<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
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 MELISSA MARTIN BALDWIN
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
Class A Common Stock, par value $0.0001 per share........... $230,000,000 $67,850
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
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
EXPLANATORY NOTE
This Registration Statement of Doane Pet Care Enterprises, Inc. (the
"Company") in connection with the offering of Common Stock is being filed
simultaneously with a Registration Statement of Doane Pet Care Company, the
Company's principal operating subsidiary, in connection with an offering of
% Senior Subordinated Notes due 2008 of Doane Pet Care Company. The
closings of the offerings being registered pursuant to such Registration
Statements are contingent upon each other and are also contingent upon the
consummation of certain other transactions described herein. See "The
Refinancing Transactions."
<PAGE> 3
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 AUGUST 7, 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."
The Company is undertaking the Offering in conjunction with a series of
concurrent transactions in which the Company and Doane Pet Care Company, its
principal operating subsidiary (formerly Doane Products Company and referred to
herein as "Doane"), are refinancing the Company's capital structure. In addition
to the Offering, Doane is offering $125 million principal amount of %
Senior Subordinated Notes due 2008 (the "Notes Offering"). The consummation of
the Offering is contingent upon the consummation of the Notes Offering and
certain other concurrent transactions. See "The Refinancing Transactions" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- The Refinancing Transactions."
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 10 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>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(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> 4
[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> 5
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 -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. ("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 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> 6
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
Windy Hill Acquisition. In August 1998, the Company acquired Windy Hill for
approximately eight million shares of Common Stock and the assumption of $181.6
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 and EBITDA of $304.0 million and $28.5 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.
IPES Acquisition. In April 1998, the Company acquired IPES for $28.3
million in cash. IPES, located in Spain, is a manufacturer of both store and
regional brands. In fiscal 1997, IPES had net sales and EBITDA of $21.1 million
and $4.1 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
4
<PAGE> 7
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 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.
5
<PAGE> 8
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, together with
the net proceeds from the other
Refinancing Transactions, will be
used to repay certain
indebtedness of the Company and
Windy Hill and to repurchase the
outstanding preferred stock of
Doane. See "The Refinancing
Transactions" and "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 to purchase shares of Common
Stock, which warrants 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> 9
THE REFINANCING TRANSACTIONS
The Company is undertaking the Offering in conjunction with a series of
concurrent transactions in which the Company, including its subsidiaries, is
refinancing its capital structure (collectively, the "Refinancing
Transactions"). The Refinancing Transactions are intended to provide the Company
with a lower overall cost of capital and increase its financial flexibility.
The sources of funds for the Refinancing Transactions include:
(i) the establishment by Doane of a new $175.0 million credit facility
(the "New Credit Facility") providing for $75.0 million of term loan
borrowings and $100.0 million of revolving loan borrowings of which
approximately $88.2 million in aggregate principal amount is expected to be
drawn at the closing of the Refinancing Transactions;
(ii) the issuance and sale by Doane of $125.0 million of Senior
Subordinated Notes due 2008 (the "New Notes"); and
(iii) the Offering.
The estimated uses of funds for the Refinancing Transactions include:
(i) the repayment of approximately $97.0 million in aggregate
principal amounts outstanding under the existing credit facilities of Doane
(the "Doane Credit Facility") and of Windy Hill (the "Windy Hill Credit
Facility" and, together with the Doane Credit Facility, the "Existing
Credit Facilities");
(ii) a tender offer and related consent solicitation for the
repurchase of all of the $160.0 million in principal amount of 10 5/8%
Senior Notes due 2006 of Doane (the "Doane Senior Notes");
(iii) the repayment of all of the $13.3 million outstanding principal
amount and accrued interest of 10.0% Subordinated Notes of Windy Hill (the
"Seller Notes");
(iv) the repurchase of all of the approximately $42.5 million
outstanding in liquidation value of 14.25% Senior Exchangeable Preferred
Stock due 2007 of Doane (the "Doane Preferred Stock");
(v) the payment of approximately $34.2 million in prepayment premiums
and expenses related to the tender offer for the Doane Senior Notes and the
repurchase of the Doane Preferred Stock (collectively, the "Prepayment
Premiums"); and
(vi) the payment of approximately $16.2 million of underwriting,
advisory, legal and other fees and expenses related to the Refinancing
Transactions.
The consummation of the Offering is contingent upon the consummation of the
Refinancing Transactions, including the Notes Offering. The consummation of the
Refinancing Transactions is also subject to certain conditions precedent. See
"The Refinancing Transactions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- The Refinancing Transactions,"
"Description of New Credit Facility" and "Description of New Notes."
The following table sets forth the estimated sources and uses of funds for
the Refinancing Transactions:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
<S> <C> <C> <C>
The Offering................... $150.0 Repurchase of the Doane Senior Notes............. $160.0
The Notes Offering............. 125.0 Repayment of the Existing Credit Facilities...... 97.0
New Credit Facility............ 88.2 Repayment of the Seller Notes.................... 13.3
Repurchase of the Doane Preferred Stock.......... 42.5
Prepayment Premiums.............................. 34.2
Estimated Transaction Fees and Expenses.......... 16.2
------
Total Sources........ $363.2 Total Uses....................................... $363.2
====== ======
</TABLE>
7
<PAGE> 10
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 three month period ended
March 31, 1997 and as of and for the three month period ended March 31, 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 three month period ended March 31, 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 and the Refinancing Transactions as if each of such
transactions had occurred on January 1, 1997. The unaudited pro forma as
adjusted balance sheet gives effect to the IPES Acquisition, 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 Refinancing
Transactions and the use of proceeds therefrom, in each case as if such
transactions had occurred on March 31, 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 THREE MONTHS
THREE DECEMBER 31, ENDED MARCH 31,
NINE MONTHS 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 $141,741 $144,497 $229,802
Gross profit.......... 56,239 17,774 66,441 81,845 153,856 19,016 24,530 44,410
Unusual item(2)....... 9,440 -- -- -- -- -- -- --
Non-recurring
transition costs.... -- -- -- -- 1,571 -- -- 160
Income from
operations.......... 20,566 7,613 24,911 31,984 52,185 7,169 10,446 18,144
Interest expense,
net................. 3,611 5,806 22,471 22,463 31,460 5,672 5,422 7,836
Non-recurring finance
charge(3)........... -- -- 4,815 -- -- -- -- --
Income (loss) before
extraordinary
items(4)............ $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 13,485 $ 995 $ 3,279 $ 6,711
Basic earnings per
share............... $ -- $ $ $ $ $ $ $
Basic weighted average
shares
outstanding......... --
Diluted earnings per
share...............
Diluted weighted
average shares
outstanding.........
OTHER DATA:
EBITDA(5)............. $ 33,804 $ 10,063 $ 35,264 $ 43,216 $ 76,903 $ 9,838 $ 13,422 $ 24,631
Depreciation and
amortization
expense............. 3,694 2,359 15,972 12,141 24,073 2,882 3,215 6,127
Capital
expenditures(6)..... 4,224 1,297 7,901 14,437 18,788 5,712 3,355 4,800
Pet food sold
(thousands of
tons)............... 774 288 1,189 1,237 1,829 309 323 478
</TABLE>
(footnotes on next page)
8
<PAGE> 11
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ -- $ 4,644 $ 4,644
Working capital........................................... 37,202 40,075 69,900
Total assets.............................................. 333,728 644,372 659,155
Total debt................................................ 206,953 419,034 361,911
Stockholders' equity...................................... 35,743 62,743 166,926
</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 non-recurring interim bridge debt financing costs that were
written off concurrently with the issuance of the Doane Senior Notes.
(4) Income before extraordinary items of the Company's predecessor does not
include any provision for federal income taxes. Prior to the 1995
Acquisition, the Company's predecessor was organized as a subchapter S
corporation. Consequently, the Company's 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.
(5) EBITDA for any relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization, unusual item,
nonrecurring expenses and transition costs reflected in the determination of
net income. EBITDA is not a measurement 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.
(6) Capital expenditures excludes payments for acquisitions.
9
<PAGE> 12
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). 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 Refinancing Transactions. At March 31, 1998,
on a pro forma basis after giving effect to the Windy Hill Acquisition and the
Refinancing Transactions, the Company would have had approximately $361.9
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, the indenture for the New Notes
(the "New Note Indenture") and the indenture pursuant to which the Windy Hill
9 3/4% Senior Subordinated Notes due 2007 (the "Windy Hill Notes") were issued
(the "Windy Hill 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, the New Note Indenture
and the Windy Hill 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, the New Note Indenture and the Windy Hill
Indenture will 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 New
Notes," "Description of New Credit Facility" and "Description of Windy Hill
Notes." 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
10
<PAGE> 13
under the New Credit Facility, the New Note Indenture or the Windy Hill
Indenture or any of such instruments. 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 New Notes, the Windy Hill Notes and the indebtedness under
the New Credit Facility were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay in full that
indebtedness. See "Description of New Credit Facility," "Description of New
Notes" and "Description of Windy Hill 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.
DEPENDENCE ON CERTAIN CUSTOMERS
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. 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."
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
11
<PAGE> 14
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 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 "Stock-
12
<PAGE> 15
holders") entered into the First Amended and Restated Investors' Agreement (the
"Investors' Agreement") dated as of August 3, 1998. 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."
ENVIRONMENTAL, REGULATORY AND SAFETY MATTERS
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. 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. See "Business -- Environmental,
Regulatory and Safety Matters."
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 Refinancing Transactions as payment for
redemption of 200,000 shares of Doane Preferred Stock. An affiliate of CMIHI
will receive additional proceeds of the Refinancing Transactions in connection
with the repayment of the Windy Hill Credit Facility. Each of CSI and DLJS will
receive underwriting discounts and commissions in connection with the Offering
and the Notes Offering and affiliates thereof will receive fees for acting as
agents and lenders under the New Credit Facility. See "Certain Transactions."
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 "CMIHI
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
13
<PAGE> 16
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 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
14
<PAGE> 17
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."
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
New Note Indenture, the Windy Hill 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.
In connection with its assessment of year 2000 compliance, the Company has
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's current estimates to bring
these areas into year 2000 compliance is $1.0 million. The Company has
implemented a program to confirm year 2000 compliance with all third parties
with which the Company has material relationships.
As of March 31, 1998, the Company has incurred costs of approximately $1.4
million in connection with year 2000 compliance. The Company intends to complete
its year 2000 compliance projects by July 1999. 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 that year 2000 compliance prior to the year 2000.
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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000."
15
<PAGE> 18
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. In April
1998, the Company acquired IPES for a purchase price of $28.3 million in cash.
In August 1998, the Company acquired Windy Hill for approximately eight
million shares of Common Stock and the assumption of $181.6 million of
indebtedness. Windy Hill is 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 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 ("NuPet") division of Nulaid Foods, Inc. 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 $16.2 million.
The Company is incorporated under the laws of the state of Delaware.
Immediately prior to the Offering, the Company changed its name from DPC
Acquisition Corp. to Doane Pet Care Enterprises, Inc. and the Company's
principal operating subsidiary changed its name from Doane Products Company to
Doane Pet Care Company. 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> 19
THE REFINANCING TRANSACTIONS
The Company is undertaking the Offering in conjunction with the Refinancing
Transactions. The Refinancing Transactions are intended to provide the Company
with a lower overall cost of capital and increase its financial flexibility.
The sources of funds for the Refinancing Transactions include:
(i) the establishment by Doane of the $175.0 million New Credit
Facility providing for approximately $75.0 million of term loan borrowings
and $100.0 million of revolving loan borrowings of which approximately
$88.2 million in aggregate principal amount is expected to be drawn at the
closing of the Refinancing Transactions;
(ii) the issuance and sale by Doane of $125.0 million of the New
Notes; and
(iii) the Offering.
The estimated uses of funds for the Refinancing Transactions include:
(i) the repayment of approximately $97.0 million in aggregate
principal amounts outstanding under the Doane Credit Facility and the Windy
Hill Credit Facility;
(ii) a tender offer and related consent solicitation for the
repurchase of all of the $160.0 million of Doane Senior Notes;
(iii) the repayment of all of the $13.3 million outstanding principal
amount and accrued interest of the Seller Notes;
(iv) the repurchase of all of the approximately $42.5 million
outstanding in liquidation value of the Doane Preferred Stock;
(v) the payment of approximately $34.2 million in Prepayment Premiums;
and
(vi) the payment of approximately $16.2 million of underwriting,
advisory, legal and other fees and expenses related to the Refinancing
Transactions.
The consummation of the Offering is contingent upon the consummation of the
Refinancing Transactions, including the Notes Offering. The consummation of the
Refinancing Transactions is also subject to certain conditions precedent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- The Refinancing Transactions," "Description of New Credit
Facility" and "Description of New Notes."
The following table sets forth the estimated sources and uses of funds for
the Refinancing Transactions:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
<S> <C> <C> <C>
The Offering...................... $150.0 Repurchase of the Doane Senior Notes.......... $160.0
The Notes Offering................ 125.0 Repayment of the Existing Credit Facilities... 97.0
New Credit Facility............... 88.2 Repayment of the Seller Notes................. 13.3
Repurchase of the Doane Preferred Stock....... 42.5
Prepayment Premiums........................... 34.2
Estimated Transaction Fees and Expenses....... 16.2
------
Total Sources........... $363.2 Total Uses.................................... $363.2
====== ======
</TABLE>
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<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated at
approximately $139.0 million (or $160.1 million if the Underwriters'
over-allotment option is exercised). The aggregate gross proceeds to the Company
from the Refinancing Transactions are estimated at $363.2 million.
The following table sets forth the estimated sources and uses of funds for
the Refinancing Transactions:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
<S> <C> <C> <C>
The Offering............. $150.0 Repurchase of the Doane Senior Notes............. $160.0
The Notes Offering....... 125.0 Repayment of the Existing Credit Facilities...... 97.0
New Credit Facility...... 88.2 Repayment of the Seller Notes.................... 13.3
------
Repurchase of the Doane Preferred Stock.......... 42.5
Prepayment Premiums.............................. 34.2
Estimated Transaction Fees and Expenses.......... 16.2
------
Total
Sources...... $363.2 Total Uses....................................... $363.2
====== ======
</TABLE>
The Doane Credit Facility matures in September 2001. The Doane Credit
Facility accrues interest at a variable rate based on either (i) the greater of
prime rate or the federal funds rate plus 0.5% or (ii) LIBOR, and has a current
rate of 7.81%. The Windy Hill Credit Facility matures in 2004, accrues interest
at a variable rate based on the Eurodollar or the higher of the prime rate or
the federal funds rate plus 0.5% and has a current rate of 9.13%. The Doane
Notes mature in March 2006 and accrue interest at a rate of 10 5/8% per annum.
The Seller Notes mature on the earlier of an initial public offering or April
28, 1999 and accrue interest at a rate of 10.0% per annum. The Doane Preferred
Stock is mandatorily redeemable in September 2007 and accrues dividends at a
rate of 14.25% per annum.
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, the New
Note Indenture and the Windy Hill Note Indenture will 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."
18
<PAGE> 21
DILUTION
The net tangible book value of the Company as of March 31, 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 March 31, 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 March 31, 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 March 31, 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 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.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth, as of March 31, 1998, (i) the historical
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the Windy Hill Acquisition and the IPES Acquisition and
(iii) the pro forma as adjusted capitalization of the Company after giving
further effect to the Refinancing Transactions. See "The Refinancing
Transactions," "Description of New Credit Facility," "Description of New Notes,"
"Description of Windy Hill 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 MARCH 31, 1998
------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt(3):
Doane Credit Facility.............................. $ 41,260 $ 48,719 $ --
Windy Hill Credit Facility......................... -- 48,334 --
New Credit Facility................................ -- -- 88,225
IPES Debt(4)....................................... -- 22,993 22,993
Industrial Revenue Bonds........................... 5,693 5,693 5,693
Doane Senior Notes................................. 160,000 160,000 --
New Notes.......................................... -- -- 125,000
Windy Hill Notes................................... -- 120,000 120,000
Seller Notes....................................... -- 13,295 --
-------- -------- --------
Total debt.................................... 206,953 419,034 361,911
Senior Exchangeable Preferred Stock of Doane, 3,000,000
shares authorized; 1,200,000 shares issued and
outstanding; no shares issued and outstanding, pro
forma as adjusted(5).................................. 32,277 32,277 --
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).......................... 1 2 2
Additional paid-in capital......................... 41,924 74,123 213,123
Accumulated deficit................................ (6,182) (11,382) (46,199)
-------- -------- --------
Total stockholders' equity.................... 35,743 62,743 166,926
-------- -------- --------
Total capitalization........................ $274,973 $514,054 $528,837
======== ======== ========
</TABLE>
- ------------------------------
(1) Gives pro forma effect to the IPES Acquisition and the Windy Hill
Acquisition.
(2) As adjusted to give effect to the Refinancing Transactions and the
application of the estimated proceeds therefrom.
(3) Total debt includes current portion of long-term debt.
(4) Consists of long-term debt incurred in connection with the IPES Acquisition.
(5) The Doane Preferred Stock had an initial liquidation preference of $30.0
million (accreted liquidation value of $42.5 million at March 31, 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 August 3, 1998, there were shares of Class A
Common Stock outstanding and 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 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."
20
<PAGE> 23
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed pro forma financial statements consist of
(i) the unaudited pro forma statements of operations of the Company for the
fiscal year ended December 31, 1997 and for the three months ended March 31,
1998 and the unaudited pro forma balance sheet as of March 31, 1998 and related
notes, (ii) the unaudited pro forma statements of operations of Windy Hill for
the fiscal year ended December 27, 1997 and for the three months ended March 28,
1998 and the unaudited pro forma balance sheet as of March 28, 1998 and related
notes, and (iii) the unaudited pro forma statements of operations of the Company
and Windy Hill on a combined basis for the fiscal year ended December 31, 1997
and for the three months ended March 31, 1998 and the unaudited pro forma
balance sheet as of March 31, 1998 and related notes. The unaudited pro forma
financial statements of the Company give effect to the IPES Acquisition as if
such transactions 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 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 and the combined unaudited pro forma balance sheet gives effect to the
IPES Acquisition, Windy Hill Acquisition, including the pro forma effects of
each of the transactions included in the pro forma financial statements of Windy
Hill, the Refinancing Transactions and the use of proceeds therefrom, in each
case as if such transactions had occurred on March 31, 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 three months ended March 31, 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 for the unaudited
three-month period ended March 28, 1998.
The unaudited condensed pro forma financial statements are based on
assumptions and include adjustments as explained in the notes thereto. The
unaudited condensed 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 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.
21
<PAGE> 24
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 COMPANY
(SEE HILL (SEE WINDY HILL COMPANY REFINANCING PRO FORMA
TABLE 1-A) TABLE 2-A) ACQUISITION PRO FORMA TRANSACTIONS AS ADJUSTED
---------- ---------- ----------- --------- ------------ -----------
(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........... 500,384 231,441 -- 731,825 -- 731,825(f)
-------- -------- ------- -------- -------- --------
Gross profit................. 85,453 72,600 (4,197) 153,856 -- 153,856
Operating expenses:
Promotion and
distribution.......... 32,956 37,377 (4,197)(a) 66,136 -- 66,136
Selling, general and
administrative........ 19,231 16,507 (1,774)(b) 33,964 -- 33,964
Non-recurring transition
costs...................... -- 1,571 -- 1,571 -- 1,571
-------- -------- ------- -------- -------- --------
Income from
operations............ 33,266 17,145 1,774 52,185 -- 52,185
Interest expense, net........ 24,414 19,183 -- 43,597 (12,137)(c) 31,460
Equity in earnings of joint
ventures................... (186) (480) -- (666) -- (666)
Other expense, net........... (45) 66 -- 21 -- 21
-------- -------- ------- -------- -------- --------
Income (loss) before
taxes................. 9,083 (1,624) 1,774 9,233 12,137 21,370
Income tax expense
(benefit).................. 3,197 (388) 804(d) 3,613 4,272(d) 7,885
-------- -------- ------- -------- -------- --------
Income (loss) before
extraordinary items... $ 5,886 $ (1,236) $ 970 $ 5,620 $ 7,865 $ 13,485
======== ======== ======= ======== ======== ========
Basic and diluted earnings
per share.................. $ 0.60
Basic and diluted weighted
average number of shares
outstanding................ 22,625
EBITDA(e).................... $ 76,903
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
22
<PAGE> 25
COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS COMBINED
COMPANY WINDY HILL FOR COMBINED FOR COMPANY
(SEE (SEE WINDY HILL COMPANY REFINANCING PRO FORMA
TABLE 1-B) TABLE 2-B) ACQUISITION PRO FORMA TRANSACTIONS AS ADJUSTED
---------- ---------- ----------- --------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $150,565 $ 80,283 $(1,046)(a) $229,802 $ -- $229,802
Cost of goods sold......... 124,715 60,677 -- 185,392 -- 185,392(f)
-------- -------- ------- -------- ------- --------
Gross profit............... 25,850 19,606 (1,046) 44,410 -- 44,410
Operating expenses:
Promotion and
distribution........ 8,594 8,729 (1,046)(a) 16,277 -- 16,277(f)
Selling, general and
administrative...... 5,905 4,656 (732)(b) 9,829 -- 9,829(f)
Non-recurring transition
costs.................... -- 160 -- 160 -- 160
-------- -------- ------- -------- ------- --------
Income from
operations.......... 11,351 6,061 732 18,144 -- 18,144
Interest expense, net...... 5,942 4,809 -- 10,751 (2,915)(c) 7,836
Equity in earnings of joint
ventures................. (27) (161) -- (188) -- (188)
Other expense, net......... (45) (50) -- (95) -- (95)
-------- -------- ------- -------- ------- --------
Income before taxes... 5,481 1,463 732 7,676 2,915 10,591
Income tax expense......... 1,924 631 302(d) 2,857 1,023(d) 3,880
-------- -------- ------- -------- ------- --------
Income before
extraordinary
items............... $ 3,557 $ 832 $ 430 $ 4,819 $ 1,892 $ 6,711
======== ======== ======= ======== ======= ========
Basic and diluted earnings
per share................ $ 0.30
Basic and diluted weighted
average number of shares
outstanding.............. 22,625
EBITDA(e).................. $ 24,631
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
23
<PAGE> 26
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 27, 1997 and
$1,046 for the three months ended March 28, 1998 of Windy Hill's cash
discounts to net sales from promotion and distribution expenses to conform
the accounting policies of Windy Hill to those of Doane.
(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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Headcount reductions.................................. $1,177 $ 535
Advisory fees......................................... 1,107 325
Amortization of goodwill ($20.4 million amortized over
40 years)............................................ (510) (128)
------ -----
$1,774 $ 732
====== =====
</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.
(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 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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
New Credit Facility ($88.2 million estimated at
7.50%)............................................... $ 6,616 $ 1,632
New Notes ($125.0 million estimated at 8.50%)......... 10,625 2,656
Windy Hill Notes ($120.0 million at 9.75%)............ 11,700 2,925
IPES Debt ($23.0 million at 6.50%).................... 1,495 369
Industrial Revenue Bonds ($5.7 million at 7.50%)...... 427 105
Amortization of deferred financing costs ($5.2 million
amortized over seven to ten years)................... 597 149
-------- -------
$ 31,460 $ 7,836
Less historical interest expense...................... 43,597 10,751
-------- -------
Adjustment............................................ $(12,137) $(2,915)
======== =======
</TABLE>
The effect of a 0.25% change in the annual interest rate of the New Credit
Facility and New Notes would change pro forma interest expense by $534 for
the year ended December 31, 1997 and $133 for the three months ended March
31, 1998.
(d) Reflects an adjustment to income tax expense at the effective rate of 35.2%
for the year ended December 31, 1997 and 35.1% for the three months ended
March 31, 1998 based on the Company's effective rate for such periods. 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) EBITDA for any relevant period presented above is defined as net income
plus interest expense, income taxes, depreciation, amortization, unusual
item, nonrecurring expenses and transition costs reflected in the
determination of net income. EBITDA is not a measure recognized by
generally accepted
24
<PAGE> 27
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.
(f) 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.
25
<PAGE> 28
COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS COMBINED
COMPANY WINDY HILL FOR COMBINED FOR COMPANY
(SEE (SEE WINDY HILL COMPANY REFINANCING PRO FORMA
TABLE 1-C) TABLE 2-C) ACQUISITION PRO FORMA TRANSACTIONS AS ADJUSTED
---------- ---------- ----------- --------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 2,699 $ 1,945 $ -- $ 4,644 $ -- $ 4,644
Trade and other accounts
receivable, net.............. 63,366 21,856 -- 85,222 -- 85,222
Inventories.................... 35,054 18,314 -- 53,368 -- 53,368
Deferred income tax benefits... -- 2,360 2,800(c) 5,160 18,748(d)(e) 23,908
Prepaid expenses and other
assets....................... 5,496 2,176 -- 7,672 -- 7,672
-------- -------- ------- -------- -------- --------
Total current assets....... 106,615 46,651 2,800 156,066 18,748 174,814
Property, plant and equipment,
net.............................. 115,379 78,275 -- 193,654 -- 193,654
Goodwill, net...................... 135,339 108,518 20,355(a) 264,212 -- 264,212
Other assets....................... 13,716 16,724 -- 30,440 (3,965)(d)(e) 26,475
-------- -------- ------- -------- -------- --------
Total assets............... $371,049 $250,168 $23,155 $644,372 $ 14,783 $659,155
======== ======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt............... $ 12,846 $ 1,910 -- $ 14,756 $(11,077)(d) $ 3,679
Accounts payable............... 37,678 17,027 -- 54,705 -- 54,705
Accrued liabilities............ 17,606 11,424 $17,500(a)(c) 46,530 -- 46,530
-------- -------- ------- -------- -------- --------
Total current
liabilities.............. 68,130 30,361 17,500 115,991 (11,077) 104,914
Long-term debt, excluding current
installments..................... 224,559 179,719 -- 404,278 (46,046)(d) 358,232
Post-retirement benefit
liability........................ 4,065 5,684 -- 9,749 -- 9,749
Deferred income tax liability...... 6,275 13,059 -- 19,334 -- 19,334
-------- -------- ------- -------- -------- --------
Total liabilities.......... 303,029 228,823 17,500 549,352 (57,123) 492,229
Preferred Stock.................... 32,277 -- -- 32,277 (32,277)(d) --
Stockholders' equity
Common Stock................... 1 1 1 2 -- 2
Additional paid-in capital..... 41,924 25,183 32,199(a) 74,123 139,000(d) 213,123
(25,183)(b)
Retained earnings (deficit).... (6,182) (3,838) 3,838(b) (11,382) (34,817)(d)(e) (46,199)
(5,200)(c)
-------- -------- ------- -------- -------- --------
Total stockholders'
equity................... 35,743 21,345 5,655 62,743 104,183 166,926
-------- -------- ------- -------- -------- --------
Total liabilities and
stockholders' equity..... $371,049 $250,168 $23,155 $644,372 $ 14,783 $659,155
======== ======== ======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
26
<PAGE> 29
COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
(a) To record the purchase of all of the issued and outstanding common stock of
Windy Hill Holdings for eight million shares valued at approximately
$32,200. The transaction was accounted for as a purchase with the purchase
price and direct acquisition costs of $9,500 allocated based on fair value
of assets acquired and liabilities assumed. Goodwill of approximately
$20,355, was recorded in connection with the transaction.
(b) To record equity adjustments associated with the Windy Hill Acquisition.
(c) To accrue estimated severance and other transition expenses directly
related to the Windy Hill Acquisition in the amount of $8,000 net of a tax
benefit of $2,800. 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.
(d) Reflects the assumed proceeds to the Company from the Refinancing
Transactions and the application of proceeds therefrom:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources:
The Offering......................................... $ 150,000
The Notes Offering................................... 125,000
New Credit Facility.................................. 88,225
---------
Total sources..................................... $ 363,225
=========
Uses:
Repayment of Doane Credit Facility................... $ (48,719)
Repayment of Doane Senior Notes...................... (160,000)
Repayment of Windy Hill Credit Facility.............. (48,334)
Repayment of Seller Notes............................ (13,295)
Repayment of Doane Preferred Stock................... (32,277)
Underwriting discounts and related expenses.......... (11,000)
Debt financing fees.................................. (5,200)
Costs of early extinguishment of debt................ (44,400)
---------
Total uses........................................ $(363,225)
=========
</TABLE>
The costs of early extinguishment of debt has been reflected as a charge to
retained earnings of $44,400 net of a tax benefit of $15,540 and will be
charged to operations upon the consummation of the Refinancing
Transactions.
(e) Reflects the impact on retained earnings of the write-off of financing
costs of $9,165, net of a tax benefit of $3,208, associated with the Doane
Credit Facility, the Doane Senior Notes and the Windy Hill 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
Refinancing Transactions.
27
<PAGE> 30
TABLE 1-A
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMPANY IPES ADJUSTMENTS FOR PRO FORMA
HISTORICAL HISTORICAL IPES ACQUISITION COMPANY
---------- ---------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $564,741 $21,096 $ -- $585,837
Cost of goods sold......................... 482,896 17,205 283(a) 500,384
-------- ------- ------- --------
Gross profit............................... 81,845 3,891 (283) 85,453
Operating expenses:
Promotion and distribution............... 31,876 1,080 -- 32,956
Selling, general and administrative...... 17,985 788 458(b) 19,231
-------- ------- ------- --------
Income from operations................ 31,984 2,023 (741) 33,266
Interest expense, net...................... 22,463 117 1,834(c) 24,414
Equity in earnings of joint venture........ (186) -- -- (186)
Other expense, net......................... 84 (129) -- (45)
-------- ------- ------- --------
Income before taxes................... 9,623 2,035 (2,575) 9,083
Income tax expense......................... 3,389 674 (866)(d) 3,197
-------- ------- ------- --------
Income before extraordinary items..... $ 6,234 $ 1,361 $(1,709) $ 5,886
======== ======= ======= ========
EBITDA(e).................................. $ 47,270
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
28
<PAGE> 31
TABLE 1-B
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMPANY IPES ADJUSTMENTS FOR PRO FORMA
HISTORICAL HISTORICAL IPES ACQUISITION COMPANY
---------- ---------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales..................................... $144,497 $6,068 $ -- $150,565
Cost of goods sold............................ 119,967 4,681 67(a) 124,715
-------- ------ ----- --------
Gross profit.................................. 24,530 1,387 (67) 25,850
Operating expenses:
Promotion and distribution.................. 8,434 160 -- 8,594
Selling, general and administrative......... 5,650 145 110(b) 5,905
-------- ------ ----- --------
Income from operations................... 10,446 1,082 (177) 11,351
Interest expense, net......................... 5,422 74 446(c) 5,942
Equity in earnings of joint venture........... (27) -- -- (27)
Other expense, net............................ (4) (41) -- (45)
-------- ------ ----- --------
Income before taxes...................... 5,055 1,049 (623) 5,481
Income tax expense............................ 1,776 335 (187)(d) 1,924
-------- ------ ----- --------
Income before extraordinary items........ $ 3,279 $ 714 $(436) $ 3,557
======== ====== ===== ========
EBITDA(e)..................................... $ 14,793
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
29
<PAGE> 32
DOANE PET CARE ENTERPRISES, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) Adjustment to reflect $283 for the year ended December 31, 1997 and $67 for
the three months ended March 31, 1998 of additional depreciation resulting
from the write-up of property, plant and equipment to fair value related to
the IPES Acquisition.
(b) Adjustment to reflect $458 for the year ended December 31, 1997 and $110
for the three months ended March 31, 1998 of additional goodwill and
intangible amortization resulting from the IPES Acquisition.
(c) Adjustments to interest expense to reflect the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Effect of additional financing incurred in connection with
the IPES Acquisition ($28.3 million at 6.2%).............. $1,760 $428
Additional amortization of deferred financing cost resulting
from the IPES Acquisition................................. 74 18
------ ----
$1,834 $446
====== ====
</TABLE>
(d) Reflects an adjustment to income tax expense at the effective rate of 35.2%
for the year ended December 31, 1997 and 35.1% for the three months ended
March 31, 1998 based on the Company's effective rate for such periods.
(e) EBITDA for any relevant period presented above is defined as net income
plus interest expense, income taxes, depreciation, amortization, unusual
item, nonrecurring expenses and transition costs reflected in the
determination of net income. 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.
30
<PAGE> 33
TABLE 1-C
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
COMPANY IPES FOR IPES PRO FORMA
HISTORICAL HISTORICAL ACQUISITION COMPANY
---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ -- $ 1,743 $ 956(d) $ 2,699
Trade accounts receivable, net............ 59,703 3,663 -- 63,366
Inventories............................... 33,048 1,878 128(a) 35,054
Prepaid expenses and other assets......... 4,863 633 -- 5,496
-------- ------- -------- --------
Total current assets................. 97,614 7,917 1,084 106,615
Property, plant and equipment, net............. 101,337 11,269 2,773(a) 115,379
Goodwill, net.................................. 122,068 -- 13,271(b) 135,339
Other assets, net.............................. 12,709 34 973(c) 13,716
-------- ------- -------- --------
Total assets......................... $333,728 $19,220 $ 18,101 $371,049
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.... $ 11,667 $ -- $ 1,179(d) $ 12,846
Accounts payable.......................... 32,886 4,792 -- 37,678
Accrued liabilities....................... 15,859 701 1,046(e) 17,606
-------- ------- -------- --------
Total current liabilities............ 60,412 5,493 2,225 68,130
Long-term debt, excluding current
installments................................. 195,286 2,113 27,160(d) 224,559
Post-retirement benefit liability.............. 4,065 -- -- 4,065
Deferred income tax liability.................. 5,945 330 -- 6,275
-------- ------- -------- --------
Total liabilities.................... 265,708 7,936 29,385 303,029
Preferred Stock................................ 32,277 -- -- 32,277
Stockholders' equity:
Common Stock.............................. 1 1,809 (1,809)(f) 1
Additional paid-in capital................ 41,924 3,884 (3,884)(f) 41,924
Retained earnings (deficit)............... (6,182) 5,591 (5,591)(f) (6,182)
-------- ------- -------- --------
Total stockholders' equity........... 35,743 11,284 (11,284) 35,743
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $333,728 $19,220 $ 18,101 $371,049
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
31
<PAGE> 34
DOANE PET CARE ENTERPRISES, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(a) Adjustment to reflect the write-up of inventory and property, plant and
equipment to fair value.
(b) Adjustment to reflect the excess of cost over the fair value of net assets
purchased in the IPES Acquisition. Goodwill is being amortized on a
straight-line basis over a forty-year period.
(c) Adjustment to reflect deferred financing costs and other intangibles
resulting from the IPES Acquisition. Deferred financing costs and other
intangibles are being amortized over 7 years and 5 years, respectively.
(d) Reflects the adjustment to record the debt incurred to fund the IPES
Acquisition and related transaction expenses.
(e) Adjustment to reflect accruals for costs associated with the IPES
Acquisition.
(f) Represents the equity adjustments associated with the IPES Acquisition.
32
<PAGE> 35
TABLE 2-A
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED 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 HISTORICAL TIONS(C) 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)(d) 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(e) 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(f) 19,183
Equity in earnings of joint
ventures...................... (377) (467) -- -- -- 364(g) (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) -- -- -- -- 186(h) (388)
-------- ------- ------- ------- -------- ------- --------
Income (loss) before
extraordinary items........... $ (1,820) $ 4,898 $ (237) $ 2,319 $ 751 $(7,147) $ (1,236)
======== ======= ======= ======= ======== ======= ========
EBITDA(i)....................... $ 28,499
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
33
<PAGE> 36
TABLE 2-B
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 28, 1998
<TABLE>
<CAPTION>
PRO FORMA
OTHER ADJUSTMENTS
WINDY HILL DEEP RUN ACQUISI- FOR PRO FORMA
HISTORICAL(A) AGP(B) HISTORICAL TIONS(C) ACQUISITIONS WINDY HILL
------------- ------ ---------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................................... $61,769 $5,703 $8,551 $4,260 $ -- $80,283
Cost of goods sold................................. 44,737 5,378 7,293 3,418 (149)(d) 60,677
------- ------ ------ ------ ----- -------
Gross profit....................................... 17,032 325 1,258 842 149 19,606
Operating expenses:
Promotion and distribution..................... 8,018 83 390 238 -- 8,729
Selling, general and administrative............ 3,993 133 303 161 66(e) 4,656
Non-recurring transition costs..................... 160 -- -- -- -- 160
------- ------ ------ ------ ----- -------
Income from operations......................... 4,861 109 565 443 83 6,061
Interest expense, net.............................. 4,123 5 -- -- 681(f) 4,809
Equity in earnings of joint ventures............... (266) -- -- -- 105(g) (161)
Other expense, net................................. 29 14 (92) (1) -- (50)
------- ------ ------ ------ ----- -------
Income before taxes............................ 975 90 657 444 (703) 1,463
Income tax expense (benefit)....................... 473 -- -- -- 158(h) 631
------- ------ ------ ------ ----- -------
Income (loss) before extraordinary
items........................................ $ 502 $ 90 $ 657 $ 444 $(861) $ 832
======= ====== ====== ====== ===== =======
EBITDA(i).......................................... $ 8,787
=======
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
34
<PAGE> 37
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(a) 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.
Includes results for AGP for the period from January 1, 1998 to February
23, 1998 (the date of acquisition) for the three month period ended March
28, 1998.
(c) 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 three month period ended March 28, 1998, results of
NuPet are included for the entire period and results of Cartersville are
included from January 1, 1998 to February 28, 1998 (the date of
acquisition).
(d) Adjustment to cost of goods sold to reflect $1,084 for the year ended
December 27, 1997 and $149 for the three months ended March 28, 1998 of
reductions in depreciation expense resulting from the Hubbard, AGP, NuPet,
Cartersville and Maumee acquisitions (the "WH Acquisitions").
(e) Adjustments to selling, general and administrative expense reflect $797 for
the year ended December 27, 1997 and $66 for the three months ended March
28, 1998 of additional amortization of goodwill resulting from the WH
Acquisitions.
(f) Adjustment to interest expense to reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 27, 1997 MARCH 28, 1998
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Effect of additional financing incurred in
connection with the WH Acquisitions ($66.1
million at 9.5% for the year and $28.4 million at
9.5% for the quarter)............................ $6,302 $680
Additional amortization of deferred financing cost
resulting from the WH Acquisitions............... 582 1
------ ----
$6,884 $681
====== ====
</TABLE>
(g) To eliminate equity in earning of joint ventures for the months prior to
acquisition.
(h) Reflects an adjustment to income tax benefit (expense) at the effective
rate of 23.9% for the year ended December 27, 1997 and 43.2% for the three
months ended March 28, 1998 based on Windy Hill's effective rate for such
periods.
(i) EBITDA for any relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization, unusual item,
nonrecurring expenses and transition costs reflected in the determination of
net income. 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.
35
<PAGE> 38
TABLE 2-C
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 28, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENT
WINDY HILL NUPET DEEP RUN FOR FOR DEBT PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ACQUISITIONS CONVERSION WINDY HILL
---------- ---------- ---------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,702 $ -- $ 243 $ -- $ -- $ 1,945
Trade and other accounts receivable,
net................................. 19,543 -- 2,313 -- -- 21,856
Inventories........................... 15,484 461 2,369 -- -- 18,314
Deferred income tax benefits.......... 2,360 -- -- -- -- 2,360
Prepaid expenses...................... 1,324 -- 852 -- -- 2,176
-------- ------ ------- -------- ------- --------
Total current assets.............. 40,413 461 5,777 -- -- 46,651
Property, plant and equipment, net........ 72,097 1,311 4,867 -- -- 78,275
Goodwill, net............................. 97,846 -- -- 10,672(a) -- 108,518
Other assets.............................. 16,594 -- 130 -- -- 16,724
-------- ------ ------- -------- ------- --------
Total assets...................... $226,950 $1,772 $10,774 $ 10,672 $ -- $250,168
======== ====== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt................................ $ 1,500 $ -- $ 410 $ -- $ -- $ 1,910
Accounts payable...................... 15,091 -- 1,936 -- -- 17,027
Accrued liabilities................... 11,164 55 205 -- -- 11,424
-------- ------ ------- -------- ------- --------
Total current liabilities......... 27,755 55 2,551 -- -- 30,361
Long-term debt, excluding current
installments............................ 160,479 -- 112 20,500(b) (1,372)(d)(e) 179,719
Post-retirement benefit liability......... 5,684 -- -- -- -- 5,684
Other long term liabilities............... 3,020 -- -- -- (3,020)(d)(e) --
Deferred income tax liability............. 13,059 -- -- -- -- 13,059
-------- ------ ------- -------- ------- --------
Total liabilities................. 209,997 55 2,663 20,500 (4,392) 228,823
-------- ------ ------- -------- ------- --------
Stockholders' equity:
Common Stock.......................... -- -- 1 (1)(c) -- --
Preferred Stock....................... 4,167 -- -- -- (4,167)(d) --
Additional paid-in capital............ 16,624 -- 29 (29)(c) 8,559(d) 25,183
Treasury stock........................ -- -- (234) 234(c) -- --
Retained earnings (deficit)........... (3,838) 1,717 8,315 (10,032)(c) -- (3,838)
-------- ------ ------- -------- ------- --------
Total stockholders' equity........ 16,953 1,717 8,111 (9,828) 4,392 21,345
-------- ------ ------- -------- ------- --------
Total liabilities and
stockholders' equity............ $226,950 $1,772 $10,774 $ 10,672 $ -- $250,168
======== ====== ======= ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
36
<PAGE> 39
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 28, 1998
(IN THOUSANDS)
(a) Adjustments to reflect the excess of cost over the fair value of net assets
purchased in the WH Acquisitions. Goodwill is being amortized on a
straight-line basis over a 40-year period.
(b) Represents debt incurred to acquire NuPet and Deep Run.
(c) Represents the elimination of equity associated with the WH Acquisitions.
(d) To reclassify Windy Hill preferred stock of $4,167, PIK A and A-1 notes of
$4,167 (included in long-term debt), and $225 of accrued interest on the
notes (included in other long term liabilities) to additional paid in
capital to reflect the conversion to common stock just prior to the Windy
Hill Acquisition.
(e) To reclassify $2,795 of accrued PIK interest on the Seller Notes to
long-term debt from other long term liabilities.
37
<PAGE> 40
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 three months ended March 31, 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 three-month period ended March 31, 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, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
----------------------------------- ---------------------------------------------------------
THREE
YEAR ENDED NINE MONTHS MONTHS YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED ENDED DECEMBER 31, ENDED MARCH 31,
------------------- 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 $141,741 $144,497
Cost of goods sold......... 280,498 308,622 247,394 97,184 446,776 482,896 122,725 119,967
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............... 65,306 68,396 56,239 17,774 66,441 81,845 19,016 24,530
Operating Expenses:
Promotion and
distribution........... 23,566 23,007 17,675 6,484 26,480 31,876 7,881 8,434
Selling, general and
administrative......... 11,296 11,550 8,558 3,677 15,050 17,985 3,966 5,650
Unusual item (2)......... -- -- 9,440 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income from
operations........... 30,444 33,839 20,566 7,613 24,911 31,984 7,169 10,446
Interest expense, net...... 1,706 2,494 3,611 5,806 22,471 22,463 5,672 5,422
Non-recurring finance
charge(3)................ -- -- -- -- 4,815 -- -- --
Equity in earnings of joint
venture.................. -- -- -- -- -- (186) -- (27)
Other expense, net......... (67) (11) (8) 29 (2) 84 (62) (4)
-------- -------- -------- -------- -------- -------- -------- --------
Income before taxes.... 28,804 31,356 16,963 1,778 (2,373) 9,623 1,559 5,055
Income tax expense
(benefit)................ 276 356 217 754 (855) 3,389 564 1,776
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item(4).... $ 28,528 $ 31,000 $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 995 $ 3,279
======== ======== ======== ======== ======== ======== ======== ========
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 $ (6,837) $ (3,363)
Cash flows provided by
(used in) investing
activities............... 4,070 12,368 3,677 209,346 11,489 15,161 (5,952) (3,430)
Cash flows provided by
(used in) financing
activities............... (17,768) (16,808) (20,568) 204,635 (8,644) (5,811) 12,789 6,793
EBITDA(5).................. 35,103 38,613 33,804 10,063 35,264 43,216 9,838 13,422
Depreciation and
amortization expense..... 4,526 4,660 3,694 2,359 15,972 12,141 2,882 3,215
Capital expenditures(6).... 4,119 12,159 4,224 1,297 7,901 14,437 5,712 3,355
Pet food sold (thousands of
tons).................... 897 942 774 288 1,189 1,237 309 323
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------
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 $ 37,202
Total assets................................... 117,962 142,710 309,584 338,293 338,184 333,728
Total debt..................................... 32,776 68,436 209,738 206,603 200,410 206,953
Preferred stock................................ -- -- 18,414 24,160 30,545 32,277
Stockholders' equity........................... 50,148 31,759 40,111 33,247 33,946 35,743
</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 non-recurring interim bridge debt financing costs that were
written off concurrently with the issuance of the Doane Senior Notes.
(4) Income before extraordinary items of the Company's predecessor does not
include any provision for federal income taxes. Prior to the 1995
Acquisition, the Company's predecessor was organized as a subchapter S
corporation. Consequently, the Company's 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.
(5) EBITDA for any relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization, unusual item,
nonrecurring expenses and transition costs reflected in the determination of
net income. 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.
(6) Capital expenditures exclude payments for acquisitions.
39
<PAGE> 42
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. In April
1998, the Company acquired IPES for a purchase price of $28.3 million in cash.
In August 1998, the Company acquired Windy Hill for approximately eight
million shares of Common Stock and the assumption of $181.6 million of
indebtedness. Windy Hill is 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 the AGP pet food division 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. for a purchase price of approximately $3.1
million. In June 1998, Windy Hill acquired Deep Run Packing Company, Inc. for a
net purchase price of approximately $16.2 million.
THE REFINANCING TRANSACTIONS
The Company is undertaking the Offering in conjunction with a series of
concurrent transactions in which the Company, including its subsidiaries, is
refinancing its capital structure. The Refinancing Transactions are intended to
provide the Company with a lower overall cost of capital and increase its
financial flexibility.
The following table sets forth the estimated sources and uses of funds for
the Refinancing Transactions:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
<S> <C> <C> <C>
The Offering...................... $150.0 Repurchase of the Doane Senior Notes.......... $160.0
The Notes Offering................ 125.0 Repayment of the Existing Credit Facilities... 97.0
New Credit Facility............... 88.2 Repayment of the Seller Notes................. 13.3
Repurchase of the Doane Preferred Stock....... 42.5
Prepayment Premiums........................... 34.2
Estimated Transaction Fees and Expenses....... 16.2
------
Total Sources........... $363.2 Total Uses.................................... $363.2
====== ======
</TABLE>
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 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
40
<PAGE> 43
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 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 46% and
58% of its corn and soybean meal requirements, respectively, 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 $2.4 million were
deferred on outstanding hedging contracts at March 31, 1998. See
"Business -- Raw Materials and Packaging."
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.
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 three months ended March 31, 1998 and March
31, 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 the Doane Credit Facility and the
Doane 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
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<PAGE> 44
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 three-month periods ended March 31, 1997 and March
31, 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
PERIOD ENDED YEAR ENDED YEAR ENDED THREE MONTHS THREE MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED MARCH 31, ENDED MARCH 31,
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% $141,741 100.0% $144,497 100.0%
Cost of goods sold................. 344,578 82.3 446,776 87.1 482,896 85.5 122,725 86.6 119,967 83.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit....................... 74,013 17.7 66,441 12.9 81,845 14.5 19,016 13.4 24,530 17.0
Operating expenses:
Promotion and distribution........ 24,159 5.8 26,480 5.2 31,876 5.6 7,881 5.5 8,434 5.8
Selling, general and
administrative.................. 12,235 2.9 15,050 2.9 17,985 3.2 3,966 2.8 5,650 3.9
Unusual item...................... 9,440 2.3 -- -- -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from operations.......... 28,179 6.7 24,911 4.8 31,984 5.7 7,169 5.1 10,446 7.3
Interest expense, net.............. 9,417 2.2 22,471 4.4 22,463 4.0 5,672 4.0 5,422 3.8
Non-recurring finance charge....... -- -- 4,815 0.9 -- -- -- -- -- --
Equity in earnings of joint
ventures.......................... -- -- -- -- (186) (0.0) -- -- (27) (0.0)
Other expense, net................. 21 0.0 (2) (0.0) 84 0.0 (62) (0.0) (4) (0.0)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before taxes............. 18,741 4.5 (2,373) (0.5) 9,623 1.7 1,559 1.1 5,055 3.5
Income tax expense (benefit)....... 971 0.2 (855) (0.2) 3,389 0.6 564 0.4 1,776 1.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income (loss)............... $ 17,770 4.3% $ (1,518) (0.3)% $ 6,234 1.1% $ 995 0.7% $ 3,279 2.3%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Net Sales. Net sales for the three months ended March 31, 1998 increased
1.9% to $144.5 million from $141.7 million in the same period in 1997. Pet food
net sales increased 3.2% to $136.0 million for the three months ended March 31,
1998 from $131.8 million in the same period in 1997. Volume increases resulted
in a 5.0% revenue increase, which was reduced by price declines of 1.9%
primarily for cost plus contracts.
Gross profit. Gross profit for the three month period ended March 31, 1998
increased 29.0% to $24.5 million from $19.0 million in the same period in 1997.
Of this increase, approximately 23.8% resulted from improvements in pet food
margins due to reductions in certain raw material costs, and approximately 4.1%
was due to the volume gains described above. The remaining 1.1% was a result of
non pet food products.
Promotion and distribution expense. Promotion and distribution expense
increased 7.0% to $8.4 million for the three months ended March 31, 1998 from
$7.9 million in the same period in 1997. Such increase was due to expenses
resulting from increases in variable sales promotions, incentive discounts and
brokerage costs resulting from increases in tons sold.
Selling, general and administrative expense. Selling, general and
administrative expense increased 42.4% to $5.7 million for the three months
ended March 31, 1998 from $4.0 million in the same period in 1997 primarily as a
result of increases in (i) salaries and related fringe benefits, (ii)
professional fees and (iii) amortization and depreciation.
Income from operations. Income from operations for the three months ended
March 31, 1998 increased 46.1% to $10.4 million from $7.2 million in the same
period in 1997. Income from operations as a percent of net sales increased to
7.3% for the three months ended March 31, 1998 from 5.1% in the same period in
1997 due to improved pet food margins and volume gains.
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<PAGE> 45
Interest expense. Interest expense decreased to $5.4 million for the three
months ended March 31, 1998 from $5.7 million in the same period in 1997
primarily due to an overall reduction in borrowings under the Doane Credit
Facility.
Net income. Net income for the three months ended March 31, 1998 increased
to $3.3 million from $1.0 million in the same period in 1997 due to increased
pet food margins and volume gains.
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 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 29.1% 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
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<PAGE> 46
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 11.7%, 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.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Capital Expenditures. The Company has historically
funded its operations, capital expenditures and working capital requirements
from cash flow from operations, bank borrowings and industrial development
bonds. The Company had working capital of $37.2 million at March 31, 1998. Net
cash provided by (used in) operating activities was ($6.8) million and ($3.4)
million for the three months ended March 31, 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 $12.8
million, $6.8 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 year ended December 31, 1997, the
Company spent $14.4 million on capital expenditures, of which $12.4 million was
used for expansion. During the three months ended March 31, 1998, the Company
spent $3.4 million on capital expenditures.
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 purchased 100% of the outstanding stock of
IPES for $28.3 million. IPES is a private label pet food manufacturer located in
Spain, with $21.1 million in net sales in 1997. The
44
<PAGE> 47
Company financed the IPES Acquisition through non-recourse borrowings in Spain
for $20.9 million of the purchase price and borrowings under the Doane Credit
Facility for the remainder.
Pro Forma Liquidity and Capital Resources. Historically, Doane and Windy
Hill have operated as separate entities, each with its own capital structure.
Windy Hill will be merged into Doane concurrently with the Refinancing
Transactions. Doane will assume all of the outstanding debt of Windy Hill. The
Company will maintain the New Credit Facility, the New Notes and the Windy Hill
Notes to cover all operations. See "The Refinancing Transactions," "Description
of New Credit Facility," "Description of New Notes" and "Description of Windy
Hill Notes."
As a result of the Refinancing Transactions, the Company is highly
leveraged and has significant cash requirements for debt service relating to the
New Credit Facility, the New Notes, the Windy Hill Notes and the industrial
development bonds of Doane. The Company's ability to borrow is limited by the
New Credit Facility and the limitations on the incurrence of indebtedness under
the New Note Indenture and the Windy Hill Indenture. The Company anticipates
that its operating cash flow, together with amounts available to it under the
New Credit Facility and new industrial development bonds, will be sufficient to
finance working capital requirements, debt service requirements and update
anticipated capital expenditures through the first six months of 1999.
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. 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 "-- Overview" and "Business -- Raw Materials and
Packaging."
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 will adopt SFAS 130 in the fiscal year ending December 31, 1998.
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
45
<PAGE> 48
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 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 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.
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.
In connection with its assessment of year 2000 compliance, the Company has
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's current estimates to bring
these areas into year 2000 compliance is $1.0 million. The Company has
implemented a program to confirm year 2000 compliance with all third parties
with which the Company has material relationships.
As of March 31, 1998, the Company has incurred costs of approximately $1.4
million in connection with year 2000 compliance. The Company intends to complete
its year 2000 compliance projects by July 1999. 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. 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.
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<PAGE> 49
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 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. In 1997, store brands have increased market share in each of the segments
of the pet food industry over the past five years. 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> 50
RECENT DEVELOPMENTS
Windy Hill Acquisition. In August 1998, the Company acquired Windy Hill for
approximately eight million shares of Common Stock and the assumption of $181.6
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 and EBITDA of $304.0 million and $28.5 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 $28.3
million in cash. IPES, located in Spain, is a manufacturer of both store and
regional brands. In fiscal 1997, IPES had net sales and EBITDA of $21.1 million
and $4.1 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 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 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.
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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
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, Hill Country Fare, 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:
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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.
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
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<PAGE> 53
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, HEB 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.
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.
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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."
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, Arizona, Wisconsin, Minnesota, Kansas and Montana 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 in
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.
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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
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 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
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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.
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 July 31, 1998, the Company had approximately 2,330 employees, of
which approximately 566 were management and administrative personnel and
approximately 1,764 were manufacturing personnel. Of this number, 382 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 90
employees and expires on January 20, 2001. The collective bargaining agreement
with the Joplin, Missouri plant covers 185 employees and expires in January
1999. The collective bargaining agreement with the Muscatine, Iowa plant covers
43 employees and expires in December 1999. The collective bargaining agreement
with respect to the NuPet plant in Ripon, California covers 23 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 41 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 divided into three classes, with the terms of the
directors of each class expiring at the Company's Annual Meeting of Stockholders
as follows: 1999 (Class I), 2000 (Class II) and 2001 (Class III). 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......... 44 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............ 55 Vice President, Co-Manufacturing Business
Development of Doane
Charles W. Dunleavy......... 53 Vice President, Finance of Doane
Timothy S. Shaver........... 46 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)..... 42 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 and Chairman of the Board of Doane since October 5, 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 joined the Company as its Chief Operating Officer 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 Doane, Mr.
Cahill served as President of Olin Corporation's Winchester Division and was
also a Corporate Vice President and Officer of Olin Corporation.
Thomas R. Heidenthal joined the Company as Senior Vice President and Chief
Financial Officer in March 1997. Prior to joining the Company, Mr. Heidenthal
served as Vice President Finance and Administration of TA Instruments, Inc. Mr.
Heidenthal is a Certified Public Accountant.
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F. Donald Cowan, Jr. served as Vice President of Operations for Windy Hill
before joining the Company in August 1998. 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. From 1984 to 1986, Mr. Cowan was
Director of Purchasing for Beatrice Foods' Grocery Products Division and Senior
Grain Merchant at Cook Industries.
Richard A. Hannasch joined the Company in October 1996 and has served as
Vice President, Strategic Planning since June 1998 and Vice President of
Marketing since November 1997. Prior to joining the Company, Mr. Hannasch served
as Director, Business Development for Ralston Purina Company's International
Division.
Richard D. Wohlschlaeger joined the Company in April 1993 and has served as
Vice President, Customer Development since November 1997. Prior to joining the
Company, Mr. Wohlschlaeger held various management positions at Ralston Purina
Company, including Group Director, Trade Marketing and Eastern Division Sales
Director.
David L. Horton joined the Company in November 1997 as Vice President,
Fulfillment. Prior to joining the Company, Mr. Horton served as Vice President
of Manufacturing and Engineering of Olin Corporation's Winchester Division.
Terry W. Bechtel has served as Vice President, Co-Manufacturing Business
Development since November 1997. Mr. Bechtel joined the Company in June 1973 and
served as Vice President, Administration of the Company from March 1990 until
October 1997, and as Vice President, Sales 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. Prior to joining Windy Hill in
September 1997, Mr. Dunleavy was Vice President of Operations for Hudson
Technologies, Inc. from 1993 to 1997.
Timothy S. Shaver served as Director of Plant Operations for Windy Hill
before joining the Company in August 1998. 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. See "-- Employment and Termination Agreements." Mr. Robinson became a
director of the Company and Doane 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 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
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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 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 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.
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<PAGE> 60
(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. See "-- 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 base salary is $275,000. Mr. Heidenthal's base salary is
$175,000 and Mr. Bechtel's base salary is $168,000. Earnings targets are
established annually by the Company's Board of Directors under the Executive
Officers bonus plan. The base bonus, for achievement of targeted earnings, is
50% or 70% of base salary for Named Executive Officers other than Mr. Cahill,
whose base bonus is 100% of base salary. There is no cap on the bonus 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. Mr. Cahill's employment agreement also provides for a sign-on bonus of
$175,000 payable as of his date of hire and an additional $175,000 payable at
the first anniversary of his date of hire.
The Company and Doane 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 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, the Company also caused 18,000 shares of Common Stock
issued to Mr. Robinson under the terms of two stock option agreements dated
November 1, 1996 to become 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 and will receive
underwriting discounts and commissions in connection with this Offering and the
offering of the New Notes. 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
58
<PAGE> 61
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 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
1997 Management Stock Purchase Plan, 375,000 shares of Common Stock of the
Company were sold for $2.00 per share to certain key employees, including sales
of 150,000 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 under the 1996 Stock Option Plan to the Named
Executive Officers. As of June 30, 1998, stock options have 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>
- ---------------
(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.
59
<PAGE> 62
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............. -- 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.
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.
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<PAGE> 63
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 First Amended and Restated
Investors' Agreement (the "Investors' Agreement") dated as of August 3, 1998.
The Investors' Agreement contains provisions concerning the governance of the
Company, Doane and Windy Hill, 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 and Windy Hill 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 the Doane 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 that will terminate upon consummation of the Offering. The financial
advisory agreement provides for an annual retainer fee of $100,000 plus
reimbursable expenses to be paid by Doane.
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<PAGE> 64
In connection with the 1995 Acquisition, DLJMB purchased 1,000,000 shares
of the Doane Preferred Stock and warrants to purchase 5,643,660 shares of the
Company's Common Stock for an aggregate purchase price of $25 million. In
December 1997, DLJMB and certain of its affiliates sold their shares of Doane
Preferred Stock to DLJSC, who thereupon sold such shares to qualified
institutional buyers (as defined in Rule 144A under the Securities Act).
DLJMB and its affiliates received fees of $1.0 million in connection with
the Windy Hill Acquisition and will receive underwriting discounts and
commissions in connection with this Offering and the offering of the New Notes.
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). An affiliate of DLJMB will act as agent bank and a lender
under the New Credit Facility and will receive fees in connection with such
syndication. 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.
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 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
Refinancing Transactions, (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 Doane 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.
CMIHI is an affiliate of Chase Securities Inc. ("CSI") and The Chase
Manhattan Bank ("Chase"). CSI, Chase and their affiliates perform various
investment banking and commercial banking services from time to time for the
Company and its affiliates. Chase will act as agent bank and a lender to the
Company under the New Credit Facility. Chase also acts as agent bank and a
lender under the Windy Hill Credit Facility and will receive its proportionate
share of any repayment of amounts outstanding under such facility 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, 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.
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<PAGE> 65
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> 66
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 3, 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 15.7% %
DLJMB(3).............................. 5,643,660 19.8
CMIHI(4).............................. 4,578,730 19.1
BRS .................................. 3,606,716 15.8
Dartford(5)........................... 2,935,860 12.8
Laura Hawkins Mansur(6)............... 4,140,000 18.1
Peter T. Grauer(3).................... 5,643,660 19.8
George B. Kelly(2).................... 3,600,000 15.7
Jeffrey C. Walker(4).................. 4,578,730 19.1
Ray Chung(5).......................... 2,935,860 12.8
Stephen C. Sherrill(7)................ 3,606,716 15.8
M. Walid Mansur(6).................... 4,140,000 18.1
Bob L. Robinson(8).................... 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...................... 400,400 1.7
All parties to the Investors Agreement
as a group.......................... 28,968,800 96.1
All executive officers and directors
as a group (15 persons)............. 27,050,652 89.8
</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 Messrs. Grauer and
Rush 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
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<PAGE> 67
as a Managing Director of DLJ Merchant Banking, Inc. and, as such, may be deemed
to beneficially own 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 DLJ. 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 2,317,695 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 do not include 80,000 options granted to Bob L. Robinson, 38,750
options granted to Thomas R. Heidenthal and 50,400 options granted to Earl
R. Clements, all of which are exercisable within 60 days.
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<PAGE> 68
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 August 3, 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, the New Note Indenture and the Windy Hill Indenture
contain provisions that restrict the Company from paying dividends on the Common
Stock. See "Description of New Credit Facility" and "Description of New 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 August 3, 1998, there were options to purchase shares of
Common Stock issued and outstanding of which 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, Doane will enter into the New
Credit Facility with a syndicate of banks, as lenders, and The Chase Manhattan
Bank ("Chase"), as administrative agent, DLJ Capital Funding, Inc. ("DLJ
Funding"), as syndication agent, and Mercantile Bank National Association, as
documentation agent. CSI will serve as the arranger of the New Credit Facility.
Each of Chase, CSI and DLJ Funding is an affiliate of one of the Underwriters.
The New Credit Facility will consist of a $75.0 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 Doane
and its subsidiaries to obtain revolving credit loans and the issue of letters
of credit for the account of Doane and its subsidiaries from time to time for
working capital, acquisitions and general corporate purposes. At the closing of
the Refinancing Transactions, Doane expects to borrow approximately $75.0
million under the Term Loan Facility and approximately $13.2 million under the
Revolving Credit Facility. In addition, the Company expects that approximately
$1.2 million of letters of credit will be outstanding under the Revolving Credit
Facility at the closing of the Refinancing Transactions. Loans under the New
Credit Facility will bear interest at the Applicable Margin plus, at the option
of Doane, either (x) the highest of (i) the administrative agent's prime rate
(ii) the certificate of deposit rate and (iii) the federal funds rate plus
one-half of one percent (0.5%) or (y) the Eurodollar rate. Doane will also pay
certain fees with respect to the New Credit Facility. The Term Loan Facility
will have a term of six and one-half years unless terminated sooner upon an
event of default (as defined in the New Credit Facility). The Term Loan must be
repaid in quarterly installments commencing on March 31, 1999. The
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principal amounts under the Term Loans shall be repaid, as follows: (i) $10.0
million in each of the calendar years 1999 and 2000, (ii) $12.5 million in each
of the calendar years 2001, 2002, 2003 and 2004 and (iii) $5.0 million on March
31, 2005 (the "Final Maturity Date"). The Revolving Credit Facility will have 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 is expected to contain various covenants that will
restrict Doane from taking various actions and that will require Doane to
achieve and maintain certain financial covenants. Doane contemplates that the
New Credit Facility will include covenants relating to balance sheet, fixed
charge coverage and leverage ratios and limitations on, among other things,
capital expenditures, liens, indebtedness, guarantees, mergers, acquisitions,
disposition of assets, dividends, changes in business activities and certain
corporate activities.
The New Credit Facility is also expected to contain events of default,
including nonpayment of principal, interest or fees, violation of covenants,
inaccuracy of representations or warranties in any material respect, cross
default and cross acceleration to certain other indebtedness, bankruptcy, ERISA,
material judgments and certain changes in control of Doane.
The indebtedness incurred pursuant to the New Credit Facility will be
secured by a first priority lien on substantially all of the assets of the
Company and its subsidiaries.
DESCRIPTION OF NEW NOTES
Concurrent with the Offering, the Company is offering $125.0 million in
aggregate principal amount of % Senior Subordinated Notes due 2008 (the
"New Notes") under an indenture (the "New Note Indenture") between the Company
and , as Trustee. The following summary of certain provisions of the New
Note Indenture and the New Notes does not purport to be complete, is subject to,
and is qualified in its entirety by reference to, the provisions of the New Note
Indenture and the New Notes.
The New Notes will be general unsecured obligations of the Company
subordinated in right of payment to all senior indebtedness and senior or pari
passu in right of payment to any current or future indebtedness of Doane that,
by its terms, is subordinated to the New Notes. The New Notes are limited to
$125 million aggregate principal amount and will mature on , 2008. The
New Notes will accrue interest at the rate of % payable semiannually on
and of each year.
The Company may redeem the New Notes at any time on or after , 2003,
in whole or in part, at the option of the Company, at the redemption prices set
forth below, plus accrued and unpaid interest, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003...................................................... %
2004...................................................... %
2005...................................................... %
2006 and thereafter....................................... 100.000%
</TABLE>
In addition, prior to , 2001 the Company may redeem up to 35% of the
aggregate original principal amount of the New Notes with the proceeds of one or
more Public Equity Offerings (as defined in the New Note Indenture), at a
redemption price equal to % of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the redemption date; provided, however,
that at least $81.3 million in aggregate principal amount of the New Notes
remain outstanding immediately after each such redemption.
Upon the occurrence of a Change of Control, the holders of the New Notes
have the right to require the Company to repurchase all or any part of such
holder's New 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, such repurchase to be made in accordance with the New Note Indenture.
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The New Note Indenture contains restrictive covenants that, among other
things, impose limitations (subject to certain exceptions) on the Company 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 under the New Note Indenture include: (i) a default for
30 days in the payment of interest on the New Notes when the same becomes due
and payable; (ii) a default in payment of principal on the New Notes when the
same becomes due and payable at maturity, upon optional redemption pursuant to
the New Note Indenture, upon declaration or otherwise; (iii) failure by the
Company to comply with other agreements in the New Note Indenture or the New
Notes, in certain cases subject to notice and lapse of time; (iv) certain
accelerations 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 60-day period; (v) certain
events of bankruptcy or insolvency with respect to the Company or any
Significant Subsidiary (as defined in the New Note Indenture); (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 Guarantor of its
obligations under the New Notes Indenture or the New 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 New Notes may declare all the New Notes to
be due and payable immediately. Certain events of bankruptcy or insolvency are
Events of Default which will result in the New Notes being due and payable
immediately upon the occurrence of such Events of Default.
DESCRIPTION OF WINDY HILL NOTES
On May 21, 1997, Windy Hill issued $120 million in aggregate principal
amount of its 9 3/4% Senior Subordinated Notes due 2007 (the "Windy Hill Notes")
under an indenture (the "Windy Hill Indenture") between Windy Hill and
Wilmington Trust Company as Trustee, 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 Windy Hill Indenture and the
Windy Hill Notes does not purport to be complete, is subject to, and is
qualified in its entirety by reference to, the provisions of the Windy Hill
Indenture and the Windy Hill Notes. In connection with the Refinancing
Transactions, Windy Hill will merge with and into Doane and Doane will assume
all of Windy Hill's rights and obligations under the Windy Hill Indenture.
The Windy Hill Notes are general unsecured obligations of Doane and are
subordinated in right of payment to all senior indebtedness and senior in right
of payment to any current or future indebtedness of Windy Hill that, by its
terms, is subordinated to the Windy Hill Notes. The Windy Hill Notes are limited
to $120 million aggregate principal amount and mature on May 15, 2007. The Windy
Hill 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 Windy Hill 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 $42 million of
the aggregate original principal amount of the Windy Hill Notes with the
proceeds of one or more Equity Offerings (as defined in the Windy Hill
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 $78 million in aggregate principal amount
of the Windy Hill Notes remain outstanding immediately after each such
redemption. At any time prior to May 15, 2002, the Windy Hill Notes may also be
redeemed in whole, but not in part, at the option of Doane upon the occurrence
of a Change in Control (as defined in the Windy
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Hill Indenture) at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined in the Windy Hill Indenture) and
the unpaid accrued interest, if any, to the date of redemption.
The Windy Hill Notes are subordinated in right of payment to the payment of
all Senior Indebtedness (as defined in the Windy Hill Indenture) of Doane,
including indebtedness under the Senior Credit Facility. The payment of
obligations of each subsidiary guarantor are subordinated to the payment of
Senior Indebtedness of such subsidiary guarantor.
Upon the occurrence of a Change of Control, the holders of the Windy Hill
Notes have the right to require Doane to repurchase all or any part of such
holder's Windy Hill 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, such repurchase to be made in accordance with the Windy Hill
Indenture.
The Windy Hill 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 under the Windy Hill Indenture include: (i) a default for
30 days in the payment of interest on the Windy Hill Notes when the same becomes
due and payable; (ii) a default in payment of principal on the Windy Hill Notes
when the same becomes due and payable at maturity, upon optional redemption
pursuant to the Windy Hill Indenture, upon declaration or otherwise; (iii)
failure by Doane to comply with other agreements in the Windy Hill Indenture or
the Windy Hill 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 (as defined in the Windy Hill Indenture); (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 Windy Hill Indenture or the Windy Hill 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 Windy Hill Notes may declare
all the Windy Hill Notes to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default which will result in the Windy
Hill 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 have performed financial advisory 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. Peter Grauer, a Managing Director at DLJMB, is a member 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 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
74
<PAGE> 77
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.
75
<PAGE> 78
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. However, both of the Company's operating subsidiaries,
Doane and Windy Hill Pet Food Company, Inc., are companies 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.
76
<PAGE> 79
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 March 31, 1998 (unaudited).................... F-3
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1998 (unaudited)...... F-6
Notes to Consolidated Financial Statements................ F-7
WINDY HILL PET FOOD HOLDINGS, INC.
Independent Auditors' Report.............................. F-21
Consolidated Balance Sheets as of December 28, 1996,
December 27, 1997 and March 28, 1998 (unaudited)....... F-22
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 three
months ended March 29, 1997 and March 28, 1998
(unaudited)............................................ F-23
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 three months ended March 29, 1997 and March
28, 1998 (unaudited)................................... F-24
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 three
months ended March 29, 1997 and March 28, 1998
(unaudited)............................................ F-25
Notes to Consolidated Financial Statements................ F-26
HUBBARD MILLING COMPANY
Independent Auditors' Report.............................. F-43
Balance Sheets as of April 30, 1995, 1996 and 1997........ F-44
Statements of Earnings for the years ended April 30, 1995,
1996 and 1997.......................................... F-45
Statements of Cash Flows for the years ended April 30,
1995, 1996 and 1997.................................... F-46
Notes to Financial Statements............................. F-47
</TABLE>
F-1
<PAGE> 80
When the transaction referred to in Note 2 of the Notes to 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. (formerly DPC Acquisition Corp.):
We have audited the accompanying consolidated balance sheets of Doane Pet
Care Enterprises, Inc. (formerly DPC Acquisition Corp.) -- 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> 81
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ -- $ -- $ --
Trade accounts receivable, net of allowances.............. 68,279 66,369 59,703
Inventories............................................... 30,737 32,426 33,048
Prepaid expenses and other assets......................... 7,368 3,550 4,863
-------- -------- --------
Total Current Assets.............................. 106,384 102,345 97,614
Property, plant, and equipment, net......................... 93,083 99,994 101,337
Goodwill, net of amortization............................... 126,068 122,882 122,068
Other assets, net........................................... 12,758 12,963 12,709
-------- -------- --------
Total Assets...................................... $338,293 $338,184 $333,728
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 10,417 $ 11,667 $ 11,667
Accounts payable.......................................... 51,303 42,422 32,886
Accrued liabilities....................................... 18,541 22,611 15,859
-------- -------- --------
Total current liabilities......................... 80,261 76,700 60,412
Long-term debt, excluding current installments.............. 196,186 188,743 195,286
Post-retirement benefit liability........................... 4,030 4,081 4,065
Deferred income tax liability............................... 409 4,169 5,945
-------- -------- --------
Total liabilities................................. 280,886 273,693 265,708
Senior exchangeable preferred stock, 3,000 shares
authorized, 1,200 shares issued........................... 24,160 30,545 32,277
Stockholders' equity:
Common stock, par value $.0001, 50,000 shares authorized,
14,075, 14,500 and 14,625 shares issued and
outstanding, respectively.............................. 1 1 1
Additional paid-in capital................................ 40,824 41,674 41,924
Accumulated deficit....................................... (7,578) (7,729) (6,182)
-------- -------- --------
Total stockholders' equity........................ 33,247 33,946 35,743
-------- -------- --------
Total liabilities and stockholders' equity........ $338,293 $338,184 $333,728
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 82
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ----------------------------------------------------------------
THREE MONTH
NINE MONTH THREE MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31,
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 $141,741 $144,497
Cost of goods sold................. 247,394 97,184 446,776 482,896 122,725 119,967
-------- -------- -------- -------- -------- --------
Gross profit....................... 56,239 17,774 66,441 81,845 19,016 24,530
Operating expenses:
Promotion and distribution....... 17,675 6,484 26,480 31,876 7,881 8,434
Selling, general and
administrative................. 8,558 3,677 15,050 17,985 3,966 5,650
Unusual item..................... 9,440 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Income from operations..... 20,566 7,613 24,911 31,984 7,169 10,446
Interest expense, net.............. 3,611 5,806 22,471 22,463 5,672 5,422
Non-recurring finance charge....... -- -- 4,815 -- -- --
Equity in earnings of joint
venture.......................... -- -- -- (186) -- (27)
Other expense, net................. (8) 29 (2) 84 (62) (4)
-------- -------- -------- -------- -------- --------
Income before taxes........ 16,963 1,778 (2,373) 9,623 1,559 5,055
Income tax expense (benefit)....... 217 754 (855) 3,389 564 1,776
-------- -------- -------- -------- -------- --------
Net income (loss).......... $ 16,746 $ 1,024 $ (1,518) $ 6,234 $ 995 $ 3,279
======== ======== ======== ======== ======== ========
Net income (loss) applicable to
common stock..................... -- $ (314) $ (7,264) $ (151) $ (547) $ 1,547
Basic and diluted net income (loss)
per common share................. -- $ (0.02) $ (0.52) $ (0.01) $ (0.04) $ 0.11
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 14,000 14,188 14,000 14,469
======== ======== ======== ======== ======== ========
</TABLE>
F-4
<PAGE> 83
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ---------------------------------------------------------------
THREE MONTH
NINE MONTH THREE MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31,
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 $ 995 $ 3,279
Items not requiring (providing) cash:
Depreciation and amortization............. 3,694 2,359 15,972 12,141 2,882 3,215
Accrued deferred compensation............. (93) 23 282 51 35 (16)
Loss on sale of property and equipment.... 10 -- 26 115 37 3
Deferred income tax expense (benefit)..... -- 1,102 (855) 3,389 583 1,776
Equity in foreign joint venture........... -- -- -- (186) (90) (27)
Changes in:
Accounts receivable..................... 1,800 (7,620) (21,176) 1,910 6,986 6,666
Inventories............................. (2,424) (2,954) (3,141) (1,689) 2,975 (622)
Prepaid expenses and other.............. (498) (571) (5,479) 3,818 4,744 (1,313)
Accounts payable........................ (11,526) 4,084 32,155 (8,881) (19,126) (9,536)
Accrued expenses........................ 5,245 7,034 2,317 4,070 (7,469) (6,752)
Other................................... -- (1,770) -- -- 611 36
-------- --------- --------- -------- -------- -------
Net cash provided by operating
activities......................... 12,954 2,711 18,583 20,972 (6,837) 3,363
-------- --------- --------- -------- -------- -------
Cash flows from investing activities:
Proceeds from sale of property and
equipment................................. 571 -- 26 39 1 --
Capital expenditures, including interest
capitalized............................... (4,224) (1,297) (7,901) (14,437) (5,712) (3,355)
Acquisition related payments................ -- (207,961) (1,087) -- -- --
Increase in cash value of life insurance.... (24) (88) (112) (324) (9) (7)
Investment in foreign joint venture......... -- -- (1,979) -- -- --
Other....................................... -- -- (436) (439) (232) (68)
-------- --------- --------- -------- -------- -------
Net cash used in investing
activities......................... (3,677) (209,346) (11,489) (15,161) (5,952) 3,430
-------- --------- --------- -------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.... (7,225) 204,348 163,136 5,698 1,668 --
Increase in debt issuance costs............. -- -- (5,909) (468) -- --
Retirement of prior indebtedness............ -- (46,013) -- -- -- --
Net borrowings under short-term credit
agreements................................ 595 (6,800) -- -- -- --
Net borrowings under revolving credit
agreement................................. -- -- 1,475 (1,475) 13,725 9,465
Principal payments on long-term debt........ (786) (4,400) (167,746) (10,416) (2,604) (2,922)
Dividends paid.............................. (13,152) -- -- -- -- --
Issuance of preferred stock................. -- 17,075 -- -- -- --
Capital contribution........................ -- 40,425 400 850 -- 250
-------- --------- --------- -------- -------- -------
Net cash provided by (used in)
financing activities............... (20,568) 204,635 (8,644) (5,811) 12,789 6,793
-------- --------- --------- -------- -------- -------
Decrease in cash and cash
equivalents........................ (11,291) (2,000) (1,550) -- -- --
Cash and cash equivalents, beginning of
period...................................... 14,841 3,550 1,550 -- -- --
-------- --------- --------- -------- -------- -------
Cash and cash equivalents, end of period...... $ 3,550 $ 1,550 $ -- $ -- $ -- $ --
======== ========= ========= ======== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 84
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------------------------
COMMON STOCK TREASURY STOCK
--------------- PAID-IN ------------------ RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
------ ------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 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>
Beginning balances, October 1,
1995............................. -- $-- $ -- -- $ -- $ -- $ --
Capital contribution............. 13,875 1 40,424 -- -- -- 40,425
Net income....................... -- -- -- -- -- 1,024 1,024
Preferred stock dividends........ -- -- -- -- -- (1,069) (1,069)
Accretion of preferred stock..... 13,875 -- -- -- -- (269) (269)
------ --- ------- ------- -------- -------- --------
Balances, December 31, 1995........ 1,000 1 40,424 -- -- (314) 40,111
Capital contribution............. 200 -- 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........ 14,075 1 40,824 -- -- (7,578) 33,247
Capital contribution............. 425 -- 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........ 14,500 1 41,674 -- -- (7,729) 33,946
Capital contribution
(unaudited)................... 125 -- 250 -- -- -- 250
Net income (unaudited)........... -- -- -- -- -- 3,279 3,279
Preferred stock dividends
(unaudited)................... -- -- -- -- -- (1,463) (1,463)
Accretion of preferred stock
(unaudited)................... -- -- -- -- -- (269) (269)
------ --- ------- ------- -------- -------- --------
Balances, March 31, 1998
(unaudited)...................... 14,625 $ 1 $41,924 -- $ -- $ (6,182) $ 35,743
====== === ======= ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 85
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997, 1996 AND 1995
(1) ACQUISITION
On October 5, 1995, Doane Pet Care Enterprises, Inc. (formerly DPC
Subsidiary Acquisition Corp.) 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 66% of accounts receivable at December 31, 1996 and
1997, and March 31, 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 March 31, 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 1996 consolidated
financial statements to conform with the fiscal 1997 presentation.
F-7
<PAGE> 86
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $8,113 at December 31, 1996 and
1997, and March 31, 1998 (unaudited), respectively.
Recognition of Revenue
Revenue is recognized at the time the product is shipped.
Commodity Hedges
The Company manages price risk created by market fluctuations by hedging
portions of its primary commodity products purchases, principally through
exchange traded futures and options contracts which are designated as hedges.
The terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity.
The Company's policy does not permit speculative commodity trading. Futures
and options contracts are accounted for as hedges, and gains and losses are
recognized in the period realized as part of the cost of
F-8
<PAGE> 87
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,400
at December 31, 1996 and 1997, and March 31, 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.
Financial Instruments
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. The Company believes that the carrying amounts of its
current assets, current liabilities and long-term debt approximate the fair
value of such items.
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.
F-9
<PAGE> 88
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................................... $ 7,268 $ 8,449 $ 7,888
Packaging materials................................... 10,609 10,735 11,225
Finished goods........................................ 12,860 13,242 13,935
------- ------- -------
$30,737 $32,426 $33,048
======= ======= =======
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 3,987 $ 4,037 $ 4,037
Buildings and improvements.......................... 25,395 29,439 29,463
Machinery and equipment............................. 65,377 76,442 77,301
Furniture and fixtures.............................. 1,932 2,536 2,636
Automotive equipment................................ 1,000 1,016 1,078
Construction in progress............................ 3,504 1,972 4,277
-------- -------- --------
101,195 115,442 118,792
Less accumulated depreciation....................... 8,112 15,448 17,455
-------- -------- --------
$ 93,083 $ 99,994 $101,337
======== ======== ========
</TABLE>
(6) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and commissions.............................. $ 3,223 $ 4,714 $ 4,105
Accrued interest...................................... 6,379 6,223 1,780
Rebates and other promotions.......................... 7,510 9,064 7,452
Other................................................. 1,429 2,610 2,522
------- ------- -------
$18,541 $22,611 $15,859
======= ======= =======
</TABLE>
F-10
<PAGE> 89
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior Credit Facility............................ $ 46,603 $ 34,712 $ 41,255
Senior Notes...................................... 160,000 160,000 160,000
Industrial Development Revenue Bonds (net of
reserve funds).................................. -- 5,698 5,698
-------- -------- --------
206,603 200,410 206,953
Less current maturities........................... 10,417 11,667 11,667
-------- -------- --------
$196,186 $188,743 $195,286
======== ======== ========
</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-11
<PAGE> 90
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
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
F-12
<PAGE> 91
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holders of the Senior Notes. The Senior Notes were issued pursuant to the Note
Indenture which contains covenants restricting or limiting the ability of the
Company and its subsidiaries to pay dividends or make other restricted payments,
incur additional indebtedness and issue preferred stock, create liens, incur
dividends and other payment restrictions affecting subsidiaries, enter into
mergers or consolidations, make asset sales, enter into transactions with
affiliates, and engage in other lines of business. Under certain circumstances,
the Company is required to offer to purchase all outstanding Senior Notes at a
purchase price in cash equal to 100% of their principal amount, plus accrued and
unpaid interest to the date of repurchase, with the proceeds of certain asset
sales. Upon a Change of Control (as defined in the Note Indenture) each holder
of Senior Notes will have the right to require the Company to repurchase all or
any part of such holder's Senior Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest to the date
of purchase.
Industrial 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.
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>
(8) SENIOR EXCHANGEABLE PREFERRED STOCK
The Company has authorized 3,000 shares of Senior Exchangeable Preferred
Stock of which the Company issued 1,200 shares in connection with the financing
of the Acquisition.
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,
F-13
<PAGE> 92
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 and 1997, and March 31, 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 March 31, 1998 (unaudited), the
cumulative accretion to redemption value and cumulative dividends on the Senior
Exchangeable Preferred Stock are $2,422 and $2,691, respectively and $11,047 and
$12,510, 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, 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
F-14
<PAGE> 93
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
Effective November 1, 1996, the Company adopted 1996 Management Stock
Purchase Plan (the "1996 Plan"). The 1996 Plan provides that officers and other
key employees may be granted an aggregate of 50,000 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 75,000 rights to officers and key
employees to purchase one share of the
F-15
<PAGE> 94
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's common stock at $2 per share. In fiscal 1996 and 1997, 200,000 and
425,000 shares were purchased under the plan.
(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 three months ended March 31, 1998, the same customer accounted for
approximately 65%, 63%, 61% and 60%, 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-16
<PAGE> 95
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
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) (13,896)
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 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-17
<PAGE> 96
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
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-18
<PAGE> 97
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
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.
(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 $1,134 at December 31, 1996
and 1997 and March 31, 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
$1,341 at December 31, 1996 and 1997 and March 31, 1998 (unaudited),
respectively.
(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.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- -------------------------------------------
THREE MONTH
NINE MONTH THREE MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31,
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 -- -- --
</TABLE>
F-19
<PAGE> 98
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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>
(17) SUBSEQUENT EVENTS
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. In August 1998, the Company acquired Windy Hill for
8,000,000 shares of Common Stock and the assumption of $181.6 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.
F-20
<PAGE> 99
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 in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
March 13, 1998
F-21
<PAGE> 100
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 570 $ 731 $ 1,702
Accounts receivable (net of $48, $372 and $386 allowance,
respectively).......................................... 8,224 19,252 17,843
Accounts receivable -- other.............................. 19 1,694 1,700
Inventories (Note 4)...................................... 5,141 13,312 15,484
Prepaid expenses.......................................... 811 990 2,360
Current deferred tax asset (Note 11)...................... 30 2,335 1,324
------- -------- --------
Total current assets.............................. 14,795 38,314 40,413
Property, plant and equipment, net (Note 5)................. 22,484 60,774 72,097
Investments in joint ventures (Note 6)...................... -- 3,527 2,462
Goodwill and other intangible assets, net (Note 7).......... 51,515 98,465 97,846
Other assets, net (Note 8).................................. 3,431 13,612 14,132
------- -------- --------
Total assets...................................... $92,225 $214,692 $226,950
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 9)................ $ 5,800 $ 1,312 $ 1,500
Senior secured revolving debt facility (Note 9)........... 2,000 2,000 --
Accounts payable.......................................... 9,816 20,178 15,091
Accrued liabilities....................................... 2,699 8,154 11,164
------- -------- --------
Total current liabilities......................... 20,315 31,644 27,755
Accrued interest -- non-current (Note 9).................... 962 2,595 3,020
Deferred tax liability (Note 11)............................ 1,867 12,390 13,059
Senior secured term debt (Note 9)........................... 35,750 13,688 25,812
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 5,684
------- -------- --------
Total liabilities................................. 81,020 198,241 209,997
------- -------- --------
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) (3,838)
------- -------- --------
Total stockholders' equity........................ 11,205 16,451 16,953
------- -------- --------
Commitments and contingent liabilities (Notes 9, 12 and 17)
Total liabilities and stockholders' equity........ $92,225 $214,692 $226,950
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 101
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH
TEN MONTH YEARS ENDED PERIODS ENDED
PERIOD ENDED --------------------------- ---------------------
DECEMBER 30 DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $34,481 $82,993 $164,288 $25,937 $61,769
Cost of good sold 22,107 54,379 113,288 16,061 44,737
------- ------- -------- ------- -------
Gross profit.................. 12,374 28,614 51,000 9,876 17,032
------- ------- -------- ------- -------
Operating expenses:
Promotion and distribution......... 8,483 17,165 28,980 5,960 8,018
Selling, general and
administrative................... 1,978 4,934 10,886 1,750 3,993
Non-recurring transition costs
(Note 10)........................ -- -- 1,571 -- 160
------- ------- -------- ------- -------
Total operating expenses...... 10,461 22,099 41,437 7,710 12,171
------- ------- -------- ------- -------
Operating income.............. 1,913 6,515 9,563 2,166 4,861
Interest expense, net................... 1,192 4,981 12,241 1,666 4,123
Equity in earnings of joint ventures.... -- -- (377) -- (266)
Other expenses, net..................... -- 40 93 13 29
------- ------- -------- ------- -------
Income (loss) before income
taxes and extraordinary
item........................ 721 1,494 (2,394) 487 975
Income tax expense (benefit)............ -- 824 (574) 195 473
------- ------- -------- ------- -------
Income (loss) before
extraordinary item.......... 721 670 (1,820) 292 502
Extraordinary loss on early
extinguishment of debt, net of tax of
$0 in 1996 and $1,529 in 1997 (Note
9).................................... -- 604 2,294 -- --
------- ------- -------- ------- -------
Net income (loss)............. $ 721 $ 66 $ (4,114) $ 292 $ 502
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 102
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).......... -- -- -- -- -- -- -- -- 502 502
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at March 28, 1998
(unaudited)................. $ -- 2,540 $ -- 569 $ -- 4,167 $4,167 $16,624 $(3,838) $16,953
====== ===== ===== === ===== ===== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 103
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH
TEN MONTH YEARS ENDED PERIODS ENDED
PERIOD ENDED --------------------------- ---------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 721 $ 66 $ (4,114) $ 292 $ 502
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Depreciation and amortization...... 787 2,719 6,882 953 2,337
Interest expense -- non-current.... -- 962 1,633 375 425
Deferred income taxes.............. -- 824 2,582 195 643
Early extinguishment of debt, net
of tax........................... -- 604 2,294 -- --
Gain on sale of fixed assets....... -- -- 4 -- --
Equity in earnings of joint
ventures......................... -- -- (377) -- (266)
Operating advances from joint
ventures......................... -- -- 1,015 -- 358
Change in assets and liabilities,
net of effects of businesses
acquired:
(Increase) decrease in accounts
receivable.................... (960) (3,941) (4,650) 1,272 2,140
(Increase) decrease in
inventories................... 352 (454) (1,726) 81 1,390
Increase in prepaid expenses..... (34) (412) (50) (3) (263)
Increase (decrease) in accounts
payable....................... 847 6,250 313 (238) (5,654)
Increase (decrease) in accrued
liabilities................... -- 1,063 4,436 (1,421) 2,780
-------- -------- --------- ------- --------
Net cash provided by operating
activities.................. 1,713 7,681 8,242 1,506 4,392
-------- -------- --------- ------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment.......................... (1,120) (1,091) (4,175) (287) (1,362)
Change to other non-current assets and
liabilities........................ (321) (357) (1,087) (234) 1,625
Proceeds from sale of assets.......... -- -- 51,704 -- --
Payment for acquisition of businesses,
net of cash acquired............... (22,165) (56,768) (135,350) -- (13,972)
-------- -------- --------- ------- --------
Net cash used in investing
activities.................. (23,606) (58,216) (88,908) (521) (13,709)
-------- -------- --------- ------- --------
Cash flows from financing activities:
Proceeds from senior secured term and
revolving debt..................... 17,000 48,000 71,500 2,000 12,500
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) (3,450) (2,188)
Capital contributions................. 6,000 4,750 10,000 -- --
Debt issuance and syndication costs... (780) (3,272) (10,721) -- (24)
-------- -------- --------- ------- --------
Net cash provided by (used in)
financing activities........ 22,220 50,778 80,827 (1,450) 10,288
-------- -------- --------- ------- --------
Increase (decrease) in cash and cash
equivalents........................... 327 243 161 (465) 971
Cash and cash equivalents, beginning of
period................................ -- 327 570 570 731
-------- -------- --------- ------- --------
Cash and cash equivalents, end of
period................................ $ 327 $ 570 $ 731 $ 105 $ 1,702
======== ======== ========= ======= ========
Supplemental cash flow disclosure:
Cash paid for interest................ $ 1,179 $ 3,759 $ 6,660 $ 1,745 $ 428
Income taxes paid..................... $ -- $ -- $ 8,806 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 104
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. Holdings was capitalized on April 29, 1996 with long term
debt (Note 9) and additional capital contributions (Note 16). The accompanying
consolidated financial statements reflect the financial position, results of
operations and cash flows of Predecessor through April 29, 1996 and of the
consolidated entity as of and through March 28, 1998 (unaudited).
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. Accordingly,
the results of operations reflect activity for the ten month period March 1,
1995 (commencement of Predecessor's operations) through December 30, 1995, the
years ended December 28, 1996 and December 27, 1997, and the unaudited three
month periods ended March 29, 1997 and March 28, 1998. 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.
F-26
<PAGE> 105
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in first-out (FIFO) method. Inventories include the
cost of raw materials, packaging, labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the individual assets ranging from four to thirty
years. Costs which improve an asset or extend its useful life are capitalized,
while repairs and maintenance costs are expensed as incurred. Leasehold
improvements are amortized over the estimated useful life of the property or
over the terms of the leases, whichever is shorter.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets include goodwill, trademarks and
certain identifiable intangible assets. Trademarks and goodwill are being
amortized over four to forty years using the straight-line method. Other
intangible assets are being amortized using the straight-line method over
periods ranging from four to five years. Amortization of goodwill and other
intangible assets charged against income during the ten month period ended
December 30, 1995, the years ended December 28, 1996 and December 27, 1997 and
for the unaudited three month periods ended March 29, 1997 and March 28, 1998
was $0.3 million, $1.1 million, $2.9 million, $0.4 million and $0.8 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 three month periods ended March 29,
1997 and March 28, 1998 was $67,000, $259,000, $715,000, $98,000, and $241,000,
respectively. Amortization of packaging design costs charged against income was
$158,000, $205,000, $283,000, $57,000 and $99,000, for the same periods
respectively.
F-27
<PAGE> 106
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 March 28, 1998 (unaudited) based on terms currently
available to the Company in financial markets for similar instruments.
Concentration of Credit Risk
The Company sells its products to supermarkets, wholesalers and other
retailers. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and had no significant concentration of credit risk at
December 28, 1996, December 27, 1997, and March 28, 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
F-28
<PAGE> 107
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
requires Heinz to meet a minimum supply amount at a co-packing rate which covers
the variable costs of the pet food products as well as an amount to cover a
specified rate of fixed costs at the Perham facility where the products are
manufactured.
Following is a summarized statement of operations (unaudited) which
reflects activity for Holdings subsequent to the acquisition of the Heinz pet
food brands for the period April 29, 1996 through December 28, 1996 (in
thousands):
<TABLE>
<S> <C>
Net sales................................................... $69,505
Gross profit................................................ 24,151
Selling, distribution and marketing expenses................ 13,903
Operating income............................................ 6,439
Income before taxes......................................... 1,877
Net income.................................................. $ 1,052
</TABLE>
On May 21, 1997, Windy Hill Pet Food Acquisition Co. merged with and into
Hubbard, and Old Windy Hill purchased all of the capital stock of Armour
Corporation, a holding company which prior to the closing of the transaction
owned 5% of the capital stock of Hubbard and after the consummation of the
transaction owned 39% of the capital stock of Hubbard. Concurrently, Hubbard,
the surviving corporation in the merger, was renamed Windy Hill Pet Food
Company, Inc., and Old Windy Hill transferred all the operating assets and
liabilities, including $27.0 million of equity and $51.0 million of indebtedness
(the "Existing Indebtedness") of Old Windy Hill to the Company. The net combined
purchase price of Hubbard and the Armour Corporation stock was approximately
$131.1 million (net of cash acquired). For financial reporting purposes, these
transactions were accounted for as a purchase of Hubbard by Old Windy Hill and
the results of operations of Hubbard have been included since the date of
acquisition. The allocation of the purchase price has been finalized.
The acquisition and the repayment of Existing Indebtedness was financed
with (i) a $9.8 million net capital contribution from Holdings, (ii) term debt
of $20.0 million and revolving debt of $45.0 million under a $65.0 million
senior secured debt facility, and (iii) proceeds from the issuance of $120.0
million of senior subordinated notes. Immediately following the merger, the
Company sold its animal feed business to Feed-Rite (US) Animal Feeds, Inc., a
subsidiary of the Ridley Group. The net after tax proceeds, subject to certain
adjustments, were approximately $50.0 million. The net proceeds were used to
repay $5.0 million of the senior secured term debt and $45.0 million of net
senior secured revolving debt facility.
F-29
<PAGE> 108
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price of the acquisitions have been allocated to tangible and
intangible assets as follows (in thousands):
<TABLE>
<CAPTION>
AGP
HUBBARD BUSINESS
-------- -----------
(UNAUDITED)
<S> <C> <C>
Cash paid to acquire business, net of cash acquired... $131,052 $ 12,436
Other acquisition costs............................... 5,438 251
-------- --------
136,490 12,687
Cost assigned to net tangible assets and assets held
for sale............................................ (86,305) (12,436)
-------- --------
Cost assigned to intangible assets.................... $ 50,185 $ 251
======== ========
</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.
NOTE 4 -- INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
(UNAUDITED) ------------ ------------ ------------
<S> <C> <C> <C>
Raw materials............................ $ 1,253 $ 3,004 $ 3,392
Packaging supplies....................... 2,339 5,536 7,036
Finished goods........................... 1,549 4,772 5,056
------- ------- -------
$ 5,141 $13,312 $15,484
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments to purchase raw materials
aggregating approximately $13.2 million.
F-30
<PAGE> 109
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.......................................... $ 203 $ 2,663 $ 2,750
Machinery and equipment....................... 17,043 42,882 18,620
Buildings and improvements.................... 6,266 16,328 51,211
Furniture and fixtures........................ 238 1,390 1,476
Computer equipment............................ 70 127 127
Construction-in-progress...................... 11 1,626 3,269
------- ------- -------
23,831 65,016 77,453
Less accumulated depreciation............... 1,347 4,242 5,356
------- ------- -------
$22,484 $60,774 $72,097
======= ======= =======
</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. The Company
acquired the remaining 50% interest not previously owned in the Flint River
Mills, Inc. joint venture on February 28, 1998.
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, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill...................................... $ 7,588 $ 35,122 $ 35,122
Trademarks.................................... 45,000 66,807 66,807
Other intangibles............................. 332 852 852
------- -------- --------
52,920 102,781 102,781
Less accumulated amortization............... 1,405 4,316 4,935
------- -------- --------
$51,515 $ 98,465 $ 97,846
======= ======== ========
</TABLE>
F-31
<PAGE> 110
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- OTHER ASSETS
Other assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs........................... $2,978 $10,464 $10,464
Defined benefit pension plan asset............ -- 2,474 2,688
Packaging, plate cost and other costs......... 1,059 1,899 2,809
------ ------- -------
4,037 14,837 15,961
Less accumulated amortization............... 606 1,225 1,829
------ ------- -------
$3,431 $13,612 $14,132
====== ======= =======
</TABLE>
NOTE 9 -- LONG TERM DEBT
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
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 27,312
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
</TABLE>
F-32
<PAGE> 111
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
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
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
------- -------- --------
65,351 151,667 161,979
Less: current portion of senior secured debt.......... 5,800 1,312 1,500
current portion of senior secured revolving debt
facility........................................ 2,000 2,000 --
------- -------- --------
Long term debt........................................ $57,551 $148,355 $160,479
======= ======== ========
</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
F-33
<PAGE> 112
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and expenses and fund working capital. The debt was guaranteed by Holdings and
Old Windy Hill. The Agreement contained optional prepayment provisions with no
premium. Substantially all of the assets of Old Windy Hill were pledged as
collateral for the debt.
The Agreement included $9.0 million of available borrowing under a senior
secured revolving debt facility, of which $2.5 million was reserved to support
the Trademark License and Option Agreement (Note 3). The available borrowings
were also subject to limitations related to aggregate inventory and accounts
receivable levels. The Agreement required a commitment fee of 0.50% per annum
payable quarterly on the unused portions of the revolving debt facility.
In conjunction with the acquisition of Hubbard, the Company entered into a
Credit Agreement, dated May 21, 1997 (the "Credit Agreement"), among Windy Hill
Pet Food Acquisition Co., Credit Suisse First Boston, The Chase Manhattan Bank
and the several banks and other financial institutions parties thereto, which
provided the Company with senior secured debt facilities (the "Senior Bank
Facilities") in the aggregate principal amount of $85.0 million. The proceeds
from the Senior Bank Facilities and the $120.0 million senior subordinated notes
were used to retire the senior secured term debt and the senior secured
revolving debt facility under the Agreement.
The Senior Bank Facilities consist of (i) a senior secured term loan
facility providing for term loans to the Company in a principal amount of $20.0
million (the "Term Loan Facility"), (ii) an acquisition debt facility (the
"Acquisition Facility") providing revolving loans to the Company for permitted
acquisitions in a principal amount of $45.0 million, and (iii) a working capital
revolving debt facility providing for revolving loans to the Company and the
issuance of letters of credit for the account of the Company as well as swing
line loans in an aggregate principal amount of $20.0 million. The senior secured
working capital debt facility is subject to a commitment fee of 0.5% per annum
payable quarterly on the unused portions of the facility.
As a result of the Hubbard and Heinz acquisitions, the Existing
Indebtedness and the $17.0 million of existing debt of LLC were refinanced and
in conjunction with the retirement of those debt facilities, $2.6 million
(together with unamortized note discounts and other charges totaling $1.2
million in fiscal 1997) and $604,000 of debt issuance costs were written off as
extraordinary items in the statements of operations for the years ended December
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 and March 28, 1998 (unaudited).
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
F-34
<PAGE> 113
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
being amortized over eight years, or the life of the Old Note. Accumulated
amortization as of December 28, 1996 was $51,000. In conjunction with the
acquisition of Hubbard, the holder of the Old Note exercised its warrants for
common and preferred stock of Holdings and a note due from Holdings for
$416,667.
In conjunction with the acquisition of Hubbard on May 21, 1997, the Company
issued $120.0 million of senior subordinated notes (the New Notes). The proceeds
from the New Notes, along with the proceeds from the Senior Bank Facilities and
a capital contribution from Holdings (Note 3), were used to (i) retire the
senior secured term debt and the senior secured revolving debt facility financed
under the Agreement, (ii) retire the Old Note and (iii) acquire Hubbard. In
connection with the retirement of the Old Note, $606,000 of debt issuance costs
were written off as an extraordinary item in the statement of operations for the
year ended December 27, 1997. The effective tax rate was applied to the
extraordinary item.
The Company may redeem the New Notes at any time after May 15, 2002, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem up to $42.0 million of the New Notes at any time prior to May
15, 2002, subject to certain requirements, with the cash proceeds received from
one or more equity offerings (as defined), at a redemption price of 109.750%
together with accrued and unpaid interest. Upon a change of control (as
defined), the Company has an option at any time prior to May 15, 2002, to redeem
the New Notes at a redemption price of 100% plus the applicable premium (as
defined), together with accrued and unpaid interest. If the Company does not
redeem the New Notes or if the change of control occurs after May 15, 2002, the
Company is required to offer to repurchase the New Notes at a price equal to
101% together with accrued and unpaid interest.
The New Notes include restrictive covenants, which limit additional
borrowings, cash dividends, sale of assets, mergers and the sale of stock. The
Company was in compliance with these covenants at December 27, 1997, and March
28, 1997 (unaudited).
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.
F-35
<PAGE> 114
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current effective cap rate is set at 7.50% (plus the applicable
margin). The effective floor rate is set at 5.50% (plus the applicable margin).
The notional principal under the Agreements is $25.0 million. As of December 27,
1997, and December 28, 1996, the Company had total variable rate debt
outstanding in the amount of $17.0 million and $43.6 million, respectively. The
aggregate premiums paid for the Agreements was $103,000.
Under the Agreements, the Company would receive payments from the
counterparty if the three month LIBOR rate exceeds the cap rate and make payment
to the counterparties if the three month LIBOR rate falls below the floor rates.
The payments would be calculated based upon the respective notional principal
amount. During fiscal 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.
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 subsidiary. 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 benefit 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-36
<PAGE> 115
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........................................ 1,078 666
State taxes............................................... -- --
------- --------
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-37
<PAGE> 116
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 three month periods ended March 29,
1997 and March 28, 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 three month periods
ended March 29, 1997 and March 28, 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-38
<PAGE> 117
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-39
<PAGE> 118
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 foot 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-40
<PAGE> 119
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-41
<PAGE> 120
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-42
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hubbard Milling Company:
We have audited the accompanying balance sheets of Pet Food Division (a
division of Hubbard Milling Company) as of April 30, 1997, 1996 and 1995, and
the related statements of earnings and cash flows each of the years in the
three-year period ended April 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pet Food Division (a
division of Hubbard Milling Company) at April 30, 1997, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
June 6, 1997
Minneapolis, Minnesota
F-43
<PAGE> 122
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-44
<PAGE> 123
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-45
<PAGE> 124
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-46
<PAGE> 125
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-47
<PAGE> 126
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-48
<PAGE> 127
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-49
<PAGE> 128
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-50
<PAGE> 129
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-51
<PAGE> 130
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-52
<PAGE> 131
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-53
<PAGE> 132
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% 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-54
<PAGE> 133
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-55
<PAGE> 134
- ------------------------------------------------------
- ------------------------------------------------------
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............ 10
Risk Factors.......................... 10
The Company........................... 16
The Refinancing Transactions.......... 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Dilution.............................. 19
Capitalization........................ 20
Unaudited Pro Forma Financial
Statements.......................... 21
Selected Consolidated Financial
Data................................ 38
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 40
Business.............................. 47
Management............................ 55
Certain Transactions.................. 61
Principal and Selling Stockholders.... 64
Description of Capital Stock.......... 66
Shares Eligible for Future Sale....... 69
Description of New Credit Facility.... 69
Description of New Notes.............. 70
Description of Windy Hill Notes....... 71
Underwriting.......................... 73
Legal Matters......................... 75
Experts............................... 75
Available Information................. 76
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (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> 135
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> 136
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In October 1995, the Company issued 13,750,000 shares of Common Stock to
certain individuals in connection with the 1995 Acquisition for aggregate
consideration of $27.5 million. At such time the Company also issued warrants to
purchase an aggregate of 6,772,390 shares of Common Stock at an exercise price
of $0.002 per share to DLJMB and CMIHI in connection with the sale of 1,200,000
shares of Doane Preferred Stock for an aggregate consideration of $30.0 million.
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
2.1 -- Agreement and Plan of Merger dated as of August 31, 1995
among Doane, DPCAC and DPC Subsidiary Acquisition Corp;
list of schedules to such Merger Agreement; Agreement of
Company to furnish such schedules to the Commission upon
its request (incorporated by reference to Exhibit 2.1 to
the Registration Statement on Form S-1, Registration No.
33-98110 (the "Doane Form S-1"))
*3.1 -- Restated Certificate of Incorporation of Doane Pet Care
Enterprises, Inc.
*3.2 -- Bylaws of Doane Pet Care Enterprises, Inc.
4.1 -- Form of Trust Indenture between Doane and U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.1 to the Doane Form S-1)
*4.2 -- Revolving Credit and Term Loan Agreement dated as of
, 1998 among the Company, ,
as agent for the Banks named therein, and the Banks named
therein
4.3 -- Indenture, dated as of May 21, 1997, between Windy Hill
Pet Food Company, Inc. and Wilmington Trust Company
(incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-4 of Windy Hill Pet Food
Company, Inc. filed on September 9, 1997, Registration
No. 333-30261)
*4.4 -- Form of New Note Indenture between Doane Pet Care Company
and , as Trustee
*4.5 -- 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
</TABLE>
II-2
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Early Retirement Agreement and Release effective as of
June 30, 1998 between Doane and Bob L. Robinson
</TABLE>
II-2.1
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- 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"))
10.2 -- 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)
10.3 -- 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)
10.4 -- 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
(the "Doane 1996 Form 10-K"))
10.5 -- 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)
10.6 -- Second Amendment to the Company's 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.9 to the Doane
1997 Form 10-K)
*10.7 -- Doane Pet Care Enterprises, Inc. 1998 Stock Option Plan
10.8 -- 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)
*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 (included on the signature page to
this Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment. All other exhibits are either filed herewith or
incorporated herein by reference.
(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
II-3
<PAGE> 139
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes 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> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 7th day of August, 1998.
DOANE PET CARE ENTERPRISES, INC.
By /s/ THOMAS R. HEIDENTHAL
-----------------------------------
Thomas R. Heidenthal
Senior Vice President and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Douglas J. Cahill and Thomas R. Heidenthal, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any registration statement for the same
offering filed pursuant to Rule 462 under the Securities Act of 1933, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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>
/s/ GEORGE B. KELLY Chairman of the Board and August 7, 1998
- ----------------------------------------------------- Director
George B. Kelly
/s/ DOUGLAS J. CAHILL Chief Executive Officer, August 7, 1998
- ----------------------------------------------------- President and Director
Douglas J. Cahill (Principal Executive
Officer)
/s/ THOMAS R. HEIDENTHAL Senior Vice President and August 7, 1998
- ----------------------------------------------------- Chief Financial Officer
Thomas R. Heidenthal (Principal Financial
Officer and Principal
Accounting Officer)
/s/ PETER T. GRAUER Director August 7, 1998
- -----------------------------------------------------
Peter T. Grauer
/s/ M. WALID MANSUR Director August 7, 1998
- -----------------------------------------------------
M. Walid Mansur
Director
- -----------------------------------------------------
Bob L. Robinson
/s/ JEFFREY C. WALKER Director August 7, 1998
- -----------------------------------------------------
Jeffrey C. Walker
/s/ RAY CHUNG Director August 7, 1998
- -----------------------------------------------------
Ray Chung
/s/ STEPHEN C. SHERRILL Director August 7, 1998
- -----------------------------------------------------
Stephen C. Sherrill
</TABLE>
II-5
<PAGE> 141
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
2.1 -- Agreement and Plan of Merger dated as of August 31, 1995
among Doane, DPCAC and DPC Subsidiary Acquisition Corp;
list of schedules to such Merger Agreement; Agreement of
Company to furnish such schedules to the Commission upon
its request (incorporated by reference to Exhibit 2.1 to
the Registration Statement on Form S-1, Registration No.
33-98110 (the "Doane Form S-1"))
*3.1 -- Restated Certificate of Incorporation of Doane Pet Care
Enterprises, Inc.
*3.2 -- Bylaws of Doane Pet Care Enterprises, Inc.
4.1 -- Form of Trust Indenture between Doane and U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.1 to the Doane Form S-1)
*4.2 -- Revolving Credit and Term Loan Agreement dated as of
, 1998 among the Company, ,
as agent for the Banks named therein, and the Banks named
therein
4.3 -- Indenture, dated as of May 21, 1997, between Windy Hill
Pet Food Company, Inc. and Wilmington Trust Company
(incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-4 of Windy Hill Pet Food
Company, Inc. filed on September 9, 1997, Registration
No. 333-30261)
*4.4 -- Form of New Note Indenture between Doane Pet Care Company
and , as Trustee
*4.5 -- 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
(the "Doane 1996 Form 10-K"))
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)
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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)
*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 (included on the signature page to
this Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment. All other exhibits are either filed herewith or
incorporated by reference.
<PAGE> 1
EXHIBIT 9.1
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 HERETO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
CORPORATE GOVERNANCE AND MANAGEMENT
2.1 Composition of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Action by the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Conflicting Charter or Bylaw Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Subsidiary Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Permitted and Required Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Restrictions on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.5 Regulation Y Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.6 Regulated Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 4
RIGHTS OF FIRST OFFER; TAG ALONG RIGHTS; DRAG ALONG OBLIGATIONS
AND CERTAIN REPURCHASES
4.1 Rights of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Right To Participate In Transfer (Tag-Along Rights) . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Repurchases of Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4 Obligations to Participate in Certain Transfers (Drag Along Obligations) . . . . . . . . . . . . . . 20
4.5 Contractual Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Termination Upon Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5
REGISTRATION RIGHTS
5.1 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Holdback Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.4 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Indemnification by the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.6 Indemnification by Participating Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.7 Conduct of Indemnification Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.9 Participation in Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.10 Cooperation by the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.11 No Transfer of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.12 Rule 144 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.13 Windy Hill Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2 Cooperation in Refinancings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.3 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.4 Limitations on Senior Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.5 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.6 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7 Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 7
MISCELLANEOUS
7.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.2 Binding Effect: Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.4 Amendment; Waiver; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.9 Specific Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.10 Consent to Jurisdiction; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
-ii-
<PAGE> 4
FIRST AMENDED AND RESTATED
INVESTORS' AGREEMENT
This FIRST AMENDED AND RESTATED INVESTORS' AGREEMENT (this
"AGREEMENT") dated as of August 3, 1998 is entered into by and among (i) DPC
Acquisition Corp. (the "COMPANY"), (ii) Doane Products Company (formerly known
as DPC Transition Corp.) ("DOANE"), (iii) Summit Capital Inc. ("SUMMIT"), (iv)
Summit/DPC Partners, L.P. ("SUMMIT/DPC"), (v) Chase Manhattan Investment
Holdings, Inc., a wholly owned subsidiary of The Chase Manhattan Corporation
("CHASE"), (vi) 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., (each of the foregoing in this clause (vi), a "DLJ
ENTITY", and collectively, the "DLJ ENTITIES") (vii) Dartford Partnership,
L.L.C. ("DARTFORD", (viii) Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS"),
(ix) PNC Capital Corp ("PNC"), (x) Windy Hill Pet Food Company, L.L.C. ("WINDY
HILL L.L.C."), (xi) Baseball Partners, and (xii) the other Persons listed on
the signature pages hereto.
W I T N E S S E T H :
WHEREAS, certain shareholders entered into that certain
Investors' Agreement, dated as of October 5, 1995, by and among the Company,
Doane, Summit/DPC, Chase, the DLJ Entities and certain other shareholders (the
"ORIGINAL AGREEMENT"); and
WHEREAS, in connection with the merger of DPC/WH MergeCo, Inc.
with and into Windy Hill Pet Food Holdings, Inc. ("WH HOLDINGS") pursuant to
which WH Holdings will become a wholly-owned subsidiary of the Company, certain
parties to the Original Agreement, being more than the minimum number required
to amend same now desire to amend and restate the Original Agreement in
accordance with the terms of this Agreement;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have
the following meanings:
"ADVERSE PERSON" means any Person whom the Board of Directors
of the Issuer determines is a competitor or a potential competitor of the
Issuer.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with such Person, provided that no securityholder of the Issuer shall
be deemed an Affiliate of any other security holder solely by reason of any
investment in the Issuer. For the purpose of this definition, the term
"CONTROL" (including with correlative meanings, the terms "CONTROLLING",
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"AFFILIATED EMPLOYEE BENEFIT TRUST" means any trust that is a
successor to the assets held by a trust established under an employee benefit
plan subject to ERISA or any other
<PAGE> 5
trust established directly or indirectly under such plan or any other such plan
having the same sponsor.
"BANK HOLDING COMPANY AFFILIATE" means with respect to any
Shareholder subject to the provisions of Regulation Y, (i) if such Shareholder
is a bank holding company, any company controlled by such bank holding company,
and (ii) otherwise, the bank holding company that controls such Shareholder and
any Person (other than such Shareholder) controlled by such bank holding
company.
"BENEFICIALLY OWN" shall have the meaning set forth in Rule
13d-3 of the Exchange Act.
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"CHASE INVESTORS" means Chase and its Permitted Transferees.
"COMMON STOCK" means authorized Class A Common Stock, par
value $.0001 per share, of the Company and authorized Class B Common Stock, par
value $.0001 per share, of the Company, and any stock into which such Class A
Common Stock or Class B Common Stock may hereafter be converted or changed.
"COMPANY SECURITIES" means any securities issued by the
Company including, but not limited to, the Common Stock and the Warrants.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" shall have the meaning assigned to such term
in the Warrants.
"FULLY DILUTED" means, with respect to Common Stock or
Preferred Stock and without duplication, all outstanding shares of, and all
shares issuable in respect of securities convertible into or exchangeable for,
Common Stock or Preferred Stock, as the case may be, stock appreciation rights
or options, warrants and other irrevocable rights to purchase or subscribe for
Common Stock or Preferred Stock, as the case may be, including the Warrants, or
securities convertible into or exchangeable for Common Stock or Preferred
Stock, as the case may be; provided that no Person shall be deemed to own such
number of Fully Diluted shares of Common Stock or Preferred Stock, as the case
may be, as such Person has the right to acquire from any Person other than the
Company or Doane.
"INDEPENDENT FINANCIAL EXPERT" means a nationally recognized
investment banking firm that specializes in providing valuation and valuation
related services selected by the Issuer which the Issuer has determined after
due inquiry (i) does not (and whose directors, officers, employees and
Affiliates do not), have a direct or indirect material financial interest in or
other material relationship with the Issuer, the DLJ Entities, Chase, Baseball
Partners, the Summit-Investors, the Windy Hill Investors or any of their
respective Affiliates (so long as the DLJ Entities, the Chase Investors, the
Summit-Investors, the Windy Hill Investors or their Permitted Transferees, as
the case may be, beneficially own more than 5% of the number of shares of any
class of equity securities of the Issuer), and (ii) has not been and, at the
time it is called upon hereunder is not (and none of whose directors, officers,
employees or Affiliates is), a director or officer of the Issuer, the DLJ
Entities, Baseball Partners, the Chase Investors, the Summit-Investors,
-2-
<PAGE> 6
the Windy Hill Investors (so long as the DLJ Entities, the Summit-Investors,
the Windy Hill Investors or their Permitted Transferees, as the case may be,
beneficially own more than 5% of the number of shares of any class of equity
securities of the Issuer); provided that an Independent Financial Expert may be
compensated for opinions or services it provides as an Independent Financial
Expert.
"INITIAL PUBLIC OFFERING" means the initial sale after the
date hereof of any class of Common Stock pursuant to an effective registration
statement under the Securities Act (other than a registration statement on Form
S-8, Form S-4 or any successor forms) pursuant to which the Company receives
aggregate net proceeds of at least $50 million.
"ISSUER" means the Company as the issuer of the Company
Securities and/or Doane as the issuer of the Preferred Stock, as the context
requires.
"LIQUIDATION VALUE" shall have the meaning assigned to such
term in the Certificate of Incorporation of Doane.
"MANAGEMENT INVESTORS" means Terry W. Bechtel, Earl R.
Clements, Roy E. Hess, Bob L. Robinson and Dick Weber.
"PERCENTAGE OWNERSHIP" means, with respect to any Shareholder
or any group of Shareholders at any time, (i) the number of shares of Fully
Diluted Common Stock that such Shareholder or group of Shareholders
beneficially owns (and (without duplication) has the right to acquire) at such
time, divided by (ii) the total number of shares of Fully Diluted Common Stock
at such time.
"PERMITTED TRANSFEREE" means:
(i) in the case of any DLJ Entity or any Person described
in the following clauses (A) through (E), (A) any other DLJ Entity,
(B) any general or limited partner of any such entity (a "DLJ
PARTNER"), and any corporation, partnership, Affiliated Employee
Benefit Trust or other entity which is an Affiliate of any DLJ Partner
(collectively, the "DLJ AFFILIATES"), (C) any managing director,
general partner, director, limited partner, officer or employee of
such DLJ Entity or a DLJ Affiliate, or the heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries of
any of the foregoing Persons referred to in this clause (C)
(collectively, the "DLJ ASSOCIATES"), (D) any trust, the beneficiaries
of which, or any corporation, limited liability company or
partnership, the stockholders, members or general or limited partners
of which, include only such DLJ Entity, DLJ Affiliates, DLJ
Associates, their spouses or their lineal descendants and (E) a voting
trustee for one or more DLJ Entities, DLJ Affiliates or DLJ Associates
under the terms of a voting trust designed to conform with the
requirements of the insurance laws of the State of New York;
(ii) in the case of Summit/DPC or any Person described in
the following clauses (A) through (E), (A) any other Summit-Investor,
(B) any general or limited partner or shareholder of Summit/DPC, and
any corporation, partnership or other entity that is an Affiliate of a
Summit-Investor (collectively, the "SUMMIT AFFILIATES"), (C) any
general partner, limited partner, shareholder, officer or director of
Summit/DPC or a Summit Affiliate, or any spouse, lineal descendant,
sibling, parent, heir, executor, administrator, testamentary trustee,
legatee or beneficiary of any of the foregoing persons described in
this clause (C) (collectively, the "SUMMIT ASSOCIATES"), and (D) any
trust, the beneficiaries of which, or any corporation, limited
liability company or partnership, stockholders, members or general or
limited partners of which include only Summit/DPC, such Summit
Affiliates, Summit Associates or any institution described in clause
(E) following, or (E) any institution
-3-
<PAGE> 7
qualified as tax-exempt under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended;
(iii) in the case of any Chase Investor or any Person
described in the following clauses (A) through (E), (A) any
corporation, partnership or other entity that is an Affiliate of any
Chase Investor or any entity described in clause (C) or (D) hereof;
(B) any other Chase Investor; (C) any Person who at the time owns
(directly or indirectly) at least a majority of the shares of any
Chase Investor; (D) any Person at least a majority of whose shares
shall at the time be owned (directly or indirectly) by any Chase
Investor or by any Person who owns (directly or indirectly) at least a
majority of the shares of any Chase Investor; (E) any corporation,
partnership, business association or other entity substantially all of
whose equity holders are Affiliates or employees of any Chase Investor
or any entity described in clause (C) or (D) hereof; and (F) a third
party, if, in the good faith reasonable judgment of Chase, such
transfer is required to be effected by Chase because of a Regulatory
Problem, it being understood that transfers pursuant to this
subsection shall only be for that quantity of Common Stock as is
deemed necessary by Chase to remedy such Regulatory Problem; and
provided, that (with respect to clause (F) only) no such transfer
shall be made to a third party that is an Adverse Person and that any
such transfer of Common Stock and/or Warrants representing an amount
in excess of 5% of the Common Stock on a Fully Diluted basis shall be
subject to the provisions of Section 4.1 hereof unless (I) otherwise
directed by a governmental authority having jurisdiction over bank
holding companies or (II) a violation of Regulation Y would occur as a
result thereof;
(iv) in the case of Dartford or any Person described in
the following clauses (A) through (E), (A) any other Windy Hill
Investor, (B) any corporation, partnership or other entity which is an
Affiliate of a Windy Hill Investor (collectively, the "WINDY HILL
AFFILIATES"), (C) any member, shareholder, director, general partner,
limited partner or officer of Dartford or a Windy Hill Affiliate, or
any spouse, lineal descendant, sibling, parent, heir, executor,
administrator, testamentary trustee, legatee or beneficiary of any of
the foregoing persons described in this clause (C) (collectively, the
"DARTFORD ASSOCIATES"); (D) any trust, the beneficiaries of which, or
any corporation, limited liability company or partnership,
stockholders, members or general or limited partners of which include
only Dartford, Windy Hill Affiliates, Dartford Associates or any
institution described in clause (E) following, or (E) any institution
qualified as tax-exempt under Section 501(c)(3) of the internal
Revenue Code of 1986, as amended;
(v) in the case of BRS or any Person described in the
following clauses (A) through (E), (A) any other Windy Hill Investor,
(B) any Windy Hill Affiliate, (C) any member, shareholder, director,
general partner, limited partner or officer of BRS or a Windy Hill
Affiliate, or any spouse, lineal descendant, sibling, parent, heir,
executor, administrator, testamentary trustee, legatee or beneficiary
of any of the foregoing persons described in clause (C) (collectively,
the "BRS ASSOCIATES"); (D) any trust, the beneficiaries of which, or
any corporation, limited liability company or partnership,
stockholders, members or general or limited partners of which include
only BRS, Windy Hill Affiliates, BRS Associates or any institution
described in clause (E) following or (E) any institution qualified as
tax-exempt under Section 501(c)(3) of the internal Revenue Code of
1986, as amended;
(vi) in the case of PNC or any Person described in the
following clauses (A) through (E), (A) any other Windy Hill Investor,
(B) any Windy Hill Affiliate, (C) any member, shareholder, general
partner, limited partner, officer or director of PNC or a Windy Hill
Affiliate, or any spouse, lineal descendant, sibling, parent, heir,
executor, administrator, testamentary trustee, legatee or beneficiary
of any of the foregoing persons described in
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<PAGE> 8
clause (C) (collectively, the "PNC ASSOCIATES"); (D) any trust, the
beneficiaries of which, or any corporation, limited liability company
or partnership, stockholders, members or general or limited partners
of which included only PNC, Windy Hill Affiliates, PNC Associates or
any institution described in clause (E) following, (E) any institution
qualified as tax-exempt under Section 501(c)(3) of the internal
Revenue Code of 1986, as amended, or (F) a third party, if, in the
good faith reasonable judgment of PNC, such transfer is required to be
effected by PNC because of a Regulatory Problem, it being understood
that transfers pursuant to this subsection shall only be for that
quantity of Common Stock as is deemed necessary by PNC to remedy such
Regulatory Problem; and provided, that (with respect to clause (F)
only) no such transfer shall be made to a third party that is an
Adverse Person and that any such transfer of Common Stock representing
an amount in excess of 5% of the Common Stock on a Fully Diluted basis
shall be subject to the provisions of Section 4.1 hereof unless (I)
otherwise directed by a governmental authority having jurisdiction
over bank holding companies or (II) a violation of Regulation Y would
occur as a result thereof;
(vii) in the case of Windy Hill LLC or any Person described
in the following clauses (A) through (E), (A) any other Windy Hill
Investor, (B) any Windy Hill Affiliate, (C) any member, shareholder,
general partner, limited partner, officer or director of Windy Hill
LLC or a Windy Hill Affiliate, or any spouse, lineal descendant,
sibling, parent, heir, executor, administrator, testamentary trustee,
legatee or beneficiary of any of the foregoing persons described in
clause (C) (collectively, the "WINDY HILL LLC ASSOCIATES"); and (D)
any trust, the beneficiaries of which, or any corporation, limited
liability company or partnership, stockholders, members or general or
limited partners of which include only Windy Hill LLC, Windy Hill
Affiliates, Windy Hill LLC Associates or any institution described in
clause (E) following or (E) any institution qualified as tax-exempt
under Section 501(c)(3) of the internal Revenue Code of 1986, as
amended;
(viii) in the case of Baseball Partners or any Person
described in the following clauses (A) through (D), (A) any general or
limited partner or shareholder of Baseball Partners, and any
corporation, partnership or other entity that is an Affiliate of
Baseball Partners (collectively, the "BASEBALL PARTNERS AFFILIATES"),
(B) any general partner, limited partner, shareholder, officer or
director of a Baseball Partners Affiliate, or any spouse, lineal
descendant, sibling, parent, heir, executor, administrator,
testamentary trustee, legatee or beneficiary of any of the foregoing
persons described in this clause (B) (collectively, the "BASEBALL
PARTNERS ASSOCIATES"), and (C) any trust, the beneficiaries of which,
or any corporation, limited liability company or partnership,
stockholders, members or general or limited partners of which include
only Baseball Partners, Baseball Partners Affiliates, Baseball
Partners Associates or any institution described in clause (D)
following, or (D) any institution qualified as tax-exempt under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended;
(ix) in the case of any other Shareholder, (A) the Issuer,
(B) a Person to whom Shares are transferred from such other
Shareholder (1) by will or the laws of descent and distribution or (2)
by gift without consideration of any kind; provided that in the case
of clause (2) preceding such transferee is the spouse or the lineal
descendant, sibling or parent of such Shareholder, (C) a trust that is
for the exclusive benefit of such other Shareholder, its Permitted
Transferees under (B) above or any institution described in clause (D)
following or (D) any institution qualified as tax-exempt under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended; and
(x) any other Person approved of by the Board in
accordance with Section 2.4 hereof with respect to a particular
transfer.
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<PAGE> 9
"PERSON" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"PREFERRED STOCK" means the 14.25% Senior Exchangeable
Preferred Stock of Doane.
"PUBLIC OFFERING" means any primary or secondary public
offering of equity securities of the Issuer pursuant to an effective
registration statement under the Securities Act other than pursuant to a
registration statement filed in connection with a transaction of the type
described in Rule 145 of the Securities Act or for the purpose of issuing
securities pursuant to an employee benefit plan.
"REGISTRABLE SECURITIES" means, at any time, with respect to
any Shareholder or its Permitted Transferees, any shares of Common Stock, or
Warrants or Warrant Shares then owned by such Shareholder or its Permitted
Transferees until (i) a registration statement covering such Common Stock,
Warrants or Warrant Shares has been declared effective by the SEC and such
securities have been disposed of pursuant to such effective registration
statement, (ii) such securities are sold under circumstances in which all of
the applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met or such securities may be sold pursuant to
Rule 144(k) or (iii) such securities are otherwise transferred and in
connection therewith the Issuer has delivered a new certificate or other
evidence of ownership for such securities not bearing the legend required
pursuant to this Agreement and such securities may be resold without subsequent
registration under the Securities Act.
"REGISTRATION EXPENSES" means (i) all registration and filing
fees, (ii) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the securities registered), (iii) printing expenses, (iv)
internal expenses of the Issuer (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) reasonable fees and disbursements of counsel for the Issuer and
customary fees and expenses for independent certified public accountants
retained by the Issuer (including expenses relating to any comfort letters or
costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters requested pursuant to Section 5.4(h)
hereof), (vi) the reasonable fees and expenses of any special experts retained
by the Issuer in connection with such registration, (vii) reasonable fees and
expenses of up to one counsel for the Shareholders participating in the
offering (A) selected by the DLJ Entities or their Permitted Transferees in any
offering where at least 50% of the number of securities proposed to be sold are
beneficially owned by the DLJ Entities or their Permitted Transferees, (B)
selected by the Summit-Investors or their Permitted Transferees in any offering
where at least 50% of the number of securities proposed to be sold are
beneficially owned by the Summit-Investors or their Permitted Transferees, (C)
selected by the Windy Hill Investors or their Permitted Transferees in any
offering where at least 50% of the number of securities proposed to be sold are
beneficially owned by the Windy Hill Investors or their Permitted Transferees,
or (D) selected by Chase or its Permitted Transferees and any Offering where at
least 50% of the number of securities proposed to be sold are beneficially
owned by Chase or its Permitted Transferees, (viii) fees and expenses in
connection with any review of underwriting arrangements by the National
Association of Shares Dealers, Inc. (the "NASD") including fees and expenses of
any '"qualified independent underwriter" and (ix) fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but shall
not include any underwriting fees, discounts or commissions attributable to the
sale of Registrable Securities, or any out-of-pocket expenses (except as set
forth in clause (vii) above) of the Shareholders or any fees and expenses of
underwriter's counsel.
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<PAGE> 10
"REGULATED HOLDER" means a Shareholder which is a bank, a bank
holding company or an Affiliate of any of the foregoing.
A Regulated Holder shall be deemed to have a "REGULATORY
PROBLEM" when (i) such Regulated Holder's investment in the Securities exceeds
any limitation to which it is subject, or is otherwise not permitted, under any
law, rule or regulation of any governmental authority (including any position
to that effect taken by such governmental authority) or (ii) restrictions are
imposed on such Regulated Holder which, in its reasonable judgment, make it
illegal or unduly burdensome for such Regulated Holder to continue to hold such
Securities.
"REGULATION Y" shall mean Regulation Y promulgated by the
Board of Governors of the Federal Reserve System (12 C.F.R. Section 225) or
any successor regulation.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means shares of Common Stock, the Warrants and
the Preferred Stock held by the Shareholders.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHAREHOLDER" means each Person (other than the Company or
Doane) who shall be a party to this Agreement, whether in connection with the
execution and delivery hereof as of the date hereof, pursuant to Section 7.3 or
otherwise, or bound by this Agreement by reason of being a party to the
Original Agreement, in each case, so long as such Person shall beneficially own
any Securities.
"SHARES" means shares of Common Stock and shares of Preferred
Stock of the Issuer held by the Shareholders.
"SHORT-FORM DEMAND REGISTRATION" means a Demand Registration
on Form S-2 or S-3 (or any successor forms).
"SHORT-FORM DATE" means the date on which the Issuer in
question becomes eligible to use Forms S-2 or S-3 (or any successor forms) for
registration of its securities.
"SUBSIDIARY" means, with respect to any Person, any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"SUMMIT INVESTORS" means Summit/DPC, Laura Hawkins Mansur, J.
David Heaney, Gary L. Rosenthal, Lee J. Rosenthal, The 1989 Rosenthal Trust,
and Fred A Rosenthal but not including the Management Investors.
"SUMMIT-INVESTOR SHARES" means all Shares held by the
Summit-Investors.
"TAG-ALONG PORTION" means:
(i) where the Selling Person is selling Preferred Stock,
the number of shares of Preferred Stock held by the Tagging Person
multiplied by a fraction, the numerator of which is the number of
shares of Preferred Stock proposed to be sold by the Selling Person
and
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<PAGE> 11
its Permitted Transferees pursuant to Section 4.2, and the denominator
of which is the aggregate number of shares of Preferred Stock on a
Fully Diluted basis;
(ii) where the Selling Person is selling Common Stock, the
number of shares of Common Stock held (or, without duplication,
acquirable under the Warrants) by the Tagging Person multiplied by a
fraction, the numerator of which is the number of shares of Common
Stock proposed to be sold by the Selling Person and its Permitted
Transferees pursuant to Section 4.2, and the denominator of which is
the aggregate number of shares of Common Stock on a Fully Diluted
basis; and
(iii) where the Selling Person is selling Warrants, the
number of shares of Common Stock held (or, without duplication,
acquirable under the Warrants) by the Tagging Person multiplied by a
fraction the numerator of which is the number of shares of Common
Stock for which the Warrants proposed to be sold by a Selling Person
and its Permitted Transferees pursuant to Section 4.2 are exercisable,
and the denominator of which is the aggregate number of shares of
Common Stock on a Fully Diluted basis; provided that where a Tag Along
Right incudes the right to sell Common Stock, any Tagging Person that
is a holder of Warrants may, in lieu of exercising Warrants, transfer
Warrants for some or all of that number of shares of Common Stock as
would otherwise have constituted its Tag Along Portion, in which event
the price to be received with respect to each such Warrant shall be
the price per share of Common Stock applicable to the Tag Along Offer,
less the then applicable exercise price of the Warrants in question.
"THIRD PARTY" means a prospective purchaser of Securities in
an arm's-length transaction from a Shareholder where such purchaser is neither
a Shareholder nor Permitted Transferee of a Shareholder.
"UNDERWRITTEN PUBLIC OFFERING" means a firmly underwritten
public offering of Registrable Securities of the Issuer pursuant to an
effective registration statement under the Securities Act.
"WARRANTS" means the warrants issued to the Shareholders by
the Company for the purchase of an aggregate of 1,354,478 shares of Common
Stock (subject to adjustment as provided therein).
"WARRANT SHARES" means the shares of Common Stock issuable by
the Company upon exercise of the Warrants.
"WINDY HILL" means Windy Hill Pet Food Company, Inc.
"WINDY HILL INVESTORS" means the Persons listed on the
signature pages hereto as the "Windy Hill Investors."
"WINDY HILL INVESTORS SHARES" means all Shares held by the
Windy Hill Investors.
"WINDY HILL MERGER" means the merger of DPC/WH MergeCo, Inc.
with and into WH Holdings pursuant to the Windy Hill Merger Agreement.
"WINDY HILL MERGER AGREEMENT" means that certain Agreement and
Plan of Merger dated of June 10, 1998 among WH Holdings, Windy Hill, the
Company, DPC/WH Merge Co., Inc., Doane, Dartford, Windy Hill L.L.C., BRS and
PNC, as the same may be amended or restated from time to time.
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<PAGE> 12
"WINDY HILL REPRESENTATIVE" means any individual designated
from time to time in an instrument delivered to the Company and signed by the
record holders of at least 60% of the Common Stock then held of record by all
of the Windy Hill Investors.
(b) The term "DLJ ENTITIES", to the extent such entities
shall have transferred any of their Securities to "Permitted Transferees",
shall mean the DLJ Entities and the Permitted Transferees of the DLJ Entities,
taken together, and any right or action that may be exercised or taken at the
election of the DLJ Entities may be exercised or taken at the election of the
DLJ Entities, and such Permitted Transferees.
(c) The term "SUMMIT INVESTORS", to the extent such
Shareholders shall have transferred any of their Securities to "PERMITTED
TRANSFEREES", shall mean the Summit-Investors and their respective Permitted
Transferees, and any right or action that may be exercised or taken at the
election of such Shareholders may be exercised or taken at the election of such
Shareholders and their respective Permitted Transferees.
(d) The term "WINDY HILL INVESTORS", to the extent such
Shareholders shall have transferred any of their Securities to "PERMITTED
TRANSFEREES", shall mean the Windy Hill Investors and their respective
Permitted Transferees, and any right or action that may be exercised or taken
at the election of such Shareholders may be exercised or taken at the election
of such Shareholders and their respective Permitted Transferees.
(e) The term "CHASE INVESTORS", to the extent such
Shareholders shall have transferred any of their Securities to "PERMITTED
TRANSFEREES", shall mean Chase and its Permitted Transferees and any right or
action that may be exercised or taken at the election of such Shareholders may
be exercised or taken at the election of such Shareholders and their respective
Permitted Transferees.
(f) Each of the following terms is defined in the Section
set forth opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Approving Shareholders 4.4
Associate 2.1
Cause 2.2
Chase Designee 2.1
Confidential Information 6.1(b)
Demand Registration 5.1(a)
DLJMB 2.1(a)
DLJMB Designee 2.1(a)
Dragalong Notice 4.4
Final Order Period 4.1(a)
Final Section 4.1 Offer 4.1(a)
Following Shareholder 5.2(b)
Group 3.5
Holders 5.1(a)(
Incidental Registration 5.2(a)
Indemnified Party 5.7
Indemnifying Party 5.7
Initial Order Period 4.1(b)
Initial Section 4.1 Offer 4.1(b)
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
Initial Section 4.1 Offer Notice 4.1(a)
Inspectors 5.4(g)
Maximum Offering Size 5.1(d)
New Securities 6.4
Nominee 2.3(a)
Offered Securities 4.5
Original Agreement Recitals
Pro-Rata Portion 4.1(b)
Records 5.4(g)
Regulation D 4.4
Representatives 6.1(b)
Requesting Shareholder 4.5
Sale of the Company Proposal 4.4
Second Order Period 4.1(b)
Second Section 4.1 Offer 4.1(b)
Section 4.1 Sale 4.1(a)
Section 4.1 Sale Price 4.1(a)
Section 4.1 Seller 4.1(a)
Section 4.2 Response Notice 4.2(a)
Section 4.4 Seller 4.4
Seller 4.3(c)
Selling Person 4.2(a)
Selling Shareholder 5.1(a)
Shareholder 7.3
Subsequent Section 4.1 Offer 4.1(b)
Subsequent Order Period 4.1(b) 4.1(b)
Summit Investor Designee 2.1
Surrendered Shares 4.3(c)
Tag-Along Notice 4.2(a)
Tag-Along Notice Period 4.2(a)
Tag-Along Offer 4.2(a)
Tag-Along Right 4.2(a)
Tag-Along Sale 4.2(a)
Tag-Along Seller 4.2(a)
Tagging Person 4.2(a)
Termination Date 4.3(c)
transfer 3.1(a)
Underlying Shares 4.2(c)
WH Holdings Recitals
Windy Hill Designee 2.1
</TABLE>
ARTICLE 2
CORPORATE GOVERNANCE AND MANAGEMENT
2.1 Composition of the Board.
(a)The Board shall consist of eight members (subject to changes in size
as provided below in this Section 2.1(a)), of whom one shall be designated by
DLJ Merchant Banking Partners, L.P.("DLJMB") (the "DLJMB DESIGNEE"), two shall
be designated by Summit on behalf of the Summit-Investors (each such designee, a
"SUMMIT-INVESTOR DESIGNEE"), one shall be designated by BRS on behalf of the
Windy Hill Investors and one shall be designated by Windy Hill L.L.C. on
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<PAGE> 14
behalf of the Windy Hill Investors (each of the two foregoing designees, a
"WINDY HILL DESIGNEE"), one shall be designated by Chase (the "CHASE
DESIGNEE"), one shall be the chief executive officer of the Company and one
shall 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 in
accordance with this Section 2.1(a)): DLJ Designee, the Chase Designee and
George B. Kelly (so long as Mr. Kelly is one of the two Summit Designees) or,
if George B. Kelly is not then one of the two Summit Designees, by any of the
Summit 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 this Agreement (in each case, disregarding
stock splits, recapitalizations and similar adjustments in number of shares and
stock dividends), the Summit-Investors shall 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 this Agreement (in each case, disregarding
stock splits, recapitalizations and similar adjustments in number of shares and
stock dividends), the Windy Hill Investors shall only have the right to
designate one individual, and such director shall be the Windy Hill
Representative at such time. Notwithstanding the foregoing, at any time any of
DLJMB's, Chase's, the Summit-Investors' or the Windy Hill Investors' respective
Percentage Ownership is less than 5%, such person or group shall not have the
further right to designate any individual under this Section 2.1(a). Each
Shareholder entitled to vote for the election of directors to the Board shall
vote its Securities and execute written consents to increase the Board size and
to elect independent directors to accommodate the requirements for listing the
Securities on any national securities exchange or market system on which the
Board determines that the Securities shall be listed or included. Each
Shareholder entitled to vote for the election of directors to the Board agrees
that it will vote its shares of Common Stock or execute consents, as the case
may be, and take all other necessary action (including causing the Company to
call a special meeting of shareholders) in order to ensure that the composition
of the Board is as set forth in this Section 2.1(a). The parties to this
Agreement acknowledge and agree that the right to designate an individual
pursuant to this Section 2.1(a) and the obligations of the Shareholders to vote
for or consent to any individual designated in accordance with this Section
2.1(a) shall not ensure that such individual shall be elected to the Board.
(b) In addition to the rights granted in Section 2.1(a), until the
earlier of (i) one year after the date of this Agreement and (ii) the date the
Windy Hill Investors no longer have the right to designate any individual to the
Board under Section 2.1(a), Windy Hill LLC on behalf of the Windy Hill Investors
shall have the right to designate one individual who shall be entitled to be a
Board observer and receive notices of, shall be permitted to attend, and shall
be permitted to receive information with respect to, all meetings of the Board;
provided, such Board observer shall not have the right to vote as a director of
the Board, such Board observer shall not be included for purposes of determining
whether a quorum is present and such Board observer shall excuse himself or
herself from those portions of such meetings during which the relationship
between the Company and such individual is discussed.
2.2 Removal. Each Shareholder agrees that if, at any time, it is then
entitled to vote for the removal of directors of the Company, it will not vote
any of its shares of Common Stock in favor of the removal of any director who
shall have been designated or nominated pursuant to Section 2.1(a) unless such
removal shall be for Cause or the Person(s) entitled to designate or nominate
such director shall have consented to such removal in writing, provided that if
the Persons entitled to designate or nominate any director pursuant to Section
2.1(a) shall request the removal, with or without Cause, of such director in
writing, such Shareholder shall vote its shares of Common Stock in favor of such
removal. Removal for "CAUSE" shall mean removal of a director because of such
director's (a) willful and continued failure substantially to perform his duties
with the Company in his established position, (b) willful conduct which is
injurious to the Company or any of
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<PAGE> 15
its Subsidiaries, monetarily or otherwise, (c) conviction for, or guilty plea
to, a felony or a crime involving moral turpitude, (d) abuse of illegal drugs
or other controlled substances or habitual intoxication or (e) willful breach
of this Agreement.
2.3 Vacancies. If, as a result of death, disability, retirement,
resignation, removal (with or without Cause) or otherwise, there shall exist or
occur any vacancy on the Board:
(a) the Person(s) entitled under Section 2.1(a) to designate or
nominate such director whose death, disability, retirement, resignation or
removal resulted in such vacancy, may, subject to the provisions of Section
2.1(a), designate another individual (the "NOMINEE") to fill such vacancy and
serve as a director of the Company; and
(b) each Shareholder then entitled to vote for the election of the
Nominee as a director of the Company agrees that it will vote its shares of
Common Stock, or execute a written consent, as the case may be, in order to
ensure that the Nominee be elected to the Board.
2.4 Action by the Board. (a) A quorum of the Board shall consist
initially of five directors; provided, whenever more or less than eight
directors are serving on the Board, a quorum shall consist of a majority of the
number of directors then serving. All actions of the Board shall require the
affirmative vote of at least a majority of the directors at a duly convened
meeting of the Board at which a quorum is present or the unanimous written
consent of the Board; provided that, in the event there is a vacancy on the
Board and an individual has been nominated to fill such vacancy, the first order
of business shall be to fill such vacancy.
(b) Until consummation of an Initial Public Offering, no action by the
Company (including but not limited to any action by the Board or any committee
thereof) shall be taken after the date hereof with respect to any of the
following matters without the affirmative approval of the Board, including, for
so long as the DLJ Entities own at least 50% of the number of shares of Common
Stock owned thereby as of the date of this Agreement (treating, for these
purposes, the Warrants on an as if exercised basis and, in each case,
disregarding stock splits, recapitalizations and similar adjustments in number
of shares and stock dividends), by the DLJMB Designee, for so long as the
Summit-Investors own at least 33 1/3% of the number of shares of Common Stock
owned thereby as of the date of this Agreement (in each case, disregarding stock
splits, recapitalizations and similar adjustments in number of shares and stock
dividends), by at least one Summit-Investor Designee, for so long as Chase owns
at least 50% of the number of shares of Common Stock owned thereby as of the
date of this Agreement (treating, for these purposes, the Warrants on an as if
exercised basis and, in each case, disregarding stock splits, recapitalizations
and similar adjustments in number of shares and stock dividends), by the Chase
Designee, and for so long as the Windy Hill Investors own at least 50% of the
number of shares of Common Stock owned thereby as of the date of this Agreement
(in each case, disregarding stock splits, recapitalizations and similar
adjustments in number of shares and stock dividends), by at least one Windy Hill
Designee:
(i)(x) any merger or consolidation of the Company with or into
any Person, other than a wholly owned Subsidiary, or of any Subsidiary with
or into any Person other than the Company or any other wholly-owned
Subsidiary; or (y) any sale of any Subsidiary or any significant operations
of the Company or any Subsidiary or any acquisition or disposition of
assets, business, operations or securities by the Company or any Subsidiary
(in a single transaction or a series of related transactions) having a value
in each case in this clause (y) in excess of $25,000,000;
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<PAGE> 16
(ii) the declaration of any dividend on or the making of any
distribution with respect to, or the redemption, repurchase or other
acquisition of, any securities of the Company or any Subsidiary, except as
expressly permitted by this Agreement or the Certificate of Designations of
the Preferred Stock and except for repurchases of securities from
individuals in connection with the termination of their employment;
(iii) any liquidation, dissolution, commencement of bankruptcy,
liquidation or similar proceedings with respect to the Company or any
Subsidiary;
(iv) (A) any incurrence by the Company or any Subsidiary of
indebtedness for borrowed money in excess of $25,000,000 in the aggregate
(or the guaranty by the Company or any Subsidiary of any such indebtedness)
other than an incurrence or guaranty permitted by the existing terms of the
credit facilities of the Company or any Subsidiary thereof or (B) any
issuance of any security by the Company or any Subsidiary other than
issuances of securities in connection with any employee stock offering or
any stock option plan approved by the Board or as consideration in any
acquisition (whether stock purchase, asset purchase or merger), which
acquisition has been approved in accordance with this Agreement including
Section 2.4(b)(i) if applicable to such acquisition;
(v) any transaction or series of related transactions (not
otherwise expressly permitted by this Agreement) between the Company or any
Subsidiary, on the one hand, and any stockholder or Affiliate of the Company
or any Subsidiary, on the other hand, other than transactions involving an
amount less than $500,000;
(vi) the appointment of the Chief Executive Officer;
(vii) any amendment to the certificate of incorporation or
bylaws of the Company or any adoption of or amendment to the certificate of
incorporation or bylaws of any Subsidiary;
(viii) the approval of any Person as a Permitted Transferee
under clause (ix) of the definition of "Permitted Transferee"; or
(ix) any amendment of the definition of the term "Permitted
Transferee", which amendment shall be consistent with the intention of the
parties hereunder.
2.5 Conflicting Charter or Bylaw Provisions. Each Shareholder shall
vote its shares of Common Stock, and shall take all other actions necessary, to
ensure that the Company's certificate of incorporation and bylaws facilitate and
do not at any time conflict with any provision of this Agreement.
2.6 Subsidiary Governance. Subject to paragraph 8(b) of the
Certificate of Designations of the Preferred Stock, each of the Company and each
Shareholder agrees that the board of directors of Doane and Windy Hill shall be
comprised of the individuals who are serving as directors on the Board in
accordance with Section 2.1(a). Each Shareholder agrees to vote its shares of
Common Stock and to cause its representatives on the Board, subject to their
fiduciary duties, to vote and take other appropriate action to effectuate the
agreements in this Section 2.6 in respect of Doane and Windy Hill .
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ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General. (a) Each Shareholder understands and agrees that the
Securities purchased on or prior to the date hereof (including Securities issued
in connection with the Windy Hill Merger) have not been registered under the
Securities Act and are restricted securities. Each Shareholder agrees that it
will not, directly or indirectly, sell, assign, transfer, grant a participation
in, pledge or otherwise dispose of ("TRANSFER") any Securities (or solicit any
offers to buy or otherwise acquire, or take a pledge of any Securities) except
in compliance with the Securities Act and the terms and conditions of this
Agreement.
(b) Any attempt to transfer any Securities not in compliance with this
Agreement shall be null and void and neither the Issuer thereof nor any transfer
agent shall give any effect in the Issuer's stock records to such attempted
transfer.
3.2 Legends. (a) In addition to any other legend that may be required,
each certificate for Securities that is issued to any Shareholder shall bear a
legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR
SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE FIRST AMENDED AND
RESTATED INVESTORS' AGREEMENT DATED AS OF JULY __, 1998, COPIES OF WHICH MAY
BE OBTAINED UPON REQUEST FROM DPC ACQUISITION CORP., DOANE PRODUCTS COMPANY
OR ANY SUCCESSOR THERETO."
(b) If any Securities shall cease to be Registrable Securities under
clause (i) or clause (ii) of the definition thereof, the Issuer thereof shall,
upon the written request of the holder thereof, issue to such holder a new
certificate evidencing such shares without the first sentence of the legend
required by Section 3.2(a) endorsed thereon. If any Securities cease to be
subject to any and all restrictions on transfer set forth in this Agreement, the
Issuer thereof shall, upon the written request of the holder thereof, issue to
such holder a new certificate evidencing such Securities without the second
sentence of the legend required by Section 3.2(a) endorsed thereon.
3.3 Permitted and Required Transfers.
(a) Notwithstanding anything in this Agreement to the contrary, any
Shareholder may at any time transfer any or all of its Securities to one or more
of its Permitted Transferees without the consent of the Board or any other
Shareholder or group of Shareholders and without compliance with Sections 3.4,
4.1 and 4.2 so long as (i) such Permitted Transferee shall have agreed in
writing to be bound by the terms of this Agreement and (ii) the transfer to such
Permitted Transferee is not in violation of applicable federal or state
securities laws.
(b) Notwithstanding anything in this Agreement to the contrary, without
the consent of the Board or any other Shareholder or group of Shareholders and
without compliance with Sections 3.4, 4.1 and 4.2, (i) the recipients of the
Merger Consideration (as defined in the Windy Hill Merger Agreement) may deposit
into escrow and pledge the shares of Common Stock
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<PAGE> 18
issued thereto in the Windy Hill Merger in the manner contemplated by Section
2.4 of the Windy Hill Merger Agreement and (ii) the Company shall be permitted
to purchase, and each Shareholder shall be permitted to sell, Securities if and
to the extent required by Section 2.4(e)(ii) of the Windy Hill Merger
Agreement.
3.4 Restrictions on Transfers. (a) Except as provided in Section 3.3,
each Shareholder and the Permitted Transferees of such Shareholder may transfer
their shares of Common Stock and Warrants only :
(i) in a Public Offering in connection with the exercise of
its rights under Article 5 hereof;
(ii) in a sale pursuant to Rule 144 (or any successor
provision) under the Securities Act;
(iii) prior to October 5, 2000, subject to Sections 3.4(c),
4.1 and 4.2;
(iv) subject to Section 3.4(c), on or after October 5, 2000,
to any Third Party; or
(v) subject to Section 3.4(c), in connection with any transfer
of shares of Preferred Stock in a transaction in which shares of Preferred
Stock and such Company Securities shall be transferred to the same
transferee.
(b) Subject to Section 3.4(c) and Section 4.2, transfers of shares of
Preferred Stock shall be permitted provided any such transfer is not in
violation of applicable federal or state securities laws and such transfer does
not occur prior to an Initial Public Offering.
(c) In no event shall any transfers pursuant to Section 3.4(a)(iii),
(a)(iv) or (a)(v), or any transfers of shares of Preferred Stock hereof be made
to an Adverse Person.
(d) The restrictions on transfer set forth in this Section 3.4 shall
terminate upon the consummation of an Initial Public Offering.
(e) In the event any transfer pursuant to Section 3.4(a)(iii) hereof
shall be made for consideration other than cash, then the selling Shareholder
shall obtain and deliver to the Issuer, within ten days of the consummation of
such transfer, an opinion of an Independent Financial Expert with respect to the
fair market value of the non-cash consideration received by such selling
Shareholder.
3.5 Regulation Y Restrictions. Notwithstanding anything in this
Agreement or the Warrants to the contrary, no Shareholder subject to the
provisions of Regulation Y shall, and no such Shareholder shall permit any of
its Bank Holding Company Affiliates to, transfer any Securities held by it, to
any Person other than (a) any Permitted Transferee of such Shareholder in
accordance with Section 3.3 hereof, (b) in connection with any Public Offering
or public sale of securities of the Issuer (including a public sale pursuant to
Rule 144 or 144A under the Securities Act or any similar rules then in force),
(c) to a Person or "group" of Persons (within the meaning of the Exchange Act, a
"GROUP") if, after such sale, such Person or Group in the aggregate would own or
control securities which possess in the aggregate the ordinary voting power to
elect a majority of the Issuer's directors, provided that such sale has been
approved by the Issuer's board or a committee thereof, (d) to a Person or Group
if, after such sale, such Person or Group in the aggregate would own or control
securities of the Issuer (excluding the portion of the Securities being disposed
of by
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<PAGE> 19
such Shareholder (or such Bank Holding Company Affiliate, as the case may be)
in connection with such sale) which possess in the aggregate the ordinary
voting power to elect a majority of the Issuer's directors, (e) to a Person or
Group if, after such sale, such Person or Group would not, in the aggregate,
own, control or have the right to acquire more than 2% of the outstanding
securities of any class of voting securities of the Issuer, (f) to a Person or
Group if, prior to such sale, such Person or Group in the aggregate already
owns or controls securities of the Issuer which possess in the aggregate the
ordinary voting power to elect a majority of the Issuer's directors, or (g) in
connection with a merger, consolidation or similar transaction involving the
Issuer if, after such transaction, a Person or Group would own or control
securities which possess in the aggregate the ordinary voting power to elect a
majority of the surviving corporation's directors, provided that such
transaction has been approved by the Issuer's board or a committee thereof.
Notwithstanding the foregoing, nothing in this Section 3.5 shall restrict or be
deemed to restrict transfers to other parties to this Agreement pursuant to any
provision hereof, including, without limitation, Sections 3.3, 3.4, 4.1, 4.2
and 4.3 hereof.
3.6 Regulated Holders. Notwithstanding anything to the contrary
herein, if any Regulated Holder is required to effect a transfer of any of its
Securities because it has a Regulatory Problem, then the Issuer shall provide
reasonable assistance to such Regulated Holder in connection with efforts by
such Regulated Holder to dispose of any such Securities in a prompt and orderly
manner.
ARTICLE 4
RIGHTS OF FIRST OFFER; TAG ALONG RIGHTS; DRAG ALONG OBLIGATIONS
AND CERTAIN REPURCHASES
4.1 Rights of First Offer. (a) If prior to October 5, 2000, any
Shareholder desires to transfer any shares of Common Stock or Warrants to any
Third Party other than a transfer permitted under Sections 3.3, 3.4(a)(i),
3.4(a)(ii) or 3.4(a)(v) or pursuant to a Sale of the Company Proposal, such
Shareholder (the "SECTION 4.1 SELLER") shall give written notice (an "INITIAL
SECTION 4.1 OFFER NOTICE") to the Company and the non-transferring Shareholders
that such Section 4.1 Seller desires to effect such a transfer (a "SECTION 4.1
SALE") and setting forth the number of shares of Common Stock or Warrants
proposed to be transferred by the Section 4.1 Seller, the consideration per
share that such Section 4.1 Seller proposes to be paid for such shares (the
"SECTION 4.1 SALE PRICE") and any other material terms sought by the Section 4.1
Seller.
(b) The giving (pursuant to Section 7.5) of an Initial Section 4.1
Offer Notice to the Company and each non-transferring Shareholder shall
constitute an offer (the "INITIAL SECTION 4.1 OFFER") by such Section 4.1 Seller
to sell to such Shareholder for cash on the terms set forth in the Initial
Section 4.1 Offer Notice and this Section 4.1 the Shares subject to the Section
4.1 Sale at the Section 4.1 Sale Price. Each Shareholder receiving an Initial
Section 4.1 Offer shall have a 30-day period after receipt of such offer (the
"INITIAL ORDER PERIOD") in which to accept such offer as to all of such
Shareholder's Pro Rata Portion by giving a written notice of acceptance to such
Section 4.1 Seller (together with a copy thereof to the Company) prior to the
expiration of such 30-day period.
If every Shareholder receiving an Initial Section 4.1 Offer Notice does
not elect to purchase Shares in such Initial Section 4.1 Offer, the Section 4.1
Seller shall not be required to sell any Shares accepted pursuant to the Initial
Section 4.1 Offer, but shall, within 5 days of the expiration of the Initial
Order Period, provide written notice to all Shareholders that did accept the
Initial Section 4.1 Offer, informing them that they have the right to increase
the number of Shares that they accepted pursuant to the Initial Section 4.1
Offer (the "SECOND SECTION 4.1 OFFER"). Each
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such Shareholder will then have a 5-day period after receipt of the Second
Section 4.1 Offer (the "SECOND ORDER PERIOD") in which to accept such offer as
to all of such Shareholder's portion of the Shares not accepted pursuant to the
Initial Section 4.1 Offer (on the basis of such Shareholder's Pro Rata Portion
compared to the Pro Rata Portion of all other Shareholders receiving the Second
Section 4.1 Offer). So long as the Shareholders have not elected to purchase
all of the Shares subject to any offer made pursuant to the preceding
provisions of this Section 4.1, the Section 4.1 Seller shall not be required to
sell any Shares pursuant to any prior offer made pursuant to the preceding
provisions of this Section 4.1, but shall, within five days of the expiration
of the order period for the immediately preceding offer made pursuant to this
Section 4.1, provide written notice to all Shareholders that did accept their
full Pro Rata Portion of the immediately preceding offer, giving them final
notice that they have the right to increase the number of Shares that they
accepted pursuant to the Initial Section 4.1 Offer (the "FINAL SECTION 4.1
OFFER"). Each such Shareholder will then have a 5-day period after receipt of
a Final Section 4.1 Offer (the "FINAL ORDER PERIOD") in which to accept such
offer as to all of such Shareholder's portion of the Shares not accepted
pursuant to preceding offers made to this Section 4.1 (on the basis of such
Shareholder's Pro Rata Portion compared to the Pro Rata Portion of all other
Shareholders entitled to receive the Section 4.1 Offer).
If any Shareholder fails to notify the Section 4.1 Seller or the Company
prior to the expiration of the Initial Order Period, the Second Order Period, or
the Final Order Period, as applicable, referred to above, it will be deemed to
have declined the Section 4.1 Offer, Second Section 4.1 Offer, or the Final
Section 4.1 Offer as applicable.
For purposes of this Section 4.1 only, "PRO RATA PORTION" means that
fraction that results from dividing (i) the number of shares of Common Stock, on
a Fully Diluted basis, that each Shareholder (other than the Section 4.1 Seller)
beneficially owns (or, without duplication, has the right to acquire) by (ii)
that number of shares of Common Stock, on a Fully Diluted basis, owned by all
Shareholders (other than the Section 4.1 Seller) (or which, without duplication,
they have the right to acquire).
In the event any Shareholder declines (or is deemed to decline) to
exercise its right of first offer with respect to the Company Securities it is
entitled to purchase under this Section 4.1 pursuant to the Final Section 4.1
Offer, the Section 4.1 Seller shall immediately notify the Company thereof and
the Company may, upon receipt of such notice, following the expiration of the
Final Order Period, by giving notice of acceptance to such Section 4.1 Seller
within five days of the expiration of the Final Order Period, exercise the right
of first offer with respect to the number of shares of Common Stock or Warrants,
as the case may be, which such Shareholder has not elected to purchase pursuant
to the Final Section 4.1 Offer.
(c) The Shareholders or the Company exercising their rights of first
offer as to shares of Common Stock or Warrants subject to the Section 4.1 Sale
shall purchase and pay, by bank or certified check, for all shares of Common
Stock or Warrants accepted within a 10-day period of the date on which all
shares of Common Stock or Warrants subject to the right of first offer have been
accepted; provided that if the purchase and sale of such shares of Common Stock
or Warrants is subject to any prior regulatory approval, subject to Section
4.1(d)(iii), the time period during which such purchase and sale may be
consummated shall be extended until the expiration of five Business Days after
all such approvals shall have been received.
(d) Upon the earlier to occur of (i) full rejection of any Section 4.1
Offer by all recipients thereof, (ii) the failure of the Shareholders and/or the
Company to elect to purchase all the shares of Common Stock or Warrants subject
to the Section 4.1 Offer pursuant to the procedures in Section 4.1(b) or (iii)
the failure to obtain any required consent or regulatory approval
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<PAGE> 21
for the purchase of the Company Securities subject thereto within 45 days of
full acceptance of any Section 4.1 Offer, then, subject to Section 4.2, the
Section 4.1 Seller shall have a 90-day period during which to effect a transfer
of any or all of the shares of Common Stock or Warrants subject to the Section
4.1 Sale on substantially the same or more favorable (as to the Section 4.1
Seller) terms and conditions as were set forth in the Section 4.1 Offer Notice
at a price in cash (or marketable securities or other property (or any
combination thereof) having a fair market value not less than 100% of the
Section 4.1 Sale Price; provided that if the transfer is subject to regulatory
approval, the 90-day period in which it may be consummated shall be extended
until the expiration of five Business Days after all such approvals shall have
been received. If the Section 4.1 Seller does not consummate the sale of the
shares of Common Stock or Warrants subject to the Section 4.1 Offer in
accordance with the foregoing time limitations, such Shareholder may not prior
to October 5, 2000 sell any shares of Common Stock or Warrants in accordance
with Section 3.4(a)(iii) without repeating the foregoing procedures.
(e) A Section 4.1 Seller may transfer securities in accordance with
Section 4.1(d) for consideration other than cash only if such Shareholder has
first obtained and delivered to each of the Shareholders a representation in
writing that the fair market value of the non-cash consideration that such
Shareholder proposes to accept as consideration for such Shares, together with
any cash consideration, is at least equal to 100% of the Section 4.1 Sale Price.
4.2 Right To Participate In Transfer (Tag-Along Rights). (a) If any
Shareholder (the "SELLING PERSON") proposes to transfer (other than transfers
(i) of shares of Common Stock or Warrants in a Public Offering, or pursuant to
Rule 144 under the Securities Act, (ii) to Permitted Transferees of the Selling
Person or (iii) where prior to or after giving effect to such transfer or
transfers, the Selling Person and its Permitted Transferees do not own less than
75% of the number of the securities of the type proposed to be transferred that
were beneficially owned by such Selling Person on October 5, 1995 with respect
to all Shareholders other than the Windy Hill Investors or on the date hereof
with respect to the Windy Hill Investors), in a transaction otherwise permitted
by Section 3.4 hereof, a number of shares of Common Stock or Preferred Stock
equal to or exceeding 10% of the number of such securities on a Fully Diluted
basis, or Warrants exercisable for 10% of the Common Stock on a fully Diluted
basis, in a single transaction or in a series of related transactions (a
"TAG-ALONG SALE"), the other Shareholders may, at their option, elect to
exercise their rights under this Section 4.2 (each such Shareholder, a "TAGGING
PERSON"); provided, however, with respect to any such transfer also governed by
Section 4.1 hereof, the Shareholders holding Common Stock and Warrants (and the
Company) shall have first been afforded the opportunity to acquire any Common
Stock or Warrants sold in a Tag-Along Sale in accordance with the provisions of
Section 4.1. Any sale by a Shareholder of Common Stock, Warrants or Preferred
Stock, as the case may be, that occurs within six months of any other sale by
such Shareholder of the same securities shall be conclusively deemed to be
related to such previous transaction. In the event of such a proposed transfer,
the Selling Person shall (after the conclusion of the relevant periods referred
to in Section 4.1(d), if applicable) provide each other Shareholder written
notice of the terms and conditions of such proposed transfer ("TAG-ALONG
NOTICE"). The Tag-Along Notice shall identify the number and type of securities
subject to the offer ("TAG-ALONG OFFER"), the cash price at which the transfer
is proposed to be made, and all other material terms and conditions of the
Tag-Along Offer. Each Tagging Person shall have the right (a "TAG-ALONG
RIGHT"), exercisable by written notice ("SECTION 4.2 RESPONSE NOTICE") given to
the Selling Person within 25 days (or, in the case of a transfer of shares of
Preferred Stock, 14 days) after receipt of the Tag-Along Notice (the "TAG-ALONG
NOTICE PERIOD"), to require the Selling Person to include in the proposed
transfer the number of securities held by such Tagging Person as is specified in
such notice; provided that if the aggregate number and kind of securities
proposed to be sold by all Tagging Persons in such transaction exceeds the
number and kind of securities which can be sold on the terms and conditions set
forth in the Tag-Along Notice, then only the Tag-Along Portion of each Tagging
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Person shall be sold pursuant to the Tag-Along Offer. If the Tagging Persons
exercise their Tag-Along Rights hereunder, each Tagging Person shall deliver to
the Selling Person the certificate or certificates representing the securities
of such Tagging Person to be included in the transfer, together with a limited
power-of-attorney authorizing the Selling Person to transfer such securities on
the terms set forth in the Tag-Along Notice. Delivery of such certificate or
certificates representing the securities to be transferred and the limited
power-of-attorney authorizing the Selling Person to transfer such securities
shall constitute an irrevocable acceptance of the Tag-Along Offer by such
Tagging Persons. If, at the end of a 120-day period after such delivery, the
Selling Person has not completed the transfer of all such securities on
substantially the same terms and conditions set forth in the Tag-Along Notice,
(A) the Selling Person shall return to each Tagging Person the limited
power-of-attorney (and all copies thereof) together with all certificates
representing the Shares which such Tagging Person delivered for transfer
pursuant to this Section 4.2 and such Tagging Person shall not thereafter have
the right to require the Selling Person to include any Securities in such
proposed transfer, and (B) any transfer to be completed after the end of such
120-day period shall be subject to the rights of the Shareholders under this
Section 4.2.
(b) In the event of a transfer of shares of Preferred Stock in a Public
Offering or pursuant to Rule 144A of the Securities Act to which Section 4.2(a)
is applicable, (i) the Tag-Along Notice need not specify the terms and
conditions of the Tag-Along Offer, (ii) the Tag-Along Notice Period shall be 5
days and (iii) the Section 4.2 Response Notice shall constitute an irrevocable
agreement of the Tagging Person providing such Section 4.2 Response Notice to
sell the Tag Along Portion of Preferred Stock at the price and on the terms and
conditions pursuant to which the Selling Person shall consummate the Tag-Along
Sale.
(c) In the event of a transfer subject to Section 4.2(a) of Warrants,
such transfer shall be deemed a transfer of the shares of Common Stock for which
the number of Warrants proposed to be transferred would be exercisable
("UNDERLYING SHARES"). The price per share of Common Stock shall be deemed to
equal the price per Warrant divided by the number of Underlying Shares minus the
applicable Exercise Price.
(d) Concurrently with the consummation of the Tag-Along Sale, the
Selling Person shall notify the Tagging Persons thereof, shall remit to the
Tagging Persons the total consideration (by bank or certified check) for the
securities of the Tagging Persons transferred pursuant thereto, and shall,
promptly after the consummation of such Tag-Along Sale, furnish such other
evidence of the completion and time of completion of such transfer and the terms
thereof as may be reasonably requested by the Tagging Persons.
(e) If at the termination of the Tag-Along Notice Period any Tagging
Person shall not have elected to participate in the Tag-Along Sale, such Tagging
Person will be deemed to have waived its rights under Section 4.2(a) with
respect to the transfer of its securities pursuant to such Tag-Along Sale.
4.3 Repurchases of Preferred Stock. (a) Notwithstanding anything to
the contrary in Section 5(b) of the Certificate of Designations of the Preferred
Stock, as consideration for the agreement of the Shareholders and their
Permitted Transferees not to transfer any shares of Preferred Stock prior to an
Initial Public Offering, Doane shall have the right, at any time and from time
to time, to repurchase, in whole or in part, on a pro rata basis, from the
Shareholders and their Permitted Transferees any shares of Preferred Stock owned
by such Shareholders, at a purchase price in cash equal to 112% of the
Liquidation Value of such Preferred Stock on the date of such repurchase, plus
any accrued and unpaid cash dividends.
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<PAGE> 23
(b) If Doane elects to exercise its right to require any Shareholder to
sell shares of Preferred Stock pursuant to Section 4.3(a), Doane shall deliver a
written notice to each Shareholder whose shares it wishes to repurchase, which
notice shall state the price per share and the terms and conditions of such
repurchase.
(c) Upon the receipt of any notice pursuant to Section 4.3(b), the
shares subject to repurchase pursuant to Section 4.3(a) (collectively,
"SURRENDERED SHARES") shall be repurchased within 30 Business Days of the date
(the "TERMINATION DATE") of receipt of such notice. On the repurchase date, the
Shareholder selling such Surrendered Shares (the "SELLER") shall deliver to
Doane the certificate or certificates representing the Surrendered Shares owned
by such Seller on such date against delivery by Doane to such Seller of the
repurchase price. All certificates for Surrendered Shares shall be duly
endorsed in favor of Doane by the Seller. If any Seller shall fail to deliver
such duly endorsed certificate or certificates to Doane within the time
required, Doane shall cause its books and records to show that the Surrendered
Shares are bound by the provisions of this Section 4.3 and that the Surrendered
Shares, until transferred to Doane, shall not be entitled to any proxy, dividend
or other rights from the date by which such certificate or certificates should
have been delivered to Doane.
4.4 Obligations to Participate in Certain Transfers (Drag Along
Obligations). If (a) any Shareholder (a "SECTION 4.4 SELLER") receives a
proposal from a Third Party offering to purchase from any one or more of the
shareholders of the Company in a single transaction or series of related
transactions (whether by merger, consolidation, sale, transfer or exchange of
the Company's capital stock) (i) Securities representing 80% or more of the
outstanding shares of Common Stock (determined on a Fully Diluted basis) or (ii)
all or substantially all of the assets of the Company, (b) such proposal is
acceptable to the Section 4.4 Seller and other record holders who in the
aggregate hold of at least two-thirds (the "APPROVING SHAREHOLDERS") of all of
the outstanding shares of Common Stock (determined on a Fully Diluted Basis) (a
"SALE OF THE COMPANY PROPOSAL"), (c) in the case of a stock sale, the Approving
Shareholders own less than the number of shares and Warrants offered for
purchase in such transaction and (d) in the case of a stock sale, the
Shareholders have not exercised their tag along rights pursuant to Section 4.2
to the extent necessary to cover the full number of Securities subject to the
Sale of the Company Proposal, then the Section 4.4 Seller shall promptly notify
the Company of such fact, and the Company shall send a copy of such notice
together with a copy of the Sale of the Company Proposal (the "DRAGALONG
NOTICE") to all of the other Shareholders. Each of the Shareholders will
consent to and raise no objections to the Sale of the Company Proposal or the
process thereof. If the Sale of the Company Proposal is structured as the sale
of stock, each of the other Shareholders will sell all (or such portion as is
required by the remaining portions of this Section 4.4) of its Securities
offered for purchase by, and pursuant to the terms and conditions of, the Sale
of the Company Proposal. If the Sale of the Company Proposal is structured as a
merger or consolidation, each of the Shareholders will waive all dissenter's
rights, appraisal rights or similar rights in connection with such merger or
consolidation. If the Sale of the Company Proposal is structured as a sale of
all or substantially all of the assets of the Company or Doane, at the request
of the Board, each of the Shareholders shall take such actions as may be
necessary to approve the sale and to cause a liquidation of the Company or its
subsidiaries, as applicable, following the consummation of such transaction.
Upon receipt of the Dragalong Notice, each of the Shareholders shall be
obligated to sell a percentage of its Securities on the terms set forth in the
Sale of the Company Proposal. The percentage of Securities referred to in the
preceding sentence shall equal (a) a percentage mutually agreed upon by all
Shareholders participating or required to participate in such transaction (so
long as the aggregate number of Securities equals the number of shares of Common
Stock (determined as if the Warrants had been fully exercised) offered in the
Sale of the Company Proposal) or (b) in
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the absence of any such agreement, the percentage of the outstanding shares of
Common Stock (determined as if the Warrants had been fully exercised) offered
to be purchased pursuant to the Sale of the Company Proposal.
The obligations of the Shareholders to participate in a Sale of the
Company Proposal are also subject to the satisfaction of the following
condition: the consideration to be received in the Sale of the Company
Transaction shall be distributed pro rata among the holders of the shares of
Common Stock; provided that, notwithstanding the foregoing, the holders of the
Warrants, to extent they have not exercised the Warrants prior to or in
connection with the Sale of the Company Transaction, shall be entitled to
receive with respect to each Warrant Share the consideration payable with
respect to a share of Common Stock less the exercise price payable to acquire
such Warrant Share.
If the Company enters into any negotiation or transaction for which Rule
506 of Regulation D ("REGULATION D") promulgated under the Securities Act (or
any similar rule then in effect) may be available with respect to such
negotiation or transaction (including a merger, consolidation or other
reorganization), the holders of Common Stock will, at the request of the Board,
appoint a purchaser representative (as such term is defined in Rule 501 of
Regulation D) reasonably acceptable to the Board. If any holder of any shares
of Common Stock, which is not an "accredited investor" under Rule 501 of
Regulation D, appoints the purchaser representative designated by the Board, the
Company will pay the fees of such purchaser representative, but if any such
holder of Common Stock declines to appoint the purchaser representative
designated by the Board, such holder will appoint another purchaser
representative (reasonably acceptable to the Board), and such holder will be
responsible for the fees of the purchaser representative so appointed.
4.5 Contractual Preemptive Rights. If the Company proposes to issue,
sell or otherwise transfer any shares of Common Stock (or any security
convertible or exchangeable into Common Stock) of the Company (the "OFFERED
SECURITIES"), each Shareholder who is an accredited investor (as defined under
Rule 501 of Regulation D) shall have the right to purchase the number of Offered
Securities provided below in this Section 4.5; provided, that the provisions of
this Section 4.5 shall not apply to any issuances (a) to any employee of the
Company or any of its Subsidiaries pursuant to any stock option or similar
benefit plan or any employee stock offering, (b) in connection with a Public
Offering, (c) of any Common Stock in payment of any dividend on the Common Stock
pursuant to the terms of the Certificate of Incorporation, (d) of any Common
Stock in a merger, stock exchange, purchase of assets or similar transaction,
(e) of any Common Stock upon exercise of the Warrants or (f) of any Common
Stock to any Person that is not a Shareholder or an Affiliate of a Shareholder
at the time of issuance. The Company shall give each Shareholder at least 20
days' prior written notice of any such proposed issuance setting forth in
reasonable detail the proposed terms and conditions thereof and shall offer to
each Shareholder the opportunity to purchase such securities at the same price,
on the same terms (including, if more than one type of security is issued, each
type of security in the same proportion offered), and at the same time as the
securities are proposed to be issued by the Company. A Shareholder may exercise
its preemptive rights by delivery of an irrevocable written notice to the
Company not more than 10 days after delivery of the Company's notice, which
notice shall state the number of Offered Securities such Shareholder (each a
"REQUESTING SHAREHOLDER" and collectively, the "REQUESTING SHAREHOLDERS") would
like to purchase. If the total number of Offered Securities requested to be
purchased exceeds the total number of Offered Securities proposed to be issued
and sold by the Company, then the Company will issue and sell the Offered
Securities to the Requesting Shareholders pro rata based on the number of Shares
(determined on a Fully-Diluted basis) owned by each such Shareholder prior to
the issuance at hand. If the total number of Offered Securities requested to be
purchased does not equal the total number of Offered Securities proposed to be
issued and sold by the Company, the Company shall give notice to each Requesting
Shareholder
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and the Requesting Shareholders shall have three (3) days to elect to purchase
the remaining Offered Securities; provided, that any over subscription shall be
subject to the pro rata cut-back provision described in the preceding sentence.
4.6 Termination Upon Initial Public Offering. The provisions of this
Article 4 (other than Section 4.3) shall terminate upon consummation of an
Initial Public Offering.
ARTICLE 5
REGISTRATION RIGHTS
5.1 Demand Registration. (a) If the Issuer shall receive a written
request by the DLJ Entities, Chase, Summit on behalf of the Summit-Investors or
the Windy Hill Investors (as provided in Section 5.13) (any such requesting
Person, a "SELLING SHAREHOLDER") that the Issuer effect the registration under
the Securities Act of all or a portion of such Selling Shareholder's shares of
Common Stock, and specifying the intended method of disposition thereof,
following the earlier to occur of (i) October 5, 1999 or (ii) an Initial Public
Offering, then the Issuer shall promptly give written notice of such requested
registration (a "DEMAND REGISTRATION") at least 30 days prior to the anticipated
filing date of the registration statement relating to such Demand Registration
to the other Shareholders and thereupon will use its best efforts to effect, as
expeditiously as possible, the registration under the Securities Act of:
(A) the Registrable Securities which the Issuer has been so
requested to register by the Selling Shareholders, then held by the Selling
Shareholders; and
(B) subject to the cut back provisions set forth in
Section 5.2, all other Registrable Securities of the same type (it being
understood that voting and non-voting common stock will be considered the
same type) as that to which the request by the Selling Shareholders relates
which any other Shareholder entitled to request the Issuer to effect an
Incidental Registration (as such term is defined in Section 5.2) pursuant to
Section 5.2 (all such Shareholders, together with the Selling Shareholders,
the "HOLDERS") has requested the Issuer to register by written request
received by the Issuer within 15 days after the receipt by such Holders of
such written notice given by the Issuer,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered;
provided that, subject to Section 5.1(c) hereof, (I) 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
collectively, three Demand Registrations for the Windy Hill Investors
collectively, or three Demand Registrations for Chase pursuant to this Section
5.1, and (II) in addition to the foregoing rights, following the Short-Form
Date, the number of Short-Form Demand Registrations for the DLJ Entities,
Chase, the Summit-Investors and the Windy Hill Investors pursuant to this
Section 5.1 shall be unlimited;
and provided further that the Issuer shall not be obligated to effect a Demand
Registration with respect to Common Stock unless the aggregate proceeds
expected to be received from the sale of the Common Stock requested to be
included in such Demand Registration equal at least (x) if such Demand
Registration would constitute an Initial Public Offering, $50,000,000, or (y)
in any other Public Offering, $20,000,000. In no event will the Issuer be
required to effect more than one Demand Registration within any 6 month period.
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Promptly after the expiration of the 15-day period referred to in
Section 5.1(a)(B) hereof, the Issuer will notify all the Holders to be included
in the Demand Registration of the other Holders and the number of shares of
Registrable Securities requested to be included therein. The Selling
Shareholders requesting a registration under this Section 5.1(a) may, at any
time prior to the effective date of the registration statement relating to such
registration, revoke such request, without liability to any of the other
Holders, by providing a written notice to the Issuer revoking such request, in
which case such request, so revoked, shall be considered a Demand Registration
unless such revocation arose out of the fault of the Issuer, in which case such
request shall not be considered a Demand Registration, or unless the
participating Shareholders reimburse the Issuer for all costs incurred by the
Issuer in connection with such registration.
(b) The Issuer will pay all Registration Expenses in connection with
any Demand Registration.
(c) A registration requested pursuant to this Section 5.1 shall not be
deemed to have been effected (i) unless the registration statement relating
thereto (A) has become effective under the Securities Act and (B) has remained
effective for a period of at least 180 days (or such shorter period in which all
Registrable Securities of the Holders included in such registration have
actually been sold thereunder); provided that if after any registration
statement requested pursuant to this Section 5.1 becomes effective (x) such
registration statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court and (y)
less than 75% of the Registrable Securities included in such registration
statement has been sold thereunder, such registration statement shall not be
considered a Demand Registration or (ii) if the Maximum Offering Size (as
defined below) is reduced in accordance with Section 5.1(d) such that less than
66 2/3% of the Registrable Securities of the Selling Shareholders sought to be
included in such registration are included.
(d) If a Demand Registration involves an Underwritten Public Offering
and the managing underwriter shall advise the Issuer and the Selling
Shareholders that, in its view, (i) the number of shares of Common Stock or
Warrants requested to be included in such registration (including Common Stock
or Warrants which the Issuer proposes to be included which are not Registrable
Securities) or (ii) the inclusion of some or all of the shares of Common Stock
or Warrants owned by the Holders, in any such case, exceeds the largest number
of shares which can be sold without having an adverse effect on such offering,
including the price at which such Shares can be sold (the "MAXIMUM OFFERING
SIZE"), the Issuer will include in such registration, in the priority listed
below, up to the Maximum Offering Size:
(A) first, all Registrable Securities requested to be
registered by any Selling Shareholders (allocated, if necessary for the
offering not to exceed the Maximum Offering Size, pro rata among such
Selling Shareholders on the basis of the relative number of Registrable
Securities so requested to be included in such registration);
(B) second, all Registrable Securities requested to be
included in such registration by any other Holder (allocated, if necessary
for the offering not to exceed the Maximum Offering Size, pro rata among
such other Holders on the basis of the relative number of Registrable
Securities so requested to be included in such registration); and
(C) third, any Common Stock proposed to be registered by the
Issuer.
(e) Upon written notice to each Selling Shareholder, the Issuer may
postpone effecting a registration pursuant to this Section 5.1 on one occasion
during any period of six consecutive months for a reasonable time specified in
the notice but not exceeding 90 days (which
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<PAGE> 27
period may not be extended or renewed), if (i) an investment banking firm of
recognized national standing shall advise the Issuer and the Selling
Shareholders in writing that effecting the registration would materially and
adversely affect an offering of securities of such Issuer the preparation of
which had then been commenced or (ii) such Issuer is in possession of material
non-public information the disclosure of which during the period specified in
such notice such Issuer believes would not be in the best interests of such
Issuer.
5.2 Incidental Registration. (a) 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 (other than a registration (x) on Form
S-8 or S-4 or any successor or similar forms, (y) relating to securities
issuable upon exercise of employee stock options or in connection with any
employee benefit or similar plan of the Issuer or (z) in connection with a
direct or indirect merger, acquisition or other similar transaction), whether or
not for sale for its own account, it will at such time, subject to the
provisions of Section 5.2(b) hereof, give prompt written notice at least 20 days
prior to the anticipated filing date of the registration statement relating to
such registration to each Shareholder, which notice shall set forth such
Shareholders' rights under this Section 5.2 and shall offer all Shareholders the
opportunity to include in such registration statement such number of Registrable
Securities of the same type as those proposed to be registered by the Issuer as
each such Shareholder may request (an "INCIDENTAL REGISTRATION"). Upon the
written request of any such Shareholder made within 10 days after the receipt of
notice from the Issuer (which request shall specify the number of Registrable
Securities intended to be disposed of by such Shareholder), the Issuer will use
all reasonable efforts to effect the registration under the Securities Act of
all Registrable Securities of the same type as those proposed to be registered
by the Issuer which the Issuer has been so requested to register by such
Shareholders, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered; provided that (i) if such
registration involves an Underwritten Public Offering, all such Shareholders
requesting to be included in the Issuer's registration must sell their
Registrable Securities to the underwriters selected as provided in Section
5.4(f) on the same terms and conditions as apply to the Issuer or the Selling
Shareholder, as applicable, and (ii) if, at any time after giving written notice
of its intention to register any stock pursuant to this Section 5.2(a) and prior
to the effective date of the registration statement filed in connection with
such registration, the Issuer shall determine for any reason not to register
such stock, the Issuer shall give written notice to all such Shareholders and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. No registration effected under
this Section 5.2 shall relieve the Issuer of its obligations to effect a Demand
Registration to the extent required by Section 5.1 hereof. The Issuer will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 5.2.
(b) If a registration pursuant to this Section 5.2 involves an
Underwritten Public Offering (other than in the case of an Underwritten Public
Offering requested by any Shareholder in a Demand Registration, in which case
the provisions with respect to priority of inclusion in such offering set forth
in Section 5.1(d) shall apply) and the managing underwriter advises the Issuer
that, in its view, the number of shares of Preferred Stock or Common Stock or
Warrants which the Issuer and the Selling Shareholders intend to include in such
registration exceeds the Maximum Offering Size, the Issuer will include in such
registration, in the following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be
registered for the account of the Issuer as would not cause the offering to
exceed the Maximum Offering Size; and
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(ii) second, all Registrable Securities requested to be
included in such registration by any Shareholder pursuant to Section 5.2
(allocated, if necessary for the offering not to exceed the Maximum Offering
Size, pro rata among such Shareholders on the basis of the relative number
of shares of Registrable Securities so requested to be included in such
registration).
5.3 Holdback Agreements. With respect to each and every Underwritten
Public Offering, each Shareholder agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144, or any successor
provision, under the Securities Act, of any Registrable Securities, and not to
effect any such public sale or distribution of any other security of the Issuer
that is convertible into or exchangeable or exercisable for any Common Stock and
that would be a Registrable Security (in each case, other than as part of such
Underwritten Public Offering) during the 14 days prior to the effective date of
the applicable registration statement (except as part of such registration) or
during the period after such effective date that such managing underwriter and
the Issuer shall agree (but not to exceed 180 days or any such shorter period
(but not less than 90 days) as the managing underwriter may suggest).
5.4 Registration Procedures. Whenever Shareholders request that any
Registrable Securities be registered pursuant to Section 5.1 or 5.2 hereof, the
Issuer will, subject to the provisions of such Sections, use all reasonable
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) The Issuer will as expeditiously as possible prepare and file with
the SEC a registration statement on any form selected by counsel for the Issuer
and which form shall be available for the sale of the Registrable Securities to
be registered thereunder in accordance with the intended method of distribution
thereof, and use all reasonable efforts to cause such filed registration
statement to become and remain effective for a period of not less than 10 days
(or such shorter period in which all of the Registrable Securities of the
Holders included in such registration statement shall have actually been sold
thereunder).
(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
Shareholder and each underwriter, if any, of the Registrable Securities covered
by such registration statement copies of such registration statement as proposed
to be filed, and thereafter the Issuer will furnish to such Shareholder and
underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Shareholder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Shareholder. Each Shareholder shall have the right to request that the Issuer
modify any information contained in such registration statement, amendment and
supplement thereto pertaining to such Shareholder and the Issuer shall use all
reasonable efforts to comply with such request, provided, however, that the
Issuer shall not have any obligation to so modify any information if so doing
would cause the prospectus to contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) After the filing of the registration statement, the Issuer will
promptly notify each Shareholder holding Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC or any
state securities commission under state blue sky laws and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
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(d) The Issuer will use all reasonable efforts to (i) register or
qualify the Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions in the United
States as any Shareholder holding such Registrable Securities reasonably (in
light of such Shareholder's intended plan of distribution) requests, (ii) cause
such Registrable Securities to be listed on any national securities exchange or
included for trading on any automated quotation system on which its Common Stock
is then listed or included for trading and (iii) cause such Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and operations of
the Issuer and do any and all other acts and things that may be reasonably
necessary or advisable to enable such Shareholder to consummate the disposition
of the Registrable Securities owned by such Shareholder; provided that the
Issuer will not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (d), (B) subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction.
(e) The Issuer will immediately notify each Shareholder holding such
Registrable Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
promptly prepare and make available to each such Shareholder and file with the
SEC any such supplement or amendment.
(f) In connection with (i) (A) any Demand Registration requested by the
DLJ Entities or their Permitted Transferees or (B) any registration of
Registrable Securities pursuant to this Article 5 in which 50% or more of the
securities proposed to be registered are securities beneficially owned by the
DLJ Entities or their Permitted Transferees, (ii) (A) any Demand Registration
requested by the Summit-Investors or their Permitted Transferees or (B) any
registration of Registrable Securities pursuant to this Article 5 in which 50%
or more of the securities proposed to be registered are securities beneficially
owned by the Summit-Investors or their Permitted Transferees, (iii)(A) any
Demand Registration requested by Chase or its Permitted Transferees or (B) any
registration of Registrable Securities pursuant to this Article 5 in which 50%
or more of the securities proposed to be registered are securities beneficially
owned by Chase or its Permitted Transferees, (iv)(A) any Demand Registration
requested by the Windy Hill Investors or their Permitted Transferees or (B) any
registration of Registrable Securities pursuant to this Article 5 in which 50%
or more of the securities proposed to be registered are securities beneficially
owned by the Windy Hill Investors or their Permitted Transferees, the Issuer
shall not appoint any underwriters unless the DLJ Entities, Chase, the
Summit-Investors, or the Windy Hill Investors, as applicable, shall have
approved such appointment. Any Affiliate of any of the DLJ Entities may be
selected as underwriter for an Underwritten Public Offering. The Issuer will
enter into customary agreements (including an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of such Registrable Securities,
including the engagement of a "qualified independent underwriter" in connection
with the qualification of the underwriting arrangements with the NASD.
(g) Upon execution of confidentiality agreements in form and substance
reasonably satisfactory to the Issuer, the Issuer will make available for
inspection by any Shareholder and any underwriter participating in any
disposition pursuant to a registration statement being filed by the Issuer
pursuant to this Section 5.4 and any attorney, accountant or other professional
retained by any such Shareholder or underwriter (collectively, the
"INSPECTORS"), financial and other records, pertinent corporate documents and
properties of the Issuer (collectively,
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the "RECORDS") as shall be reasonably requested by any such Person, and cause
the Issuer's officers, directors and employees to supply all information
reasonably requested by any Inspectors in connection with such registration
statement.
(h) The Issuer will furnish to each such Shareholder and to each such
underwriter, if any, a signed counterpart, addressed to such underwriter and the
participating Shareholders, of (i) an opinion or opinions of counsel to the
Issuer and (ii) a comfort letter or comfort letters from the Issuer's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as a majority of such Shareholders or the managing underwriter therefor
reasonably requests.
(i) The Issuer will otherwise use all reasonable efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(j) The Issuer may require each such Shareholder to promptly furnish in
writing to the Issuer information regarding the distribution of the Registrable
Securities as the Issuer may from time to time reasonably request and such other
information as may be legally required in connection with such registration.
(k) Each such Shareholder agrees that, upon receipt of any notice from
the Issuer of the happening of any event of the kind described in Section 5.4(e)
hereof, such Shareholder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Shareholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5.4(e) hereof, and, if so directed by
the Issuer, such Shareholder will deliver to the Issuer all copies, other than
any permanent file copies then in such Shareholder's possession, of the most
recent prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event that the Issuer shall give such notice, the Issuer
shall extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section 5.4(a) hereof)
by the number of days during the period from and including the date of the
giving of notice pursuant to Section 5.4(e) hereof to the date when the Issuer
shall make available to such Shareholder a prospectus supplemented or amended to
conform with the requirements of Section 5.4(e) hereof.
(l) In any firm underwritten offering of Common Stock, the Issuer shall
require the managing underwriter to agree to purchase Warrants for shares of
Common Stock otherwise includable in such offering pursuant to this Article 5,
at a price per share of Common Stock equal to the price per share at which such
shares of Common Stock are offered to the public, less (i) underwriting
discounts or commissions attributable to each such share and (ii) the Exercise
Price per share.
(5.5) Indemnification by the Issuer. The Issuer agrees to indemnify and
hold harmless each Shareholder holding Registrable Securities covered by a
registration statement, its officers, directors, employees, partners and agents,
and each Person, if any, who controls such Shareholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities (as
amended or supplemented if the Issuer shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or
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necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission so made in strict
conformity with information furnished in writing to the Issuer by such
Shareholder or on such Shareholder's behalf expressly for use therein; provided
that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, or in any prospectus,
as the case may be, the indemnity agreement contained in this paragraph shall
not apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus (or such amended or
supplemental prospectus, as the case may be) was not sent or given to the
Person asserting any such loss, claim, damage, liability or expense at or prior
to the written confirmation of the sale of the Registrable Securities concerned
to such Person if it is determined that the Issuer has provided such prospectus
to such Shareholder in a timely manner prior to such sale and it was the
responsibility of such Shareholder under the Securities Act to provide such
Person with a current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) and such current copy of the prospectus (or
such amended or supplemented prospectus, as the case may be) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
Issuer also agrees to indemnify any underwriters of the Registrable Securities,
their officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Shareholders
provided in this Section 5.5.
5.6 Indemnification by Participating Shareholders. Each Shareholder
holding Registrable Securities included in any registration statement agrees,
severally but not jointly, to indemnify and hold harmless the Issuer, its
officers, directors and agents and each Person, if any, who controls the Issuer
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Issuer
to such Shareholder, but only (i) with respect to information furnished in
writing by such Shareholder or on such Shareholder's behalf expressly for use in
any registration statement or prospectus relating to the Registrable Securities,
or any amendment or supplement thereto, or any preliminary prospectus or (ii) to
the extent that any loss, claim, damage, liability or expense described in
Section 5.5 results from the fact that a current copy of the prospectus (or such
amended or supplemented prospectus, as the case may be) was not sent or given to
the Person asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Securities
concerned to such Person if it is determined that it was the responsibility of
such Shareholder to provide such Person with a current copy of the prospectus
(or such amended or supplemented prospectus, as the case may be) and such
current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. Each such Shareholder shall be prepared, if
required by the underwriting agreement, to indemnify and hold harmless
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of the Issuer provided in this Section 5.6. As a
condition to including Registrable Securities in any registration statement
filed in accordance with Article 5 hereof, the Issuer may require that it shall
have received an undertaking reasonably satisfactory to it from any underwriter
to indemnify and hold lt harmless to the extent customarily provided by
underwriters with respect to similar securities.
5.7 Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Article 5,
such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all fees and expenses; provided that the failure of any Indemnified
Party so to notify the Indemnifying
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Party shall not relieve the Indemnifying Party of its obligations hereunder
except to the extent that the Indemnifying Party is materially prejudiced by
such failure to notify. In any such proceeding, any Indemnified Party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) in the reasonable judgment of such
Indemnified Party representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Indemnified Parties,
and that all such fees and expenses shall be reimbursed as they are incurred.
In the case of any such separate firm for the Indemnified Parties, such firm
shall be designated in writing by the Indemnified Parties. The Indemnifying
Party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Parties from and against any and all losses, claims,
damages, liabilities and expenses or liability (to the extent stated above) by
reason of such settlement or judgment. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified Party
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability arising out of such
proceeding.
5.8 Contribution. If the indemnification provided for in this Article
5 is held by a court of competent jurisdiction to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Issuer and the Shareholders holding Registrable Securities
covered by a registration statement and their related Indemnified Parties on the
one hand and the underwriters and their related Indemnified Parties on the other
hand, in such proportion as is appropriate to reflect the relative benefits
received by the Issuer and such Shareholders on the one hand and the
underwriters on the other hand, from the offering of the Shareholders'
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits but also the relative fault of the Issuer and such Shareholders on the
one hand and of such underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Issuer and their related Indemnified Parties on the one hand and
each such Shareholder and their related Indemnified Parties on the other hand,
in such proportion as is appropriate to reflect the relative fault of the Issuer
and of each such Shareholder in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by the Issuer and such Shareholders on the one hand and such
underwriters on the other hand shall be deemed to be in the same proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Issuer and such
Shareholders bear to the total underwriting discounts and commissions received
by such underwriters, in each case as set forth in the table on the cover page
of the prospectus. The relative fault of the Issuer and such Shareholders on
the one hand and of such underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuer and such Shareholders or by such
underwriters. The relative fault of the Issuer on the one hand and of each such
Shareholder on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
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<PAGE> 33
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Issuer and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 5.8 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.8, no underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to Securities purchased by such underwriter in such offering, less
the aggregate amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Shareholder shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities of such Shareholder were offered to the public exceeds the amount of
any damages which such Shareholder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Each Shareholder's
obligation to contribute pursuant to this Section 5.8 is several in the
proportion that the proceeds of the offering received by such Shareholder bears
to the total proceeds of the offering received by all such Shareholders and not
joint.
5.9 Participation in Public Offering. No Person may participate in any
Underwritten Public Offering hereunder unless such Person (a) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and the provisions of this Agreement in
respect of registration rights.
5.10 Cooperation by the Issuer. In the event any Shareholder shall
transfer any Registrable Securities pursuant to Rule 144A under the Securities
Act, the Issuer shall cooperate, to the extent commercially reasonable, with
such Shareholder and shall provide to such Shareholder such information as such
Shareholder shall reasonably request.
5.11 No Transfer of Registration Rights. None of the rights of
Shareholders under this Article 5 shall be assignable by any Shareholder to any
Person acquiring Securities in any Public Offering or pursuant to Rule 144A of
the Securities Act.
5.12 Rule 144 Information. So long as the Company is subject to
Section 13 or Section 15(d) of the Exchange Act, the Company will make all
filings thereunder in a timely manner in order to permit the resale of
securities pursuant to Rule 144 within the limitation of the exemptions provided
in Rule 144.
5.13 Windy Hill Rights. The rights of the Windy Hill Investors under
this Article 5 may only be exercised by (a) either BRS or Windy Hill L.L.C. at
any time the Windy Hill Investors are entitled to designate two individuals
under Section 2.1(a) or (b) at all other times, by the Windy Hill
Representative; provided, the exercise of rights by BRS or Windy Hill L.L.C.
shall not duplicate
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<PAGE> 34
or otherwise increase the aggregate rights granted to the Windy Hill Investors
under the other provisions of this Article 5.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS
6.1 Confidentiality. (a) Each Shareholder hereby agrees that
Confidential Information (as defined below) furnished and to be furnished to it
was and will be made available in connection with such Shareholder's investment
in the Issuer. Each Shareholder agrees that it will use the Confidential
Information only in connection with its investment in the Issuer and not for any
other purpose. Each Shareholder further acknowledges and agrees that it will
not disclose any Confidential Information to any Person; provided that
Confidential Information may be disclosed (i) to such Shareholder's
Representatives (as defined below) in the normal course of the performance of
their duties or to any financial institution providing credit to such
Shareholder, (ii) to the extent required by applicable law, rule or regulation
(including complying with any oral or written questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process to which a Shareholder is subject; provided that such
Shareholder gives the Issuer prompt notice of such request(s), to the extent
practicable, so that the Issuer may seek an appropriate protective order or
similar relief (and the Shareholder shall cooperate with such efforts by the
Issuer, and shall in any event make only the minimum disclosure required by such
law, rule or regulation)), (iii) to any Person to whom such Shareholder is
contemplating a transfer of its Shares (provided that such transfer would not be
in violation of the provisions of this Agreement and as long as such potential
transferee is advised of the confidential nature of such information and agrees
to be bound by a confidentiality agreement in form and substance satisfactory to
the Issuer and consistent with the provisions hereof) or (iv) if the prior
written consent of the Board (or board of directors of Doane, as applicable)
shall have been obtained. Nothing contained herein shall prevent the use
(subject, to the extent possible, to a protective order) of Confidential
Information in connection with the assertion or defense of any claim by or
against the Issuer or any Shareholder.
(b) "CONFIDENTIAL INFORMATION" means any information concerning the
Issuer and Persons which are or become its subsidiaries or the financial
condition, business, operations or prospects of the Issuer and Persons which are
or become its subsidiaries in the possession of or furnished to any Shareholder
(including, without limitation by virtue of its present or former right to
designate a director of the Issuer); provided that the term "Confidential
Information" does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by a Shareholder
or its partners, directors, officers, employees, agents, counsel, investment
advisers or representatives (all such persons being collectively referred to as
"REPRESENTATIVES") in violation of this Agreement, (ii) is or was available to
such Shareholder on a nonconfidential basis prior to its disclosure to such
Shareholder or its Representatives by the Issuer or (iii) was or becomes
available to such Shareholder on a non-confidential basis from a source other
than the Issuer, provided that such source is or was (at the time of receipt of
the relevant information) not, to the best of such Shareholder's knowledge,
bound by a confidentiality agreement with (or other confidentiality obligation
to) the Issuer or another Person.
6.2 Cooperation in Refinancings. Each Shareholder agrees to cooperate
to the extent commercially reasonable with the Company and Doane and take such
steps as the Board reasonably deems appropriate in any refinancing of debt of
Doane and any of its Subsidiaries in connection with the financing of
transactions contemplated in the Windy Hill Merger Agreement including executing
such documents as the Board reasonably determined should be filed with any
governmental agency and conducting presentations to potential investors and
rating agencies. This
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<PAGE> 35
Section 6.2 shall not be construed to require any Shareholder to contribute any
additional capital to the Company or Doane.
6.3 Reports. The Company will furnish the Shareholders with the
quarterly and annual financial reports that the Company is required to file with
the Securities and Exchange Commission pursuant to Section 13 or Section 15(d)
of the Exchange Act or, in the event the Company is not required to file such
reports, quarterly and annual reports containing the same information as would
be required in such reports.
6.4 Limitations on Senior Registration Rights The Issuer shall not
enter into any agreement with any holder or prospective holder of any securities
of the Issuer that would allow such holder or prospective holder to include such
securities ("NEW SECURITIES") in any registration filed pursuant to Section 5.1
or 5.2 hereof, unless under the terms of such agreement, such holder's or
prospective holder's registration rights are pari passu or junior to the
registration rights granted under this Agreement.
6.5 Certain Notices. Issuer shall use all reasonable efforts to give
Chase not less than 30 days' notice of any repurchases, redemptions or similar
events.
6.6 Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of the Warrants
such number of its authorized but unissued shares of Class A Common Stock or
Class B Common Stock or other securities of the Company from time to time
issuable upon exercise of the Warrants as will be sufficient to permit the
exercise in full of the Warrants.
6.7 Meetings of Stockholders. Holders of Warrants, for so long as they
are Shareholders, shall have the right to attend annual and special meetings of
the holders of Common Stock.
ARTICLE 7
MISCELLANEOUS
7.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements and understandings, both oral
and written, between the parties with respect to the subject matter hereof and
thereof.
7.2 Binding Effect: Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto, and their respective heirs, successors, legal
representatives and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
7.3 Assignability. Except as provided herein, neither this Agreement
nor any right, remedy, obligation or liability arising hereunder or by reason
hereof shall be assignable by the Company, Doane or any Shareholder, provided
that any Person acquiring Securities who is required by the terms of this
Agreement to become a party hereto shall execute and deliver to the Company and
Doane an agreement to be bound by this Agreement and shall thenceforth be a
"SHAREHOLDER".
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<PAGE> 36
7.4 Amendment; Waiver; Termination. (a) No provision of this Agreement
may be waived except by an instrument in writing executed by the party against
whom the waiver is to be effective. No provision of this Agreement may be
amended or otherwise modified except by an instrument in writing executed by the
Company with approval of the Board and (i) holders of at least 75% of the shares
of Common Stock (including those acquirable upon exercise of the Warrants) held
by the parties to this Agreement at the time of such proposed amendment or
modification and, if such amendment or modification affects the duties or rights
under this Agreement of the holders of Preferred Stock, holders of at least 75%
of the Preferred Stock held by the parties to this Agreement at the time of such
proposed amendment or modification or (ii) in the case of any amendment of this
Section 7.4, the holders of all shares of Common Stock and all shares of
Preferred Stock, in each case, held or acquirable (pursuant to the Warrants) by
the parties to this Agreement at the time of such proposed amendment or
modification. Notwithstanding the foregoing, the provisions of Section 2.1 may
be amended with the approval of the Board, the DLJ Entities, Summit/DPC, or in
the event Summit/DPC shall have ceased to exist, Summit, Chase, and one of the
Windy Hill Representatives.
(b) In addition, any amendment or modification of any provision of this
Agreement that would adversely affect any DLJ Entity in a manner that would not
also adversely affect a similarly situated Shareholder may be effected only with
the consent of such DLJ Entity.
(c) In addition, any amendment or modification of any provision of this
Agreement that would adversely affect Summit/DPC in a manner that would not also
adversely affect a similarly situated Shareholder may be effected only with the
consent of Summit/DPC, or in the event Summit/DPC shall have ceased to exist,
Summit.
(d) In addition, any amendment or modification of any provision of this
Agreement that would adversely affect Chase in a manner that would not also
adversely affect a similarly situated Shareholder may be effected only with the
consent of Chase.
(e) In addition, any amendment or modification of any provision of this
Agreement that would adversely affect any Windy Hill Investor in a manner that
would not also adversely affect a similarly situated Shareholder may be effected
only with the consent of one of the Windy Hill Representatives.
(f) This Agreement shall terminate on the fifth anniversary of the date
hereof unless earlier terminated.
7.5 Notices. All notices and other communications given or made
pursuant hereto or pursuant to any other agreement among the parties, unless
otherwise specified, shall be in writing and shall be deemed to have been duly
given and received when sent by fax (with confirmation in writing via first
class U.S. mail) or delivered personally or on the third Business Day after
being sent by registered or certified U.S. mail (postage prepaid, return receipt
requested) to the parties at the fax number or address set forth below or at
such other addresses as shall be furnished by the parties by like notice:
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<PAGE> 37
if to the Company or Doane, to:
DPC Acquisition Corp.
Doane Products Company
P.O. Box 879
West 20th and State Line Road
Joplin, MO 64802-0879
Attention: President
Fax: (417) 624-6327
if to the DLJ Entities, to:
DLJ Merchant Banking Funding, Inc.
DLJ Merchant Banking Partners, L.P.
DLJ First ESC, L.L.C.
277 Park Avenue
New York, New York 10172
Attention: Peter Grauer
Fax: (212) 892-7552
and to:
DLJ International Partners, C.V.
DLJ Offshore Partners, C.V.
c/o DLJ Offshore Management N.V.
John B. Gorsiraweg 6
Willemstad, Curacao
Netherlands Antilles
Attention: Genmaine Sprock
MeesPierson Trust (Curacao) N.V.
Fax:011-599-961-4129
with copies to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
Fax: (212) 450-4800
and
DLJ Merchant Banking, Inc.
277 Park Avenue
New York, New York 10172
Attention: Peter Grauer
Fax: (212) 892-7552
if to any Summit-Investor or Windy Hill Investor, to such Summit-Investor or
Windy Hill Investor at the address specified by such Summit-Investor or Windy
Hill Investor on the signature pages of this Agreement or in a notice given by
such Summit-Investor or Windy Hill Investor;
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<PAGE> 38
with copies of any notice given to any Summit-Investor to:
Summit Capital Inc.
8 Greenway Plaza
Houston, Texas 77046
Attention: George B. Kelly
Fax: (713) 960-1562
and
Vinson & Elkins L.L.P.
1001 Fannin
Suite 2300
Houston, Texas 77002-6760
Attention: Bruce C. Herzog
Fax: (713) 758-2346
if to Chase, to:
Chase Manhattan Investment Holdings, Inc.
380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Jeffrey C. Walker
Fax: (212) 622-3750
if to Baseball Partners, to:
Baseball Partners
380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Chris Behrens
Fax: (212)_____________
Any Person who becomes a Shareholder shall provide its address and fax number
to the Company, which shall promptly provide such information to each other
Shareholder.
7.6 Headings. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.8 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to the
conflicts of laws rules of such state.
7.9 Specific Enforcement. Each party hereto acknowledges that the
remedies at law of the other parties for a breach or threatened breach of this
Agreement would be inadequate and, in recognition of this fact, any party to
this Agreement, without posting any bond, and in addition to all other remedies
which may be available, shall be entitled to obtain equitable relief in the form
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<PAGE> 39
of specific performance, a temporary restraining order, a temporary or
permanent injunction or any other equitable remedy which may then be available.
7.10 Consent to Jurisdiction; Expenses. (a) Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be brought in any Federal Court sitting in New York, New York, or
any New York State court sitting in New York, New York, and each of the parties
hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party by any method provided in Section 7.5 shall be
deemed effective service of process on such party and consents to the personal
jurisdiction of any Federal Court sitting in New York, New York, or any New York
State court sitting in New York, New York.
(b) In any dispute arising under this Agreement among any of the
parties hereto, the costs and expenses (including, without limitation, the
reasonable fees and expenses of counsel) incurred by the prevailing party shall
be paid by the party that does not prevail.
7.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable to any extent under applicable law, such provision
shall be interpreted as if it were written so as to be enforceable to the
maximum possible extent so as to effectuate the parties' intent to the maximum
possible extent, and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the maximum extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DPC ACQUISITION CORP.
By: /s/ GEORGE B. KELLY
------------------------------------
Name: George B. Kelly
----------------------------------
Title:
---------------------------------
DOANE PRODUCTS COMPANY
By: /s/ GEORGE B. KELLY
------------------------------------
Name: George B. Kelly
----------------------------------
Title:
---------------------------------
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<PAGE> 40
SUMMIT CAPITAL INC.
By: /s/ GEORGE B. KELLY
------------------------------------
Name: George B. Kelly
----------------------------------
Title: Chairman
---------------------------------
CHASE MANHATTAN
INVESTMENT HOLDINGS, INC.
By: /s/ JEFFREY C. WALKER
------------------------------------
Name: Jeffrey C. Walker
----------------------------------
Title:
---------------------------------
BASEBALL PARTNERS
By: /s/ CHRIS BEHRENS
------------------------------------
Name: Chris Behrens
----------------------------------
Title:
---------------------------------
SUMMIT/DPC PARTNERS, L.P.
BY: SUMMIT CAPITAL, INC.,
its General Partner
By: /s/ GEORGE B. KELLY
------------------------------------
Name: George B. Kelly
Title: Chairman
DLJ MERCHANT BANKING
PARTNERS, L.P.,
a Delaware Limited Partnership
BY DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/ PETER GRAUER
------------------------------------
Name: Peter Grauer
----------------------------------
Title:
----------------------------------
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<PAGE> 41
DLJ INTERNATIONAL PARTNERS, C.V.
BY DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/ PETER GRAUER
------------------------------------
Name: Peter Grauer
----------------------------------
Title:
---------------------------------
DLJ OFFSHORE PARTNERS, C.V.
BY DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/ PETER GRAUER
------------------------------------
Name: Peter Grauer
----------------------------------
Title:
---------------------------------
DLJ FIRST ESC, L.L.C.
By: /s/ PETER GRAUER
------------------------------------
Name: Peter Grauer
----------------------------------
Title:
---------------------------------
DLJ MERCHANT BANKING
FUNDING, INC.
By: /s/ PETER GRAUER
------------------------------------
Name: Peter Grauer
----------------------------------
Title:
---------------------------------
Address: THE ROSENTHAL 1989 TRUST
8 Greenway Plaza
Houston, Texas 77046
Fax: (713) 960-1562
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address:
702 West 42nd Street
Joplin, MO 64804 By:
------------------------------------
Dick H. Weber
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<PAGE> 42
Address:
4505 Wendy Way
Joplin, MO 64804 By:
------------------------------------
Terry W. Bechtel
Address:
8591 Southeast Highway 66
Baxter Springs, KA 66713 By: /s/ BOB L. ROBINSON
------------------------------------
Bob L. Robinson
Address:
2515 West 30th Street
Joplin, MO 64804 By:
------------------------------------
Roy E. Hess
Address:
2114 East 34th Place
Joplin, MO 64804 By:
------------------------------------
Earl R. Clements
Address:
8 Greenway Plaza
Houston, TX 77046
Fax: 713-960-1562 By:
------------------------------------
J. David Heaney
Address:
8602 Indian Circle
Houston, TX 77056
Fax: 713-623-0287 By: /s/ LAURA HAWKINS MANSUR
------------------------------------
Laura Hawkins Mansur
Address:
8 Greenway Plaza
Houston, TX 77046
Fax: 713-960-1562 By:
------------------------------------
Gary L. Rosenthal
Address:
8 Greenway Plaza
Houston, TX 77046
Fax: 713-960-1562 By:
------------------------------------
Lee H. Rosenthal
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<PAGE> 43
Address:
8 Greenway Plaza
Houston, TX 77046
Fax: 713-960-1562 By:
------------------------------------
Fred A. Rosenthal
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<PAGE> 44
The following signatories are the "Windy Hill Investors":
Address: DARTFORD PARTNERSHIP, L.L.C.
456 Montgomery Street
Suite 2200
San Francisco, CA 94104 By: /s/ RAY CHUNG
------------------------------------
Name: Ray Chung
----------------------------------
Title:
---------------------------------
Address: BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
126 East 56th Street
New York, New York 10022
Attention: Stephen C. Sherrill By: /s/ STEPHEN C. SHERRILL
------------------------------------
By: BRS Partners, Limited Partnership Name: Stephen C. Sherrill
its general partner ----------------------------------
By: BRSE Associates, Inc., Title:
its general partner ---------------------------------
Address: PNC CAPITAL CORP
CNG Tower
625 Liberty Avenue, Suite 3150 By: /s/ PRESTON WALSH
Pittsburgh, Pa. 15222 ------------------------------------
Attention: Preston Walsh Name: Preston Walsh
----------------------------------
Title: Vice President
---------------------------------
Address: WINDY HILL PET FOOD COMPANY L.L.C.
456 Montgomery Street
Suite 2200
San Francisco, CA 94104 By: /s/ RAY CHUNG
------------------------------------
Name: Ray Chung
----------------------------------
Title:
---------------------------------
Address:
1414 Chickering Road
Nashville, TN 37215 /s/ ROBERT V. DALE
---------------------------------------
Robert V. Dale
Address:
808 Quail Valley Drive
Brentwood, TN 37027
/s/ F. DONALD COWAN, JR.
---------------------------------------
F. Donald Cowan, Jr.
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<PAGE> 45
Address:
4036 Elizabeth Drive
Hermitage, TN 37076
/s/ DONALD L. GADD
---------------------------------------
Donald L. Gadd
Address:
827 Woodburn Drive
Brentwood, TN 37027
/s/ HENRY G. HURD, JR.
---------------------------------------
Henry G. Hurd, Jr.
Address:
1182 Cross Creek Drive
Franklin, TN 37067
/s/ BEN W. McCrory
---------------------------------------
Ben W. McCrory
Address:
105 Jefferson Drive
Hendersonville, TN 37075
/s/ VAUGHN R. OAKLEY
---------------------------------------
Vaughn R. Oakley
Address:
7208 South Course View
Franklin, TN 37067
/s/ CHARLES DUNLEAVY
---------------------------------------
Charles Dunleavy
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<PAGE> 46
BCB PARTNERSHIP, BRUCE C. BRUCKMANN,
DONALD J. BRUCKMANN, PAUL D. KAMINSKI,
NAZ PARTNERSHIP, HAROLD O. ROSSER,
H. VIRGIL SHERRILL, STEPHEN C. SHERRILL,
NANCY A. ZWENG, ELIZABETH MCSHANE,
BEVERLY PLACE, BY THE FOLLOWING PERSONS:
By: /s/ STEPHEN C. SHERRILL
-------------------------------------
Stephen C. Sherrill, Attorney-in-Fact
/s/ STEPHEN C. SHERRILL
----------------------------------------
Stepehn C. Sherrill, Individually
Addresses for notices for the following shareholders are as follows:
BCB Family Partners, LP
125 East 84th Street, #5A
New York, NY 10028
Bruce Bruckmann
125 East 84th Street, #5A
New York, NY 10028
Donald J. Bruckmann
66 East 79th Street
New York, NY 10021
NAZ Family Partners, LP
125 East 84th Street, #5A
New York, NY 10028
Harold O. Rosser
499 Silvermine Road
New Canaan, CT 06840
H. Virgil Sherrill
c/o Prudential Securities
1 Seaport Plaza, 34th Floor
New York, NY 10292
Stephen C. Sherrill
765 Park Avenue
New York, NY 10021
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<PAGE> 47
Nancy A. Zweng
125 East 84th Street, #5A
New York, NY 10028
Paul D. Kaminski
59 Fourth Avenue, #6A
New York, NY 10003
Elizabeth McShane
15300 Parev Terrace
Darnestown, MD 20874
Beverly Place
127 West Montgomery
Baltimore, MD 22130
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<PAGE> 1
EXHIBIT 10.1
EARLY RETIREMENT AGREEMENT AND RELEASE
This Early Retirement Agreement and Release ("Agreement") is entered
into by and between Bob L. Robinson ("Executive"), Doane Products Company, a
Delaware corporation, its subsidiaries, successors, assigns and affiliates
("Company") and DPC Acquisition Corp., a Delaware corporation ("DPC").
RECITALS:
WHEREAS, Executive, at various times, has been an executive and
officer of Company;
WHEREAS, Executive is voluntarily retiring as of 5:00 p.m. (C.S.T.) on
June 30, 1998, and resigns from any and all positions he holds with Company, in
the capacity of executive, officer, trustee, advisor, or any other position or
capacity he holds by virtue of his employment by Company except as set forth
herein;
WHEREAS, Executive and Company desire to avoid the expense, delay and
uncertainty attendant to any claims which may arise from Executive's retirement
from Company;
WHEREAS, Executive desires to release any claims or causes of action
he may have arising from or relating to his employment or service with Company;
and
WHEREAS, Company and Executive desire to clarify and modify certain
agreements they have arising from or relating to Executive's employment or
service with Company;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Executive and
Company hereby agree:
1. RESIGNATION BY MUTUAL AGREEMENT. Executive acknowledges and
agrees he is voluntarily retiring and resigning from employment with, and as an
officer of, Company and any other entity affiliated with Company as of 5:00
p.m. (C.S.T.) on June 30, 1998 (the "Retirement Date") pursuant to mutual
agreement with Company. Company hereby confirms its acceptance of Executive's
resignation pursuant to such mutual agreement.
2. CERTAIN OBLIGATIONS OF COMPANY AND EXECUTIVE
A. SALARY AND ANNUAL BONUS. Company shall continue to
pay Executive his base salary, at the rate in effect on the Retirement Date,
through December 31, 1998. Such payments shall be made in accordance with
Company payroll practices as in effect from time to time and such payments
shall be reduced by customary withholding for taxes and applicable deductions.
Company shall also pay Executive an annual bonus for 1998, in lieu of the bonus
provided for in section 4.(a) of the "Employment Agreement" as defined below,
in an agreed amount of $800,000, within 90 days after delivery of Company's
annual financial statements by Company's independent auditors. Except as
otherwise provided in this Agreement, Executive acknowledges that the payments
to be made
<PAGE> 2
pursuant to this paragraph are in full satisfaction of all wages, benefits and
other compensation owed by Company for employment or service through the
Retirement Date. For purposes of this Paragraph 2. A. and subject to any
contrary order or judgment of a court of competent jurisdiction, the payments,
if any, payable under this Paragraph 2. A. subsequent to Executive's death
shall be paid to the beneficiary or beneficiaries, designated by Executive
(with such designation to be made in accordance with procedures established by
Company) to receive such payments upon his death, or if Executive fails to
designate such beneficiary or beneficiaries, to the executor or administrator
of Executive's estate, or to Executive's heirs at law if there is no
administration of Executive's estate. The rights of Executive and his estate,
beneficiaries or heirs shall be solely those of an unsecured creditor of
Company, and nothing in this Agreement gives Executive, his estate,
beneficiaries or heirs any right, title or interest in or to any specific
assets, funds, reserve, account or property of any kind whatsoever owned by
Company or in which Company has or may have any right, title or interest.
B. EMPLOYMENT AGREEMENT. As of the Retirement Date,
Executive and Company expressly agree by mutual consent that that certain
employment agreement by and between Executive and Company, effective as of
September 1, 1994, (the "Employment Agreement"), shall be superseded in all
respects by this Agreement, except as expressly provided otherwise by this
Agreement. Executive also expressly agrees that he shall not be entitled to
any payments based upon such Employment Agreement, including without
limitation, the following items as set forth in such Employment Agreement: (i)
any salary continuation amounts (other than as provided in Subparagraphs A and
E), (ii) any transaction bonus arising from or related to any control
transaction, (iii) any deferred compensation payments (other than as provided
in Subparagraphs D and E), and (iv) any rights to annual base salary or annual
bonus for 1999.
C. GROUP MEDICAL PLAN. Executive and his covered
dependents shall be allowed to continue participation in the Company's group
medical plan at active employee rates until Executive's wife attains age 65 if
Executive remains a director of DPC during such period. In the event Executive
ceases to be a director of DPC, Executive and his covered dependents shall be
allowed to continue participation in the Company's group medical plan at the
COBRA rate until Executive's wife attains age 65. The foregoing
notwithstanding, Company reserves the right to terminate or change health
benefits provided under such group medical plan without notice.
D. ANNUAL SUPPLEMENTAL RETIREMENT PAYMENTS. Executive
shall be entitled to receive annual supplemental retirement payments in
accordance with the terms and conditions for receiving such payments set forth
in section 5.(b) of the Employment Agreement. For purposes of this Paragraph
2. D. and subject to any contrary order or judgment of a court of competent
jurisdiction, the payments, if any, payable under this Paragraph 2. D.
subsequent to Executive's death shall be paid to the beneficiary or
beneficiaries, designated by Executive (with such designation to be made in
accordance with procedures established by Company) to receive such payments
upon his death, or if Executive fails to designate such beneficiary or
beneficiaries, to the executor or administrator of Executive's estate, or to
Executive's heirs at law if there is no administration of Executive's estate.
The rights of Executive and his estate, beneficiaries or heirs shall be solely
those of an unsecured creditor of Company, and nothing in this Agreement gives
Executive, his estate, beneficiaries or heirs any right, title or interest in
or to any specific assets, funds, reserve, account
<PAGE> 3
or property of any kind whatsoever owned by Company or in which Company has or
may have any right, title or interest.
E. NON-QUALIFIED SALARY CONTINUATION AGREEMENT.
Executive shall be entitled to receive the benefits provided for by the
Non-Qualified Salary Continuation Agreement dated July 13, 1990 in accordance
with its terms except that the early retirement percentage provided for in
Section 3(c) of such agreement shall be 81.2% and payments shall commence
January 1, 1999.
F. DPC STOCK AND DPC STOCK OPTIONS. DPC agrees that it
shall not purchase any shares of DPC stock owned by Executive pursuant to DPC's
right to purchase such stock upon Executive's termination of employment with
Company and shall not designate any other employees of the Company to
repurchase such DPC stock, but DPC hereby expressly reserves its right of first
refusal with respect to any such stock in the event Executive and any
third-party enter into an agreement for the sale and purchase of any such
stock. DPC shall cause Executive to be vested effective as of June 30, 1998 in
an additional 9,000 shares of stock under each of the two stock option
agreements dated November 1, 1996 covering 50,000 shares of stock each. No
further vesting of such options shall accrue to Executive thereafter.
Executive's right to exercise such options shall be governed by the stock
option agreements.
G. NON-COMPETITION COVENANTS, CONFIDENTIALITY AND
PROPRIETARY INFORMATION, AND REMEDIES FOR BREACH. Executive shall remain
subject to the provisions of sections 6, 7, and 8 of the Employment Agreement.
H. EXPENSES. Executive shall, within 30 days of the
Retirement Date, submit all actual, reasonable and customary expenses incurred
by him in the course of his employment with proper documentation, which, upon
verification, Company shall reimburse promptly. Executive acknowledges and
agrees that he has not and has no authority to incur any expenses after the
Retirement Date, and further agrees that Company shall have no obligation to
reimburse expenses not submitted within the time set forth above or incurred
after that date.
3. COOPERATION. Executive shall cooperate with Company to the
extent reasonably required in all matters relating to the winding up of his
pending work on behalf of Company, or any of its affiliates, and the orderly
transfer of any such pending work as designated by Company. Executive shall
take such further action and execute such further documents as may be
reasonably necessary or appropriate in order to carry out the provisions and
purposes of this Agreement.
4. EXECUTIVE'S REPRESENTATION. Executive represents, warrants
and agrees that he has not filed any claims, appeals, complaints, charges or
lawsuits against Company, its predecessors, successors, parent companies,
subsidiaries or affiliates, or their respective executives, officers,
directors, shareholders, owners, agents, and representatives (collectively,
including Company, the "Company Parties") with any governmental agency or court
and that he will not file or permit to be filed or accept benefit from any
claim, complaint or petition filed with any court by him or on his behalf at
any time hereafter with respect to the claims released by Executive in
Paragraph 5 below; provided, however, this shall not limit Executive from
enforcing any of his other rights against the Company Parties, including
without limitation, any of his rights under this Agreement and any other
<PAGE> 4
documents entered into in connection herewith or referred to herein. Further,
Executive represents and warrants that no other person or entity has any
interest in, or assignment of, any claims or causes of action he may have
against any Company Party and which he now releases in their entirety pursuant
to Paragraph 5 below.
5. RELEASES. Executive agrees to release, acquit and discharge
and does hereby release, acquit and discharge Company, and all Company Parties,
collectively and individually, from any and all claims and from any and all
causes of action, of any kind or character, whether now known or not known, he
may have against any of them arising under the Age Discrimination in Employment
Act, as amended, 29 U.S.C. Section 621, et seq. ("ADEA"), and any and all
claims or causes of action arising under any other federal, state or local laws
pertaining to discrimination in employment or equal employment opportunity;
except that the parties agree that Executive's release, acquittal and discharge
shall not relieve Company from any of the other obligations that they may have
with respect to Executive, including without limitation, their obligations
under this Agreement and any other documents entered into in connection
herewith or referred to herein. This release also applies to any claims
brought by any person or agency or class action under which Executive may have
a right or benefit.
6. NO ADMISSIONS. Executive expressly understands and agrees
that the terms of this Agreement are contractual and not merely recitals and
that the agreements herein and consideration paid is to compromise doubtful and
disputed claims, avoid litigation, and buy peace, and that no statement or
consideration given shall be construed as an admission of any claim by any
Company Party, all such admissions being expressly denied.
7. ENFORCEMENT OF AGREEMENT. No waiver or nonaction with respect
to any breach by the other party of any provision of this Agreement shall be
construed to be a waiver of any succeeding breach of such provision, or as a
waiver of the provision itself. Should any provisions hereof be held to be
invalid or wholly or partially unenforceable, such holdings shall not
invalidate or void the remainder of this Agreement. Portions held to be
invalid or unenforceable shall be revised and reduced in scope so as to be
valid and enforceable, or, if such is not possible, then such portion shall be
deemed to have been wholly excluded with the same force and effect as if they
had never been included herein.
8. CHOICE OF LAW. This Agreement shall be governed by and
construed and enforced, in all respects, in accordance with the laws of the
State of Missouri, without regard to principles of conflict of law, unless
preempted by federal law, in which case federal law shall govern.
9. MERGER. This Agreement supersedes, replaces and merges all
previous agreements and discussions relating to the same or similar subject
matters between Executive and Company and constitutes the entire agreement
between Executive and Company with respect to the subject matter of this
Agreement, except for those sections of the Employment Agreement that are
expressly incorporated herein by reference and any other agreements expressly
preserved herein. This Agreement may not be changed or terminated orally, and
no change, termination or waiver of this Agreement or any of the provisions
herein contained shall be binding unless made in writing and signed by all
parties, and in the case of Company, by an authorized officer.
<PAGE> 5
10. AMENDMENT. This Agreement may not be changed or terminated
orally, and no change, termination or waiver of this Agreement or any of the
provisions herein contained shall be binding unless made in writing and signed
by the affected parties.
11. CONFIDENTIALITY. Executive agrees that he has not disclosed
and will not disclose the terms of this Agreement, or the consideration for it
received from Company, to any other person, except his spouse, attorney or
financial advisors and only on the condition that they keep such information
strictly confidential; provided, however, that the foregoing obligation of
confidence shall not apply to information that is required to be disclosed as a
result of any applicable law, rule or regulation of any governmental authority
or any court.
12. ADEA RIGHTS. Executive acknowledges and agrees:
(a) that he has at least twenty-one days to review this
Agreement before accepting;
(b) that he has been advised in writing by Company to
consult with an attorney regarding the terms of this Agreement;
(c) that, if he accepts this Agreement, he has seven days
following the execution of this Agreement to revoke this Agreement.
13. TERMINATION AGREEMENT AND RELEASE VOLUNTARY. Executive
acknowledges and agrees that he has carefully read this Agreement and
understands that, except as expressly reserved herein, it is a release of all
claims, known and unknown, past or present including all claims under the ADEA.
He further agrees that he has entered into this Agreement for the above stated
consideration. He warrants that he is fully competent to execute this
Agreement which he understands to be contractual. He further acknowledges that
he executes this Agreement of his own free will, after having a reasonable
period of time to review, study and deliberate regarding its meaning and
effect, and after being advised to consult an attorney, and without reliance on
any representation of any kind or character not expressly set forth herein.
Finally, he executes this Agreement fully knowing its effect and voluntarily
for the consideration stated above.
14. EFFECTIVE DATE. The Effective Date shall be ten days after
the execution of this Agreement by Executive, Company and DPC, provided
Executive has not exercised his right of revocation pursuant to Paragraph 12(c)
above.
15. HEADINGS. The section headings contained herein are for the
purpose of convenience only and are not intended to define or limit the
contents of such sections.
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
Date: June 30, 1998 DOANE PRODUCTS COMPANY
By: /s/ THOMAS R. HEINDENTHAL
--------------------------------------
NAME: Thomas R. Heindenthal
TITLE: Senior Vice President and Chief
Financial Officer
Date: June 30, 1998 DPC ACQUISITION CORP.
By: /s/ THOMAS R. HEINDENTHAL
--------------------------------------
NAME: Thomas R. Heindenthal
TITLE: Senior Vice President and Chief
Financial Officer
Date: June 30, 1998 "EXECUTIVE"
By: /s/ BOB L. ROBINSON
--------------------------------------
BOB L. ROBINSON
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF DOANE PET CARE ENTERPRISES, INC.
Name of Subsidiary Place of Incorporation/Organization
- ------------------ -----------------------------------
Doane Pet Care Company Delaware
Windy Hill Holdings, Inc. Delaware
Windy Hill Pet Food Company, Inc. Minnesota
WHPF, Inc. Delaware
Armour Corporation Delaware
DPC International Ltd. United Kingdom
Doane Pet Care Spain S.A. Spain
IPES IBERICA, S.A. Spain
<PAGE> 1
The Board of Directors
Doane Pet Care Enterprises, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Houston, Texas
August 7, 1998
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Windy Hill Pet Food Holdings, Inc.
We consent to the use of our report on Windy Hill Pet Food Holdings,
Inc. and Pet Food Division (a division of Hubbord Milling Company) and
to the reference to our firm under the heading "Experts" in the
Registration Statement and Prospectus.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
August 7, 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 THREE
MONTHS ENDED MARCH 31, 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> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 59,796 66,369
<ALLOWANCES> (93) 0
<INVENTORY> 33,048 32,426
<CURRENT-ASSETS> 97,614 102,345
<PP&E> 118,792 115,442
<DEPRECIATION> (17,455) (15,448)
<TOTAL-ASSETS> 333,728 338,184
<CURRENT-LIABILITIES> 60,412 76,700
<BONDS> 160,000 165,698
0 0
32,277 30,545
<COMMON> 0 0
<OTHER-SE> 41,925 41,675
<TOTAL-LIABILITY-AND-EQUITY> 333,728 338,184
<SALES> 144,497 548,314
<TOTAL-REVENUES> 144,497 548,314
<CGS> 119,967 480,334
<TOTAL-COSTS> 129,745 516,330
<OTHER-EXPENSES> 0 35,996
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,422 22,621
<INCOME-PRETAX> 5,055 9,623
<INCOME-TAX> 1,776 3,389
<INCOME-CONTINUING> 3,279 6,234
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,279 6,234
<EPS-PRIMARY> 1,547 (151)
<EPS-DILUTED> 0 0
</TABLE>
