104,661
Amortization of unrecognized net gain................ -- (33,269) (70,092)
-------- -------- --------
Total postretirement benefits expense...... $122,771 $ 88,624 $ 61,079
======== ======== ========
</TABLE>
The accumulated postretirement obligation included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Eligible active plan participants................ $ 964,542 $ 968,118 $1,215,459
Retirees......................................... 53,450 46,491 79,569
Other active plan participants................... 108,490 130,450 161,007
---------- ---------- ----------
Accumulated postretirement benefit
obligation........................... $1,126,482 $1,145,059 $1,456,035
========== ========== ==========
</TABLE>
F-56
<PAGE> 130
PET FOOD DIVISION
(A DIVISION OF HUBBARD MILLING COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate used to determine the accumulated postretirement benefit
obligation was 8%. The assumed health care cost trend rate used to measure the
obligation was 8% for 1997, and 8% thereafter. A one-percentage point increase
in the assumed health care cost trend rate would have increased the expense for
the year ended April 30, 1997 by $20,413 and the accumulated postretirement
obligation by $207,732.
(9) CONTINGENCIES
The Company is a party to several lawsuits and claims arising out of the
conduct of its business. While the ultimate results of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not expect that these matters will have a material adverse effect on the
financial position or results of operations of the Company.
F-57
<PAGE> 131
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Forward-looking Statements............ 9
Risk Factors.......................... 9
The Company........................... 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Dilution.............................. 18
Capitalization........................ 19
Unaudited Pro Forma Financial
Statements.......................... 20
Selected Consolidated Financial
Data................................ 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 43
Management............................ 52
Certain Transactions.................. 58
Principal and Selling Stockholders.... 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 66
Description of New Credit Facility.... 66
Description of Senior Subordinated
Notes............................... 67
Underwriting.......................... 69
Legal Matters......................... 71
Experts............................... 71
Available Information................. 72
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[LOGO]
DOANE PET CARE
ENTERPRISES, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
CHASE SECURITIES INC.
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 67,850
NASD filing fee............................................. 23,500
listing fee............................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing expenses........................................... *
Transfer Agent fees......................................... *
Miscellaneous............................................... *
--------
TOTAL............................................. $ *
========
</TABLE>
- ------------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with threatened, pending
or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in right of the
corporation), brought against them by reason of the fact that they were or are
such directors, officers, employees or agents, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred in any
such action, suit or proceeding. Article of the Restated Certificate of
Incorporation of the Registrant provides that the Registrant may indemnify any
director, officer, employee or agent of the Registrant to the fullest extent
permitted by the Delaware General Corporation Law as the same exists or may be
hereafter amended. Article of the Registrant's Bylaws provides that the
Registrant shall indemnify each person who is or was made a party to any actual
or threatened civil, criminal, administrative or investigative action, suit or
proceeding because such person is or was an officer or director of the
Registrant or is a person who is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
relating to employee benefit plans, to the fullest extent permitted by the
Delaware General Corporation Law as it existed at the time the indemnification
provisions of the Registrant's Bylaws were adopted or as may be thereafter
amended.
Article of the Registrant's Bylaws also provide that the Registrant may
maintain insurance, at its own expense, to protect itself and any director,
officer, employee or agent of the Registrant or of another entity against any
expense, liability, or loss, regardless of whether the Registrant would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article of the Registrant's Restated Certificate of Incorporation contains
such a provision.
II-1
<PAGE> 133
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the 1996 Management Stock Purchase Plan and the 1997 Management
Stock Purchase Plan, 625,000 shares of Common Stock of the Company were sold for
$2.00 per share to certain key employees. The sales of such Common Stock were
deemed to be exempt from registration under Rule 701 of Regulation F under the
Securities Act. See "Management -- Stock Option and Stock Purchase Plans."
Pursuant to the 1996 Stock Option Plan, 679,590 shares of Common Stock have
been sold to certain employees as a result of the exercise of options, all at an
exercise price of $2.00 per share, including 372,500 shares purchased by Bob L.
Robinson and 250,000 shares purchased by Douglas J. Cahill. The sales of such
shares of Common Stock were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 of Regulation F thereof. See
"Management -- Stock Option Grants" and "-- Stock Option Exercises."
On August 3, 1998, the Company issued 7,957,710 shares of Common Stock to
certain stockholders of Windy Hill in connection with the Windy Hill Merger
Agreement. The issuances of such securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) thereof as
transactions by an issuer not involving any public offering. In addition, the
recipients of the securities in such transactions represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. To the Company's
knowledge, all recipients had adequate access, through their relationships with
the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Restated Certificate of Incorporation of Doane Pet Care
Enterprises, Inc.
*3.2 -- Bylaws of Doane Pet Care Enterprises, Inc.
*4.1 -- Specimen Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
***9.1 -- Amended and Restated Investors' Agreement dated as of
August 3, 1998 among the Company, Doane, Summit Capital
Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First Esc, L.L.C., Dartford
Partnership, L.L.C., Bruckmann, Rosser, Sherrill & Co.,
L.P., PNC Capital Corp, Windy Hill Pet Food Company,
L.L.C. and certain other persons named therein
***10.1 -- Early Retirement Agreement and Release effective as of
June 30, 1998 between Doane and Bob L. Robinson
10.2 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Enterprises, Inc. and Douglas J. Cahill
(incorporated by reference to Exhibit 10.3 to the Annual
Report of Doane on Form 10-K for the year ended December
31, 1997 (the "Doane 1997 Form 10-K"))
10.3 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Enterprises, Inc. and Thomas R. Heidenthal
(incorporated by reference to Exhibit 10.4 to the Doane
1997 Form 10-K)
10.4 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Enterprises, Inc. and Terry W. Bechtel
(incorporated by reference to Exhibit 10.5 to the Doane
1997 Form 10-K)
</TABLE>
II-2
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5 -- Doane Pet Care Enterprises, Inc.'s 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K for the year ended December 31, 1996)
10.6 -- First Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.8 to the Doane 1997 Form 10-K)
10.7 -- Second Amendment to the Company's 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.9 to the Doane
1997 Form 10-K)
*10.8 -- Doane Pet Care Enterprises, Inc. 1998 Stock Option Plan
10.9 -- Termination and Dissolution Agreement, dated March 25,
1998, between Flint River Mills, Inc. and Windy Hill Pet
Food Company, Inc. (incorporated by reference to the
Quarterly Report of Windy Hill Pet Food, Inc. on Form
10-Q filed on May 12, 1998)
**10.10 -- Indenture, dated November 12, 1998 between Doane and
Wilmington Trust Company
**10.11 -- Revolving Credit and Term Loan Agreement dated as of
November 12, 1998 among the Company, Doane, DLJ Capital
Funding, Inc., as syndication agent, Mercantile Bank
National Association, as documentation agent, and The
Chase Manhattan Bank, as administrative agent, and the
banks named therein
*11.1 -- Computation of earnings per share
*21.1 -- List of subsidiaries of Doane Pet Care Enterprises, Inc.
**23.1 -- Consents of KPMG Peat Marwick LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
***24.1 -- Powers of Attorney
**27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
** Filed herewith.
*** Previously filed.
(b) Consolidated Financial Statement Schedules, Years ended December 31,
1995, 1996 and 1997.
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 135
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 8th day of December, 1998.
DOANE PET CARE ENTERPRISES, INC.
By /s/ THOMAS R. HEIDENTHAL
-----------------------------------
Thomas R. Heidenthal
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
* Chairman of the Board and Director December 8, 1998
- -----------------------------------------------------
George B. Kelly
* Chief Executive Officer, President December 8, 1998
- ----------------------------------------------------- and Director (Principal
Douglas J. Cahill Executive Officer)
/s/ THOMAS R. HEIDENTHAL Senior Vice President and Chief December 8, 1998
- ----------------------------------------------------- Financial Officer (Principal
Thomas R. Heidenthal Financial Officer and Principal
Accounting Officer)
* Director December 8, 1998
- -----------------------------------------------------
Peter T. Grauer
* Director December 8, 1998
- -----------------------------------------------------
M. Walid Mansur
Director December 8, 1998
- -----------------------------------------------------
Bob L. Robinson
* Director December 8, 1998
- -----------------------------------------------------
Jeffrey C. Walker
* Director December 8, 1998
- -----------------------------------------------------
Ray Chung
* Director December 8, 1998
- -----------------------------------------------------
Stephen C. Sherrill
*By: /s/ THOMAS R. HEIDENTHAL
------------------------------------------------
Thomas R. Heidenthal,
as attorney-in fact
Dated: December 8, 1998
</TABLE>
II-5
<PAGE> 137
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Restated Certificate of Incorporation of Doane Pet Care
Enterprises, Inc.
*3.2 -- Bylaws of Doane Pet Care Enterprises, Inc.
*4.1 -- Specimen Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
***9.1 -- Amended and Restated Investors' Agreement dated as of
August 3, 1998 among the Company, Doane, Summit Capital
Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First Esc, L.L.C., Dartford
Partnership, L.L.C., Bruckmann, Rosser, Sherrill & Co.,
L.P., PNC Capital Corp, Windy Hill Pet Food Company,
L.L.C. and certain other persons named therein
***10.1 -- Early Retirement Agreement and Release effective as of
June 30, 1998 between Doane and Bob L. Robinson
10.2 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Enterprises, Inc. and Douglas J. Cahill
(incorporated by reference to Exhibit 10.3 to the Annual
Report of Doane on Form 10-K for the year ended December
31, 1997 (the "Doane 1997 Form 10-K"))
10.3 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Enterprises, Inc. and Thomas R. Heidenthal
(incorporated by reference to Exhibit 10.4 to the Doane
1997 Form 10-K)
10.4 -- Employment Agreement dated January 1, 1998, between Doane
Pet Care Enterprises, Inc. and Terry W. Bechtel
(incorporated by reference to Exhibit 10.5 to the Doane
1997 Form 10-K)
10.5 -- Doane Pet Care Enterprises, Inc.'s 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K for the year ended December 31, 1996)
10.6 -- First Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.8 to the Doane 1997 Form 10-K)
10.7 -- Second Amendment to the Company's 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.9 to the Doane
1997 Form 10-K)
*10.8 -- Doane Pet Care Enterprises, Inc. 1998 Stock Option Plan
10.9 -- Termination and Dissolution Agreement, dated March 25,
1998, between Flint River Mills, Inc. and Windy Hill Pet
Food Company, Inc. (incorporated by reference to the
Quarterly Report of Windy Hill Pet Food, Inc. on Form
10-Q filed on May 12, 1998)
**10.10 -- Indenture, dated November 12, 1998, between Doane and
Wilmington Trust Company
**10.11 -- Revolving Credit and Term Loan Agreement dated as of
November 12, 1998 among the Company, Doane, DLJ Capital
Funding, Inc., as syndication agent, Mercantile Bank
National Association, as documentation agent, and The
Chase Manhattan Bank, as administrative agent, and the
banks named therein
*11.1 -- Computation of Earnings per share
*21.1 -- List of subsidiaries of Doane Pet Care Enterprises, Inc.
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**23.1 -- Consent of KPMG Peat Marwick LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
***24.1 -- Powers of Attorney (included on the signature page to
this Registration Statement)
**27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
** Filed herewith.
*** Previously filed.
<PAGE> 1
EXECUTION COPY
---------------------------
DOANE PET CARE COMPANY
9-3/4% Senior Subordinated Notes due 2007
--------------
INDENTURE
Dated as of November 12, 1998
--------------
WILMINGTON TRUST COMPANY,
as Trustee
---------------------------
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
310(a)(1)............................................................7.10
(a)(2)............................................................7.10
(a)(3)............................................................N.A.
(a)(4)............................................................N.A.
(b)...............................................................7.8; 7.10
(c)...............................................................N.A.
311(a)..............................................................7.11
(b)..............................................................7.11
(c)...............................................................N.A.
312(a)...............................................................2.5
(b)..............................................................11.3
(c)..............................................................11.3
313(a)...............................................................7.6
(b)(1)............................................................N.A.
(b)(2)............................................................7.6
(c)...............................................................7.6
(d)...............................................................7.6
314(a)...............................................................4.2
.....................................................................4.11; 12.2
(b)...............................................................N.A.
(c)(1)...........................................................12.4
(c)(2)...........................................................12.4
(c)(3)............................................................N.A.
(d)...............................................................N.A.
(e)..............................................................12.5
(f)..............................................................4.10
315(a)...............................................................7.1
(b)...............................................................7.5; 12.2
(c)...............................................................7.1
(d)...............................................................7.1
(e)...............................................................6.11
316(a)(last sentence)...............................................12.6
(a)(1)(A).........................................................6.5
(a)(1)(B).........................................................6.4
(a)(2)............................................................N.A.
(b)...............................................................6.7
317(a)(1)............................................................6.8
(a)(2)............................................................6.9
(b)...............................................................2.4
318(a)..............................................................12.1
N.A. means Not Applicable.
</TABLE>
- --------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
Section 1.1. Definitions.................................................1
Section 1.2. Other Definitions..........................................16
Section 1.3. Incorporation by Reference of Trust Indenture Act..........17
Section 1.4. Rules of Construction......................................17
ARTICLE II.
The Securities
Section 2.1. Form and Dating............................................18
Section 2.2. Execution and Authentication...............................19
Section 2.3. Registrar and Paying Agent.................................20
Section 2.4. Paying Agent To Hold Money in Trust........................20
Section 2.5. Securityholder Lists.......................................20
Section 2.6. Transfer and Exchange......................................21
Section 2.7. Replacement Securities.....................................26
Section 2.8. Outstanding Securities.....................................26
Section 2.9. Temporary Securities.......................................27
Section 2.10. Cancellation...............................................27
Section 2.11. Defaulted Interest.........................................27
Section 2.12. CUSIP Numbers..............................................27
ARTICLE III.
Redemption
Section 3.1. Notices to Trustee.........................................28
Section 3.2. Selection of Securities To Be Redeemed.....................28
Section 3.3. Notice of Redemption.......................................28
Section 3.4. Effect of Notice of Redemption.............................29
Section 3.5. Deposit of Redemption Price................................29
Section 3.6. Securities Redeemed in Part................................29
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IV.
Covenants
Section 4.1. Payment of Securities......................................30
Section 4.2. SEC Reports................................................30
Section 4.3. Limitation on Indebtedness.................................30
Section 4.4. Limitation on Restricted Payments..........................31
Section 4.5. Limitation on Restrictions on Distributions from
Subsidiaries...............................................33
Section 4.6. Limitation on Sales of Assets..............................34
Section 4.7. Limitation on Affiliate Transactions.......................36
Section 4.8. Change of Control..........................................37
Section 4.9. Limitation on Sale of Subsidiary Capital Stock.............38
Section 4.10. Future Security Guarantors.................................38
Section 4.11. Limitation on Lines of Business............................38
Section 4.12. Maintenance of Office or Agency for Registration of
Transfer, Exchange and Payment of Securities...............38
Section 4.13. Appointment to Fill a Vacancy in the Office of Trustee.....39
Section 4.14. Provision as to Paying Agent...............................39
Section 4.15. Maintenance of Corporate Existence.........................40
Section 4.16. Compliance Certificate.....................................40
Section 4.17. Further Instruments and Acts...............................40
ARTICLE V.
Successor Company
Section 5.1. When Company May Merge or Transfer Assets..................40
ARTICLE VI.
Defaults and Remedies
Section 6.1. Events of Default..........................................41
Section 6.2. Acceleration...............................................43
Section 6.3. Other Remedies.............................................44
Section 6.4. Waiver of Past Defaults....................................44
Section 6.5. Control by Majority........................................44
Section 6.6. Limitation on Suits........................................44
Section 6.7. Rights of Holders to Receive Payment.......................45
Section 6.8. Collection Suit by Trustee.................................45
Section 6.9. Trustee May File Proofs of Claim...........................45
Section 6.10. Priorities.................................................45
Section 6.11. Undertaking for Costs......................................46
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE VII.
Trustee
Section 7.1. Duties of Trustee..........................................46
Section 7.2. Rights of Trustee..........................................47
Section 7.3. Individual Rights of Trustee...............................48
Section 7.4. Trustee's Disclaimer.......................................48
Section 7.5. Notice of Defaults.........................................48
Section 7.6. Reports by Trustee to Holders..............................49
Section 7.7. Compensation and Indemnity.................................49
Section 7.8. Replacement of Trustee.....................................50
Section 7.9. Successor Trustee by Merger................................50
Section 7.10. Eligibility; Disqualification..............................51
Section 7.11. Preferential Collection of Claims Against Company..........51
ARTICLE VIII.
Discharge of Indenture; Defeasance
Section 8.1. Discharge of Liability on Securities; Defeasance...........51
Section 8.2. Conditions to Defeasance...................................52
Section 8.3. Application of Trust Money.................................53
Section 8.4. Repayment to Company.......................................53
Section 8.5. Indemnity for U.S. Government Obligations..................54
Section 8.6. Reinstatement..............................................54
ARTICLE IX.
Amendments
Section 9.1. Without Consent of Holders.................................54
Section 9.2. With Consent of Holders....................................55
Section 9.3. Compliance with Trust Indenture Act........................56
Section 9.4. Revocation and Effect of Consents and Waivers..............56
Section 9.5. Notation on or Exchange of Securities......................56
Section 9.6. Trustee To Sign Amendments.................................57
ARTICLE X.
Subordination
Section 10.1. Agreement To Subordinate...................................57
Section 10.2. Liquidation, Dissolution, Bankruptcy.......................57
</TABLE>
-iii-
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 10.3. Default on Senior Indebtedness or Guarantor Senior
Indebtedness...............................................58
Section 10.4. Acceleration of Payment of Securities......................59
Section 10.5. When Distribution Must Be Paid Over........................59
Section 10.6. Subrogation................................................59
Section 10.7. Relative Rights............................................60
Section 10.8. Subordination May Not Be Impaired by Company or
the Subsidiary Guarantors..................................60
Section 10.9. Rights of Trustee and Paying Agent.........................60
Section 10.10. Distribution or Notice to Representative...................61
Section 10.11. Article X Not To Prevent Events of Default or Limit
Right To Accelerate........................................61
Section 10.12. Trust Moneys Not Subordinated..............................61
Section 10.13. Trustee Entitled To Rely...................................61
Section 10.14. Trustee To Effectuate Subordination........................62
Section 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness
or Guarantor Senior Indebtedness...........................62
Section 10.16. Changes in Senior Indebtedness.............................62
Section 10.17. Reliance by Holders of Senior Indebtedness and
Guarantor Senior Indebtedness on Subordination Provisions..62
Section 10.18. Legend.....................................................63
ARTICLE XI.
Subsidiary Guarantee
Section 11.1. Subsidiary Guarantee.......................................63
Section 11.2. Limitation on Liability....................................65
Section 11.3. Successors and Assigns.....................................65
Section 11.4. No Waiver..................................................65
Section 11.5. Right of Contribution......................................65
Section 11.6. No Subrogation.............................................65
Section 11.7. Modification...............................................66
ARTICLE XII.
Miscellaneous
Section 12.1. Trust Indenture Act Controls...............................66
Section 12.2. Notices....................................................66
Section 12.3. Communication by Holders with other Holders................67
Section 12.4. Certificate and Opinion as to Conditions Precedent.........67
Section 12.5. Statements Required in Certificate or Opinion..............67
Section 12.6. When Securities Disregarded................................68
Section 12.7. Rules by Trustee, Paying Agent and Registrar...............68
Section 12.8. Legal Holidays.............................................68
</TABLE>
-iv-
<PAGE> 7
<TABLE>
<S> <C> <C>
Section 12.9. Governing Law..............................................68
Section 12.10. No Recourse Against Others.................................68
Section 12.11. Successors.................................................68
Section 12.12. Multiple Originals; Counterparts...........................68
Section 12.13. Variable Provisions........................................69
Section 12.14. Qualification of Indenture.................................69
Section 12.15. Table of Contents; Headings................................69
</TABLE>
EXHIBIT A Form of Initial Note
EXHIBIT B Form of Exchange Note
EXHIBIT C Form of Transferee Letter of Representation
-v-
<PAGE> 8
INDENTURE dated as of November 12, 1998, between DOANE PET CARE COMPANY, a
Delaware corporation (the "Company"), and WILMINGTON TRUST COMPANY, a Delaware
banking corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 9 3/4% Senior
Subordinated Notes due 2007 (the "Initial Notes") and, if and when issued in
exchange for Initial Notes as provided in the Registration Rights Agreement (as
hereinafter defined), the Company's 9 3/4% Senior Subordinated Notes due 2007
(the "Exchange Notes" and, together with the Initial Notes, the "Securities"):
ARTICLE I.
Definitions and Incorporation by Reference
Section 1.1. Definitions.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) to be used by the Company or a Subsidiary
in a Related Business; (ii) the Capital Stock of a Person that becomes a
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Subsidiary; or (iii) Capital Stock constituting a minority interest
in any Person that at such time is a Subsidiary of the Company; provided,
however, that, in the case of clauses (ii) and (iii) of this definition, such
Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any Person who is a
director or officer (A) of such Person, (B) of any Subsidiary of such Person or
(C) of any Person described in clause (i) above. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenants described in Sections 4.4, 4.6 and 4.7
only, "Affiliate" shall also mean any beneficial owner of shares representing 5%
or more of the total voting power of the Voting Stock (on a fully diluted basis)
of the Company or of rights or warrants to purchase such Voting Stock (whether
or not currently exercisable) and any Person who would be an Affiliate of any
such beneficial owner pursuant to the first sentence hereof.
"Applicable Premium" means, with respect to a Security at any
redemption date, the greater of (i) 1.0% of the principal amount of such
Security and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such Security at May 15, 2002 (such redemption price being
described in the Security) plus (2) all required interest payments due on such
Security through May 15, 2002, computed using a discount rate equal to the
Treasury Rate plus 50 basis
-1-
<PAGE> 9
points based on 360-day year of twelve 30-day months, over (B) the principal
amount of such Security.
"Asset Disposition" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of a
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any of its Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by a
Subsidiary to the Company or a Wholly-Owned Subsidiary or by the Company or a
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory or
Temporary Cash Investments in the ordinary course of business, (iii) a
disposition of obsolete equipment or equipment that is no longer useful in the
conduct of the business of the Company and its Subsidiaries and that is disposed
of in each case in the ordinary course of business, (iv) the sale of other
assets so long as the fair market value of the assets disposed of pursuant to
this clause (iv) does not exceed $1.0 million in the aggregate in any fiscal
year and $5.0 million in the aggregate prior to May 15, 2007, (v) for the
purposes of the covenant described in Section 4.6 only, a disposition subject to
the covenant described in Section 4.4 and (vi) the disposition of all or
substantially all of the assets of the Company in the manner permitted pursuant
to Section 5.1 or any disposition that constitutes a Change of Control pursuant
to this Indenture.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to Preferred
Stock multiplied by the amount of such payment by (ii) the sum of all such
payments.
"Bank Indebtedness" means any and all amounts payable under or
in respect of the Senior Credit Documents and any Indebtedness that is incurred
to refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) Indebtedness under such Senior Credit
Documents including Indebtedness that refinances such Indebtedness, as amended
from time to time, including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, cash collateralization of letters of
credit).
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board
of Directors.
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<PAGE> 10
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City or Wilmington, Delaware are
authorized or required by law to close.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any domestic commercial bank the long-term debt of which is rated at the time
of acquisition thereof at least "A" or the equivalent thereof by Standard &
Poor's Ratings Group, or "A" or the equivalent thereof by Moody's Investors
Service, Inc., and having capital and surplus in excess of $500.0 million; (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (i), (ii) and (iii) entered into
with any bank meeting the qualifications specified in clause (iii) above; (v)
commercial paper rated at the time of acquisition thereof at least "A-2" or the
equivalent thereof by Standard & Poor's Ratings Group or "P-2" or the equivalent
thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by
a nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Change of Control" means the occurrence of any of the
following events: (i) prior to the first public offering of Voting Stock of the
Company or Holdings, as the case may be, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of majority voting power of the Voting Stock of the
Company, whether as a result of issuance of securities of the Company or
Holdings, as the case may be, any merger, consolidation, liquidation or
dissolution of the Company or Holdings, as the case may be, any direct or
indirect transfer of securities by any Permitted Holder or otherwise (for
purposes of this clause (i) and clause (ii) below, the Permitted Holders will be
deemed to beneficially own any
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<PAGE> 11
Voting Stock of a Person (the "specified corporation") held by any other Person
(the "parent corporation") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, a majority of the voting power of the
Voting Stock of the parent corporation);
(ii) following the first public offering of Voting
Stock of the Company or Holdings, as the case may be, any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in clause (i)
above, except that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock of
the Company or Holdings, as the case may be; provided that the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly, in
the aggregate a lesser percentage of the total voting power of the Voting Stock
of the Company or Holdings, as the case may be, than such other person and do
not have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of the Company or
Holdings, as the case may be, (for purposes of this clause (ii), such other
person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person "beneficially
owns" (as defined in this clause (ii)), directly or indirectly, more than 35% of
the voting power of the Voting Stock of such parent corporation and the
Permitted Holders "beneficially own" (as defined in clause (i) above), directly
or indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation); or
(iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Doane Pet Care Company, a Delaware
corporation.
"Consolidated Cash Flow" for any period means the Consolidated
Net Income for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense (iii) depreciation expense, (iv) amortization
expense, in each case for such period, (v) other non-cash charges reducing
Consolidated Net Income (excluding any such non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period), (vi)
expenses and non-recurring fees arising from the Merger, transition costs and
expenses of integrating the former operations of Windy Hill Pet Food Company,
Inc. (now part of the operations of the Company) and the Company and costs,
expenses and fees arising from the
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<PAGE> 12
issuance of the Initial Notes and the consummation of the transactions
contemplated by Senior Credit Agreement in each case for such period, and minus,
to the extent not already deducted in calculating Consolidated Net Income, (A)
the aggregate amount of "earnout" payments paid in cash during such period in
connection with acquisitions previously made by the Company and (B) non-cash
items increasing Consolidated Net Income for such period.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (A) if the Company or any of its
Subsidiaries has Incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any of its Subsidiaries shall have made
any Asset Disposition, Consolidated Cash Flow for such period shall be reduced
by an amount equal to the Consolidated Cash Flow (if positive) attributable to
the assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
attributable to any Indebtedness of the Company or any of its Subsidiaries
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and its continuing Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Subsidiary to the extent the Company
and its continuing Subsidiaries are no longer liable for such Indebtedness after
such sale), (C) if since the beginning of such period the Company or any of its
Subsidiaries (by merger or otherwise) shall have made an Investment in any
Subsidiary of the Company (or any Person which becomes a Subsidiary of the
Company) or an acquisition of assets, including any Investment in a Subsidiary
of the Company or any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness and
including the pro forma expenses and cost reductions calculated on a basis
consistent with Regulation S-X of the Securities Act) as if such Investment or
acquisition occurred on the first day of such period and (D) if since the
beginning of such period any Person (that subsequently became a Subsidiary of
the Company or was merged with or into the Company or any Subsidiary of the
Company since the beginning of such period) shall have made any Asset
Disposition or any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (B) or (C) above if made by the Company or a
Subsidiary of the Company during such period, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
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<PAGE> 13
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Subsidiaries, plus, to the extent
not included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations and imputed interest with respect to Attributable
Indebtedness, (ii) amortization of debt discount and debt issuance cost (other
than those debt discounts and debt issuance costs incurred on the Issue Date),
(iii) capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) interest actually paid by the Company or any
such Subsidiary under any Guarantee of Indebtedness or other obligation of any
other Person, (vii) net costs associated with Currency Agreements and Interest
Rate Agreements (including amortization of fees), (viii) the product of (A) all
Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of
the Company and Disqualified Stock of the Company held by Persons other than the
Company or a Wholly-Owned Subsidiary multiplied by (B) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined Federal, state and local statutory tax rate of the Company, expressed
as a decimal, in each case, determined on a consolidated basis in accordance
with GAAP and (ix) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its consolidated Subsidiaries; provided,
however, that there shall not be included in such Consolidated Net Income: (i)
any net income (loss) of any Person if such Person is not a Subsidiary, except
that (A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated Net
Income; (ii) any net income (loss) of any person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income (loss) of any Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the limitations contained
in (iv) below, the Company's equity in the net income of any such Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Subsidiary
during such period to the Company or another Subsidiary as a
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<PAGE> 14
dividend (subject, in the case of a dividend that could have been made to
another Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iv) any gain (but not
loss) realized upon the sale or other disposition of any assets of the Company
or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which are not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi)
the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Designated Senior Indebtedness" means (i) the Bank
Indebtedness and (ii) any other Senior Indebtedness which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $5.0 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock of such Person which by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable, at
the option of the holder thereof, for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to 123 days after the Stated Maturity of the Securities.
"Domestic Subsidiary" means any Subsidiary organized under the
laws of any jurisdiction within the United States of America.
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<PAGE> 15
"Equity Investors" means the equity owners of Holdings on the
Issue Date.
"Equity Offering" means any public or private sales of equity
securities (excluding Disqualified Stock) of the Company and Holdings.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Foreign Subsidiary" means any Subsidiary other than a
Domestic Subsidiary.
"GAAP" means generally accepted principles in the United
States of America as in effect on the Issue Date, including those set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as are approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of any other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
issued, any Guarantee of the Bank Indebtedness by such Subsidiary Guarantor, all
other Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the
Company and all Indebtedness of such Subsidiary Guarantor, including interest
and fees thereon, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
of such Subsidiary Guarantor in respect of such Indebtedness are not superior in
right of payment to the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee; provided, however, that Guarantor Senior Indebtedness
shall not include (i) any obligations of such Subsidiary Guarantor to the
Company or any other Subsidiary of the Company, (ii) any liability for Federal,
state, local or other taxes owed or owing by such Subsidiary Guarantor, (iii)
any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such
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<PAGE> 16
liabilities), (iv) any Indebtedness, Guarantee or obligation of such Subsidiary
Guarantor that is expressly subordinate or junior in right of payment to any
other Indebtedness, Guarantee or obligation of such Subsidiary Guarantor,
including any Guarantor Senior Subordinated Indebtedness and Guarantor
Subordinated Obligations of such Subsidiary Guarantor or (v) any Capital Stock.
"Guarantor Senior Subordinated Indebtedness" means, with
respect to a Subsidiary Guarantor, the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee and any other Indebtedness of such Subsidiary
Guarantor that specifically provides that such Indebtedness is to rank pari
passu in right of payment with the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of such Subsidiary Guarantor
which is not Guarantor Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the obligations of such Subsidiary Guarantor under
the Subsidiary Guarantee pursuant to a written agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Holdings" means Doane Pet Care Enterprises, Inc., a Delaware
corporation.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services (other than contingent or "earn-out" payment obligations
and Trade Payables and accrued expenses incurred in the ordinary course of
business), which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, (v) all Capitalized Lease Obligations and all
Attributable Indebtedness of such Person, (vi) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person, provided, however,
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<PAGE> 17
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons, (vii) all Indebtedness of other
Persons to the extent Guaranteed by such Person, (viii) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of the
Company, any Preferred Stock (but excluding, in each case, any accrued
dividends) and (ix) to the extent not otherwise included in this definition,
obligations of such Person under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above as such amount would be reflected on a balance sheet in accordance with
GAAP and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a bank
deposit other than a time deposit) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Initial Notes are
originally issued.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Merger" means the merger of Windy Hill Pet Food Holdings,
Inc. into DPC/WH Merge Co., Inc. consummated on August 3, 1998.
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets that are the subject of such
Asset Disposition or received in any other noncash form) therefrom, in each case
net of (i) all legal, title and recording
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<PAGE> 18
tax expenses, commissions and other fees and expenses incurred, and all Federal,
state, foreign and local taxes required to be paid or accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by the
Company or any Subsidiary of the Company after such Asset Disposition and (v)
any portion of the purchase price from an Asset Disposition placed in escrow
(whether as a reserve for adjustment of the purchase price, for satisfaction of
indemnities in respect of such Asset Disposition or otherwise in connection with
such Asset Disposition) provided, however, that upon the termination of such
escrow, Net Available Cash shall be increased by any portion of funds therein
released to the Company or any Subsidiary.
"Net Cash Proceeds" with respect to any issuance or sale of
Capital Stock or Indebtedness, means the cash proceeds of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers (in the case of the annual Officers' Certificate delivered pursuant to
Section 4.16, at least one of such Officers shall be the principal executive
officer, principal financial officer or principal accounting officer of the
Company) and that complies with Sections 12.4 and 12.5 of this Indenture and is
delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee and that complies with Sections 12.4
and 12.5 of this Indenture and delivered to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Permitted Holders" means the Equity Investors and their
respective Affiliates.
"Permitted Investment" means (i) any Investment in a
Subsidiary of the Company or a Person which will, upon making such Investment,
become a Subsidiary; provided, however, that the primary business of such
Subsidiary is a Related Business; (ii) any Investment in another Person if as a
result of such Investment such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all its assets to, the
Company or a Subsidiary of the Company; provided, however, that such Person's
primary business is a Related Business; (iii) any Investment in Temporary Cash
Investments; (iv) receivables owing to the Company or any of its Subsidiaries,
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<PAGE> 19
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business of the Company or such Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Subsidiaries
or in satisfaction of judgments or claims; (viii) Investments the payment for
which consists exclusively of equity securities (exclusive of Disqualified
Stock) of the Company; (ix) any Investment existing on the Issue Date; (x) loans
or advances to employees and directors to purchase equity securities of the
Company or Holdings; provided that the aggregate amount of such loans and
advances shall not exceed $2.0 million at any time outstanding; (xi) any
Investment in another Person to the extent such Investment is received by the
Company or any Subsidiary as consideration for Asset Disposition effected in
compliance with Section 4.6; (xii) prepayment and other credits to suppliers
made in the ordinary course of business consistent with the past practices of
the Company and its Subsidiaries; (xiii) Investments in connection with pledges,
deposits, payments or performance bonds made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations; and (xiv) any Investment in another Person provided that the
aggregate Investments made pursuant to this clause (xiv) shall not exceed $4.0
million at any one time outstanding (measured as of the date made and without
giving effect to subsequent changes in value), provided, further that such
amount shall be increased by an amount equal to any return of capital received
from any Investment.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security
plus the premium, if any, payable on the security which is due or overdue or is
to become due at the relevant time.
"QIB" means any "qualified institutional buyer" (as defined
under the Securities Act).
"Refinancing Indebtedness" means Indebtedness that is Incurred
to refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of the
Indenture or Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Subsidiary and Indebtedness
of any Subsidiary that refinances Indebtedness of another Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness, provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) the
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Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced
(plus the amount of any premium required to be paid in connection therewith and
plus reasonable fees and expenses in connection therewith); provided further
that Refinancing Indebtedness shall not include Indebtedness of a Subsidiary
which refinances Indebtedness of the Company.
"Registered Exchange Offer" shall have the meaning set forth
in the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 12, 1998, between the Company, Chase Securities
Inc., and Donaldson, Lufkin & Jenrette Securities Corporation.
"Related Business" means the pet food business and such other
business activities which are incidental or related thereto.
"Representative" means any trustee, agent or representative
(if any) of an issue of Senior Indebtedness.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"SEC" or "Commission" means the Securities and Exchange
Commission.
"Secured Indebtedness" means any Indebtedness of the Company
secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to the
Global Security (as appointed by the Depositary), or any successor Person
thereto and shall initially be the Trustee.
"Security Guarantee" means any guarantee pursuant to a
supplemental Indenture which may from time to time be executed and delivered by
a Subsidiary of the Company pursuant to Section 4.10.
"Seller Subordinated Note" means the Convertible Subordinated
Promissory Note of Holdings dated April 29, 1996, payable to Heinz Pet Food
Products Company, in the original principal amount of $10,500,000, as amended to
date and from time to time.
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"Senior Credit Agreement" means the Credit Agreement among
Holdings, the Company, The Chase Manhattan Bank, as Administrative Agent, DLJ
Capital Funding, Inc., as Syndication Agent, Mercantile Bank National
Association, as Documentation Agent, the several Lenders from time to time
parties thereto, and Chase Securities Inc. and Donaldson, Lufkin and Jenrette
Securities Corporation, as Co-Lead Arrangers dated as of November 12, 1998.
"Senior Credit Documents" means the collective reference to
the Senior Credit Agreement, the notes issued pursuant thereto and the Guarantee
and Collateral Agreement (as defined in the Senior Credit Agreement) and each of
the mortgages and other security agreements, guarantees and other instruments
and documents executed and delivered pursuant to any of the foregoing or the
Senior Credit Agreement, in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amounts of available borrowing thereunder provided that such
increase in borrowing is permitted by Section 4.3 or adding Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
whether by the same or any other agent, lender or group of lenders.
"Senior Indebtedness" means the principal of, premium (if
any), and interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization of the Company regardless of
whether post-filing interest is allowed in such proceeding) on, and fees and
other amounts owing in respect of, the Bank Indebtedness and all other
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
issued, unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that the obligations in respect of
such Indebtedness are not superior in right of payment to the Securities;
provided, however, that Senior Indebtedness will not include (i) any obligation
of the Company to any Subsidiary, (ii) any liability for Federal, state,
foreign, local or other taxes owed or owing by the Company, (iii) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) any Indebtedness, Guarantee or obligation of the Company that
is expressly subordinate or junior in right of payment to any other
Indebtedness, Guarantee or obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations or (v) any Capital
Stock.
"Senior Subordinated Indebtedness" means the Securities and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
November 11, 1998.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
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"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantor" means any Subsidiary which is required
to guarantee the Securities pursuant to Section 4.10.
"Temporary Cash Investments" means any of the following: (i)
any Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250.0 million (or the foreign
currency equivalent thereof) and whose long-term debt, or whose parent holding
company's long-term debt, is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act), (iii) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture.
"Trade Payables" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person arising in the ordinary course of
business in connection with the acquisition of goods or services.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6(d) hereof.
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<PAGE> 23
"Treasury Rate" means, at the time of computation, the yield
to maturity of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) which has become publicly available at least two business days prior
to the redemption date (or, if such Statistical Release is no longer published,
any publicly available source or similar market data)) most nearly equal to the
period from the redemption date to May 15, 2002; provided, however, that if the
period from the redemption date to May 15, 2002 is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock
of such Person then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Subsidiary of the Company,
all of the Capital Stock of which (other than directors' qualifying shares) is
owned by the Company or another Wholly-Owned Subsidiary.
Section 1.2. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction"................................ 4.7
"Agent Member"......................................... 2.1(c)
"Authenticating Agent"................................. 2.2
"Bankruptcy Law"....................................... 6.1
"Blockage Notice"...................................... 10.3
"covenant defeasance option"........................... 8.1(b)
"Custodian"............................................ 6.1
"Definitive Securities"................................ 2.1
"Event of Default"..................................... 6.1
"Global Security"...................................... 2.1
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C>
"legal defeasance option".............................. 8.1(b)
"Legal Holiday"........................................ 12.8
"Obligations".......................................... 11.1
"Offer" ............................................... 4.6(b)
"Offer Amount"......................................... 4.6(c)(ii)
"Offer Period"......................................... 4.6(c)(ii)
"pay the Securities"................................... 10.3
"Paying Agent"......................................... 2.3
"Payment Blockage Period".............................. 10.3
"Purchase Agreement"................................... 2.1(b)
"Purchase Date"........................................ 4.6(c)(i)
"Registrar"............................................ 2.3
"Restricted Payment"................................... 4.4(a)
"Successor Company".................................... 5.1
</TABLE>
Section 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by the TIA by reference to another statute or defined by an SEC
rule have the meanings assigned to them by such definitions.
Section 1.4. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
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(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in
the plural include the singular;
(vi) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
(vii) the principal amount of any noninterest bearing or
other discount security at any date shall be the principal amount
thereof that would be shown on a balance sheet of the issuer dated such
date prepared in accordance with GAAP; and
(viii) the principal amount of any Preferred Stock shall be
(A) the maximum liquidation value of such Preferred Stock or (B) the
maximum mandatory redemption or mandatory repurchase price with respect
to such Preferred Stock, whichever is greater.
ARTICLE II.
The Securities
Section 2.1. Form and Dating.
(a) The Initial Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A, which is hereby incorporated by
reference and expressly made a part of this Indenture. The Exchange Notes and
the Trustee's certificate of authentication shall be substantially in the form
of Exhibit B, which is hereby incorporated by reference and expressly made a
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage, in addition to those
set forth on Exhibits A and B. The Company and the Trustee shall approve the
forms of the Securities and any notation, endorsement or legend on them. Each
Security shall be dated the date of its authentication. The terms of the
Securities set forth in Exhibit A and Exhibit B are part of the terms of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to be bound by such
terms.
(b) Global Securities. The Initial Notes are being offered and sold by
the Company pursuant to an exchange offer described in the Company's
Confidential Memorandum dated October 8, 1998. The Initial Notes shall be issued
initially in the form of one or more permanent global Securities in definitive,
fully registered form without interest coupons with the Global Securities Legend
and Restricted Securities Legend set forth in Exhibit A hereto (each, a "Global
Security"), which shall be deposited on behalf of the purchasers of the Initial
Notes represented thereby with the Trustee, at its corporate trust office, as
custodian for the Depository, and registered in the name of the Depository or a
nominee of the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of the Global
Securities may from time to time be increased or decreased by endorsements made
on such Global
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<PAGE> 26
Securities by the Trustee, the Securities Custodian or the Depository or its
nominee as hereinafter provided.
(c) Book-Entry Provisions. This Section 2.1(c) shall apply only to
Global Securities deposited with the Trustee, as custodian for the Depositary.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary or by the Trustee as the custodian of
the Depositary or under such Global Security, and the Depositary may be treated
by the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices of the Depositary governing the exercise of the rights of
an owner of a beneficial interest in any Global Security.
(d) Certificated Securities. Except as provided in Section 2.6, owners
of beneficial interests in Global Securities will not be entitled to receive
Definitive Securities (as hereinafter defined). Definitive Securities will bear
the Restricted Securities Legend set forth on Exhibit A unless removed in
accordance with Section 2.6(f) hereof.
Section 2.2. Execution and Authentication. Two Officers shall sign the
Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually authenticates the Security. The signature of the Trustee on a
Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
The Trustee shall authenticate and deliver: (i) Initial Notes for
original issue in an aggregate principal amount of $150.0 million and (ii)
Exchange Notes for issue only in a Registered Exchange Offer pursuant to the
Registration Rights Agreement, and only in exchange for Initial Notes of an
equal principal amount, in each case upon a written order of the Company signed
by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Notes or Exchange Notes. The aggregate principal amount of Securities
outstanding at any time may not exceed $150.0 million except as provided in
Section 2.7.
The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Securities. Unless
limited by the terms of such appointment, any such
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<PAGE> 27
Authenticating Agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent.
Section 2.3. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of each such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any of its domestically incorporated Wholly-Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent. The Paying Agent
or the Registrar may resign as such upon 30 days' prior written notice to the
Company and the Trustee; upon resignation of any Paying Agent or Registrar, the
Company shall appoint a successor Paying Agent or Registrar, as the case may be,
no later than 30 days thereafter and shall provide notice to the Trustee of such
successor Paying Agent or Registrar.
The Company initially appoints the Trustee as Registrar and Paying
Agent for the Securities.
Section 2.4. Paying Agent To Hold Money in Trust. By at least 10:00
a.m. (New York City time) on the date on which any principal of or interest on
any Security is due and payable, the Company shall deposit with the Paying Agent
a sum sufficient to pay such principal or interest when due. The Company shall
require each Paying Agent (other than the Trustee) to agree in writing that such
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
money held by such Paying Agent for the payment of principal of or interest on
the Securities and shall notify the Trustee of any default by the Company in
making any such payment. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate the money held by it as Paying Agent and hold it as a separate
trust fund. The Company at any time may require a Paying Agent (other than the
Trustee) to pay all money held by it to the Trustee and to account for any funds
disbursed by such Paying Agent. Upon complying with this Section 2.4, the Paying
Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money delivered to the Trustee. Upon any bankruptcy,
reorganization or similar proceeding with respect to the Company, the Trustee
shall serve as Paying Agent for the Securities.
Section 2.5. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Holders. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee, in writing at least seven Business Days
before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Holders.
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Section 2.6. Transfer and Exchange.
(a) Restrictions on Transfer and Exchange of Global Securities.
(i) the transfer and exchange of Global Securities or
beneficial interests therein shall be effected through the Depositary
or the Trustee, as the custodian for the Depositary, in accordance with
this Indenture (including applicable restrictions on transfer set forth
herein) and the procedures of the Depositary therefor.
(ii) A Global Security shall be exchangeable pursuant to this
Section 2.6(a) for Definitive Securities registered in the names of
Persons owning beneficial interests in such Global Security only if (A)
such exchange is made in compliance with the provisions of this Section
2.6 and (B) any of the following events shall have occurred: (1) the
Depositary for such Global Security notifies the Company that it is
unwilling or unable to continue as Depositary for such Global Security
or such Depositary ceases to be a clearing agency registered under the
Exchange Act, at a time when such Depositary is required to be so
registered in order to act as Depositary, and a successor depositary is
not appointed by the Company within 90 days thereafter, (2) the Company
executes and delivers to the Trustee an Officers' Certificate stating
that such Global Security shall be so exchangeable or (3) there shall
have occurred and be continuing an Event of Default with respect to the
Securities and any of the Company, the Depositary or the Trustee so
requests. Upon exchange of a Global Security for one or more Definitive
Securities, such Definitive Securities shall not thereafter be
exchangeable for beneficial interests in a Global Security.
(iii) Any Global Security that is exchangeable for Definitive
Securities registered in the name of the owners of beneficial interests
therein pursuant to this Section 2.6 shall be surrendered by the
Depositary to the Trustee to be so exchanged, without charge, and the
Company shall sign and the Trustee shall authenticate and deliver, upon
such exchange of such Global Security, an equal aggregate principal
amount of Definitive Securities of authorized denominations. Definitive
Securities issued in exchange for a beneficial interest in a Global
Security pursuant to this Section 2.6 shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee in writing. The Trustee shall deliver such
Definitive Securities to the Persons in whose names such Securities are
so registered in accordance with the instructions of the Depositary.
All Definitive Securities representing the Initial Notes delivered in
exchange for a Global Security which bore the Restricted Securities
Legend set forth in Exhibit A shall, except as otherwise provided in
Section 2.6(d), bear the Restricted Securities Legend set forth in
Exhibit A hereto.
(iv) The registered Holder of a Global Security may grant
proxies and otherwise authorize any Person, including Agent Members and
Persons that may hold interests through Agent Members, to take any
action which a Holder is entitled to take under this Indenture or the
Securities.
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<PAGE> 29
(v) In the event of the occurrence of any of the events
specified in Section 2.6(a)(ii), the Company will promptly make
available to the Trustee a reasonable supply of Definitive Securities.
(vi) Notwithstanding any other provision of this Indenture, a
Global Security may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of such Depositary or
by a nominee of such Depositary to such Depositary or another nominee
of such Depositary.
(b) Cancellation or Adjustment of Global Security. At such time as all
beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to the Depositary for cancellation or retained and canceled by
the Trustee.
(c) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented by a Holder to the Registrar or a co-registrar with a
request (i) to register the transfer of such Definitive Securities; or (ii) to
exchange such Definitive Securities for an equal principal amount of Definitive
Securities of other authorized denominations, the Registrar or co-registrar
shall register the transfer or make the exchange as requested if its reasonable
requirements for such transaction are met; provided, however, that:
(i) such Definitive Securities shall be duly endorsed or
accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company and the Registrar or co-registrar, duly
executed by such Holder or his attorney duly authorized in writing; and
(ii) if such Definitive Securities are Transfer Restricted
Securities, such Definitive Securities shall also be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Securities are being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from
such Holder to that effect (in the form set forth on the
reverse of the Security); or
(B) if such Transfer Restricted Securities are being
transferred (x) to the Company or to a QIB in accordance with
Rule 144A under the Securities Act or (y) pursuant to an
effective registration statement under the Securities Act, a
certification from such Holder to that effect (in the form set
forth on the reverse of the Security); or
(C) if such Transfer Restricted Securities are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities
Act; or (x) an "accredited investor" (within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that
is an institutional investor and that is acquiring the
Security for its own account, or for the
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account of such an institutional accredited investor, in each
case in a minimum principal amount of the Securities of
$250,000 for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in
violation of the Securities Act; or (y) in reliance on another
exemption from the registration requirements of the Securities
Act: (i) a certification to that effect from such Holder (in
the form set forth on the reverse of the Security), (ii) if
the Company or the Trustee so requests, an Opinion of Counsel
reasonably acceptable to the Company and to the Trustee to the
effect that such transfer is in compliance with the Securities
Act and (iii) in the case of clause (x), a signed letter from
the transferee substantially in the form of Exhibit C hereto.
(d) Legend.
(i) Except in the case of Exchange Notes or as permitted by
the following paragraph (ii), each Security certificate evidencing
Global Securities and Definitive Securities (and all Securities issued
in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND
THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
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INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN
A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND
(F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE."
(ii) Upon any sale, exchange or transfer of a Transfer
Restricted Security (including any Transfer Restricted Security
represented by a Global Security) after the Resale Restriction
Termination Date (as defined in the legend set forth in paragraph (i)
above) or pursuant to Rule 144 under the Securities Act or pursuant to
an effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a Definitive Security that does not bear the legend set
forth in paragraph (i) above and rescind any restriction on
the transfer of such Security; and
(B) in the case of any such Transfer Restricted
Security represented by a Global Security, such Transfer
Restricted Security shall not be required to bear the
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legend set forth in paragraph (i) above, although it shall
continue to be subject to the provisions of Section 2.6(a)
hereof.
(e) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax, assessments, or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charges payable upon
exchange or transfer pursuant to Sections 4.6, 4.8 or 9.5 or pursuant
to paragraph 5 of the Securities).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (A) any Definitive Security
selected for redemption in whole or in part pursuant to Article III,
except the unredeemed portion of any Definitive Security being redeemed
in part or (B) any Security for a period beginning (1) 15 Business Days
before the mailing of a notice of an offer to repurchase or redeem
Securities and ending at the close of business on the day of such
mailing or (2) 15 Business Days before an interest payment date and
ending on such interest payment date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt
and shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(f) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any owner of a beneficial interest in a Global Security, a member of,
or a participant in the Depositary or any other Person with respect to
the accuracy of the records of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest
in the Securities or with respect to the delivery to any participant,
member, beneficial owner or other Person (other than the Depositary) of
any notice (including any notice of redemption) or the payment of any
amount or delivery of any Securities (or other security or property)
under or with respect to such Securities. All notices and
communications to be given to the Holders
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and all payments to be made to Holders in respect of the Securities
shall be given or made only to or upon the order of the registered
Holders (which shall be the Depositary or its nominee in the case of a
Global Security). The rights of owners of beneficial interests in any
Global Security shall be exercised only through the Depositary subject
to the applicable rules and procedures of the Depositary. The Trustee
may rely and shall be fully protected in relying upon information
furnished by the Depositary with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including any transfers
between or among Depositary participants, members or owners of
beneficial interests in any Global Security); provided that the Trustee
shall have the right to require such certifications, Opinions of
Counsel or other documentation in respect of exchanges of beneficial
ownership interests in Global Securities for Definitive Securities as
it may reasonably request.
Section 2.7. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the Company
provides the Trustee with an Officer's Certificate stating that the requirements
of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security. Every replacement Security is
an additional obligation of the Company.
Section 2.8. Outstanding Securities. Securities outstanding at any time
are all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section 2.8
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
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Section 2.9. Temporary Securities. Until Definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
Definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive Securities. After
the preparation of Definitive Securities, the temporary Securities shall be
exchangeable for Definitive Securities upon surrender of the temporary
Securities at any office or agency maintained by the Company for that purpose
and such exchange shall be without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute,
and the Trustee shall authenticate and deliver in exchange therefor, one or more
Definitive Securities representing an equal principal amount of Securities.
Until so exchanged, the Holder of temporary Securities shall in all respects be
entitled to the same benefits under this Indenture as a holder of Definitive
Securities.
Section 2.10. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest. If the Company defaults in a payment
of interest on the Securities, the Company shall pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed (or upon the Company's failure to do so the Trustee shall fix
pursuant to a written instruction of Holders of at least a majority in principal
amount of the Securities) any such special record date and payment date to the
reasonable satisfaction of the Trustee which specified record date shall not be
less than 10 days prior to the payment date for such defaulted interest and
shall promptly mail or cause to be mailed to each Securityholder a notice that
states the special record date, the payment date and the amount of defaulted
interest to be paid. The Company shall notify the Trustee in writing of the
amount of defaulted interest proposed to be paid on each Security and the date
of the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such defaulted interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when so deposited to be held in trust for the benefit of the Person
entitled to such defaulted interest as provided in this Section 2.11.
Section 2.12. CUSIP Numbers. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders, provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
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identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.
ARTICLE III.
Redemption
Section 3.1. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date and the principal amount of Securities
to be redeemed.
The Company shall give each notice to the Trustee provided for in this
Section 3.1 at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and, if the Trustee so requests, an Opinion of Counsel to the effect
that such redemption will comply with the conditions herein. If fewer than all
the Securities are to be redeemed, the record date relating to such redemption
shall be selected by the Company and set forth in the related notice given to
the Trustee, which record date shall be not less than 15 days after the date of
such notice.
Section 3.2. Selection of Securities To Be Redeemed. If fewer than all
the Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make the
selection from outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be redeemed.
Section 3.3. Notice of Redemption. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail a
notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(i) the redemption date;
(ii) the redemption price;
(iii) the name and address of the Paying Agent;
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(iv) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(v) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(vi) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on Securities
(or portion thereof) called for redemption ceases to accrue on and
after the redemption date;
(vii) the CUSIP number, if any, printed on the Securities
being redeemed; and
(viii) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.3.
Section 3.4. Effect of Notice of Redemption. Once notice of redemption
is mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest to the redemption date; provided
that if the redemption date is after a regular record date and on or prior to
the interest payment date, the accrued interest shall be payable to the
Securityholder of the redeemed Securities registered on the relevant record
date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
Section 3.5. Deposit of Redemption Price. By at least 10:00 a.m. (New
York City time) on the date on which any principal of or interest on any
Security is due and payable, the Company shall deposit with the Paying Agent
(or, if the Company or a Subsidiary is the Paying Agent, shall segregate and
hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which are owned by the Company or a
Subsidiary and have been delivered by the Company or such Subsidiary to the
Trustee for cancellation.
Section 3.6. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate for the Holder (at the Company's expense) a new Security equal in a
principal amount to the unredeemed portion of the Security surrendered.
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ARTICLE IV.
Covenants
Section 4.1. Payment of Securities. The Company shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this Indenture,
the Company may, to the extent it is required to do so by law, deduct or
withhold income or other similar taxes imposed by the United States of America
from principal or interest payments hereunder.
Section 4.2. SEC Reports. Notwithstanding that the Company may not be
required to be subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall file with the Commission, and within 15 days
after such reports are filed, provide the Trustee and the Holders (at their
addresses as set forth in the register of Securities) with the annual reports
and the information, documents and other reports which are otherwise required
pursuant to Section 13 and 15(d) of the Exchange Act. Such requirements may also
be satisfied, prior to January 12, 1999, with the filing with the Commission of
a registration statement under the Securities Act that contains the foregoing
information (including financial statements) and by providing copies thereof to
the Trustee and the Holders. In addition, following the registration of the
common stock of the Company pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Company shall furnish to the Trustee and the Holders, promptly upon
their becoming available, copies of the Company's annual report to stockholders
and any other information provided by the Company to its public stockholders
generally.
Section 4.3. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Subsidiaries
to, Incur any Indebtedness; provided, however, that the Company and any of its
Subsidiaries may Incur Indebtedness if on the date thereof the Consolidated
Coverage Ratio would be greater than 2.00:1.00.
(b) Notwithstanding Section 4.3(a), the Company and its Subsidiaries
may Incur the following Indebtedness: (i) Bank Indebtedness provided that the
aggregate principal amount of Indebtedness Incurred pursuant to this clause (i)
does not exceed an amount outstanding at any time equal to $330.0 million less
the aggregate amount of permanent reductions of commitments to extend credit
thereunder and repayments of principal thereof (without duplication of
repayments
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required as a result of such reductions of commitments); (ii) Indebtedness (A)
of the Company to any Wholly-Owned Subsidiary and (B) of any Subsidiary to the
Company or any Wholly-Owned Subsidiary; (iii) Indebtedness represented by the
Securities, any Indebtedness (other than the Indebtedness described in clauses
(i)-(ii) above) outstanding on the date hereof and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iii) or this
paragraph (b); (iv) Indebtedness represented by the Security Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i) above; (v)
Indebtedness under Currency Agreements and Interest Rate Agreements which are
entered into for bona fide hedging purposes of the Company or its Subsidiaries
(as determined in good faith by the Board of Directors or senior management of
the Company) and correspond in terms of notional amount, duration, currencies
and interest rates, as applicable, to Indebtedness of the Company or its
Subsidiaries Incurred without violation of the Indenture or to business
transactions of the Company or its Subsidiaries on customary terms entered into
in the ordinary course of business; and (vi) Indebtedness of the Company or any
of its Subsidiaries (which may comprise Bank Indebtedness) in an aggregate
principal amount at any time outstanding not in excess of $15.0 million.
(c) Notwithstanding any other provision of this Section 4.3, the
Company shall not Incur any Indebtedness (i) pursuant to Section 4.3(b) if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations or (ii) pursuant to Section 4.3(a) or 4.3(b) if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness.
(d) The Company shall not Incur any Secured Indebtedness which is not
Senior Indebtedness unless contemporaneously therewith effective provision is
made to secure the Securities equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
Section 4.4. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Subsidiary,
directly or indirectly, after the Issue Date, to (i) declare or pay any dividend
or make any distribution on or in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the
Company) except (A) dividends or distributions payable in its Capital Stock
(other than Disqualified Stock) and (B) dividends or distributions payable to
the Company or another Subsidiary (and, if such Subsidiary is not a Wholly-Owned
Subsidiary, to its other stockholders on a pro rata basis), (ii) purchase,
redeem, retire or otherwise acquire for value any Capital Stock of the Company
or any Subsidiary held by Persons other than the Company or another Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted
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Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to as a "Restricted Payment"), if at the time the Company
or such Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); or (2) the Company could
not Incur at least an additional $1.00 of Indebtedness pursuant to Section
4.3(a); or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a resolution of the Board of Directors) or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the Issue Date to the end of the most recent fiscal quarter ending
prior to the date of such Restricted Payment as to which financial results are
available (but in no event more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its Capital Stock (other than
Disqualified Stock) or other cash contributions to its capital subsequent to the
Issue Date (other than an issuance or sale to a Subsidiary of the Company or an
employee stock ownership plan or other trust established by the Company or any
of its Subsidiaries); (C) aggregate Net Cash Proceeds from issue or sale of its
Capital Stock to an employee stock ownership plan or similar trust, provided,
however, that if such plan or trust Incurs any Indebtedness to or Guaranteed by
the Company to finance the acquisition of such Capital Stock, such aggregate
amount shall be limited to any increase in the Consolidated Net Worth of the
Company resulting from principal repayments made by such plan or trust with
respect to Indebtedness Incurred by it to finance the purchase of such Capital
Stock; and (D) the amount by which Indebtedness of the Company or its
Subsidiaries is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company or its Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or other property, distributed by the Company or any Subsidiary upon
such conversion or exchange).
(b) The provisions of Section 4.4(a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause Section 4.4(a)(3)(B);
(ii) any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under Section 4.6;
provided, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iv) dividends paid within 60
days after the date of declaration if at such date of declaration such dividend
would have complied with this provision; provided, however, that such dividend
shall be included in the calculation of the amount of Restricted
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Payments; or (v) payment of dividends or other distributions by the Company for
the purposes set forth in clauses (A) through (C) below; provided, however, that
any such dividend or distribution described in clauses (A) and (B) will be
excluded in the calculation of the amount of Restricted Payments and any such
dividend or distribution described in clause (C) will be included in the
calculation of the amount of Restricted Payments: (A) in amounts equal to the
amounts required for Holdings to pay franchise taxes and other fees required to
maintain its legal existence and provide for audit, accounting, legal and other
operating costs of up to $500,000 per fiscal year; (B) in amounts equal to
amounts required for Holdings to pay Federal, state and local income taxes to
the extent such income taxes are attributable to the income of the Company and
its Subsidiaries; and (C) in amounts equal to amounts expended by the Company or
Holdings to repurchase Capital Stock of the Company or Holdings owned by
employees (including former employees) of the Company or its Subsidiaries or
their assigns, estates and heirs; provided that the aggregate amount paid,
loaned or advanced pursuant to this clause (C) shall not, in the aggregate,
exceed the sum of $3.0 million plus any amounts contributed by Holdings to the
Company as a result of resales of such repurchased shares of Capital Stock; or
(vi) any repurchase of equity interests deemed to occur upon exercise of stock
options if such equity interests represent a portion of the exercise price of
such options.
Section 4.5. Limitation on Restrictions on Distributions from
Subsidiaries. Except for agreements of IPES Iberica, S.A., Doane Pet Care Spain,
S.A. or Effeffe, S.p.a. governing Indebtedness existing prior to the Issue Date
or Incurred after the Issue Date in a manner permitted by Section 4.3, the
Company shall not, and shall not permit any of its Subsidiaries to, create or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any such Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other obligation
owed to the Company, (ii) make any loans or advances to the Company or (iii)
transfer any of its property or assets to the Company; except: (A) any
encumbrance or restriction pursuant to an agreement in effect on the Issue Date,
including those arising under the Senior Credit Documents; (B) any encumbrance
or restriction with respect to a Subsidiary pursuant to an agreement relating to
any Indebtedness Incurred by a Subsidiary prior to the date on which such
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary was acquired by the Company); (C)
any encumbrance or restriction with respect to a Subsidiary pursuant to an
agreement effecting a refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clauses (A) or (B) or this clause (C) or contained in
any amendment, supplement or modification (including an amendment and
restatement) to an agreement referred to in clauses (A) or (B) or this clause
(C); provided, however, that the encumbrances and restrictions contained in any
such refinancing agreement or amendment taken as a whole are no less favorable
to the holders of the Securities in any material respect than encumbrances and
restrictions contained in such agreements; (D) in the case of clause (iii), any
encumbrance or restriction (1) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to a
lease, license, or similar contract, (2) by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or assets
of the Company or any Subsidiary not otherwise prohibited by this Indenture, or
(3) contained in security agreements securing Indebtedness of a Subsidiary to
the extent such encumbrance or restrictions restrict the transfer of the
property subject to such security agreements; (E) any such restriction imposed
by applicable law; (F) any restriction with respect to
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a Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Subsidiary pending the closing of such sale or disposition; and (G) purchase
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired.
Section 4.6. Limitation on Sales of Assets.
(a) The Company shall not, and shall not permit any Subsidiary to, make
any Asset Disposition unless (i) the Company or such Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value, of the shares
and assets subject to such Asset Disposition, (ii) at least 85% of the
consideration thereof received by the Company or such Subsidiary is in the form
of cash and (iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Subsidiary, as the case may
be) (A) first, to the extent the Company elects (or is required by the terms of
any Senior Indebtedness or Indebtedness (other than Preferred Stock) of a
Wholly-Owned Subsidiary), to prepay, repay or purchase Senior Indebtedness or
such Indebtedness (other than Preferred Stock) of a Wholly-Owned Subsidiary (in
each case other than Indebtedness owed to the Company or an Affiliate of the
Company) within one-year after the later of the date of such Asset Disposition
or the receipt of such Net Available Cash; (B) second, to the extent of the
balance of Net Available Cash after application in accordance with clause (A),
to the extent the Company or such Subsidiary elects, to reinvest in Additional
Assets (including by means of an Investment in Additional Assets by a Subsidiary
with Net Available Cash received by the Company or another Subsidiary) within
one year from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to make
an offer to purchase Securities pursuant and subject to the conditions of this
Indenture to the Holders at a purchase price of 100% of the principal amount
thereof plus accrued and unpaid interest to the purchase date, and (D) fourth,
to the extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B) and (C), to (x) acquire Additional Assets
(other than Indebtedness and Capital Stock) or (y) prepay, repay or purchase
Indebtedness of the Company (other than Indebtedness owed to an Affiliate of the
Company and other than Disqualified Stock of the Company) or Indebtedness of any
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case described in this clause (D) within one year from the
receipt of such Net Available Cash or, if the Company has made an Offer pursuant
to clause (C), six months from the date such Offer is consummated; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Subsidiary shall retire such Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Company and its Subsidiaries shall not be required to apply any
Net Available Cash in accordance herewith except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
in accordance with this Section 4.6 at any time exceed $1.0 million. The Company
shall not be required to make an offer for Securities pursuant to this covenant
if the Net Available Cash available therefor (after application of the proceeds
as provided in clauses (A) and (B)) is less than $10.0 million for any
particular Asset Disposition (which lesser amounts shall be
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carried forward for purposes of determining whether an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
For the purposes of this Section 4.6, the following will be
deemed to be cash: (x) the assumption of Indebtedness (other than Disqualified
Stock) of the Company or any Subsidiary and the release of the Company or such
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Subsidiary of the
Company from the transferee that are promptly converted by the Company or such
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to Section 4.6(a)(iii)(C), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
plus accrued interest to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in Section
4.6(c). If the aggregate purchase price of the Securities tendered pursuant to
the Offer is less than the Net Available Cash allotted to the purchase of the
Securities, the Company will apply the remaining Net Available Cash in
accordance with Section 4.6(a)(iii)(D).
(c) (i) Promptly, and in any event within 10 days after the Company is
required to make an Offer, the Company shall deliver to the Trustee and send, by
first-class mail to each Holder, a written notice stating that the Holder may
elect to have his or her Securities purchased by the Company either in whole or
in part (subject to prorating as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date").
(ii) Not later than the date upon which such written notice of
an Offer is delivered to the Trustee and the Holders, the Company shall
deliver to the Trustee an Officers' Certificate setting forth (A) the
amount of the Offer (the "Offer Amount"), (B) the allocation of the Net
Available Cash from the Asset Dispositions as a result of which such
Offer is being made and (C) the compliance of such allocation with the
provisions of Section 4.6(a). Upon the expiration of the period (the
"Offer Period") for which the Offer remains open, the Company shall
deliver to the Trustee for cancellation the Securities or portions
thereof which have been properly tendered to and are to be accepted by
the Company. The Trustee shall, on the Purchase Date, mail or deliver
payment to each tendering Holder in the amount of the purchase price of
the Securities tendered by such Holder to the extent such funds are
available to the Trustee.
(iii) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly
completed, to the Company at the address specified in the notice prior
to the expiration of the Offer Period. Each Holder will be entitled to
withdraw its election if the Trustee or the Company receives, not later
than one Business Day prior to the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter from such Holder
setting forth the name of such Holder, the principal
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amount of the Security or Securities which were delivered for purchase
by such Holder and a statement that such Holder is withdrawing its
election to have such Security or Securities purchased. If at the
expiration of the Offer Period the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that
only Securities in denominations of $1,000, or integral multiples
thereof, shall be purchased). Holders whose Securities are purchased
only in part will be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered.
(d) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.6. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.6, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue thereof.
Section 4.7. Limitation on Affiliate Transactions.
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly, enter into or conduct any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless:
(i) the terms of such Affiliate Transaction are no less favorable to the Company
or such Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not such
an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1.0 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the disinterested members of such Board, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $5.0 million,
the Company has received a written opinion from an independent investment
banking firm of nationally recognized standing that such Affiliate Transaction
is fair to the Company or such Subsidiary, as the case may be, from a financial
point of view; provided, the requirements of this clause (iii) shall not apply
to the transactions contemplated by the Senior Credit Documents.
(b) The provisions of Section 4.7(a) will not prohibit (i) any
Restricted Payment permitted to be made pursuant to Section 4.4 (and in the case
of Permitted Investments, only those described in clauses (v), (vi), (ix) and
(x) of the definition of Permitted Investments), (ii) the performance of the
Company's or Subsidiary's obligations under any employment contract, collective
bargaining agreement, employee benefit plan, related trust agreement or any
other similar arrangement heretofore or hereafter entered into in the ordinary
course of business, (iii) payment of compensation to, and indemnity provided on
behalf of, employees, officers, directors or consultants in the ordinary course
of business, (iv) maintenance in the ordinary course of business of benefit
programs or arrangements for employees, officers or directors, including
vacation plans, health and life insurance plans, deferred compensation plans,
and retirement or savings plans and similar plans
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or (v) any transaction between the Company and a Wholly-Owned Subsidiary or
between Wholly-Owned Subsidiaries.
Section 4.8. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require the Company to repurchase all or any part of such Holder's
Securities at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), such repurchase to
be made in accordance with Section 4.8(b).
(b) Within 30 days following any Change of Control, unless the Company
has mailed a redemption notice with respect to all the outstanding Securities in
connection with such Change of Control, the Company shall mail a notice to each
Holder of record with a copy to the Trustee stating: (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Securities at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date); (ii) the circumstances
and relevant facts and financial information concerning such Change of Control;
(iii) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (iv) the procedures determined
by the Company, consistent with this Indenture, that a Holder must follow in
order to have its Securities purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
purchase date. Each Holder will be entitled to withdraw its election if the
Company receives, not later than one Business Day prior to the purchase date, a
telegram, telex, facsimile transmission or letter from such Holder setting forth
the name of such Holder, the principal amount of the Security or Securities
which were delivered for purchase by such Holder and a statement that such
Holder is withdrawing his election to have such Security or Securities
purchased.
(d) On the purchase date, all Securities purchased by the Company under
this Section 4.8 shall be delivered to the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.8. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.8, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Indenture by virtue thereof.
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Section 4.9. Limitation on Sale of Subsidiary Capital Stock. The
Company (i) will not, and will not permit any Subsidiary to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Subsidiary to any
Person (other than to the Company or a Wholly-Owned Subsidiary) and (ii) will
not permit any Subsidiary to issue any of its Capital Stock (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly-Owned Subsidiary;
provided, however, that this Section 4.9 shall not prohibit such conveyance,
sale, lease or other disposition of all the Capital Stock of a Subsidiary if the
net cash proceeds from such transfer, conveyance, sale, lease, other disposition
or issuance are applied in accordance with Section 4.6.
Section 4.10. Future Security Guarantors. The Company will cause each
Domestic Subsidiary which Incurs Indebtedness or which is a guarantor of
Indebtedness Incurred pursuant to Section 4.3(b)(i) to execute and deliver to
the Trustee a Security Guarantee pursuant to which such Domestic Subsidiary will
Guarantee, jointly and severally, to the Holders and the Trustee, subject to
subordination provisions in Article X, the full and prompt payment of the
Securities in the Indenture. Each Security Guarantee will be limited in amount
to an amount not to exceed the maximum amount that can be Guaranteed by that
Domestic Subsidiary without rendering the Security Guarantee, as it relates to
such Subsidiary, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally.
Section 4.11. Limitation on Lines of Business. The Company will not,
and will not permit any Subsidiary to, engage in any business, other than the
pet food business and such other business activities which are incidental or
related thereto.
Section 4.12. Maintenance of Office or Agency for Registration of
Transfer, Exchange and Payment of Securities. So long as any of the Securities
shall remain outstanding, the Company will maintain an office or agency in the
Borough of Manhattan, the City of New York, State of New York, where the
Securities may be surrendered for exchange or registration of transfer as in
this Indenture provided, and where notices and demands to or upon the Company in
respect to the Securities may be served, and where the Securities may be
presented or surrendered for payment. The Company may also from time to time
designate one or more other offices or agencies where Securities may be
presented or surrendered for any and all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan, the City of New York, State of
New York for such purposes. The Company will give to the Trustee prompt written
notice of the location of any such office or agency and of any change of
location thereof. The Company initially appoints the Trustee c/o Harris Trust
Company of New York, 77 Water Street, New York, New York 10005 for each of said
purposes. In case the Company shall fail to maintain any such office or agency
or shall fail to give such notice of the location or of any change in the
location thereof, such surrenders, presentations and demands may be made and
notices may be served at the principal office of the Trustee in the City of
Wilmington, State of Delaware, and the Company hereby appoints the Trustee its
agent to receive at the aforesaid office all such surrenders, presentations,
notices and demands. The Trustee will give the Company prompt notice of any
change in location of the Trustee's principal office.
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Section 4.13. Appointment to Fill a Vacancy in the Office of Trustee.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 7.8, a Trustee, so that
there shall at all times be a Trustee hereunder.
Section 4.14. Provision as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the Trustee,
it will cause such Paying Agent to execute and deliver to the Trustee an
instrument in which such agent shall undertake, subject to the provisions of
this Section 4.14,
(i) that it will hold all sums held by it as such agent for
the payment of the principal of, premium, if any, or interest on the
Securities whether such sums have been paid to it by the Company (or by
any other obligor on the Securities) in trust for the benefit of the
holders of the Securities and will notify the Trustee of the receipt of
sums to be so held,
(ii) that it will give the Trustee notice of any failure by
the Company (or by any other obligor on the Securities) to make any
payment of the principal of, premium, if any, or interest on the
Securities when the same shall be due and payable,
(iii) that it will at any time during the continuance of any
Event of Default specified in Section 6.1(i) or 6.1(ii), upon the
written request of the Trustee, deliver to the Trustee all sums so held
in trust by it, and
(iv) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights
and liabilities of such Paying Agent, including, without limitation,
the provision of Article X hereof.
(b) If the Company shall not act as its own Paying Agent, it will, by
10:00 a.m. on the Business Day prior to each due date of the principal of or
premium, if any, or interest on any Securities, deposit with such Paying Agent a
sum in same day funds sufficient to pay the principal of, premium, if any, or
interest so becoming due, such sum to be held in trust for the benefit of the
holders of Securities entitled to such principal of or premium, if any, or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its failure so to act.
(c) If the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal of or premium, if any, or interest on the
Securities, set aside, segregate and hold in trust for the benefit of the
persons entitled thereto, a sum sufficient to pay such principal or premium or
interest so becoming due and will notify the Trustee of any failure to take such
action.
(d) Anything in this Section 4.14 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by it, or any Paying Agent hereunder, as
required by this Section 4.14, such sums to be held by the Trustee upon the
trusts herein contained.
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(e) Anything in this Section 4.14 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 4.14 is subject to
the provisions of Sections 8.4 and 8.6.
Section 4.15. Maintenance of Corporate Existence. So long as any of the
Securities shall remain outstanding, the Company will at all times (except as
otherwise provided or permitted in this Section 4.15 or elsewhere in this
Indenture) do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and franchises and the corporate
existence and franchises of each Subsidiary; provided that nothing herein shall
require the Company to continue the corporate existence or franchises of any
Subsidiary if in the judgment of the Company it shall be necessary, advisable or
in the interest of the Company to discontinue the same.
Section 4.16. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default or Event of Default and whether or not the signers know
of any Default or Event of Default that occurred during such period. If they do,
the certificate shall describe the Default or Event of Default, its status and
what action the Company is taking or proposes to take with respect thereto. The
Company also shall comply with TIA Section 314(a)(4).
Section 4.17. Further Instruments and Acts. The Company will execute
and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purpose of this
Indenture or as may be reasonably requested by the Trustee.
ARTICLE V.
Successor Company
Section 5.1. When Company May Merge or Transfer Assets. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") is a corporation organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and the Successor Company (if not the Company) expressly
assumes by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been Incurred by the Successor Company or such
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
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(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00
of Indebtedness pursuant to Section 4.3(a);
(iv) immediately after giving effect to such transaction, the
Successor Company will have Consolidated Net Worth in an amount which
is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with this Indenture.
The Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture, but the
predecessor, the Company, in the case of a lease of all or substantially all its
assets shall not be released from the obligation to pay the principal of and
interest on the Securities.
Notwithstanding Section 5.1(ii) and 5.1(iii), (i) any Subsidiary of the
Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or another wholly-owned Subsidiary of the
Company; and (ii) the Company may merge with an Affiliate incorporated solely
for the purpose of reincorporating the Company in another jurisdiction to
realize tax or other benefits.
ARTICLE VI.
Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if:
(i) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, whether or not such
payment shall be prohibited by Article X, and such default continues
for a period of 30 days;
(ii) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment shall be
prohibited by Article X;
(iii) the Company fails to comply with Section 5.1;
(iv) the Company fails to comply with Section 4.2, 4.3, 4.4,
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 or 4.11 (in each case other than a
failure to repurchase Securities when required pursuant to Section 4.6
or 4.8 which failure shall constitute an Event of Default under Section
6.1(ii)) and such failure continues for 30 days after the notice
specified below;
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(v) the Company fails to comply with any of its agreements
in the Securities or this Indenture (other than those referred to in
(i), (ii), (iii) or (iv) above) and such failure continues for 60 days
after the notice specified below;
(vi) Indebtedness of the Company or any Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such unpaid or accelerated Indebtedness exceeds $5.0 million
or its foreign currency equivalent at the time and such default shall
not have been cured or such acceleration rescinded within a 10-day
period;
(vii) the Company or a Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property; or
(D) makes a general assignment for the benefit of
its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for 60 days;
(ix) any judgment or decree for the payment of money in excess
of $5.0 million or its foreign currency equivalent at the time (to the
extent not covered by insurance) is entered against the Company or any
Significant Subsidiary which is final and non-appealable and is not
discharged and either (A) an enforcement proceeding has been commenced
by any
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creditor upon such judgment or decree and is not promptly stayed or (B)
there is a period of 60 days following the entry of such judgment or
decree during which such judgment or decree is not discharged or the
execution thereof stayed; or
(x) the failure of any Security Guarantee to be in full force
and effect (except as contemplated by the terms thereof) or the denial
or disaffirmation by any Security Guarantor of its obligations
hereunder or any Security Guarantee if such default continues for 10
days.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under Section 6.1(iv) or
Section 6.1(v) will not constitute an Event of Default until the Trustee or the
Holders of at least 25% in principal amount of the outstanding Securities notify
the Company of the Default and the Company does not cure such Default within the
time specified in said clause (iv) or (v) after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default".
The Company shall deliver to the Trustee: (i) within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (vi) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (iv),
(v) or (ix), its status and what action the Company is taking or proposes to
take with respect thereto; and (ii) within 120 days after the end of each fiscal
year, written notice in the form of an Officer's Certificate indicating whether
the Officers signing such Officer's Certificate knew or were aware of any
Default that occurred during such previous fiscal year.
Section 6.2. Acceleration. If an Event of Default (other than an Event
of Default specified in Section 6.1(vii) or (viii) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in outstanding principal amount of the Securities by notice to
the Company and the Trustee, may declare the principal of and accrued and unpaid
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.1(vii) or (viii) with respect to the Company
occurs and is continuing, the principal of and accrued and unpaid interest on
all the Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holders.
The Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that
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has become due solely because of acceleration. No such rescission shall affect
any subsequent Default or Event of Default or impair any right consequent
thereto.
Section 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative.
Section 6.4. Waiver of Past Defaults. The Holders of a majority in
outstanding principal amount of the Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences except (i) a
Default or Event of Default in the payment of the principal of or interest on a
Security or (ii) a Default or Event of Default in respect of a provision that
under Section 9.2 cannot be amended without the consent of each Holder affected.
When a Default or Event of Default is waived, it is deemed cured, but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any consequent right.
Section 6.5. Control by Majority. The Holders of a majority in
outstanding principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.1, that the Trustee determines is unduly prejudicial to the
rights of other Holders (it being understood that, subject to Section 7.1, the
Trustee shall have no duty to ascertain whether or not such actions or
forbearances are unduly prejudicial to such Holders) or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
Section 6.6. Limitation on Suits. Except to enforce the right to
receive payment of principal, premium, (if any) or interests when due, a Holder
may not pursue any remedy with respect to this Indenture or the Securities
unless:
(i) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(ii) the Holders of at least 25% in outstanding principal
amount of the Securities make a written request to the Trustee to
pursue the remedy;
(iii) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
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(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(v) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction that, in the opinion of
the Trustee, is inconsistent with the request during such 60-day
period.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Section 6.7. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of and interest on the Securities held by such Holder, on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 6.8. Collection Suit by Trustee. If an Event of Default
specified in Section 6.1(i) or (ii) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
Section 6.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Holders allowed in
any judicial proceedings relative to the Company, its Subsidiaries or their
respective creditors or properties and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the compensation, expenses, disbursements and advances of the
Trustee, its agents and its counsel, and any other amounts due the Trustee under
Section 7.7.
Section 6.10. Priorities. If the Trustee collects any money or property
pursuant to this Article VI, it shall pay out the money or property in the
following order:
FIRST: Costs and expenses of collection, including all sums
paid or advanced by the Trustee hereunder and the compensation,
expenses and disbursements of the Trustee, its agents, and counsel and
all other amounts due to the Trustee under Section 7.7;
SECOND: to holders of Senior Indebtedness to the extent
required by Article X;
THIRD: to Holders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Securities
for principal and interest, respectively; and
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FOURTH: to the Company.
The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10. At least 15 days before such
record date, the Company shall mail to each Holder and the Trustee a notice that
states the record date, the payment date and amount to be paid.
Section 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.11 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more
than 10% in outstanding principal amount of the Securities.
ARTICLE VII.
Trustee
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of such Person's own
affairs.
(b) Except during the continuance of an Event of Default: (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and (ii) in the absence
of bad faith on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that: (i) this paragraph does not limit the effect of Section 7.1(b);
(ii) the Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.5.
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(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to Sections 7.1(a), 7.1(b) and 7.1(c).
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 7.1 and to the provisions of the TIA.
Section 7.2. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed in good
faith.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) Prior to the occurrence of an Event of Default hereunder and after
the curing or waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolution,
Officer's Certificate, or other certificated statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal, bond, debenture,
note, coupon, security, or other paper or document unless requested in writing
so to do by the
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Holders of not less than a majority in aggregate principal amount of the
Securities then outstanding; provided that, if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding; the reasonable expenses of
every such examination shall be paid by the Company or, if advanced by the
Trustee, shall be repaid by the Company upon demand.
(g) The Trustee shall not be required to give any bond or surety in
respect of the performance of its power and duties hereunder.
(h) The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions, or agreements on the
part of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full information and advice as to the performance of the
covenants, conditions and agreements contained herein and shall be entitled in
connection herewith to examine the books, records and premises of the Company.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty and the Trustee shall not be
answerable for other than its negligence or willful default.
(j) Except for (i) a default under Sections 6.1(i) or (ii) hereof, or
(ii) any other event of which the Trustee has "actual knowledge" and which
event, with the giving of notice or the passage of time or both, would
constitute an Event of Default under this Indenture, the Trustee shall not be
deemed to have notice of any default or event unless specifically notified in
writing of such event by the Company or the Holders of not less than 25% in
aggregate principal amount of the Securities Outstanding; as used herein, the
term "actual knowledge" means the actual fact or statement of knowing, without
any duty to make any investigation with regard thereto.
Section 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, it shall not be responsible for the use or
application of any money received by any Paying Agent (other than itself as
Paying Agent), and it shall not be responsible for any statement of the Company
in this Indenture or in any document issued in connection with the sale of the
Securities or in the Securities other than the Trustee's certificate of
authentication.
Section 7.5. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if a Trust Officer has actual knowledge thereof,
the Trustee shall mail to each Holder notice of
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the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment of principal of, or interest
on, any Security (including payments pursuant to the optional redemption or
required repurchase provisions of such Security, if any), the Trustee may
withhold the notice if and so long as its board of directors, the Executive
Committee of its board of directors or a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
Section 7.6. Reports by Trustee to Holders. As promptly as practicable
after each June 15 beginning with the June 15 following the date of this
Indenture, and in any event prior to July 15 in each year, the Trustee shall
mail to each Holder a brief report dated as of such June 15 that complies with
TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b). The
Trustee shall also transmit by mail all reports required by TIA Section 313(c).
A copy of each report at the time of its mailing to Holders shall be
filed by the Company with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
Section 7.7. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time, and the Trustee shall be entitled to, compensation
for its services as set forth in a separate fee agreement between the Trustee
and the Company. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses incurred or made
by it, including costs of collection, costs of preparing and reviewing reports,
certificates and other documents, costs of preparation and mailing of notices to
Holders and reasonable costs of counsel retained by the Trustee in connection
with the delivery of an Opinion of Counsel or otherwise, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Company shall indemnify and hold harmless
the Trustee against any and all loss, liability or expense (including reasonable
attorneys' fees) incurred by it in connection with the administration of this
trust and the performance of its duties hereunder, including the costs and
expenses of enforcing this Indenture (including this Section 7.7) and of
defending itself against any claims (whether asserted by any Holder, the Company
or otherwise). The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee may have separate counsel and the Company shall
pay the fees and expenses of such counsel. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct or negligence.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities. The Trustee's right to
receive payment of any amounts due under this Section 7.7 shall not be
subordinate to any other liability or indebtedness of the Company.
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The Company's payment obligations pursuant to this Section 7.7 shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(vii) or (viii) with respect
to the Company, the expenses are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee. The Trustee may resign at any time
by so notifying the Company. The Holders of a majority in outstanding principal
amount of the Securities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee. The Company shall remove the Trustee if: (i)
the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged
bankrupt or insolvent; (iii) a receiver or other public officer takes charge of
the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of
acting.
If the Trustee resigns or is removed by the Company or by the Holders
of a majority in outstanding principal amount of the Securities and such Holders
do not reasonably promptly appoint a successor Trustee, or if a vacancy exists
in the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in outstanding principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
Section 7.9. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association without any further act shall be the successor Trustee.
If at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and if at that
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time any of the Securities shall not have been authenticated, any successor to
the Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor to the Trustee; and in all
such cases such certificates shall have the full force which it is anywhere in
the Securities or in this Indenture provided that the certificate of the Trustee
shall have.
Section 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Section 310(a). The Trustee shall have a
combined capital and surplus of at least $400 million as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VIII.
Discharge of Indenture; Defeasance
Section 8.1. Discharge of Liability on Securities; Defeasance
(a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.7) for
cancellation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article III hereof and the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Securities (other than Securities replaced pursuant to Section 2.7), including
interest thereon to maturity or such redemption date, and if in either case the
Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Section 8.1(c), cease to be of further effect. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of the Company (accompanied by an Officers' Certificate and an Opinion of
Counsel stating that all conditions precedent specified herein relating to the
satisfaction and discharge of this Indenture have been complied with) and at the
cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture and
all obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
this Indenture ("legal defeasance option") or (ii) its obligations under
Sections 4.2 through 4.15, 5.1(iii) and 5.1(iv) and the operation of Sections
6.1(iv), 6.1(v), 6.1(vi), 6.1(vii) (but only with respect to a Subsidiary),
6.1(viii) (but only with respect to a Subsidiary) and 6.1(ix) ("covenant
defeasance option"); provided, however, no deposit under this Article VIII shall
be effective to terminate the obligations of the Company under the Securities or
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this Indenture prior to 123 days following any such deposit. The Company may
exercise its legal defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.1(iv),
6.1(vi), 6.1(vii) (but only with respect to a Subsidiary), 6.1(viii) (but only
with respect to a Subsidiary), 6.1(ix) and 6.1(x) or because of the failure of
the Company to comply with Section 5.1(iii) and Section 5.1(iv).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding the provisions of Sections 8.1(a) and (b), the
Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7, 7.8, 8.4, 8.5
and 8.6 shall survive until the Securities have been paid in full. Thereafter,
the Company's obligations in Sections 7.7, 8.4 and 8.5 shall survive.
Section 8.2. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(i) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of
principal of and interest on the Securities to maturity or redemption,
as the case may be;
(ii) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and
without reinvestment of the deposited U.S. Government Obligations plus
any deposited money without reinvestment will provide cash at such
times and in such amounts as will be sufficient to pay principal and
interest when due on all the Securities to maturity or redemption, as
the case may be;
(iii) (A) no Event of Default (excluding a Default or Event of
Default arising from breach of Section 4.3 as a result of the borrowing
of funds to be applied to such deposit) shall have occurred or be
continuing on the date of such deposit and (B) 123 days pass after the
deposit is made and during the 123-day period no Default specified in
Section 6.1(vii) or 6.1(viii) with respect to the Company occurs which
is continuing at the end of such period;
(iv) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article X;
(v) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940;
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(vi) in the case of the legal defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (B) since the
date hereof there has been a change in the applicable Federal income
tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred;
(vii) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred;
(viii) The Holders shall have a perfected security interest
under applicable law in the cash or U.S. Government Obligations
deposited pursuant to Section 8.2(i) above;
(ix) The Company shall have delivered to the Trustee an
Opinion of Counsel, in form and substance reasonably satisfactory to
the Trustee, to the effect that, after the passage of 123 days
following the deposit, the trust funds will not be subject to any
applicable bankruptcy, insolvency, reorganization or similar law
affecting creditors' rights generally;
(x) such defeasance shall not cause the Trustee to have a
conflicting interest with respect to any securities of the Company; and
(xi) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities and this
Indenture as contemplated by this Article VIII have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
Section 8.3. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article X.
Section 8.4. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them upon payment of all the obligations under this
Indenture.
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Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal of or interest on the Securities that remains unclaimed
for two years, and, thereafter, Holders entitled to the money must look to the
Company for payment as general creditors.
Section 8.5. Indemnity for U.S. Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
Section 8.6. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article
VIII by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the obligations of the Company and the Subsidiary
Guarantors under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to this Article VIII until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article VIII; provided,
however, that, if the Company has made any payment of interest on or principal
of any Securities because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money or U.S. Government Obligations held by the Trustee
or Paying Agent.
ARTICLE IX.
Amendments
Section 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Holder:
(i) to cure any ambiguity, omission, defect or
inconsistency;
(ii) to comply with Article V;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(iv) to make any change in Article X that would limit or
terminate the benefits available to any holder of Senior Indebtedness
(or Representatives therefor) under Article X;
(v) to add Guarantees with respect to the Securities or to
secure the Securities;
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(vi) to add to the covenants of the Company for the benefit
of the Holders or to surrender any right or power herein conferred upon
the Company;
(vii) to comply with any requirement of the SEC in connection
with qualifying this Indenture under the TIA;
(viii) to make any change that does not adversely affect the
rights of any Holder; or
(ix) to provide for the issuance of the Exchange Notes,
which will have terms substantially identical in all material respects
to the Initial Notes (except that the transfer restrictions contained
in the Initial Notes will be modified or eliminated, as appropriate),
and which will be treated, together with any outstanding Initial Notes,
as a single issue of securities.
An amendment under this Section 9.1 may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness or Guarantor Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness or Guarantor Senior Indebtedness (or any
group or representative thereof authorized to give a consent) consent to such
change.
After an amendment under this Section 9.1 becomes effective, the
Company shall mail to each Holder a notice briefly describing such amendment.
The failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section 9.1.
Section 9.2. With Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to any Holder but with the
written consent of the Holders of at least a majority in principal amount of the
Securities. However, without the consent of each Holder affected, an amendment
may not:
(i) reduce the amount of Securities whose Holders must
consent to an amendment;
(ii) reduce the rate of or extend the time for payment of
interest on any Security;
(iii) reduce the principal of or extend the Stated Maturity of
any Security;
(iv) reduce the premium payable upon the redemption or
repurchase of any Security or change the time at which any Security may
or shall be redeemed or repurchased in accordance with this Indenture;
(v) make any Security payable in money other than that
stated in the Security;
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(vi) modify or affect in any manner adverse to the Holders
the terms and conditions of the obligation of the Company for the due
and punctual payment of the principal of or interest on Securities; or
(vii) make any change in Section 6.4 or 6.7 or the second
sentence of this Section 9.2.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section 9.2 may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section 9.2 becomes effective, the
Company shall mail to Holders a notice briefly describing such amendment. The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section 9.2.
Section 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents and Waivers. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to give their consent or take
any other action described above or required or permitted to be taken pursuant
to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall become valid or effective more than 120
days after such record date.
Section 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects
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the changed terms. Failure to make the appropriate notation or to issue a new
Security shall not affect the validity of such amendment.
Section 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
ARTICLE X.
Subordination
Section 10.1. Agreement To Subordinate. The Company and each Subsidiary
Guarantor agrees, and each Holder by accepting a Security and the related
Subsidiary Guarantee agrees, that the Indebtedness evidenced by the Securities
and the related Subsidiary Guarantee is subordinated in right of payment, to the
extent and in the manner provided in this Article X, to the prior payment in
full in cash or Cash Equivalents when due of (i) all Senior Indebtedness in the
case of the Securities and (ii) all Guarantor Senior Indebtedness of such
Subsidiary Guarantor in the case of its obligations under the Subsidiary
Guarantee and that the subordination is for the benefit of and enforceable by
the holders of Senior Indebtedness and such Guarantor Senior Indebtedness. The
Securities shall in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company, the related Subsidiary Guarantee of
each Subsidiary Guarantor shall in all respects rank pari passu with all
Guarantor Senior Subordinated Indebtedness of such Subsidiary Guarantor and only
Indebtedness of the Company which is Senior Indebtedness will rank senior to the
Securities and only Indebtedness of such Subsidiary Guarantor which is Guarantor
Senior Indebtedness of such Subsidiary Guarantor shall rank senior to the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee in
accordance with the provisions set forth herein. For purposes of these
subordination provisions, the Indebtedness evidenced by the Securities is deemed
to include the liquidated damages payable pursuant to the provisions set forth
in the Securities. All provisions of this Article X shall be subject to Section
10.12.
Section 10.2. Liquidation, Dissolution, Bankruptcy. Upon any payment or
distribution of the assets of the Company or any Subsidiary Guarantor to
creditors upon a total or partial liquidation or a total or partial dissolution
of the Company or such Subsidiary Guarantor or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or such
Subsidiary Guarantor or their respective properties:
(i) holders of Senior Indebtedness in the case of the Company
or holders of Guarantor Senior Indebtedness of such Subsidiary
Guarantor in the case of such Subsidiary Guarantor shall be entitled to
receive payment in full in cash or Cash Equivalents of all Senior
Indebtedness in the case of the Company or all such Guarantor Senior
Indebtedness
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in the case of such Subsidiary Guarantor before the Holders shall be
entitled to receive any payment of principal of or interest on or other
amounts with respect to the Securities from the Company or such
Subsidiary Guarantor, whether directly by the Company or pursuant to
the Subsidiary Guarantee; and
(ii) until the Senior Indebtedness (in the case of the
Company) or the Guarantor Senior Indebtedness (in the case of such
Subsidiary Guarantor) is paid in full in cash or Cash Equivalents, any
payment or distribution to which Securityholders would be entitled but
for this Article X shall be made to holders of Senior Indebtedness in
the case of payments or distributions made by the Company or the
holders of such Guarantor Senior Indebtedness in the case of payments
or distributions made by such Subsidiary Guarantor, in each case as
their respective interests may appear.
Section 10.3. Default on Senior Indebtedness or Guarantor Senior
Indebtedness. Neither the Company nor any Subsidiary Guarantor may pay the
principal of, premium (if any) or interest on or other amounts with respect to
the Securities or make any deposit pursuant to Section 8.1 or repurchase, redeem
or otherwise retire any Securities, whether directly by the Company or by such
Subsidiary Guarantor under the Subsidiary Guarantee (collectively, "pay the
Securities") if (i) any Senior Indebtedness in the case of the Company or any
Guarantor Senior Indebtedness of such Subsidiary Guarantor in the case of such
Subsidiary Guarantor is not paid when due or (ii) any other default on Senior
Indebtedness in the case of the Company or such Guarantor Senior Indebtedness in
the case of such Subsidiary Guarantee occurs and the maturity of such Senior
Indebtedness in the case of the Company or such Guarantor Senior Indebtedness in
the case of such Subsidiary Guarantor is accelerated in accordance with its
terms unless, in either case, (x) the default has been cured or waived and any
such acceleration has been rescinded in writing or (y) such Senior Indebtedness
in the case of the Company or such Guarantor Senior Indebtedness in the case of
such Subsidiary Guarantor has been paid in full in cash or Cash Equivalents;
provided, however, that the Company or such Subsidiary Guarantor may pay the
Securities, whether directly or pursuant to the Subsidiary Guarantee, without
regard to the foregoing if the Company or such Subsidiary Guarantor and the
Trustee receive written notice approving such payment from the Representative of
the Designated Senior Indebtedness in the case of the Company or such Guarantor
Senior Indebtedness in the case of such Subsidiary Guarantor with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the preceding
sentence) with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, neither the Company (in the case of
Designated Senior Indebtedness of the Company) nor any Subsidiary Guarantor (in
the case of Designated Senior Indebtedness of such Subsidiary Guarantor) may pay
the Securities, either directly or pursuant to the Subsidiary Guarantee, for a
period (a "Payment Blockage Period") commencing upon the receipt by the Company
and the Trustee (with a copy to such Subsidiary Guarantor) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company or such Subsidiary Guarantor from the Person or
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Persons who gave such Blockage Notice, (ii) because the default giving rise to
such Blockage Notice is no longer continuing or (iii) by repayment in full in
cash or Cash Equivalents of such Designated Senior Indebtedness).
Notwithstanding the provisions of the immediately preceding sentence (but
subject to the provisions contained in the first sentence of this Section 10.3),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders shall have accelerated the maturity of such Designated Senior
Indebtedness, the Company or such Subsidiary Guarantor may resume payments on
the Securities, either directly or pursuant to the Subsidiary Guarantee, after
such Payment Blockage Period. Not more than one Blockage Notice may be given in
any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period; provided, however,
that if any Blockage Notice within such 360-day period is given by or on behalf
of any holders of Designated Senior Indebtedness (other than the Bank
Indebtedness), the Representative of the Bank Indebtedness may give another
Blockage Notice within such period; provided further, however, that in no event
may the total number of days during which any Payment Blockage Period or Periods
is in effect exceed 179 days in the aggregate during any 360 consecutive day
period (unless the Designated Senior Indebtedness in respect of which such
default exists has been declared due and payable in its entirety, in which case
no payment may be made on the Securities until such acceleration has been
rescinded or annulled.
Section 10.4. Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company, the
Subsidiary Guarantors or the Trustee shall promptly notify the holders of the
Designated Senior Indebtedness and their Representatives of the acceleration. If
any Designated Senior Indebtedness is outstanding, neither the Company (in the
case of any Designated Senior Indebtedness of the Company) nor any Subsidiary
Guarantor (in the case of any Designated Senior Indebtedness of such Subsidiary
Guarantor) may pay the Securities, either directly or pursuant to the Subsidiary
Guarantee, until five Business days after the Representative of such Designated
Senior Indebtedness receives notice of such acceleration and, thereafter, the
Company (in the case of any Designated Senior Indebtedness of the Company) or
such Subsidiary Guarantor (in the case of any Designated Senior Indebtedness of
such Subsidiary Guarantor) may pay the Securities, either directly or pursuant
to the Subsidiary Guarantee, only if this Article X otherwise permits payments
at that time.
Section 10.5. When Distribution Must Be Paid Over. If a distribution is
made to the Trustee or the Securityholders that because of this Article X should
not have been made to them or which the Trustee or the Securityholders are
otherwise not entitled to retain under the provisions of this Article X, the
Trustee or the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Indebtedness and Guarantor Senior Indebtedness and
promptly pay it over to them as their respective interests may appear.
Section 10.6. Subrogation. After all Senior Indebtedness and Guarantor
Senior Indebtedness is paid in full in cash or Cash Equivalents and all
commitments in respect of the Senior Indebtedness have expired or terminated and
until the Securities are paid in full, Securityholders shall be subrogated
(without any duty on the part of the holders of Senior Indebtedness to warrant,
create, effectuate, preserve or protect such subrogation) to the rights of
holders of Senior Indebtedness and Guarantor Senior Indebtedness to receive
distributions applicable to Senior Indebtedness and Guarantor Senior
Indebtedness. A distribution made under this Article X to
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holders of Senior Indebtedness or Guarantor Senior Indebtedness which otherwise
would have been made to Securityholders is not, as between the Company and
Securityholders, a payment by the Company of Senior Indebtedness or, as between
a Subsidiary Guarantor and Securityholders, a payment by such Subsidiary
Guarantor of Guarantor Senior Indebtedness.
Section 10.7. Relative Rights. This Article X defines the relative
rights of Securityholders and holders of Senior Indebtedness and Guarantor
Senior Indebtedness. Nothing in this Indenture shall:
(i) impair, as between the Company or the Subsidiary
Guarantors, as the case may be, and Securityholders, the obligation of
the Company or the Subsidiary Guarantors, as the case may be, which is
absolute and unconditional, to pay principal of and interest on the
Securities in accordance with their terms; or
(ii) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default, subject to the rights of holders
of Senior Indebtedness and Guarantor Senior Indebtedness to receive
distributions otherwise payable to Securityholders.
Section 10.8. Subordination May Not Be Impaired by Company or the
Subsidiary Guarantors. No right of any holder of Senior Indebtedness or
Guarantor Senior Indebtedness to enforce the subordination of the Indebtedness
evidenced by the Securities or the related Subsidiary Guarantee shall be
impaired by any act or failure to act by the Company or any Subsidiary Guarantor
or by failure of any of them to comply with this Indenture or by any act or
failure to act on the part of any such holder or any other holder of Senior
Indebtedness, regardless of any knowledge thereof which any such holder or any
other holder of Senior Indebtedness may have or otherwise be charged with.
Section 10.9. Rights of Trustee and Paying Agent. The Company shall
give prompt written notice to the Trustee of any fact known to the Company that
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, but failure to give such notice shall not affect the subordination
of the Securities to the Senior Indebtedness provided in this Article X and
shall not result in any default or event of default under this Indenture or the
Securities. Notwithstanding Section 10.3, the Trustee or Paying Agent may
continue to pay the Securities and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any such payments unless,
not less than two Business Days prior to the date of any such payment, a Trust
Officer of the Trustee receives written notice satisfactory to it that payments
may not be made under this Article X. The Company, the Registrar or
co-registrar, the Paying Agent, a Representative or a holder of Senior
Indebtedness or Guarantor Senior Indebtedness may give the notice; provided,
however, that, if an issue of Senior Indebtedness or Guarantor Senior
Indebtedness has a Representative, only the Representative may give the notice.
Nothing in this Section 10.9 is intended to or shall relieve any Securityholder
from the obligations imposed under this Article X with respect to monies or
other distributions received in violation of the provisions hereof. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
Representative of such holder) to
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establish that such notice has been given by a holder of such Senior
Indebtedness or Representative thereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness or Guarantor Senior Indebtedness with the same rights it would have
if it were not Trustee. The Registrar and co-registrar and the Paying Agent may
do the same with like rights. The Trustee shall be entitled to all the rights
set forth in this Article X with respect to any Senior Indebtedness or Guarantor
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness or Guarantor Senior Indebtedness; and
nothing in Article VII shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article X shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.7.
Section 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
or Guarantor Senior Indebtedness, the distribution may be made and the notice
given to their Representative (if any).
Section 10.11. Article X Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment in respect of the Securities,
whether directly or pursuant to the Subsidiary Guarantee, by reason of any
provision in this Article X shall not be construed as preventing the occurrence
of a Default or Event of Default. Nothing in this Article X shall have any
effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities, subject, however, to the rights under this Article X
of the holders of Senior Indebtedness to receive payments or other distributions
otherwise payable to or received by the Securityholders or the Trustee upon the
exercise of any remedy in connection with such acceleration.
Section 10.12. Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article VIII by the Trustee for the
payment of principal of and interest on the Securities shall not be subordinated
to the prior payment of any Senior Indebtedness or Guarantor Senior Indebtedness
or subject to the restrictions set forth in this Article X, and none of the
Securityholders shall be obligated to pay over any such amount to the Company,
any Subsidiary Guarantor, any holder of Senior Indebtedness of the Company, any
holder of Guarantor Senior Indebtedness or any other creditor of the Company or
any Subsidiary Guarantor.
Section 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness or Guarantor Senior Indebtedness for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of Senior Indebtedness, Guarantor Senior Indebtedness and other Indebtedness of
the Company or the Subsidiary Guarantors, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article X. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person
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as a holder of Senior Indebtedness or Guarantor Senior Indebtedness to
participate in any payment or distribution pursuant to this Article X, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness or Guarantor
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article X, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.1 and 7.2 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article X.
Section 10.14. Trustee To Effectuate Subordination. Each Securityholder
by accepting a Security authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination between the Securityholders and the holders of Senior Indebtedness
and Guarantor Senior Indebtedness as provided in this Article X and appoints the
Trustee as attorney-in-fact for any and all such purposes.
Section 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness
or Guarantor Senior Indebtedness. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness or Guarantor Senior
Indebtedness and shall not be liable to any such holders if it shall mistakenly
pay over or distribute to Securityholders or the Company, the Subsidiary
Guarantors or any other Person, money or assets to which any holders of Senior
Indebtedness or Guarantor Senior Indebtedness shall be entitled by virtue of
this Article X or otherwise.
Section 10.16. Changes in Senior Indebtedness. Any holder of Senior
Indebtedness may at any time and from time to time without the consent of or
notice to any Securityholder or the Trustee: (i) extend, renew, modify, waive or
amend the terms of the Senior Indebtedness; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any guarantor or any other person (except the
Company) liable in any manner for the Senior Indebtedness or amend or waive the
terms of any guaranty of the Senior Indebtedness; (iv) exercise or refrain from
exercising any rights against the Company or any other person; (v) apply any
sums by whomever paid or however realized to Senior Indebtedness; and (vi) take
any other action which otherwise might be deemed to impair the rights of the
holders of the Senior Indebtedness. Any and all of such actions may be taken by
the holders of Senior Indebtedness without incurring responsibility to any
Securityholder or the Agent and, subject to the provisions of the definition of
Senior Indebtedness, without impairing or releasing the obligations of any
Securityholder or the Trustee under this Article X.
Section 10.17. Reliance by Holders of Senior Indebtedness and Guarantor
Senior Indebtedness on Subordination Provisions. Each Securityholder by
accepting a Security acknowledges and agrees that the foregoing subordination
provisions are, and are intended to be, an inducement and a consideration to
each holder of any Senior Indebtedness or Guarantor Senior Indebtedness, whether
such Senior Indebtedness or Guarantor Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness or Guarantor Senior
Indebtedness and such holder of Senior Indebtedness or Guarantor Senior
Indebtedness shall be deemed conclusively to have relied on such
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subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness or Guarantor Senior Indebtedness.
Section 10.18. Legend. The Notes shall be conspicuously legended
indicating that their payment is subordinated to Senior Indebtedness in
accordance with this Article X.
ARTICLE XI.
Subsidiary Guarantee
Section 11.1. Subsidiary Guarantee. Subject to the subordination
provisions contained in Article X, each Subsidiary Guarantor which becomes a
party hereto by executing and delivering a supplement to this Indenture pursuant
to Section 4.10 hereby, jointly and severally, unconditionally and irrevocably,
Guarantees to each Holder and to the Trustee and its successors and assigns (i)
the full and punctual payment of principal of, premium (if any) and interest on
the Securities when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other monetary obligations owing of the Company under this
Indenture (including obligations owing to the Trustee) and the Securities and
(ii) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations"). The
Subsidiary Guarantors further agree that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from the
Subsidiary Guarantors, and that the Subsidiary Guarantors will remain bound
under this Article XI notwithstanding any extension or renewal of any
Obligation.
The Subsidiary Guarantors waive presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waive notice
of protest for nonpayment. The Subsidiary Guarantors waive notice of any default
under the Securities or the Obligations. The obligations of the Subsidiary
Guarantors hereunder shall not be affected by (i) the failure of any Holder or
the Trustee to assert any claim or demand or to enforce any right or remedy
against the Company or any other Person under this Indenture, the Securities or
any other agreement or otherwise; (ii) any extension or renewal of any
Obligation; (iii) any rescission, waiver, amendment, modification or supplement
of any of the terms or provisions of this Indenture (other than this Article
XI), the Securities or any other agreement; (iv) the release of any security
held by any Holder or the Trustee for the Obligations or any of them; (v) the
failure of any Holder or the Trustee to exercise any right or remedy against any
other guarantor of the Obligations; or (vi) any change in the ownership of the
Company.
The Subsidiary Guarantors further agree that their Guarantees herein
constitute a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waive any right to require that any resort be had
by any Holder or the Trustee to any security held for payment of the
Obligations.
The Guarantee of each Subsidiary Guarantor is, to the extent and in the
manner set forth in Article X, subordinated and subject in right of payment to
the prior payment in full of the principal
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of and premium, if any, and interest on all Guarantor Senior Indebtedness of
such Subsidiary Guarantor and this Guarantee is made subject to such provisions
of this Indenture.
The obligations of the Subsidiary Guarantors hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense, setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of the Subsidiary Guarantors herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of the Subsidiary Guarantors or would
otherwise operate as a discharge of the Subsidiary Guarantors as a matter of law
or equity.
The Subsidiary Guarantors further agree that their Guarantees herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against the
Subsidiary Guarantors by virtue hereof, upon the failure of the Company to pay
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
Obligation, the Subsidiary Guarantors hereby promise to and will, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders or the Trustee an amount equal to the sum of (i) the unpaid
principal amount of such Obligations, (ii) accrued and unpaid interest on such
Obligations (but only to the extent not prohibited by law) and (iii) all other
monetary Obligations of the Company to the Holders and the Trustee.
The Subsidiary Guarantors agree that, as between the Subsidiary
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article VI for the purposes of the Guarantee herein, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the Obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such Obligations as provided in Article VI, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by the Subsidiary Guarantors for the purposes of this Section 11.1.
The Subsidiary Guarantors also agree to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section 11.1.
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<PAGE> 72
Section 11.2. Limitation on Liability. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum, aggregate liability of
each Subsidiary Guarantor hereunder shall not exceed the maximum amount that can
be guaranteed by such Subsidiary Guarantor under applicable federal and state
laws relating to insolvency of debtors.
Section 11.3. Successors and Assigns.
(a) This Article XI shall be binding upon the Subsidiary Guarantors and
their successors and assigns and shall enure to the benefit of the successors
and assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
conferred upon that party in this Indenture and in the Securities shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions of this Indenture.
(b) Notwithstanding the foregoing, all obligations of a Subsidiary
Guarantor under this Article XI shall be automatically and unconditionally
released and discharged, without any further action required on the part of the
Trustee or any Holder, upon (i) the unconditional release of such Subsidiary
from its liability in respect of the Indebtedness in connection with which it
became a Subsidiary Guarantor hereunder pursuant to Section 4.10; or (ii) any
sale or other disposition (by merger or otherwise) to any Person which is not a
Subsidiary of the Company, of all of the Capital Stock in, or all or
substantially all of the assets of, such Subsidiary Guarantor; provided that (i)
such sale or disposition of such Capital Stock or assets is otherwise in
compliance with this Indenture and (ii) such Subsidiary Guarantor has been
unconditionally released from its liability in respect of the Indebtedness in
connection with which it became a Subsidiary Guarantor hereunder pursuant to
Section 4.10.
Section 11.4. No Waiver. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article XI shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article XI at law,
in equity, by statute or otherwise.
Section 11.5. Right of Contribution. Each Subsidiary Guarantor hereby
agrees that to the extent that a Subsidiary Guarantor shall have paid more than
its proportionate share of any payment made hereunder, such Subsidiary Guarantor
shall be entitled to seek and receive contribution from and against any other
Subsidiary Guarantor hereunder who has not paid its proportionate share of such
payment. Each Subsidiary Guarantor's right of contribution shall be subject to
the terms and conditions of Section 11.6. The provisions of this Section 11.5
shall in no respect limit the obligations and liabilities of any Subsidiary
Guarantor to the Trustee and the Holders and each Subsidiary Guarantor shall
remain liable to the Trustee and the Holders for the full amount guaranteed by
such Subsidiary Guarantor hereunder.
Section 11.6. No Subrogation. Notwithstanding any payment or payments
made by any of the Subsidiary Guarantors hereunder, no Subsidiary Guarantor
shall be entitled to be subrogated to
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any of the rights of the Trustee or any Holder against the Company or any other
Subsidiary Guarantor or any collateral security or guarantee or right of offset
held by the Trustee or any Holder for the payment of the Obligations, nor shall
any Subsidiary Guarantor seek or be entitled to seek any contribution or
reimbursement from the Company or any other Subsidiary Guarantor in respect of
payments made by such Subsidiary Guarantor hereunder, until all amounts owing to
the Trustee and the Holders by the Company on account of the Obligations are
paid in full. If any amount shall be paid to any Subsidiary Guarantor on account
of such subrogation rights at any time when all of the Obligations shall not
have been paid in full, such amount shall be held by such Subsidiary Guarantor
in trust for the Trustee and the Holders, segregated from other funds of such
Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary
Guarantor, be turned over to the Trustee in the exact form received by such
Subsidiary Guarantor (duly indorsed by such Subsidiary Guarantor to the Trustee,
if required), to be applied against the Obligations.
Section 11.7. Modification. No modification, amendment or waiver of any
provision of this Article XI, nor the consent to any departure by the Subsidiary
Guarantors therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Subsidiary Guarantors in any case shall entitle the
Subsidiary Guarantors to any other or further notice or demand in the same,
similar or other circumstances.
ARTICLE XII.
Miscellaneous
Section 12.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the provision required by
the TIA shall control.
Section 12.2. Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:
if to the Company:
Doane Pet Care Company
103 Powell Court, Suite 200
Brentwood, Tennessee 37027
Attention: Chief Financial Officer
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if to the Subsidiary Guarantors:
Doane Pet Care Company
103 Powell Court, Suite 200
Brentwood, Tennessee 37027
Attention: Chief Financial Officer
if to the Trustee:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration.
The Company, any of the Subsidiary Guarantors, or the Trustee by notice
to the others may designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Holder shall be mailed to the
Holder at the Holder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
Section 12.3. Communication by Holders with other Holders. Holders may
communicate pursuant to TIA Section 312(b) with other Holders with respect to
their rights under this Indenture or the Securities. The Company, the Trustee,
the Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 12.4. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall, if requested, furnish
to the Trustee: (i) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and (ii) an Opinion of Counsel in form
and substance reasonably satisfactory to the Trustee stating that, in the
opinion of such counsel, all such conditions precedent have been complied with.
Section 12.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include: (i) a statement that the
individual making such certificate or opinion has read such covenant or
condition; (ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based; (iii) a statement
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that, in the opinion of such individual, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied with; and (iv) a
statement as to whether or not, in the opinion of such individual, such covenant
or condition has been complied with.
Section 12.6. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
Section 12.7. Rules by Trustee, Paying Agent and Registrar. The Trustee
may make reasonable rules for action by or a meeting of Holders. The Registrar
and the Paying Agent may make reasonable rules for their functions.
Section 12.8. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday
or a day on which banking institutions are not required to be open in the State
of New York or in the State of Delaware. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
Section 12.9. Governing Law. This Indenture and the Securities shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
Section 12.10. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Holder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
Section 12.11. Successors. All agreements of the Company and the
Subsidiary Guarantors in this Indenture and the Securities shall bind their
respective successors. All agreements of the Trustee in this Indenture shall
bind its successors.
Section 12.12. Multiple Originals; Counterparts. The parties may sign
any number of copies of this Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement. One signed copy is enough
to prove this Indenture. This Indenture may be executed in multiple counterparts
which, when taken together, shall constitute one instrument.
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<PAGE> 76
Section 12.13. Variable Provisions. The Company initially appoints the
Trustee as Paying Agent and Registrar and custodian with respect to any Global
Securities.
Section 12.14. Qualification of Indenture. The Company shall qualify
this Indenture under the TIA in accordance with the terms and conditions of the
Registration Rights Agreement and shall pay all reasonable costs and expenses
(including attorneys' fees for the Company, the Trustee and the Holders)
incurred in connection therewith, including, but not limited to, costs and
expenses of qualification of the Indenture and the Securities and printing this
Indenture and the Securities. The Trustee shall be entitled to receive from the
Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
Section 12.15. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
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<PAGE> 77
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
DOANE PET CARE COMPANY
By: /s/ THOMAS R. HEIDENTHAL
------------------------------------
Name: Thomas R. Heidenthal
Title: Senior Vice President and
Chief Financial Officer
WILMINGTON TRUST COMPANY, as Trustee
By: /s/ JAMES J. MCGINLEY
------------------------------------
Name: James J. McGinley
Title: Authorized Signor
<PAGE> 78
EXHIBIT A to
Indenture
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B)
PURSUANT TO A REGISTRATION STATEMENT
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<PAGE> 79
THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A,
TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR (WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN
A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN
CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
THIS SECURITY IS SUBORDINATED TO SENIOR INDEBTEDNESS, AS DEFINED IN THE
INDENTURE (AS DEFINED HEREIN), AND THE OBLIGATIONS OF EACH SUBSIDIARY
GUARANTOR UNDER THE SUBSIDIARY GUARANTEE CONTAINED IN THE INDENTURE ARE
SUBORDINATED TO GUARANTOR SENIOR INDEBTEDNESS, AS DEFINED IN THE
INDENTURE, OF SUCH SUBSIDIARY GUARANTOR.
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<PAGE> 80
No. 1 Principal Amount $150,000,000
CUSIP NO. 256012AB1
9 3/4% Senior Subordinated Note due 2007
Doane Pet Care Company, a Delaware corporation, promises to
pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Fifty
Million Dollars on May 15, 2007.
Interest Payment Dates: May 15 and November 15 commencing May
15, 1999.
Record Dates: May 1 and November 1.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: November 12, 1998 DOANE PET CARE COMPANY
by
---------------------------------
---------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
WILMINGTON TRUST COMPANY
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
---------------------------------
Authorized Signatory
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<PAGE> 81
[FORM OF REVERSE SIDE OF INITIAL NOTE]
9 3/4% Senior Subordinated Note due 2007
1. Interest
Doane Pet Care Company, a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on May 15 and November
15 of each year commencing May 15, 1999. Interest on the Securities will accrue
from the most recent date to which interest has been paid on the Securities or,
if no interest has been paid, from November 12, 1998. The Company shall pay
interest on overdue principal or premium, if any, at the rate borne by the
Securities to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which
any principal of or interest on any Security is due and payable, the Company
shall transfer by wire to the accounts specified by the Trustee or the Paying
Agent money sufficient to pay such principal, premium, if any, and/or interest.
The Company will pay interest (except defaulted interest) to the Persons who are
registered Holders of Securities at the close of business on the May 1 or
November 1 (whether or not a Business Day) next preceding the interest payment
date even if Securities are canceled, repurchased or redeemed after the record
date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts. However, the Company
may pay principal and interest by check payable in such money. It may mail an
interest check to a Holder's registered address.
3. Paying Agent and Registrar
Initially, Wilmington Trust Company, a Delaware banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company or any of its domestically incorporated Wholly-Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
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<PAGE> 82
4. Indenture
The Company issued the Securities under an Indenture dated as of
November 12, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured senior subordinated
obligations of the Company limited to $150 million aggregate principal amount
(subject to Section 2.7 of the Indenture). This Security is one of the Initial
Notes referred to in the Indenture. The Securities include the Initial Notes and
any Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Rights Agreement. The Initial Notes and the
Exchange Notes are treated as a single class of securities under the Indenture.
The Indenture imposes certain limitations on the Incurrence of Indebtedness by
the Company and its Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Subsidiaries, the
purchase or redemption of Capital Stock of the Company and Capital Stock of such
Subsidiaries, certain purchases or redemptions of Subordinated Obligations, the
sale or transfer of assets and Capital Stock of Subsidiaries, the issuance or
sale of Capital Stock of Subsidiaries, the business activities and investments
of the Company and its Subsidiaries and transactions with Affiliates. In
addition, the Indenture limits the ability of the Company and its Subsidiaries
to restrict distributions and dividends from Subsidiaries.
In addition, the Indenture requires Domestic Subsidiaries of the
Company (in the circumstances specified in Section 4.10 of the Indenture and on
the terms and conditions specified in Article XI of the Indenture), to enter
into a supplement to the Indenture providing for a guarantee by such
Subsidiaries (on a senior subordinated basis) of the due and punctual payment of
the principal of, premium (if any) and interest on the Securities and all other
amounts payable by the Company under the Indenture and the Securities when and
as the same shall be due and payable, whether at maturity, by acceleration or
otherwise, according to the terms of the Securities and the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will not be
redeemable at the option of the Company prior to May 15, 2002. On and after such
date, the Securities will be redeemable, at the Company's option, in whole or in
part, upon not less than 30 nor more than 60 days' prior notice mailed by first
class mail to each Holder's registered address, at the following redemption
prices (expressed as percentages of principal amount) plus accrued and unpaid
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date):
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<PAGE> 83
If redeemed during the 12-month period commencing on May 15 of the years set
forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2002.............................................. 104.875%
2003.............................................. 103.250%
2004.............................................. 101.625%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time
prior to May 15, 2000 the Company may redeem up to $52.5 million of the
aggregate original principal amount of the Securities with the cash proceeds of
one or more Equity Offerings received by or invested in, the Company at a
redemption price (expressed as a percentage of principal amount) of 109.750%
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that after giving
effect to such redemption, at least $97.5 million of the aggregate principal
amount of the Securities remain outstanding after each such redemption.
At any time on or prior to May 15, 2002, the Securities may also be
redeemed in whole, but not in part, at the option of the Company upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days'
prior notice (but in no event more than 90 days after the occurrence of such
Change of Control) mailed by first-class mail to each Holder's registered
address, at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium as of, and accrued and unpaid interest, if any, to,
the date of redemption (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations of
principal amount larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued and unpaid interest on all Securities (or portions thereof) to be
redeemed on the redemption date is deposited with the Paying Agent on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, unless the Company shall have exercised
its right to redeem the Securities pursuant to paragraph 5 of the Securities in
connection with such Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase as provided in, and subject to
the terms of, the Indenture.
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<PAGE> 84
8. Subordination
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture, and the obligations of each Subsidiary Guarantor under the
Subsidiary Guarantee contained in Article XI of the Indenture are subordinated
to Guarantor Senior Indebtedness, as defined in the Indenture, of such
Subsidiary Guarantor. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid, and Guarantor
Senior Indebtedness of a Subsidiary Guarantor must be paid before such
Subsidiary Guarantor may make payments under the Subsidiary Guarantee. The
Company agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange (i) any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
for a period beginning 15 days before a selection of Securities to be redeemed
and ending on the date of selection or (ii) any Securities for a period
beginning 15 days before an interest payment date and ending on such interest
payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner
of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
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<PAGE> 85
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in outstanding principal amount of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in outstanding principal amount of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants for the
benefit of the Holders or surrender rights and powers conferred on the Company,
or to comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any change that does not adversely affect
the rights of any Securityholder, or to provide for the issuance of Exchange
Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include: (i) default for 30
days in payment of interest on the Securities when the same becomes due and
payable; (ii) default in payment of principal on the Securities when the same
becomes due and payable at maturity, upon redemption pursuant to paragraph 5 of
the Securities, upon required repurchase, upon declaration or otherwise; (iii)
failure by the Company to comply with other agreements in the Indenture or the
Securities, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company or its Subsidiaries if the amount
accelerated (or so unpaid) exceeds $5 million and such acceleration or failure
to pay is not rescinded or cured within a 10-day period; (v) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; (vi) certain final, non-appealable judgments or decrees for the
payment of money in excess of $5 million; and (vii) the failure of any
Subsidiary Guarantee to be in full force and effect or the denial or
disaffirmation by any Subsidiary Guarantor of its obligations under the
Indenture or the Securities in certain cases. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest.
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<PAGE> 86
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
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<PAGE> 87
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in it
the text of this Security in larger type. Requests may be made to: Doane Pet
Care Company, Two Maryland Farms, Suite 200, Brentwood, Tennessee 37027.
Attention: Chief Financial Officer.
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<PAGE> 88
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
- -------------------------------------------------------------------------------
Date: Your Signature:
------------------------- ---------------------
Signature Guarantee:
------------------------------
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is three years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
<TABLE>
<S> <C>
1 [ ] acquired for the undersigned's own account, without transfer; or
2 [ ] transferred to the Company; or
3 [ ] transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933; or
4 [ ] transferred pursuant to an effective registration statement
under the Securities Act; or
5 [ ] transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
6 [ ] transferred to an "accredited investor" (within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933) that is an institutional
</TABLE>
-1-
<PAGE> 89
<TABLE>
<S> <C>
investor and that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter appears as Exhibit C to the Indenture); or
7 [ ] transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
</TABLE>
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
This certificate and the statements contained herein are made for the benefit of
the Company, the Guarantors and Wilmington Trust Company, as Trustee, and each
of you are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding with respect to the materials covered hereby.
------------------------------
Signature
Signature Guarantee:
- ------------------------- ------------------------------
Signature
(Signature must be guaranteed)
- ------------------------------------------------------------
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<PAGE> 90
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<S> <C> <C> <C> <C>
Amount of decrease in Amount of Increase in Principal Amount of this Signature of authorized officer
Date of Principal Amount of this Principal Amount of this Global Security following such of Trustee or Securities
Exchange Global Security Global Security decrease or increase Custodian
</TABLE>
-3-
<PAGE> 91
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: Your Signature
-------- ----------------------------------------
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee:
------------------------------------------------
(Signature must be guaranteed)
-4-
<PAGE> 92
EXHIBIT B to
Indenture
[FORM OF FACE OF EXCHANGE NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY IS SUBORDINATED TO SENIOR INDEBTEDNESS, AS DEFINED IN THE
INDENTURE (AS DEFINED HEREIN), AND THE OBLIGATIONS OF EACH SUBSIDIARY GUARANTOR
UNDER THE SUBSIDIARY GUARANTEE CONTAINED IN THE INDENTURE ARE SUBORDINATED TO
GUARANTOR SENIOR INDEBTEDNESS, AS DEFINED IN THE INDENTURE, OF SUCH SUBSIDIARY
GUARANTOR.
-1-
<PAGE> 93
No. [TO COME] Principal Amount $150,000,000
CUSIP NO. [TO COME]
9-3/4% Senior Subordinated Note due 2007
Doane Pet Care Company, a Delaware corporation, promises to pay to CEDE
& CO., or registered assigns, the principal sum of One Hundred Fifty Million
Dollars on May 15, 2007.
Interest Payment Dates: May 15 and November 15 commencing May 15, 1999.
Record Dates: May 1 and November 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated: November 12, 1998 DOANE PET CARE COMPANY
by
----------------------------------------
by
----------------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
WILMINGTON TRUST COMPANY
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
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<PAGE> 94
[FORM OF REVERSE SIDE OF EXCHANGE NOTE]
9 3/4% Senior Subordinated Note due 2007
1. Interest
Doane Pet Care Company, a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above.
The Company will pay interest semiannually on May 15 and November 15 of
each year commencing May 15, 1999. Interest on the Securities will accrue from
the most recent date to which interest has been paid on the Securities or, if no
interest has been paid, from November 12, 1998. The Company shall pay interest
on overdue principal or premium, if any, at the rate borne by the Securities to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
transfer by wire to the accounts specified by the Trustee or the Paying Agent
money sufficient to pay such principal, premium, if any, and/or interest. The
Company will pay interest (except defaulted interest) to the Persons who are
registered Holders of Securities at the close of business on the May 1 or
November 1 (whether or not a Business Day) next preceding the interest payment
date even if Securities are canceled, repurchased or redeemed after the record
date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts. However, the Company
may pay principal and interest by check payable in such money. It may mail an
interest check to a Holder's registered address.
3. Paying Agent and Registrar
Initially, Wilmington Trust Company, a Delaware banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company or any of its domestically incorporated Wholly-Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
November 12, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those
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<PAGE> 95
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on
the date of the Indenture (the "Act"). Capitalized terms used herein and not
defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the Act for a statement of those terms.
The Securities are general unsecured senior subordinated obligations of
the Company limited to $150 million aggregate principal amount (subject to
Section 2.7 of the Indenture). This Security is one of the Exchange Notes
referred to in the Indenture. The Securities include the Initial Notes and any
Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Rights Agreement. The Initial Notes and the
Exchange Notes are treated as a single class of securities under the Indenture.
The Indenture imposes certain limitations on the Incurrence of Indebtedness by
the Company and its Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Subsidiaries, the
purchase or redemption of Capital Stock of the Company and Capital Stock of such
Subsidiaries, certain purchases or redemptions of Subordinated Obligations, the
sale or transfer of assets and Capital Stock of Subsidiaries, the issuance or
sale of Capital Stock of Subsidiaries, the business activities and investments
of the Company and its Subsidiaries and transactions with Affiliates. In
addition, the Indenture limits the ability of the Company and its Subsidiaries
to restrict distributions and dividends from Subsidiaries.
In addition, the Indenture requires Domestic Subsidiaries of the
Company (in the circumstances specified in Section 4.10 of the Indenture and on
the terms and conditions specified in Article XI of the Indenture), to enter
into a supplement to the Indenture providing for a guarantee by such
Subsidiaries (on a senior subordinated basis) of the due and punctual payment of
the principal of, premium (if any) and interest on the Securities and all other
amounts payable by the Company under the Indenture and the Securities when and
as the same shall be due and payable, whether at maturity, by acceleration or
otherwise, according to the terms of the Securities and the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities will not be
redeemable at the option of the Company prior to May 15, 2002. On and after such
date, the Securities will be redeemable, at the Company's option, in whole or in
part, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed as percentages of principal amount) plus accrued
and unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
If redeemed during the 12-month period commencing on May 15 of the years set
forth below:
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<PAGE> 96
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2002........................................ 104.875 %
2003........................................ 103.250 %
2004........................................ 101.625 %
2005 and thereafter......................... 100.000 %
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior
to May 15, 2000, the Company may redeem up to $52.5 million of the aggregate
original principal amount of the Securities with the cash proceeds of one or
more Equity Offerings received by or invested in, the Company at a redemption
price (expressed as a percentage of principal amount) of 109.750% plus accrued
and unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that after giving effect to such
redemption, at least $97.5 million of the aggregate principal amount of
Securities remain outstanding after such redemption.
At any time on or prior to May 15, 2002, the Securities may also be
redeemed in whole, but not in part, at the option of the Company upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days'
prior notice (but in no event more than 90 days after the occurrence of such
Change of Control) mailed by first-class mail to each Holder's registered
address, at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium as of, and accrued and unpaid interest, if any, to,
the date of redemption (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in integral multiples
of $1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
Upon a Change of Control, unless the Company shall have exercised its
right to redeem the Notes pursuant to paragraph 5 of the Securities in
connection with such Change of Control, any Holder of Securities will have the
right to cause the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase as provided in, and subject to
the terms of, the Indenture.
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<PAGE> 97
8. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture, and the obligations of each Subsidiary Guarantor under the
Subsidiary Guarantee contained in Article XI of the Indenture are subordinated
to Guarantor Senior Indebtedness, as defined in the Indenture, of such
Subsidiary Guarantor. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid, and Guarantor
Senior Indebtedness of a Subsidiary Guarantor must be paid before such
Subsidiary Guarantor may make payments under the Subsidiary Guarantee. The
Company agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations
of principal amount of $1,000 and whole multiples of $1,000. A Holder may
transfer or exchange Securities in accordance with the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange (i)
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) for a period
beginning 15 days before a selection of Securities to be redeemed and ending on
the date of selection or (ii) any Securities for a period beginning 15 days
before an interest payment date and ending on such interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the Company
at any time may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
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<PAGE> 98
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in outstanding principal amount of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in outstanding principal amount of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants for the
benefit of the Holders or surrender rights and powers conferred on the Company
or to comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any change that does not adversely affect
the rights of any Securityholder, or to provide for the issuance of Exchange
Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include: (i) default for 30 days
in payment of interest on the Securities when the same becomes due and payable;
(ii) default in payment of principal on the Securities when the same becomes due
and payable at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon required repurchase, upon declaration or otherwise; (iii)
failure by the Company to comply with other agreements in the Indenture or the
Securities, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company or its Subsidiaries if the amount
accelerated (or so unpaid) exceeds $5.0 million and such acceleration or failure
to pay is not rescinded or cured within a 10-day period; (v) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; (vi) certain final, non-appealable judgments or decrees for the
payment of money in excess of $5.0 million; and (vii) the failure of any
Subsidiary Guarantee to be in full force and effect or the denial or
disaffirmation by any Subsidiary Guarantor of its obligations under the
Indenture or the Securities in certain cases. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default or Event of
Default (except a Default or Event of Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
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<PAGE> 99
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or any Subsidiary Guarantor under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in accordance with,
the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
-6-
<PAGE> 100
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in it the
text of this Security in larger type. Requests may be made to: Doane Pet Care
Company, Two Maryland Farms, Suite 200, Brentwood, Tennessee 37027. Attention:
Chief Financial Officer.
- -------------------------------------------------------------------------------
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<PAGE> 101
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the books of
the Company. The agent may substitute another to act for him.
- -------------------------------------------------------------------------------
Date: Your Signature
------------- --------------------------
Signature Guarantee:
-----------------------------------------
(Signature must be guaranteed)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
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<PAGE> 102
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: Your
-------------
Signature:
--------------------------------------
(Sign exactly as your name appears on the other side of the Security)
Signature
Guarantee:
---------------------------------------
(Signature must be guaranteed)
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<PAGE> 103
EXHIBIT C to
Indenture
[FORM OF TRANSFEREE LETTER OF REPRESENTATION]
Doane Pet Care Company
Two Maryland Farms, Suite 200
Brentwood, Tennessee 37027
Attn: Chief Financial Officer
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Administration
Dear Sirs:
This certificate is delivered to request a transfer of $ principal
amount of the 9 3/4% Senior Subordinated Notes due 2007 (the "Notes") of Doane
Pet Care Company.
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name:
----------------------------------
Address:
-------------------------------
Taxpayer ID Number:
---------------------
The undersigned represents and warrants to you that:
1. We are an "accredited investor" (within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities
Act")) that is an institutional accredited investor ("Institutional Accredited
Investor") purchasing for our own account or for the account of such an
institutional "accredited investor," at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risk of our investment in the Notes and invest in
or purchase securities similar to the Notes in the normal course of our
business. We and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
-1-
<PAGE> 104
2. We understand that the Notes have not been registered under
the Securities Act or any other applicable securities law, and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Notes to offer, sell or otherwise transfer such Notes prior to the
date which is three years after the later of the date of original issue and the
last date on which the Company or any affiliate of the Company was the owner of
such Notes (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement which
has been declared effective under the Securities Act, (c) in a transaction
complying with the requirements of Rule 144A under the Securities Act, to a
person we reasonably believe is a qualified institutional buyer under Rule 144A
(a "QIB") that purchases for its own account or for the account of a QIB and to
whom notice is given that the transfer is being made in reliance on Rule 144A,
(d) pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or 7 under
the Securities Act) that is purchasing for its own account or for the account of
such an institutional "accredited investor", in each case in a minimum principal
amount of Notes of $250,000 or (f) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and in compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes is
proposed to be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company and the Trustee, which
shall provide, among other things, that the transferee is an institutional
"accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or 7 under
the Securities Act) that is acquiring such Notes for investment purposes and not
for distribution in violation of the Securities Act. Each purchaser acknowledges
that the Company and the Trustee reserve the right prior to any offer, sale or
other transfer prior to the Resale Termination Date of the Notes pursuant to
clauses (d), (e) or (f) above to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and the
Trustee.
TRANSFEREE:
--------------------------
BY
-----------------------------------
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<PAGE> 1
EXECUTION COPY
===============================================================================
$345,000,000
CREDIT AGREEMENT
AMONG
DOANE PET CARE ENTERPRISES, INC.,
DOANE PET CARE COMPANY,
AS BORROWER,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO,
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT,
DLJ CAPITAL FUNDING, INC.,
AS SYNDICATION AGENT,
MERCANTILE BANK NATIONAL ASSOCIATION,
AS DOCUMENTATION AGENT
AND
CHASE SECURITIES INC. AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
AS CO-LEAD ARRANGERS
DATED AS OF NOVEMBER 12, 1998
===============================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
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<S> <C> <C>
SECTION 1. DEFINITIONS .................................................. 1
1.1 Defined Terms .................................................. 1
1.2 Other Definitional Provisions .................................. 26
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS .............................. 27
2.1 Term Commitments ............................................... 27
2.2 Procedure for Term Loan Borrowing .............................. 27
2.3 Repayment of Term Loans ........................................ 27
2.4 Revolving Commitments .......................................... 30
2.5 Procedure for Revolving Loan Borrowing ......................... 30
2.6 Swingline Commitment ........................................... 31
2.7 Procedure for Swingline Borrowing; Refunding of Swingline Loans. 31
2.8 Commitment Fees, etc ........................................... 33
2.9 Termination or Reduction of Revolving Commitments .............. 34
2.10 Optional Prepayments ........................................... 34
2.11 Mandatory Prepayments and Commitment Reductions ................ 34
2.12 Conversion and Continuation Options ............................ 36
2.13 Limitations on Eurodollar Tranches ............................. 37
2.14 Interest Rates and Payment Dates ............................... 37
2.15 Computation of Interest and Fees ............................... 38
2.16 Inability to Determine Interest Rate ........................... 38
2.17 Pro Rata Treatment and Payments ................................ 39
2.18 Requirements of Law ............................................ 40
2.19 Taxes .......................................................... 41
2.20 Indemnity ...................................................... 43
2.21 Change of Lending Office ....................................... 43
2.22 Replacement of Lenders ......................................... 44
SECTION 3. LETTERS OF CREDIT ............................................ 44
3.1 L/C Commitment ................................................. 44
3.2 Procedure for Issuance of Letter of Credit ..................... 44
3.3 Fees and Other Charges ......................................... 45
3.4 L/C Participations ............................................. 45
3.5 Reimbursement Obligation of the Borrower ....................... 46
3.6 Obligations Absolute ........................................... 46
3.7 Letter of Credit Payments ...................................... 47
3.8 Applications ................................................... 47
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 4. REPRESENTATIONS AND WARRANTIES .............................. 47
4.1 Financial Condition ........................................... 47
4.2 No Change ..................................................... 48
4.3 Corporate Existence; Compliance with Law ...................... 48
4.4 Corporate Power; Authorization; Enforceable Obligations ....... 48
4.5 No Legal Bar .................................................. 49
4.6 Litigation .................................................... 49
4.7 No Default .................................................... 49
4.8 Ownership of Property; Liens .................................. 49
4.9 Intellectual Property ......................................... 49
4.10 Taxes ......................................................... 49
4.11 Federal Regulations ........................................... 50
4.12 Labor Matters ................................................. 50
4.13 ERISA ......................................................... 50
4.14 Investment Company Act; Other Regulations ..................... 51
4.15 Subsidiaries .................................................. 51
4.16 Use of Proceeds ............................................... 51
4.17 Environmental Matters ......................................... 51
4.18 Accuracy of Information, etc .................................. 52
4.19 Security Documents ............................................ 53
4.20 Solvency ...................................................... 53
4.21 Senior Indebtedness ........................................... 53
4.22 Year 2000 Matters ............................................. 53
4.23 Regulation H .................................................. 54
4.24 Certain Documents ............................................. 54
4.25 Mortgaged Properties .......................................... 54
SECTION 5. CONDITIONS PRECEDENT ........................................ 54
5.1 Conditions to Initial Extension of Credit ..................... 54
5.2 Conditions to Each Extension of Credit ........................ 59
SECTION 6. AFFIRMATIVE COVENANTS ....................................... 60
6.1 Financial Statements .......................................... 60
6.2 Certificates; Other Information ............................... 60
6.3 Payment of Obligations ........................................ 62
6.4 Maintenance of Existence; Compliance .......................... 62
6.5 Maintenance of Property; Insurance ............................ 62
6.6 Inspection of Property; Books and Records; Discussions ........ 62
6.7 Notices ....................................................... 62
6.8 Environmental Laws ............................................ 63
6.9 Interest Rate Protection ...................................... 64
6.10 Additional Collateral, etc .................................... 64
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 7. NEGATIVE COVENANTS ........................................... 65
7.1 Financial Condition Covenants.................................. 65
7.2 Indebtedness .................................................. 67
7.3 Liens ......................................................... 68
7.4 Fundamental Changes ........................................... 69
7.5 Disposition of Property ....................................... 70
7.6 Restricted Payments ........................................... 70
7.7 Capital Expenditures .......................................... 71
7.8 Investments ................................................... 71
7.9 Optional Payments and Modifications of Certain Debt Instruments 72
7.10 Transactions with Affiliates .................................. 73
7.11 Sales and Leasebacks .......................................... 73
7.12 Changes in Fiscal Periods ..................................... 73
7.13 Negative Pledge Clauses ....................................... 73
7.14 Clauses Restricting Restricted Subsidiary Distributions ....... 73
7.15 Lines of Business ............................................. 74
7.16 Amendments to Merger Documents ................................ 74
7.17 Issuances of Preferred Stock .................................. 74
SECTION 8. EVENTS OF DEFAULT ............................................ 74
SECTION 9. THE AGENTS ................................................... 78
9.1 Appointment ................................................... 78
9.2 Delegation of Duties .......................................... 78
9.3 Exculpatory Provisions ........................................ 78
9.4 Reliance by Administrative Agent .............................. 79
9.5 Notice of Default ............................................. 79
9.6 Non-Reliance on Agents and Other Lenders ...................... 80
9.7 Indemnification ............................................... 80
9.8 Agent in Its Individual Capacity .............................. 81
9.9 Successor Administrative Agent 81
9.10 Authorization to Release Guarantees and Liens ................. 81
9.11 Documentation Agent, Syndication Agent and Co-Lead Arrangers .. 81
SECTION 10. MISCELLANEOUS ............................................... 82
10.1 Amendments and Waivers ........................................ 82
10.2 Notices ....................................................... 83
10.3 No Waiver; Cumulative Remedies ................................ 84
10.4 Survival of Representations and Warranties .................... 84
10.5 Payment of Expenses and Taxes ................................. 84
10.6 Successors and Assigns; Participations and Assignments ........ 85
10.7 Adjustments; Set-off .......................................... 88
10.8 Counterparts .................................................. 88
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
10.9 Severability .................................................. 88
10.10 Integration ................................................... 88
10.11 GOVERNING LAW ................................................. 89
10.12 Submission To Jurisdiction; Waivers ........................... 89
10.13 Acknowledgments ............................................... 89
10.14 Confidentiality ............................................... 90
10.15 WAIVERS OF JURY TRIAL ......................................... 90
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
ANNEX:
- ------
<S> <C>
A Pricing Grid
B Sources and Uses Table
SCHEDULES:
- ---------
1.1A Commitments
1.1B Mortgaged Property
1.1C Permitted Acquisitions Purchase Prices
4.1 Material Leases/Commitments
4.4 Consents, Authorizations, Filings and Notices
4.6 Litigation; Claims
4.9 Intellectual Property
4.13 ERISA Terminations
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
4.23 Flood Zone Properties
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.5 Permitted Dispositions
7.10 Transactions with Affiliates
EXHIBITS:
- --------
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Mortgage
E Form of Assignment and Acceptance
F Form of Legal Opinion of Counsel for the Borrower
G Form of Prepayment Option Notice
H Form of Exemption Certificate
I-1 Form of Tranche A Term Loan Note
I-2 Form of Tranche B Term Loan Note
I-3 Form of Tranche C Term Loan Note
I-4 Form of Revolving Note
I-5 Form of Swingline Note
</TABLE>
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<PAGE> 7
CREDIT AGREEMENT, dated as of November 12, 1998, among DOANE
PET CARE ENTERPRISES, INC., a Delaware corporation ("Holdings"), DOANE PET CARE
COMPANY, a Delaware corporation (the "Borrower"), the several banks and other
financial institutions or entities from time to time parties to this Agreement
(the "Lenders"), DLJ CAPITAL FUNDING, INC., as syndication agent (in such
capacity, the "Syndication Agent"), MERCANTILE BANK NATIONAL ASSOCIATION, as
documentation agent (in such capacity, the "Documentation Agent") and THE CHASE
MANHATTAN BANK, as administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed
in this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Reference Lender as its prime rate in effect
at its principal office in New York City (the Prime Rate not being intended to
be the lowest rate of interest charged by the Reference Lender in connection
with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a)
the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary
CD Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Reference Lender from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is
based upon the ABR.
"Accepting Lenders": as defined in Section 2.11(g).
<PAGE> 8
2
"Administrative Agent": The Chase Manhattan Bank, together
with its affiliates, as Co-Lead Arranger of the Commitments and as the
administrative agent for the Lenders under this Agreement and the other Loan
Documents, together with any of its successors.
"Affiliate": as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
persons performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Agents": the collective reference to the Syndication Agent,
the Documentation Agent and the Administrative Agent.
"Aggregate Exposure": with respect to any Lender at any time,
an amount equal to (a) until the Closing Date, the aggregate amount of such
Lender's Commitments at such time and (b) thereafter, the sum of (i) the
aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the
amount of such Lender's Revolving Commitment then in effect or, if the Revolving
Commitments have been terminated, the amount of such Lender's Revolving
Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at
any time, the ratio (expressed as a percentage) of such Lender's Aggregate
Exposure at such time to the Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum
set forth on the Pricing Grid; provided, that until the delivery of financial
statements for the period through March 31, 1999, the Applicable Margins shall
be the rates set forth on the Pricing Grid corresponding to Level 1.
"Application": an application, in such form as the Issuing
Lender may specify from time to time, requesting the Issuing Lender to open a
Letter of Credit.
"Asset Sale": any Disposition of property or series of related
Dispositions of property (excluding any such Disposition permitted by clause
(a), (b), (c), (d) or (e) of Section 7.5) that yields gross proceeds to the
Borrower or any of its Domestic Subsidiaries (valued at the initial principal
amount thereof in the case of non-cash proceeds consisting of notes or other
debt securities and valued at fair market value in the case of other non-cash
proceeds), excluding any Dispositions of property less than $1,000,000,
provided, that any time Dispositions less than $1,000,000 shall aggregate more
than $10,000,000 in the aggregate, any such additional Dispositions shall be
included.
<PAGE> 9
3
"Assignee": as defined in Section 10.6(c).
"Assignment and Acceptance": an Assignment and Acceptance,
substantially in the form of Exhibit E.
"Assignor": as defined in Section 10.6(c).
"Available Revolving Commitment": as to any Revolving Lender
at any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Commitment then in effect over (b) such Lender's Revolving Extensions
of Credit then outstanding; provided, that in calculating any Lender's Revolving
Extensions of Credit for the purpose of determining such Lender's Available
Revolving Commitment pursuant to Section 2.8(a), the aggregate principal amount
of Swingline Loans then outstanding shall be deemed to be zero.
"Benefitted Lender": as defined in Section 10.7(a).
"Board": the Board of Governors of the Federal Reserve System
of the United States (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified by the Borrower
as a date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
"Budgets": as defined in Section 6.2(c).
"Business": as defined in Section 4.17(b).
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close, provided, that with respect to notices and determinations in
connection with, and payments of principal and interest on, and continuations
and conversions of Eurodollar Loans, such day is also a day for trading by and
between banks in Dollar deposits in the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its Restricted
Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of
fixed or capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) that should be
capitalized under GAAP on a consolidated balance sheet of such Person and its
Restricted Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be
<PAGE> 10
4
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
any Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"C/D Assessment Rate": for any day as applied to any ABR Loan,
the annual assessment rate in effect on such day that is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation
(the "FDIC") classified as well-capitalized and within supervisory subgroup "B"
(or a comparable successor assessment risk classification) within the meaning of
12 C.F.R. ss. 327.4 (or any successor provision) to the FDIC (or any successor)
for the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Reserve Percentage": for any day as applied to any ABR
Loan, that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board, for determining the maximum reserve requirement for
a Depositary Institution (as defined in
<PAGE> 11
5
Regulation D of the Board as in effect from time to time) in respect of new
non-personal time deposits in Dollars having a maturity of 30 days or more.
"Change of Control": as defined in Section 8(k).
"Clinton IDB": the $9,000,000 The Oklahoma Development Finance
Authority Industrial Development Bonds, Series 1998 (Doane Products Company
Clinton, Oklahoma Project) dated as of July 15, 1998 and all loan agreements,
mortgages, security agreements, promissory notes executed and delivered in
connection therewith.
"Closing Date": the date on which the conditions precedent set
forth in Sections 5.1 and 5.2 shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Co-Lead Arrangers ": Chase Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation.
"Collateral": all property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"Commitment": as to any Lender, the sum of the Tranche A Term
Commitment, the Tranche B Term Commitment, the Tranche C Term Commitment and the
Revolving Commitment of such Lender.
"Commitment Fee Rate": the rate per annum set forth on the
Pricing Grid; provided, that until the delivery of financial statements for the
period through March 31, 1999, the Commitment Fee Rates shall be the rate set
forth on the Pricing Grid corresponding to Level 1.
"Commonly Controlled Entity": an entity, whether or not
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential
Information Memorandum dated October 1998 and furnished to the Lenders.
"Consolidated Current Assets": at any date, all amounts (other
than cash and Cash Equivalents) that would, in conformity with GAAP, be set
forth opposite the caption "total
<PAGE> 12
6
current assets" (or any like caption) on a consolidated balance sheet of the
Borrower and its Restricted Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts
that would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet of
the Borrower and its Restricted Subsidiaries at such date, but excluding (a) the
current portion of any Funded Debt of the Borrower and its Restricted
Subsidiaries and (b) without duplication of clause (a) above, all Indebtedness
consisting of Revolving Loans or Swingline Loans to the extent otherwise
included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income
for such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period, the sum
of (a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual,
transition or non-recurring expenses or losses (including, whether or not
otherwise includable as a separate item in the statement of such Consolidated
Net Income for such period, non-cash losses on sales of assets outside of the
ordinary course of business), and (f) any other non-cash charges and minus, to
the extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary, unusual or
non-recurring non-cash income or non-cash gains (including, whether or not
otherwise includable as a separate item in the statement of such Consolidated
Net Income for such period, gains on the sales of assets outside of the ordinary
course of business) and (c) any other non-cash income, all as determined on a
consolidated basis; provided, that, in calculating Consolidated EBITDA for any
period of four consecutive fiscal quarters that includes any of the fiscal
quarters set forth below, Consolidated EBITDA for such fiscal quarter shall be
deemed to be the amount set forth opposite such fiscal quarter below:
6/30/98 $23,000,000
9/30/98 $21,300,000
12/31/98 $24,100,000
For the purposes of calculating Consolidated EBITDA for any
period of four consecutive fiscal quarters (each, a "Reference Period") pursuant
to any determination of the financial covenants, (i) if at any time during such
Reference Period the Borrower or any Restricted Subsidiary shall have made any
Material Disposition, the Consolidated EBITDA for such Reference Period shall be
reduced by an amount equal to the Consolidated EBITDA (if positive) attributable
to the property that is the subject of such Material Disposition for such
Reference Period or increased by an amount equal to the Consolidated EBITDA (if
negative) attributable thereto for such Reference Period and (ii) if during such
Reference Period the Borrower or any Restricted Subsidiary shall have made a
Material Acquisition, Consolidated EBITDA for such Reference Period shall be
calculated after giving pro forma effect thereto as if such Material Acquisition
occurred on the first day of such Reference Period, and after giving effect to
any
<PAGE> 13
7
credit received for certain costs and savings recognized by the SEC (the
"SEC Cost Savings") associated with such Material Acquisition. As used in this
definition, "Material Acquisition" means any acquisition of property or series
of related acquisitions of property that (a) constitutes assets comprising all
or substantially all of an operating unit of a business or constitutes all or
substantially all of the common stock of a Person and (b) involves the payment
of consideration by the Borrower and its Restricted Subsidiaries in excess of
$2,500,000; and "Material Disposition" means any Disposition of property or
series of related Dispositions of property that yields gross proceeds to the
Borrower or any of its Restricted Subsidiaries in excess of $2,500,000.
"Consolidated Fixed Charge Coverage Ratio": for any period,
the ratio of (a) the sum of (i) Consolidated EBITDA for such period less the
aggregate amount actually paid by the Borrower and its Restricted Subsidiaries
during such period on account of Capital Expenditures (excluding the principal
amount of Indebtedness incurred in connection with such expenditures) and (ii)
Consolidated Lease Expense for such period to (b) Consolidated Fixed Charges for
such period.
"Consolidated Fixed Charges": for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period, (b)
Consolidated Lease Expense for such period, (c) scheduled payments made during
such period on account of principal of Indebtedness of the Borrower or any of
its Restricted Subsidiaries (including scheduled principal payments in respect
of the Term Loans and payments of Revolving Loans accompanying scheduled
reductions of the Revolving Commitments), (d) any current portion of income tax
expense deducted in the determination of Consolidated Net Income and (e)
dividends paid in cash on Preferred Stock.
"Consolidated Interest Coverage Ratio": for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest
Expense for such period.
"Consolidated Interest Expense": for any period, total cash
interest expense (including that attributable to Capital Lease Obligations) of
the Borrower and its Restricted Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its Restricted Subsidiaries
(including net costs or net gains under Hedge Agreements in respect of interest
rates to the extent such net costs or net gains are allocable to such period in
accordance with GAAP); provided, that, in calculating Consolidated Interest
Expense for any period of four consecutive fiscal quarters that includes any of
the fiscal quarters set forth below, Consolidated Interest Expense for such
fiscal quarter shall be deemed to be the amount set forth opposite such fiscal
quarter below:
6/30/98 $10,100,000
9/30/98 $10,100,000
12/31/98 $10,100,000
<PAGE> 14
8
"Consolidated Lease Expense": for any period, the aggregate
amount of fixed and contingent rentals payable by the Borrower and its
Restricted Subsidiaries for such period with respect to leases of real and
personal property, determined on a consolidated basis in accordance with GAAP.
"Consolidated Leverage Ratio": as at the last day of any
period, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated
EBITDA for such period.
"Consolidated Net Income": for any period, the consolidated
net income (or loss) of the Borrower and its Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Restricted Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Restricted Subsidiaries, (b) the
income (or deficit) of any Person (other than a Restricted Subsidiary of the
Borrower) in which the Borrower or any of its Restricted Subsidiaries has an
ownership interest, except to the extent that any such income is actually
received by the Borrower or such Restricted Subsidiary in the form of dividends
or similar distributions and (c) the undistributed earnings of any Restricted
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary is not at the
time permitted by the terms of any Contractual Obligation (other than under any
Loan Document) or Requirement of Law applicable to such Restricted Subsidiary.
"Consolidated Senior Debt": all Consolidated Total Debt other
than (a) the Windy Hill Senior Subordinated Notes, (b) the Windy Hill
Subordinated Seller Note, (c) the Doane Senior Notes, (d) the Exchange Notes and
(e) the Subordinated Facility and any subordinated refinancings thereof.
"Consolidated Senior Debt Ratio": as of the last day of any
period of four consecutive fiscal quarters, the ratio of (a) Consolidated Senior
Debt on such day to (b) Consolidated EBITDA for such period.
"Consolidated Total Debt": at any date, the aggregate
principal amount of all Indebtedness of the Borrower and its Restricted
Subsidiaries at such date (including any IDB's but excluding any contingent
obligations under acceptance, letter of credit or similar facilities),
determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital": at any date, the excess of
Consolidated Current Assets on such date over Consolidated Current Liabilities
on such date.
"Continuing Directors": the directors of Holdings on the
Closing Date, after giving effect to the Merger and the other transactions
contemplated hereby, and each other director, if (i) in each case, such other
director's nomination for election to the board of directors of Holdings is
recommended by at least 66-2/3% of the then Continuing Directors or such other
director receives the vote of the Permitted Investors in his or her election by
the shareholders of
<PAGE> 15
9
Holdings or (ii) such other director is nominated in accordance with the
Investors' Agreement with respect thereto.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control Investment Affiliate": as to any Person, any other
Person that (a) directly or indirectly, is in control of, is controlled by, or
is under common control with, such Person and (b) is organized by such Person
primarily for the purpose of making equity or debt investments in one or more
companies. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Deep Run Indebtedness": the $1,500,000 promissory note issued
June 27, 1995, by Windy Hill as successor by merger to Deep Run Packing Co.,
Inc. to the order of Mellon Bank N.A., such indebtedness thereunder not in
excess of $100,000.
"Default": any of the events specified in Section 8, whether
or not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Designated Lender": as defined in Section 5.1(a).
"Disposition": with respect to any property, any sale, lease,
sale and leaseback, assignment, conveyance, transfer or other disposition
thereof. The terms "Dispose" and "Disposed of" shall have correlative meanings.
"Doane": Doane Pet Care Company, a Delaware corporation,
formerly known as Doane Products Company.
"Doane Senior Notes": the Doane 10-5/8% Senior Notes due 2006
(as defined in that certain indenture dated as of March 1, 1996 made by and
among Doane and United States Trust Company of Texas, N.A., as trustee, as
supplemented by the First Supplemental Indenture dated of even date herewith)
(such indenture, the "Doane Senior Note Indenture").
"Documentation Agent": as defined in the preamble hereto.
"Dollars" and "$": dollars in lawful currency of the United
States.
"Domestic Joint Venture": any joint venture of the Borrower
organized under the laws of any jurisdiction within the United States.
"Domestic Subsidiary": any Restricted Subsidiary of the
Borrower organized under the laws of any jurisdiction within the United States.
<PAGE> 16
10
"ECF Percentage": (a) 75% if the Consolidated Senior Debt
Ratio is greater than or equal to 3.25:1.00; (b) 50% if the Consolidated Senior
Debt Ratio is greater than or equal to 2.75:1.00 but less than 3.25:1.00 and (c)
0% if the Consolidated Senior Debt Ratio is less than 2.75:1.00.
"Environmental Laws": any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum determined
on the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Telerate Service (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, as determined
by the Administrative Agent from time to time for purposes of providing
quotations of interest rates applicable to dollar deposits in the London
interbank market) as of 11:00 A.M., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such rate is not available
at such time for any reason, the "Eurodollar Base Rate" shall be determined by
reference to such other comparable publicly available service for displaying
eurodollar rates as may be selected by the Administrative Agent or, in the
absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits in an amount equal to the
eurodollar tranche requested at or about 11:00 A.M., New York City time, two
Business Days prior to the beginning of such Interest Period in the interbank
eurodollar market where its eurodollar and foreign currency and exchange
operations are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
<PAGE> 17
11
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar
Loans the then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the
excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net
Income for such fiscal year, (ii) an amount equal to the amount of all non-cash
charges (including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, and (iv) an amount equal to the aggregate net non-cash loss on
the Disposition of property by the Borrower and its Restricted Subsidiaries
during such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent deducted in arriving at such Consolidated Net Income
over (b) the sum, without duplication, of (i) an amount equal to the amount of
all non-cash credits included in arriving at such Consolidated Net Income, (ii)
the aggregate amount actually paid by the Borrower and its Restricted
Subsidiaries in cash during such fiscal year on account of Capital Expenditures
(excluding the principal amount of Indebtedness incurred in connection with such
expenditures and any such expenditures financed with the proceeds of any
Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of
Revolving Loans and Swingline Loans during such fiscal year to the extent
accompanying permanent optional reductions of the Revolving Commitments and all
optional prepayments of the Term Loans during such fiscal year, (iv) the
aggregate amount of all regularly scheduled principal payments of Funded Debt
(including the Term Loans) of the Borrower and its Restricted Subsidiaries made
during such fiscal year (other than in respect of any revolving credit facility
to the extent there is not an equivalent permanent reduction in commitments
thereunder), (v) increases in Consolidated Working Capital for such fiscal year,
and (vi) an amount equal to the aggregate net non-cash gain on the Disposition
of property by the Borrower and its Restricted Subsidiaries during such fiscal
year (other than sales of inventory in the ordinary course of business), to the
extent included in arriving at such Consolidated Net Income.
"Excess Cash Flow Application Date": as defined in Section
2.11(c).
"Exchange Notes": the 9-3/4% Senior Subordinated Notes due
2007 that have been offered by Doane pursuant to its Offer to Exchange and
Solicitation of Consents dated October 8, 1998 in an amount not less than
$120,000,000.
<PAGE> 18
12
"Exchange Note Indenture": the indenture dated of even date
herewith between Doane, as issuer, and Wilmington Trust Company, as trustee,
pursuant to which Exchange Notes are issued.
"Existing Doane Credit Facility": the Second Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of April 13, 1998,
by and among Doane, the banks named therein, and Mercantile Bank National
Association, as Agent, as the same may have been amended, restated, supplemented
or otherwise modified from time to time.
"Existing Windy Hill Credit Facility": the Credit Agreement,
dated as of May 21, 1997, by and 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, as the same may have been amended,
restated, supplemented or otherwise modified from time to time.
"Facility": each of (a) the Tranche A Term Commitments and the
Tranche A Term Loans made thereunder (the "Tranche A Term Facility"), (b) the
Tranche B Term Commitments and the Tranche B Term Loans made thereunder (the
"Tranche B Term Facility"), (c) the Tranche C Term Commitments and the Tranche C
Term Loans made thereunder (the "Tranche C Term Facility") and (d) the Revolving
Commitments and the Revolving Extensions of Credit made thereunder (the
"Revolving Facility").
"Federal Funds Effective Rate": for any day, the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of
the quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
"Foreign Joint Venture": any joint venture of the Borrower
that is not a Domestic Joint Venture.
"Foreign Subsidiary": any Restricted Subsidiary of the
Borrower that is not a Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such
Person that matures more than one year from the date of its creation or matures
within one year from such date but is renewable or extendible, at the option of
such Person, to a date more than one year from such date or arises under a
revolving credit or similar agreement that obligates the lender or lenders to
extend credit during a period of more than one year from such date, including
all current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation and, in the case of the Borrower, Indebtedness in respect of the
Loans.
<PAGE> 19
13
"Funding Office": the office of the Administrative Agent
specified in Section 10.2 or such other office as may be specified from time to
time by the Administrative Agent as its funding office by written notice to the
Borrower and the Lenders.
"GAAP": generally accepted accounting principles in the United
States as in effect from time to time, except that for purposes of Section 7.1,
GAAP shall be determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the most recent
audited financial statements delivered pursuant to Section 4.1(b). In the event
that any "Accounting Change" (as defined below) shall occur and such change
results in a change in the method of calculation of financial covenants,
standards or terms in this Agreement, then the Borrower and the Administrative
Agent agree to enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the Borrower's financial condition shall
be the same after such Accounting Changes as if such Accounting Changes had not
been made. Until such time as such an amendment shall have been executed and
delivered by the Borrower, the Administrative Agent and the Required Lenders,
all financial covenants, standards and terms in this Agreement shall continue to
be calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and
Collateral Agreement to be executed and delivered by Holdings, the Borrower and
each Restricted Subsidiary, substantially in the form of Exhibit A, as the same
may be amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another Person
(including any bank under any letter of credit) to induce the creation of which
the guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services
<PAGE> 20
14
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary obligation
or (iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the guaranteeing person in good faith.
"Guarantors": the collective reference to Holdings and the
Restricted Subsidiaries.
"Hedge Agreements": all interest rate swaps, caps or collar
agreements or similar arrangements providing for protection against fluctuations
in interest rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Holdings": as defined in the preamble hereto.
"IDB": industrial development bonds.
"Indebtedness": of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services (other than current trade payables incurred in the ordinary course of
such Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under acceptance, letter of credit or similar facilities, (g) all
Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (f) above; (h) all obligations of the kind
referred to in clauses (a) through (g) above secured by (or for which the holder
of such obligation has an existing right, contingent or otherwise, to be secured
by) any Lien on property (including accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such obligation; and (i) for the purposes of Section 8(e) only, all
obligations of such Person in respect of Hedge Agreements.
<PAGE> 21
15
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including copyrights, copyright licenses, patents, patent licenses, trademarks,
trademark licenses, technology, know-how and processes, and all rights to sue at
law or in equity for any infringement or other impairment thereof, including the
right to receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day
of each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day of such
Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer
than three months, each day that is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such Interest
Period and (d) as to any Loan (other than any Revolving Loan that is an ABR Loan
and any Swingline Loan), the date of any repayment or prepayment made in respect
thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially,
the period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the last day of
the then current Interest Period with respect thereto; provided that, all of the
foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding
Business Day;
(ii) the Borrower may not select an Interest Period
under a particular Facility that would extend beyond the scheduled
Revolving Termination Date or beyond the date final payment is due on
the Tranche A Term Loans, the Tranche B Term Loans or the Tranche C
Term Loans, as the case may be;
<PAGE> 22
16
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar
month; and
(iv) the Borrower shall select Interest Periods so
as not to require a payment or prepayment of any Eurodollar Loan prior
to the last day of an Interest Period for such Loan.
"Investments": as defined in Section 7.8.
"Investors' Agreement": the First Amended and Restated
Investors' Agreement, dated as of August 3, 1998, among DPC Acquisition Corp.,
Doane Products Company, Summit Capital Inc., Summit/DPC Partners, L.P., Chase
Manhattan Investment Holdings, Inc., Baseball Partners, DLJ Merchant Banking
Partners, L.P., DLJ International Partners, C.V., DLJ Offshore Partners, C.V.,
DLJ Merchant Banking Funding, Inc., DLJ First ESC, L.L.C., Dartford Partnership,
L.L.C., Bruckmann, Rosser, Sherrill & Co., L.P., PNC Capital Corp., Windy Hill
Pet Food Company, L.L.C. and certain other persons signatories thereto, as
amended.
"Issuing Lender": The Chase Manhattan Bank, in its capacity as
issuer of any Letter of Credit.
"L/C Commitment": $10,000,000.
"L/C Fee Payment Date": the last day of each March, June,
September and December and the Revolving Termination Date.
"L/C Obligations": at any time, an amount equal to the sum of
(a) the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters of
Credit that have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the
Revolving Lenders other than the Issuing Lender.
"Lenders": as defined in the preamble hereto.
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or similar charge or any preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any
capital lease having substantially the same economic effect as any of the
foregoing).
<PAGE> 23
17
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Loan Documents": this Agreement, the Security Documents and
the Notes.
"Loan Parties": Holdings, the Borrower and each Restricted
Subsidiary of the Borrower that is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
holders of more than 50% of the aggregate unpaid principal amount of the Term
Loans or the Total Revolving Extensions of Credit, as the case may be,
outstanding under such Facility (or, in the case of the Revolving Facility,
prior to any termination of the Revolving Commitments, the holders of more than
50% of the Total Revolving Commitments).
"Majority Revolving Facility Lenders": the Majority Facility
Lenders in respect of the Revolving Facility.
"Mandatory Prepayment Date": as defined in Section 2.11(g).
"Material Adverse Effect": a material adverse effect on (a)
the Merger, (b) the business, assets, property, operations, condition (financial
or otherwise) or prospects of Holdings, the Borrower and its Restricted
Subsidiaries taken as a whole or (c) the validity or enforceability of any
material provision of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, in each case, defined or
regulated as such in or under any Environmental Law, including asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"MDFC Operating Lease": the Equipment Lease Agreement, between
Doane and MDFC Equipment Leasing Corporation, dated as of October 2, 1998, as
amended.
"Merger": as defined in Section 5.1(b).
"Merger Documentation": collectively, all agreements and all
schedules, exhibits and annexes thereto and all side letters and agreements
affecting the terms of the Merger or entered into in connection therewith, in
each case as amended, supplemented or otherwise modified from time to time in
accordance with Section 7.16.
"Mortgaged Properties": the real properties listed on Schedule
1.1B, as to which the Administrative Agent for the benefit of the Lenders shall
be granted a Lien pursuant to the Mortgages, as supplemented pursuant to Section
6.10(b).
<PAGE> 24
18
"Mortgages": each of the mortgages and deeds of trust made by
any Loan Party in favor of, or for the benefit of, the Administrative Agent for
the benefit of the Lenders, substantially in the form of Exhibit D (with such
changes thereto as shall be advisable under the law of the jurisdiction in which
such mortgage or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan that is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or
any Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred payment of
principal pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received) of such Asset
Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment
banking fees, broker's or finder's fees, amounts required to be applied to the
repayment of Indebtedness secured by a Lien expressly permitted hereunder on any
asset that is the subject of such Asset Sale or Recovery Event (other than any
Lien pursuant to a Security Document) and other customary fees and expenses
actually incurred in connection therewith and net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into account any
available tax credits or deductions related to such Asset Sale or Recovery Event
and any tax sharing arrangements) and (b) in connection with any issuance or
sale of equity securities or debt securities or instruments or the incurrence of
loans, the cash proceeds received from such issuance or incurrence, net of
attorneys' fees, investment banking fees, accountants' fees, underwriting
discounts and commissions and other customary fees and expenses actually
incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.19(a).
"Non-Executing Persons": as defined in Section 5.1(a).
"Non-U.S. Lender": as defined in Section 2.19(d).
"Notes": the collective reference to the Tranche A Term Notes,
the Tranche B Term Notes, the Tranche C Term Notes, the Revolving Notes and the
Swingline Notes.
"Obligations": the unpaid principal of and interest on
(including interest accruing after the maturity of the Loans and Reimbursement
Obligations and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Borrower to the Administrative Agent or to
any Lender (or, in the case of Hedge Agreements, any Affiliate of any Lender),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which arises under, out of, or in connection
with, this Agreement, any other Loan Document, the Letters of Credit, any Hedge
Agreement entered into
<PAGE> 25
19
with any Lender or any Affiliate of any Lender or any other document made,
delivered or given in connection herewith or therewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs or
expenses (including all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.
"Ottawa IDB": the $6,000,000 Ottawa County Finance Authority
Industrial Development Revenue Bonds, Series 1997 (Doane Products Company
Project) issued pursuant to that certain Indenture of Trust dated as of March 1,
1997 between Ottawa County Finance Authority and Bank of Oklahoma, National
Association, Oklahoma City, Oklahoma, Trustee and all loan agreements,
mortgages, security agreements, promissory notes executed and delivered in
connection therewith.
"Participant": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Acquisition": (a) an acquisition of a majority
controlling interest in a Person (including the acquisition of an interest after
giving effect to which the Borrower and its Restricted Subsidiaries own a
majority controlling interest) or an acquisition of the assets of or a line of
business or product line of a Person; provided that, with respect to each such
acquisition:
(i) after giving effect to such acquisition, the
Borrower and its Restricted Subsidiaries shall remain in the
same businesses as before such acquisition and businesses
reasonably related to such businesses or such other lines of
business as consented to by the Administrative Agent and the
Required Lenders;
(ii) such acquisition shall be made on a fully
consensual basis between the Borrower and the sellers of such
assets or such business;
(iii) after giving effect to such acquisition, the
sum of (x) the amount of cash and Cash Equivalents on hand of
the Borrower plus (y) the Available Revolving Commitment shall
equal or exceed $15,000,000;
(iv) the Borrower shall be in compliance, on a pro
forma basis after giving effect to such acquisition, with
Sections 7.1, 7.7 and 7.8; and
<PAGE> 26
20
(v) no Default or Event of Default shall have
occurred and be continuing at the time of such acquisition or
shall be caused thereby.
(b) Notwithstanding the foregoing, (i) any
acquisition of Capital Stock of, or capital contribution to, Effeffe,
S.p.a. ("Effeffe") not owned by Holdings or its Subsidiaries on the
date hereof in the first year following the Closing Date for a purchase
price as set forth on Schedule 1.1C hereto or less (the "Effeffe
Acquisition") shall be a Permitted Acquisition; and (ii) any
acquisition of Pet Life Foods, Inc. ("Pet Life") in the first year
following the Closing Date for a purchase price as set forth on
Schedule 1.1C hereto or less (the "Pet Life Acquisition") shall be a
Permitted Acquisition, provided that the Pet Life Acquisition satisfies
the requirements of clauses (i), (ii), (iv) and (v) of section (a)
above.
(c) Permitted Acquisitions (other than the Pet Life
Acquisition and the Effeffe Acquisition) shall not be permitted if any
loans under the Subordinated Facility remain outstanding.
"Permitted Investors": each record or beneficial owner at the
date hereof of outstanding common stock of Holdings, or of warrants or rights to
acquire common stock of Holdings, and "Permitted Transferees" (as defined in the
Investors' Agreement) and Affiliates of the foregoing.
"Person": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan": at a particular time, any employee benefit plan that
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Preferred Stock": the Borrower's 14.25% Senior Exchangeable
Preferred Stock due 2007.
"Prepayment Option Notice": as defined in Section 2.11(g).
"Pricing Grid": the pricing grid attached hereto as Annex A.
"Pro Forma Balance Sheets": as defined in Section 4.1(a).
"Properties": as defined in Section 4.17(a).
<PAGE> 27
21
"Recovery Event": any settlement of or payment in excess of
$350,000 in respect of any property or casualty insurance claim or any
condemnation proceeding relating to any asset of Holdings, the Borrower or any
of its Restricted Subsidiaries that is a Domestic Subsidiary.
"Reference Lender": The Chase Manhattan Bank.
"Refinancing Subordinated Debt": as defined in Section 7.6(f).
"Refunded Swingline Loans": as defined in Section 2.7(b).
"Refunding Date": as defined in Section 2.7(c).
"Register": as defined in Section 10.6(d).
"Regulation U": Regulation U of the Board as in effect from
time to time.
"Related Fund": with respect to any Lender that is a fund that
invests in bank loans, any other fund that invests in bank loans and is advised
or managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Reinvestment Deferred Amount": with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or
any of its Restricted Subsidiaries in connection therewith that are not applied
to prepay the Term Loans or reduce the Revolving Commitments pursuant to Section
2.11(b) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in
respect of which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a
Responsible Officer stating that no Event of Default has occurred and is
continuing and that the Borrower (directly or indirectly through a Restricted
Subsidiary) intends and expects to use all or a specified portion of the Net
Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its
business.
"Reinvestment Prepayment Amount": with respect to any
Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any
amount expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any
Reinvestment Event, the earlier of (a) the date occurring one year after such
Reinvestment Event and (b) the date on which the Borrower shall have determined
not to, or shall have otherwise ceased to, acquire assets
<PAGE> 28
22
useful in the Borrower's business with all or any portion of the relevant
Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty day notice
period is waived under the applicable regulations of PBGC Reg. Section 4043.
"Required Lenders": at any time, the holders of more than 50%
of (a) until the Closing Date, the aggregate Commitments of all Lenders then in
effect and (b) thereafter, the sum of (i) the aggregate unpaid principal amount
of the Term Loans then outstanding and (ii) the Total Revolving Commitments then
in effect or, if the Revolving Commitments have been terminated, the Total
Revolving Extensions of Credit then outstanding.
"Required Prepayment Lenders": the Majority Facility Lenders
in respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": the chief executive officer, president
or chief financial officer of the Borrower, but in any event, with respect to
financial matters, the chief financial officer of the Borrower.
"Restricted Payments": as defined in Section 7.6.
"Restricted Subsidiary": any Subsidiary which is not an
Unrestricted Subsidiary.
"Revolving Commitment": as to any Lender, the obligation of
such Lender, if any, to make Revolving Loans and participate in Swingline Loans
and Letters of Credit in an aggregate principal and/or face amount not to exceed
the amount set forth under the heading "Revolving Commitment" opposite such
Lender's name on Schedule 1.1A or in an Assignment and Acceptance, as the same
may be changed from time to time pursuant to the terms hereof. The original
amount of the Total Revolving Commitments is $100,000,000.
"Revolving Commitment Period": the period from and including
the Closing Date to but excluding the Revolving Termination Date.
<PAGE> 29
23
"Revolving Extensions of Credit": as to any Revolving Lender
at any time, an amount equal to the sum of (a) the aggregate principal amount of
all Revolving Loans held by such Lender then outstanding, (b) such Lender's
Revolving Percentage of the L/C Obligations then outstanding and (c) such
Lender's Revolving Percentage of the aggregate principal amount of Swingline
Loans then outstanding.
"Revolving Lender": each Lender that has a Revolving
Commitment or that holds Revolving Loans.
"Revolving Loans": as defined in Section 2.4(a).
"Revolving Note: as defined in Section 2.4(c).
"Revolving Percentage": as to any Revolving Lender at any
time, the percentage which such Lender's Revolving Commitment then constitutes
of the Total Revolving Commitments (or, at any time after the Revolving
Commitments shall have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Revolving Loans then outstanding constitutes
of the aggregate principal amount of the Revolving Loans then outstanding).
"Revolving Termination Date": March 31, 2005.
"SEC": the Securities and Exchange Commission, any successor
thereto and any analogous Governmental Authority.
"Security Documents": the collective reference to the
Guarantee and Collateral Agreement, the Mortgages and all other security
documents hereafter delivered to the Administrative Agent granting a Lien on any
property of any Person to secure the obligations and liabilities of any Loan
Party under any Loan Document.
"Single Employer Plan": any Plan that is covered by Title IV
of ERISA, but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that,
as of any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the amount of
all "liabilities of such Person, contingent or otherwise", as of such date, as
such quoted terms are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated,
<PAGE> 30
24
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
"Sources and Uses Table": the sources and uses table attached
hereto as Annex B.
"Specified Change of Control": a "Change of Control" as
defined in the Exchange Note Indenture or Windy Hill Senior Subordinated Note
Indenture (so long as, in each case, at least $5,000,000 in aggregate principal
amount of notes is outstanding thereunder).
"Subordinated Facility": the credit facility provided pursuant
to the Bridge Financing Agreement, dated as of October 15, 1998, among Windy
Hill, Holdings, Pet Food Funding, Inc. and The Chase Manhattan Bank.
"Subsidiary": as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
"Supermajority Lenders": at any time, the holders of more than
66 2/3% of (a) until the Closing Date, the aggregate Commitments of all Lenders
then in effect and (b) thereafter, the sum of (i) the aggregate unpaid principal
amount of the Term Loans then outstanding and (ii) the Total Revolving
Commitments then in effect or, if the Revolving Commitments have been
terminated, the Total Revolving Extensions of Credit then outstanding.
"Swingline Commitment": the obligation of the Swingline Lender
to make Swingline Loans pursuant to Section 2.6 in an aggregate principal amount
at any one time outstanding not to exceed $10,000,000.
"Swingline Lender": The Chase Manhattan Bank, in its capacity
as the lender of Swingline Loans.
"Swingline Loans": as defined in Section 2.6(a).
"Swingline Note ": as defined in Section 2.7(f).
"Swingline Participation Amount": as defined in Section
2.7(c).
<PAGE> 31
25
"Syndication Agent": as defined in the preamble hereto.
"Term Lenders": the collective reference to the Tranche A Term
Lenders, the Tranche B Term Lenders and the Tranche C Term Lenders.
"Term Loans": the collective reference to the Tranche A Term
Loans, Tranche B Term Loans and Tranche C Term Loans.
"Total Revolving Commitments": at any time, the aggregate
amount of the Revolving Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the
aggregate amount of the Revolving Extensions of Credit of the Revolving Lenders
outstanding at such time.
"Tranche A Maturity Date": March 31, 2005.
"Tranche A Term Commitment": as to any Tranche A Term Lender,
the obligation of such Lender, if any, to make a Tranche A Term Loan to the
Borrower hereunder in a principal amount not to exceed the amount set forth
under the heading "Tranche A Term Commitment" opposite such Lender's name on
Schedule 1.1A or an Assignment and Acceptance. The original aggregate amount of
the Tranche A Term Commitments is $75,000,000.
"Tranche A Term Lender": each Lender that has a Tranche A Term
Commitment or is the holder of a Tranche A Term Loan.
"Tranche A Term Loan": as defined in Section 2.1.
"Tranche A Term Note": as defined in Section 2.3(d).
"Tranche A Term Percentage": as to any Tranche A Term Lender
at any time, the percentage which such Lender's Tranche A Term Commitment then
constitutes of the aggregate Tranche A Term Commitments (or, at any time after
the Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche A Term Loans then outstanding constitutes of the aggregate
principal amount of all Tranche A Term Loans then outstanding).
"Tranche B Maturity Date": December 31, 2005.
"Tranche B Prepayment Amount": as defined in Section 2.11(g).
"Tranche B Term Commitment": as to any Tranche B Term Lender,
the obligation of such Lender, if any, to make a Tranche B Term Loan to the
Borrower hereunder in a principal amount not to exceed the amount set forth
under the heading "Tranche B Term Commitment" opposite such Lender's name on
Schedule 1.1A or an Assignment and Acceptance. The original aggregate amount of
the Tranche B Term Commitments is $85,000,000.
<PAGE> 32
26
"Tranche B Term Lender": each Lender that has a Tranche B Term
Commitment or that holds a Tranche B Term Loan.
"Tranche B Term Loan": as defined in Section 2.1.
"Tranche B Term Note": as defined in Section 2.3(e).
"Tranche B Term Percentage": as to any Tranche B Term Lender
at any time, the percentage which such Lender's Tranche B Term Commitment then
constitutes of the aggregate Tranche B Term Commitments (or, at any time after
the Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche B Term Loans then outstanding constitutes of the aggregate
principal amount of all Tranche B Term Loans then outstanding); provided, that
solely for purposes of calculating the amount of each installment of Tranche B
Term Loans (other than the last installment) payable to a Tranche B Term Lender,
such Lender's Tranche B Term Percentage shall be calculated without giving
effect to any portion of any prior mandatory or optional prepayment attributable
to such Lender's Tranche B Term Loans that shall have been declined by such
Lender (or, in the case of any Lender that shall have acquired its Tranche B
Term Loans by assignment from another Person, by such other Person).
"Tranche C Maturity Date": December 31, 2006.
"Tranche C Prepayment Amount": as defined in Section 2.11(g).
"Tranche C Term Commitment": as to any Tranche C Term Lender,
the obligation of such Lender, if any, to make a Tranche C Term Loan to the
Borrower hereunder in a principal amount not to exceed the amount set forth
under the heading "Tranche C Term Commitment" opposite such Lender's name on
Schedule 1.1A or an Assignment and Acceptance. The original aggregate amount of
the Tranche C Term Commitments is $85,000,000.
"Tranche C Term Lender": each Lender that has a Tranche C Term
Commitment or that holds a Tranche C Term Loan.
"Tranche C Term Loan": as defined in Section 2.1.
"Tranche C Term Note": as defined in Section 2.3(f).
"Tranche C Term Percentage": as to any Tranche C Term Lender
at any time, the percentage which such Lender's Tranche C Term Commitment then
constitutes of the aggregate Tranche C Term Commitments (or, at any time after
the Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche C Term Loans then outstanding constitutes of the aggregate
principal amount of all Tranche C Term Loans then outstanding); provided, that
solely for purposes of calculating the amount of each installment of Tranche C
Term Loans (other than the last installment) payable to a Tranche C Term Lender,
such Lender's Tranche C Term Percentage shall be calculated without giving
effect to any portion of any prior mandatory
<PAGE> 33
27
or optional prepayment attributable to such Lender's Tranche C Term Loans that
shall have been declined by such Lender (or, in the case of any Lender that
shall have acquired its Tranche C Term Loans by assignment from another Person,
by such other Person).
"Transferee": any Assignee or Participant.
"Type": as to any Loan, its nature as an ABR Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"United States": the United States of America.
"Unrestricted Subsidiary or Joint Venture": any subsidiary or
joint venture designated as such and listed on Schedule 4.15 (as such schedule
may be updated from time to time) and all Subsidiaries or Joint Ventures of such
Person which do not guarantee the Facilities; provided that at the time of any
such designation and after giving effect thereto no Default or Event of Default
is in existence. A Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary (or vice versa) at any time by notice to the Administrative Agent
(which shall notify each Lender thereof), provided that at the time of any such
designation and after giving effect thereto on a pro forma basis as at the end
of the most recent fiscal quarter for which financial statements are available
no Default or Event of Default is in existence.
"Windy Hill": Windy Hill Pet Food Company, Inc., a Minnesota
corporation.
"Windy Hill Senior Subordinated Notes": the Windy Hill 9-3/4%
Senior Subordinated Notes due 2007 (as defined in that certain indenture dated
as of May 21, 1997 between Windy Hill and Wilmington Trust Company, as trustee,
such indenture, as supplemented by the First Supplemental Indenture dated
November 12, 1998, the "Windy Hill Senior Subordinated Note Indenture").
"Windy Hill Subordinated Seller Note": the Convertible
Subordinated Promissory Note dated April 29, 1996 payable to Heinz Pet Food
Products Company in the original principal amount of $10,500,000.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to Holdings, the Borrower and its Subsidiaries not
defined in Section 1.1 and accounting terms partly defined in Section 1.1, to
the extent not defined, shall have the respective meanings given to them under
<PAGE> 34
28
GAAP, (ii) the words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation", (iii) the word "incur" shall be
construed to mean incur, create, issue, assume, become liable in respect of or
suffer to exist (and the words "incurred" and "incurrence" shall have
correlative meanings), and (iv) the words "asset" and "property" shall be
construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, Capital Stock,
securities, revenues, accounts, leasehold interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Commitments. Subject to the terms and conditions
hereof, (a) each Tranche A Term Lender severally agrees to make a term loan (a
"Tranche A Term Loan") to the Borrower on the Closing Date in an amount not to
exceed the amount of the Tranche A Term Commitment of such Lender, (b) each
Tranche B Term Lender severally agrees to make a term loan (a "Tranche B Term
Loan") to the Borrower on the Closing Date in an amount not to exceed the amount
of the Tranche B Term Commitment of such Lender and (c) each Tranche C Term
Lender severally agrees to make a term loan (a "Tranche C Term Loan") to the
Borrower on the Closing Date in an amount not to exceed the amount of the
Tranche C Term Commitment of such Lender. The Term Loans may from time to time
be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to
the Administrative Agent in accordance with Sections 2.2 and 2.12.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to 10:00 A.M., New York City time, one Business
Day prior to the anticipated Closing Date) requesting that the Term Lenders make
the Term Loans on the Closing Date and specifying the amount to be borrowed.
Unless otherwise agreed by the Administrative Agent in its sole discretion, no
Term Loan may be converted into or continued as a Eurodollar Loan having an
Interest Period in excess of one month prior to the date that is 60 days after
the Closing Date. Upon receipt of such notice the Administrative Agent shall
promptly notify each Term Lender thereof. Not later than 12:00 Noon, New York
City time, on the Closing Date each Term Lender shall make available to the
Administrative Agent at the Funding Office an amount in immediately available
funds equal to the Term Loan or Term Loans to be made by such Lender. The
Administrative Agent shall credit the account of the Borrower on the books of
such office of the Administrative Agent with the aggregate of the amounts made
available to the Administrative Agent by the Term Lenders in immediately
available funds.
<PAGE> 35
29
2.3 Repayment of Term Loans. (a) The Tranche A Term Loans
shall be payable in 25 consecutive quarterly installments on the last day of
each March, June, September and December of each year, commencing on March 31,
1999, in an aggregate amount for each period set forth below opposite such
period:
Period Principal Amount
------ ----------------
01/01/99 - 12/31/99 $10,000,000
01/01/00 - 12/31/00 $10,000,000
01/01/01 - 12/31/01 $12,500,000
01/01/02 - 12/31/02 $12,500,000
01/01/03 - 12/31/03 $12,500,000
01/01/04 - 12/31/04 $12,500,000
01/01/05 - 03/31/05 $5,000,000
(b) The Tranche B Term Loans shall be payable in 28
consecutive quarterly installments on the last day of each March, June,
September and December of each year (except the last such installment shall be
payable on the Tranche B Maturity Date), commencing on March 31, 1999, the first
26 of which shall each be in the amount of $212,500 and the last two of which
shall each be in the amount of $39,737,500.
(c) The Tranche C Term Loans shall be payable in 32
consecutive quarterly installments on the last day of each March, June,
September and December of each year (except the last such installment shall be
payable on the Tranche C Maturity Date), commencing on March 31, 1999, the first
30 of which shall each be in the amount of $212,500 and the last two of which
shall each be in the amount of $39,312,500.
(d) The Borrower agrees that, upon the request to the
Administrative Agent by any Tranche A Term Lender, which request is communicated
to the Borrower, the Borrower will execute and deliver to such Tranche A Term
Lender a promissory note of the Borrower dated the Closing Date evidencing the
Tranche A Term Loans made by such Tranche A Term Lender, substantially in the
form of Exhibit I-1 (a "Tranche A Term Note"), payable to the order of such
Tranche A Term Lender and in a principal amount equal to, in the case of Tranche
A Term Notes issued on the Closing Date, the lesser of (A) the initial Tranche A
Term Commitment of such Tranche A Term Lender or (B) the unpaid principal amount
of the Tranche A Term Loan made by such Tranche A Term Lender, and, in the case
of Tranche A Term Notes issued after the Closing Date, the unpaid principal
amount of the Tranche A Term Loan made by such Tranche A Term Lender. Each
Tranche A Term Lender is hereby authorized to record the date, Type and
amount of each Tranche A Term Loan made by such Tranche A Term Lender, the date
and amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurodollar Loans, the length of each Interest Period and Eurodollar Rate
with respect thereto, on the schedule (or any continuation of the schedule)
annexed to and constituting a part of its Tranche A Term Note, and any such
recordation shall, to the extent permitted by applicable law, constitute prima
facie
<PAGE> 36
30
evidence of the accuracy of the information so recorded, provided that the
failure to make any such recordation (or any error therein) shall not affect the
obligation of the Borrower to repay (with applicable interest) the Tranche A
Term Loans made to the Borrower in accordance with the terms of this Agreement.
A Tranche A Term Note and the Obligations evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Tranche A Term Note and the Obligations evidenced
thereby in the Register (and each Tranche A Term Note shall expressly so
provide).
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Tranche B Term Lender, which request is communicated
to the Borrower, the Borrower will execute and deliver to such Tranche B Term
Lender a promissory note of the Borrower dated the Closing Date evidencing the
Tranche B Term Loans made by such Tranche B Term Lender, substantially in the
form of Exhibit I-2 (a "Tranche B Term Note"), payable to the order of such
Tranche B Term Lender and in a principal amount equal to, in the case of Tranche
B Term Notes issued on the Closing Date, the lesser of (A) the initial Tranche B
Term Commitment of such Tranche B Term Lender or (B) the unpaid principal amount
of the Tranche B Term Loan made by such Tranche B Term Lender, and, in the case
of Tranche B Term Notes issued after the Closing Date, the unpaid principal
amount of the Tranche B Term Loan made by such Tranche B Term Lender. Each
Tranche B Term Lender is hereby authorized to record the date, Type and amount
of each Tranche B Term Loan made by such Tranche B Term Lender, the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurodollar Loans, the length of each Interest Period and Eurodollar Rate
with respect thereto, on the schedule (or any continuation of the schedule)
annexed to and constituting a part of its Tranche B Term Note, and any such
recordation shall, to the extent permitted by applicable law, constitute prima
facie evidence of the accuracy of the information so recorded, provided that the
failure to make any such recordation (or any error therein) shall not affect the
obligation of the Borrower to repay (with applicable interest) the Tranche B
Term Loans made to the Borrower in accordance with the terms of this Agreement.
A Tranche B Term Note and the Obligations evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Tranche B Term Note and the Obligations evidenced
thereby in the Register (and each Tranche B Term Note shall expressly so
provide).
(f) The Borrower agrees that, upon the request to the
Administrative Agent by any Tranche C Term Lender, which request is communicated
to the Borrower, the Borrower will execute and deliver to such Tranche C Term
Lender a promissory note of the Borrower dated the Closing Date evidencing the
Tranche C Term Loans made by such Tranche C Term Lender, substantially in the
form of Exhibit I-3 (a "Tranche C Term Note"), payable to the order of such
Tranche C Term Lender and in a principal amount equal to, in the case of Tranche
C Term Notes issued on the Closing Date, the lesser of (A) the initial Tranche C
Term Commitment of such Tranche C Term Lender or (B) the unpaid principal amount
of the Tranche C Term Loan made by such Tranche C Term Lender, and, in the case
of Tranche C Term Notes issued after the Closing Date, the unpaid principal
amount of the Tranche C Term Loan made by such Tranche C Term Lender. Each
Tranche C Term Lender is hereby authorized to record the date, Type and
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amount of each Tranche C Term Loan made by such Tranche C Term Lender, the date
and amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurodollar Loans, the length of each Interest Period and Eurodollar Rate
with respect thereto, on the schedule (or any continuation of the schedule)
annexed to and constituting a part of its Tranche C Term Note, and any such
recordation shall, to the extent permitted by applicable law, constitute prima
facie evidence of the accuracy of the information so recorded, provided that the
failure to make any such recordation (or any error therein) shall not affect the
obligation of the Borrower to repay (with applicable interest) the Tranche C
Term Loans made to the Borrower in accordance with the terms of this Agreement.
A Tranche C Term Note and the Obligations evidenced thereby may be assigned or
otherwise transferred in whole or in part only by registration of such
assignment or transfer of such Tranche C Term Note and the Obligations evidenced
thereby in the Register (and each Tranche C Term Note shall expressly so
provide).
2.4 Revolving Commitments.(a) Subject to the terms and
conditions hereof, each Revolving Lender severally agrees to make revolving
credit loans ("Revolving Loans") to the Borrower from time to time during the
Revolving Commitment Period in an aggregate principal amount at any one time
outstanding which, when added to such Revolving Lender's Revolving Percentage of
the sum of (i) the L/C Obligations then outstanding and (ii) the aggregate
principal amount of the Swingline Loans then outstanding, does not exceed the
amount of such Revolving Lender's Revolving Commitment. During the Revolving
Commitment Period, the Borrower may use the Revolving Commitments by borrowing,
prepaying the Revolving Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The Revolving Loans may from
time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.5 and 2.12.
(b) The Borrower shall repay all outstanding Revolving Loans
on the Revolving Termination Date.
(c) The Borrower agrees that, upon the request to the
Administrative Agent by any Revolving Lender, which request is communicated to
the Borrower, the Borrower will execute and deliver to such Revolving Lender a
promissory note of the Borrower dated the Closing Date evidencing the Revolving
Commitment of such Revolving Lender, substantially in the form of Exhibit I-4
with appropriate insertions as to date and principal amount (a "Revolving
Note"). Each Revolving Lender is hereby authorized to record the date, Type and
amount of each Revolving Loan made by such Revolving Lender, the date and amount
of each payment or prepayment of principal thereof, each continuation thereof,
each conversion of all or a portion thereof to another Type and, in the case of
Eurodollar Loans, the length of each Interest Period and Eurodollar Rate with
respect thereto, on the schedule (or any continuation of the schedule) annexed
to and constituting a part of its Revolving Note, and any such recordation
shall, to the extent permitted by applicable law, constitute prima facie
evidence of the accuracy of the information so recorded, provided that the
failure to make any such recordation (or any error therein) shall not affect the
obligation of the Borrower to repay (with applicable interest) the
<PAGE> 38
32
Revolving Loans made to the Borrower in accordance with the terms of this
Agreement. A Revolving Note and the Obligations evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Revolving Note and the Obligations evidenced
thereby in the Register (and each Revolving Note shall expressly so provide).
Any assignment or transfer of all or part of the Obligations evidenced by a
Revolving Note shall be registered in the Register only upon surrender for
registration of assignment or transfer of the Revolving Note evidencing such
Obligations, accompanied by an Assignment and Acceptance duly executed by the
Assignor thereof, and thereupon one or more new Revolving Notes shall be issued
to the designated Assignee and the old Revolving Note shall be returned by the
Administrative Agent to the Borrower marked "cancelled."
2.5 Procedure for Revolving Loan Borrowing. The Borrower may
borrow under the Revolving Commitments during the Revolving Commitment Period on
any Business Day, provided that the Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 12:00 Noon, New York City time, (a) three Business Days prior to the
requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business
Day prior to the requested Borrowing Date, in the case of ABR Loans), specifying
(i) the amount and Type of Revolving Loans to be borrowed, (ii) the requested
Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts
of each such Type of Loan and the respective lengths of the initial Interest
Period therefor. Any Revolving Loans made on the Closing Date shall not exceed
the aggregate amount of $68,000,000. Unless otherwise agreed by the
Administrative Agent in its sole discretion, no Revolving Loan may be made as,
converted into or continued as a Eurodollar Loan having an Interest Period in
excess of one month prior to the date that is 60 days after the Closing Date.
Each borrowing under the Revolving Commitments shall be in an amount equal to
(x) in the case of ABR Loans, $100,000 or a whole multiple thereof and (y) in
the case of Eurodollar Loans, $1,000,000 or a whole multiple of $100,000 in
excess thereof; provided, that the Swingline Lender may request, on behalf of
the Borrower, borrowings under the Revolving Commitments that are ABR Loans in
other amounts pursuant to Section 2.7. Upon receipt of any such notice from the
Borrower, the Administrative Agent shall promptly notify each Revolving Lender
thereof. Each Revolving Lender will make the amount of its pro rata share of
each borrowing available to the Administrative Agent for the account of the
Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the
Borrowing Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the Borrower
by the Administrative Agent crediting the account of the Borrower on the books
of such office with the aggregate of the amounts made available to the
Administrative Agent by the Revolving Lenders and in like funds as received by
the Administrative Agent.
2.6 Swingline Commitment. (a) Subject to the terms and
conditions hereof, the Swingline Lender agrees to make a portion of the credit
otherwise available to the Borrower under the Revolving Commitments from time to
time during the Revolving Commitment Period by making swing line loans
("Swingline Loans") to the Borrower; provided that (i) the aggregate principal
amount of Swingline Loans outstanding at any time shall not exceed the Swingline
Commitment then in effect (notwithstanding that the Swingline Loans outstanding
at any time,
<PAGE> 39
33
when aggregated with the Swingline Lender's other outstanding Revolving Loans
hereunder, may exceed the Swingline Commitment then in effect) and (ii) the
Borrower shall not request, and the Swingline Lender shall not make, any
Swingline Loan if, after giving effect to the making of such Swingline Loan, the
aggregate amount of the Available Revolving Commitments would be less than zero.
During the Revolving Commitment Period, the Borrower may use the Swingline
Commitment by borrowing, repaying and reborrowing, all in accordance with the
terms and conditions hereof. Swingline Loans shall be ABR Loans only.
(b) The Borrower shall repay all outstanding Swingline Loans
on the Revolving Termination Date.
2.7 Procedure for Swingline Borrowing: Refunding of Swingline
Loans. (a) Whenever the Borrower desires that the Swingline Lender make
Swingline Loans it shall give the Swingline Lender irrevocable telephonic notice
confirmed promptly in writing (which telephonic notice must be received by the
Swingline Lender not later than 1:00 P.M., New York City time, on the proposed
Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested
Borrowing Date (which shall be a Business Day during the Revolving Commitment
Period). Each borrowing under the Swingline Commitment shall be in an amount
equal to $100,000 or a whole multiple thereof. Not later than 3:00 P.M., New
York City time, on the Borrowing Date specified in a notice in respect of
Swingline Loans, the Swingline Lender shall make available to the Administrative
Agent at the Funding Office an amount in immediately available funds equal to
the amount of the Swingline Loan to be made by the Swingline Lender. The
Administrative Agent shall make the proceeds of such Swingline Loan available to
the Borrower on such Borrowing Date by depositing such proceeds in the account
of the Borrower with the Administrative Agent on such Borrowing Date in
immediately available funds.
(b) The Swingline Lender, at any time and from time to time in
its sole and absolute discretion may, on behalf of the Borrower (which hereby
irrevocably directs the Swingline Lender to act on its behalf), on one Business
Day's notice given by the Swingline Lender no later than 12:00 Noon, New York
City time, request each Revolving Lender to make, and each Revolving Lender
hereby agrees to make, a Revolving Loan, in an amount equal to such Revolving
Lender's Revolving Percentage of the aggregate amount of the Swingline Loans
(the "Refunded Swingline Loans") outstanding on the date of such notice, to
repay the Swingline Lender. Each Revolving Lender shall make the amount of such
Revolving Loan available to the Administrative Agent at the Funding Office in
immediately available funds, not later than 10:00 A.M., New York City time, one
Business Day after the date of such notice. The proceeds of such Revolving Loans
shall be immediately made available by the Administrative Agent to the Swingline
Lender for application by the Swingline Lender to the repayment of the Refunded
Swingline Loans. The Borrower irrevocably authorizes the Swingline Lender to
charge the Borrower's accounts with the Administrative Agent (up to the amount
available in each such account) in order to immediately pay the amount of such
Refunded Swingline Loans to the extent amounts received from the Revolving
Lenders are not sufficient to repay in full such Refunded Swingline Loans.
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34
(c) If prior to the time a Revolving Loan would have otherwise
been made pursuant to Section 2.7(b), one of the events described in Section
8(f) shall have occurred and be continuing with respect to the Borrower or if
for any other reason, as determined by the Swingline Lender in its sole
discretion, Revolving Loans may not be made as contemplated by Section 2.7(b),
each Revolving Lender shall, on the date such Revolving Loan was to have been
made pursuant to the notice referred to in Section 2.7(b) (the "Refunding
Date"), purchase for cash an undivided participating interest in the then
outstanding Swingline Loans by paying to the Swingline Lender an amount (the
"Swingline Participation Amount") equal to (i) such Revolving Lender's Revolving
Percentage times (ii) the sum of the aggregate principal amount of Swingline
Loans then outstanding that were to have been repaid with such Revolving Loans.
(d) Whenever, at any time after the Swingline Lender has
received from any Revolving Lender such Lender's Swingline Participation Amount,
the Swingline Lender receives any payment on account of the Swingline Loans, the
Swingline Lender will distribute to such Lender its Swingline Participation
Amount (appropriately adjusted, in the case of interest payments, to reflect the
period of time during which such Lender's participating interest was outstanding
and funded and, in the case of principal and interest payments, to reflect such
Lender's pro rata portion of such payment if such payment is not sufficient to
pay the principal of and interest on all Swingline Loans then due); provided,
however, that in the event that such payment received by the Swingline Lender is
required to be returned, such Revolving Lender will return to the Swingline
Lender any portion thereof previously distributed to it by the Swingline Lender.
(e) Each Revolving Lender's obligation to make the Loans
referred to in Section 2.7(b) and to purchase participating interests pursuant
to Section 2.7(c) shall be absolute and unconditional and shall not be affected
by any circumstance, including (i) any setoff, counterclaim, recoupment, defense
or other right that such Revolving Lender or the Borrower may have against the
Swingline Lender, the Borrower or any other Person for any reason whatsoever;
(ii) the occurrence or continuance of a Default or an Event of Default or the
failure to satisfy any of the other conditions specified in Section 5; (iii) any
adverse change in the condition (financial or otherwise) of the Borrower; (iv)
any breach of this Agreement or any other Loan Document by the Borrower, any
other Loan Party or any other Revolving Lender; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(f) The Borrower agrees that, upon the request to the
Administrative Agent by the Swingline Lender, which request is communicated to
the Borrower, the Borrower will execute and deliver to the Swingline Lender a
promissory note of the Borrower, dated the Closing Date, evidencing the
Swingline Commitment of the Swingline Lender, substantially in the form of
Exhibit I-5 with appropriate insertions as to date and principal amount (a
"Swingline Note"). The Swingline Lender is hereby authorized to record the date
and amount of each Swingline Loan made by the Swingline Lender and the date and
amount of each payment or prepayment of principal thereof on the schedule
annexed to and constituting a part of the Swingline Note, and any such
recordation shall, to the extent permitted by applicable law, constitute prima
facie
<PAGE> 41
35
evidence of the accuracy of the information so recorded, provided that the
failure to make any such recordation (or any error therein) shall not affect the
obligation of the Borrower to repay (with applicable interest) the Swingline
Loans made to the Borrower by the Swingline Lender in accordance with the terms
of this Agreement. A Swingline Note and the Obligations evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Swingline Note and the Obligations evidenced
thereby in the Register (and each Swingline Note shall expressly so provide).
Any assignment or transfer of all or part of the Obligations evidenced by a
Swingline Note shall be registered in the Register only upon surrender for
registration of assignment or transfer of the Swingline Note evidencing such
Obligations, accompanied by an Assignment and Acceptance duly executed by the
Assignor thereof, and thereupon one or more new Swingline Notes shall be issued
to the designated Assignee and the old Swingline Note shall be returned by the
Administrative Agent to the Borrower marked "cancelled."
2.8 Commitment Fees, etc. (a) The Borrower agrees to pay to
the Administrative Agent for the account of each Revolving Lender a commitment
fee for the period from and including the Closing Date to the last day of the
Revolving Commitment Period, computed at the Commitment Fee Rate on the average
daily amount of the Available Revolving Commitment of such Lender during the
period for which payment is made, payable quarterly in arrears on the last day
of each March, June, September and December and on the Revolving Termination
Date, commencing on the first of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent
the fees in the amounts and on the dates previously agreed to in writing by the
Borrower and the Administrative Agent.
2.9 Termination or Reduction of Revolving Commitments. The
Borrower shall have the right, upon not less than three Business Days' notice to
the Administrative Agent, to terminate the Revolving Commitments or, from time
to time, to reduce the amount of the Revolving Commitments; provided that no
such termination or reduction of Revolving Commitments shall be permitted if,
after giving effect thereto and to any prepayments of the Revolving Loans and
Swingline Loans made on the effective date thereof, the Total Revolving
Extensions of Credit would exceed the Total Revolving Commitments. Any such
reduction shall be in an amount equal to $1,000,000, or a whole multiple
thereof, and shall reduce permanently the Revolving Commitments then in effect.
2.10 Optional Prepayments. (a) The Borrower may at any time
and from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon irrevocable notice delivered to the Administrative Agent at least
three Business Days prior thereto in the case of Eurodollar Loans and at least
one Business Day prior thereto in the case of ABR Loans, which notice shall
specify the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on
any day other than the last day of the Interest Period applicable thereto, the
Borrower shall also pay any amounts owing pursuant to Section 2.20. Upon receipt
of any such notice the Administrative
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36
Agent shall promptly notify each relevant Lender thereof. If any such notice is
given, the amount specified in such notice shall be due and payable on the date
specified therein, together with (except in the case of Revolving Loans that are
ABR Loans and Swingline Loans) accrued interest to such date on the amount
prepaid. Partial prepayments of Term Loans and Revolving Loans shall be in an
aggregate principal amount of $1,000,000 or a whole multiple thereof. Partial
prepayments of Swingline Loans shall be in an aggregate principal amount of
$100,000 or a whole multiple thereof.
(b) Optional prepayments of the Term Loans shall be applied
pro rata to the Tranche A Term Loans, the Tranche B Term Loans and the Tranche C
Term Loans, and ratably to the respective installments thereof. Optional
prepayments of the Term Loans may not be reborrowed.
2.11 Mandatory Prepayments and Commitment Reductions.
(a) Unless the Required Prepayment Lenders shall otherwise
agree, if any Indebtedness shall be issued or incurred by Holdings, the Borrower
or any of its Restricted Subsidiaries (excluding any Indebtedness incurred in
accordance with Section 7.2 and any proceeds of senior subordinated notes to the
extent applied to repay or repurchase the Subordinated Facility, the Windy Hill
Senior Subordinated Notes, the Windy Hill Subordinated Seller Note or the Doane
Senior Notes), an amount equal to 100% of the Net Cash Proceeds thereof shall be
applied on the date of such issuance or incurrence toward the prepayment of the
Term Loans and the reduction of the Revolving Commitments as set forth in
Section 2.11(f).
(b) Unless the Required Prepayment Lenders shall otherwise
agree, if on any date the Borrower or any of its Restricted Subsidiaries shall
receive Net Cash Proceeds from any Asset Sale or Recovery Event (excluding (i)
the sale of assets securing IDB financings and (ii) purchase money indebtedness
used to repay the sales in clause (i) above) then, unless a Reinvestment Notice
shall be delivered in respect thereof, such Net Cash Proceeds shall be applied
on such date toward the prepayment of the Term Loans and the reduction of the
Revolving Commitments as set forth in Section 2.11(f); provided, that,
notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset
Sales and Recovery Events that may be excluded from the foregoing requirement
pursuant to a Reinvestment Notice shall not exceed $20,000,000 in the aggregate
(exclusive of any reinvestment in IDB) and (ii) on each Reinvestment Prepayment
Date, an amount equal to the Reinvestment Prepayment Amount with respect to the
relevant Reinvestment Event shall be applied toward the prepayment of the Term
Loans and the reduction of the Revolving Commitments as set forth in Section
2.11(f).
(c) Unless the Required Prepayment Lenders shall otherwise
agree, if, for any fiscal year of the Borrower commencing with the fiscal year
ending December 31, 1999, there shall be Excess Cash Flow, the Borrower shall,
on the relevant Excess Cash Flow Application Date, apply the ECF Percentage of
such Excess Cash Flow toward the prepayment of the Term Loans and the reduction
of the Revolving Commitments as set forth in Section 2.11(f). Each such
prepayment and commitment reduction shall be made on a date (an "Excess Cash
Flow
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37
Application Date") no later than five days after the earlier of (i) the
date on which the financial statements of the Borrower referred to in Section
6.1(a), for the fiscal year with respect to which such prepayment is made, are
required to be delivered to the Lenders and (ii) the date such financial
statements are actually delivered.
(d) Unless the Required Prepayment Lenders shall otherwise
agree, if on any date Holdings, the Borrower or any of its Restricted
Subsidiaries shall receive Net Cash Proceeds from any sale or issuance of equity
or Capital Stock (except (i) to the extent such proceeds are used to repay or
repurchase the Subordinated Facility, the Windy Hill Senior Subordinated Notes
or the Windy Hill Subordinated Seller Note and (ii) equity sold to the principal
equity investors or management or employees and the exercise of options and
warrants held by them), then such Net Cash Proceeds shall be applied on such
date toward the prepayment of the Term Loans and the reduction of the Revolving
Commitments as set forth in Section 2.11(f).
(e) Unless the Required Prepayment Lenders shall otherwise
agree, if DPC Funding Corp. shall sell the approximately $9,000,000 in Clinton
IDB held by it, an amount equal to 100% of the Net Cash Proceeds thereof shall
be applied on the date of such sale to prepay the Revolving Loans, but shall not
reduce the Revolving Commitments.
(f) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.11 (except for Section 2.11(e))
shall be applied, first, to the prepayment of the Term Loans until the Term
Loans and all accrued and unpaid interest with respect thereto shall have been
paid in full and, second, to reduce permanently the Revolving Commitments. Any
such reduction of the Revolving Commitments shall be accompanied by prepayment
of the Revolving Loans and/or Swingline Loans to the extent, if any, that the
Total Revolving Extensions of Credit exceed the amount of the Total Revolving
Commitments as so reduced, provided that the proceeds of equity sold through an
initial public offering, to the extent not used as contemplated above, may be
used first to prepay Revolving Loans without reducing the Revolving Commitments
so long as the pro forma Consolidated Senior Debt Ratio is less than 2.50:1.00
after taking into account the application of such proceeds, and provided further
that if the aggregate principal amount of Revolving Loans and Swingline Loans
then outstanding is less than the amount of such excess (because L/C Obligations
constitute a portion thereof), the Borrower shall, to the extent of the balance
of such excess, replace outstanding Letters of Credit and/or deposit an amount
in cash in a cash collateral account established with the Administrative Agent
for the benefit of the Lenders on terms and conditions satisfactory to the
Administrative Agent. The application of any prepayment pursuant to this Section
2.11(f) shall be made on a pro rata basis to the Tranche A Term Loans, the
Tranche B Term Loans and the Tranche C Term Loans, and ratably to the respective
installments thereof. Each prepayment of the Loans under Section 2.11 (except in
the case of Revolving Loans that are ABR Loans and Swingline Loans) shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
(g) Notwithstanding anything to the contrary in Section
2.11(f) or 2.17, with respect to the amount of any mandatory prepayment
described in Section 2.11 that is allocated to Tranche B Term Loans or Tranche C
Term Loans (such amounts, the "Tranche B Prepayment
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38
Amount" and the "Tranche C Prepayment Amount", respectively), at any time when
Tranche A Term Loans remain outstanding, the Borrower shall, in lieu of applying
such amount to the prepayment of Tranche B Term Loans and Tranche C Term Loans,
respectively, as provided in paragraph (f) above, on the date specified in
Section 2.11 for such prepayment, give the Administrative Agent telephonic
notice (promptly confirmed in writing) requesting that the Administrative Agent
prepare and provide to each Tranche B Lender and Tranche C Lender a notice
(each, a "Prepayment Option Notice") as described below. As promptly as
practicable after receiving such notice from the Borrower, the Administrative
Agent will send to each Tranche B Lender and Tranche C Lender a Prepayment
Option Notice, which shall be in the form of Exhibit G, and shall include an
offer by the Borrower to prepay on the date (each a "Mandatory Prepayment Date")
that is 10 Business Days after the date of the Prepayment Option Notice, the
relevant Term Loans of such Lender by an amount equal to the portion of the
Prepayment Amount indicated in such Lender's Prepayment Option Notice as being
applicable to such Lender's Tranche B Term Loans or Tranche C Term Loans, as the
case may be. On the Mandatory Prepayment Date, (i) the Borrower shall pay to the
relevant Tranche B Lenders and Tranche C Lenders the aggregate amount necessary
to prepay that portion of the outstanding relevant Term Loans in respect of
which such Lenders have accepted prepayment as described above (such Lenders,
the "Accepting Lenders"), (ii) the Borrower shall pay to the Tranche A Lenders
an amount equal to the portion of the Tranche B Prepayment Amount and the
Tranche C Prepayment Amount not accepted by the Accepting Lenders, and such
amount shall be applied to the prepayment of the Tranche A Term Loans. Mandatory
prepayments of the Term Loans may not be reborrowed.
2.12 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election. The Borrower may elect from time to time to convert ABR Loans to
Eurodollar Loans by giving the Administrative Agent at least three Business
Days' prior irrevocable notice of such election (which notice shall specify the
length of the initial Interest Period therefor), provided that no ABR Loan under
a particular Facility may be converted into a Eurodollar Loan when any Event of
Default has occurred and is continuing and the Administrative Agent or the
Majority Facility Lenders in respect of such Facility have determined in its or
their sole discretion not to permit such conversions. Upon receipt of any such
notice the Administrative Agent shall promptly notify the Borrower and each
relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
Section 1.1, of the length of the next Interest Period to be applicable to such
Loans, provided that no Eurodollar Loan under a particular Facility may be
continued as such when any Event of Default has occurred and is continuing and
the Administrative Agent has or the Majority Facility Lenders in respect of such
Facility have determined in its or their sole discretion not to permit such
continuations, and provided, further, that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is not
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39
permitted pursuant to the preceding proviso, such Loans shall be automatically
converted to ABR Loans on the last day of such then expiring Interest Period.
Upon receipt of any such notice the Administrative Agent shall promptly notify
the Borrower and each relevant Lender thereof.
2.13 Limitations on Eurodollar Tranches. Notwithstanding
anything to the contrary in this Agreement, all borrowings, conversions and
continuations of Eurodollar Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, (a) after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal
to $1,000,000 or a whole multiple of $100,000 in excess thereof and (b) no more
than fifteen Eurodollar Tranches shall be outstanding at any one time.
2.14 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum
equal to the ABR plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any
Loan or Reimbursement Obligation shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), such overdue amount shall bear
interest at a rate per annum equal to (x) in the case of the Loans, the rate
that would otherwise be applicable thereto pursuant to the foregoing provisions
of this Section plus 2% or (y) in the case of Reimbursement Obligations, the
rate applicable to ABR Loans under the Revolving Facility plus 2%, and (ii) if
all or a portion of any interest payable on any Loan or Reimbursement Obligation
or any commitment fee or other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate then applicable
to ABR Loans under the relevant Facility plus 2% (or, in the case of any such
other amounts that do not relate to a particular Facility, the rate then
applicable to ABR Loans under the Revolving Facility plus 2%), in each case,
with respect to clauses (i) and (ii) above, from the date of such non-payment
until such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of this
Section shall be payable from time to time on demand.
2.15 Computation of Interest and Fees. (a) Interest and fees
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to ABR Loans the rate of
interest on which is calculated on the basis of the Prime Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
day year for the actual days elapsed. The Administrative Agent shall as soon as
practicable
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40
notify the Borrower and the relevant Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the relevant Lenders of the effective date and the amount of each
such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall deliver to the Borrower a
statement showing the quotations used by the Administrative Agent in determining
any interest rate pursuant to Section 2.15(a).
2.16 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Majority Facility Lenders in respect of the relevant Facility that
the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans under the relevant Facility that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility
shall be converted, on the last day of the then-current Interest Period, to ABR
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further Eurodollar Loans under the relevant Facility shall be made or continued
as such, nor shall the Borrower have the right to convert Loans under the
relevant Facility to Eurodollar Loans.
2.17 Pro Rata Treatment and Payments. (a) Each borrowing by
the Borrower from the Lenders hereunder, each payment by the Borrower on account
of any commitment fee and any reduction of the Commitments of the Lenders shall
be made pro rata according to the respective Tranche A Term Percentages, Tranche
B Term Percentages, Tranche C Term Percentages or Revolving Percentages, as the
case may be, of the relevant Lenders.
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41
(b) Each payment (including each prepayment) by the Borrower
on account of principal of and interest on any Term Loan shall be made pro rata
according to the respective outstanding principal amount of such Term Loan then
held by the Term Lenders (except as otherwise provided in Section 2.11(g)). The
amount of each principal prepayment of the Term Loans shall be applied to reduce
the then remaining installments of the Tranche A Term Loans, Tranche B Term
Loans and Tranche C Term Loans, as the case may be, pro rata based upon the then
remaining principal amount thereof. Amounts prepaid on account of the Term Loans
may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Revolving Loans shall be made pro
rata according to the respective outstanding principal amounts of the Revolving
Loans then held by the Revolving Lenders.
(d) All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Funding Office, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
(e) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans under the relevant Facility, on demand, from the
<PAGE> 48
42
Borrower. Nothing herein shall be deemed to limit the rights of the Borrower or
the Administrative Agent against such Lender.
(f) Unless the Administrative Agent shall have been notified
in writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.18 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to such
Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.19
and changes in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, any office of
such Lender that is not otherwise included in the determination of the
Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional amounts pursuant to this paragraph, it shall promptly
notify the Borrower (with a copy to the Administrative Agent) of the event by
reason of which it has become so entitled.
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43
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect.
(c) A certificate showing in detail the calculations of any
additional amounts payable pursuant to this Section submitted by any Lender to
the Borrower (with a copy to the Administrative Agent) shall be conclusive in
the absence of manifest error. The obligations of the Borrower pursuant to this
Section shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder for a period of one year.
2.19 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure
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44
to comply with the requirements of paragraph (d) or (e) of this Section or (ii)
that are United States withholding taxes imposed on amounts payable to such
Lender at the time the Lender becomes a party to this Agreement, except to the
extent that such Lender's assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from the Borrower with respect to such
Non-Excluded Taxes pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Administrative Agent for its own account or for the account of the
relevant Lender, as the case may be, a certified copy of an original official
receipt received by the Borrower showing payment thereof. If the Borrower fails
to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit H and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or
reduction of non-U.S. withholding tax under the law of the jurisdiction in which
the Borrower is located, or any treaty
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to which such jurisdiction is a party, with respect to payments under this
Agreement shall deliver to the Borrower (with a copy to the Administrative
Agent), at the time or times prescribed by applicable law or reasonably
requested by the Borrower, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate, provided that such Lender is legally entitled
to complete, execute and deliver such documentation and in such Lender's
judgment such completion, execution or submission would not materially prejudice
the legal position of such Lender.
(f) The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder for a period of one year.
2.20 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense that such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment of or conversion from Eurodollar Loans after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (c) the
making of a prepayment of Eurodollar Loans on a day that is not the last day of
an Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest that would
have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure to
borrow, convert or continue to the last day of such Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) the amount of interest (as
reasonably determined by such Lender) that would have accrued to such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. A certificate as to any
amounts payable pursuant to this Section submitted to the Borrower by any Lender
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder for a period of one year.
2.21 Change of Lending Office. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of Section 2.18 or
2.19(a) with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.18 or 2.19(a).
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2.22 Replacement of Lenders. The Borrower shall be permitted
to replace any Lender that (a) requests reimbursement for amounts owing pursuant
to Section 2.18 or 2.19(a) or (b) defaults in its obligation to make Loans
hereunder, with a replacement financial institution; provided that (i) such
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) prior to any such replacement, such Lender shall have taken no action
under Section 2.21 so as to eliminate the continued need for payment of amounts
owing pursuant to Section 2.18 or 2.19(a), (iv) the replacement financial
institution shall purchase, at par, all Loans and other amounts owing to such
replaced Lender on or prior to the date of replacement, (v) the Borrower shall
be liable to such replaced Lender under Section 2.20 if any Eurodollar Loan
owing to such replaced Lender shall be purchased other than on the last day of
the Interest Period relating thereto, (vi) the replacement financial
institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of Section 10.6 (provided that the
Borrower shall be obligated to pay the registration and processing fee referred
to therein), (viii) until such time as such replacement shall be consummated,
the Borrower shall pay all additional amounts (if any) required pursuant to
Section 2.18 or 2.19(a), as the case may be, and (ix) any such replacement shall
not be deemed to be a waiver of any rights that the Borrower, the Administrative
Agent or any other Lender shall have against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Revolving
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
of Credit") for the account of the Borrower or any Restricted Subsidiary on any
Business Day during the Revolving Commitment Period in such form as may be
approved from time to time by the Issuing Lender; provided that the Issuing
Lender shall have no obligation to issue any Letter of Credit if, after giving
effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment
or (ii) the aggregate amount of the Available Revolving Commitments would be
less than zero. Each Letter of Credit shall (i) be denominated in Dollars and
(ii) expire no later than the earlier of (x) the first anniversary of its date
of issuance and (y) the date that is five Business Days prior to the Revolving
Termination Date, provided that any Letter of Credit with a one-year term may
provide for the renewal thereof for additional one-year periods (which shall in
no event extend beyond the date referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
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3.2 Procedure for Issuance of Letter of Credit. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at its address for notices specified herein
an Application therefor, completed to the satisfaction of the Issuing Lender,
and such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on
all outstanding Letters of Credit at a per annum rate equal to the Applicable
Margin then in effect with respect to Eurodollar Loans under the Revolving
Facility, shared ratably among the Revolving Lenders and payable quarterly in
arrears on each L/C Fee Payment Date after the issuance date. In addition, the
Borrower shall pay to the Issuing Lender for its own account a fronting fee of
1/8 of 1% per annum on the undrawn and unexpired amount of each Letter of
Credit, payable quarterly in arrears on each L/C Fee Payment Date after the
Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall
pay or reimburse the Issuing Lender for such normal and customary costs and
expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at the Issuing Lender's address for
notices specified herein an amount equal to such L/C Participant's Revolving
Percentage of the amount of such draft, or any part thereof, that is not so
reimbursed.
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(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, times (iii) a fraction the numerator of which is the
number of days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant pursuant to
Section 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to ABR Loans under the Revolving Facility. A
certificate of the Issuing Lender submitted to any L/C Participant with respect
to any amounts owing under this Section shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant its
pro rata share of such payment in accordance with Section 3.4(a), the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of Collateral applied thereto
by the Issuing Lender), or any payment of interest on account thereof, the
Issuing Lender will distribute to such L/C Participant its pro rata share
thereof; provided, however, that in the event that any such payment received by
the Issuing Lender shall be required to be returned by the Issuing Lender, such
L/C Participant shall return to the Issuing Lender the portion thereof
previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second Business Day following the date of the applicable drawing,
Section 2.14(b) and (ii) thereafter, Section 2.14(c).
3.6 Obligations Absolute. The Borrower's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
that the Borrower may have or have had against the Issuing Lender, any
beneficiary of a Letter of Credit or any other Person. The Borrower also agrees
with the Issuing Lender that the Issuing Lender shall not be responsible for,
and the Borrower's
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Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Lender shall promptly notify
the Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdings and the Borrower hereby jointly and severally represent and
warrant to the Agents and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma
consolidated balance sheet of Doane and Windy Hill on a combined basis and their
respective consolidated Subsidiaries as at September 30, 1998 and September 26,
1998, respectively, (the "Pro Forma Balance Sheets"), copies of which have
heretofore been furnished to each Lender, has been prepared giving effect (as if
such events had occurred on such dates) to (i) the Loans to be made and the use
of proceeds thereof and (ii) the payment of fees and expenses in connection with
the foregoing. The Pro Forma Balance Sheet has been prepared based on the best
information available to the Borrower as of the date of delivery thereof, and
presents fairly on a pro forma basis the estimated financial position of Doane
and Windy Hill on a combined basis and their respective consolidated
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50
Subsidiaries as at September 30, 1998 and September 26, 1998, respectively,
assuming that the events specified in the preceding sentence had actually
occurred at such dates.
(b) The audited consolidated balance sheets of Doane and its
Subsidiaries as at December 31, 1997 and Windy Hill and its Subsidiaries as at
December 27, 1997, and the related consolidated statements of income and of cash
flows for the fiscal years ended on such dates, reported on by and accompanied
by an unqualified report from KPMG Peat Marwick present fairly in all material
respects the consolidated financial condition of Doane and Windy Hill and their
respective Subsidiaries as at such date, and the consolidated results of its
operations and its consolidated cash flows for the respective fiscal years then
ended. The unaudited consolidated balance sheet of each of Doane and Windy Hill
and their respective Subsidiaries as at June 30, 1998 and June 27, 1998,
respectively, and the related unaudited consolidated statements of income and
cash flows for the six-month period ended on such date, present fairly in all
material respects the consolidated financial condition of Doane and Windy Hill
and their respective Subsidiaries as at such date, and the consolidated results
of its operations and its consolidated cash flows for the six-month period then
ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by the aforementioned firm of accountants and
disclosed therein). Except as disclosed on Schedule 4.1 hereto, the Borrower and
its Restricted Subsidiaries do not have any material Guarantee Obligations,
contingent liabilities and liabilities for taxes, or any long-term leases or
unusual forward or long-term commitments, including any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives (as of the date no earlier than 30 days prior to the Closing Date),
that are not reflected in the most recent financial statements referred to in
this paragraph. During the period from June 30, 1998 and June 27, 1998,
respectively, to and including the date hereof there has been no Disposition by
Doane or Windy Hill of any material part of its business or property.
4.2 No Change. Since December 27, 1997, there has been no
development or event that has had or could reasonably be expected to have a
Material Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of
Holdings, the Borrower and its Restricted Subsidiaries (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified as
a foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations.
Each Loan Party has the corporate power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and, in the
case of the Borrower, to borrow hereunder. Each
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Loan Party has taken all necessary corporate action to authorize the execution,
delivery and performance of the Loan Documents to which it is a party and, in
the case of the Borrower, to authorize the borrowings on the terms and
conditions of this Agreement. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the Merger and the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except (i)
consents, authorizations, filings and notices described in Schedule 4.4, which
consents, authorizations, filings and notices have been obtained or made and are
in full force and effect and (ii) the filings referred to in Section 4.19. Each
Loan Document has been duly executed and delivered on behalf of each Loan Party
party thereto. This Agreement constitutes, and each other Loan Document upon
execution will constitute, a legal, valid and binding obligation of each Loan
Party party thereto, enforceable against each such Loan Party in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of
this Agreement and the other Loan Documents, the issuance of Letters of Credit,
the borrowings hereunder and the use of the proceeds thereof will not violate
any Requirement of Law or any Contractual Obligation of Holdings, the Borrower
or any of its Restricted Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of their respective properties or
revenues pursuant to any Requirement of Law or any such Contractual Obligation
(other than the Liens created by the Security Documents). No Requirement of Law
or Contractual Obligation applicable to the Borrower or any of its Restricted
Subsidiaries could reasonably be expected to have a Material Adverse Effect.
4.6 Litigation. Except as set forth in Schedule 4.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of Holdings or the
Borrower, threatened by or against Holdings, the Borrower or any of its
Restricted Subsidiaries or against any of their respective properties or
revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) that could reasonably be
expected to have a Material Adverse Effect.
4.7 No Default. Neither Holdings, the Borrower nor any of its
Restricted Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect that could reasonably be expected to have
a Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
4.8 Ownership of Property; Liens. Each of Holdings, the
Borrower and its Restricted Subsidiaries has title in fee simple to, or a valid
leasehold interest in, all its material real property, and good title to, or a
valid leasehold interest in, all its other material property, and none of such
property is subject to any Lien except as permitted by Section 7.3.
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52
4.9 Intellectual Property. Holdings, the Borrower and each of
its Restricted Subsidiaries owns, or is licensed to use, all Intellectual
Property necessary for the conduct of its business as currently conducted. Other
than as set forth on Schedule 4.9 hereto, no material claim has been asserted
and is pending by any Person challenging or questioning the use of any
Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does Holdings or the Borrower know of any valid basis for any such
claim. The use of Intellectual Property by Holdings, the Borrower and its
Restricted Subsidiaries does not infringe on the rights of any Person in any
manner that is reasonably likely to have a Material Adverse Effect.
4.10 Taxes. Each of Holdings, the Borrower and each of its
Restricted Subsidiaries has filed or caused to be filed all federal, state and
other material tax returns that are required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it or any of its property and all other taxes, fees or other charges imposed on
it or any of its property by any Governmental Authority (other than any the
amount or validity of that are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of Holdings, the Borrower or its Restricted
Subsidiaries, as the case may be); no tax Lien has been filed, and, to the
knowledge of Holdings and the Borrower, no claim is being asserted, with respect
to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans
will be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
U-1 or FR Form G-3 referred to in Regulation U.
4.12 Labor Matters. Except as, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect: (a) there are no
strikes or other labor disputes against Holdings, the Borrower or any of its
Restricted Subsidiaries pending or, to the knowledge of Holdings or the
Borrower, threatened; (b) hours worked by and payment made to employees of
Holdings, the Borrower and its Restricted Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters; and (c) all payments due from Holdings, the
Borrower or any of its Restricted Subsidiaries on account of employee health and
welfare insurance have been paid or accrued as a liability on the books of
Holdings, the Borrower or the relevant Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) in excess of $5,000,000 in the aggregate has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has complied in all material
respects with the applicable provisions of ERISA and the Code except as set
forth on Schedule 4.13 hereto and where the failure to so comply could not
reasonably be
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53
expected to have a Material Adverse Effect. Except as set forth on Schedule
4.13, no termination of a Single Employer Plan has occurred, and no Lien in
favor of the PBGC or a Plan has arisen, during such five-year period with
respect to which there is an unsatisfied liability. The present value of all
accrued benefits under each Single Employer Plan (based on those assumptions
used to fund such Plans) did not, as of the last annual valuation date prior to
the date on which this representation is made or deemed made, exceed the value
of the assets of such Plan allocable to such accrued benefits by an amount that
could reasonably be expected to have a Material Adverse Effect. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan that has resulted or could reasonably be
expected to result in a material liability under ERISA that could reasonably be
expected to have a Material Adverse Effect, and neither the Borrower nor any
Commonly Controlled Entity would become subject to any material liability under
ERISA that could reasonably be expected to have a Material Adverse Effect if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party
is an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
No Loan Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative
Agent by the Borrower in writing from time to time after the Closing Date, (a)
Schedule 4.15 sets forth the name and jurisdiction of incorporation of each
Subsidiary and, as to each such Subsidiary, the percentage of each class of
Capital Stock owned by any Loan Party and the designation of such Subsidiary as
a Restricted Subsidiary or an Unrestricted Subsidiary and (b) there are no
outstanding subscriptions, options, warrants, calls, rights or other agreements
or commitments (other than stock options granted to employees or directors and
directors' qualifying shares) of any nature relating to any Capital Stock of the
Borrower or any Subsidiary, except as created by the Loan Documents.
4.16 Use of Proceeds. (a) The proceeds of the Term Loans shall
be used to (i) refinance existing bank indebtedness; (ii) redeem all or a
portion of the Doane Senior Notes, (iii) repay the Deep Run Indebtedness, (iv)
if the Exchange Notes are issued in an aggregate principal amount of at least
$120,000,000, (A) redeem the Windy Hill Subordinated Seller Note and (B) repay
the Subordinated Facility, and (v) pay related fees and expenses, as indicated
in the Sources and Uses Table.
(b) The proceeds of the Revolving Loans and the Swingline
Loans, and the Letters of Credit, shall be used (i) as indicated in the Sources
and Uses Table; (ii) to finance the working capital needs and general corporate
purposes of the Borrower and its Subsidiaries in the ordinary course of business
and (iii) for Permitted Acquisitions.
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4.17 Environmental Matters. Except as, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by
Holdings, the Borrower or any of its Subsidiaries (the "Properties") do not
contain, and have not previously contained, any Materials of Environmental
Concern in amounts or concentrations or under circumstances that constitute
or constituted a violation of, or could give rise to liability under, any
Environmental Law;
(b) neither Holdings, the Borrower nor any of its Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Properties or the business operated by Holdings, the Borrower or any of its
Subsidiaries (the "Business"), nor does Holdings or the Borrower have
knowledge or reason to believe that any such notice will be received or is
being threatened;
(c) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location that could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under, any applicable
Environmental Law;
(d) no judicial proceeding or governmental or administrative action is
pending or, to the knowledge of Holdings and the Borrower, threatened,
under any Environmental Law to which Holdings, the Borrower or any
Subsidiary is or will be named as a party with respect to the Properties or
the Business, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect
to the Properties or the Business;
(e) there has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of Holdings, the Borrower or any Subsidiary in connection
with the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that could give rise to liability
under Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to
the Properties or the Business; and
(g) neither Holdings, the Borrower nor any of its Subsidiaries has
assumed any liability of any other Person under Environmental Laws.
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4.18 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other document, certificate or statement furnished
by or on behalf of any Loan Party to the Administrative Agent or the Lenders, or
any of them, for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished (or, in the case of the
Confidential Information Memorandum, as of the date of this Agreement), any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements contained herein or therein not misleading. The
projections and pro forma financial information contained in the materials
referenced above are based upon good faith estimates and assumptions believed by
management of the Borrower to be reasonable at the time made, it being
recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. As of the date hereof,
the representations and warranties contained in the Merger Documentation are
true and correct in all material respects. There is no fact known to any Loan
Party that could reasonably be expected to have a Material Adverse Effect that
has not been expressly disclosed herein, in the other Loan Documents, in the
Confidential Information Memorandum or in any other documents, certificates and
statements furnished to the Administrative Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.
4.19 Security Documents. (a) The Guarantee and Collateral
Agreement is effective to create in favor of the Administrative Agent, for the
benefit of the Lenders, a legal, valid and enforceable security interest in the
Collateral described therein and proceeds thereof. In the case of the Pledged
Stock described in the Guarantee and Collateral Agreement, when stock
certificates representing such Pledged Stock are delivered to the Administrative
Agent, and in the case of the other Collateral described in the Guarantee and
Collateral Agreement, when financing statements and other filings specified on
Schedule 4.19(a) in appropriate form are filed in the offices specified on
Schedule 4.19(a), the Guarantee and Collateral Agreement shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest
of the Loan Parties in such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Guarantee and Collateral Agreement), in each
case prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock, Liens permitted by Section 7.3).
(b) Each of the Mortgages is effective to create in favor of
the Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person (except Liens permitted by Section 7.3(b)).
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4.20 Solvency. Each Loan Party is, and after giving effect to
the Merger and the incurrence of all Indebtedness and obligations being incurred
in connection herewith and therewith will be and will continue to be, Solvent.
4.21 Senior Indebtedness. The Obligations constitute "Senior
Indebtedness" of the Borrower under and as defined in the Exchange Note
Indenture. The obligations of each Restricted Subsidiary under the Guarantee and
Collateral Agreement constitute "Guarantor Senior Indebtedness" of such
Restricted Subsidiary under and as defined in the Exchange Note Indenture.
4.22 Year 2000 Matters. Any reprogramming or systems
replacement required to permit the proper functioning (but only to the extent
that such proper functioning would otherwise be impaired by the occurrence of
the year 2000) in and following the year 2000 of computer systems owned or
operated by Holdings, the Borrower or any of its Restricted Subsidiaries or used
or relied upon in the conduct of their business, and the testing of all such
systems as so reprogrammed or replaced, will be completed by June 30, 1999. Any
reprogramming or systems replacement required to permit the proper functioning
(but only to the extent that such proper functioning would otherwise be impaired
by the occurrence of the year 2000) in and following the year 2000 of (i)
equipment containing embedded microchips (other than computer systems) owned or
operated by Holdings, the Borrower or any of its Restricted Subsidiaries or used
or relied upon in the conduct of their business and (ii) any computer systems
and other equipment containing embedded microchips supplied by others or with
which the computer systems of Holdings, the Borrower or any of its Restricted
Subsidiaries interface, and the testing of all such systems and other equipment
as so reprogrammed or replaced, will be completed by October 31, 1999. The costs
to Holdings, the Borrower and its Restricted Subsidiaries that have not been
incurred as of the date hereof for such reprogramming or replacement and testing
and for the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to result in a Default or Event of Default or to have a Material
Adverse Effect. Except for any reprogramming or replacement referred to above,
the computer systems of Holdings, the Borrower and its Restricted Subsidiaries
are and, with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient for the conduct of their business as
currently conducted.
4.23 Regulation H. Except as set forth on Schedule 4.23
hereto, no Mortgage encumbers improved real property that is located in an area
that has been identified by the Secretary of Housing and Urban Development as an
area having special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968.
4.24 Certain Documents. The Borrower has delivered to the
Administrative Agent a complete and correct copy of the Merger Documentation,
including any amendments, supplements or modifications with respect to any of
the foregoing.
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4.25 Mortgaged Properties. Based on the Borrower's good faith
judgment and its reliance upon certain appraisals performed in 1996 and 1997,
the list of real properties listed on Schedule 1.1B includes each domestic real
property interest having a value in excess of $1,000,000 owned by the Borrower
and its Domestic Subsidiaries on the Closing Date.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement
of each Lender to make the initial extension of credit requested to be made by
it is subject to the satisfaction, prior to or concurrently with the making of
such extension of credit on the Closing Date, of the following conditions
precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The
Administrative Agent shall have received (i) this Agreement, executed and
delivered by the Administrative Agent, Holdings, the Borrower and each
Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral
Agreement, executed and delivered by Holdings, the Borrower and each
Restricted Subsidiary and (iii) an Acknowledgment and Consent in the form
attached to the Guarantee and Collateral Agreement, executed and delivered
by each Issuer (as defined therein), if any, that is not a Loan Party.
In the event that this Agreement has not been duly executed
and delivered by each Person listed on Schedule 1.1A on the date scheduled
to be the Closing Date, the condition referred to in clause (i) above shall
nevertheless be deemed satisfied if on such date the Borrower and the
Administrative Agent shall have designated one or more Persons (the
"Designated Lenders") to assume, in the aggregate, all of the Commitments
that would have been held by the Persons listed on Schedule 1.1A (the
"Non-Executing Persons") which have not so executed and delivered this
Agreement (subject to each such Designated Lender's consent and its
execution and delivery of this Agreement). Schedule 1.1A shall
automatically be deemed to be amended to reflect the respective Commitments
of the Designated Lenders and the omission of the Non-Executing Persons as
Lenders hereunder.
(b) Merger, etc. The following transactions shall have been
consummated, in each case on terms and conditions reasonably satisfactory
to the Lenders:
(i) Doane and Windy Hill shall have merged through a
series of transactions (the "Merger");
(ii) the Administrative Agent shall have received
satisfactory evidence that the fees and expenses to be
incurred in connection with the Merger and the financing
thereof shall be reasonably consistent with the Sources and
Uses Table;
(iii) (i) The Administrative Agent shall have received
satisfactory evidence that the Existing Windy Hill Credit
Agreement, the Existing Doane
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Credit Agreement and the Deep Run Indebtedness shall have
been terminated and all amounts thereunder shall have been
paid in full and (ii) satisfactory arrangements shall have
been made for the termination of all Liens granted in
connection therewith;
(iv) The Administrative Agent shall have received
satisfactory evidence that the "change of control offer"
required by the Windy Hill Senior Subordinated Notes shall
have been terminated and any purchases or exchanges
contemplated thereunder shall have been completed as
required by the Subordinated Facility and the Exchange
Notes; and
(v) The Borrower and its Restricted Subsidiaries shall
have no indebtedness for borrowed money other than under the
Facilities, the Doane Senior Notes remaining outstanding
after the contemplated tender offer and consent solicitation
satisfactory to the Agents, the Exchange Notes, the
Subordinated Facility, the Windy Hill Senior Subordinated
Notes, the Windy Hill Subordinated Seller Note, the Ottawa
IDB and the Clinton IDB. To the extent that any Windy Hill
Senior Subordinated Notes remain outstanding, the Unrestricted
Subsidiaries and Joint Ventures of the Borrower may be
transferred to Holdings to the extent that compliance with
the Windy Hill Senior Subordinated Notes would create
material tax consequences or violate contractual or legal
requirements.
(c) Pro Forma Balance Sheet; Financial Statements. The Lenders
shall have received (i) the Pro Forma Balance Sheets, (ii) any other
existing audited and other financial statements (including pro forma
financial statements) and schedules of each of Doane and Windy Hill and
their respective Subsidiaries of the type that the SEC requires for an
initial public offering, (iii) any existing audited consolidated financial
statements of each of Doane and Windy Hill for their 1997 fiscal year and
(iv) any existing unaudited interim consolidated financial statements
prepared in the ordinary course of business of each of Doane and Windy Hill
for each fiscal quarterly period ended subsequent to the date of the latest
applicable financial statements delivered pursuant to clause (iii) of this
paragraph as to which such financial statements are available, and such
financial statements shall not, in the reasonable judgment of the Lenders,
reflect any material adverse change in the consolidated financial condition
of the Borrower and its Restricted Subsidiaries, as reflected in the
financial statements or projections contained in the Confidential
Information Memorandum.
(d) Approvals. (i) All governmental and third party approvals
(including landlords' and other consents) advisable in connection with the
Merger, the continuing operations of Holdings, the Borrower and its
Restricted Subsidiaries and the transactions contemplated hereby shall have
been obtained and be in full force and effect, except where the failure to
do so could not reasonably be expected to have a Material Adverse Effect,
and (ii) all applicable waiting periods shall have expired without any
action being
<PAGE> 65
59
taken or threatened by any competent authority that would restrain, prevent
or otherwise impose adverse conditions on the Merger or the financing
contemplated hereby except insofar as any such action or threatened action
could not reasonably be expected to result in a Material Adverse Effect.
(e) Lien Searches. The Administrative Agent shall have
received the results of a recent lien, tax and judgment search in each of
the jurisdictions where assets of the Loan Parties are located or recorded,
and such search shall reveal no Liens on any of the assets of the Borrower
or its Restricted Subsidiaries except for liens permitted by Section 7.3 or
discharged on or prior to the Closing Date pursuant to documentation
satisfactory to the Administrative Agent.
(f) Environmental Audit. The Administrative Agent shall have
received environmental audits with respect to the real properties of the
Borrower and its Restricted Subsidiaries as requested by the Administrative
Agent.
(g) Fees. The Lenders and the Administrative Agent shall have
received all fees required to be paid, and all expenses for which invoices
have been presented (including the reasonable fees and expenses of legal
counsel), shall have been paid on or before the Closing Date.
(h) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(i) Legal Opinions. The Administrative Agent shall have
received the following executed legal opinions:
(i) the legal opinion of counsel to the Borrower and its
Restricted Subsidiaries, substantially in the form of Exhibit
F;
(ii) to the extent consented to by the relevant counsel,
each legal opinion, if any, delivered in connection with the
Merger Agreement, accompanied by a reliance letter in favor of
the Lenders; and
(iii) the legal opinion of local counsel in each of
Tennessee and Minnesota and of such other special and local
counsel as may be required by the Administrative Agent.
Each such legal opinion shall cover such other matters incidental to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(j) Pledged Stock; Stock Powers; Pledged Notes. The
Administrative Agent shall have received (i) the certificates representing
the shares of Capital Stock pledged
<PAGE> 66
60
pursuant to the Guarantee and Collateral Agreement, together with an
undated stock power for each such certificate executed in blank by a duly
authorized officer of the pledgor thereof and (ii) each promissory note (if
any) pledged to the Administrative Agent pursuant to the Guarantee and
Collateral Agreement endorsed (without recourse) in blank (or accompanied
by an executed transfer form in blank) by the pledgor thereof.
(k) Filings, Registrations and Recordings. Each document
(including any Uniform Commercial Code financing statement) required by the
Security Documents or under law or reasonably requested by the
Administrative Agent to be filed, registered or recorded in order to create
in favor of the Administrative Agent, for the benefit of the Lenders, a
perfected Lien on the Collateral described therein, prior and superior in
right to any other Person (other than with respect to Liens expressly
permitted by Section 7.3), shall be in proper form for filing, registration
or recordation.
(l) Mortgages, etc. (i) The Administrative Agent shall have
received a Mortgage with respect to each Mortgaged Property, executed and
delivered by a duly authorized officer of each party thereto.
(ii) If requested by the Administrative Agent, the
Administrative Agent shall have received, and the title insurance company
issuing the policy referred to in clause (iii) below (the "Title Insurance
Company") shall have received, maps or plats of an as-built survey of the
sites of the Mortgaged Properties certified to the Administrative Agent and
the Title Insurance Company in a manner satisfactory to them, dated a date
satisfactory to the Administrative Agent and the Title Insurance Company by
an independent professional licensed land surveyor satisfactory to the
Administrative Agent and the Title Insurance Company, which maps or plats
and the surveys on which they are based shall be made in accordance with
the Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1992, and, without limiting
the generality of the foregoing, there shall be surveyed and shown on such
maps, plats or surveys the following: (A) the locations on such sites of
all the buildings, structures and other improvements and the established
building setback lines; (B) the lines of streets abutting the sites and
width thereof; (C) all access and other easements appurtenant to the sites;
(D) all roadways, paths, driveways, easements, encroachments and
overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (E) any encroachments on any adjoining
property by the building structures and improvements on the sites; (F) if
the site is described as being on a filed map, a legend relating the survey
to said map; and (G) the flood zone designations, if any, in which the
Mortgaged Properties are located.
(iii) The Administrative Agent shall have received in respect
of each Mortgaged Property a mortgagee's title insurance policy (or
policies) or marked up unconditional binder for such insurance. Each such
policy shall (A) be in an amount satisfactory to the
<PAGE> 67
61
Administrative Agent; (B) be issued at ordinary rates; (C) insure that the
Mortgage insured thereby creates a valid first Lien on such Mortgaged
Property free and clear of all defects and encumbrances, except as
disclosed therein; (D) name the Administrative Agent for the benefit of the
Lenders as the insured thereunder; (E) be in the form of ALTA Loan Policy -
1970 (Amended 10/17/70 and 10/17/84) (or equivalent policies); (F) contain
such endorsements and affirmative coverage as the Administrative Agent may
reasonably request and (G) be issued by title companies satisfactory to the
Administrative Agent (including any such title companies acting as
co-insurers or reinsurers, at the option of the Administrative Agent). The
Administrative Agent shall have received evidence satisfactory to it that
all premiums in respect of each such policy, all charges for mortgage
recording tax, and all related expenses, if any, have been paid.
(iv) If requested by the Administrative Agent, the
Administrative Agent shall have received (A) a policy of flood insurance
that (1) covers any parcel of improved real property that is encumbered by
any Mortgage (2) is written in an amount not less than the outstanding
principal amount of the Indebtedness secured by such Mortgage that is
reasonably allocable to such real property or the maximum limit of coverage
made available with respect to the particular type of property under the
National Flood Insurance Act of 1968, whichever is less, and (3) has a term
ending not later than the maturity of the Indebtedness secured by such
Mortgage and (B) confirmation that the Borrower has received the notice
required pursuant to Section 208(e)(3) of Regulation H of the Board.
(v) The Administrative Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the
title policy or policies referred to in clause (iii) above and a copy of
all other material documents affecting the Mortgaged Properties.
(m) Appraisals and Solvency Certificate. The Lenders shall
have received satisfactory limited appraisals in summary form (which may
include copies of recent appraisals for other purposes) of the Borrower's
six most valuable manufacturing facilities by appraisers satisfactory to
the Administrative Agent and a satisfactory solvency certificate from the
Chief Financial Officer of the Borrower which shall certify that the
Borrower and its Restricted Subsidiaries are Solvent after giving effect to
the Merger.
(n) No Violation. The Administrative Agent shall be satisfied
that the Borrower and its Subsidiaries are not subject to contractual or
other restrictions that would be violated by the Merger, including, without
limitation, under the Windy Hill Senior Subordinated Notes.
(o) Merger Obligations. The Borrower and its Subsidiaries
shall not be in breach or violation of any of its obligations under the
Merger Documentation.
<PAGE> 68
62
(p) Hedging Strategies. The Administrative Agent shall have
reviewed and be reasonably satisfied with the terms and provisions of, and
arrangements relating to the Borrower's hedging strategies with respect to
commodity prices.
(q) Insurance. The Administrative Agent shall have received
insurance certificates satisfying the requirements of Section 5.3(b) of the
Guarantee and Collateral Agreement.
(r) Additional Matters. All required corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by the Loan Documents shall
be reasonably satisfactory in form and substance to the Administrative
Agent, and the Administrative Agent shall have received such other
documents in respect of the transactions contemplated hereby as it shall
reasonably request.
5.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date (including its initial extension of credit) is subject to the satisfaction
of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties (including, without limitation, Material
Adverse Effect and litigation representations) made by any Loan Party in or
pursuant to the Loan Documents shall be true and correct on and as of such
date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree
that, so long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall and
shall cause each of its Restricted Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent
and each Lender:
(a) as soon as available, but in any event within 100 days
after the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related
<PAGE> 69
63
audited consolidated statements of income and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by KPMG
Peat Marwick or other independent certified public accountants of
nationally recognized standing; and
(b) as soon as available, but in any event not later than 50
days after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income and of
cash flows for such quarter and the portion of the fiscal year through the
end of such quarter, setting forth in each case in comparative form the
figures for the previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end audit
adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to the
Administrative Agent and each Lender (or, in the case of clause (g), to the
relevant Lender):
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default in respect of Sections 7.1, 7.2 and 7.7, except
as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of each such Responsible Officer's knowledge, each Loan
Party during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible Officer
has obtained no knowledge of any Default or Event of Default except as
specified in such certificate and (ii) in the case of quarterly or annual
financial statements, (x) a Compliance Certificate containing all
information and calculations necessary for determining compliance by
Holdings, the Borrower and its Restricted Subsidiaries with the provisions
of this Agreement referred to therein as of the last day of the fiscal
quarter or fiscal year of the Borrower, as the case may be, and (y) to the
extent not previously disclosed to the Administrative Agent, a listing of
any county or state within the United States where any Loan Party keeps
inventory or equipment with a fair market value in excess of $150,000, and
a listing of any material Intellectual Property acquired by any Loan Party
since the
<PAGE> 70
64
date of the most recent list delivered pursuant to this clause (y) (or, in
the case of the first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45
days after the end of each fiscal year of the Borrower, a detailed
consolidated budget for the following fiscal year (including a projected
consolidated balance sheet of the Borrower and its Restricted Subsidiaries
as of the end of the following fiscal year, the related consolidated
statements of projected cash flow, projected changes in financial position
and projected income and a description of the underlying assumptions
applicable thereto), and if any revisions are made to such budget, as soon
as available, significant revisions of such budget with respect to such
fiscal year (collectively, the "Budgets"), which Budgets shall in each case
be accompanied by a certificate of a Responsible Officer stating that such
Budgets are based on reasonable estimates, information and assumptions and
that such Responsible Officer has no reason to believe that such Budgets
are incorrect or misleading in any material respect;
(d) within 50 days after the end of each of the first three
fiscal quarters of the Borrower, and within 100 days after the end of the
fourth fiscal quarter of the Borrower, a narrative discussion and analysis
of the financial condition and results of operations of the Borrower and
its Restricted Subsidiaries for such fiscal quarter and for the period from
the beginning of the then current fiscal year to the end of such fiscal
quarter, as compared to the comparable periods of the previous year (with
the delivery of a quarterly or annual report filed with the SEC being
deemed to satisfy the requirement so long as it contains the management
discussion and analysis required by the instructions therefor on the date
hereof);
(e) no later than three Business Days prior to the
effectiveness thereof, copies of substantially final drafts of any proposed
amendment, supplement, waiver or other modification with respect to the
Windy Hill Senior Subordinated Note Indenture or the Merger Documentation;
(f) within five days after the same are sent, copies of all
financial statements and reports that Holdings or the Borrower sends to the
holders of any class of its debt securities or public equity securities
and, within five days after quarterly reports are filed and within 10 days
after annual reports are filed, copies of all financial statements and
reports that Holdings or the Borrower may make to, or file with, the SEC;
and
(g) promptly, such additional financial and other information
as the Administrative Agent may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto
<PAGE> 71
65
have been provided on the books of Holdings, the Borrower or its Subsidiaries,
as the case may be.
6.4 Maintenance of Existence; Compliance. (a) (i) preserve,
renew and keep in full force and effect its corporate existence and (ii) take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted by Section 7.4 and except, in the case of clause
(ii) above, to the extent that failure to do so could not reasonably be expected
to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
6.6 Inspection of Property; Books and Records; Discussions.
(a) Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of the Administrative Agent (and, after an Event of
Default has occurred and is continuing, any Lender) to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
at any reasonable time upon not less than one Business Day's notice and as often
as may reasonably be desired and to discuss the business, operations, properties
and financial and other condition of Holdings, the Borrower and its Restricted
Subsidiaries with officers and employees of Holdings, the Borrower and its
Restricted Subsidiaries and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent
and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings, the Borrower or any of its Restricted Subsidiaries
or (ii) litigation, investigation or proceeding that may exist at any time
between Holdings, the Borrower or any of its Restricted Subsidiaries and
any Governmental Authority, that in case of either clause (i) or (ii), if
not cured or if adversely determined, as the case may be, could reasonably
be expected to have a Material Adverse Effect;
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66
(c) any litigation or proceeding affecting Holdings, the
Borrower or any of its Restricted Subsidiaries in which the amount involved
is $2,500,000 or more and not covered by insurance or in which injunctive
or similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof: (i)
the occurrence of any Reportable Event with respect to any Plan, a failure
by the Borrower or any Commonly Controlled Entity to make any required
contribution to a Plan, the creation of any Lien in favor of the PBGC or a
Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the Borrower
or any Commonly Controlled Entity or any Multiemployer Plan with respect to
the withdrawal from, or the termination, Reorganization or Insolvency of,
any Plan (other than the termination of a Single Employer Plan by a Loan
Party or any Commonly Controlled Entity pursuant to a standard termination
under Section 404(p) of ERISA); and
(e) any development or event that has had or could reasonably
be expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings, the Borrower or the relevant
Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply with, and ensure compliance
by all tenants and subtenants, if any, with, all applicable Environmental Laws,
and obtain and comply with and maintain, and ensure that all tenants and
subtenants obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, except where the failure to do so could not reasonably be expected to have
a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities regarding Environmental Laws, except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
6.9 Interest Rate Protection. In the case of the Borrower,
within 60 days after the Closing Date, enter into Hedge Agreements to the extent
necessary to provide that at least 50% of the aggregate principal amount of
total Indebtedness (including the Subordinated Facility, the Doane Senior Notes,
the Windy Hill Senior Subordinated Notes, the Windy Hill Subordinated Seller
Note, the Exchange Notes and other fixed rate indebtedness) is subject to either
a fixed interest rate or interest rate protection for a period of not less than
three years, which Hedge Agreements shall have terms and conditions reasonably
satisfactory to the Administrative Agent.
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6.10 Additional Collateral, etc. (a) With respect to any
property acquired after the Closing Date with a fair market value in excess of
$150,000 by the Borrower or any of its Subsidiaries (other than (x) any property
described in paragraph (b), (c) or (d) below, (y) any property subject to a Lien
expressly permitted by Section 7.3(g) and (z) property acquired by any
Unrestricted Subsidiary or Joint Venture) as to which the Administrative Agent,
for the benefit of the Lenders, does not have a perfected Lien, promptly (i)
execute and deliver to the Administrative Agent such amendments to the Guarantee
and Collateral Agreement or such other documents as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a security interest in such property, (ii) amend
Schedule 1.1B hereto and (iii) take all actions necessary or advisable to grant
to the Administrative Agent, for the benefit of the Lenders, a perfected first
priority security interest in such property, including the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent.
(b) With respect to any fee interest in any real property
having a value (together with improvements thereof) of at least $1,000,000
acquired after the Closing Date by the Borrower or any of its Subsidiaries
(other than (x) any such real property subject to a Lien expressly permitted by
Section 7.3(g) and (y) real property acquired by any Unrestricted Subsidiary or
Joint Venture), promptly (i) execute and deliver a first priority Mortgage, in
favor of the Administrative Agent, for the benefit of the Lenders, covering such
real property, (ii) if requested by the Administrative Agent, provide the
Lenders with (x) title and extended coverage insurance covering such real
property in an amount at least equal to the purchase price of such real property
(or such other amount as shall be reasonably specified by the Administrative
Agent) as well as a current ALTA survey thereof, together with a surveyor's
certificate and (y) any consents or estoppels reasonably deemed necessary or
advisable by the Administrative Agent in connection with such mortgage or deed
of trust, each of the foregoing in form and substance reasonably satisfactory to
the Administrative Agent and (iii) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Domestic Subsidiary or Domestic
Joint Venture created or acquired after the Closing Date by the Borrower or any
of its Restricted Subsidiaries (including the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary), promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
as the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such new Domestic Subsidiary or
Domestic Joint Venture that is owned by the Borrower or any of its Restricted
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of the Borrower or such
Domestic Subsidiary or Domestic Joint Venture, as the case may be, (iii) cause
such new Domestic Subsidiary (A) to become a party to the Guarantee and
Collateral Agreement, (B) to take such actions necessary
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or advisable to grant to the Administrative Agent for the benefit of the Lenders
a perfected first priority security interest in the Collateral described in the
Guarantee and Collateral Agreement with respect to such new Domestic Subsidiary
including, the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or by
law or as may be requested by the Administrative Agent and (C) to deliver to the
Administrative Agent a certificate of such Domestic Subsidiary, substantially in
the form of Exhibit C, with appropriate insertions and attachments, and (iv) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(d) With respect to any new Foreign Subsidiary or Foreign
Joint Venture created or acquired after the Closing Date by the Borrower or any
of its Restricted Subsidiaries (including the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary), promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
as the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such new Foreign Subsidiary or Foreign
Joint Venture that is owned by the Borrower or any of its Restricted
Subsidiaries (provided that in no event shall more than 662/3% of the total
outstanding Capital Stock of any such new Foreign Subsidiary or Foreign Joint
Venture be required to be so pledged), (ii) deliver to the Administrative Agent
the certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of the
Borrower or such Foreign Subsidiary or Foreign Joint Venture, as the case may
be, and take such other action as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Administrative Agent's security
interest therein, and (iii) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other
amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall not, and shall not permit any of its Restricted Subsidiaries to,
directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
Ratio as at the last day of any period of four consecutive fiscal quarters of
the Borrower ending with any fiscal quarter set forth below to exceed the ratio
set forth below opposite such fiscal quarter:
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Fiscal Quarter Consolidated Leverage Ratio
-------------- ---------------------------
3/31/99 5.50:1.00
6/30/99 - 9/30/99 5.25:1.00
12/31/99 - 3/31/00 5.00:1.00
6/30/00 - 9/30/00 4.75:1.00
12/31/00 - 3/31/01 4.25:1.00
6/30/01 - 9/30/01 4.00:1.00
12/31/01 - 3/31/02 3.75:1.00
6/30/02 - 9/30/02 3.50:1.00
12/31/02 - 3/31/03 3.25:1.00
6/30/03 - 9/30/03 3.00:1.00
12/31/03 and thereafter 2.75:1.00
(b) Consolidated Senior Debt Ratio. Permit the Consolidated
Senior Debt Ratio as at the last day of any period of four consecutive fiscal
quarters of the Borrower ending with any fiscal quarter set forth below to
exceed the ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Consolidated Senior Debt
-------------- ------------------------
3/31/99 - 6/30/99 3.85:1.00
9/30/99 - 12/31/99 3.75:1.00
3/31/00 - 6/30/00 3.50:1.00
9/30/00 - 12/31/00 3.25:1.00
3/31/01 - 6/30/01 3.00:1.00
9/30/01 - 12/31/01 2.75:1.00
3/31/02 - 6/30/02 2.50:1.00
9/30/02 - 12/31/02 2.25:1.00
3/31/03 - 6/30/03 2.00:1.00
9/30/03 and thereafter 1.75:1.00
(c) Consolidated Interest Coverage Ratio. Permit the
Consolidated Interest Coverage Ratio as at the last day of any period of four
consecutive fiscal quarters of the Borrower ending with any fiscal quarter set
forth below to be less than the ratio set forth below opposite such fiscal
quarter:
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Fiscal Quarter Consolidated Interest Coverage Ratio
-------------- ------------------------------------
3/31/99 1.80:1.00
6/30/99 - 9/30/99 1.90:1.00
12/31/99 - 3/31/00 2.00:1.00
6/30/00 - 9/30/00 2.05:1.00
12/31/00 - 3/31/01 2.10:1.00
6/30/01 - 9/30/01 2.20:1.00
12/31/01 - 3/31/02 2.30:1.00
6/30/02 - 9/30/02 2.40:1.00
12/31/02 - 3/31/03 2.50:1.00
6/30/03 - 9/30/03 2.60:1.00
12/31/03 - 3/31/04 2.70:1.00
6/30/04 and thereafter 2.75:1.00
(d) Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower ending with any fiscal quarter set forth below
to be less than the ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Consolidated Fixed Charge Coverage Ratio
------------- ----------------------------------------
12/31/99 - 9/30/05 1.00:1.00
12/31/05 0.90:1.00
3/31/06 0.70:1.00
6/30/06 and thereafter 0.50:1.00
7.2 Indebtedness. Create, issue, incur, assume, become liable
in respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan
Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Restricted Subsidiary to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of
business by the Borrower or any of its Subsidiaries of obligations of any
Restricted Subsidiary;
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(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without increasing, or shortening the maturity of, the principal
amount thereof);
(e) Indebtedness under the Windy Hill Senior Subordinated
Notes, the Subordinated Facility, the Exchange Notes and the Doane Senior
Notes, which shall be in an aggregate principal amount as of the Closing
Date of at least $120,000,000, provided that to the extent the sum of the
aggregate principal amount of such Indebtedness under the Windy Hill Senior
Subordinated Notes, the Subordinated Facility, the Doane Senior Notes and
the Exchange Notes as of the Closing Date exceeds $120,000,000, the Windy
Hill Senior Subordinated Notes shall be defeased and the Windy Hill
Subordinated Seller Note shall be prepaid and, upon defeasance or
prepayment in full thereof, the Term Loans made on the Closing Date shall
be equivalently reduced below $245,000,000 as contemplated in the
Commitment Letter dated as of September 23, 1998;
(f) Indebtedness with respect to IDB (other than the Clinton
IDB and the Ottawa IDB) in an aggregate amount not to exceed $20,000,000;
(g) additional Indebtedness of the Borrower or any of its
Restricted Subsidiaries in an aggregate principal amount (for the Borrower
and all Restricted Subsidiaries) not to exceed $10,000,000 at any one time
outstanding; and
(h) Refinancing Subordinated Debt.
7.3 Liens. Create, incur, assume or suffer to exist any Lien
upon any of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that are being contested in
good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Restricted Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
that are not overdue for a period of more than 30 days or that are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in
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72
amount and that do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct
of the business of the Borrower or any of its Restricted Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule
7.3(f), other than liens pursuant to the MDFC Operating Lease (only on
property subject to MDFC Operating Lease), provided that no such Lien is
spread to cover any additional property after the Closing Date and that the
amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness permitted by Section 7.2(f);
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered
into by the Borrower or any other Restricted Subsidiary in the ordinary
course of its business and covering only the assets so leased; and
(j) Liens not otherwise permitted by this Section so long as
neither (i) the aggregate outstanding principal amount of the obligations
secured thereby nor (ii) the aggregate fair market value (determined as of
the date such Lien is incurred) of the assets subject thereto exceeds (as
to the Borrower and all Restricted Subsidiaries) $10,000,000 at any one
time.
7.4 Fundamental Changes. Enter into any merger, consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) Holdings or any Restricted Subsidiary of the Borrower may
be merged or consolidated with or into or liquidated and dissolved and pay
liquidating dividends to, the Borrower (provided that the Borrower shall be
the continuing or surviving corporation) or with or into any Restricted
Subsidiary (provided that the Restricted Subsidiary shall be the continuing
or surviving corporation); and
(b) any Restricted Subsidiary of the Borrower may Dispose of
any or all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any Restricted Subsidiary.
7.5 Disposition of Property. Dispose of any of its property,
whether now owned or hereafter acquired, or, in the case of any Restricted
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person, except:
(a) the Disposition of obsolete or worn out property in the
ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
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73
(c) Dispositions permitted by Section 7.4(b);
(d) Dispositions as set forth on Schedule 7.5 hereto;
(e) the sale or issuance of any Subsidiary's Capital Stock to
the Borrower or any Restricted Subsidiary; and
(f) the Disposition of other property having a fair market
value not to exceed $20,000,000 in the aggregate.
7.6 Restricted Payments. Declare or pay any dividend (other
than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any Capital Stock of Holdings, the Borrower
or any Restricted Subsidiary, whether now or hereafter outstanding, or make any
repurchases and redemptions of subordinated debt (other than as indicated in the
Sources and Uses Table), or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
Holdings, the Borrower or any Restricted Subsidiary (collectively, "Restricted
Payments"), except that:
(a) any Restricted Subsidiary may make Restricted Payments to
the Borrower or any Restricted Subsidiary;
(b) so long as no Default or Event of Default shall have
occurred and be continuing or would occur as a result thereof, the Borrower
may pay dividends to Holdings to permit Holdings to purchase Holdings'
common stock or common stock options from present or former officers or
employees of Holdings, the Borrower or any Subsidiary upon the death,
disability or termination of employment of such officer or employee,
provided, that the aggregate amount of payments under this clause after the
date hereof (net of any proceeds received by Holdings and contributed to
the Borrower after the date hereof in connection with resales of any common
stock or common stock options so purchased) shall not exceed $5,000,000;
(c) the Borrower may pay dividends to Holdings to permit
Holdings to (i) pay corporate overhead expenses incurred in the ordinary
course of business not to exceed $1,000,000 in any fiscal year and (ii) pay
any taxes that are due and payable by Holdings and the Borrower as part of
a consolidated group;
(d) the Windy Hill Subordinated Seller Note may be repaid as
contemplated by Section 7.2(e) or if after giving effect to such repayment
of the Windy Hill Subordinated Seller Note, the sum of (x) the amount of
cash and Cash Equivalents on hand of the Borrower plus (y) the Available
Revolving Commitment shall equal or exceed $15,000,000;
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74
(e) the Borrower may pay dividends in cash and in kind of
additional shares of Preferred Stock on Preferred Stock and consent and
waiver fees on the Preferred Stock in an amount not to exceed $1,000,000 to
be paid within 10 days of the Closing Date; and
(f) the Borrower may exchange Exchange Notes for Windy Hill
Senior Subordinated Notes or purchase Windy Hill Senior Subordinated Notes
with the proceeds of the Subordinated Facility; and the Borrower may
defease the outstanding Windy Hill Senior Subordinated Notes and may
refinance the Subordinated Facility (i) with the proceeds of Loans
hereunder so long as after giving effect thereto the sum of (x) the
aggregate principal amount of the Subordinated Facility and (y) the
aggregate principal amount of the Windy Hill Senior Subordinated Notes and
the Doane Senior Notes exchanged for Exchange Notes is at least
$120,000,000 or (ii) with the proceeds of other subordinated debt
("Refinancing Subordinated Debt") having no scheduled amortization prior to
the date at least three months after the maturity date of the Tranche C
Term Loans and having subordination and other terms and conditions
reasonably satisfactory to the Administrative Agent.
7.7 Capital Expenditures. Make or commit to make any Capital
Expenditure, except (a) Capital Expenditures of the Borrower and its Restricted
Subsidiaries in the ordinary course of business not exceeding $26,500,000 in any
fiscal year (excluding any Capital Expenditure related to the Clinton IDB for
fiscal year 1999 not exceeding $1,500,000); provided, that (i) up to $10,000,000
of any such amount referred to above, if not so expended in the fiscal year for
which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year and (ii) Capital Expenditures made pursuant to this
clause (a) during any fiscal year shall be deemed made, first, in respect of
amounts permitted for such fiscal year as provided above and, second, in respect
of amounts carried over from the prior fiscal year pursuant to subclause (i)
above and (b) Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount.
7.8 Investments. Make any advance, loan, extension of credit
(by way of guaranty or otherwise) or capital contribution to, or purchase any
Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting a business unit of, or make any other investment in, any
Person (all of the foregoing, "Investments"), except:
(a) extensions of trade credit in the ordinary course of
business;
(b) Investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of Holdings, the Borrower
or any Subsidiary of the Borrower in the ordinary course of business
(including for travel, entertainment and relocation expenses) in an
aggregate amount for Holdings, the Borrower or any Subsidiary of the
Borrower not to exceed $1,000,000 at any one time outstanding;
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75
(e) loans and advances to employees of Holdings, the Borrower
or any Subsidiary of the Borrower to purchase stock of Holdings not to
exceed $1,000,000 in the aggregate at any one time outstanding;
(f) Investments in assets useful in the business of the
Borrower and its Restricted Subsidiaries made by the Borrower or any of its
Restricted Subsidiaries with the proceeds of any Reinvestment Deferred
Amount;
(g) Investments by Holdings, the Borrower or any of its
Subsidiaries in the Borrower or any Person that, prior to such Investment,
is a Restricted Subsidiary;
(h) in addition to Investments otherwise expressly permitted
by this Section, Investments by the Borrower or any of its Subsidiaries in
an aggregate amount (valued at cost) not to exceed $2,500,000 during the
term of this Agreement;
(i) Permitted Acquisitions; and
(j) Investments in and acquisitions of Unrestricted
Subsidiaries and Joint Ventures (excluding existing Investments in existing
Unrestricted Subsidiaries and Joint Ventures but including the
redesignation of a Restricted Subsidiary as an Unrestricted Subsidiary with
the amount of such Investment being deemed to be the value of such
Subsidiary on the date of such redesignation) in an aggregate amount of
$15,000,000 (such amount to increase by $2,500,000 per year each year after
the first year following the Closing Date, but not to exceed $25,000,000 in
the aggregate).
7.9 Optional Payments and Modifications of Certain Debt
Instruments. (a) Make or offer to make any optional or voluntary payment,
prepayment, repurchase or redemption of or otherwise optionally or voluntarily
defease or segregate funds with respect to the Windy Hill Senior Subordinated
Notes, the Exchange Notes or any Refinancing Subordinated Debt; provided that
the Borrower may refinance or defease the Windy Hill Senior Subordinated Notes
or the Exchange Notes as contemplated by this Agreement, (b) amend, modify,
waive or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms of the Windy Hill Senior
Subordinated Notes or the Exchange Notes or the Refinancing Subordinated Debt,
(other than any such amendment, modification, waiver or other change that (i)
would extend the maturity or reduce the amount of any payment of principal
thereof or reduce the rate or extend any date for payment of interest thereon
and (ii) does not involve the payment of a consent fee), (c) amend, modify,
waive or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms of the Preferred Stock (other than
any such amendment, modification, waiver or other change that (i) would extend
the scheduled redemption date or reduce the amount of any scheduled redemption
payment or reduce the rate or extend any date for payment of dividends thereon
and (ii) does not involve the payment of a consent fee) or (d) designate any
Indebtedness (other than obligations of the Loan Parties pursuant to the Loan
Documents) as "Designated Senior Indebtedness" for the purposes of the Exchange
Note Indenture or any Refinancing Subordinated Debt.
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7.10 Transactions with Affiliates. Except as set forth on
Schedule 7.10 hereto, enter into any transaction, including any purchase, sale,
lease or exchange of property, the rendering of any service or the payment of
any management, advisory or similar fees, with any Affiliate (other than
Holdings, the Borrower or any Restricted Subsidiary) unless such transaction is
(a) otherwise permitted under this Agreement, (b) in the ordinary course of
business of Holdings, the Borrower or such Subsidiary, as the case may be, or
(c) upon fair and reasonable terms no less favorable to Holdings, the Borrower
or such Subsidiary, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person that is not an Affiliate.
7.11 Sales and Leasebacks. Enter into any arrangement with any
Person providing for the leasing by Holdings, the Borrower or any Restricted
Subsidiary of real or personal property that has been or is to be sold or
transferred by Holdings, the Borrower or such Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of Holdings, the Borrower or
such Subsidiary other than liens pursuant to the MDFC Operating Lease (only on
property subject of MDFC Operating Lease).
7.12 Changes in Fiscal Periods. Permit the fiscal year of the
Borrower to end on a day other than a Saturday or other day within one week of
December 31.
7.13 Negative Pledge Clauses. Enter into or suffer to exist or
become effective any agreement that prohibits or limits the ability of Holdings
(with respect to the Capital Stock of the Borrower), the Borrower or any of its
Restricted Subsidiaries to create, incur, assume or suffer to exist any Lien
upon any of its property or revenues, whether now owned or hereafter acquired,
to secure its obligations under the Loan Documents to which it is a party other
than (a) this Agreement and the other Loan Documents, (b) the Windy Hill Senior
Subordinated Note Indenture, the Doane Senior Note Indenture or the Exchange
Note Indenture, (c) IDB (only on property subject of IDB), (d) MDFC Operating
Lease or other operating leases (only on property subject of MDFC Operating
Lease or other operating leases), (e) Refinancing Subordinated Debt (only to the
extent similar to Windy Hill Senior Subordinated Notes) and (f) any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise
permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby).
7.14 Clauses Restricting Restricted Subsidiary Distributions.
Enter into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary of the Borrower to (a)
make Restricted Payments in respect of any Capital Stock of such Restricted
Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other
Restricted Subsidiary of the Borrower, (b) make loans or advances to, or other
Investments in, the Borrower or any other Restricted Subsidiary of the Borrower
or (c) transfer any of its assets to the Borrower or any other Restricted
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents, (ii) any restrictions under agreements in effect as of the Closing
Date or any agreements replacing such agreements, and (iii) any restrictions
with respect to a Restricted Subsidiary imposed pursuant to an agreement that
has been entered into in connection
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with the Disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary.
7.15 Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Restricted Subsidiaries are engaged on the date of this
Agreement or that are reasonably related thereto.
7.16 Amendments to Merger Documents. (a) Amend, supplement or
otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of
the indemnities and licenses furnished to the Borrower or any of its
Subsidiaries pursuant to the Merger Documentation or any other document
delivered in connection therewith such that after giving effect thereto such
indemnities or licenses shall be materially less favorable to the interests of
the Loan Parties or the Lenders with respect thereto or (b) otherwise amend,
supplement or otherwise modify the terms and conditions of the Merger
Documentation or any such other documents except for any such amendment,
supplement or modification that (i) becomes effective after the Closing Date and
(ii) could not reasonably be expected to have a Material Adverse Effect.
7.17 Issuances of Preferred Stock. Issue any shares of any
preferred stock other than in accordance with Section 7.6(e) hereof or to the
extent permitted by Section 7.8.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan
or Reimbursement Obligation when due in accordance with the terms hereof;
or the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any
Loan Party herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) or (ii) of Section
6.4(a) (with respect to Holdings and the Borrower only), Section 6.7(a) or
Section 7 of this Agreement or Sections 5.5 and 5.7(b) of the Guarantee and
Collateral Agreement or (ii) an "Event of Default" under and as defined in
any Mortgage shall have occurred and be continuing; or
(d) any Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement or any other
Loan Document (other than as provided in paragraphs (a) through (c) of this
Section), and such default shall continue
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unremedied for a period of 30 days after notice to the Borrower from the
Administrative Agent; or
(e) Holdings, the Borrower or any of its Restricted
Subsidiaries shall (i) default in making any payment of any principal of
any Indebtedness (including any Guarantee Obligation, but excluding the
Loans) on the scheduled or original due date with respect thereto; or (ii)
default in making any payment of any interest on any such Indebtedness
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created; or (iii) default in the
observance or performance of any other agreement or condition relating to
any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or beneficiary of such Indebtedness (or a
trustee or agent on behalf of such holder or beneficiary) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; provided, that a default, event or
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default unless, at such time,
one or more defaults, events or conditions of the type described in clauses
(i), (ii) and (iii) of this paragraph (e) shall have occurred and be
continuing with respect to Indebtedness the outstanding principal amount of
which exceeds in the aggregate $5,000,000; or
(f) (i) Holdings, the Borrower or any of its Restricted
Subsidiaries shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking
to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or Holdings, the
Borrower or any of its Restricted Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against Holdings, the Borrower or any of its Restricted
Subsidiaries any case, proceeding or other action of a nature referred to
in clause (i) above that (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against Holdings, the Borrower or any of its Restricted
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets that results in the entry of an order
for any such relief that shall not have been vacated, discharged, or stayed
or bonded pending appeal within 60 days from the entry thereof; or (iv)
Holdings, the Borrower or any of its Restricted Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above; or (v) Holdings, the Borrower or any of its Restricted Subsidiaries
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
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(g) (i) any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise
on the assets of the Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence
to have a trustee appointed, or a trustee shall be appointed, to administer
or to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable
opinion of the Required Lenders is likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of,
a Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through (vi)
above, such event or condition, together with all other such events or
conditions, if any, could, in the sole judgment of the Required Lenders,
reasonably be expected to have a Material Adverse Effect; or
(h) one or more judgments or decrees shall be entered against
Holdings, the Borrower or any of its Restricted Subsidiaries involving in
the aggregate a liability (not paid or fully covered by insurance as to
which the relevant insurance company has acknowledged coverage) of
$5,000,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from
the entry thereof; or
(i) any of the Security Documents shall cease, for any reason,
to be in full force and effect, or any Loan Party or any Affiliate of any
Loan Party shall so assert, or any Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and priority
purported to be created thereby; or
(j) the guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) (i) the Permitted Investors shall cease to have the power
to vote or direct the voting of securities having a majority of the
ordinary voting power for the election of directors of Holdings (determined
on a fully diluted basis); (ii) the Permitted Investors shall cease to own
of record and beneficially an amount of common stock of Holdings equal to
at least 51% (or, after the consummation of an initial public offering of
common stock of Holdings, 35%) of the amount of common stock of Holdings
owned by the Permitted Investors of record and beneficially as of the
Closing Date; (iii) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), excluding the Permitted Investors, shall become, or
obtain rights (whether by means or warrants, options or otherwise) to
become,
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the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of more than 30% of the outstanding
common stock of Holdings; (iv) the board of directors of Holdings shall
cease to consist of a majority of Continuing Directors; (v) Holdings shall
cease to own and control, of record and beneficially, directly, 100% of
each class of outstanding Capital Stock of the Borrower (other than
Preferred Stock) free and clear of all Liens (except Liens created by the
Guarantee and Collateral Agreement) (any event specified in clauses (i)
through (v) above constituting a "Change of Control"); or (vi) a Specified
Change of Control shall occur if the Borrower becomes obligated to redeem
or repurchase its bonds, notes or other securities having an aggregate face
value in excess of $5,000,000; or
(l) the Windy Hill Senior Subordinated Notes or the Exchange
Notes or the guarantees thereof shall cease, for any reason, to be validly
subordinated to the Obligations or the obligations of the Restricted
Subsidiaries under the Guarantee and Collateral Agreement, as the case may
be, as provided in the indenture therefor, or any Loan Party, any Affiliate
of any Loan Party, the trustee in respect of the Windy Hill Senior
Subordinated Notes or the Exchange Notes or the holders of at least 25% in
aggregate principal amount of the Windy Hill Senior Subordinated Notes or
the Exchange Notes shall so assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Majority Revolving Facility Lenders, the Administrative Agent may, or upon
the request of the Majority Revolving Facility Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Revolving Commitments to be
terminated forthwith, whereupon the Revolving Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrower, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and the other
Loan Documents (including all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) to be due and payable forthwith, whereupon the
same shall immediately become due and payable. With respect to all Letters of
Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit
<PAGE> 87
81
shall have expired or been fully drawn upon, if any, shall be applied to repay
other obligations of the Borrower hereunder and under the other Loan Documents.
After all such Letters of Credit shall have expired or been fully drawn upon,
all Reimbursement Obligations shall have been satisfied and all other
obligations of the Borrower hereunder and under the other Loan Documents shall
have been paid in full, the balance, if any, in such cash collateral account
shall be returned to the Borrower (or such other Person as may be lawfully
entitled thereto). Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
<PAGE> 88
82
9.4 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to Holdings or the Borrower),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the Person named in the Register as
payee of any Note as the owner thereof for all purposes unless a written notice
of assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders, the Majority Facility Lenders, or, if so specified by this
Agreement, all Lenders, as it deems appropriate or it shall first be indemnified
to its satisfaction by the Lenders against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders, the Majority
Facility Lenders, or, if so specified by this Agreement, all Lenders, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender, Holdings or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so specified by this Agreement, all Lenders); provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither the Agents nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or Affiliates have
made any representations or warranties to it and that no act by any Agent
hereinafter taken, including any review of the affairs of a Loan Party or any
Affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by any Agent to any Lender. Each Lender represents to the Agents that
it has, independently and without reliance
<PAGE> 89
83
upon any Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their affiliates and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon any Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Administrative Agent hereunder, the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
Affiliate of a Loan Party that may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent
in its capacity as such (to the extent not reimbursed by Holdings or the
Borrower and without limiting the obligation of Holdings or the Borrower to do
so), ratably according to their respective Aggregate Exposure Percentages in
effect on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by such Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from such Agent's
gross negligence or willful misconduct. The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with any Loan Party as though such Agent was not an Agent. With
respect to its Loans made or renewed by it and with respect to any Letter of
Credit issued or participated in by it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent; and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent
may resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent under
this Agreement and the other Loan Documents, then the Required Lenders shall
appoint from among the Lenders a successor
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agent for the Lenders, which successor agent shall (unless an Event of Default
under Section 8(a) or Section 8(f) with respect to the Borrower shall have
occurred and be continuing) be subject to approval by the Borrower (which
approval shall not be unreasonably withheld or delayed), whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 10 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the other Loan Documents.
9.10 Authorization to Release Guarantees and Liens.
Notwithstanding anything to the contrary contained herein or in any other Loan
Document, the Administrative Agent is hereby irrevocably authorized by each of
the Lenders (without requirement of notice to or consent of any Lender except as
expressly required by Section 10.1) to take any action requested by the Borrower
having the effect of releasing any Collateral or Guarantee Obligations to the
extent necessary to permit consummation of any transaction not prohibited by any
Loan Document or to the extent reasonably related to the redesignation of a
Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the
provisions hereof or that has been consented to in accordance with Section 10.1.
9.11 Documentation Agent, Syndication Agent and Co-Lead
Arrangers. Neither the Documentation Agent, Syndication Agent nor the Co-Lead
Arrangers shall have any duties or responsibilities hereunder in its capacity as
such.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party to the relevant Loan Document may, from time to time, (a)
enter into written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding any provisions to this Agreement
or the other Loan Documents or changing in any manner the rights of the Lenders
or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders or the Administrative Agent, as the case may
be, may specify in such instrument, any of the requirements of this Agreement or
the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
<PAGE> 91
85
supplement or modification shall (i) forgive the principal amount or extend the
final scheduled date of maturity of any Loan, extend the scheduled date or
principal amount of any amortization payment in respect of any Term Loan, reduce
the stated rate of any interest or fee payable hereunder or extend the scheduled
date of any payment thereof, or increase the amount or extend the expiration
date of any Lender's Revolving Commitment, in each case without the consent of
each Lender directly affected thereby; (ii) amend, modify or waive any provision
of this Section 10.1 or reduce any percentage specified in the definition of
Required Lenders or Required Prepayment Lenders, consent to the assignment or
transfer by any Loan Party of any of its rights and obligations under this
Agreement and the other Loan Documents, release all or substantially all of the
Collateral or release Holdings or all or substantially all of the other
Guarantors from its or their obligations under the Guarantee and Collateral
Agreement (except as set forth in Section 8.16 in the Guarantee and Collateral
Agreement), in each case without the written consent of all Lenders; (iii)
amend, modify or waive any condition precedent to any extension of credit under
the Revolving Facility set forth in Section 5.2 (including in connection with
any waiver of an existing Default or Event of Default) without the written
consent of the Majority Revolving Facility Lenders; (iv) amend, modify or waive
any provision of Section 2.17 without the consent of the Majority Facility
Lenders in respect of each Facility adversely affected thereby; (v) reduce the
percentage specified in the definition of Majority Facility Lenders with respect
to any Facility without the written consent of all Lenders under such Facility;
(vi) amend, modify or waive any provision of Section 9 without the written
consent of the Administrative Agent; (vii) amend, modify or waive any provision
of Section 2.6 or 2.7 without the written consent of the Swingline Lender;
(viii) amend, modify or waive any provision of Section 3 without the written
consent of the Issuing Lender or (ix) amend, modify or waive any provisions in
the Loan Documents to add additional facilities (with tenors not shorter than
and on terms no less favorable than the Facilities) entitled to share ratably in
the Collateral and in prepayments without the written consent of the
Supermajority Lenders. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Loan Parties, the Lenders, the Agents and all future holders of the
Loans. In the case of any waiver, the Loan Parties, the Lenders and the Agents
shall be restored to their former position and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower, the
Administrative Agent, the Syndication Agent and the Documentation Agent, and as
set forth in an administrative questionnaire delivered to the Administrative
Agent in the case of the Lenders, or to such other address as may be hereafter
notified by the respective parties hereto:
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86
Holdings: Doane Pet Care Enterprises, Inc.
Eight Greenway Plaza, Suite 714
Houston, TX 77046
Attention: George B. Kelly
Telecopy: (713) 960-1562
Telephone: (713) 960-1410
The Borrower: Doane Pet Care Company
103 Powell Court, Suite 200
Brentwood, TN 37027
Attention: Thomas R. Heidenthal
Telecopy: (615) 309-1191
Telephone: (615) 309-1009
with a copy to: Vinson & Elkins LLP
2300 First City Tower
1001 Fannin
Houston, TX 77002
Attention: Bruce Herzog
Telecopy: (713) 615-5946
Telephone: (713) 758-1132
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Carol Ulmer
Telecopy: (212) 270-6897
Telephone: (212) 270-5662
with a copy to: The Chase Manhattan Bank
One Chase Manhattan Plaza, 8th Floor
New York, New York 10021
Attention: Concetta Prainito
Telecopy: (212) 552-7500
Telephone: (212) 552-7241
The Syndication Agent: DLJ Capital Funding, Inc.
277 Park Avenue
New York, New York 10017
Attention: Dana Klein
Telecopy: (212) 892-7542
Telephone: (212) 892-7911
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The Documentation Agent: Mercantile Bank National Association
721 Locust Street
St. Louis, Missouri 63101
Attention: Jeff Nelson
Telecopy: (314) 418-8505
Telephone: (314) 418-1315
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of any Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans and other extensions of credit hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Agents and the Co-Lead Arrangers for all their reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
this Agreement and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including the reasonable fees and
disbursements of counsel to the Administrative Agent and filing and recording
fees and expenses, with statements with respect to the foregoing to be submitted
to the Borrower prior to the Closing Date (in the case of amounts to be paid on
the Closing Date) and from time to time thereafter on a quarterly basis or such
other periodic basis as the Administrative Agent shall deem appropriate, (b) to
pay or reimburse each Lender and the Agents for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents, including
the reasonable fees and disbursements of counsel (including the allocated fees
and expenses of in-house counsel) to each Lender and of counsel to the
Administrative Agent, (c) to pay, indemnify, and hold each Lender, the Co-Lead
Arrangers and the Agents (and their affiliates and their respective officers,
directors, employees, advisors and agents) harmless from, any and all recording
and filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise and other taxes, if any, that may be payable
or determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents,
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88
and (d) to pay, indemnify, and hold each Lender, the Co-Lead Arrangers and the
Agents and their respective officers, directors, employees, affiliates, agents
and controlling persons (each, an "Indemnitee") harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any such other
documents, including any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of Holdings, the Borrower any of
its Subsidiaries or any of the Properties and the reasonable fees and expenses
of legal counsel in connection with claims, actions or proceedings by any
Indemnitee against any Loan Party under any Loan Document (all the foregoing in
this clause (d), collectively, the "Indemnified Liabilities"), provided, that
the Borrower shall have no obligation hereunder to any Indemnitee with respect
to Indemnified Liabilities to the extent such Indemnified Liabilities are found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of such
Indemnitee. Without limiting the foregoing, and to the extent permitted by
applicable law, the Borrower agrees not to assert and to cause its Subsidiaries
not to assert, and hereby waives and agrees to cause its Subsidiaries to so
waive, all rights for contribution or any other rights of recovery with respect
to all claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses of whatever kind or nature, under or related to Environmental
Laws, that any of them might have by statute or otherwise against any
Indemnitee. All amounts due under this Section 10.5 shall be payable not later
than 15 days after written demand therefor. Statements payable by the Borrower
pursuant to this Section 10.5 shall be submitted to Thomas R. Heidenthal
(Telephone No. (615) 309-1009) (Telecopy No. (615) 309-1191), at the address of
the Borrower set forth in Section 10.2, or to such other Person or address as
may be hereafter designated by the Borrower in a written notice to the
Administrative Agent. The agreements in this Section 10.5 shall survive
repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of Holdings,
the Borrower, the Lenders, the Agents, all future holders of the Loans and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement and the other Loan Documents. In no event shall any Participant
under any such
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participation have any right to approve any amendment or waiver of any provision
of any Loan Document, or any consent to any departure by any Loan Party
therefrom, except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if amounts
outstanding under this Agreement and the Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.18, 2.19 and 2.20 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of Section 2.19, such Participant
shall have complied with the requirements of said Section and provided, further,
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with
applicable law, at any time and from time to time assign to any Lender or any
Affiliate thereof or a Related Fund of any Lender or, with the consent of the
Borrower and the Administrative Agent (which, in each case, shall not be
unreasonably withheld or delayed), to an additional bank, financial institution
or other entity (an "Assignee") all or any part of its rights and obligations
under this Agreement pursuant to an Assignment and Acceptance, executed by such
Assignee, such Assignor and any other Person whose consent is required pursuant
to this paragraph, and delivered to the Administrative Agent for its acceptance
and recording in the Register; provided that no such assignment to an Assignee
(other than any Lender or any Affiliate thereof or a Related Fund of any Lender)
shall be in an aggregate principal amount of less than $5,000,000 (other than in
the case of an assignment of all of a Lender's interests under this Agreement),
unless otherwise agreed by the Borrower and the Administrative Agent. Any such
assignment need not be ratable as among the Facilities. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment and/or
Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of an Assignor's rights and obligations under this Agreement, such Assignor
shall cease to be a party hereto). Notwithstanding any provision of this Section
10.6, the consent of the Borrower shall not be required for any assignment that
occurs when an Event of Default pursuant to Sections 8(a), 8(c) or 8(f) shall
have occurred and be continuing with respect to the Borrower.
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90
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the Commitment of, and
the principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, each other Loan Party, the Agents and the Lenders shall treat
each Person whose name is recorded in the Register as the owner of the Loans and
any Notes evidencing the Loans recorded therein for all purposes of this
Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall
be effective only upon appropriate entries with respect thereto being made in
the Register (and each Note shall expressly so provide). Any assignment or
transfer of all or part of a Loan evidenced by a Note shall be registered on the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such Loan, accompanied by a duly executed Assignment and
Acceptance, and thereupon one or more new Notes shall be issued to the
designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed
by an Assignor, an Assignee and any other Person whose consent is required by
Section 10.6(c), together with payment to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) record the information
contained therein in the Register on the effective date determined pursuant
thereto.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 10.6 concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the
relevant Lender, agrees to issue Notes to any Lender requiring Notes to
facilitate transactions of the type described in paragraph (f) above.
10.7 Adjustments; Set-off. (a) Except to the extent that this
Agreement expressly provides for payments to be allocated to a particular Lender
or to the Lenders under a particular Facility, if any Lender (a "Benefitted
Lender") shall receive any payment of all or part of the Obligations owing to
it, or receive any Collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or Collateral received by any other Lender, if any, in respect
of the Obligations owing to such other Lender, such Benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of the Obligations owing to each such other Lender, or shall provide
such other Lenders with the benefits of any such Collateral, as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits of such collateral ratably with each of the Lenders; provided, however,
that if all or any portion of such excess payment or benefits is thereafter
recovered from such Benefitted Lender, or is repaid in good faith settlement of
a pending or threatened avoidance
<PAGE> 97
91
claim, such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to
Holdings or the Borrower, any such notice being expressly waived by Holdings and
the Borrower to the extent permitted by applicable law, upon any amount becoming
due and payable by Holdings or the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise), to set off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of Holdings or
the Borrower, as the case may be. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such setoff and application made
by such Lender, provided that the failure to give such notice shall not affect
the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. Delivery of an executed signature page of this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of Holdings, the Borrower, the Agents and the Lenders
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Agents or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the
other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of Holdings
and the Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition
<PAGE> 98
92
and enforcement of any judgment in respect thereof, to the non-exclusive
general jurisdiction of the courts of the State of New York, the courts of
the United States for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to Holdings or the Borrower, as the case may be at its address set
forth in Section 10.2 or at such other address of which the Administrative
Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or
consequential damages.
10.13 Acknowledgments. Each of Holdings and the Borrower
hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Agents nor any Lender has any fiduciary
relationship with or duty to Holdings or the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between Agents and Lenders, on one hand, and Holdings and the
Borrower, on the other hand, in connection herewith or therewith is solely
that of creditor and debtor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among Holdings, the Borrower and the Lenders.
10.14 Confidentiality. Each of the Agents and each Lender
agrees to keep confidential all non-public information provided to it by any
Loan Party pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Agents or any
Lender from disclosing any such information (a) to the Administrative Agent, any
other Lender or any affiliate of any Lender, (b) to any Transferee or
prospective Transferee that agrees to comply with the provisions of this
Section, (c) to its
<PAGE> 99
93
employees, directors, agents, attorneys, accountants and other professional
advisors or those of any of its Affiliates, (d) upon the request or demand of
any Governmental Authority, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) that has been publicly disclosed, (h) to
the National Association of Insurance Commissioners or any similar organization
or any nationally recognized rating agency that requires access to information
about a Lender's investment portfolio in connection with ratings issued with
respect to such Lender, or (i) in connection with the exercise of any remedy
hereunder or under any other Loan Document.
10.15 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
BORROWER: DOANE PET CARE COMPANY
By: /s/ THOMAS R. HEIDENTHAL
----------------------------------------
Name: Thomas R. Heidenthal
Title: Senior Vice President and Chief
Financial Officer
<PAGE> 101
HOLDINGS: DOANE PET CARE ENTERPRISES, INC.,
as Guarantor
By: /s/ THOMAS R. HEIDENTHAL
----------------------------------------
Name: Thomas R. Heidenthal
Title: Senior Vice President and Chief
Financial Officer
<PAGE> 102
AGENTS AND LENDERS: THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By: /s/ THOMAS KOZLARK
----------------------------------------
Name: Thomas Kozlark
Title: Vice-President
<PAGE> 103
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent and as a Lender
By: /s/ HAROLD J. PHILIPPS
-----------------------------------------
Name: Harold J. Philipps
Title: Managing Director
<PAGE> 104
MERCANTILE BANK NATIONAL
ASSOCIATION, as Documentation Agent
and as a Lender
By: /s/ JEFFREY A. NELSON
----------------------------------------
Name: Jeffrey A. Nelson
Title: Vice-President
<PAGE> 105
FLEET NATIONAL BANK
By: /s/ KERRY MCELHINEY
----------------------------------------
Name: Kerry McElhiney
Title: Vice-President
Notice Address:
Fleet National Bank
One Federal Street, MAOF DO3C
Boston, MA 02110
Attention: Kerry McElhiney
Telephone: (617) 346-4668
Facsimile: (617) 346-4806
<PAGE> 106
NATIONSBANK
By: /s/ B.E. DISHMAN
----------------------------------------
Name: B.E. Dishman
Title: Vice-President
Notice Address:
Nationsbank
One Nations Bank Plaza, 5th Floor
Nashville, TN 37239
Attention: Ben Dishman
Telephone: (615) 749-3815
Facsimile: (615) 749-4762
<PAGE> 107
BANKBOSTON, N.A.
By: /s/ MARIE C. DUPREY
----------------------------------------
Name: Marie C. Duprey
Title: Vice-President
Notice Address:
BankBoston, N.A.
100 Federal Street, Mail Stop 01-08-05
Boston, MA 02110
Attention: Marie Duprey
Telephone: (617) 434-3037
Facsimile: (617) 434-4929
<PAGE> 108
SUNTRUST BANK
By: /s/ TRACY ELLIOT
----------------------------------------
Name: Tracy Elliot
Title: Assistant Vice-President
Notice Address:
SunTrust Bank, Nashville
201 Fourth Avenue North
Nashville, TN 37219
Attention: Tracy Elliott
Telephone: (615) 748-5115
Facsimile: (615) 748-5269
<PAGE> 109
HARRIS TRUST AND SAVINGS BANK
By: /s/ DONALD J. BUSE
----------------------------------------
Name: Donald J. Buse
Title: Vice President
Notice Address:
Harris Trust and Savings Bank
111 West Monroe Street, Floor 10-C
Chicago, Illinois 60690
Attention: Kate Collins
Telephone: (312) 461-4803
Facsimile: (312) 293-5041
<PAGE> 110
CREDIT AGRICOLE INDOSUEZ
By: /s/ W. LEROY STARTZ
----------------------------------------
Name: W. Leroy Startz
Title: First Vice-President
By: /s/ DAVID BOUHL
----------------------------------------
Name: David Bouhl
Title: First Vice-President
Notice Address:
Credit Agricole Indosuez
55 East Monroe, Suite 4700
Chicago, Illinois 60603
Attention: Timothy Devane
Telephone: (312) 917-7501
Facsimile: (312) 372-3455
and a copy to:
Bracewell & Patterson
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, TX 77002-2781
Attention: Ms. Catherine Greaney
<PAGE> 111
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ TOMOKI KUBO
----------------------------------------
Name: Tomoki Kubo
Title: Vice-President
Notice Address:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas, 12th Floor
New York, NY 10020
Attention: Tomoki Kubo
Telephone: (212) 782-4396
Facsimile: (212) 782-4981
<PAGE> 112
FIRST UNION NATIONAL BANK
By: /s/ WILLIAM R. GOLEY
----------------------------------------
Name: William R. Goley
Title: Vice-President
Notice Address:
First Union National Bank
One First Union Center
301 South College Street
Charlotte, North Carolina 28288-0737
Attention: William R. Goley
Telephone: (704) 383-8180
Facsimile: (704) 374-3300
<PAGE> 113
FIRST TRUST
By: /s/ E. A. D'ANCONA
----------------------------------------
Name: E. A. D'Ancona
Title: Executive Vice President
Notice Address:
First Trust
15 East Ridge Pike, 4th Floor
Conshohocken, PA 19111-3897
Attention: Kent Nelson
Telephone: (610) 238-5026
Facsimile: (610) 238-5066
<PAGE> 114
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ NATHAN L. BLOCH
----------------------------------------
Name: Nathan L. Bloch
Title: First Vice President
Notice Address:
The First National Bank of Chicago
One First National Plaza, 14th Floor,
Suite 0364
Chicago, IL 60670-0374
Attention: Steve Price
Telephone: (312) 732-9099
Facsimile: (312) 732-1117
<PAGE> 115
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ JANET K. WILLIAMS
----------------------------------------
Name: Janet K. Williams
Title: Duly Authorized Signatory
Notice Address:
General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: William Richardson
Telephone: (203) 316-7589
Facsimile: (203) 316-7978
<PAGE> 116
BOEING CAPITAL CORPORATION
By: /s/ JAMES C. HAMMERSMITH
----------------------------------------
Name: James C. Hammersmith
Title: Senior Documentation Officer
Notice Address:
Boeing Capital Corporation
4060 Lakewood Blvd., 6th Floor
Long Beach, CA 90808-1700
Attention: Vice-President - Commercial
Equipment Leasing
Telephone: (562) 627-3000
Facsimile: (562) 627-3002
<PAGE> 117
BALANCED HIGH YIELD FUND II LTD.,
by BHF-BANK AKTIENGESELLSCHAFT,
acting through its New York Branch, as
attorney-in-fact
By: /s/ ANTHONY HEYMAN
----------------------------------------
Name: Anthony Heyman
Title: Assistant Vice-President
By: /s/ GEOFFREY C. GWIN
----------------------------------------
Name: Geoffrey C. Gwin
Title: Assistant Treasurer
Notice Address:
Balanced High Yield Fund II Ltd.
590 Madison Avenue
New York, NY 10022-2504
Attention: Tony Heyman
Telephone: (212) 756-5540
Facsimile: (212) 756-5536
<PAGE> 118
KZH CNC LLC
By: /s/ VIRGINIA CONWAY
----------------------------------------
Name: Virginia Conway
Title: Authorized Agent
Notice Address:
KZH CNC LLC
c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Virginia Conway
Telephone: (212) 946-7575
Facsimile: (212) 946-7776
<PAGE> 119
CYPRESSTREE INVESTMENT FUND,
LLC,
by CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., its
Managing Member
By: /s/ TIMOTHY M. BARNS
----------------------------------------
Name: Timothy M. Barns
Title: Managing Director
Notice Address:
CypressTree Investment Fund, LLC
125 High Street
Boston, MA 02110
Attention: Paul Thompson
Telephone: (617) 946-0600
Facsimile: (617) 946-5687
<PAGE> 120
CYPRESSTREE INSTITUTIONAL FUND,
LLC
by CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., its
Managing Member
By: /s/ TIMOTHY M. BARNS
----------------------------------------
Name: Timothy M. Barns
Title: Managing Director
Notice Address:
CypressTree Institutional Fund, LLC
125 High Street
Boston, MA 02110
Attention: Paul Thompson
Telephone: (617) 946-0600
Facsimile: (617) 946-5687
<PAGE> 121
NORTH AMERICAN SENIOR
FLOATING RATE FUND,
by CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., as
Portfolio Manager
By: /s/ TIMOTHY M. BARNS
----------------------------------------
Name: Timothy M. Barns
Title: Managing Director
Notice Address:
North American Senior Floating Rate Fund
125 High Street
Boston, MA 02110
Attention: Paul Thompson
Telephone: (617) 946-0600
Facsimile: (617) 946-5687
<PAGE> 122
CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.,
as attorney-in-fact and on behalf of FIRST
ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY, as Portfolio
Manager
By: /s/ TIMOTHY M. BARNS
----------------------------------------
Name: Timothy M. Barns
Title: Managing Director
Notice Address:
North American Senior Floating Rate Fund
125 High Street
Boston, MA 02110
Attention: Paul Thompson
Telephone: (617) 946-0600
Facsimile: (617) 946-5687
<PAGE> 123
KZH CYPRESSTREE - 1 LLC
By: /s/ VIRGINIA CONWAY
----------------------------------------
Name: Virginia Conway
Title: Authorized Agent
Notice Address:
KZH CypressTree - 1 LLC
c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Virginia Conway
Telephone: (212) 946-7575
Facsimile: (212) 946-7776
<PAGE> 124
THE TRAVELERS INSURANCE
COMPANY
By: /s/ JOHN W. PETCHLER
----------------------------------------
Name: John W. Petchler
Title: Second Vice-President
Notice Address:
The Travelers Insurance Company
Securities 9PB
One Tower Square
Hartford, Connecticut 06183-2030
Attention: Investment Group - Private
Placements
Telephone: (860) 277-5346
Facsimile: (860) 954-5243
<PAGE> 125
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ JOHN B. JOYCE
----------------------------------------
Name: John B. Joyce
Title: Managing Director
Notice Address:
Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111-0001
Attention: Kathy Lynch
Telephone: (413) 744-6112
Facsimile: (413) 846-5034
<PAGE> 126
MASSMUTUAL HIGH YIELD
PARTNERS II, LLC,
by HYP MANAGEMENT, INC., as
Managing Member,
By: /s/ JOHN B. JOYCE
----------------------------------------
Name: John B. Joyce
Title: Vice-President
Notice Address:
MassMutual High Yield Partners II, LLC
c/o Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111-0001
Attention: John Wheeler
Telephone: (413) 744-6228
Facsimile: (413) 744-2022
<PAGE> 127
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ JAMES R. DINGLER
----------------------------------------
Name: James R. Dingler
Title: Director
Notice Address:
Metropolitan Life Insurance Company
334 Madison Avenue
P.O. Box 633
Convent Station, NJ 07961-0633
Attention: Jim Dingler
Telephone: (973) 254-3206
Facsimile: (973) 254-3032
<PAGE> 128
ORIX USA CORPORATION
By: /s/ CHARLES KOBAYASHI
----------------------------------------
Name: Charles Kobayashi
Title: Vice-President and Manager
Notice Address:
Orix USA Corporation
1177 Avenue of the Americas, 10th Floor
New York, NY 10036-2714
Attention: Paula Penkal
Telephone: (212) 739-1664
Facsimile: (212) 739-1560
<PAGE> 129
JACKSON NATIONAL LIFE
INSURANCE COMPANY,
by PPM AMERICA, INC., as attorney-in-
fact on behalf of Jackson National Life
Insurance Company
By: /s/ MICHAEL DIRE
----------------------------------------
Name: Michael DiRe
Title: Managing Director
Notice Address:
PPM America Inc.
225 W. Wacker, Suite 1200
Chicago, IL 60606
Attention: Michael King
Telephone: (312) 634-1206
Facsimile: (312) 634-0054
<PAGE> 130
KZH RIVERSIDE LLC
By: /s/ VIRGINIA CONWAY
----------------------------------------
Name: Virginia Conway
Title: Authorized Agent
Notice Address:
KZH RIVERSIDE LLC
c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Virginia Conway
Telephone: (212) 946-7575
Facsimile: (212) 946-7776
<PAGE> 131
KZH STERLING LLC
By: /s/ VIRGINIA CONWAY
----------------------------------------
Name: Virginia Conway
Title: Authorized Agent
Notice Address:
KZH STERLING LLC
c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Virginia Conway
Telephone: (212) 946-7575
Facsimile: (212) 946-7776
<PAGE> 132
KZH LANGDALE LLC
By: /s/ MICHAEL M. WONG
----------------------------------------
Name: Michael M. Wong
Title: Authorized Agent
Notice Address:
KZH LANGDALE LLC
c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Virginia Conway
Telephone: (212) 946-7575
Facsimile: (212) 946-7776
<PAGE> 133
CREDIT SUISSE FIRST BOSTON
By: /s/ BARRY A. ZAMORE
----------------------------------------
Name: Barry A. Zamore
Title: Vice-President
By: /s/ CLAIRE M. McCARTHY
----------------------------------------
Name: Claire M. McCarthy
Title: Managing Director
Notice Address:
Credit Suisse First Boston
11 Madison Avenue - 21st Floor
New York, New York 10010
Attention: Michael Wotanowski
Telephone: (212) 325-9905
Facsimile: (212) 325-8228
<PAGE> 134
Annex A
Pricing Grid: Ratio of Senior Debt to EBITDA
<TABLE>
<CAPTION>
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4
LESS THAN 3.25 BUT LESS THAN 2.75 BUT
GREATER THAN OR GREATER THAN OR GREATER THAN OR LESS THAN
EQUAL TO 3.25:1 EQUAL TO 2.75:1 EQUAL TO 2.25:1 2.25:1
--------------- ----------------- ----------------- ---------
<S> <C> <C> <C> <C>
REVOLVING CREDIT LOANS
AND TRANCHE A TERM LOANS:
- -------------------------
ABR LOANS 1.75% 1.50% 1.25% 1.00%
EURODOLLAR LOANS 2.75% 2.50% 2.25% 2.00%
TRANCHE B TERM LOANS:
- ---------------------
ABR LOANS 2.25% 2.25% 2.25% 2.25%
EURODOLLAR LOANS 3.25% 3.25% 3.25% 3.25%
TRANCHE C TERM LOANS:
- ---------------------
ABR LOANS 2.50% 2.50% 2.50% 2.50%
EURODOLLAR LOANS 3.50% 3.50% 3.50% 3.50%
COMMITMENT FEE RATE: .50% .50% .50% .375%
- --------------------
</TABLE>
<PAGE> 135
Annex B
SOURCES AND USES
<TABLE>
<S> <C> <C> <C>
Revolving Credit Facility*/ $ 61,500,000 Refinancing of Existing Credit Facilities $ 93,300,000
Tranche A Term Loan Facility $ 75,000,000 Prepayment of Doane Senior Notes $160,000,000
Tranche B Term Loan Facility $ 85,000,000 Premiums $ 28,200,000
Tranche C Term Loan Facility $ 85,000,000 Fees and Expenses $ 12,000,000
Accrued Interest $ 8,000,000
Effeffe Transaction**/ $ 5,000,000
$306,500,000 $306,500,000
============ ============
</TABLE>
- -------------------------
*/ $100,000,000 availability.
**/ With any unused amount to be reinvested in the Borrower.
<PAGE> 136
Schedule 1.1A
to Credit Agreement
-------------------
COMMITMENTS
<TABLE>
<CAPTION>
Revolving Loan Total Term Loan Tranche A Term Tranche B Term Tranche C Term
Lender Commitment Commitment Loan Commitment Loan Commitment Loan Commitment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Chase Manhattan Bank $ 5,666,666.67 $131,927,083.33 $ 11,333,333.33 $ 60,296,875.00 $ 60,296,875.00
Fleet National Bank $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Heller Financial, Inc. $ 4,833,333.33 $ 9,666,666.67 $ 9,666,666.67
Marine Midland Bank $ 4,833,333.33 $ 9,666,666.67 $ 9,666,666.67
PNC Bank, National $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Association
SunTrust Bank, Atlanta $ 4,833,333.33 $ 9,666,666.67 $ 9,666,666.67
Wells Fargo Bank, N.A $ 4,833,333.33 $ 14,666,666.67 $ 9,666,666.67 $ 2,500,000.00 $ 2,500,000.00
National City Bank $ 4,833,333.33 $ 9,666,666.67 $ 9,666,666.67
The National Westminster $ 5,333,333.33 $ 10,666,666.67 $ 10,666,666.67
Bank PLC
Swiss Bank Corporation $ 5,000,000.00 $ 10,000,000.00 $ 10,000,000.00
BankBoston, N.A $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Harris Trust and Savings $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Bank
Credit Agricole Indosuez $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
(Chicago)
</TABLE>
<PAGE> 137
<TABLE>
<CAPTION>
Revolving Loan Total Term Loan Tranche A Term Tranche B Term Tranche C Term
Lender Commitment Commitment Loan Commitment Loan Commitment Loan Commitment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Bank National
Association $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
BHF-Bank $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Aktiengesellschaft
Grand Cayman Branch
First Union National Bank $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Summit Bank $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
The Long-Term Credit Bank
of Japan, Ltd. $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
DLJ Capital Funding, Inc. $ 3,166,666.67 $ 6,333,333.33 $ 6,333,333.33
Credit Agricole Indosuez $10,000,000.00 $ 5,000,000.00 $ 5,000,000.00
(New York)
Balanced High Yield Fund $ 7,000,000.00 $ 3,500,000.00 $ 3,500,000.00
Ltd.
Metropolitan Life Insurance $13,000,000.00 $ 6,500,000.00 $ 6,500,000.00
Company
The Travelers Insurance $ 5,000,000.00 $ 2,500,000.00 $ 2,500,000.00
Company
The Travelers Life and $ 5,000,000.00 $ 2,500,000.00 $ 2,500,000.00
Annuity Company
Wareconseco $ 5,000,000.00 $ 2,500,000.00 $ 2,500,000.00
Pilgrim America Prime $ 7,250,000.00 $ 3,625,000.00 $ 3,625,000.00
Rate Trust
Octagon Credit Investors $10,000,000.00 $ 5,000,000.00 $ 5,000,000.00
Loan Portfolio
Allstate Insurance Company $10,000,000.00 $ 5,000,000.00 $ 5,000,000.00
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
Revolving Loan Total Term Loan Tranche A Term Tranche B Term Tranche C Term
Lender Commitment Commitment Loan Commitment Loan Commitment Loan Commitment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Income Trust $ 13,000,000.00 $ 6,500,000.00 $ 6,500,000.00
Cypress Tree Boston $ 13,000,000.00 $ 6,500,000.00 $ 6,500,000.00
Partners
KZH Holding Corporation $ 58,156,250.00 $ 29,078,125.00 $ 29,078,125.00
III
KZH-ING-2 Corporation $ 6,500,000.00 $ 3,250,000.00 $ 3,250,000.00
ACM Credit Opportunities $ 5,000,000.00 $ 2,500,000.00 $ 2,500,000.00
Master Fund
ING High Income Principal $ 6,500,000.00 $ 3,250,000.00 $ 3,250,000.00
Preservation Fund Holdings
LDC
Totals: $ 75,000,000.00 $450,000,000.00 $150,000,000.00 $150,000,000.00 $150,000,000.00
</TABLE>
The initial Lending Office of each Lender shall be the primary address set forth
below its name on the appropriate signature page of the Credit Agreement.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
DOANE PET CARE ENTERPRISES, INC.
We consent to the use of our reports (dated February 13, 1998 with respect
to Doane Pet Care Enterprises, Inc., dated March 13, 1998 with respect to Windy
Hill Pet Food Holdings, Inc. and dated June 6, 1997 with respect to the Pet Food
Division (a division of Hubbard Milling Company)) included herein and to the
reference to our firm under the heading "Experts" in the registration statement.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
December 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DOANE
PET CARE ENTERPRISES, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998, AND FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 3,833 0
<SECURITIES> 0 0
<RECEIVABLES> 87,611 66,428
<ALLOWANCES> (852) (59)
<INVENTORY> 52,901 32,426
<CURRENT-ASSETS> 166,388 102,345
<PP&E> 235,898 115,442
<DEPRECIATION> (34,233) (15,448)
<TOTAL-ASSETS> 664,772 338,184
<CURRENT-LIABILITIES> 115,732 76,700
<BONDS> 168,496 165,698
0 0
35,898 30,545
<COMMON> 2 1
<OTHER-SE> 67,274 41,674
<TOTAL-LIABILITY-AND-EQUITY> 664,772 338,184
<SALES> 462,991 564,741
<TOTAL-REVENUES> 462,991 564,741
<CGS> 378,583 482,896
<TOTAL-COSTS> 434,210 532,757
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,444 22,463
<INCOME-PRETAX> 9,566 9,623
<INCOME-TAX> 3,226 3,389
<INCOME-CONTINUING> 6,340 6,234
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,340 6,234
<EPS-PRIMARY> 989 (151)
<EPS-DILUTED> 0 0
</TABLE>
