<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1999
REGISTRATION NO. 333-61027
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DOANE PET CARE ENTERPRISES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2047 76-0472875
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
103 POWELL COURT, SUITE 200
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
THOMAS R. HEIDENTHAL
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
103 POWELL COURT, SUITE 200
BRENTWOOD, TENNESSEE 37027
(615) 373-7774
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
ALAN P. BADEN DAVID P. OELMAN
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER 600 TRAVIS, SUITE 4200
1001 FANNIN HOUSTON, TEXAS 77002
HOUSTON, TEXAS 77002 (713) 220-4200
(713) 758-2222
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 4, 1999
PROSPECTUS
, 1999
DOANE PET CARE ENTERPRISES LOGO
16,250,000 SHARES
DOANE PET CARE ENTERPRISES, INC.
COMMON STOCK
Of the 16,250,000 shares of Class A Common Stock, par value $0.0001 per
share, of Doane Pet Care Enterprises, Inc. (the "Company") offered hereby (the
"Offering"), 11,500,000 shares are being sold by the Company and 4,750,000
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"), that are
identical except that Class B Common Stock, which is convertible into Class A
Common Stock, has no voting rights. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock offered hereby will be between $12.00 and $14.00 per share. For
information relating to the factors considered in determining the initial public
offering price, see "Underwriting."
The Company has received approval to have the Common Stock included on the
National Association of Securities Dealers Automated Quotation National Market
System (the "Nasdaq National Market") under the symbol "DPCE."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO THE DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
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Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters (as defined below) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses estimated at $1.8 million 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 200,000 additional shares of
Common Stock from it and up to 2,237,500 additional shares of Common Stock
from certain Selling Stockholders 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 the several
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 , 1999.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
CHASE SECURITIES INC.
<PAGE> 3
[A SERIES OF PICTURES REPRESENTING
COMPANY MANUFACTURING FACILITIES
AND PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) assumes an initial public offering price of $13.00 per
share, (ii) assumes that the Underwriters' over-allotment option is not
exercised and (iii) gives effect to the Company's four-for-one stock split
effected immediately prior to the Offering. Unless the context indicates
otherwise, references in this Prospectus to the Company mean Doane Pet Care
Enterprises, Inc. and its subsidiaries. The Company's pro forma financial and
operating data set forth herein gives effect to the acquisition (the "Windy Hill
Acquisition") of Windy Hill Pet Food Holdings, Inc. and its subsidiaries ("Windy
Hill") in August 1998, the acquisition (the "IPES Acquisition") of IPES IBERICA,
S.A. ("IPES") in April 1998 and the Refinancing Transactions (as defined
herein). Investors should carefully consider the information set forth in "Risk
Factors."
THE COMPANY
The Company is the largest manufacturer of dry pet food in the United
States, producing approximately 26% of the total volumes sold in 1998 on a pro
forma basis. The Company manufactures products for store brands owned by retail
customers (also known as private labels), contract manufactures products for
national branded pet food companies and produces and sells under regional brands
owned by the Company.
The Company manufactures for its customers a full range of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. The Company provides products that meet customer
specifications across all retail channels and price points, from super premium
to value products. Accordingly, the Company manufactures store brands for over
350 customers in the United States, including the three largest mass
merchandisers, the five largest grocery companies and the largest national pet
specialty retailer. The Company also manufactures dry pet food and treats for
five 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. One additional manufacturing and distribution
facility located in Clinton, Oklahoma is expected to open in the second quarter
of fiscal 1999. 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 1998, the
Company increased sales volumes at a compound annual growth rate of 9.3%,
exclusive of acquisitions. The Company believes its growth is primarily due to
an increase in consumer acceptance of dry products versus canned products and
store brands versus national brands. 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 1998, sales to Wal*Mart, including its Sam's Club division,
accounted for 36.5% of the Company's sales on a pro forma basis.
THE PET FOOD INDUSTRY
The U.S. pet food industry is a $10.0 billion industry that has grown at a
compound annual rate of 4.0% from 1994 to 1998 in terms of sales. Growth in the
dry pet food and the biscuit and treats segments of the industry has exceeded
the growth of the overall pet food industry by capturing market share from other
segments, including canned pet food. Dry pet food sales have grown at a compound
annual rate of 5.2% since 1994 and accounted for $5.7 billion of sales in the
industry in 1998. The biscuit and treats segment has grown at a compound rate of
4.5% per year since 1994 and accounted for $1.4 billion of sales during 1998.
3
<PAGE> 5
Improved product quality, consumer value and increased retailer support
have generally enabled store brands to outgrow the category in many traditional
branded categories, including pet food. Since 1994, the volume of sales of store
brand dry pet food has grown at a compound annual rate of 9.0% per year versus
the category, which has grown at 5.2% per year. The volume of sales of store
brand canned pet food over the same period has grown at a compound rate of 15.3%
per year versus the category, which has declined by 0.9%. Store brand biscuits
and treats have grown at a compound rate of 9.8% since 1994 with the category
growing at 4.5% per year. Sales of store brand pet food accounted for in excess
of 25% of the total pet food market in 1998 and have grown at a compound annual
growth rate in excess of 7% over the past five years. Store brands have
increased market share in each of the segments of the pet food industry over the
past five years. In 1998, store brands represented approximately 38%, 31%, 24%,
18% and 16% of total sales volume of biscuits and treats, dry dog, dry cat,
canned dog and canned cat food, respectively. Store brands today encompass a
full range of pet food products at all price points including economy, premium
and super premium.
RECENT DEVELOPMENTS
Refinancing Transactions. In November 1998, the Company refinanced its
capital structure pursuant to the following series of transactions collectively
referred to herein as the "Refinancing Transactions:"
-- Windy Hill was merged into Doane Pet Care Company, the Company's
principal operating subsidiary ("Doane");
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its 10 5/8% Senior Notes due 2006 (the "Senior
Notes");
-- Windy Hill completed a cash tender offer for $46 million principal
amount of its 9 3/4% Senior Subordinated Notes due 2007 (the "Windy Hill
Notes"), which tender offer was required by a change of control
provision in the indenture governing such notes;
-- Doane completed an exchange offer (the "Exchange Offer") of $150 million
principal amount of its 9 3/4% Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes") for the remaining approximately $63 million
principal amount of Senior Notes and the remaining approximately $74
million principal amount of Windy Hill Notes; and
-- Doane entered into a new senior credit facility (the "Senior Credit
Facility") with a syndicate of financial institutions providing for
total commitments of $345 million. Doane borrowed $292 million under the
Senior Credit Facility to fund the cash requirements of the Refinancing
Transactions, repay borrowings under and retire its previous credit
facilities, repay other debt and repay a bridge financing incurred in
connection with the tender offer for the Windy Hill Notes.
Windy Hill Acquisition. In August 1998, the Company acquired Windy Hill for
approximately 6.4 million shares of Common Stock and the assumption of $183.5
million of indebtedness. Windy Hill was a leading manufacturer of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. With Windy Hill, the Company became the largest
manufacturer of dog biscuits in the United States. In 1997, Windy Hill generated
pro forma net sales, EBITDA and a net loss before extraordinary item of $304.0
million, $26.7 million and $1.6 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 the Company to offer soft treats and other
specialized dry food products to Windy Hill's traditional customer base. With
the addition of Windy Hill's 19 plants, the Company believes cost savings can be
achieved through optimizing production schedules and lowering distribution costs
by reducing the distance products are shipped. The Windy Hill Acquisition also
provides the Company with the opportunity to achieve cost savings by obtaining
purchasing synergies and eliminating redundant overhead functions.
4
<PAGE> 6
IPES Acquisition. In April 1998, the Company acquired IPES for $26.2
million (net of cash purchased of $1.9 million) and the assumption of
indebtedness of $1.9 million. IPES, located in Spain, is a manufacturer of both
store and regional brands. In fiscal 1997, IPES had net sales, EBITDA and net
income of $21.1 million, $3.8 million and $1.0 million, respectively. The
Company believes that the IPES Acquisition, together with the Company's
investment in the Italian pet food manufacturer, Effeffe, S.p.a., provides the
Company with a platform for growth in Europe.
STRATEGY
The Company's business objective is to increase revenues and earnings and
to enhance its leadership position within the pet food industry. The key
elements of the strategy to achieve the Company's business objective are as
follows:
Continue to be the Low Cost Quality Provider in the Pet Food Industry. The
Company believes it is the low cost provider of quality dry pet food. The
Company believes its position as the largest manufacturer of dry pet food
provides it with certain economies of scale, including production efficiencies
and packaging purchasing leverage. In addition, the number and strategic
location of the Company's facilities enhance the Company's position as the low
cost provider by reducing transportation costs for raw materials and finished
goods. The Company also maintains in-house engineering, machining and
fabrication capabilities that enable the Company to design, construct and
maintain facilities on a cost-effective basis.
Leverage Distribution System. The Company's manufacturing and distribution
network enables it to service customers on a national basis and facilitates the
Company's direct store delivery program, the scope of which the Company believes
is unique in the industry. In addition, the Company has developed capabilities
that allow it to provide vendor managed inventory services ("VMI") to certain
key customers. VMI allows the Company to communicate on-line with its customers,
evaluate their inventory status and place orders on their behalf. The Company
intends to leverage its manufacturing and distribution network by expanding
sales of its full range of pet food products to its existing customers. For
example, the Company recently completed the construction of a soft treat
manufacturing facility, which will enable the Company to offer soft treats to
its traditional customer base, and intends to expand sales of certain products
acquired in the Windy Hill Acquisition including semi-moist, soft dry, canned
and regional brands to its existing customers.
Provide a Full Range of Pet Food Products. The Company offers customers a
full range of pet food products for both dogs and cats, including dry, canned,
semi-moist, soft dry, soft treats and dog biscuits. By offering a full range of
products under a variety of brand formats (store, co-manufactured national and
regional brands) and price points, the Company can be a significant source for
its customers' total pet food requirements. This enables customers to realize
administrative and distribution savings by aggregating a variety of products and
brands into a single shipment.
Focus on Diversified Brand Formats. The Company believes that store,
co-manufactured national and regional brand formats offer significant growth
opportunities. Sales of store brands have exceeded the overall growth in the pet
food industry. The Company believes this growth will continue due to (i) an
increased awareness of retailers concerning the advantages of store brands,
including enhanced margins and customer loyalty, (ii) improved quality,
innovation and variety of store brand products and (iii) increasingly informed
and value-conscious consumers. The Company believes co-manufactured national
brands offer growth opportunities as national branded pet food companies
increasingly take advantage of the Company's low-cost status, quality products
and logistic and specialty product capabilities. The Company believes that the
regional brands acquired with the Windy Hill Acquisition complement its existing
product lines and intends to capitalize on demand for such brands within the
Company's existing customer base.
Acquire Additional Pet Food Companies. To supplement its internal growth,
the Company has acquired eight pet food companies over the last three years. The
Company believes that there are substantial opportunities in the United States
and abroad to acquire additional pet food companies. The Company will continue
to seek accretive acquisitions that offer complementary product lines,
geographic scope, additional distribution channels and cost saving
opportunities.
5
<PAGE> 7
Expand International Presence. The Company believes substantial
opportunities exist to increase sales in international markets. The Company
believes that the approximately $9.3 billion European pet food market is
particularly attractive due to the strength and demand for store brand products
and the strong growth of dry pet food products. The Company is currently
expanding its manufacturing and distribution capabilities in Spain and Italy and
intends to pursue acquisitions of additional pet food companies and expand its
product offerings. In addition, the Company believes that an opportunity exists
to expand export sales to the Pacific Rim and South America.
THE OFFERING
Common Stock offered by:
The Company........................... 11,500,000 shares
The Selling Stockholders.............. 4,750,000 shares(1)
Total............................ 16,250,000 shares
Common Stock to be outstanding after the
Offering................................... 30,745,748 shares(2)
Use of Proceeds............................ The net proceeds to the Company
from the Offering will be used to
repay borrowings under the Senior
Credit Facility and to repurchase
the outstanding senior preferred
stock of Doane (the "Senior
Preferred Stock"). See "Use of
Proceeds."
Nasdaq National Market symbol.............. "DPCE"
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(1) Includes 843,752 shares of Common Stock to be issued by the Company upon the
exercise by the Underwriters of warrants that were previously held by
certain of the Selling Stockholders. See "Certain Transactions."
(2) Does not include (i) 1,669,600 shares of Common Stock issuable upon exercise
of options outstanding under the Company's stock option plan and (ii)
4,574,160 shares of Common Stock issuable upon exercise of outstanding
warrants with an exercise price of $0.0025 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
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SUMMARY FINANCIAL INFORMATION
The summary historical financial information for the periods ended December
31, 1996, 1997 and 1998 are derived from the consolidated financial statements
of the Company included elsewhere in this Prospectus. The unaudited condensed
pro forma as adjusted income statement data give effect to the Windy Hill
Acquisition, including the pro forma effects of each of the transactions
included in the pro forma financial statements of Windy Hill, the IPES
Acquisition, the Refinancing Transactions and the Offering as if each of such
transactions had occurred on January 1, 1998. The unaudited pro forma balance
sheet gives effect to the Offering and the use of proceeds therefrom, as if such
transactions had occurred on December 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 consolidated financial statements and notes thereto of Windy
Hill, "Unaudited Condensed Pro Forma Financial Statements," "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
PRO FORMA
1996 1997 1998(1) 1998
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $513,217 $564,741 $686,663 $865,346
Gross profit.............................. 66,441 81,845 132,216 175,556
Transition expenses(2).................... -- -- 7,043 15,499
Product recall(3)......................... -- -- 3,000 3,000
Income from operations.................... 24,911 31,984 44,320 48,262
Interest expense, net..................... 22,471 22,463 31,503 34,316
Non-recurring finance charge(4)........... 4,815 -- 4,599 4,599
Income (loss) before extraordinary
items.................................. $ (1,518) $ 6,234 $ 4,576 $ 3,202(5)
Basic earnings (loss) per share(6)........ $ (0.66) $ (0.01) $ (2.04) $ 0.11
Basic weighted average number of shares
outstanding............................ 11,006 11,350 14,429 29,679
Diluted earnings (loss) per share......... $ (0.66) $ (0.01) $ (2.04) $ 0.09(5)
Diluted weighted average number of shares
outstanding............................ 11,006 11,350 14,429 36,490
OTHER DATA:
EBITDA(7)................................. $ 30,449 $ 43,216 $ 57,433 $ 68,876
Adjusted EBITDA(7)........................ 35,264 43,216 72,075 91,974
Depreciation and amortization expense..... 10,135 10,971 17,877 24,763
Capital expenditures(8)................... 7,901 14,437 23,327 28,221
Pet food sold (thousands of tons)......... 1,189 1,237 1,513 1,864
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
HISTORICAL PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,350 $ 3,350
Working capital........................................... 29,924 30,499
Total assets.............................................. 710,448 709,585
Total debt................................................ 459,170 379,063
Stockholders' equity...................................... 70,674 187,710
</TABLE>
(footnotes on next page)
7
<PAGE> 9
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(1) Results for the year ended December 31, 1998 include the results of Windy
Hill for the period from August 3, 1998 to December 31, 1998.
(2) Represents certain non-recurring transition expenses in connection with the
Windy Hill Acquisition.
(3) Represents costs associated with the product recall. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Commitments and Contingencies."
(4) Non-recurring finance charges include $4,815 and $4,599 of interim bridge
debt financing costs that were incurred in conjunction with the issuance of
the Senior Notes in 1996 and the Refinancing Transactions in 1998,
respectively.
(5) Income before extraordinary items was reduced by $16,259, or $0.45 of
diluted earnings per share, as a result of transition expenses, product
recall expenses and the non-recurring finance charge, net of a tax benefit
of $6,839. Excluding these charges, income before extraordinary items would
have been $19,461 or $0.53 of diluted earnings per share.
(6) In fiscal years ended December 31, 1996, 1997, and 1998, the effect of
common stock equivalents was antidilutive resulting in the same EPS amount
for basic and diluted net income (loss) per common share.
(7) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition and product recall expenses and non-recurring finance charges.
EBITDA is not a measure recognized by generally accepted accounting
principles and should not be considered in isolation or as a substitute for
operating income as an indicator of liquidity or as a substitute for net
cash provided by operating activities, which are determined in accordance
with generally accepted accounting principles. EBITDA is included because
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.
(8) Capital expenditures exclude payments for acquisitions.
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<PAGE> 10
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
Prospectus, including, without limitation, statements under "Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding planned capital expenditures,
the availability of capital resources to fund capital expenditures, the
Company's financial position, business strategy and other plans and objectives
for future operations, are forward-looking statements. The words "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "will," "may" and
similar expressions are intended to identify forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. There are numerous uncertainties inherent
in estimating the cost of raw materials and labor, including many factors beyond
the control of the Company. Additional important factors that could cause actual
results to differ materially from the Company's expectations are disclosed below
and elsewhere in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by such factors.
RISK FACTORS
LEVERAGE; RESTRICTIVE COVENANTS
The Company is highly leveraged and will continue to be highly leveraged
following the consummation of the Offering. At December 31, 1998, on a pro forma
basis, the Company would have had approximately $379.1 million in aggregate
principal amount of outstanding indebtedness (excluding trade payables and other
accrued liabilities). See "Capitalization." Subject to the restrictions in the
Senior Credit Facility and the indenture governing the Senior Subordinated Notes
(the "Note Indenture"), the Company may incur additional indebtedness from time
to time to finance working capital, capital expenditures, acquisitions or for
other purposes.
The level of the Company's indebtedness will have important consequences to
common stockholders, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for other purposes, (ii) the Company's ability to obtain additional debt
financing in the future for working capital, capital expenditures, general
corporate purposes or other purposes may be impaired, (iii) a portion of the
Company's borrowings under the Senior 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 Senior Credit Facility and the Note
Indenture contain financial and other restrictive covenants that could limit the
Company's operating and financial flexibility and, if violated, would result in
an event of default that could preclude the Company's access to credit under the
Senior 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 Senior Credit Facility and the Note Indenture restrict, among other
things, the Company's ability to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with, or otherwise acquire, any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company.
See "Description of Senior Subordinated Notes" and "Description of Senior Credit
Facility." The Senior Credit Facility also requires the Company to maintain
specified financial ratios and satisfy certain financial condition tests. The
Company's ability to meet such financial ratios and tests can be affected by
events beyond its control, and there can be no assurance that the Company will
meet such tests. A breach of any of these covenants could result in a default
under the Senior Credit Facility or the Note Indenture. Upon the occurrence of
an event of default under the Senior Credit Facility, the lenders could elect to
declare all amounts outstanding under the Senior Credit Facility, together with
accrued interest, to be immediately due and payable. If the Company were unable
to repay those amounts, the lenders could proceed against the collateral granted
to them to secure that indebtedness. If the Senior Subordinated Notes and the
indebtedness under the Senior Credit Facility were to be accelerated, there can
be no assurance that the assets
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<PAGE> 11
of the Company would be sufficient to repay in full that indebtedness. See
"Description of Senior Credit Facility" and "Description of Senior Subordinated
Notes." In connection with the Senior Credit Facility, the Company has pledged
to the lenders substantially all of its assets. If an event of default occurs
under the Senior Credit Facility, the lenders have the right to foreclose upon
such collateral. These restrictions could limit the ability of the Company to
effect future financings or may otherwise restrict corporate activities.
Future acquisition or development activities may require the Company to
alter its capitalization significantly. These changes in capitalization may
significantly increase the leverage of the Company. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
If the Company is unable to generate sufficient cash flow from operations in the
future to service its indebtedness and to meet its other commitments, the
Company will be required to adopt one or more alternatives, such as refinancing
or restructuring its indebtedness, selling material assets or operations or
seeking to raise additional debt or equity capital. There can be no assurance
that any of these actions could be effected on a timely basis or on satisfactory
terms or that these actions would enable the Company to continue to satisfy its
capital requirements. The terms of the Company's indebtedness, including the
Senior Credit Facility and the Note Indenture, also may prohibit the Company
from taking such actions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON CERTAIN CUSTOMERS
For the years ended December 31, 1996, 1997 and 1998, sales to Wal*Mart and
Sam's Club accounted for approximately 63%, 61% and 52%, respectively, of the
Company's net sales. For the year ended December 31, 1998 on a pro forma basis,
sales to Wal*Mart and Sam's Club accounted for an aggregate of 36.5% of the
Company's net sales, excluding sales attributable to branded pet food products
manufactured and distributed by the Company for national pet food companies. The
Company does not have a long-term contract with Wal*Mart, Sam's Club or any
other customer. A significant decrease in business from either Wal*Mart or Sam's
Club would have a material adverse effect on the Company's results of
operations, financial condition and cash flows. In addition, the Company's
results of operations would be negatively impacted to the extent that Wal*Mart
or Sam's Club is unable to make payments on outstanding accounts receivable. See
"Business -- Customers."
RAW MATERIALS AND PACKAGING COSTS
The Company's financial results depend to a large extent on the cost of raw
materials and packaging and the ability of the Company to pass along to its
customers increases in these costs. Historically, market prices for commodity
grains and food stocks have fluctuated in response to a number of factors,
including changes in United States government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing and harvesting seasons. Fluctuations in paper prices have resulted
from changes in supply and demand, general economic conditions and other
factors. In the event of any increases in raw materials costs, the Company would
be required to increase sales prices for its products in order to avoid margin
deterioration. There can be no assurance as to the timing or extent of the
Company's ability to implement future price adjustments in the event of
increased raw material costs or as to whether any price increases implemented by
the Company may affect the volumes of future shipments. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Raw Materials and Packaging." Although
the Company manages the price risk created by market fluctuations by hedging
portions of its primary commodity product purchases, there can be no assurance
that the Company's results of operations will not be exposed to volatility in
the commodity markets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "-- Inflation and Changes
in Prices."
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HEDGING
The Company manages price risk created by market fluctuations by hedging
portions of its primary commodity products purchases, principally through
exchange traded futures and options contracts that are designated as hedges. The
terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity.
The Company's policy does not permit speculative commodity trading. Futures
and options contracts are accounted for as hedges, and gains and losses are
recognized in the period realized as part of the cost of products sold and in
the cash flows. Although the Company manages the price risk of market
fluctuations by hedging portions of its primary commodity product purchases,
there can be no assurance that the Company's results of operations will not be
exposed to volatility in the commodity markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"-- Inflation and Changes in Prices."
ACQUISITION STRATEGY
The Company's acquisition strategy is based on identifying and acquiring
businesses engaged in manufacturing and distributing pet food products in
markets where the Company currently does not operate or businesses with products
that would complement the Company's product mix. The Company will evaluate
specific acquisition opportunities based on prevailing market and economic
conditions. The Company's lack of experience in new markets it may enter through
future acquisitions could have an adverse effect on the Company's results of
operations and financial condition. Acquisitions may require investment of
operational and financial resources and could require integration of dissimilar
operations, assimilation of new employees, diversion of management time and
resources, increases in administrative costs, potential loss of key employees of
the acquired company and additional costs associated with debt or equity
financing. Any future acquisition by the Company could have an adverse effect on
the Company's results of operations or could result in dilution to existing
shareholders, including those purchasing shares of Common Stock in this
Offering. The Company may encounter increased competition for acquisitions in
the future, which could result in acquisition prices the Company does not
consider acceptable. There can be no assurance that the Company will find
suitable acquisition candidates at acceptable prices or succeed in integrating
any acquired business into the Company's existing business or in retaining key
customers of acquired businesses. There can be no assurance that the Company
will have sufficient available capital resources to execute its acquisition
strategy. See "Business -- Business Strategy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
INTEGRATION OF RECENT ACQUISITIONS
There can be no assurance that the Company will succeed in integrating
Windy Hill into the Company's existing business. In addition, the Company may
experience a loss of certain customers as a result of the Windy Hill
Acquisition. If the expected operating efficiencies from the Windy Hill
Acquisition do not materialize, if the Company fails to integrate the Windy Hill
Acquisition into its existing operations, if the costs of such integration
exceed expectations or if the Company experiences unexpected costs or
liabilities at Windy Hill, the Company's operating results and financial
condition could be materially and adversely affected. There can also be no
assurance that the Company will succeed in integrating other recent
acquisitions, including acquisitions made by Windy Hill, into the Company's
existing operations. See "Unaudited Condensed Pro Forma Financial Statements"
and "Business -- Recent Developments."
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company had an aggregate $299.6 million of goodwill and other
intangible assets on its balance sheet as of December 31, 1998. Goodwill has
been recorded under purchase accounting to represent the excess of the amount
paid over the book value of the assets acquired. Other intangibles include
trademarks and miscellaneous intangible assets such as software development
costs. No assurance can be given that the amount of such goodwill and other
intangible assets equivalent to the value of such assets will be realized by the
Company in the future. Goodwill and other intangible assets represented 42.2% of
total assets as of December 31, 1998. The Company is amortizing goodwill over 40
years, trademarks over 30 years and
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<PAGE> 13
miscellaneous intangible assets over four to five years. No assurance can be
given that this amortization rate approximates the time period over which these
businesses and assets will be valuable to the Company. The Company's earnings in
future periods would be reduced if such amortization period were shortened or
the amount of such goodwill or other intangible assets were to be written off
prior to amortization.
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 "Stockholders") entered into an Investors' Agreement (the
"Investors' Agreement"). The Investors' Agreement provides that the Board of
Directors of the Company (the "Board" or "Board of Directors") will consist of
eight members, one being the Chief Executive Officer of the Company. Other than
the Chief Executive Officer, certain of the remaining seven directors will be
designated by one or a combination of the Stockholders, subject to certain
percentage ownership requirements. DLJMB and its affiliates do not have any
right to designate Board members. Through their control of the Board of
Directors, certain of the Stockholders, excluding DLJMB and its affiliates, 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 who have the right to designate individuals to the Board of
Directors will not have such right 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 52% 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.
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<PAGE> 14
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; PRODUCT RECALL
The Company is subject to a broad range of federal, state, local and
foreign laws and regulations intended to protect the public health and the
environment, including those governing discharges to the air and water, the
storage of petroleum substances and chemicals, the handling and disposal of
solid or hazardous wastes, and the remediation of contamination associated with
releases of wastes or hazardous substances. 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, permit revocation or modification or
in a cease and desist order against operations that are not in compliance.
On October 30, 1998 the Company initiated a voluntary product recall for
certain dry dog food manufactured at its Temple, Texas plant. The recall covers
dry dog food manufactured at its Temple plant between July 1 and August 31, 1998
and does not apply to dry dog food manufactured at other plants or the Company's
dry cat food, biscuits, treats or canned products. The recall resulted from
reported sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated levels of aflatoxins in corn, which is an ingredient in
dry dog food. Aflatoxins are compounds produced from certain kinds of crop molds
that can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
recorded a $3.0 million product recall charge in the fourth quarter of fiscal
1998.
The Company believes that its operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that such requirements will not change in the future or that the
Company will not incur significant costs in the future (i) to comply with such
requirements, (ii) to effect future recalls, or (iii) in connection with the
effect on the Company's business of such matters. See
"Business -- Environmental, Regulatory and Safety Matters; Product Recall."
INTERESTS OF UNDERWRITERS
DLJMB, an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC"), will receive approximately $8.4 million in proceeds of the Offering
as a Selling Stockholder (assuming an initial public offering price of $13.00
per share). CMIHI, an affiliate of Chase Securities, Inc. ("CSI"), will receive
(i) approximately $9.1 million in proceeds of the Offering as payment for the
repurchase of 200,000 shares of Senior Preferred Stock (based upon the
liquidation value of the Senior Preferred Stock as of March 31, 1999) and (ii)
approximately $2.6 million in proceeds of the Offering as a Selling Stockholder
(assuming an initial public offering price of $13.00 per share). In addition,
affiliates of CMIHI and DLJSC will receive proceeds from the Offering in
connection with the partial repayment of the Senior Credit Facility. Each of CSI
and DLJSC will receive underwriting discounts and commissions in connection with
the Offering. See "Certain Transactions" and "Underwriting."
Pursuant to the Investors' Agreement, CMIHI has the right to designate one
representative to the Board of Directors (the "Chase Designee"). See "Certain
Transactions -- Investors' Agreement."
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<PAGE> 15
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. ("NASD"), each of DLJSC and CSI 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 and CSI 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 and CSI, 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. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") has agreed to act as "qualified independent
underwriter" within the meaning of such rules and 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 Common Stock will be traded on the Nasdaq National Market,
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 30,745,748 shares of Common Stock outstanding
(32,537,588 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 14,495,748 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
and warrants to purchase 5,137,124 shares of Common Stock (which number excludes
843,752 shares of Common Stock to be issued and sold in the Offering upon the
exercise by the Underwriters of warrants held by certain Selling Stockholders)
are exercisable prior to or upon consummation of the Offering. The Company, the
executive officers and directors of the Company, certain other stockholders and
certain of 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 Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws contain various provisions, including staggered terms for
directors, 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
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<PAGE> 16
CMIHI, together with the beneficial ownership of Common Stock of the Company's
officers, directors and their affiliates, of a substantial number of shares of
Common Stock could also discourage such bids. See "Description of Capital
Stock -- Antitakeover Provisions" and "Principal and Selling Stockholders."
The Company's Board of Directors is authorized to issue, from time to time,
without any action on the part of the Company's stockholders, up to 10,000,000
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 Senior Credit Facility,
the Note Indenture and other indebtedness that may be incurred by the Company.
See "Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DILUTION
Investors in the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $16.64 (based on an
initial public offering price of $13.00 per share). See "Dilution."
YEAR 2000
The Company has conducted a comprehensive review of its computer software
to identify the systems that could be affected by the "year 2000" issue. The
year 2000 issue results from computer programs being written using two digits
(rather than four) to define the applicable year. As a result, certain of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This calculation could result
in a major system failure or miscalculations.
The Company has made an assessment of year 2000 compliance and reviewed its
business application software, which resulted in plans to either replace or
upgrade all essential business software at an estimated cost of $5.6 million.
The Company is currently reviewing its administrative hardware and software
(networks, communications and security systems) and the software related to
manufacturing equipment. The Company has implemented a program to confirm year
2000 compliance with all third parties with which the Company has material
relationships.
As of December 31, 1998, the Company had incurred costs of approximately
$3.0 million in connection with year 2000 compliance. The Company intends to
test and verify its year 2000 compliance by July 1999, including third party
compliance. Management believes that a failure to complete its year 2000
compliance, or a failure by parties with whom the Company has material
relationships to complete their year 2000 compliance, by such date could have a
material adverse effect on the Company's financial condition and results of
operations. The Company believes that it can provide the resources necessary to
ensure year 2000 compliance prior to the year 2000. However, should the Company
be delayed in its year 2000 compliance, the Company may experience a decrease in
efficiency that could have a material adverse effect on results of operations.
The Company also believes that a sufficient number of suppliers exist if the
Company's current suppliers are delayed in their efforts to achieve year 2000
compliance, thereby minimizing risk to the Company. The Company has developed
contingency plans that include moving production within its plant network,
securing additional ingredient storage facilities and transferring procurement
to year 2000 compliant suppliers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
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THE COMPANY
The Company was formed in 1995 by a group of investors led by SCI, DLJMB,
CMIHI and certain members of existing management to acquire Doane for an
aggregate purchase price of $249.1 million, including existing indebtedness. Bob
L. Robinson, a director of the Company and Doane, Terry W. Bechtel, a Vice
President of Doane, Dick Weber, Managing Director of Field Sales of Doane, and
Earl Clements, Central Regional Director -- Production of Doane, are the only
four persons from such existing management who are still affiliated with the
Company. Doane had previously been a manufacturer of dry pet food for 37 years.
In April 1998, the Company acquired IPES for $26.2 million (net of cash
purchased of $1.9 million) and the assumption of indebtedness of $1.9 million.
In August 1998, the Company acquired Windy Hill for approximately 6.4 million
shares of Common Stock and the assumption of $183.5 million of indebtedness.
Windy Hill was a manufacturer of pet food products based in Tennessee. In
November 1998, Windy Hill was merged into Doane.
Windy Hill was formed in February 1995 by a group of investors led by
Dartford Partnership, L.L.C. to acquire substantially all of the assets and
liabilities of the pet food division of Martha White Foods, Inc. for $21.0
million. In April 1996, Windy Hill acquired the assets and liabilities
associated with certain pet food product lines of Heinz Inc. for a purchase
price of $52.5 million. In May 1997, Windy Hill acquired Hubbard Milling Company
("Hubbard") for a net purchase price of $131.1 million. Subsequent to such
acquisition, Windy Hill sold the animal feed division of Hubbard for a sales
price of approximately $50.0 million, net of taxes. In February 1998, Windy Hill
acquired all of the assets of the AGP pet food division ("AGP") of Consolidated
Nutrition, L.C. for a purchase price of approximately $12.4 million. In April
1998, Windy Hill acquired certain pet food assets and certain liabilities
associated with the NuPet division of Nulaid Foods, Inc. ("NuPet") for a
purchase price of approximately $3.1 million. In June 1998, Windy Hill acquired
Deep Run Packing Company, Inc. ("Deep Run") for a net purchase price of
approximately $16.4 million.
The Company is incorporated under the laws of the State of Delaware. The
Company's principal executive offices are located at 103 Powell Court, Suite
200, Brentwood, Tennessee 37027, and its telephone number at such offices is
(615) 373-7774.
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USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated at
approximately $138.4 million (or $140.8 million if the Underwriters'
over-allotment option is exercised), assuming an initial public offering price
of $13.00 per share.
The Company intends to use approximately $80.1 million of the proceeds of
the Offering to repay borrowings under the Senior Credit Facility and $58.3
million of the proceeds to repurchase the Senior Preferred Stock of Doane.
Borrowings under the Senior Credit Facility carry floating rates of interest
that, as of January 31, 1999, equaled a weighted average of 8.5% per annum, and
are due as follows: (i) borrowings of $75 million under the Tranche A Facility
have a final maturity of March 31, 2005, (ii) borrowings of $85 million under
the Tranche B Facility have a final maturity of December 31, 2005, (iii)
borrowings of $85 million under the Tranche C Facility have a final maturity of
December 31, 2006 and (iv) borrowings under the revolver have a final maturity
of March 31, 2005. See "Unaudited Pro Forma Financial Statements."
Borrowings under the Senior Credit Facility to be repaid with the proceeds
of this Offering were incurred in November 1998 in order to fund the cash
requirements of the Refinancing Transactions, repay borrowings under and retire
the Company's previous credit facilities, repay other debt and repay a bridge
financing incurred in connection with the tender offer for the Windy Hill Notes.
DIVIDEND POLICY
The Company does not intend to pay cash dividends on the Common Stock in
the foreseeable future. The Company currently intends to retain its cash for the
continued growth of its business. In addition, the Senior Credit Facility and
the Note Indenture restrict the ability of Doane to pay dividends to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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DILUTION
The deficit in net tangible book value of the Company as of December 31,
1998 was $(12.44) per share of Common Stock. The deficit in 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 deficit in pro forma net tangible book value of the Company at December 31,
1998 would have been $(3.64) per share. This represents an immediate increase in
the net tangible book value of $8.80 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 $16.64 per share:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................. $13.00
Deficit in net tangible book value per share at December
31, 1998.............................................. $(12.44)
Increase per share attributable to new investors........ 8.80
Pro forma deficit in net tangible book value per share after the
Offering........................................................... (3.64)
------
Dilution per share to new investors.................................. $16.64
======
</TABLE>
The following table sets forth, as of December 31, 1998, the number of
shares of Common Stock and warrants purchased from the Company, the total
consideration paid therefor and the average price per share or warrant paid by
existing stockholders (including the stockholders that received shares of Common
Stock in the Windy Hill Acquisition), warrant holders and by new investors:
<TABLE>
<CAPTION>
SHARES AND WARRANTS AVERAGE
PURCHASED TOTAL CONSIDERATION PRICE PER
-------------------- ---------------------- SHARE OR
NUMBER PERCENT AMOUNT PERCENT WARRANT
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 18,409,840 52% $ 93,775,860 37% $ 5.09
Warrant holders(1)................... 5,417,912 15 12,925,000 5 2.39
New investors........................ 11,500,000 33 149,500,000 68 13.00
---------- ----- ------------ -----
35,327,752 100% $256,200,860 100%
========== ===== ============ =====
</TABLE>
- ---------------
(1) As of December 31, 1998, the warrant holders had not exercised their
warrants. Warrants to purchase 843,752 shares of Common Stock previously
held by certain Selling Stockholders will be exercised, and such shares will
be sold, by the Underwriters in the Offering.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of December 31, 1998, (i) the historical
capitalization of the Company and (ii) the pro forma capitalization of the
Company after giving effect to the Offering. 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 DECEMBER 31, 1998
----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total debt(1):
Senior Credit Facility................................. $277,000 $196,893
Foreign debt........................................... 25,391 25,391
Senior Subordinated Notes.............................. 146,996 146,996
Industrial revenue bonds............................... 9,783 9,783
-------- --------
Total debt........................................ 459,170 379,063
Senior Preferred Stock, 3,000,000 shares authorized;
1,200,000 shares issued and outstanding; no shares issued
and outstanding, pro forma as adjusted(2)................. 37,792 --
Stockholders' equity:
Common Stock, par value $0.0001 per share, 70,000,000
shares authorized; 18,409,840 shares issued and
outstanding; shares issued and
outstanding, pro forma(3)(4).......................... 2 3
Additional paid-in capital............................. 107,371 245,770
Accumulated other comprehensive income................. 489 489
Accumulated deficit.................................... (37,188) (58,552)
-------- --------
Total stockholders' equity........................ 70,674 187,710
-------- --------
Total capitalization............................ $567,636 $566,773
======== ========
</TABLE>
- ------------------------------
(1) Total debt includes current portion of long-term debt.
(2) The Senior Preferred Stock had an initial liquidation preference of $30.0
million (accreted liquidation value of $47.2 million at December 31, 1998)
and was sold as a unit with warrants to purchase shares of Common Stock of
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.
(3) The Company has two classes of Common Stock, Class A Common Stock and Class
B Common Stock. As of January 31, 1999, there were approximately 16.1
million shares of Class A Common Stock outstanding and approximately 2.3
million shares of Class B Common Stock outstanding. Class A and Class B
Common Stock are identical except that Class B Common Stock has no voting
rights. All of the shares of Class B Common Stock are owned by CMIHI and are
convertible into Class A Common Stock at the holder's election. References
to shares of Common Stock in the table above and throughout this Prospectus
are to the Company's Class A Common Stock and Class B Common Stock on a
combined basis.
(4) Does not include warrants convertible into approximately 5.4 million shares
of Common Stock and approximately 1.6 million shares of Common Stock
issuable upon exercise of options outstanding under the Company's 1996 Stock
Option Plan. See "Management -- Stock Option and Stock Purchase Plans."
19
<PAGE> 21
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma financial
statements consist of (i) the unaudited pro forma condensed combined statements
of operations of the Company and Windy Hill for the fiscal year ended December
31, 1998 and related notes, (ii) the unaudited pro forma condensed consolidated
balance sheet of the Company as of December 31, 1998 and related notes, (iii)
the unaudited pro forma condensed consolidated statements of operations of the
Company for the fiscal year ended December 31, 1998 and related notes and (iv)
the unaudited pro forma condensed consolidated statements of operations of Windy
Hill for the seven months ended August 2, 1998. The unaudited pro forma
financial statements of the Company give effect to the IPES Acquisition as if
such transaction had occurred on January 1, 1998. The unaudited pro forma
financial statements of Windy Hill give effect to the acquisitions of AGP,
NuPet, Deep Run and the purchase by Windy Hill of certain joint venture
interests held by third parties as if such transactions had occurred on January
1, 1998. The unaudited pro forma condensed combined statements of operations
give effect to the pro forma results of the Company as if the Windy Hill
Acquisition, the Refinancing Transactions and the Offering had occurred on
January 1, 1998. The combined unaudited pro forma balance sheet gives effect to
the Offering and the use of proceeds therefrom as if such transactions had
occurred on December 31, 1998.
The historical data of the Company for the fiscal year ended December 31,
1998 have been derived from the Company's audited consolidated financial
statements. The historical data of Windy Hill for the seven months ended August
2, 1998 have been derived from Windy Hill's unaudited interim financial
statements.
The unaudited condensed consolidated pro forma financial statements are
based on assumptions and include adjustments as explained in the notes thereto.
The unaudited condensed consolidated pro forma financial statements are not
necessarily indicative of the actual financial results if the transactions
described above had been effective on and as of the dates indicated and should
not be indicative of operations in future periods or as of future dates. The
unaudited condensed consolidated pro forma financial statements should be read
in conjunction with the notes thereto, the historical audited consolidated
financial statements of the Company and the notes thereto and the unaudited
interim financial statements of Windy Hill and the notes thereto.
20
<PAGE> 22
CONDENSED COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS COMBINED
COMPANY WINDY HILL FOR COMBINED PRO FORMA COMPANY
(SEE (SEE WINDY HILL COMPANY ADJUSTMENTS PRO FORMA
TABLE 1-A)(A) TABLE 2-A) ACQUISITION PRO FORMA FOR OFFERING AS ADJUSTED(G)
------------- ---------- ----------- --------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $692,649 $175,111 $(2,414)(b) $865,346 $ -- $865,346
Cost of goods sold........... 558,995 130,795 689,790 -- 689,790
-------- -------- ------- -------- ------- --------
Gross profit................. 133,654 44,316 (2,414) 175,556 -- 175,556
Operating expenses:
Promotion and
distribution.......... 45,346 19,874 (2,414)(b) 62,806 -- 62,806
Selling, general and
administrative........ 26,530 9,457 -- 35,987 -- 35,987
Amortization of
intangibles........... 6,579 2,557 866(c) 10,002 -- 10,002
Transition expenses.......... 7,043 8,456 15,499 -- 15,499
Product recall............... 3,000 -- -- 3,000 -- 3,000
-------- -------- ------- -------- ------- --------
Income from operations... 45,156 3,972 (866) 48,262 -- 48,262
Interest expense, net........ 31,979 11,194 43,173 (8,857)(d) 34,316
Non-recurring finance
charge..................... 4,599 -- -- 4,599 -- 4,599
Other (income) expense,
net........................ 100 (550) (450) (450)
-------- -------- ------- -------- ------- --------
Income before income
taxes and
extraordinary loss.... 8,478 (6,672) (866) 940 8,857 9,797
Income tax expense
(benefit).................. 3,649 (420) -- 3,229 3,366(e) 6,595
-------- -------- ------- -------- ------- --------
Income before
extraordinary loss.... $ 4,829 $ (6,252) $ (866) $ (2,289) $ 5,491 $ 3,202
======== ======== ======= ======== ======= ========
Basic earnings per share..... $ 0.11
Basic weighted average number
of shares outstanding...... 29,679
Diluted earnings per share... $ 0.09
Diluted weighted average
number of shares
outstanding................ 36,490
EBITDA(f).................... $ 68,876
========
Adjusted EBITDA(f)........... $ 91,974
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
21
<PAGE> 23
CONDENSED COMBINED DOANE PET CARE ENTERPRISES, INC.
AND WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) The Company's historical financial statements for the year ended December
31, 1998 include the results of Windy Hill for the period from August 3,
1998 to December 31, 1998 and the results of IPES for the period from April
18, 1998 to December 31, 1998.
(b) Adjustment to reclassify $2,414 for the seven months ended August 2, 1998
of Windy Hill's cash discounts to net sales from promotion and distribution
expenses to conform the accounting policies of Windy Hill to those of the
Company.
(c) Adjustment to selling, general and administrative expenses to recognize
additional amortization for goodwill resulting from the Windy Hill
Acquisition. The Company recorded the Windy Hill Acquisition as a purchase
transaction with the purchase price and direct acquisition costs allocated
based on the fair value of assets acquired and the liabilities assumed.
(d) Pro forma as adjusted interest expense, which includes amortization of
deferred financing costs, has been calculated on pro forma debt levels and
applicable interest rates after giving effect to the Offering and the
application of the net proceeds to the Company therefrom. The table below
presents pro forma as adjusted interest expense noted with the respective
interest rates:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Senior Credit Facility ($196.9 million at a blended
rate of 8.11%)....................................... $15,974
Senior Subordinated Notes ($150.0 million at 9.75%).... 14,985
IPES debt ($25.4 million at 6.50%)..................... 1,650
Industrial revenue bonds ($6.0 million at a rate of
7.5%)................................................ 450
Amortization of deferred financing costs ($9.6 million
amortized over seven to nine years).................. 1,257
-------
Total interest expense at year-end................. $34,316
Less historical interest expense....................... 43,173
-------
Adjustment............................................. $(8,857)
=======
</TABLE>
The adjustment for interest expense on the Senior Subordinated Notes
includes $359 amortization of original issue discount.
Pro forma interest on the industrial revenue bonds has been calculated
excluding interest on approximately $3.8 million of the bonds outstanding
at December 31, 1998 as these bonds were purchased by Doane's wholly-owned
subsidiary, Doane/Windy Hill Joint Venture Corp.
(e) Reflects an adjustment to income tax expense to tax effect the pro forma
adjustments at the combined state and federal statutory rate of 38% for the
year ended December 31, 1998. In calculating the tax adjustment, the
goodwill amortization as calculated in (b) above has not been tax effected
as it is non-deductible for tax purposes.
(f) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition and product recall expenses and non-recurring finance charges.
EBITDA is not a measure recognized by generally accepted accounting
principles and should not be considered in isolation or as a substitute for
operating income, as an indicator of liquidity or as a substitute for net
cash provided by operating activities, which are determined in accordance
with generally accepted accounting principles. EBITDA is included because
management believes that certain investors may find it useful.
(g) The Windy Hill Acquisition provides the Company with the opportunity to
achieve cost savings in the following areas that have not been reflected in
the Pro Forma Statement of Operations:
(i)Selling, general and administrative expense primarily due to headcount
reductions and elimination of certain advisory fees;
(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.
22
<PAGE> 24
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
COMPANY ADJUSTMENTS COMPANY
HISTORICAL FOR OFFERING PRO FORMA
---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 3,350 $ $ 3,350
Trade and other accounts receivable, net................ 96,510 96,510
Inventories, net........................................ 51,499 51,499
Deferred tax asset...................................... 4,473 575(b) 5,048
Prepaid expenses and other current assets............... 17,131 17,131
-------- -------- --------
Total current assets................................ 172,963 575 173,538
Property, plant and equipment, net.......................... 206,353 206,353
Goodwill and other intangible assets, net................... 299,631 299,631
Other assets................................................ 31,501 (1,438)(b) 30,063
-------- -------- --------
Total assets........................................ $710,448 $ (863) $709,585
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................. $ 12,889 $ 12,889
Accounts payable........................................ 79,013 79,013
Accrued liabilities..................................... 51,137 51,137
-------- -------- --------
Total current liabilities........................... 143,039 143,039
Long-term debt, excluding current installments.............. 446,281 (80,107) 366,174
Other long term liabilities................................. 7,901 7,901
Deferred tax liability...................................... 4,761 4,761
-------- -------- --------
Total liabilities................................... 601,982 (80,107) 521,875
Senior Preferred Stock...................................... 37,792 (37,792)(a) --
Stockholders' equity
Class A Common Stock.................................... 2 1(a) 3
Class B Common Stock.................................... -- -- --
Additional paid-in capital.............................. 107,371 138,399(a) 245,770
Accumulated other comprehensive income...................... 489 489
Accumulated deficit..................................... (37,188) (20,501)(a) (58,552)
(863)(b)
-------- -------- --------
Total stockholders' equity.......................... 70,674 117,036 187,710
-------- -------- --------
Total liabilities and stockholders' equity.......... $710,448 $ (863) $709,585
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
23
<PAGE> 25
DOANE PET CARE ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
(a) Reflects the assumed proceeds to the Company from the Offering and the
application of proceeds therefrom:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources:
The Offering......................................... $149,500
--------
Total sources..................................... $149,500
========
Uses:
Repayment of Senior Credit Facility.................. $ 80,107
Repurchase of Senior Preferred Stock(1).............. 37,792
Underwriting discounts and related expenses.......... 11,100
Cost to repurchase Senior Preferred Stock(1)......... 20,501
--------
Total uses........................................ $149,500
========
</TABLE>
- ---------------
(1) The Senior Preferred Stock will be repurchased on the open market at the
prevailing market prices. The Company will pay the liquidation value of
the Senior Preferred Stock as of March 31, 1999, which will be $48,898
plus a repurchase premium, currently estimated to be $9,395. The cost of
repurchasing the Senior Preferred Stock has been reflected as a charge
to retained earnings of $20,501 and has not been reflected in the Pro
Forma Statement of Operations.
(b) Reflects the impact on retained earnings of the write-off of financing
costs of $1,438, net of a tax benefit of $575, associated with the Senior
Credit Facility. The adjustment has not been reflected in the Pro Forma
Statement of Operations and will be charged to operations upon the
consummation of the Offering.
24
<PAGE> 26
TABLE 1-A
DOANE PET CARE ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMPANY IPES ADJUSTMENTS FOR PRO FORMA
HISTORICAL(A) HISTORICAL(B) IPES ACQUISITION COMPANY
------------- ------------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $686,663 $5,986 $ -- $692,649
Cost of goods sold........................ 554,447 4,480 68(c) 558,995
-------- ------ ----- --------
Gross profit.............................. 132,216 1,506 (68) 133,654
Operating expenses:
Promotion and distribution.............. 45,039 307 -- 45,346
Selling, general and administrative..... 26,346 184 -- 26,530
Amortization of intangibles............. 6,468 -- 111(d) 6,579
Transition expenses....................... 7,043 -- -- 7,043
Product recall............................ 3,000 -- -- 3,000
-------- ------ ----- --------
Income from operations.................. 44,320 1,015 (179) 45,156
Interest expense, net..................... 31,503 28 448(e) 31,979
Non-recurring finance charge............ 4,599 -- -- 4,599
Other (income) expense, net............... 164 (64) -- 100
-------- ------ ----- --------
Income before taxes.................. 8,054 1,051 (627) 8,478
Income tax expense........................ 3,478 367 (196)(f) 3,649
-------- ------ ----- --------
Income before extraordinary items.... $ 4,576 $ 684 $(431) $ 4,829
======== ====== ===== ========
EBITDA(g)................................. $ 58,760
========
Adjusted EBITDA(g)........................ $ 73,402
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
25
<PAGE> 27
DOANE PET CARE ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) The Company's historical financial statements for the year ended December
31, 1998 include the results of Windy Hill for the period from August 3,
1998 to December 31, 1998 and the results of IPES for the period from April
18, 1998 to December 31, 1998.
(b) Includes results for IPES for the period January 1, 1998 to April 17, 1998
(the date of acquisition).
(c) Adjustment to reflect $68 of additional depreciation resulting from the
write-up of property, plant and equipment to fair value related to the IPES
Acquisition.
(d) Adjustment to reflect $111 of additional goodwill and intangible
amortization resulting from the IPES Acquisition.
(e) Adjustment to interest expense to reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Effect of additional financing incurred in connection with
the IPES Acquisition ($25.3 million at a blended rate of
6.8%)..................................................... $430
Additional amortization of deferred financing cost resulting
from the IPES Acquisition................................. 18
----
$448
====
</TABLE>
(f) Reflects an adjustment to income tax expense to tax effect the pro forma
adjustments at the combined federal and state statutory rate of 38%. In
calculating the tax adjustment, the goodwill amortization as calculated in
(d) above has not been tax effected as it is non-deductible for tax
purposes.
(g) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition and product recall expenses and non-recurring finance charges.
EBITDA is not a measure recognized by generally accepted accounting
principles and should not be considered in isolation or as a substitute for
operating income, as an indicator of liquidity or as a substitute for net
cash provided by operating activities, which are determined in accordance
with generally accepted accounting principles. EBITDA is included because
management believes that certain investors may find it useful.
26
<PAGE> 28
TABLE 2-A
WINDY HILL PET FOOD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SEVEN MONTHS ENDED AUGUST 2, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR WINDY HILL
WINDY HILL AGP DEEP RUN OTHER RECLASSIFICATIONS PRO FORMA
HISTORICAL(A) HISTORICAL(B) HISTORICAL(C) ACQUISITIONS(D) AND ACQUISITIONS COMBINED
------------- ------------- ------------- --------------- ----------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $151,460 $5,651 $13,740 $4,260 $ -- $175,111
Cost of goods sold............. 110,367 5,419 11,782 3,418 (191)(e) 130,795
-------- ------ ------- ------ ----- --------
Gross profit................... 41,093 232 1,958 842 191 44,316
Operating expenses:
Promotion and
distribution............. 18,934 30 673 237 -- 19,874
Selling, general and
administrative........... 8,401 302 590 164 -- 9,457
Amortization of
intangibles.............. 2,456 -- -- -- 101(f) 2,557
Transition expenses............ 8,456 -- -- -- -- 8,456
-------- ------ ------- ------ ----- --------
Income from operations..... 2,846 (100) 695 441 90 3,972
Interest expense, net.......... 10,226 5 2 (3) 964(g) 11,194
Other (income) expense, net.... (568) 15 (102) -- 105(h) (550)
-------- ------ ------- ------ ----- --------
Income before taxes........ (6,812) (120) 795 444 (979) (6,672)
Income tax expense (benefit)... (331) -- -- -- (89)(i) (420)
-------- ------ ------- ------ ----- --------
Income (loss) before
extraordinary items...... $ (6,481) $ (120) $ 795 $ 444 $(890) $ (6,252)
======== ====== ======= ====== ===== ========
EBITDA(j)...................... $ 10,116
========
Adjusted EBITDA(j)............. $ 18,572
========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
27
<PAGE> 29
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) Windy Hill Pet Food Holdings, Inc. ("Windy Hill") was a private holding
company that owned 100% of its subsidiary, Windy Hill Pet Food Company,
Inc.
(b) Includes results for AGP for the period from January 1, 1998 to February
23, 1998 (the date of acquisition).
(c) Includes results for Deep Run for the period January 1, 1998 to June 1,
1998 (the date of acquisition).
(d) Other acquisitions include the purchase of NuPet and the remaining 50%
interest not previously owned in the Cartersville, Georgia and the Maumee,
Ohio joint ventures. Results of NuPet are included for the period January
1, 1998 to March 30, 1998 (the date of acquisition) and results of
Cartersville are included from January 1, 1998 to February 28, 1998 (the
date of acquisition).
(e) Adjustment to cost of goods sold to reflect $191 of reductions in
depreciation expense resulting from the AGP, Deep Run, NuPet and
Cartersville acquisitions (the "WH Acquisitions").
(f) Adjustment to selling, general and administrative expense reflect $101 of
additional amortization of goodwill resulting from the WH Acquisitions.
(g) Adjustment to interest expense to reflect the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
AUGUST 2, 1998
--------------
(IN THOUSANDS)
<S> <C>
Credit facility ($12.5 million at 8.17%).................... $162
Credit facility ($20.5 million at 10%)...................... 801
Additional amortization of deferred financing cost resulting
from the WH Acquisitions.................................. 1
----
$964
====
</TABLE>
The interest adjustment for the credit facility includes interest for AGP,
NuPet and Deep Run from the beginning of the year through their dates of
acquisition.
(h) To eliminate equity in earning of joint ventures for the months prior to
acquisition.
(i) Reflects an adjustment to income tax expense (benefit) to tax effect the
pro forma adjustments at the combined state and federal rate of 39% for
Windy Hill. In calculating the tax adjustment, approximately $90 of the
goodwill as calculated in (f) has not been tax effected as it is
non-deductible for tax purposes.
(j) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus
transition expenses. EBITDA is not a measure recognized by generally
accepted accounting principles and should not be considered in isolation or
as a substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because management believes that certain investors may
find it useful.
28
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data, except for pet food sold, as of
and for the years ended December 31, 1996, 1997 and 1998 are derived from the
audited consolidated financial statements of the Company included elsewhere in
this Prospectus. The selected financial data presented below as of and for the
year ended December 31, 1994, the nine months ended September 30, 1995 and the
three months ended December 31, 1995 are derived from consolidated financial
statements of the Company not included in this Prospectus. The information set
forth below is qualified in its entirety and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Company and notes
thereto and the consolidated financial statements of Windy Hill and notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
---------------------------- ---------------------------------------------
THREE
NINE MONTHS MONTHS YEAR ENDED
YEAR ENDED ENDED ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------------------------
1994 1995 1995 1996 1997 1998(2)
------------ ------------- ------------ -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $377,018 $303,633 $ 114,958 $513,217 $564,741 $686,663
Cost of goods sold....................... 308,622 247,394 97,184 446,776 482,896 554,447
-------- -------- --------- -------- -------- --------
Gross profit............................. 68,396 56,239 17,774 66,441 81,845 132,216
Operating expenses:
Promotion and distribution............. 23,007 17,675 6,484 26,480 31,876 45,039
Selling, general and administrative.... 11,550 8,558 2,660 11,512 14,384 26,346
Amortization of intangibles............ -- -- 1,017 3,538 3,601 6,468
Unusual items(3)....................... -- 9,440 -- -- -- --
Transition expenses(4)................. -- -- -- -- -- 7,043
Product recall(5)...................... -- -- -- -- -- 3,000
-------- -------- --------- -------- -------- --------
Income from operations............... 33,839 20,566 7,613 24,911 31,984 44,320
Interest expense, net.................... 2,494 3,611 5,806 22,471 22,463 31,503
Non-recurring finance charge(6).......... -- -- -- 4,815 -- 4,599
Other (income) expense, net.............. (11) (8) 29 (2) (102) 164
-------- -------- --------- -------- -------- --------
Income before taxes.................. 31,356 16,963 1,778 (2,373) 9,623 8,054
Income tax expense (benefit)............. 356 217 754 (855) 3,389 3,478
-------- -------- --------- -------- -------- --------
Income (loss) before extraordinary
item(7)................................ 31,000 16,746 1,024 (1,518) 6,234 4,576
Extraordinary item, net of tax(8)........ -- -- -- -- -- 26,788
-------- -------- --------- -------- -------- --------
Net income (loss).................. $ 31,000 $ 16,746 $ 1,024 $ (1,518) $ 6,234 $(22,212)
======== ======== ========= ======== ======== ========
Basic and diluted earnings (loss) per
share.................................. -- -- $ (0.03) $ (0.66) $ (0.01) $ (2.04)
Basic and diluted weighted average number
of shares outstanding.................. -- -- 11,000 11,006 11,350 14,429
OTHER DATA:
Cash flows provided by operating
activities............................. $ 39,250 $ 12,954 $ 2,711 $ 18,583 $ 20,972 $ 25,871
Cash flows provided by (used in)
investing activities................... 12,368 (3,677) (209,346) (11,489) (15,161) (74,279)
Cash flows provided by (used in)
financing activities................... (16,808) (20,568) 204,635 (8,644) (5,811) 51,533
EBITDA(9)................................ 38,613 24,364 10,063 30,449 43,216 57,433
Adjusted EBITDA(9)....................... 38,613 33,804 10,063 35,264 43,216 72,075
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
---------------------------- ------------------------------------------
THREE
NINE MONTHS MONTHS YEAR ENDED
YEAR ENDED ENDED ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ---------------------------
1994 1995 1995 1996 1997 1998
------------ ------------- ------------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Depreciation and amortization expense....... $ 4,660 $3,694 $2,574 $10,135 $10,971 $17,877
Capital expenditures(10).................... 12,159 4,224 1,297 7,901 14,437 23,327
Pet food sold (thousands of tons)........... 942 774 288 1,189 1,237 1,513
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 35,410 $ 38,894 $ 26,123 $ 25,645 $ 29,924
Total assets............................................ 142,710 309,584 338,293 338,184 710,448
Total debt.............................................. 68,436 209,738 206,603 200,410 459,170
Preferred stock......................................... -- 18,414 24,160 30,545 37,792
Stockholders' equity.................................... 31,759 40,111 33,247 33,946 70,674
</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.
(2) Results for the year ended December 31, 1998 include the results of Windy
Hill for the period from August 3, 1998 to December 31, 1998.
(3) Represents non-recurring bonus payments to senior management in connection
with the 1995 Acquisition.
(4) Represents certain non-recurring transition expenses in connection with the
Windy Hill Acquisition.
(5) Represents costs associated with the product recall. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Commitments and Contingencies."
(6) Non-recurring finance charges represent $4,815 and $4,599 of interim bridge
debt financing costs that were incurred in conjunction with the issuance of
the Senior Notes in 1996 and the Refinancing Transactions in 1998,
respectively.
(7) Income (loss) before extraordinary items of the Company's predecessor does
not include any provision for federal income taxes. Prior to the 1995
Acquisition, Doane was organized as a subchapter S corporation.
Consequently, Doane did not pay federal, state or local income taxes except
in those states that did not recognize subchapter S status or that required
the payment of franchise taxes based on income.
(8) Represents charges associated with the early extinguishment of debt
incurred in connection with the Refinancing Transactions.
(9) EBITDA for any relevant period presented above is defined as income before
extraordinary items plus interest expense, net, income taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA as defined plus unusual
items, transition and product recall expenses and non-recurring finance
charges. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are
determined in accordance with generally accepted accounting principles.
EBITDA is included because 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.
(10) Capital expenditures exclude payments for acquisitions.
30
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORY OF THE COMPANY
The Company was formed in 1995 by a group of investors led by SCI, DLJMB,
CMIHI and certain members of existing management to acquire Doane for an
aggregate purchase price of $249.1 million, including existing indebtedness.
Doane had previously been a manufacturer of dry pet food for 37 years. The
Company's sole asset and activities are its ownership of the common stock of
Doane. The Company has no other operations.
In April 1998, the Company acquired IPES for $26.2 million (net of cash
purchased of $1.9 million) and the assumption of indebtedness of $1.9 million.
In August 1998, the Company acquired Windy Hill for approximately 6.4 million
shares of Common Stock and the assumption of $183.5 million of indebtedness.
Windy Hill was a manufacturer of pet food products based in Tennessee. Windy
Hill was merged into Doane in November 1998.
Windy Hill was formed in February 1995 by a group of investors led by
Dartford Partnership, L.L.C. to acquire substantially all of the assets and
liabilities of the pet food division of Martha White Foods, Inc. for $21.0
million. In April 1996, Windy Hill acquired the assets and liabilities
associated with certain pet food product lines of Heinz Inc. for a purchase
price of $52.5 million. In May 1997, Windy Hill acquired Hubbard for a net
purchase price of $131.1 million. Subsequent to such acquisition, Windy Hill
sold the animal feed division of Hubbard for a sales price of approximately
$50.0 million, net of taxes. In February 1998, Windy Hill acquired all of the
assets of AGP for a purchase price of approximately $12.4 million. In April
1998, Windy Hill acquired certain pet food assets and certain liabilities
associated with NuPet for a purchase price of approximately $3.1 million. In
June 1998, Windy Hill acquired Deep Run for a net purchase price of
approximately $16.4 million.
THE REFINANCING TRANSACTIONS
In November 1998, the Company refinanced its capital structure pursuant to
the following Refinancing Transactions:
-- Windy Hill was merged into Doane;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its Senior Notes;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of Windy Hill Notes, which tender offer was required by a change
of control provision in the indenture governing such notes;
-- Doane completed the Exchange Offer of $150 million principal amount of
its Senior Subordinated Notes for the remaining approximately $63
million principal amount of Senior Notes and the remaining approximately
$74 million principal amount of Windy Hill Notes; and
-- Doane entered into the Senior Credit Facility with a syndicate of
financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the Senior Credit Facility to fund the
cash requirements of the Refinancing Transactions, repay borrowings
under and retire its previous credit facilities, repay other debt and
repay bridge financing incurred in connection with the tender offer for
the Windy Hill Notes.
OVERVIEW
The Company is the largest manufacturer of dry pet food in the United
States, producing approximately 26% of the total volumes sold in 1998 on a pro
forma basis. The Company manufactures products for store brands owned by retail
customers (also known as private labels), contract manufactures products for
national branded pet food companies and produces and sells under regional brands
owned by the Company.
31
<PAGE> 33
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
five of the six largest national branded pet food companies through
co-manufacturing agreements pursuant to which the Company produces, packages and
ships a portion of such companies' products. The Company's engineering services
group designs and builds extruders, conveyors, dryers and other parts and
equipment, including replacement parts, for pet food manufacturing facilities of
the Company and third parties.
The Company derives substantially all of its revenue from the sale of dry
pet food products. Historically, approximately 85% to 90% of pet food cost of
goods sold has been comprised of raw material and packaging costs with labor,
insurance, utilities and depreciation comprising the remainder. Historically,
market prices for commodity grains and food stocks have fluctuated in response
to a number of factors, including changes in U.S. government farm support
programs, changes in international agricultural and trading policies and weather
conditions during the growing and harvesting seasons.
The Company manages the price risk created by market fluctuations by
hedging portions of its primary commodity products purchases on an on-going and
continuous basis, principally through exchange traded futures and options
contracts. The Company implemented a hedging policy in 1996 that does not permit
trading in commodities not utilized by the Company. All futures and options
activity is based on the projected requirements of the Company. The term of such
contracts is generally less than one year. Settlement of positions are either
through financial settlement with the exchanges or via exchange for the physical
commodity in which case the Company delivers the contract against the
acquisition of the physical commodity.
The Company accounts for its futures and options contracts as hedges and
gains and losses are recognized in the period realized as part of the cost of
products sold. The Company's deferred net futures and options position is
reported on the balance sheet as a current asset for net loss positions and as a
deferred credit for net gain positions. In addition to futures and options, the
Company also contracts for future physical procurement, in which case unrealized
gains and losses are deferred to the applicable accounting period. Typically,
maturities vary and do not exceed twelve months. The Company has hedged over
half of its corn and over 30% of its soybean meal requirements through September
30, 1999. Corn and soybean meal are the two principal commodities used by the
Company in the manufacture of pet food. Unrealized losses of $3.0 million were
deferred on outstanding hedging contracts at December 31, 1998. See
"Business -- Raw Materials and Packaging."
The sales and expenses of two of the Company's subsidiaries are denominated
in foreign currencies. The Company may encounter exchange rate risk to the
extent that the values of such currencies fluctuate. The Company does not
currently hedge, and does not anticipate hedging, against adverse foreign
currency fluctuations.
Operating expenses consist of promotion and distribution expenses and
selling, general and administrative expenses. Promotion and distribution
expenses are primarily (i) brokerage fees, (ii) promotions, volume incentive
discounts and rebates paid to customers and (iii) freight and distribution
expenses. The Company's selling, general and administrative expenses represent
salaries and related expenses, amortization expense and other corporate overhead
costs. These expenses typically do not increase proportionately with increases
in volume and product sales.
The Company's sales are somewhat seasonal. The Company typically
experiences an increase in net sales during the first and fourth quarters of
each year, as is typical in the pet food industry. The seasonality of the pet
food business is generally attributable to cooler weather, which results in
increased dog food consumption.
32
<PAGE> 34
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.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------------ ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $513,217 100.0% $564,741 100.0% $686,663 100.0%
Cost of goods sold..................... 446,776 87.1 482,896 85.5 554,447 80.7
-------- ----- -------- ----- -------- -----
Gross profit........................... 66,441 12.9 81,845 14.5 132,216 19.3
Operating expenses:
Promotion and distribution........... 26,480 5.2 31,876 5.6 45,039 6.6
Selling, general and
administrative..................... 11,512 2.2 14,384 2.6 26,346 3.9
Amortization of intangibles.......... 3,538 0.7 3,601 0.6 6,468 0.9
Transition expenses.................. -- -- -- -- 7,043 1.0
Product recall....................... -- -- -- -- 3,000 0.4
-------- ----- -------- ----- -------- -----
Income from operations............. 24,911 4.8 31,984 5.7 44,320 6.5
Interest expense, net.................. 22,471 4.4 22,463 4.0 31,503 4.6
Non-recurring finance charge........... 4,815 0.9 -- -- 4,599 0.6
Other (income) expense, net............ (2) -- (102) -- 164 --
-------- ----- -------- ----- -------- -----
Income (loss) before taxes......... (2,373) (0.5) 9,623 1.7 8,054 1.3
Income tax expense (benefit)........... (855) (0.2) 3,389 0.6 3,478 0.5
-------- ----- -------- ----- -------- -----
Income (loss) before extraordinary
item............................. (1,518) (0.3) 6,234 1.1 4,576 0.8
Extraordinary item, net of tax......... -- -- -- -- 26,788 4.0%
-------- ----- -------- ----- -------- -----
Net income (loss).................. $ (1,518) (0.3)% $ 6,234 1.1% $(22,212) (3.2)%
======== ===== ======== ===== ======== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales for 1998 increased 21.6% to $686.7 million from $564.7
million in 1997. Included in this increase are $135.2 million in sales
attributable to the Windy Hill Acquisition and the IPES Acquisition
(collectively, the "Acquisitions"). Excluding the Acquisitions, pet food net
sales decreased 1.1% to $518.1 million for 1998 from $523.7 in 1997. Of this
increase, the volume-related increases of 2.2% were offset by price declines of
3.3% attributable to the pass-through of certain raw material cost decreases to
customers.
Gross profit. Gross profit for 1998 increased 61.5% to $132.2 million from
$81.8 million in 1997. Of this increase, (i) 42.8% was attributable to the
Acquisitions, (ii) 18.4% resulted from improvements in pet food margins due to
margin management efforts, automation savings, acquisition synergies, improved
product mix and reductions in certain raw material costs and (iii) approximately
2.4% was due to increased pet food tons sold. The increase in gross profit was
partially offset by a decrease in non-manufactured product gross profit.
Promotion and distribution expenses. Promotion and distribution expenses
increased 41.3% (39.9% of which was attributable to the Acquisitions) to $45.0
million for 1998 from $31.9 million in 1997. The balance of the increase
resulted from increases in variable sales promotions, incentive discounts and
brokerage costs on increased pet food tons sold.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 83.2% (45.6% of which was attributable to the
Acquisitions) to $26.3 million for 1998 from $14.4 million in 1997. The balance
of the increase resulted from increases in (i) salaries and related fringe
benefits (22.7%), (ii) professional fees for acquisitions that were not
consummated and information systems consulting (5.2%) and (iii) insurance and
taxes for new facilities (3.2%). Salaries and related fringe benefits increased
due to the restructuring of the senior management team in 1997 and 1998,
recognition of stock compensation expense and performance based bonuses.
Amortization of intangibles. Amortization of intangible expenses increased
79.6% to $6.5 million for 1998 from $3.6 million in 1997 due to the Acquisitions
(79.1%).
33
<PAGE> 35
Transition expenses. Transition expenses represent $7.0 million of expenses
incurred in connection with the merger and integration of Windy Hill with the
Company. These costs include compensation for transitional personnel, severance
and bonus expenses, relocation expenses, recruiting and training expenses,
systems conversion and other unique transition expenses.
Product recall. Product recall represents non-recurring costs of $3.0
million related to the product recall discussed in "-- Commitments and
Contingencies."
Income from operations. Income from operations, excluding the transition
and product recall costs, for 1998 increased 70.0% (39.3% of which was
attributable to the Acquisitions) to $54.4 million (7.9% of net sales) from
$32.0 million (5.7% of net sales) in 1997. The balance of the increase was
principally due to improved pet food margins and increased pet food tons sold,
which were offset in part by the increase in selling, general and administrative
expenses.
Interest expense, net. Net interest expense for 1998 increased 40.2% to
$31.5 million from $22.5 million in 1997 primarily due to $206.0 million of debt
incurred in connection with the Acquisitions.
Non-recurring finance charge. In 1998, $4.6 million in non-recurring
interim debt financing costs were written off concurrent with the issuance of
the Senior Subordinated Notes.
Income (loss) before extraordinary item. Income before extraordinary item
for 1998 decreased to $4.6 million from $6.2 million in 1997. Excluding the
impact net of tax of the non-recurring finance charge, income before
extraordinary item for 1998 increased to $13.7 million from $6.2 million in
1997. The Acquisitions represented $4.1 million of this increase, and the
balance was principally due to improved pet food margins and increased pet food
tons sold.
Extraordinary item, net of tax. The net amount of $26.8 million in 1998
represents costs of $42.8 million incurred in connection with the Refinancing
Transactions, which included tender premiums for the Senior Notes, change of
control costs for the Windy Hill Notes and the write off of deferred financing
costs for all debt repaid in the Refinancing Transactions. These costs have been
partially offset by a $16.0 million tax benefit recognized by the Company.
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 expenses. Promotion and distribution expenses
increased to $31.9 million in 1997 from $26.5 million in 1996 due to increases
in sales promotions, volume incentive discounts and brokerage costs resulting
from increased pet food tons sold.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $14.4 million in 1997 from $11.5 million in
1996 due to (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.
34
<PAGE> 36
Income from operations. Income from operations for 1997 increased 28.4% to
$32.0 million from $24.9 million in 1996. Income from operations as a percentage
of net sales increased to 5.7% for 1997 from 4.8% in 1996, due to improved pet
food margins and additional non-manufactured products sales.
Interest expense, net. Net interest expense remained unchanged at $22.5
million for 1997 and 1996. Interest expense reductions resulting from payments
on the Term Loan Facility (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% in 1997 from 4.4% in
1996.
Net income. Net income for 1997 increased to $6.2 million from a net loss
of $1.5 million in 1996, primarily as a result of increased pet food margins and
additional non-manufactured products sales.
LIQUIDITY AND CAPITAL RESOURCES
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 Acquisitions were funded through bank
borrowings and the issuance of Common Stock. The Company had working capital of
$29.9 million at December 31, 1998. Net cash provided by operating activities
was $18.6 million, $21.0 million and $25.9 million for the years ended December
31, 1996, 1997 and 1998, respectively. Net cash provided by (used for)
borrowings was approximately $(9.0) million, $(6.7) million and $50.2 million,
respectively, for such periods.
During the three-year period ended December 31, 1998, the Company spent
$45.7 million on capital expenditures, of which $37.3 million was used to
acquire and construct additional manufacturing capacity, including new
manufacturing facilities, a renovated manufacturing facility and five new
production lines in existing facilities and $8.4 million was used to maintain
existing manufacturing facilities.
It is expected that existing manufacturing facilities will not be
sufficient to meet the Company's anticipated volume growth. The Company has
continued to examine alternatives for expanding its business either through
construction of additional manufacturing capacity or acquisition of
manufacturing assets. Such potential acquisitions could include acquisitions of
operating companies. The Company intends to finance such expansions or
acquisitions with borrowings under existing or expanded credit facilities, or
the issuance of additional equity.
On April 17, 1998, the Company acquired IPES for $26.2 million (net of cash
purchased of $1.9 million) and the assumption of indebtedness of $1.9 million.
The Company financed the IPES Acquisition through non-recourse borrowings in
Spain for $21.3 million of the purchase price and borrowings under a credit
facility for the remainder.
On August 3, 1998, the Company acquired Windy Hill for approximately 6.4
million shares of Common Stock and the assumption of $183.5 million of
indebtedness.
On November 12, 1998, the Company completed the Refinancing Transactions.
As part of the Refinancing Transactions, the Company entered into the Senior
Credit Facility, which provides for total commitments of $345.0 million. As of
January 31, 1999, the Company had outstanding borrowings of $245.0 million under
the Term Loan Facility, $28.0 million under the Revolving Credit Facility and
$6.7 million under the swingline facility. In addition, at such date there were
$2.4 million of outstanding letters of credit under the Senior Credit Facility.
The Company is highly leveraged and has significant cash requirements for
debt service relating to the Senior Credit Facility, the Senior Subordinated
Notes, the IPES debt and industrial development bonds. The Company's ability to
borrow is limited by the Senior Credit Facility and the limitations on the
incurrence of indebtedness in the Note Indenture. The Company anticipates that
its operating cash flow, together with amounts available to it under the Senior
Credit Facility and new industrial development bonds, will be sufficient to
finance working capital requirements, debt service requirements and capital
expenditures through the 1999 fiscal year.
35
<PAGE> 37
Following the completion of the Offering, the Company will record an
estimated charge of $1,438 ($935 net of a tax benefit) for the write-off of
financing costs associated with the Senior Credit Facility.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in 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.
The Company has made an assessment of year 2000 compliance and reviewed its
business application software, which resulted in plans to either replace or
upgrade all essential business software at an estimated cost of $5.6 million.
The Company is currently reviewing its administrative hardware and software
(networks, communications and security systems) and the software related to
manufacturing equipment. The Company has implemented a program to confirm year
2000 compliance with all third parties with which the Company has material
relationships.
As of December 31, 1998, the Company had incurred costs of approximately
$3.0 million in connection with year 2000 compliance. The Company intends to
test and verify its year 2000 compliance projects by July 1999, including third
party compliance. Management believes that a failure to complete its year 2000
compliance, or a failure by parties with whom the Company has material
relationships to complete their year 2000 compliance, by such date could have a
material adverse effect on the Company's financial condition and results of
operations. The Company believes that it can provide the resources necessary to
ensure year 2000 compliance prior to the year 2000. However, should the Company
be delayed in its year 2000 compliance, the Company may experience a decrease in
efficiency that could have a material adverse effect on results of operations.
The Company also believes that a sufficient number of suppliers exist if the
Company's current suppliers are delayed in their efforts to achieve year 2000
compliance thereby minimizing risk to the Company. The Company has developed
contingency plans that include moving production within its plant network,
securing additional ingredient storage facilities and transferring procurement
to year 2000 compliant suppliers.
36
<PAGE> 38
COMMITMENTS AND CONTINGENCIES
On October 30, 1998 the Company initiated a voluntary product recall for
certain dry dog food manufactured at its Temple, Texas plant between July 1 and
August 31, 1998. The recall covers dry dog food manufactured at its Temple plant
and does not apply to dry dog food manufactured at other plants or the Company's
dry cat food, biscuits, treats or canned products. The recall resulted from
reported sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated levels of aflatoxins in corn, which is an ingredient in
dry dog food. Aflatoxins are compounds produced from certain kinds of crop molds
that can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
recorded a $3.0 million product recall charge in the fourth quarter of fiscal
1998. See "Risk Factors -- Environmental, Regulatory and Safety Matters; Product
Recall."
The Company believes that its operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that such requirements will not change in the future or that the
Company will not incur significant costs in the future (i) to comply with such
requirements, (ii) to effect future recalls, or (iii) in connection with the
effect on the Company's business of such matters. See
"Business -- Environmental, Regulatory and Safety Matters; Product Recall."
EURO
Effective January 1, 1999, eleven of the fifteen countries comprising the
European Union began a transition to a single monetary unit, the "Euro," which
is scheduled to be completed by July 1, 2002. The Company is currently
considering options to ensure that its European subsidiaries can operate
effectively in the Euro. The Company's subsidiaries in Italy and Spain may incur
significant costs in conversion of their systems to the Euro. The Company is
unable to predict whether such costs can be passed on to customers. The
customers of these subsidiaries may also begin conducting operations using the
Euro prior to the completion of the conversion of the systems of such
subsidiaries. Delays in conversion could have a material adverse effect on the
results of the operations of these subsidiaries. In addition, the introduction
of the Euro may increase competition, as manufacturers in other European
countries become able to compete more easily in the Company's markets.
Management does not believe that the implementation of the Euro will have a
material effect on the Company's operations or financial condition taken as a
whole.
INFLATION AND CHANGES IN PRICES
The Company's financial results depend to a large extent on the cost of raw
materials and packaging and the ability of the Company to pass along to its
customers increases in these costs. Historically, market prices for commodity
grains and food stocks have fluctuated in response to a number of factors,
including changes in United States government farm support programs, changes in
international agricultural and trading policies and weather conditions during
the growing and harvesting seasons. Fluctuations in paper prices have resulted
from changes in supply and demand, general economic conditions and other
factors. In the event of any increases in raw materials costs, the Company may
be required to increase sales prices for its products in order to avoid margin
deterioration. There can be no assurance as to the timing or extent of the
Company's ability to implement future price adjustments in the event of
increased raw material costs or as to whether any price increases implemented by
the Company may affect the volumes of future shipments.
The Company manages the price risk created by market fluctuations by
hedging portions of its primary commodity product purchases, principally through
exchange traded futures and options contracts that are designated as hedges. The
terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity. The Company's policy
does not permit speculative commodity trading. Although the Company manages the
price risk of market fluctuations by hedging portions of its primary commodity
product purchases, there can by no assurance that the Company's results of
operations will not be exposed to volatility in the commodity market. See
"-- Overview" and "Business -- Raw Materials and Packaging."
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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 1998 on a pro
forma basis. The Company manufactures products for store brands owned by retail
customers (also known as private labels), contract manufactures products for
national branded pet food companies and produces and sells under regional brands
owned by the Company.
The Company manufactures for its customers a full range of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. The Company provides products that meet customer
specifications across all retail channels and price points, from super premium
to value products. Accordingly, the Company manufactures store brands for over
350 customers in the United States, including the three largest mass
merchandisers, the five largest grocery companies and the largest national pet
specialty retailer. The Company also manufactures dry pet food and treats for
five 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. One additional manufacturing and distribution
facility located in Clinton, Oklahoma is expected to open in the second quarter
of fiscal 1999. 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 1998, the
Company increased sales volumes at a compound annual growth rate of 9.3%,
exclusive of acquisitions. The Company believes its growth is primarily due to
an increase in consumer acceptance of dry products versus canned products and
store brands versus national brands. 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 1998,
sales to Wal*Mart, including its Sam's Club division, accounted for 36.5% of the
Company's sales on a pro forma basis.
THE PET FOOD INDUSTRY
The U.S. pet food industry is a $10.0 billion industry that has grown at a
compound annual rate of 4.0% from 1994 to 1998 in terms of sales. Growth in the
dry pet food and the biscuit and treats segments of the industry has exceeded
the growth of the overall pet food industry by capturing market share from other
segments, including canned pet food. Dry pet food sales have grown at a compound
annual rate of 5.2% since 1994 and accounted for over $5.7 billion of sales in
the industry in 1998. The biscuit and treats segment has grown at a compound
rate of 4.5% per year since 1994 and accounted for $1.4 billion of sales during
1998.
Improved product quality, consumer value and increased retailer support
have generally enabled store brands to outgrow the category in many traditional
branded categories, including pet food. Since 1994, the volume of sales of store
brand dry pet food has grown at a compound annual rate of 9.0% per year versus
the category, which has grown at 5.2% per year. The volume of sales of store
brand canned pet food over the same period has grown at a compound rate of 15.3%
per year versus the category, which has declined by 0.9%. Store brand biscuits
and treats have grown at a compound rate of 9.8% since 1994 with the category
growing at 4.5% per year. Sales of store brand pet food accounted for in excess
of 25% of the total pet food market in 1998 and have grown at a compound annual
growth rate in excess of 7% over the past five years. Store brands have
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increased market share in each of the segments of the pet food industry over the
past five years. In 1998, store brands represented approximately 38%, 31%, 24%,
18% and 16% of total sales volume of biscuits and treats, dry dog, dry cat,
canned dog and canned cat food, respectively. Store brands today encompass a
full range of pet food products at all price points, including economy, premium
and super premium.
RECENT DEVELOPMENTS
Refinancing Transactions. In November 1998, the Company refinanced its
capital structure pursuant to the following Refinancing Transactions:
-- Windy Hill was merged into Doane;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its Senior Notes;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of Windy Hill Notes, which tender offer was required by a change
of control provision in the indenture governing such notes;
-- Doane completed the Exchange Offer of $150 million principal amount of
its Senior Subordinated Notes for the remaining approximately $63
million principal amount of Senior Notes and the remaining approximately
$74 million principal amount of Windy Hill Notes; and
-- Doane entered into the Senior Credit Facility with a syndicate of
financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the Senior Credit Facility to fund the
cash requirements of the Refinancing Transactions, repay borrowings
under and retire its previous credit facilities, repay other debt and
repay bridge financing incurred in connection with the tender offer for
the Windy Hill Notes.
Windy Hill Acquisition. In August 1998, the Company acquired Windy Hill for
approximately 6.4 million shares of Common Stock and the assumption of $183.5
million of indebtedness. Windy Hill was a leading manufacturer of pet food
products for both dogs and cats, including dry, canned, semi-moist, soft dry,
soft treats and dog biscuits. With Windy Hill, the Company became the largest
manufacturer of dog biscuits in the United States. In 1997, Windy Hill generated
pro forma net sales, EBITDA and a net loss before extraordinary item of $304.0
million, $26.7 million and $1.6 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 the Company to offer soft treats and other
specialized dry food products to Windy Hill's traditional customer base. With
the addition of Windy Hill's 19 plants, the Company believes cost savings can be
achieved through optimizing production schedules and lowering distribution costs
by reducing the distance products are shipped. The Windy Hill Acquisition also
provides the Company with the opportunity to achieve cost savings by obtaining
purchasing synergies and eliminating redundant overhead functions.
IPES Acquisition. In April 1998, the Company acquired IPES for $26.2
million (net of cash purchased of $1.9 million) and the assumption of
indebtedness of $1.9 million. IPES, located in Spain, is a manufacturer of both
store and regional brands. In fiscal 1997, IPES had net sales, EBITDA and net
income of $21.1 million, $3.8 million and $1.0 million, respectively. The
Company believes that the IPES Acquisition, together with the Company's
investment in the Italian manufacturer, Effeffe, S.p.a., provides the Company
with a platform for growth in Europe.
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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, which will enable the
Company to offer soft treats to its traditional customer base, and intends to
expand sales of certain products acquired in the Windy Hill Acquisition
including semi-moist, soft dry, canned and regional brands to its existing
customers.
Provide a Full Range of Pet Food Products. The Company offers customers a
full range of pet food products for both dogs and cats, including dry, canned,
semi-moist, soft dry, soft treats and dog biscuits. By offering a full range of
products under a variety of brand formats (store, co-manufactured national and
regional brands) and price points, the Company can be a significant source for
its customers' total pet food requirements. This enables customers to realize
administrative and distribution savings by aggregating a variety of products and
brands into a single shipment.
Focus on Diversified Brand Formats. The Company believes that store,
co-manufactured national and regional brand formats offer significant growth
opportunities. Sales of store brands have exceeded the overall growth in the pet
food industry. The Company believes this growth will continue due to (i) an
increased awareness of retailers concerning the advantages of store brands,
including enhanced margins and customer loyalty, (ii) improved quality,
innovation and variety of store brand products and (iii) increasingly informed
and value-conscious consumers. The Company believes co-manufactured national
brands offer growth opportunities as national branded pet food companies
increasingly take advantage of the Company's low-cost status, quality products
and logistic and speciality product 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.
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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, treats and
biscuits to such customers' specifications and standards. The regional brands
are used for economy priced products that are generally marketed as a complement
to customers' store brand programs. Accordingly, the Company is able to provide
customers with a single source for store brands, certain co-manufactured
national brands and regional brands. The Company is able to ship all such
product offerings together, giving customers the ability to address a
substantial portion of their pet food requirements from one source.
The Company manufactures dry pet food under approximately 350 store brands,
including Kirkland Signature, Retriever, Dura Life, Great Choice, Hy Vee, Ol'
Roy, Exceed, Maxximum Nutrition, Remarkable, Pathmark, Pet Club, PMI-Nutrition,
Special Kitty and Sportsman's Choice. The Company also co-manufactures branded
pet food products for national pet food companies in accordance with such
companies' specifications and standards. The Company's regional brands include
Kozy Kitten(R), G. Whiskers(R), Trail Blazer(R), and Tuffy's(R), which are sold
to allow the Company's customers to broaden their product offerings and to
provide them with a single source for their pet food requirements. The Company
also has Bonkers(R) and Pet Lovers(TM) branded treats available for its
retailers.
In addition to its pet food products, the Company sells products
manufactured by third parties and maintains an engineering group. A description
of each of the Company's product lines is set forth below:
Dry Pet Food Products (80.2% of 1998 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 1998 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 1998 on a pro forma basis.
Biscuits and Treats (10.5% of 1998 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 (4.9% of 1998 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 (3.5% of 1998 Pro Forma Net Sales)
Sales of non-manufactured products include sales of cat litter, canned pet
products and pet treats produced by third parties. 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
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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 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, Albertson's, Royal Ahold 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, Hill's Science Diet and Nestle.
For the year ended December 31, 1998 on a pro forma basis, sales to
Wal*Mart and Sam's Club accounted for an aggregate of 36.5% of the Company's net
sales, excluding sales 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
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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 other customers that see these services as a benefit.
The loss of any significant customer or customers, who in the aggregate
represent a significant portion of the Company's sales, would have an adverse
impact on the Company's operating results and cash flows. See "Risk
Factors -- Dependence on Certain Customers."
COMPETITION
The pet food business is highly competitive. The companies that produce and
market the major national branded pet foods are national or international
conglomerates that are substantially larger than the Company and possess
significantly greater financial and marketing resources than the Company. The
store brand pet food products sold by the Company's customers compete for access
to shelf space with national branded products on the basis of quality and price.
National branded products compete principally through advertising to create
brand awareness and loyalty. The Company could experience price competition from
national branded manufacturers. To the extent that there is significant price
competition from the national branded manufacturers or such manufacturers
significantly increase their presence in the store brand segment, the Company's
operating results and cash flow could be adversely affected. The Company also
competes with regional branded manufacturers and other store brand
manufacturers.
The Company believes that it differentiates itself from the national
branded dry pet food manufacturers by offering comparable products at lower
prices giving retailers the opportunity for greater pet food category
profitability. The Company believes that it differentiates itself from other
store brand dry pet food manufacturers by offering higher quality products,
national production and distribution capabilities and a reputation for
increasing customers' store brand dry pet food sales.
RAW MATERIALS AND PACKAGING
The principal raw materials required for the Company's manufacturing
operations are bulk commodity grains and foodstocks, including corn, soybean
meal, wheat middlings, meat and bone meal, and corn gluten meal. The Company
generally purchases raw materials one to three months in advance. The Company
purchases the raw material requirements of each of its manufacturing facilities
locally due to the high freight cost of transporting bulk commodity products. As
a result, raw material costs may vary substantially among manufacturing
facilities due to local supply and demand and varying freight costs. Raw
materials are generally purchased from large national commodity companies and
local grain cooperatives. The Company does not maintain long-term contracts with
any of its suppliers; however, the Company believes that alternative sources of
supply are readily available.
The Company manages the price risk created by market fluctuations by
hedging portions of its primary commodity products purchases, principally
through exchange traded futures and options contracts that are designated as
hedges. The terms of such contracts are generally less than one year. Settlement
of positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity. The Company's
hedging policy does not permit speculative commodity trading. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Packaging is a material component of the Company's raw material costs. The
Company has five main suppliers of packaging and believes that additional
suppliers of packaging are available. A majority of the Company's requirements
are not covered by long term contracts with any of its packaging suppliers.
The Company generally prices its pet food products based on the cost of raw
materials, packaging and certain other costs plus a conversion charge (which
includes a profit factor). The Company periodically adjusts prices based on
fluctuations in raw material and packaging costs. There can be no assurance that
future price increases will be obtained in the event of increased raw material
costs. See "Risk Factors -- Raw
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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, Wisconsin, Minnesota, Missouri, Alabama and Kansas; and three each in
Pennsylvania and California. The Company also has a 50% joint interest in
facilities located in Butler, Missouri; Caldwell, Idaho; Hereford, Texas; and
Italy. The Company is in the process of building a state of the art facility in
Clinton, Oklahoma. The Company also owns a facility in Spain. In addition, the
Company owns or leases nine warehouses.
The manufacturing facilities are generally located in rural areas in
proximity to customers, raw materials and transportation networks, including
rail transportation. Management believes the number and strategic locations of
its manufacturing facilities enhance its position as the low cost producer by
reducing freight costs for raw material and finished goods and facilitating
direct store delivery programs. The rural locations also minimize land and labor
costs. Management believes it is able to construct new manufacturing facilities
at a lower cost than competitors due to the Company's engineering services group
which designs and constructs most of the necessary production equipment.
ENVIRONMENTAL, REGULATORY AND SAFETY MATTERS; PRODUCT RECALL
The Company is subject to a broad range of federal, state, local and
foreign environmental laws and regulations, including those governing discharges
to the air and water, the storage of petroleum substances and chemicals, the
handling and disposal of solid or hazardous wastes, and the remediation of
contamination arising from spills and releases. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil and
criminal penalties, permit revocation and modification as well as, in certain
instances, the issuance of injunctions. Aside from costs associated with the
product recall discussed below, 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 public health laws,
there can be no assurance that additional costs for compliance will not be
incurred in the future or that such costs will not be material.
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
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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, in some locations
environmentally sensitive materials were 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 has been required to remove or remediate previously spilled or released
waste materials (including such materials spilled or released by prior owners or
operators), or property contamination (including groundwater contamination
caused by prior owners or operators), or to perform monitoring or remedial
activities to prevent future contamination (including releases from underground
storage tanks or aboveground bulk petroleum storage facilities). Moreover, some
of the Company's manufacturing facilities are located within industrial areas.
It is possible that in the future additional environmental response costs may be
required for existing sites as well as any additional sites that may be
identified. In the past, nearby industries have suffered releases of hazardous
substances to the environment that are the subject of 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 Company's operations are subject to the federal Clean Air Act ("CAA")
and comparable state and local requirements. Regulations implementing the CAA
require the installation of pollution control devices on operating sources with
air emissions exceeding applicable threshold levels. As part of an overall
evaluation of its current operations, the Company is planning to install an air
scrubbing unit at one of its facilities, and is assessing whether to install
such a unit at another of its facilities. The Company does not expect the
installation of one or both of these units to have a material adverse impact on
its operations. It is possible that in the future additional air control devices
may be installed at other Company facilities as necessary to satisfy existing or
future requirements.
The manufacturing and marketing of the Company's products are subject to
regulation by federal regulatory agencies, including OSHA, the FDA and the 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.
45
<PAGE> 47
On October 30, 1998 the Company initiated a voluntary product recall for
certain dry dog food manufactured at its Temple, Texas plant. The recall covers
dry dog food manufactured at its Temple plant between July 1 and August 31, 1998
and does not apply to dry dog food manufactured at other plants or the Company's
dry cat food, biscuits, treats or canned products. The recall resulted from
reported sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated levels of aflatoxins in corn, which is an ingredient in
dry dog food. Aflatoxins are compounds produced from certain kinds of crop molds
that can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
recorded a $3.0 million product recall charge in the fourth quarter of fiscal
1998.
The Company believes that its operations are in material compliance with
environmental, safety and other regulatory requirements; however, there can be
no assurance that such requirements will not change in the future or that the
Company will not incur significant costs in the future (i) to comply with such
requirements, (ii) to effect future recalls, or (iii) in connection with the
effect on the Company's business of such matters.
The Company's pet food operations outside the United States are potentially
subject to similar foreign governmental controls and restrictions pertaining to
the environment. Management believes that compliance with existing requirements
of such governmental bodies has not had a material adverse effect on the
Company's operations.
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 January 31, 1999, the Company had approximately 2,453 employees, of
which approximately 272 were management and administrative personnel and
approximately 2,181 were manufacturing personnel. Of this number, 462 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 109
employees and expires on January 20, 2001. The collective bargaining agreement
with the Joplin, Missouri plant covers 220 employees and expires on January 31,
2003. The collective bargaining agreement with the Muscatine, Iowa plant covers
53 employees and expires in December 1999. The collective bargaining agreement
with respect to the NuPet plant in Ripon, California covers 27 employees and
expires in October 2000, subject to renewal for subsequent one-year terms. The
collective bargaining agreement with respect to the Lincoln, Nebraska plant
covers 53 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.
46
<PAGE> 48
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 to
be expanded to ten members after the consummation of the Offering. The Board of
Directors is expected to be divided into three classes in connection with the
consummation of the Offering, with the terms of the directors of each class
expiring at the Company's Annual Meeting of Stockholders as follows: 2000 (Class
I), 2001 (Class II) and 2002 (Class III). 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 and Doane, 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........... 39 Chief Executive Officer, President and Director
Thomas R. Heidenthal........ 47 Senior Vice President and Chief Financial Officer
F. Donald Cowan, Jr......... 53 Senior Vice President, Business Development and
Quality of Doane
Richard A. Hannasch......... 45 Vice President, Fulfillment of Doane
Richard D. Wohlschlaeger.... 46 Vice President, Sales and Marketing of Doane
David L. Horton............. 38 Vice President, Manufacturing and Engineering of
Doane
Terry W. Bechtel............ 56 Vice President, Co-Manufacturing (Sales) of Doane
Charles W. Dunleavy......... 54 Vice President and Managing Director, European
Operations of Doane
Joseph J. Meyers............ 37 Vice President and Chief Information Officer of
Doane
Philip K. Woodlief.......... 45 Vice President, Finance of Doane
Peter T. Grauer(1).......... 53 Director
M. Walid Mansur(2).......... 39 Director
Bob L. Robinson............. 61 Director
Jeffrey C. Walker(1)(2)..... 43 Director
Ray Chung(2)................ 49 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 and Doane.
George B. Kelly has been Chairman of the Board of the Company since June
1995. Mr. Kelly has been the Chairman of the Board of SCI since July 1990. Mr.
Kelly currently is a director of Alegis Group, Inc., Billboard Acquisition
Company, LLC, Independent Gas Company Holdings and Sevenday International, Inc.
Douglas J. Cahill became Chief Operating Officer of the Company in
September 1997, began serving as President of the Company in January 1998 and
began serving as Chief Executive Officer of the Company in July 1998. He has
been a director of the Company since September 1998. Prior to joining the
Company, Mr. Cahill served as President of Olin Corporation's Winchester
Division, Corporate Vice President of Olin Corporation and held various other
positions with Olin Corporation during the period from July 1984 through
September 1997.
47
<PAGE> 49
Thomas R. Heidenthal became Senior Vice President and Chief Financial
Officer of the Company in March 1997. Prior to joining the Company, Mr.
Heidenthal served as Vice President Finance and Administration of TA
Instruments, Inc. from August 1990 to February 1997.
F. Donald Cowan, Jr. began serving as Senior Vice President, Business
Development and Quality of Doane in January 1999. Before joining the Company in
August 1998 as Senior Vice President, Operations of Doane, he served as Vice
President of Operations for Windy Hill. Prior to joining Windy Hill in 1995, Mr.
Cowan was Vice President of Operations for Martha White Foods, Inc. From 1987 to
1995, Mr. Cowan held various positions at Martha White Foods, Inc. including
Vice President of Operations.
Richard A. Hannasch joined the Company in October 1996, has served as Vice
President, Fulfillment of Doane since January 1999 and served as Vice President,
Strategic Planning of Doane from June 1998 to January 1999 and Vice President of
Marketing of Doane from November 1997 to January 1999. Prior to joining the
Company, Mr. Hannasch served as Director, Business Development for Ralston
Purina Company's International Division and held various other positions at
Ralston Purina Company from September 1978 to October 1996.
Richard D. Wohlschlaeger joined the Company in April 1993, has served as
Vice President, Sales and Marketing of Doane since January 1999 and served as
Vice President, Customer Development of Doane from November 1997 to January
1999. Prior to joining the Company, Mr. Wohlschlaeger held various other
positions at Ralston Purina Company from March 1976 to April 1993, including
Group Director, Trade Marketing and Eastern Division Sales Director.
David L. Horton joined the Company in November 1997, has served as Vice
President, Manufacturing and Engineering of Doane since January 1999 and served
as Vice President, Fulfillment of Doane from November 1997 to January 1999.
Prior to joining the Company, Mr. Horton served as Vice President of
Manufacturing and Engineering of Olin Corporation's Winchester Division and held
various other positions with Olin Corporation from January 1984 to November
1997.
Terry W. Bechtel has served as Vice President, Co-Manufacturing (Sales) of
Doane since November 1997. Mr. Bechtel joined the Company in June 1973 and
served as Vice President, Administration of Doane from March 1990 until October
1997, and as Vice President, Sales of Doane from September 1976 through February
1990.
Charles W. Dunleavy began serving as Vice President and Managing Director,
European Operations of Doane in February 1999. Before joining the Company in
August 1998 as Vice President, Finance of Doane, he served as Vice President of
Finance for Windy Hill. Prior to joining Windy Hill in September 1997, Mr.
Dunleavy was Vice President of Operations for Hudson Technologies, Inc. from
1993 to 1997. From 1989 to 1993, Mr. Dunleavy was the Managing Partner of the
Detroit office of BDO Seidman, LLP, a public accounting firm.
Joseph J. Meyers became Chief Information Officer of Doane in August 1998
and began serving as Vice President of Doane in January 1999. Prior to joining
us, Mr. Meyers held various information technology positions at Realtime
Consulting, PricewaterhouseCoopers and Olin Corporation from 1992 to 1998.
Philip K. Woodlief has served as Vice President, Finance for Doane since
February 1999. Prior to joining the Company, Mr. Woodlief was an independent
financial consultant from June 1998 to January 1999. From April 1997 to May 1998
Mr. Woodlief was Vice President and Corporate Controller of Insilco Corporation,
a diversified consumer and industrial products manufacturing company, and from
January 1989 to April 1997 he served as Corporate Controller of Insilco.
Peter T. Grauer has been a director of 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.
48
<PAGE> 50
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 from March 1992 until his resignation
effective June 30, 1998. Mr. Robinson became a director of the Company on
October 5, 1995. Prior to being named President and Chief Executive Officer, Mr.
Robinson served as Executive Vice President from January 1976 through February
1992.
Jeffrey C. Walker has been a director of the Company since April 1996. Mr.
Walker has been Managing General Partner of Chase Capital Partners, the private
equity investment arm of The Chase Manhattan Corporation, since 1988, and a
General Partner thereof since 1984. Mr. Walker is a director of the Monet Group,
Inc., 800-Flowers, Guitar Center, House of Blues and Domaine.
Ray Chung became a director of the Company in August 1998. He is a partner
in Dartford Partnership, L.L.C. ("Dartford") and an Executive Vice President of
Aurora Foods Inc. Mr. Chung previously served as Executive Vice President and a
director of Windy Hill. Mr. Chung served as a director, Executive Vice President
and Chief Financial Officer of Windmill Corporation from 1989 to 1995 and as a
director, Executive Vice President and Chief Financial Officer of Wyndham Foods
Inc. from 1985 to 1990. From May 1984 to September 1985, Mr. Chung served as
Vice President -- Finance for the Kendall Company. Between 1981 and 1984, Mr.
Chung served as Vice President -- Finance for Riviana Foods, Inc. Both the
Kendall Company and Riviana Foods, Inc. were subsidiaries of the
Colgate-Palmolive Company at the time.
Stephen C. Sherrill became a director of the Company in August 1998. He has
been a Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc. ("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., B&G Foods, Inc., HealthPlus
Corporation, Alliance Laundry Systems, L.L.C. and Mediq, Inc.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company and certain other persons serving as executive
officers for the fiscal year ended December 31, 1998 who earned $100,000 or more
in combined salary and bonus during such year (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION(1) UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL ------------------- OPTIONS/SARS ALL OTHER
AT THE COMPANY YEAR SALARY BONUS (#) COMPENSATION
<S> <C> <C> <C> <C> <C>
Douglas J. Cahill(2).......... 1998 $327,082 $424,000 100,000 $1,778,538(3)(4)(6)(10)
President and Chief 1997 91,667 100,000 400,000 305,717(5)(6)
Executive Officer
Thomas R. Heidenthal.......... 1998 199,583 166,950 -- 303,198(3)(4)
Senior Vice President and 1997 145,833 93,000 200,000 47,023(5)
Chief Financial Officer
Bob L. Robinson(7)............ 1998 183,000 800,000 -- 299,300(8)(9)
1997 366,000 569,294 -- 38,712(9)
1996 366,000 420,289 500,000 37,052(9)
Richard D. Wohlschlaeger...... 1998 152,361 92,750 38,000 170,810(3)(4)
Vice President, Sales 1997 116,616 40,000 -- 794
and Marketing 1996 109,853 22,380 38,000 --
Richard A. Hannasch........... 1998 147,917 92,750 -- 186,327(3)(4)
Vice President, Fulfillment 1997 108,627 40,000 -- 30,794(5)
1996 22,222 -- 72,000 --
David L. Horton............... 1998 154,583 92,750 60,000 154,711(3)(4)
Vice President, 1997 14,071 -- -- 80,794(6)
Manufacturing
and Engineering
</TABLE>
49
<PAGE> 51
- ---------------
(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) 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 for 1997 represent compensation for the portion of
1997 of which Mr. Cahill was employed by the Company.
(3) Includes bonuses received in connection with the Windy Hill Acquisition as
follows: Mr. Cahill -- $750,000; Mr. Heidenthal -- $250,000; Mr.
Wohlschlaeger -- $100,000; Mr. Hannasch -- $150,000; and Mr.
Horton -- $100,000.
(4) Includes relocation expenses and gross up for taxes as follows: Mr.
Cahill -- $94,010; Mr. Heidenthal -- $43,670; Mr. Wohlschlaeger -- $61,282;
Mr. Hannasch -- $26,798; and Mr. Horton -- $45,183.
(5) Includes relocation expenses and gross up for taxes of $128,335 for Mr.
Cahill, $44,641 for Mr. Heidenthal and $30,000 for Mr. Hannasch.
(6) Includes sign-on bonuses as follows: Mr. Cahill -- $175,000 (in each of
1997 and 1998); and Mr. Horton -- $80,000.
(7) Mr. Robinson served as the Company's Chief Executive Officer until his
resignation effective June 30, 1998. Upon his resignation, options for
202,000 shares of Common Stock were terminated. See "-- Stock Option
Exercises" and "-- Employment and Termination Agreements."
(8) Includes compensation of $183,000 under Mr. Robinson's retirement agreement
dated June 30, 1998, supplemental retirement benefits of $60,745 under Mr.
Robinson's employment agreement and amounts vested under the Company's
Deferred Compensation Plan set forth in footnote 9 below.
(9) Includes the following amounts vested under the Company's Deferred
Compensation Plan: 1998 -- $53,950; 1997 -- $34,860; and 1996 -- $33,200.
(10) Includes compensation of $750,000, which is the difference between the fair
market value and the exercise price of options for 100,000 shares of Common
Stock that Mr. Cahill received and exercised in fiscal 1998.
EMPLOYMENT AND RETIREMENT AGREEMENTS
The Company entered into employment agreements with Messrs. Cahill,
Heidenthal, Wohlschlaeger, Hannasch and Horton, effective January 1, 1998. The
terms of such employment agreements are substantially similar except for salary
and bonus amounts. Mr. Cahill's current base salary is $400,000 with a base
bonus of 100% of base salary. Mr. Heidenthal's current base salary is $225,000
with a base bonus of 70% of base salary and Messrs. Wohlschlaeger, Hannasch and
Horton's current base salary is $175,000 with a base bonus of 50% of base
salary. Earnings targets are established annually by the Company's Board of
Directors under the Company's Annual Bonus Program. The base bonus is linked to
achievement of targeted earnings. There is no cap on additional bonuses in such
employment agreements. Each employment agreement provides for a term of two to
three years with automatic one year extensions. Such agreements are subject to
early termination by the Company for cause without severance. The employment
agreements for Messrs. Wohlschlaeger, Hannasch and Horton provide (i) that
terminations 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 two years and
three years, respectively. Pursuant to his employment agreement Mr. Cahill was
paid a sign-on bonus of $175,000 in 1997 and an additional $175,000 in 1998.
The Company entered into an Early Retirement Agreement and Release (the
"Retirement Agreement") with Mr. Robinson effective June 30, 1998 pursuant to
which Mr. Robinson resigned from employment with the Company and Doane. Pursuant
to the Retirement Agreement, the Company paid Mr. Robinson his base salary, at
the rate in effect on the Retirement Date (June 30, 1998), through December 31,
1998. The
50
<PAGE> 52
Company also paid Mr. Robinson an annual bonus for 1998 in the amount of
$800,000, which bonus was in lieu of any bonus Mr. Robinson was entitled to
receive under the terms of his employment agreement with the Company effective
as of September 1, 1994. Effective as of the Retirement Date, options for 72,000
shares of Common Stock issued under the terms of two stock option agreements
dated November 1, 1996 became fully vested.
COMPENSATION OF DIRECTORS
No compensation has been paid by the Company to its directors prior to the
Offering. Upon completion of the Offering, directors who are not employees of
the Company will receive directors fees to be determined by the Board of
Directors.
Certain directors of the Company are partners or directors of entities that
received fees in connection with the Windy Hill Acquisition, the Exchange Offer,
the tender offer for the Senior Notes and the repayment of bridge financing
incurred in connection with the tender offer for the Windy Hill Notes and will
receive underwriting discounts and commissions in connection with this Offering.
See "Certain Transactions" and "Principal and Selling Stockholders."
COMMITTEES
The Company's Board of Directors has recently established Audit and
Compensation Committees. The Audit Committee consists of Messrs. Mansur, Chung
and Walker, each of whom is a non-employee director of the Company. The Audit
Committee meets separately with representatives of the Company's independent
auditors and with representatives of senior management in performing its
functions. The Audit Committee reviews the general scope of audit coverages, the
fees charged by the independent auditors, matters relating to the Company's
internal control systems, and other matters related to audit functions.
The Compensation Committee consists of Messrs. Grauer, Kelly and Walker,
each of whom is a non-employee director of the Company. The Compensation
Committee administers the Company's stock option plans, and in this capacity
makes all option grants or awards to Company employees, including executive
officers, under the plans. 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 1996
Management Stock Purchase Plan (the "1996 Management Stock Purchase Plan") and
the Company's 1996 Stock Option Plan, as amended (the "1996 Stock Option Plan").
Under the 1996 Stock Option Plan, 3,000,000 shares are authorized for issuance
and as of January 31, 1999, options to acquire 543,672 shares of Common Stock
had been exercised and 1,610,548 shares were reserved for issuance under the
plan. In connection with the Offering, all shares not reserved for issuance
under the 1996 Stock Option Plan or already exercised will be cancelled. The
Company's stock option and purchase plans are intended to encourage certain
employees of the Company to develop a sense of proprietorship and personal
involvement in the development and financial success of the Company.
Effective as of June 19, 1997, the Company adopted the 1997 Management
Stock Purchase Plan (the "1997 Management Stock Purchase Plan"). Pursuant to the
1996 Management Stock Purchase Plan and the 1997 Management Stock Purchase Plan,
500,000 shares of Common Stock of the Company were sold for $2.50 per share to
certain key employees, including sales of 200,000 shares to Mr. Heidenthal,
46,000 shares to Mr. Wohlschlaeger and 46,000 shares to Mr. Hannasch.
51
<PAGE> 53
In March 1999, the Board of Directors and the stockholders of the Company
approved the adoption of the Company's 1999 Stock Incentive Plan (the "1999
Plan"). The number of shares of Common Stock that may be issued under the 1999
Plan may not exceed 4.2 million shares. The 1999 Plan provides for the granting
of incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, options that do not qualify as incentive stock options,
restricted stock awards and stock appreciation rights. The 1999 Plan is
administered by the Board of Directors or a committee selected by the Board of
Directors (the "Committee"). In general, the Committee is authorized to select
the recipients of awards and to establish the terms and conditions of those
awards.
The price at which a share of Common Stock may be purchased upon exercise
of an option granted under the 1999 Plan will be determined by the Committee,
but (a) in the case of an incentive stock option, such purchase price will not
be less than the fair market value of a share of Common Stock on the date such
option is granted and (b) in the case of an option that does not qualify as an
incentive stock option, such purchase price will not be less than 50% of the
fair market value of a share of Common Stock on the date such option is granted.
Additionally, a stock appreciation right may be granted in connection with the
grant of an option. A stock appreciation right allows the holder to surrender
the right to purchase shares under the related option in return for a payment in
cash, shares of Common Stock, or a combination thereof, in an amount equal to
the difference between the fair market value of the shares of Common Stock on
the date such right is exercised and the purchase price for such shares under
the related option.
Shares of Common Stock that are the subject of a restricted stock award
under the 1999 Plan will be subject to restrictions on disposition by the holder
and an obligation of such holder to forfeit and surrender the shares to the
Company under certain circumstances.
The 1999 Plan provides that if (a) the Company is involved in a merger or
consolidation pursuant to which the stockholders of the Company immediately
prior to such transaction own less than 50% of the total voting power of the
outstanding voting stock of the surviving entity immediately after the
transaction or (b) any person, entity or group acquires or gains ownership or
control of more than 50% of the outstanding shares of the Company's voting
stock, then, except as provided in any award agreement, outstanding awards will
immediately vest and become exercisable or satisfiable, as applicable. In
addition, upon the occurrence of any such event, each outstanding option will
continue to be exercisable for the remainder of the applicable option term
unless the Committee determines that, in connection with such transaction, such
option must be exercised in full or surrendered in exchange for a payment in
cash, securities or other property.
The Company intends to grant options to acquire approximately 1,400,000
shares of Common Stock following the consummation of the Offering at an exercise
price equal to the initial public offering price, including options to acquire
521,000 shares to Mr. Cahill, options to acquire 81,000 shares to Mr. Heidenthal
and options to acquire 32,000 shares to each of Messrs. Wohlschlaeger, Hannasch
and Horton. The options granted to such Named Executive Officers will be
weighted 60% for "performance-vesting" options and 40% for "time-vesting"
options. The performance-vesting options will vest if, at anytime during the
four-year period following the date of grant, the Common Stock per share price
equals or exceeds, for a period of 20 consecutive trading days, an assumed per
share price that would represent a 20% compound annual price increase from the
date of grant to the fourth anniversary thereof. The time-vesting options will
be five-year options, with one-third of the total options under each grant
vesting at the end of three, four and five years from the date of grant
(assuming continued employment).
52
<PAGE> 54
STOCK OPTION GRANTS
The following table sets forth, as of December 31, 1998, certain
information as to options granted in 1998 under the 1996 Stock Option Plan to
the Named Executive Officers.
<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......... 100,000 27.3% $2.50 1999(1) -- --
Richard D.
Wohlschlaeger........... 38,000 10.4 5.00 2008 $119,320 $302,860
David L. Horton........... 60,000 16.4 5.00 2008 188,400 478,200
</TABLE>
- ---------------
(1) Mr. Cahill was issued 100,000 options on May 1, 1998 with a term of one
year, all of which he exercised on June 1, 1998.
STOCK OPTION EXERCISES
The following table sets forth certain information with respect to
exercises by the Company's Named Executive Officers of stock options during
fiscal year 1998 and the value of all unexercised employee stock options as of
December 31, 1998 held by such officers.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C>
Douglas J. Cahill................. 200,000 75,000 225,000 $600,000 $1,800,000
Thomas R. Heidenthal.............. -- 64,800 135,200 680,400 1,419,600
Richard D. Wohlschlaeger.......... -- 24,776 51,224 241,148 461,852
Richard A. Hannasch............... -- 25,376 46,624 243,768 442,232
David L. Horton................... -- 12,000 48,000 96,000 384,000
Bob L. Robinson(2)................ 298,000 0 0 -- --
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options is based upon the difference
between the exercise price and an assumed initial public offering price of
$13.00 per share.
(2) Effective as of Mr. Robinson's retirement on June 30, 1998, options for
72,000 shares of Common Stock issued under the terms of two stock option
agreements dated November 1, 1996 became fully vested and his remaining
unexercised options for 202,000 shares were terminated.
OTHER COMPENSATORY ARRANGEMENTS
Employee Retirement Plan. On May 31, 1998, the Company terminated its
Employee Retirement Plan (the "Retirement Plan"). The Retirement Plan was a
non-contributory, tax qualified plan that provided retirement benefits based on
the employee's tenure with the Company and average monthly compensation. The
Company is currently structuring a plan for liquidating the Retirement Plan and
anticipates providing a lump sum payment that 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
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<PAGE> 55
employer matching contribution in an amount equal to 50% of participant
contribution, up to 6% of compensation. Vesting for the employer match is 25%
per year for each full year of service.
Windy Hill adopted the Windy Hill Pet Food Company, Inc. Profit Sharing and
Savings Plan on March 1, 1995, as amended. The plan is intended to be a
qualified plan under the Internal Revenue Code. It permits employee
contributions from 1% to 15% of pre-tax earnings subject to annual dollar limits
set by the IRS. Of this amount, the Company will match 50% of the first 6% of
the employee contribution. In addition, the plan provides for contribution to
participant accounts of amounts equal to 2 1/2% of the employee's compensation.
Non-Qualified Salary Continuation Agreements. 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> 56
CERTAIN TRANSACTIONS
INVESTORS' AGREEMENT
In connection with the Windy Hill Acquisition, the Company, Doane, Summit,
SCI, CMIHI and an affiliate thereof, DLJMB and certain of its affiliates, all of
the stockholders of Windy Hill and certain other shareholders of the Company
(collectively, the "Stockholders") entered into the Investors' Agreement. The
Investors' Agreement contains provisions concerning the governance of the
Company and Doane, restrictions on the transferability of the securities of the
Company and Doane acquired by the Stockholders and registration rights for such
securities. The governance provisions of the Investors' Agreement provide that
the Board of Directors of the Company will consist of eight members, of whom 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 the Windy Hill
Representative (as defined in the Investors' Agreement) on behalf of the Windy
Hill Investors (as defined in the Investors' Agreement) (the "Windy Hill
Designee"), one will be the Chief Executive Officer of the Company and one will
be designated by George B. Kelly so long as Mr. Kelly serves as one of the
Summit-Investor Designees or by the Summit-Investor Designees, acting jointly,
if Mr. Kelly is not one 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 August 3, 1998 (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. Notwithstanding the foregoing, at any time
any of 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 August 3, 1999 and the date the Windy Hill Investors no longer
have the right to designate any individual to the Board, Windy Hill Pet Food
Company L.L.C. will have the right to designate one Board observer. The
Investors' Agreement also provides that the board of directors of Doane will be
comprised of the individuals who are serving as directors on the Company's
Board.
The Investors' 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 will be unlimited. The
Stockholders also have piggy-back registration rights if the Company proposes to
register any of its Common Stock or warrants, or if Doane proposes to register
any of its Senior Preferred Stock under the Securities Act.
TRANSACTIONS WITH DLJMB AND ITS AFFILIATES
In 1995, DLJSC entered into a financial advisory agreement with the Company
and Doane. The financial advisory agreement provides for an annual retainer fee
of $100,000 plus reimbursable expenses; such agreement will terminate upon
consummation of the Offering.
In connection with the 1995 Acquisition, DLJMB purchased 1,000,000 shares
of Senior Preferred Stock and warrants to purchase 4,514,928 shares of Common
Stock for an aggregate purchase price of $25 million. In December 1997, DLJMB
and certain of its affiliates sold their shares of Senior Preferred Stock to
DLJSC, who thereupon sold such shares to qualified institutional buyers (as
defined in Rule 144A under the Securities Act). DLJMB will receive proceeds from
the Offering of $8.4 million as a Selling Stockholder in the Offering (assuming
an initial public offering price of $13.00 per share). DLJMB is also a party to
the Investors' Agreement. See "-- Investors' Agreement." Mr. Grauer, a Managing
Director of DLJMB, is a member of the Boards of Directors of the Company and
Doane.
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<PAGE> 57
DLJMB is an affiliate of DLJSC and DLJ Capital Funding, Inc. ("DLJ
Capital"). DLJSC and DLJ Capital and their affiliates perform various investment
banking and commercial banking services from time to time for the Company. DLJ
Capital serves as an agent bank and a lender to the Company under the Senior
Credit Facility. DLJSC will serve as lead manager in connection with this
Offering and served as financial advisor to the Company in connection with the
Windy Hill Acquisition. DLJSC also served as dealer manager in connection with
the tender offer for the Senior Notes and for the Exchange Offer. DLJ Bridge
Finance, Inc., an affiliate of DLJSC, also provided, together with an affiliate
of CMIHI, a bridge loan to the Company in connection with the Refinancing
Transactions. DLJSC received $1.0 million in connection with the Windy Hill
Acquisition, and DLJSC and DLJ Capital received approximately $3.8 million in
connection with the Refinancing Transactions. DLJSC, DLJ Capital and their
affiliates have received, and will receive, customary compensation for acting in
the foregoing capacities.
TRANSACTIONS WITH SCI
SCI is the general partner of Summit, which is the owner of 2,880,000
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 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 Boards of Directors of the Company and Doane. See "-- Investors'
Agreement."
TRANSACTIONS WITH CMIHI AND AFFILIATES
CMIHI is an affiliate of CSI and The Chase Manhattan Bank ("Chase"). CMIHI
and an affiliate of CMIHI own (i) 200,000 shares of Senior Preferred Stock that
will be repurchased by the Company in connection with the Offering, (ii) 428,000
shares of Class A Common Stock and 2,332,000 shares of Class B (non-voting)
Common Stock and (iii) warrants to purchase 902,984 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 (i) through the repurchase of the Senior Preferred Stock (approximately
$9.1 million (based upon the liquidation value of the Senior Preferred Stock as
of March 31, 1999)) and (ii) as a Selling Stockholder (approximately $2.6
million (assuming an initial public offering price of $13.00 per share)). In
addition, CMIHI is a party to the Investors' Agreement. Pursuant to the
Investors' Agreement, CMIHI has designated Jeffrey C. Walker, the Managing
General Partner of Chase Capital Partners, which is an affiliate of CMIHI, to
the Boards of Directors of the Company and Doane. See "-- Investors' Agreement."
CSI, Chase and their affiliates perform various investment banking and
commercial banking services from time to time for the Company and its
affiliates. Chase serves as an agent bank and a lender to the Company under the
Senior Credit Facility. Chase also acted as agent bank and a lender under Windy
Hill's prior credit facility, which was repaid in connection with the
Refinancing Transactions. CSI acted as an initial purchaser of the May 1997
offering of the Windy Hill Notes and is an Underwriter of this Offering. CSI
acted as financial advisor to Windy Hill in connection with the Windy Hill
Acquisition. CSI also acted as dealer manager in connection with the Exchange
Offer. An affiliate of CMIHI also provided, together with an affiliate of DLJSC,
a bridge loan to the Company in connection with the Refinancing Transactions.
CSI, Chase and their affiliates received approximately $3.9 million in
connection with the Refinancing Transactions. CSI, Chase and their affiliates
have received, and will receive, customary compensation for acting in the
foregoing capacities.
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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 1,400,000 shares of Common Stock, Mr. Mansur's
spouse, Laura Hawkins Mansur, owns 1,612,000 shares of Common Stock and 300,000
shares of Common Stock are held in trust for their children.
OTHER TRANSACTIONS
In addition to the fees paid to CMIHI, DLJSC and SCI in connection with the
Windy Hill Acquisition, Dartford received a fee of $3.0 million and BRS received
a fee of $1.0 million. BRS also was paid $500,000 at the closing of the Windy
Hill Acquisition, representing a deferred transaction fee earned by BRS in
connection with Windy Hill's acquisition of certain assets from Heinz Inc. in
April 1996.
WARRANT EXERCISES
At or prior to the closing of the Offering, certain Selling Stockholders
will sell warrants to purchase 843,752 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. 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> 59
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 28, 1999, 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, (iv) all parties to the
Investors' Agreement as a group, (v) each Selling Stockholder and (vi) 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 -- Investors' Agreement."
In its capacity as an escrow agent, IBJ Whitehall Bank & Trust Company,
formerly IBJ Schroder Bank & Trust Company ("IBJ"), is the record owner of
6,357,376 shares of Common Stock (34.5% of the outstanding shares of Common
Stock prior to the Offering). Of these shares, 3,209,828 are being sold in the
Offering, leaving IBJ the record holder of 3,147,548 shares (10.2% of the
outstanding shares of Common Stock after the Offering). These shares are
beneficially owned by the former shareholders of Windy Hill, including BRS,
Dartford and PNC Capital Corp ("PNC"). The following table includes a breakdown
of the shares being sold and beneficial ownership after the Offering and assumes
that the over-allotment option is not exercised.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE SHARES BENEFICIALLY
OWNED PRIOR TO THE SOLD IN THE OWNED AFTER THE
OFFERING OFFERING OFFERING
-------------------- ------------ ---------------------
NAME(1) NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Summit(2).................................... 2,880,000 15.7% -- 2,880,000 9.4%
DLJMB(3)..................................... 4,514,928 19.7 644,628 3,870,300 11.2
CMIHI(4)..................................... 3,662,984 19.0 199,124 3,463,860 11.0
BRS(5)....................................... 2,963,748 16.1 2,013,892 949,856 3.1
Dartford(10)................................. 2,746,984 14.9 1,094,008 1,652,976 5.4
PNC.......................................... 646,644 3.5 101,928 544,716 1.8
Laura Hawkins Mansur(6)...................... 3,312,000 18.0 448,476 2,863,524 9.3
Peter T. Grauer(3)........................... 4,514,928 19.7 644,628 3,870,300 11.2
George B. Kelly(2)........................... 2,880,000 15.6 -- 2,880,000 15.6
Jeffrey C. Walker(4)......................... 3,662,984 19.0 199,124 3,463,860 11.0
Ray Chung(10)................................ 2,746,984 14.9 1,094,008 1,652,976 5.4
Stephen C. Sherrill(5)....................... 2,963,748 16.1 2,013,892 949,856 3.1
M. Walid Mansur(6)........................... 3,312,000 18.0 448,476 2,863,524 9.3
Bob L. Robinson(7)........................... 1,098,000 6.0 74,744 1,023,256 3.3
Douglas J. Cahill(8)......................... 275,000 1.5 -- 275,000 0.9
Thomas R. Heidenthal(8)...................... 264,800 1.4 -- 264,800 0.9
Richard D. Wohlschlaeger(8).................. 85,776 * -- 85,776 *
Richard A. Hannasch(8)....................... 86,376 * -- 86,376 *
David L. Horton(8)........................... 27,000 * -- 27,000 *
Earl R. Clements(8)(9)....................... 339,260 1.8 95,132 244,128 *
Dick H. Weber(8)(9).......................... 227,260 1.2 47,564 179,696 *
Roy E. Hess(9)............................... 240,000 1.3 24,464 215,536 *
Ferd A. Rosenthal............................ 800 * 800 -- --
Fred V. Hejduk............................... 23,040 * 5,040 18,000 *
Larry D. Morris.............................. 632 * 200 432 *
All parties to the Investors' Agreement as a
group...................................... 23,221,664 96.8 4,642,832 18,476,904 52.1
All executive officers and directors as a
group (15 persons)......................... 22,195,452 92.1 4,474,872 17,720,580 49.8
</TABLE>
- ------------------------------
* Represents less than one percent.
(1) The address of Summit and Mr. Kelly is 8 Greenway Plaza, Suite 714,
Houston, Texas 77046. The address of DLJMB and Mr. Grauer is 277 Park
Avenue, New York, New York 10172. The address of CMIHI and Mr. Walker is
380 Madison Avenue, 12th floor, New York, New York 10017. The address of
BRS and Mr. Sherrill is 126 East 56th Street, New York, New York 10022. The
address of Dartford and Mr. Chung is 456 Montgomery, Suite 2200, San
Francisco, California 94109. The address of Mr. Robinson, Mr. Cahill, Mr.
Heidenthal, Mr. Wohlschlaeger, Mr. Hannasch, Mr. Horton, Laura Hawkins
Mansur and Mr. Mansur is 103 Powell Court, Suite 200, Brentwood, Tennessee
37027. The address of PNC is 3150 CNG Tower, 625 Liberty Avenue,
Pittsburgh, Pennsylvania 15222. The address of Mr. Clements and Mr. Weber
is West 20th & State Line Road, Joplin, Missouri 64804. The address of Mr.
Hess is 2515 West 30th Street, Joplin, Missouri 64804. The address of Mr.
Rosenthal is
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6620 Mimms, Dallas, Texas 77252. The address of Mr. Hejduk is 2811 E. Main,
Weatherford, Oklahoma 73096. The address of Mr. Morris is 3201 W. Calvert,
South Bend, Indiana 46680.
(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 2,126,748, 950,960, 55,136,
857,640 and 524,444 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. The foregoing
entities are selling 303,651, 135,775, 7,872, 122,451 and 74,879 shares in
the Offering, respectively. DLJMB is a limited partnership, the general
partner of which is DLJ Merchant Banking, Inc., an affiliate of DLJSC. Mr.
Grauer is a director of the Company and serves as a Managing Director of
DLJ Merchant Banking, Inc. and, as such, may be deemed to beneficially own
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 644,628 shares of Common Stock to be issued by the
Company upon the exercise by the Underwriters of warrants previously held
by the entities listed above. See "Certain Transactions."
(4) Represents shares held by CMIHI and related parties. Of the 3,662,984
shares indicated as owned by CMIHI, (i) 428,000 represent shares of Class A
Common Stock, (ii) 2,332,000 represent shares of Class B Common Stock and
(iii) 902,984 are shares issuable within 60 days upon exercise of warrants.
Mr. Walker, a director of the Company, is Managing General Partner of Chase
Capital Partners, an affiliate of CMIHI, and may be deemed to beneficially
own the shares indicated as owned by CMIHI. Mr. Walker 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 199,124 shares of Common
Stock to be issued by the Company upon the exercise by the Underwriters of
warrants previously held by CMIHI. See "Certain Transactions."
(5) 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 in addition to the 57,916 shares individually owned by
him, he may be deemed to beneficially own 2,905,832 shares beneficially
owned by BRS. Mr. Sherrill disclaims beneficial ownership of 2,905,832
shares within the meaning of Rule 13d-3 of the Exchange Act.
(6) Of the shares indicated as owned by Mr. and Mrs. Mansur, (i) 1,400,000 are
held in Mr. Mansur's name, 190,260 of which are being sold in the Offering,
(ii) 1,612,000 are owned by Mrs. Mansur, 217,440 of which are being sold in
the Offering and (iii) 300,000 are held in trust for their children, 40,770
of which are being sold in the Offering. 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) Of the shares indicated as owned by Mr. Robinson, 154,000 are held in Mr.
Robinson's name, of which 74,744 are being sold in the Offering, 560,000
are held in a limited partnership of which Mr. Robinson is the managing
partner, 192,000 are held in trust for Mr. Robinson and 192,000 are held in
trust for Mr. Robinson's wife, Jeanine L. Robinson. The shares held by the
partnership and in his wife's trust may be deemed to be beneficially owned
by Mr. Robinson; Mr. Robinson disclaims beneficial ownership of such shares
within the meaning of Rule 13d-3 of the Exchange Act.
(8) Amounts include 75,000 options granted to Mr. Cahill, 64,800 options
granted to Mr. Heidenthal, 24,776 options granted to Mr. Wohlschlaeger,
25,376 options granted to Mr. Hannasch, 12,000 options granted to Mr.
Horton, 59,260 options granted to Mr. Clements and 59,260 options granted
to Mr. Weber, all of which are exercisable within 60 days.
(9) Messrs. Clements, Weber and Hess each previously served as Vice Presidents
of Doane, and each are parties to the Investors' Agreement. See "Certain
Transactions -- Investors' Agreement." Messrs. Clements and Weber are still
employees of Doane.
(10) The shares indicated as owned by Dartford are beneficially owned by Windy
Hill Pet Food Company, L.L.C. and certain other entities and individuals
affiliated with Windy Hill Pet Food Company, L.L.C. Dartford beneficially
owns 583,698 of the 2,746,984 shares and is the entity that controls Windy
Hill Pet Food Company, L.L.C. 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
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<PAGE> 61
2,746,984 shares beneficially owned by Windy Hill Pet Food Company, L.L.C.
Mr. Chung disclaims beneficial ownership of such shares within the meaning
of Rule 13d-3 of the Exchange Act.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 70,000,000 shares
of Common Stock, par value $0.0001 per share (of which 5,000,000 shares are
classified as Class B Common Stock), and 10,000,000 shares of preferred stock,
par value $0.01 per share ("Preferred Stock"). As of February 28, 1999,
18,401,996 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 Common Stock will trade on the Nasdaq
National Market, 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 Amended and
Restated Certificate of Incorporation (the "Charter") and the Amended and
Restated Bylaws (the "Bylaws") of the Company 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 Senior Credit Facility and the Note Indenture contain provisions that
restrict the Company from paying dividends on the Common Stock. See "Description
of Senior Credit Facility" and "Description of Senior Subordinated Notes." Upon
liquidation, dissolution or winding up of the Company, after payments of debts,
expenses and the liquidation preference plus any accrued dividends on any
outstanding shares of Preferred Stock, the holders of Common Stock will be
entitled to share ratably in all remaining assets of the Company. The holders of
Common Stock have no preemptive, subscription, redemptive or conversion rights,
except that holders of Class B Common Stock may, at their option, convert their
shares into Class A Common Stock. 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
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<PAGE> 62
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.
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
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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").
Removal of Directors Only for Cause. Pursuant to the Charter, directors can
be removed from office only for cause 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 Bylaws provide that the entire Board of Directors
will consist of not less than eight 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 any
action required or permitted to be taken by the stockholders of the Company must
be taken at a duly called meeting of stockholders and may not be taken by
written consent. The Bylaws provide that special meetings may only be called (i)
by the Chairman of the Board, (ii) by the President, (iii) by a majority of the
Board of Directors, (iv) by a majority of the executive committee, if any, or
(v) upon written request signed by the holders of at least 50% of the
outstanding Voting Stock.
Amendment of the Bylaws. The Charter provides that the Board of Directors
may adopt, alter, amend or repeal 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
Bylaws provide 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 Bylaws. In general, the Bylaws require that a stockholder give the
Company notice of proposed business or nominations not less than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders. 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.
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. An interested stockholder 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 30,745,748 shares of
Common Stock outstanding (32,537,588 shares if the Underwriters' over-allotment
option is exercised in full). Of these outstanding shares of Common Stock,
16,250,000 shares to be sold in this Offering will be freely tradeable without
restriction or further registration under the Securities Act, unless purchased
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144") described below. The remaining 14,495,748 shares of
Common Stock outstanding after the Offering will be "restricted securities"
within the meaning of Rule 144 under the Securities Act and may not be sold in a
public distribution except in compliance with the registration requirements of
the Securities Act or an applicable exemption under the Securities 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
308,000 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 February 28, 1999, there were 1,669,600 options to purchase shares of
Common Stock issued and outstanding of which 562,964 were exercisable. In
addition, the Company plans to adopt the 1999 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 SENIOR CREDIT FACILITY
As part of the Refinancing Transactions, the Company entered into the
Senior Credit Facility with a syndicate of banks and other institutional
investors, as lenders, and Chase, as administrative agent, DLJ Capital, as
syndication agent, and Mercantile Bank National Association, as documentation
agent. DLJ Capital and CSI served as the co-arrangers of the Senior Credit
Facility. Each of Chase and DLJ Capital is an affiliate of one of the
Underwriters. The Senior Credit Facility consists of a $245.0 million term loan
facility (the "Term Loan Facility") and a $100.0 million revolving
credit/swingline facility (the "Revolving Credit Facility"). The Revolving
Credit Facility enables the Company to obtain revolving credit loans and issue
letters of credit for the account of the Company from time to time for working
capital, permitted acquisitions and general corporate purposes. As of January
31, 1999, the Company had borrowed $245.0 million under the Term Loan Facility,
$28.0 million under the Revolving Credit Facility and $6.7 million under the
swingline facility. In addition, at such date the Company had $2.4 million of
letters of credit outstanding under the Revolving Credit Facility. Loans under
the Senior Credit Facility bear interest at: (i) the prime rate of the
administrative agent (or, if higher, the secondary market rate for certificates
of deposit plus 1% or the federal funds rate plus 0.5%) plus a specified margin
based on the type of loan and the then current ratio of senior debt to EBITDA
(the "Applicable Margin") or (ii) the Eurodollar rate plus the Applicable
Margin. The Company also pays certain fees with respect to the Senior Credit
Facility. The Term Loan Facility consists of three tranches with terms between
six and one-half years and eight years, unless terminated sooner upon an event
of default (as defined in the Senior Credit Facility). The Term Loan Facility
must be repaid in quarterly
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installments commencing on March 31, 1999. The principal amounts under the Term
Loan Facility shall be repaid, as follows: (i) approximately $11.7 million in
each of the calendar years 1999 and 2000, (ii) approximately $14.2 million in
each of the calendar years 2001, 2002, 2003 and 2004, (iii) $85.8 million in the
calendar year 2005 and (iv) $79.0 million in 2006. The Revolving Credit Facility
has a term of six and one-half years, unless terminated sooner upon an event of
default, and outstanding revolving credit loans will be payable on such date or
such earlier date as may be accelerated following the occurrence of any event of
default.
The Senior Credit Facility contains various covenants that will restrict
the Company from taking various actions and that require the Company to achieve
and meet certain financial tests, including meeting a consolidated leverage
ratio, a consolidated senior debt ratio, a consolidated interest coverage ratio
and a consolidated fixed charge coverage ratio. The Senior Credit Facility
includes covenants relating to balance sheet, fixed charge coverage, interest
coverage and leverage ratios and limitations on, among other things, capital and
other permitted expenditures, liens, indebtedness, guarantees, mergers,
acquisitions, disposition of assets, dividends, changes in business activities
and certain corporate activities.
The Senior Credit Facility also contains events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties in any material respect, cross default and cross
acceleration to certain other indebtedness, bankruptcy, ERISA, material
judgments and certain changes in control of the Company.
The Company and certain restricted subsidiaries are required to guarantee
amounts outstanding under the Senior Credit Facility. The indebtedness incurred
pursuant to the Senior Credit Facility is secured by a first priority lien on
substantially all of the material assets of the Company and its restricted
domestic subsidiaries.
Contemporaneously with the Offering, the Company intends to amend the
Senior Credit Facility to allow proceeds from the Offering to be used to
repurchase the outstanding Senior Preferred Stock and to amend various other
provisions of the Senior Credit Facility.
DESCRIPTION OF SENIOR SUBORDINATED NOTES
On November 12, 1998, Doane issued $150 million in aggregate principal
amount of its 9 3/4% Senior Subordinated Notes under the Note Indenture, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary of certain provisions of the
Note Indenture and the Senior Subordinated Notes does not purport to be
complete, is subject to, and is qualified in its entirety by reference to, the
provisions of the Note Indenture and the Senior Subordinated Notes.
The Senior Subordinated Notes are general unsecured obligations and are
subordinated in right of payment to all senior indebtedness and senior in right
of payment to any current or future indebtedness of Doane that, by its terms, is
subordinated to the Senior Subordinated Notes. The payment of obligations of
each subsidiary guarantor are subordinated to the payment of senior indebtedness
of such subsidiary guarantor. The Senior Subordinated Notes are limited to $150
million aggregate principal amount and mature on May 15, 2007. The Senior
Subordinated Notes accrue interest at the rate of 9 3/4% payable semiannually on
May 15 and November 15 of each year.
Doane may redeem the Senior Subordinated Notes at any time on or after May
15, 2002, in whole or in part, at the option of Doane, at the redemption prices
set forth below, plus accrued and unpaid interest, if any, to the redemption
date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002...................................................... 104.875%
2003...................................................... 103.250%
2004...................................................... 101.625%
2005 and thereafter....................................... 100.000%
</TABLE>
In addition, prior to May 15, 2000 Doane may redeem up to 35% of the
aggregate principal amount of the Senior Subordinated Notes with the proceeds of
one or more Equity Offerings (as defined in the Note Indenture), at a redemption
price equal to 109.75% of the principal amount thereof, plus accrued and unpaid
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interest, if any, thereon to the redemption date; provided, however, that at
least 65% in aggregate principal amount of the Senior Subordinated Notes remain
outstanding immediately after each such redemption. At any time prior to May 15,
2002, the Senior Subordinated Notes may also be redeemed in whole, but not in
part, at the option of Doane upon the occurrence of a Change in Control (as
defined herein) at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined in the Note Indenture) and the
unpaid accrued interest, if any, to the date of redemption.
Upon the occurrence of any of the following events (each, a "Change of
Control"), each holder of the Senior Subordinated Notes will have the right to
require Doane to repurchase all or any part of such holder's Senior Subordinated
Notes at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase: (i) prior to
the first public offering of Voting Stock (as defined in the Note Indenture) of
Doane or the Company, as the case may be, the Permitted Holders (as defined in
the Note Indenture) cease to be the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), directly or indirectly, of majority voting power of the Voting
Stock of Doane, whether as a result of issuance of securities of Doane or the
Company, as the case may be, any merger, consolidation, liquidation or
dissolution of Doane or the Company, as the case may be, any direct or indirect
transfer of securities by any Permitted Holder or otherwise; (ii) following the
first public offering of Voting Stock of Doane or the Company, as the case may
be, any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner, directly or indirectly, of more than 35% of the total voting
power of the Voting Stock of Doane or the Company, as the case may be; provided
that the Permitted Holders beneficially own, directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock of
Doane or the Company, as the case may be, than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Doane or the
Company, as the case may be; or (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Doane was
approved by a vote of a majority of the directors of Doane then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office.
The Note Indenture contains restrictive covenants that, among things,
impose limitations (subject to certain exceptions) on Doane with respect to (i)
limitations on incurrence of indebtedness, (ii) limitations on restricted
payments, (iii) restrictions on distributions from subsidiaries, (iv) sales of
assets and subsidiary capital stock, (v) affiliate transactions and (vi) lines
of business.
Events of Default (as defined in the Note Indenture) include: (i) a default
for 30 days in the payment of interest on the Senior Subordinated Notes when the
same becomes due and payable; (ii) a default in payment of principal on the
Senior Subordinated Notes when the same becomes due and payable at maturity,
upon optional redemption pursuant to the Note Indenture, upon declaration or
otherwise; (iii) failure by Doane to comply with other agreements in the Note
Indenture or the Senior Subordinated Notes, in certain cases subject to notice
and lapse of time; (iv) certain accelerations of other indebtedness of Doane or
its subsidiaries if the amount accelerated (or so unpaid) exceeds $5 million and
such acceleration or failure to pay is not rescinded or cured within a 10-day
period; (v) certain events of bankruptcy or insolvency with respect to Doane or
any significant subsidiary; (vi) certain final, non-appealable judgments or
decrees for the payment of money in excess of $5 million; and (vii) the failure
of any subsidiary guarantee to be in full force and effect or the denial or
disaffirmation by any subsidiary guarantor of its obligations under the Note
Indenture or the Senior Subordinated Notes in certain cases. If an Event of
Default occurs and is continuing, the trustee or the holders of at least 25% in
principal amount of the Senior Subordinated Notes may declare all the Senior
Subordinated Notes to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default that will result in the Senior
Subordinated Notes being due and payable immediately upon the occurrence of such
Events of Default.
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UNDERWRITING
Subject to the terms and subject to the conditions of an Underwriting
Agreement, dated , 1999 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), who are represented by DLJSC,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), 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............................................. 16,250,000
==========
</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 200,000
additional shares of Common Stock from it and up to 2,237,500 additional shares
of Common Stock from certain Selling Stockholders 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
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(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 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.
At the Company's request, the Underwriters have reserved up to five percent
of the shares offered hereby for sale at the initial public offering price to
certain of the Company's employees, officers, directors and other individuals
associated with the Company and members of their families. The number of shares
of Common Stock available for sale to the general public will be reduced to the
extent these individuals purchase such reserved shares. Any reserved shares not
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.
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.
The Common Stock has been approved for inclusion on the Nasdaq National
Market. In order to meet the requirements for listing the Common Stock on the
Nasdaq National Market, the Underwriters have undertaken to sell lots of 100 or
more shares to a minimum of 2,000 beneficial owners.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
laws, rules and regulations of such jurisdiction. Persons into whose possession
this Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such offer or solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise or if DLJSC receives a
report that indicates that the clients of such syndicate members have "flipped"
the Common Stock. These activities may stabilize or maintain the market price of
the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities and may end any of these activities at
any time.
Each of DLJSC and CSI and their affiliates have performed financial
advisory, investment banking and commercial banking services for the Company in
the past and received compensation in connection therewith. Affiliates of CSI
and DLJSC will receive proceeds from this Offering in connection with the
repayment of the Senior Credit Facility. In addition, each of DLJMB, an
affiliate of DLJSC, and CMIHI, an affiliate of CSI, is
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a Selling Stockholder in the Offering and an affiliate of CSI will receive
proceeds of the Offering as consideration for redemption of its shares of Senior
Preferred Stock. Peter Grauer, a Managing Director at DLJMB, and Jeffrey Walker,
Managing General Partner of Chase Capital Partners are members of the Company's
Board of Directors. For a more complete description of these relationships and
services, see "Risk Factors -- Interest of Underwriters," "Certain Transactions"
and "Principal and Selling Stockholders."
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the NASD, each of
DLJSC and CSI 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 and CSI 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
and CSI, 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, Merrill Lynch (the "QIU") has agreed to act
as the qualified independent underwriter in connection with the Offering, has
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part and has exercised the usual
standards of due diligence with respect thereto. The price to public of the
Common Stock when sold will be no lower than that recommended by the QIU. In
addition, the Company has agreed to indemnify the QIU against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the QIU may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters in connection with the sale of the Common Stock offered
hereby will be passed upon for the Underwriters by Andrews & Kurth L.L.P.,
Houston, Texas.
EXPERTS
The consolidated financial statements of Doane Pet Care Enterprises, Inc.
as of December 31, 1997 and 1998 and for each of the years in the three-year
period ended December 31, 1998 have been included herein and in the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Windy Hill Pet Food Holdings, Inc.
as of December 27, 1997 and December 28, 1996 and for the period from inception
(March 1, 1995) through December 30, 1995 and for the years ended December 28,
1996 and December 27, 1997 have been included herein and in the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
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AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. However, the Company's operating subsidiary, Doane, is
subject to the reporting requirements of the Exchange Act. The Company has filed
with the Commission a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offer and sale of
Common Stock pursuant to this Prospectus. This Prospectus, filed as a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement or the exhibits and schedules thereto in accordance
with the rules and regulations of the Commission and reference is hereby made to
such omitted information. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document filed as an exhibit to the
Registration Statement are summaries of the terms of such contracts, agreements
or documents and are not necessarily complete. Reference is made to each such
exhibit for a more complete description of the matters involved and such
statements shall be deemed qualified in their entirety by such reference. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621-2511. Such materials also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. For further information pertaining to the Common Stock
offered by this Prospectus and the Company, reference is made to the
Registration Statement.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
69
<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1996, 1997
and 1998............................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1997 and 1998....................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998....................... F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31,
1996, 1997 and 1998.................................... F-6
Notes to Consolidated Financial Statements................ F-7
WINDY HILL PET FOOD HOLDINGS, INC.
Independent Auditors' Report.............................. F-25
Consolidated Balance Sheets as of December 28, 1996,
December 27, 1997 and June 27, 1998 (unaudited)........ F-26
Consolidated Statements of Operations for the ten months
ended December 30, 1995, for the years ended December
28, 1996 and December 27, 1997, and for the six months
ended June 28, 1997 and June 27, 1998 (unaudited)...... F-27
Consolidated Statements of Changes in Stockholders' Equity
for the ten months ended December 30, 1995, for the
years ended December 28, 1996 and December 27, 1997,
and for the six months ended June 28, 1997 and June 27,
1998 (unaudited)....................................... F-28
Consolidated Statements of Cash Flows for the ten months
ended December 30, 1995, for the years ended December
28, 1996 and December 27, 1997, and for the six months
ended June 28, 1997 and June 27, 1998 (unaudited)...... F-29
Notes to Consolidated Financial Statements................ F-30
</TABLE>
F-1
<PAGE> 72
When the transaction referred to in Note 2 of the Notes to Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ KPMG LLP
INDEPENDENT AUDITORS' REPORT
Board of Directors
Doane Pet Care Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Doane Pet
Care Enterprises, Inc. and subsidiaries as of December 31, 1997 and 1998 and the
related consolidated statements of income, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Doane Pet Care Enterprises,
Inc. and subsidiaries at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Houston, Texas
February 25, 1999, except as to
Note 2, which is as of March , 1999.
F-2
<PAGE> 73
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 3,350
Trade accounts receivable, net of allowances.............. 66,369 96,510
Inventories, net.......................................... 32,426 51,499
Deferred tax asset........................................ 1,252 4,473
Prepaid expenses and other current assets................. 2,298 17,131
-------- --------
Total current assets.............................. 102,345 172,963
Property, plant, and equipment, net......................... 99,994 206,353
Goodwill and other intangible assets, net................... 122,882 299,631
Other assets................................................ 12,963 31,501
-------- --------
Total assets...................................... $338,184 $710,448
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 11,667 $ 12,889
Accounts payable.......................................... 42,422 79,013
Accrued liabilities....................................... 22,611 51,137
-------- --------
Total current liabilities......................... 76,700 143,039
Long-term debt, excluding current installments.............. 188,743 446,281
Other long-term liabilities................................. 4,081 7,901
Deferred tax liability...................................... 4,169 4,761
-------- --------
Total liabilities................................. 273,693 601,982
Senior Preferred Stock, 3,000 shares authorized, 1,200
shares issued............................................. 30,545 37,792
Stockholders' equity:
Class A Common Stock, par value $.0001, 65,000 shares
authorized, 9,168 and 16,078 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 1 2
Class B Common Stock, par value $.0001, 5,000 shares
authorized, 2,332 shares issued and outstanding at
December 31, 1997 and 1998............................. -- --
Additional paid-in capital................................ 41,674 107,371
Accumulated other comprehensive income.................... -- 489
Accumulated deficit....................................... (7,729) (37,188)
-------- --------
Total stockholders' equity........................ 33,946 70,674
-------- --------
Total liabilities and stockholders' equity........ $338,184 $710,448
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 74
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $513,217 $564,741 $686,663
Cost of goods sold......................................... 446,776 482,896 554,447
-------- -------- --------
Gross profit............................................... 66,441 81,845 132,216
Operating expenses:
Promotion and distribution............................... 26,480 31,876 45,039
Selling, general and administrative...................... 11,512 14,384 26,346
Amortization of intangibles.............................. 3,538 3,601 6,468
Transition expenses...................................... -- -- 7,043
Product recall........................................... -- -- 3,000
-------- -------- --------
Income from operations........................... 24,911 31,984 44,320
Interest expense, net...................................... 22,471 22,463 31,503
Non-recurring finance charge............................... 4,815 -- 4,599
Other (income) expense, net................................ (2) (102) 164
-------- -------- --------
Income (loss) before income taxes and
extraordinary loss............................. (2,373) 9,623 8,054
Income tax expense (benefit)............................... (855) 3,389 3,478
-------- -------- --------
Income (loss) before extraordinary loss.......... (1,518) 6,234 4,576
Extraordinary loss, net of income tax benefit.............. -- -- 26,788
-------- -------- --------
Net income (loss)................................ $ (1,518) $ 6,234 $(22,212)
======== ======== ========
Net income (loss) applicable to common stock............... $ (7,264) $ (151) $(29,459)
Basic and diluted net income (loss) per common share....... $ (0.66) $ (0.01) $ (2.04)
Basic and diluted weighted average number of shares
outstanding.............................................. 11,006 11,350 14,429
</TABLE>
F-4
<PAGE> 75
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDING DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (1,518) $ 6,234 $ (22,212)
Items not requiring (providing) cash:
Depreciation and amortization of intangibles............ 10,135 10,971 17,877
Extraordinary items..................................... -- -- 26,788
Non-recurring finance fees.............................. 4,815 -- --
Noncash interest expense................................ 1,022 1,170 1,931
Stock compensation expense.............................. -- -- 765
Loss on sale of property and equipment.................. 26 115 --
Deferred income tax expense (benefit)................... (855) 3,389 3,228
Equity in foreign joint venture......................... -- (186) (273)
Other................................................... 282 51 1,012
Changes in working capital components (excluding amounts
acquired):
Accounts receivable................................... (21,176) 1,910 (5,287)
Inventories........................................... (3,141) (1,689) 72
Prepaid expenses and other............................ (5,479) 3,818 (2,665)
Accounts payable...................................... 32,155 (8,881) 10,457
Accrued expenses...................................... 2,317 4,070 2,300
--------- -------- ---------
Net cash provided by operating activities.......... 18,583 20,972 33,993
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment.............. 26 39 72
Capital expenditures, including interest
capitalized............................................. (7,901) (14,437) (23,327)
Acquisition related payments.............................. (1,087) -- (31,907)
Investment in joint venture............................... (1,979) -- 371
Purchase of Industrial Development Bonds.................. -- -- (9,000)
Other..................................................... (548) (763) (1,509)
--------- -------- ---------
Net cash used in investing activities.............. (11,489) (15,161) (65,300)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 163,136 5,698 335,923
Payment for debt issuance costs........................... (5,909) (468) (11,356)
Payment for Refinancing Transactions...................... -- -- (28,353)
Net borrowings (repayments) under revolving credit
agreement............................................... 1,475 (1,475) 32,000
Principal payments on long-term debt...................... (167,746) (10,416) (295,141)
Proceeds from issuance of Common Stock.................... 400 850 1,359
--------- -------- ---------
Net cash provided by (used in) financing
activities....................................... (8,644) (5,811) 34,432
--------- -------- ---------
Effect of exchange rates on cash................... -- -- 225
--------- -------- ---------
Increase (decrease) in cash and cash equivalents... (1,550) -- 3,350
Cash and cash equivalents, beginning of period.............. 1,550 -- --
--------- -------- ---------
Cash and cash equivalents, end of period.................... $ -- $ -- $ 3,350
========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 76
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------------------- OTHER
SHARES -- SHARES -- TOTAL PAID-IN RETAINED COMPREHENSIVE
CLASS A CLASS B SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
--------- --------- -------- ------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995.......... 8,668 2,332 11,000 $ 1 $ 40,424 $ (314) $ -- $ 40,111
Net loss........................... -- -- -- -- -- (1,518) -- (1,518)
Preferred stock dividends.......... -- -- -- -- -- (4,670) -- (4,670)
Accretion of preferred stock....... -- -- -- -- -- (1,076) -- (1,076)
Stock rights exercised............. 200 -- 200 -- 400 -- -- 400
------ ----- ------ --- -------- -------- ---- --------
Balances, December 31, 1996.......... 8,868 2,332 11,200 1 40,824 (7,578) -- 33,247
Net income......................... -- -- -- -- -- 6,234 -- 6,234
Preferred stock dividends.......... -- -- -- -- -- (5,308) -- (5,308)
Accretion of preferred stock....... -- -- -- -- -- (1,077) -- (1,077)
Stock rights exercised............. 300 -- 300 -- 850 -- -- 850
------ ----- ------ --- -------- -------- ---- --------
Balances, December 31, 1997.......... 9,168 2,332 11,500 1 41,674 (7,729) -- 33,946
Compensation income (loss):
Net loss......................... -- -- -- -- -- (22,212) -- (22,212)
Comprehensive income, unrealized
gain on foreign currency
translation.................... -- -- -- -- -- -- 489 489
--------
Total comprehensive loss.... (21,723)
Preferred stock dividends.......... -- -- -- -- -- (6,170) -- (6,170)
Accretion of preferred stock....... -- -- -- -- -- (1,077) -- (1,077)
Stock compensation expense......... -- -- -- -- 765 -- -- 765
Stock options exercised............ 544 -- 544 -- 1,359 -- -- 1,359
Issuance of common stock in
connection with the acquisition
of Windy Hill.................... 6,366 -- 6,366 1 63,573 -- -- 63,574
------ ----- ------ --- -------- -------- ---- --------
Balances, December 31, 1998.......... 16,078 2,332 18,410 $ 2 $107,371 $(37,188) $489 $ 70,674
====== ===== ====== === ======== ======== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 77
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Doane Pet Care Enterprises, Inc. ("Company") manufactures dry and canned
pet foods and operates a machine shop and a structural steel fabrication plant.
The Company extends unsecured credit in the form of current accounts receivable,
principally to large distributors and retailers throughout the United States,
with credit extended to one customer approximating 70%, 65% and 50% of accounts
receivable at December 31, 1996, 1997, and 1998, respectively.
Principles of Consolidation
On October 5, 1995, the Company acquired Doane Pet Care Company, ("Doane"),
formerly Doane Products Company. The accompanying consolidated financial
statements for December 31, 1996, 1997, and 1998, include the accounts of the
Company and its wholly-owned subsidiaries. All inter-company transactions and
balances have been eliminated. The Company is accounting for its 50% investment
in a foreign joint venture under the equity method of accounting.
Basis of Presentation
Certain reclassifications have been made to previously reported
consolidated financial statements to conform with the fiscal 1998 presentation.
52-Week Fiscal Year
For the years ended December 31, 1996, 1997 and 1998, the Company's fiscal
year end was a calendar year end. Effective January 1, 1999, the Company has
implemented a fiscal year that ends on the Saturday nearest to the end of
December.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents consist primarily
of repurchase agreements and certificates of deposit.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first out cost method.
Property and Equipment
Property and equipment are depreciated over the estimated useful life of
each asset ranging from three to forty years. Annual depreciation is computed
using the straight-line method.
In fiscal 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long Lived Assets to be Disposed Of (SFAS 121).
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. When such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. The adoption of SFAS 121 did not have a material impact on the Company's
consolidated financial statements.
F-7
<PAGE> 78
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets include goodwill, trademarks and
certain identifiable intangible assets. Goodwill represents the excess of the
purchase price over the fair value of the net assets acquired. Trademarks and
goodwill are being amortized over thirty and forty years using the straight-line
method, respectively. Other intangible assets, primarily software, are being
amortized using the straight-line method over periods ranging from four to five
years. The Company's policy is to periodically evaluate such costs to determine
whether there has been any impairment in value. The measurement of possible
impairment is based primarily on the ability to recover the balance of the
goodwill from expected future operating cash flows on an undiscounted basis.
Accumulated amortization of goodwill and other intangible assets was $7,300 and
$13,742 at December 31, 1997 and 1998, respectively.
Financial Instruments
Fair value of cash, accounts receivable, accounts payable and accrued
liabilities approximate book value at December 31, 1997 and 1998. Fair value of
debt is based upon market value, if traded, or discounted at the estimated rate
the Company would incur currently on similar debt.
Recognition of Revenue
Revenue is recognized at the time the product is shipped.
Commodity Hedges
The Company manages price risk created by market fluctuations by hedging
portions of its primary commodity products purchases, principally through
exchange traded futures and options contracts which are designated as hedges.
The terms of such contracts are generally less than one year. Settlement of
positions are either through financial settlement with the exchanges or via
exchange for the physical commodity in which case the Company delivers the
contract against the acquisition of the physical commodity.
The Company's policy does not permit speculative commodity trading. Futures
and options contracts are accounted for as hedges, and gains and losses are
recognized in the period realized as part of the cost of products sold and in
the cash flows. The deferred net futures and options position is reported on the
balance sheet as a current asset for net loss positions and as a deferred credit
for net gain positions. In addition to futures and options, the Company also
contracts for future physical procurement, in which case unrealized gains and
losses are deferred to the applicable accounting period. Typically, maturities
vary and do not exceed twelve months.
Deferred losses on these outstanding contracts were $5,398, $917 and $3,022
at December 31, 1996, 1997, and 1998, respectively.
F-8
<PAGE> 79
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Hedges
The Company periodically uses interest rate hedges (swaps) to limit its
exposure to the interest rate risk associated with its floating rate long term
foreign debt. Amounts received under swap agreements are recorded as a reduction
(addition) to interest expense.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Income (Loss) Per Common Share
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which simplifies the
computation of earnings per share ("EPS"). All prior period earnings per share
amounts have been restated to conform to SFAS 128 requirements. Under SFAS 128,
the Company computes two earnings per share amounts -- basic EPS and EPS
assuming dilution. Basic EPS is calculated based upon the weighted average
number of common shares of common stock outstanding during the period after
decreasing (increasing) net income (loss) by unpaid cumulative preferred stock
dividends and the accretion of the preferred stock. EPS assuming dilution
adjusts the weighted average number of shares of common stock outstanding for
the period for the common stock equivalents thereby reflecting the dilutive
effect of stock options and warrants granted. In all periods presented the
effect of common stock equivalents was antidilutive resulting in the same EPS
amount for basic and diluted net income (loss) per common share. The following
table summarizes the calculation of net income (loss) and, basic and dilutive
weighted average number of shares outstanding for purposes of computing net
income (loss) per common share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary loss..................... $(1,518) $ 6,234 $ 4,576
Less:
Extraordinary loss........................................ -- -- (26,788)
Preferred stock dividends and accretion of preferred
stock.................................................. (5,746) (6,385) (7,247)
------- ------- --------
Net loss applicable to common stock......................... $(7,264) $ (151) $(29,459)
======= ======= ========
Denominator:
Basic and diluted weighted average number of shares
outstanding............................................... 11,006 11,350 14,429
======= ======= ========
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary loss................... $ (0.14) $ 0.55 $ 0.32
Extraordinary loss........................................ -- -- (1.86)
Preferred stock dividends and accretion of preferred
stock.................................................. (0.52) (0.56) (0.50)
------- ------- --------
Net loss applicable to common stock....................... $ (0.66) $ (0.01) $ (2.04)
======= ======= ========
</TABLE>
Stock Compensation
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," (SFAS 123). The Company has
elected to continue to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations. As such, compensation expense is recorded on the date of grant
only if the current
F-9
<PAGE> 80
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market price of the underlying stock exceeds the exercise price at the date of
grant. The pro forma disclosure provisions of SFAS 123 are provided in note 12.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness, as
well as the ineffective portion of the gain or loss, is reported in earnings
immediately. Accounting for foreign currency hedges is similar to the accounting
for fair value an cash flow hedges. If the derivative instrument is not
designated as a hedge, the gain or loss is recognized in earnings in the period
of change.
The Company will adopt SFAS 133 beginning in fiscal 2000. The Company has
not determined the impact that SFAS 133 will have on its financial statements
and believes that such determination will not be meaningful until closer to the
date of initial adoption.
(2) STOCK DIVIDEND
The Company declared and paid a 4 for 1 stock dividend on March , 1999
pursuant to which each holder of a share of Common Stock will receive a dividend
equal to three shares of Common Stock. 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) ACQUISITIONS
Ipes Iberica, S.A. Acquisition
On April 17, 1998 Doane purchased 100% of the outstanding stock of Ipes
Iberica, S.A. ("Ipes") for $26.2 million, net of cash acquired. IPES is a
private label pet food manufacturer located in Spain with 1997 net sales of
$21.1 million. The transaction was financed through a $20.9 million non recourse
facility provided by the HSBC Investment Bank, Plc. in Spain, and $7.4 million
from the Company's Senior Credit Facility. This transaction has been accounted
for as a purchase with the purchase price and direct acquisition costs allocated
based on the fair value of assets acquired and liabilities assumed. Goodwill of
approximately $15.1 million was recorded in connection with this transaction.
The goodwill is being amortized over 40 years on a straight line basis.
Windy Hill Pet Food Holdings Inc. ("Holdings") Acquisition
On August 3, 1998, the Company acquired Holdings for approximately 6.4
million shares of its common stock valued at $63,574 and the assumption of
$183.5 million of indebtedness. Holdings was liquidated into the Company at the
date of acquisition. Windy Hill Pet Food Company, Inc. ("Windy Hill"), a
wholly-owned
F-10
<PAGE> 81
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsidiary of Holdings, was merged into Doane in November 1998 in connection
with the Refinancing Transactions as discussed in Note 4. Windy Hill is a
leading manufacturer of pet food products. Windy Hill manufactures products for
both dogs and cats, including dry, canned, semi-moist, soft dry and soft treats
and dog biscuits. With Windy Hill, the Company is the largest manufacturer of
dog biscuits in the United States. This acquisition has been accounted for as a
purchase with the purchase price and direct acquisition costs allocated based on
the fair value of assets acquired and liabilities assumed. Goodwill of
approximately $59.4 million was recorded in connection with this transaction.
The goodwill is being amortized over 40 years on a straight-line basis.
The unaudited pro forma information below has been prepared assuming Windy
Hill and Ipes were acquired January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales................................................... $885,681 $865,346
Income before income taxes
and extraordinary loss.................................... 10,841 940
Income before extraordinary loss............................ $ 5,963 $ (2,289)
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisition occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead, and general and administrative expenses.
(4) EXCHANGE OFFER AND REFINANCING TRANSACTIONS
In November 1998, the Company refinanced its capital structure pursuant to
the following series of transactions collectively referred to herein as the
"Refinancing Transactions."
-- Windy Hill was merged into Doane, the Company's principal operating
subsidiary;
-- Doane completed a cash tender offer for approximately $97 million
principal amount of its 10 5/8% Senior Notes due 2006;
-- Windy Hill completed a cash tender offer for $46 million principal
amount of its 9 3/4% Senior Subordinated Notes due 2007, which tender
offer was required by a change of control provision in the indenture
governing such notes;
-- Doane completed an exchange offer (the "Exchange Offer") of $150 million
principal amount of its 9 3/4% Senior Subordinated Notes due 2007 for
the remaining approximately $63 million principal amount of Senior Notes
and the remaining approximately $74 million principal amount of Windy
Hill Notes; and
-- Doane entered into a new senior credit facility with a syndicate of
financial institutions providing for total commitments of $345 million.
Doane borrowed $292 million under the Senior Credit Facility to fund the
cash requirements of the Refinancing Transactions, repay borrowings
under and retire its previous credit facilities, repay other debt and
repay a bridge financing incurred in connection with the tender offer
for the Windy Hill Notes.
F-11
<PAGE> 82
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the Exchange Offer and Refinancing Transactions, an
extraordinary loss of $26,786, net of tax, was recorded due to the early
extinguishment of debt. The extraordinary loss consists of the write-off of
deferred financing costs associated with the extinguished debt and associated
fees and expenses.
(5) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Raw materials............................................... $ 8,449 $13,349
Packaging materials......................................... 10,735 22,003
Finished goods.............................................. 13,242 16,147
------- -------
$32,426 $51,499
======= =======
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- --------
<S> <C> <C>
Land........................................................ $ 4,037 $ 7,627
Buildings and improvements.................................. 29,439 56,394
Machinery and equipment..................................... 76,442 149,131
Furniture and fixtures...................................... 2,536 4,421
Automotive equipment........................................ 1,016 1,257
Construction in progress.................................... 1,972 18,320
------- --------
115,442 237,150
Less accumulated depreciation............................... 15,448 30,797
------- --------
$99,994 $206,353
======= ========
</TABLE>
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Goodwill.................................................... $130,182 $245,817
Trademarks.................................................. -- 66,807
Other intangibles........................................... -- 749
-------- --------
130,182 313,373
Less accumulated amortization.......................... 7,300 13,742
-------- --------
$122,882 $299,631
======== ========
</TABLE>
F-12
<PAGE> 83
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Salaries and commissions.................................... $ 4,714 $ 9,883
Accrued interest............................................ 6,223 5,541
Rebates and other promotions................................ 9,064 17,747
Acquisition related accruals................................ -- 6,993
Worker's comp............................................... 1,296 1,840
Health insurance............................................ 410 1,454
Real estate/franchise taxes................................. 792 944
Other....................................................... 112 6,735
------- -------
$22,611 $51,137
======= =======
</TABLE>
(9) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Bank revolving credit facility.............................. $ 775 $ 32,000
Bank term loans............................................. 33,937 245,000
Senior subordinated notes................................... 160,000 146,996
Industrial development revenue bonds........................ 5,698 9,783
Foreign subsidiaries........................................ -- 25,391
-------- --------
200,410 459,170
Less current maturities..................................... (11,667) (12,889)
-------- --------
$188,743 $446,281
======== ========
</TABLE>
Bank loans
In November 1998, the Company entered into the Senior Credit Facility with
a syndicate of banks and other institutional investors, as lenders, and Chase,
as administrative agent, DLJ Capital Funding, Inc. ("DLJ Capital"), as
syndication agent, and Mercantile Bank National Association, as documentation
agent. DLJ Capital and CSI served as the co-arrangers of the Senior Credit
Facility. The Senior Credit Facility consists of a $245.0 million term loan
facility (the "Term Loan Facility") and a $100.0 million revolving
credit/swingline facility (the "Revolving Credit Facility") with a $10 million
sub limit for issuance of letters of Credit ($2.4 million outstanding at
December 31, 1998). Loans under the Senior Credit Facility will bear interest
at: (i) the prime rate of the administrative agent (or, if higher, the secondary
market rate for certificates of deposit plus 1% or the federal funds rate plus
0.5%) plus a specified margin based on the type of loan and the then current
ratio of senior debt to EBITDA (the "Applicable Margin") or (ii) the Eurodollar
rate plus the Applicable Margin. The Company will also pay certain fees with
respect to the Senior Credit Facility. The Term Loan Facility bore interest at
9.14% and the Revolving Credit Facility bore interest at 8.39% during the period
in 1998 when the borrowings were outstanding. The Term Loan Facility consists of
three traunches with terms between six and one-half years and eight years,
unless terminated sooner upon an event of default. The principal amount under
the Term Loan Facility shall be repaid in quarterly installments starting March
31, 1999, as follows: (i) approximately $11.7 million in each of the calendar
years 1999 and 2000, (ii) approximately $14.2 million in each of the calendar
years 2001, 2002, 2003 and 2004, (iii) $85.8 million in the calendar year 2005
and (iv) $79.0 million in 2006. The Revolving Credit Facility has a term of six
and
F-13
<PAGE> 84
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
one-half years. At December 31, 1998, the Company had approximately $65,600
available under the Revolving Credit Facility.
The Company and certain restricted subsidiaries are required to guarantee
amounts outstanding under the Senior Credit Facility. The indebtedness incurred
pursuant to the Senior Credit Facility is secured by a first priority lien on
substantially all of the material assets of the Company and its restricted
domestic subsidiaries. The Senior Credit Facility contains certain financial and
other covenants usual and customary for a secured credit agreement. The Company
was in compliance with these covenants at December 31, 1998.
In connection with the Refinancing Transactions (see Note 3), the Company
repaid borrowings under and retired its previous bank credit facility ("Prior
Bank Facility"). The Prior Bank Facility, as amended, provided for an aggregate
principal amount of loans of up to $85,000 consisting of $60,000 in aggregate
principal amount of term loans and a $25,000 revolving credit facility.
The Prior Bank Facility was to mature on September 30, 2001 and was due in
quarterly installments in increasing amounts, ranging from $2,100 to $3,700.
Indebtedness under the Prior Bank Facility bore interest at a rate based,
at the Company's option, upon (i) the Base Rate plus 1.50% with respect to Base
Rate Loans and (ii) the LIBOR Rate for one, two, three or six months plus 2.75%
with respect to LIBOR Rate Loans. The revolving credit facility bore interest at
9.5%, 9.3% and 9.26% for the years ended December 31, 1996, 1997 and 1998,
respectively. The term loans bore interest at a weighted average rate of 7.95%,
8.44% and 8.11% for the years ended December 31, 1996, 1997 and 1998,
respectively.
The Prior Bank Facility was secured by substantially all of the assets of
the Company and a pledge of all of the Company's common stock.
Senior Subordinated Notes, Net of Discount
On November 12, 1998, Doane issued $150 million in aggregate principal
amount of its 9 3/4% Senior Subordinated Notes due May 15, 2007 with interest
payable semiannually. The Senior Subordinated Notes are general unsecured
obligations and are subordinated in right of payment to all senior indebtedness
and senior in right of payment to any current or future indebtedness of Doane
that, by its terms, is subordinated to the Senior Subordinated Notes. The
payment of obligations of each subsidiary guarantor are subordinated to the
payment of senior indebtedness of such subsidiary guarantor.
Doane may redeem the Senior Subordinated Notes at any time on or after May
15, 2002, in whole or in part, at the option of Doane, at the redemption prices
set forth below, plus accrued and unpaid interest, if any, to the redemption
date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C> <C>
2002...................................................... 104.875%
2003...................................................... 103.250%
2004...................................................... 101.625%
2005 and thereafter....................................... 100.000%
</TABLE>
In addition, prior to May 15, 2000 Doane may redeem up to 35% of the
aggregate principal amount of the Senior Subordinated Notes with the proceeds of
one more Equity Offerings (as defined in the Note Indenture), at a redemption
price equal to 109.75% of the principal amount thereof, plus accrued and unpaid
interest, if any, provided, however, that at least 65% in aggregate principal
amount of the Senior Subordinated Notes remain outstanding immediately after
each such redemption. At any time prior to May 15, 2002, the Senior Subordinated
Notes may also be redeemed in whole, but not in part, at the option of Doane
upon the occurrence of a Change in Control (as defined in the Note Indenture) at
a redemption price equal to 100% of
F-14
<PAGE> 85
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the principal amount thereof plus the Applicable Premium (as defined in the Note
Indenture) and the unpaid accrued interest, if any, to the date of redemption.
Upon a Change in Control, holders of the Senior Subordinated Notes may require
Doane to purchase all or a portion of the Senior Subordinated Notes at a
purchase price equal to 101% of their principal amount plus accrued interest, if
any. The Senior Subordinated Notes have certain covenants that have restrictions
on dividends, distributions, indebtedness, affiliate transactions and lines of
business. In connection with the Refinancing Transactions, Doane retired its
Senior Notes that were originally due on March 1, 2006 and bore interest at
10.625% per annum, payable semiannually. The Senior Notes were issued in 1996 in
connection with a debt refinancing, which resulted in a $4,815 nonrecurring
finance charge to write off interim debt issuance costs.
Industrial Development Revenue Bonds
On March 12, 1997 the Company issued the 7.25% $6,000 Ottawa County Finance
Authority Industrial Development Revenue Bonds (the "Miami Bonds"). The Miami
Bonds are subject to mandatory redemption prior to maturity, in part, at a
redemption price of 100% of the principal amount thereof, plus accrued interest
to the redemption date, in varying principal amounts on June 1 of each year from
2007 through 2017. The Miami Bonds are general secured obligations of the
Company and ranking on a parity in right of payment with all other senior
indebtedness of the Company.
On July 24, 1998, the Company issued the 6.25% $9,000 Oklahoma Development
Finance Authority, Industrial Development Revenue Bonds, Series 1998 (Doane
Products Company Clinton, Oklahoma Project) (the "Clinton Bonds") through the
Oklahoma Development Finance Authority. At December 31, 1998 $4,087 had been
drawn down by the Company. The Clinton Bonds are subject to mandatory redemption
prior to maturity, in part, at a redemption price of 100% of the principal
amount thereof, plus accrued interest to the redemption date, in varying
principal amounts on July 15 of each year from 2018 through 2023. The Clinton
Bonds are general obligations of the Company and rank on parity in right of
payment with all other senior indebtedness of the Company. On July 24, 1998, the
Clinton Bonds were purchased by the Company's wholly owned subsidiary,
Doane/Windy Hill Joint Venture Corp., formerly DPC Funding Corp. It is
anticipated that such entity will attempt to sell the Clinton Bonds.
Annual Maturities of Long-Term Debt
Aggregate annual maturities of long-term debt at December 31, 1998 were:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999........................................................ $12,889
2000........................................................ 14,186
2001........................................................ 17,054
2002........................................................ 17,072
Thereafter.................................................. 397,969
</TABLE>
FOREIGN SUBSIDIARIES DEBT
Debt of foreign subsidiaries consists of peseta denominated borrowings from
HSBC Investment Bank Plc, for which the Midland Bank Plc, Branch in Spain is the
Facility agent. The borrowings are comprised of Tranche A, $17.6 million
(2,500,000 pesetas) amortizing over seven years, and Tranche B, $1.0 million
(142,000 pesetas) payable in full at the end of its eight year term. The
interest rates were 5.5625% and 6.5625% on Tranche A and B respectively and will
adjust with changes in MIBOR (Madrid Inter-Bank Offer Rate). The borrowings
under the Tranche B loan may be increased up to $4.2 million (600,000 pesatas)
under certain circumstances.
F-15
<PAGE> 86
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Doane Pet Care Spain also entered into an interest rate swap starting
October 1998 for the notional amount of approximately $18,600, decreasing over
the three-year term of the hedge. The resulting fixed rate MIBOR is 4.495%.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value at December 31 of financial instruments, other
than current assets and liabilities, follows:
<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Revolving credit facility.............. $775 $775 $32,000 $32,000
Bank term loan......................... 33,937 33,937 245,000 245,000
Senior subordinated notes.............. 160,000 160,000 146,996 152,800
Other.................................. 5,698 5,698 35,174 35,174
--------- --------- --------- ---------
$200,410 $200,410 $459,170 $464,974
========= ========= ========= =========
Hedges:
Interest rate (asset).................. $-- $-- $-- $400
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(11) SENIOR PREFERRED STOCK
The Senior Preferred Stock has an initial liquidation preference of $25.00
per share (aggregate initial liquidation preference is $30,000). The Senior
Preferred Stock was recorded at the net proceeds of $17,075 after deducting
$12,925 paid to the Company for 5,417,942 warrants that were issued in
conjunction with the Senior Preferred Stock. The excess of the liquidation
preference over the carrying value is being accreted quarterly over a twelve
year period ended September 30, 2007 by a direct reduction to retained earnings.
Dividends on the Senior Preferred Stock are payable quarterly at the rate
of 14.25% per annum per share. Dividends on the Senior Preferred Stock accrete
to the liquidation value of the Senior Preferred Stock and, at the option of the
holders of a majority of the shares of Senior Preferred Stock, may be paid
through the issuance of additional shares of Senior Preferred Stock on each
dividend payment date through September 30, 2000. The Company does not expect to
pay dividends on the Senior Preferred Stock in cash for any period prior to
September 30, 2000. Cumulative dividends on Senior Preferred Stock that have not
been paid at December 31, 1997 and 1998, are $11,047 and $17,217, respectively,
and are included in the carrying amount of the Senior Preferred Stock. As of
December 31, 1997, and 1998, the cumulative accretion to redemption value and
cumulative dividends on the Senior Preferred Stock are $2,422 and $3,499,
respectively and $11,047 and $17,217, respectively.
Subsequent to September 30, 1998, and prior to September 30, 2000, the
Company is not precluded from purchasing in whole or in part the Senior
Preferred Stock on the open market at prevailing market prices. On
F-16
<PAGE> 87
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and after September 30, 2000, the Company may, at its option, redeem the Senior
Preferred Stock in whole or in part at redemption prices per share set forth
below, together with accrued and unpaid dividends:
<TABLE>
<CAPTION>
YEAR PERCENT OF
BEGINNING LIQUIDATION
SEPTEMBER 30, VALUE
- ------------- -----------
<S> <C> <C>
2000............................................................... 107.125%
2001............................................................... 105.700
2002............................................................... 104.275
2003............................................................... 102.850
2004............................................................... 101.425
2005............................................................... 100.000
2006............................................................... 100.000
</TABLE>
The Company will be required to redeem all outstanding shares of Senior
Preferred Stock on September 30, 2007 at 100% of the then liquidation value,
together with accrued and unpaid dividends.
In the event of a change of control, as defined, the holders of Senior
Preferred Stock have the right to require the Company to redeem such Senior
Preferred Stock, in whole or in part, at a price equal to 101% of the then
liquidation value together with any unpaid dividends.
The terms of the Senior Preferred Stock prohibit (i) the payment of
dividends on securities ranking on a parity with or junior to the Senior
Preferred Stock and (ii) redemption, repurchase or acquisition of any Junior
Securities with certain exceptions, in each case, unless full cumulative
dividends have been paid on the Senior Preferred Stock.
Holders of the Senior Preferred Stock have limited voting rights customary
for preferred stock, and the right to elect two additional directors upon
certain events such as the Company failing to declare and pay dividends on any
six consecutive dividend payment dates.
(12) COMMON STOCK
The Company's Common Stock consists of two classes, Class A and Class B.
The Class A and Class B Common Stock are identical in all respects except that
the Class B Common Stock has no voting rights. The Class B Common Stock is
convertible into shares of Class A Common Stock at any time at the option of the
holder thereof. Each holder of Class A Common Stock is entitled to one vote for
each share of Class A Common Stock held of record on all matters submitted to a
vote of stockholders. The holders of Class A Common Stock do not have cumulative
voting rights in the election of directors. The holders of Common Stock have no
preemptive, subscription, redemptive or conversion rights, except that holders
of Class B Common Stock may, at their option, convert their shares into Class A
Common Stock.
(13) STOCK OPTION AND STOCK PURCHASE PLANS
Effective 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 3,000,000. The
options vest over a period of three to eight years. The plan provides for
accelerated vesting based on performance levels as defined in the plan. Set
forth below is certain information regarding such issuances, exercises and
cancellations of options in each of the indicated fiscal years.
F-17
<PAGE> 88
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE EXERCISE PRICE
---------- ----------------------
<S> <C> <C>
Balance at December 31, 1995................................ -- --
Fiscal 1996:
Granted................................................... 1,499,000 $2.55
Exercised................................................. -- --
Cancelled................................................. -- --
----------
Balance at December 31, 1996................................ 1,499,000 2.55
Fiscal 1997:
Granted................................................... 704,000 3.71
Exercised................................................. -- --
Cancelled................................................. (129,000) 2.50
----------
Balance at December 31, 1997................................ 2,074,000 2.94
----------
Fiscal 1998:
Granted................................................... 365,800 4.32
Exercised................................................. (543,672) 2.50
Cancelled................................................. (285,580) 2.61
----------
Balance at December 31, 1998................................ 1,610,548 $3.47
==========
</TABLE>
The 1,610,548 options outstanding as of December 31, 1997 had exercise
prices ranging between $2.50 and $5.00, a weighted average exercise price of
$3.47, and a weighted average remaining contract life of 8.22 years. At December
31, 1997, options to purchase 563,912 shares were exercisable with exercise
prices ranging between $2.50 and $5.00, and a weighted average exercise price of
$3.12.
The Company has elected to continue to follow APB Opinion No. 25 to account
for stock awards granted to employees; however, if the Company adopted SFAS 123
to account for stock awards granted to employees, the Company's net income and
earnings per share for the years ended December 31, 1996, 1997 and 1998 would
have been reduced as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ---------------------- ----------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA AS REPORTED PROFORMA
----------- -------- ----------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net loss................ $(7,264) $(7,359) $ (151) $ (481) $(29,459) $(30,303)
Basic and diluted
earnings per common
share................. (0.66) (0.67) (0.01) (0.04) (2.04) (2.10)
</TABLE>
Pro forma information regarding net income and earnings per common share
has been determined as if the Company had accounted for its employee stock
options under the minimum value method of SFAS 123 under the assumptions of a
risk free rate of 5.75% and an expected life of options of 6 years. The Company
has no present plans to pay dividends on its Common Stock. The effects of
applying SFAS 123 as calculated above may not be representative of the effects
on reported net income for future years.
For the year ended December 31, 1998, the Company recorded compensation
expense of $765 as an addition to additional paid-in-capital in connection with
stock option grants under the 1996 Stock Option Plan.
Effective November 1, 1996, the Company adopted the 1996 Management Stock
Purchase Plan (the "1996 Plan"). The 1996 Plan provides that officers and other
key employees may be granted an aggregate of 200,000 rights to purchase one
share of the Company's common stock at $2.50 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 300,000 rights to officers
and key employees to purchase one share of the Company's common stock at $2.50
per share. In fiscal 1996, and 1997, 200,000 and 300,000 shares, respectively,
were purchased under the plans.
F-18
<PAGE> 89
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. Future annual
minimum lease payments under these leases are summarized as follows (dollars in
thousands):
<TABLE>
<S> <C>
1999........................................................ $ 2,181
2000........................................................ 2,631
2001........................................................ 2,762
2002........................................................ 2,857
2003........................................................ 2,897
Thereafter.................................................. 5,919
-------
$19,247
=======
</TABLE>
Rent expense was $552 for the year ended December 31, 1998.
(15) TRANSITION EXPENSES
Non-recurring costs for 1998 represent the non-recurring transition
expenses incurred in connection with the acquisition and integration of Windy
Hill with the Company follow:
<TABLE>
<S> <C>
Relocation expense.......................................... $2,571
Merger/Relocation bonuses................................... 2,016
Severance................................................... 943
Professional fees........................................... 819
Travel...................................................... 348
Miscellaneous............................................... 346
------
$7,043
======
</TABLE>
The relocation expense represents liabilities incurred to relocate
personnel from the former Doane corporate office to merged corporate
headquarters. Merger bonuses were paid to Doane personnel in connection with the
acquisition. Professional fees represent costs for consultants in human
resources, employment, law, accounting and information systems to assist in the
transition. As of December 31, 1998, $2.6 million of these expenses were accrued
and expected to be paid in the next six months.
(16) INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ------ --------
<S> <C> <C> <C>
Total taxes before extraordinary loss:
Current -- foreign........................................ $ -- $ -- $ 250
----- ------ --------
Deferred:
Federal................................................ (855) 3,084 2,666
State and local........................................ 305 524
Foreign................................................ -- 38
----- ------ --------
(855) 3,389 3,228
----- ------ --------
Total before extraordinary loss............................. (855) 3,389 3,478
Tax benefit related to extraordinary loss................... -- -- (16,001)
----- ------ --------
Total income taxes (benefit)...................... $(855) $3,389 $(12,523)
===== ====== ========
</TABLE>
F-19
<PAGE> 90
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income before income tax by domestic and foreign source follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Domestic.................................................... $(2,373) $9,623 $6,548
Foreign..................................................... -- -- 1,506
------- ------ ------
$(2,373) $9,623 $8,054
======= ====== ======
</TABLE>
Income tax expense differs from the amount computed by applying the Federal
statutory rate to pretax income due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)................... $ (807) $3,272 $2,738
State and local taxes....................................... -- -- 341
Goodwill amortization....................................... -- -- 661
Meals and entertainment, other.............................. (48) 117 (262)
------- ------ ------
$ (855) $3,389 $3,478
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
CURRENT DEFERRED
Deferred tax assets:
Accounts receivable....................................... $ 40 $ 544
Inventory................................................. 291 618
Accruals and provisions................................... 921 3,311
-------- --------
Current deferred tax asset........................ $ 1,252 $ 4,473
======== ========
NONCURRENT DEFERRED
Deferred tax assets -- net operating loss carryforwards..... $ 10,093 $ 27,506
Deferred tax liabilities:
Tax over book amortization.................................. (5,751) (12,364)
Difference between book and tax basis of property and
equipment................................................. (8,511) (19,903)
-------- --------
(14,262) (32,267)
Net noncurrent deferred tax liability....................... (4,169) (4,761)
-------- --------
Total net deferred tax asset (liability).......... $ (2,917) $ (288)
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which these temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in working this assessment. Based upon the
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences at December 31, 1998.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $68,767 which are available to
offset future taxable income through 2013.
F-20
<PAGE> 91
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) EMPLOYEE BENEFIT PLANS
The Company has three defined benefit, noncontributory pension plans. The
Doane plan covers substantially all non-bargaining employees (terminated on May
31, 1998). Benefits under the Doane plan are based on the employee's
compensation during the five most highly compensated consecutive years during
the ten years preceding normal retirement date. The Company has two plans
covering hourly and salaried employees of the former Hubbard Milling Company.
The Company's funding policy for these plans is to make the minimum annual
contribution required by applicable regulations. The disclosure for all of the
Company's defined benefit, noncontributory plans are aggregated in the following
footnote.
Net periodic pension cost for the Company's defined benefit pension plans
consisted of the following components for the years ended:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Service cost (benefits) earned................. $1,059 $1,276 $ 520
Interest cost on projected benefit
obligation................................... 781 903 867
Actual return on plan assets................... (906) (1,914) (1,391)
Net amortization and deferral.................. 71 983 204
------ ------ -------
Net periodic pension cost...................... $1,005 $1,248 $ 200
====== ====== =======
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 7.0% 6.75%
Rate of increase in compensation levels..................... 5.5% 5.5% 5.5%
Expected long-term rate of return on plan assets............ 7.5% 7.5% 7.5%
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying balance sheets as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $ (8,936) $(30,817)
======== ========
Accumulated benefits...................................... $ (9,192) $(31,270)
======== ========
Projected benefits........................................ $(14,818) $(31,270)
Plan assets at fair value................................. 14,557 36,641
-------- --------
Projected benefit obligation in excess of plan
assets.......................................... (261) 5,371
Items not yet recognized in earnings:
Unrecognized net loss (gain).............................. (1,144) 674
Unrecognized net asset at December 31, 1986, being
recognized over 14.49 to 17.95 years................... 313 --
-------- --------
Pension asset (liability) recognized in the
balance sheet................................... $ (1,092) $ 6,045
======== ========
</TABLE>
F-21
<PAGE> 92
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles the beginning and ending balances of the
accumulated post retirement pension obligation as of:
<TABLE>
<CAPTION>
<S> <C>
Projected benefit obligation, December 31, 1996............. $13,060
Service cost.............................................. 1,276
Interest cost............................................. 904
Benefits paid............................................. (286)
Actuarial gain............................................ (136)
-------
Projected benefit obligation, December 31, 1997............. 14,818
Increase due to assumption charge......................... 302
Service costs............................................. 520
Interest cost............................................. 866
Benefits paid............................................. (605)
Actuarial gain............................................ 580
Effect of plan termination................................ (741)
Business combination...................................... 15,530
-------
Projected benefit obligation, December 31, 1998............. $31,270
=======
</TABLE>
The following table reconciles the beginning and ending balances of plan
assets as of:
<TABLE>
<CAPTION>
<S> <C>
Plan assets, December 31, 1996.............................. $12,586
Employer contributions.................................... 343
Actual return............................................. 1,914
Benefits paid............................................. (286)
-------
Plan assets, December 31, 1997.............................. 14,557
Employer contributions.................................... 14
Actual return............................................. 1,391
Benefits paid............................................. (606)
Business combination...................................... 21,285
-------
Plan assets, December 31, 1998.............................. $36,641
=======
</TABLE>
On October 1, 1995, the Company adopted SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The Company sponsors two defined
contribution postretirement plans that provide medical coverage for eligible
retirees and their dependents of Doane and the former Hubbard Milling Company
(as defined in the plans). The following sets forth the plans' funded status
reconciled with the amount shown in the Company's consolidated balance sheets
and consolidated statements of income on an accrual basis rather than a
pay-as-you-go (cash) basis as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents.................................. $ 825 $ 824 $3,166
Fully eligible active plan participants.................. 328 343 274
Other active plan participants........................... 287 329 295
Unrecognized net gain.................................... 57 73 22
------ ------ ------
Accrued postretirement benefit cost...................... $1,497 $1,569 $3,757
====== ====== ======
</TABLE>
F-22
<PAGE> 93
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net periodic postretirement benefit cost included the
following components:
Service cost -- benefits attributed to service during
the period.......................................... $ 17 $ 18 $ 16
Interest cost on accumulated postretirement benefit
obligation.......................................... 104 102 157
------ ------ ------
Net periodic postretirement benefit cost....... $ 121 $ 120 $ 173
====== ====== ======
</TABLE>
The following table reconciles the beginning and ending balances of the
accumulated post retirement pension obligation as of:
<TABLE>
<S> <C>
Projected benefit obligation, December 31, 1996............. $1,497
Service costs............................................. 18
Interest costs............................................ 102
Benefits paid............................................. (48)
------
Projected benefit obligation, December 31, 1997............. 1,569
Service costs............................................. 16
Interest costs............................................ 157
Benefits paid............................................. (138)
Business combination...................................... 2,153
------
Projected benefit obligation, December 31, 1998............. $3,757
======
</TABLE>
For measurement purposes per capita claims costs for participants over age
65 were assumed to increase at 7.07%, 6.50% and 6.00% annually for 1996, 1997
and 1998 respectively; the rate used to calculate the net periodic
postretirement benefit cost was assumed to decrease gradually to 2001 at the
annual rates of 4.50%, 4.00% and 3.75% for physical years ending December 31,
1996, December 31, 1997 and December 31, 1998 respectively: The rate used to
calculate the accumulated postretirement benefit obligation was assumed to
decrease gradually to 2001 at the notes of 4.00%, 4.00% and 3.75% as of December
31, 1996, December 31, 1997 and December 31, 1998 respectively. The medical cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed medical cost trend rates by 1 percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1998 by $384 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year ended 1998 by $36.
The weighted-average discount rate used in determining the net periodic
postretirement benefit cost was 7.50%, 7.00% and 7.00% for physical years ending
December 31, 1996, December 31, 1997 and December 31, 1998 respectively. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00%, 7.00% and 6.75% as of December 31,
1996, December 31, 1997 and December 31, 1998 respectively.
As of June 1, 1998 the Company adopted the Doane Products Company Savings
and Investment Plan for eligible employees not covered by collective bargaining
arrangements and the Doane Products Company Savings and Investment Plan -- Union
Plan for eligible union employees at the Joplin, Missouri plant. The plans are
intended to be qualified retirement plans under the Internal Revenue Code. Both
plans permit employee contributions between 1% and 15% of pre-tax earnings
subject to annual dollar limits set by the IRS, an annual employer profit
sharing contribution of $400 for each eligible participant and a variety of
investment options. The Doane Products Company Savings and Investment Plan also
includes an employer matching contribution in an amount equal to 50% of
participant contribution, up to 6% of compensation. Vesting for the employer
match is 25% per year for each full year of service. For the year ended December
31, 1998, the Company contributed $666 to the Doane Products Company Savings and
Investment Plan.
F-23
<PAGE> 94
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Windy Hill adopted the Windy Hill Pet Food Company, Inc. Profit Sharing and
Savings Plan on March 1, 1995, as amended. The plan is intended to be a
qualified plan under the Internal Revenue Code. It permits employee
contributions from 1% to 15% of pre-tax earnings subject to annual dollar limits
set by the IRS. Of this amount, the Company will match 50% of the first 6% of
the employee contribution. In addition, the plan provides for employer
contribution to participant accounts of amounts equal to 2 1/2% of the
employee's compensation. For 1998, the Company contributed $542 towards the
Windy Hill Pet Food Company, Inc. Profit Sharing and Savings Plan.
(18) DEFERRED COMPENSATION AGREEMENTS AND SALARY CONTINUATION PLAN
The Company has deferred compensation agreements with two individuals which
provide, upon retirement, annual payments to be paid over ten consecutive years.
The liability is approximately $1,150 and $1,254 at December 31, 1997 and 1998,
respectively.
The Company also has a salary continuation plan in which there were
twenty-two and twenty-nine participants at December 31, 1997 and 1998,
respectively. Participants in the plan, who reach age fifty-five and have ten
years of service with the Company, become vested as to benefits which are
payable in ten equal annual installments after retirement. The Company has
recorded an expected future liability equal to the present value of future
payments under this plan. The liability is approximately $1,362 and $1,539 at
December 31, 1997 and 1998, respectively.
(19) MAJOR CUSTOMER
For the years ended December 31, 1996, 1997 and 1998, the same customer
accounted for approximately 63%, 61% and 46.0%, respectively, of the Successor
Company's total revenue. The Company does not have a long-term contract with
this customer.
(20) RELATED PARTY TRANSACTIONS
The Company has a management advisory agreement with Summit Capital Inc.
(SCI) and Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), both
stockholders of the Company and each has a member who are directors of the
Company, in which the Company pays SCI and DLJ an annual fee of $200,000 and
$100,000, respectively; such agreements terminate upon the consummation of an
initial public offering. In addition, the Company paid SCI, DLJ, Chase Manhattan
Investment Holdings Inc. and Chase Securities, Inc. both affiliates of the Chase
Manhattan Bank (collectively "Chase") Dartford Partnership, L.L.C. and BRS,
stockholders of the Company and each has members who are directors of the
Company, fees of $2.0 million, $1.0 million, $1.5 million, $3.0 million and $1.5
million in connection with the Windy Hill acquisition. In connection with the
Refinancing Transactions, DLJ and Chase received fees of $3.8 million and $3.9
million, respectively.
(21) ADDITIONAL CASH FLOW INFORMATION
The following is additional cash flow information for the years ended
December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Additional cash payment information:
Interest paid (net of amounts capitalized)................. $21,028 $21,924 $ 27,202
Income taxes paid (refunded)............................... 351 -- (299)
Exchange notes............................................. -- -- 150,000
Common stock issued in connection with the acquisition of
Windy Hill............................................... -- -- 63,574
</TABLE>
F-24
<PAGE> 95
DOANE PET CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(22) COMMITMENTS AND CONTINGENCIES
On October 30, 1998 the Company initiated a voluntary product recall for
certain dry dog food manufactured at its Temple, Texas plant. The recall covers
dry dog food manufactured at its Temple plant between July 1 and August 31, 1998
and does not apply to dry dog food manufactured at other plants or the Company's
dry cat food, biscuits, treats or canned products. The recall resulted from
reported sickness and death of dogs in the State of Texas. These conditions were
attributed to elevated levels of aflatoxins in corn which, is an ingredient in
dry dog food. Aflatoxins are compounds produced from certain kinds of crop molds
that can be caused by extreme weather conditions such as drought and heat. The
Company has an extensive corn testing program for the detection of aflatoxins
and that program has been intensified since the problems were reported. The
Company maintains insurance against losses from illness or death of animals;
however, the cost of the product recall is not covered by insurance. The Company
recorded a $3.0 million product recall charge in the fourth quarter of fiscal
1998.
The Company is party, in the ordinary course of business, to other claims
and litigation. In management's opinion, the resolution of such matters is not
expected to have a material impact on the financial condition or results of
operations of the Company.
(23) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $144,307 $140,843 $176,511 $225,002
Gross profit....................................... 24,340 24,768 33,970 49,138
Net income (loss).................................. 3,279 2,783 278 (28,552)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $141,741 $137,215 $132,445 $153,340
Gross profit....................................... 19,016 18,885 20,623 23,321
Net income......................................... 995 481 1,905 2,853
</TABLE>
F-25
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Windy Hill Pet Food Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Windy Hill
Pet Food Holdings, Inc. as of December 28, 1996 and December 27, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the ten-month period ended December 30, 1995, and for the years ended
December 28, 1996 and December 27, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Windy Hill
Pet Food Holdings, Inc. as of December 28, 1996 and December 27, 1997, and the
results of their operations and their cash flows for the years then ended and
for the ten-month period ended December 30, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
March 13, 1998
F-26
<PAGE> 97
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 570 $ 731 $ 1,063
Accounts receivable (net of $48, $372 and $386 allowance,
respectively).......................................... 8,224 19,252 21,894
Accounts receivable -- other.............................. 19 1,694 1,716
Inventories (Note 4)...................................... 5,141 13,312 17,181
Prepaid expenses.......................................... 811 990 1,356
Current deferred tax asset (Note 11)...................... 30 2,335 2,394
------- -------- --------
Total current assets.............................. 14,795 38,314 45,604
Property, plant and equipment, net (Note 5)................. 22,484 60,774 79,277
Investments in joint ventures (Note 6)...................... -- 3,527 1,975
Goodwill and other intangible assets, net (Note 7).......... 51,515 98,465 108,570
Other assets, net (Note 8).................................. 3,431 13,612 15,617
------- -------- --------
Total assets...................................... $92,225 $214,692 $251,043
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 9)................ $ 5,800 $ 1,312 $ 1,937
Senior secured revolving debt facility (Note 9)........... 2,000 2,000 --
Accounts payable.......................................... 9,816 20,178 21,140
Accrued liabilities....................................... 2,699 8,154 10,750
------- -------- --------
Total current liabilities......................... 20,315 31,644 33,827
Accrued interest -- non-current (Note 9).................... 962 2,595 3,458
Deferred tax liability (Note 11)............................ 1,867 12,390 13,004
Senior secured term debt (Note 9)........................... 35,750 13,688 44,223
Senior subordinated notes (Note 9).......................... 7,551 120,000 120,000
PIK A promissory notes (Note 9)............................. 3,750 3,750 3,750
PIK A-1 promissory note (Note 9)............................ -- 417 417
Convertible subordinated promissory note (Note 9)........... 10,500 10,500 10,500
Other liabilities........................................... 325 3,257 4,788
------- -------- --------
Total liabilities................................. 81,020 198,241 233,967
------- -------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 45,000 shares
authorized, 4,167 shares issued and outstanding,
liquidation preference of $4,163 (Note 16)............. 3,750 4,167 4,167
Class A common stock, $0.01 par value; 5,000 shares
authorized, 2,540 shares issued and outstanding (Note
16).................................................... -- -- --
Class B common stock, $0.01 par value; 2,000 shares
authorized, 569 shares issued and outstanding (Note
16).................................................... -- -- --
Additional paid-in capital (Note 16)...................... 7,681 16,624 16,624
Accumulated deficit....................................... (226) (4,340) (3,715)
------- -------- --------
Total stockholders' equity........................ 11,205 16,451 17,076
------- -------- --------
Commitments and contingent liabilities (Notes 9, 12 and 17)
Total liabilities and stockholders' equity........ $92,225 $214,692 $251,043
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 98
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
TEN MONTH YEARS ENDED ENDED
PERIOD ENDED --------------------------- -------------------
DECEMBER 30 DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27,
1995 1996 1997 1997 1998
------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $34,481 $82,993 $164,288 $60,323 $127,791
Cost of good sold 22,107 54,379 113,288 39,330 92,580
------- ------- -------- ------- --------
Gross profit................... 12,374 28,614 51,000 20,993 35,211
------- ------- -------- ------- --------
Operating expenses:
Promotion and distribution.......... 8,483 17,165 28,980 13,581 16,217
Selling, general and
administrative.................... 1,978 4,934 10,886 4,171 8,943
Non-recurring transition costs (Note
10)............................... -- -- 1,571 107 513
------- ------- -------- ------- --------
Total operating expenses....... 10,461 22,099 41,437 17,859 25,673
------- ------- -------- ------- --------
Operating income............... 1,913 6,515 9,563 3,134 9,538
Interest expense, net.................... 1,192 4,981 12,241 4,424 8,561
Equity in earnings of joint ventures..... -- -- (377) (29) (485)
Other expenses, net...................... -- 40 93 31 58
------- ------- -------- ------- --------
Income (loss) before income
taxes and extraordinary
item......................... 721 1,494 (2,394) (1,292) 1,404
Income tax expense (benefit)............. -- 824 (574) (514) 779
------- ------- -------- ------- --------
Income (loss) before
extraordinary item........... 721 670 (1,820) (778) 625
Extraordinary loss on early
extinguishment of debt, net of tax of
$0 in 1996 and $1,529 in 1997 (Note
9)..................................... -- 604 2,294 2,294 --
------- ------- -------- ------- --------
Net income (loss).............. $ 721 $ 66 $ (4,114) $(3,072) $ 625
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 99
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B PREFERRED RETAINED
COMMON STOCK COMMON STOCK STOCK EARNINGS
MEMBERS' --------------- --------------- --------------- PAID-IN (ACCUMULATED
CAPITAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
-------- ------ ------ ------ ------ ------ ------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Members' capital contribution,
net of syndication costs of
$109........................ $5,891 -- $ -- -- $ -- -- $ -- $ -- $ -- $ 5,891
Net income.................... -- -- -- -- -- -- -- -- 721 721
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 30,
1995........................ 5,891 -- -- -- -- -- -- -- 721 6,612
Contribution of Windy Hill Pet
Food Company, LLC members'
capital to Windy Hill Pet
Food Holdings, Inc. (Note
1).......................... (5,891) 500 -- -- -- 3,750 3,750 2,141 -- --
Deferred tax liability
recognized.................. -- -- -- -- -- -- -- -- (1,013) (1,013)
Capital contribution from
Windy Hill Pet Food
Holdings, Inc., net of
syndication cost of $210.... -- 500 -- 301 -- -- -- 4,540 -- 4,540
Warrants issued (Note 16)..... -- -- -- -- -- -- -- 1,000 -- 1,000
Net income.................... -- -- -- -- -- -- -- -- 66 66
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 28,
1996........................ -- 1,000 -- 301 -- 3,750 3,750 7,681 (226) 11,205
Contribution, net of
syndication cost of $224.... -- 1,429 -- 240 -- -- -- 9,776 -- 9,776
Warrants exercised (Note
16)......................... -- 111 -- 28 -- 417 417 (833) -- (416)
Net loss...................... -- -- -- -- -- -- -- -- (4,114) (4,114)
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at December 27,
1997........................ -- 2,540 -- 569 -- 4,167 4,167 16,624 (4,340) 16,451
Net loss (unaudited).......... -- -- -- -- -- -- -- -- 625 625
------ ----- ----- --- ----- ----- ------ ------- ------- -------
Balance at June 27, 1998
(unaudited)................. $ -- 2,540 $ -- 569 $ -- 4,167 $4,167 $16,624 $(3,715) $17,076
====== ===== ===== === ===== ===== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 100
WINDY HILL PET FOOD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH
TEN MONTH YEARS ENDED PERIODS ENDED
PERIOD ENDED --------------------------- --------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 721 $ 66 $ (4,114) $ (3,072) $ 625
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Depreciation and amortization..... 787 2,719 6,882 2,543 4,470
Interest expense -- non-current... -- 962 1,633 1,077 1,365
Deferred income taxes............. -- 824 2,582 5,809 923
Early extinguishment of debt, net
of tax.......................... -- 604 2,294 2,294 --
Gain on sale of fixed assets...... -- -- 4 -- --
Equity in earnings of joint
ventures........................ -- -- (377) (29) (485)
Operating advances from joint
ventures........................ -- -- 1,015 84 1,063
Change in assets and liabilities,
net of effects of businesses
acquired:
(Increase) decrease in accounts
receivable................... (960) (3,941) (4,650) 1,348 540
(Increase) decrease in
inventories.................. 352 (454) (1,726) (243) 2,123
Increase in prepaid expenses.... (34) (412) (50) 66 (960)
Increase (decrease) in accounts
payable...................... 847 6,250 313 (3,121) (1,390)
Increase (decrease) in accrued
liabilities.................. -- 1,063 4,436 17,150 2,262
-------- -------- --------- --------- --------
Net cash provided by
operating activities....... 1,713 7,681 8,242 23,906 10,537
-------- -------- --------- --------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment......................... (1,120) (1,091) (4,175) (944) (3,700)
Change to other non-current assets
and liabilities................... (321) (357) (1,087) (2,534) (678)
Proceeds from sale of assets......... -- -- 51,704 49,889 --
Payment for acquisition of
businesses, net of cash
acquired.......................... (22,165) (56,768) (135,350) (138,528) (34,523)
-------- -------- --------- --------- --------
Net cash used in investing
activities................. (23,606) (58,216) (88,908) (92,117) (38,901)
-------- -------- --------- --------- --------
Cash flows from financing activities:
Proceeds from senior secured term and
revolving debt.................... 17,000 48,000 71,500 189,917 34,000
Proceeds from senior subordinated
notes............................. -- 8,500 120,000 -- --
Proceeds from PIK A promissory
notes............................. -- 3,750 -- -- --
Proceeds from convertible
subordinated promissory note...... -- 10,500 -- -- --
Repayment of borrowings.............. -- (21,450) (109,952) (109,952) (5,263)
Capital contributions................ 6,000 4,750 10,000 9,583
Debt issuance and syndication
costs............................. (780) (3,272) (10,721) (10,565) (41)
-------- -------- --------- --------- --------
Net cash provided by (used
in) financing activities... 22,220 50,778 80,827 78,983 28,696
-------- -------- --------- --------- --------
Increase (decrease) in cash and cash
equivalents.......................... 327 243 161 10,772 332
Cash and cash equivalents, beginning of
period............................... -- 327 570 570 731
-------- -------- --------- --------- --------
Cash and cash equivalents, end of
period............................... $ 327 $ 570 $ 731 $ 11,342 $ 1,063
======== ======== ========= ========= ========
Supplemental cash flow disclosure:
Cash paid for interest............... $ 1,179 $ 3,759 $ 6,660 $ 3,391 $ 3,757
Income taxes paid.................... -- -- 8,806 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 101
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All information related to the six-month periods ended June 28, 1997 and
June 27, 1998 is unaudited.)
NOTE 1 -- THE COMPANY
Organization
Windy Hill Pet Food Holdings, Inc. ("Holdings"), a Delaware corporation, is
a private holding company formed in April 1996 to invest in pet food processing
operations. Holdings owns 100% of its indirect subsidiary, Windy Hill Pet Food
Company, Inc. (the "Company"), which is a Minnesota corporation. The Company
commenced operations March 1, 1995, under its previous ownership structure as
Windy Hill Pet Food Company, L.L.C. ("LLC"). In connection with the Company's
acquisition of certain brands from Heinz Pet Products ("Heinz") in April 1996,
as further described in Note 3, LLC's net assets were contributed at net book
value to Holdings.
On May 21, 1997, Windy Hill Pet Food Acquisition Co., a newly formed
indirect subsidiary of Holdings, merged with and into Hubbard Milling Company
("Hubbard"), and Windy Hill Pet Food Company, Inc. ("Old Windy Hill") purchased
all of the stock of Armour Corporation. Concurrently, Hubbard, the surviving
corporation in the merger, was renamed Windy Hill Pet Food Company, Inc., and
Holdings transferred all of the operating assets and liabilities of Old Windy
Hill to the Company (Note 3). The Company was capitalized with a senior secured
term debt facility and senior subordinated notes (Note 9).
Operations
The Company manufactures and sells dog and cat food products and treats,
which are sold throughout the United States. The products are manufactured out
of thirteen plants, nine of which are wholly-owned and four of which are managed
under joint venture agreements in which the Company owns a 50% equity interest.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by Holdings in the preparation of the consolidated
financial statements conform to generally accepted accounting principles and
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual amounts could differ from these
estimates and assumptions. The accompanying consolidated financial statements
include the accounts of Holdings and its subsidiaries. All significant
intercompany balances have been eliminated in consolidation.
Fiscal Year
Holdings' fiscal year ends on the last Saturday of December. Certain prior
year amounts have been reclassified to conform to the current year's
presentation.
Cash and Cash Equivalents
Holdings considers all highly liquid financial instruments with a maturity
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in first-out (FIFO) method. Inventories include the
cost of raw materials, packaging, labor and manufacturing overhead.
F-31
<PAGE> 102
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the individual assets ranging from four to thirty
years. Costs which improve an asset or extend its useful life are capitalized,
while repairs and maintenance costs are expensed as incurred. Leasehold
improvements are amortized over the estimated useful life of the property or
over the terms of the leases, whichever is shorter.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets include goodwill, trademarks and
certain identifiable intangible assets. Trademarks and goodwill are being
amortized over thirty and forty years using the straight-line method,
respectively. Other intangible assets (primarily software) are being amortized
using the straight-line method over periods ranging from four to five years. The
Company's policy is to periodically evaluate such costs to determine whether
there has been any impairment. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from expected
future operating cash flows on an undiscounted basis. Amortization of goodwill
and other intangible assets charged against income during the ten-month period
ended December 30, 1995, the years ended December 28, 1996 and December 27, 1997
and for the unaudited six-month periods ended June 28, 1997 and June 27, 1998
was $0.3 million, $1.1 million, $2.9 million, $0.8 million and $1.8 million,
respectively.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held for
disposal. Holdings has evaluated the carrying value for evidence of impairment,
and management believes at December 27, 1997, there were no indications of
impairment.
Holdings assesses the recoverability of long-lived assets by determining
whether the recorded balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of impairment, if any, is measured based upon projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of the asset will be impacted if
estimated future operating cash flows are not achieved.
Other Assets
Other assets consist of debt issuance costs, packaging design costs, and
other miscellaneous assets. Debt issuance costs of the senior subordinated notes
are being amortized using the interest method over the term of the respective
notes. Debt issuance costs of the senior secured debt are being amortized using
the straight-line method over the terms of the related debt. Aggregate
amortization of debt issuance costs and other assets charged against income in
the ten-month period ended December 30, 1995, the years ended December 28, 1996
and December 27, 1997, and the unaudited six-month periods ended June 28, 1997
and June 27, 1998 was $67,000, $259,000, $715,000, $154,000, and $486,000,
respectively. Amortization of packaging design costs charged against income was
$158,000, $205,000, $283,000, $120,000 and $230,000, for the same periods
respectively.
Disclosure About Fair Value of Financial Instruments
For purposes of financial reporting, Holdings has determined that the fair
value of its financial instruments approximates book value at December 28, 1996,
December 27, 1997, and June 27, 1998 (unaudited) based on terms currently
available to the Company in financial markets for similar instruments.
F-32
<PAGE> 103
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company sells its products to supermarkets, wholesalers and other
retailers. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and had no significant concentration of credit risk at
December 28, 1996, December 27, 1997, and June 27, 1998 (unaudited).
Income Taxes
Holdings records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. This method of accounting for income taxes uses an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between he
carrying amounts and the tax bases of assets and liabilities.
NOTE 3 -- BUSINESS ACQUISITIONS
On April 29, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of the Kozy Kitten(R) and Tuffy's(R) dry pet food
brands (the "Heinz Business") from Heinz Pet Products ("Heinz"), a division of
Heinz, Inc. The purchase price was $52.5 million, which included a contractually
agreed upon amount of working capital (as defined in the agreement). In
conjunction with the acquisition, the Company and Heinz entered into a
royalty-free licensing agreement, which entitles the Company to use the Kozy
Kitten trademark and trade name for dry cat food until April 29, 2006. The
Trademark License and Option Agreement gives the Company the irrevocable right
to purchase the trademark and trade name from Heinz no earlier than April 29,
2001 and no later than April 29, 2006 for a cash payment of $2.5 million. The
acquired assets also included a manufacturing facility in Perham, Minnesota. The
acquisition was accounted for using the purchase method of accounting and the
results of operations have been included since the date of acquisition.
In order to effect the Heinz Business acquisition and to refinance the
$17.0 million of existing debt of LLC at April 29, 1996, the Company entered
into a series of financings, as further described in Note 9. The financings
included (i) a capital contribution of $19.8 million from Holdings, (ii) senior
secured term debt of $43.0 million and a senior secured revolving debt facility
of $9.0 million, and (iii) issuance of a senior subordinated note in the amount
of $8.5 million.
The purchase price of the acquired Heinz Business has been allocated to
tangible and intangible assets as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash paid to acquire assets................................. $ 52,500
Other acquisition costs..................................... 4,257
--------
56,757
Cost assigned to net tangible assets........................ (19,282)
--------
Cost assigned to intangible assets.......................... $ 37,475
========
</TABLE>
Concurrent with the 1996 purchase of assets, the Company and Heinz entered
into a five year co-packing agreement in which the Company will manufacture
certain pet food products for Heinz. The agreement requires Heinz to meet a
minimum supply amount at a co-packing rate which covers the variable costs of
the pet food products as well as an amount to cover a specified rate of fixed
costs at the Perham facility where the products are manufactured.
On May 21, 1997, Windy Hill Pet Food Acquisition Co. merged with and into
Hubbard, and Old Windy Hill purchased all of the capital stock of Armour
Corporation, a holding company which prior to the closing of
F-33
<PAGE> 104
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the transaction owned 5% of the capital stock of Hubbard and after the
consummation of the transaction owned 39% of the capital stock of Hubbard.
Concurrently, Hubbard, the surviving corporation in the merger, was renamed
Windy Hill Pet Food Company, Inc., and Old Windy Hill transferred all the
operating assets and liabilities, including $27.0 million of equity and $51.0
million of indebtedness (the "Existing Indebtedness") of Old Windy Hill to the
Company. The net combined purchase price of Hubbard and the Armour Corporation
stock was approximately $131.1 million (net of cash acquired). For financial
reporting purposes, these transactions were accounted for as a purchase of
Hubbard by Old Windy Hill and the results of operations of Hubbard have been
included since the date of acquisition. The allocation of the purchase price has
been finalized.
The acquisition and the repayment of Existing Indebtedness was financed
with (i) a $9.8 million net capital contribution from Holdings, (ii) term debt
of $20.0 million and revolving debt of $45.0 million under a $65.0 million
senior secured debt facility, and (iii) proceeds from the issuance of $120.0
million of senior subordinated notes. Immediately following the merger, the
Company sold its animal feed business to Feed-Rite (US) Animal Feeds, Inc., a
subsidiary of the Ridley Group. The net after tax proceeds, subject to certain
adjustments, were approximately $50.0 million. The net proceeds were used to
repay $5.0 million of the senior secured term debt and $45.0 million of net
senior secured revolving debt facility.
The purchase price of the acquisitions have been allocated to tangible and
intangible assets as follows (in thousands):
<TABLE>
<CAPTION>
HUBBARD
--------
<S> <C>
Cash paid to acquire business, net of cash acquired......... $131,052
Other acquisition costs..................................... 5,438
--------
136,490
Cost assigned to net tangible assets and assets held for
sale...................................................... (86,305)
--------
Cost assigned to intangible assets.......................... $ 50,185
========
</TABLE>
The unaudited pro forma information below has been prepared assuming the
businesses were acquired December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Net sales.......................................... $208,100 $216,709
======== ========
Income before taxes and extraordinary item......... 882 4,465
======== ========
Net income......................................... $ (1,625) $ 2,679
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisitions occurred on the date indicated. The pro forma
results reflect certain adjustments for amortization, interest expense, fixed
overhead and general and administrative expenses.
F-34
<PAGE> 105
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................ $ 1,253 $ 3,004 $ 3,787
Packaging supplies....................... 2,339 5,536 8,230
Finished goods........................... 1,549 4,772 4,597
------- ------- -------
$ 5,141 $13,312 $16,614
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments to purchase raw materials
aggregating approximately $13.2 million.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.......................................... $ 203 $ 2,663 $ 2,968
Machinery and equipment....................... 17,043 42,882 56,393
Buildings and improvements.................... 6,266 16,328 19,781
Furniture and fixtures........................ 238 1,390 1,517
Computer equipment............................ 70 127 155
Construction-in-progress...................... 11 1,626 5,098
------- ------- -------
23,831 65,016 85,912
Less accumulated depreciation............... 1,347 4,242 (6,636)
------- ------- -------
$22,484 $60,774 $79,276
======= ======= =======
</TABLE>
At December 27, 1997, the Company had commitments for facility construction
and related machinery and equipment purchases aggregating approximately
$332,000.
NOTE 6 -- INVESTMENTS IN JOINT VENTURES
The Company has a 50% equity interest in each of four manufacturing joint
ventures with each of the following joint venture partners, none of which are
affiliates of the Company or Holdings: Merrick PetFoods, Inc., MFA, Inc., J.R.
Simplot Company, and Flint River Mills, Inc. See Note 3. The Company accounts
for the joint ventures using the equity method of accounting.
F-35
<PAGE> 106
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill...................................... $ 7,588 $ 35,122 $ 46,948
Trademarks.................................... 45,000 66,807 66,807
Other intangibles............................. 332 852 852
------- -------- --------
52,920 102,781 114,607
Less accumulated amortization............... 1,405 4,316 6,037
------- -------- --------
$51,515 $ 98,465 $108,570
======= ======== ========
</TABLE>
NOTE 8 -- OTHER ASSETS
Other assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs........................... $2,978 $10,464 $10,464
Defined benefit pension plan asset............ -- 2,474 2,923
Packaging, plate cost and other costs......... 1,059 1,899 4,171
------ ------- -------
4,037 14,837 17,558
Less accumulated amortization............... 606 1,225 1,941
------ ------- -------
$3,431 $13,612 $15,617
====== ======= =======
</TABLE>
F-36
<PAGE> 107
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LONG TERM DEBT
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
SENIOR SECURED DEBT
Senior secured tranche A-1 debt; interest rate of
8.29% at December 28, 1996.......................... $27,550 $ -- $ --
Senior secured tranche A-2 debt; interest rate of
8.29% at December 28, 1996.......................... 14,000 -- --
Senior secured revolving debt facility -- interest
rate of 8.37% at December 28, 1996.................. 2,000 -- --
Senior secured term debt -- interest rate of 8.38% at
December 27, 1997; principal due in quarterly
installments through November 21, 2003; floating
interest rate at the prime rate plus 1.5% or,
alternatively, the one, three or six month
Eurodollar rate plus 2.5% payable quarterly at the
termination of the Eurodollar contract period....... -- 15,000 46,160
Senior secured revolving debt facility -- interest
rate of 10.0% at December 27, 1997; principal due
November 21, 2003; floating interest rate at the
prime rate plus 1.50% or alternatively, the one,
three, or six month Eurodollar rate plus 2.50%;
payable quarterly or at the termination of the
Eurodollar contract period.......................... -- 2,000 --
SENIOR SUBORDINATED NOTES
Senior subordinated note issued April 29, 1996; coupon
interest rate of 12.0% with interest payable
quarterly; net of original issue discount of
$949,000............................................ 7,551 -- --
Senior subordinated notes issued May 15, 1997 at par
value of $120,000; coupon interest rate of 9.75%
with interest payable each May 15 and November 15;
matures on May 15, 2007............................. -- 120,000 120,000
PROMISSORY NOTES
PIK A promissory notes issued April 29, 1996; coupon
interest rate of (i) 10% per annum through April 29,
2003 and (ii) interest payable at 12.0% per annum
from April 30, 2003 through December 31, 2005;
compounded semi-annually with interest payable
annually beginning April 29, 2004; matures on
December 31, 2005, with original principal and
accrued interest through April 29, 2003............. 3,750 3,750 3,750
PIK A-1 promissory note issued May 21, 1997, effective
April 29, 1996; coupon interest rate of (i) 10% per
annum through April 29, 2003 and (ii) interest
payable at 12.0% per annum from April 30, 2003
through December 31, 2005; compounded semi-annually
with interest payable annually beginning April 29,
2004; matures on December 31, 2005, with original
principal and accrued interest through April 29,
2003................................................ -- 417 417
</TABLE>
F-37
<PAGE> 108
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, JUNE 27,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible subordinated promissory note issued April
29, 1996; coupon interest rate of (i) 10% per annum
through April 29, 2003 and (ii) interest payable at
12.0% per annum from April 30, 2003 through April
29, 2006; compounded semi-annually with interest
payable annually beginning April 29, 2004; matures
on April 29, 2006, with original principal and
accrued interest through April 29, 2003............. 10,500 10,500 10,500
------- -------- --------
65,351 151,667 180,827
Less: current portion of senior secured debt.......... 5,800 1,312 1,937
current portion of senior secured revolving debt
facility........................................ 2,000 2,000 --
------- -------- --------
Long term debt........................................ $57,551 $148,355 $178,890
======= ======== ========
</TABLE>
Annual principal payments for the next five years and thereafter consist of
the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 27,
1997
------------
<S> <C>
1998........................................................ $ 3,312
1999........................................................ 1,781
2000........................................................ 2,156
2001........................................................ 2,531
2002........................................................ 2,906
Thereafter.................................................. 138,981
--------
$151,667
========
</TABLE>
Senior Secured Debt
Old Windy Hill and Holdings entered into a Credit and Guarantee Agreement,
dated April 29, 1996 (the "Agreement"), with several banks for $43.0 million of
senior secured term debt and a senior secured revolving debt facility. The
proceeds from the debt were used to acquire certain assets and brands from
Heinz, pay fees and expenses and fund working capital. The debt was guaranteed
by Holdings and Old Windy Hill. The Agreement contained optional prepayment
provisions with no premium. Substantially all of the assets of Old Windy Hill
were pledged as collateral for the debt.
The Agreement included $9.0 million of available borrowing under a senior
secured revolving debt facility, of which $2.5 million was reserved to support
the Trademark License and Option Agreement (Note 3). The available borrowings
were also subject to limitations related to aggregate inventory and accounts
receivable levels. The Agreement required a commitment fee of 0.50% per annum
payable quarterly on the unused portions of the revolving debt facility.
In conjunction with the acquisition of Hubbard, the Company entered into a
Credit Agreement, dated May 21, 1997 (the "Credit Agreement"), among Windy Hill
Pet Food Acquisition Co., Credit Suisse First Boston, The Chase Manhattan Bank
and the several banks and other financial institutions parties thereto, which
provided the Company with senior secured debt facilities (the "Senior Bank
Facilities") in the aggregate principal amount of $85.0 million. The proceeds
from the Senior Bank Facilities and the $120.0 million senior subordinated notes
were used to retire the senior secured term debt and the senior secured
revolving debt facility under the Agreement.
F-38
<PAGE> 109
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Bank Facilities consist of (i) a senior secured term loan
facility providing for term loans to the Company in a principal amount of $20.0
million (the "Term Loan Facility"), (ii) an acquisition debt facility (the
"Acquisition Facility") providing revolving loans to the Company for permitted
acquisitions in a principal amount of $45.0 million, and (iii) a working capital
revolving debt facility providing for revolving loans to the Company and the
issuance of letters of credit for the account of the Company as well as swing
line loans in an aggregate principal amount of $20.0 million. The senior secured
working capital debt facility is subject to a commitment fee of 0.5% per annum
payable quarterly on the unused portions of the facility.
As a result of the Hubbard and Heinz acquisitions, the Existing
Indebtedness and the $17.0 million of existing debt of LLC were refinanced and
in conjunction with the retirement of those debt facilities, $604,000 (together
with unamortized note discounts and other charges totaling $1.2 million in
fiscal 1997) and $2.6 million of debt issuance costs were written off as
extraordinary items in the statements of operations for the years ended December
28, 1996 and December 27, 1997, respectively. The effective tax rate was applied
to the write-off for the year ended December 27, 1997, while no income tax
effect was reflected to the write-off for the year ended December 28, 1996, as
the write-off was attributable to the members of LLC.
The Credit Agreement includes restrictive covenants, which limit
borrowings, cash dividends, and capital expenditures, while also requiring the
Company to maintain certain financial ratios. The Company was in compliance with
these covenants at December 27, 1997.
Senior Subordinated Notes
On April 29, 1996, Old Windy Hill issued a senior subordinated note (the
"Old Note") in the amount of $8.5 million to a bank. The Old Note could be
prepaid at any time, subject to a prepayment penalty of 4% in the first year, 3%
in the second year, 2% in the third year, and 1% in the fourth year, and no
prepayment penalty thereafter.
The Old Note included a provision for warrants for 10% of the stock of
Holdings with a nominal exercise price. The warrants were subject to
anti-dilution covenants. The warrants would have expired the later of ten years
from the date of issuance or four years after the Old Note has been repaid. The
warrants were freely assignable and detachable. The holder of the Old Note also
had the right to "put" the warrants or stock to Holdings, beginning after the
earlier of five years from the closing, a sale or merger of the Company, or an
event of default on the Old Note. The value assigned to the warrants as of the
issuance date was $1.0 million and was recorded at Holdings and contributed to
Old Windy Hill as paid in capital. The capital contribution was recorded by Old
Windy Hill with a corresponding discount to the value of the Old Note. The
discount was being amortized over eight years, or the life of the Old Note.
Accumulated amortization as of December 28, 1996 was $51,000. In conjunction
with the acquisition of Hubbard, the holder of the Old Note exercised its
warrants for common and preferred stock of Holdings and a note due from Holdings
for $416,667.
In conjunction with the acquisition of Hubbard on May 21, 1997, the Company
issued $120.0 million of senior subordinated notes (the New Notes). The proceeds
from the New Notes, along with the proceeds from the Senior Bank Facilities and
a capital contribution from Holdings (Note 3), were used to (i) retire the
senior secured term debt and the senior secured revolving debt facility financed
under the Agreement, (ii) retire the Old Note and (iii) acquire Hubbard. In
connection with the retirement of the Old Note, $606,000 of debt issuance costs
were written off as an extraordinary item in the statement of operations for the
year ended December 27, 1997. The effective tax rate was applied to the
extraordinary item.
The Company may redeem the New Notes at any time after May 15, 2002, at the
redemption price together with accrued and unpaid interest. In addition, the
Company may redeem up to $42.0 million of the New Notes at any time prior to May
15, 2002, subject to certain requirements, with the cash proceeds received from
one or more equity offerings (as defined), at a redemption price of 109.750%
together with accrued and unpaid interest. Upon a change of control (as
defined), the Company has an option at any time
F-39
<PAGE> 110
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prior to May 15, 2002, to redeem the New Notes at a redemption price of 100%
plus the applicable premium (as defined), together with accrued and unpaid
interest. If the Company does not redeem the New Notes or if the change of
control occurs after May 15, 2002, the Company is required to offer to
repurchase the New Notes at a price equal to 101% together with accrued and
unpaid interest.
The New Notes include restrictive covenants, which limit additional
borrowings, cash dividends, sale of assets, mergers and the sale of stock. The
Company was in compliance with these covenants at December 27, 1997.
PIK A Promissory Notes
On April 29, 1996, Holdings issued $3,750,000 in PIK A promissory notes
("PIK A Notes") to shareholders of Holdings. The PIK A Notes can be prepaid at
any time without penalty. The PIK A Notes include restrictive covenants, which
limit cash dividends and distributions.
PIK A-1 Promissory Note
On May 21, 1997, in conjunction with the exercise of the warrants by the
holder of the Old Note, Holdings issued a $416,667 PIK A-1 Note ("PIK A-1
Note"). The PIK A-1 Note can be prepaid at any time without penalty. The PIK A-1
Note includes restrictive covenants, which limit cash dividends and
distributions.
Convertible Subordinated Promissory Note
On April 29, 1996, Holdings issued a $10.5 million convertible subordinated
promissory note ("Promissory Note") to Heinz. The Promissory Note can be prepaid
at any time without penalty. The Promissory Note includes restrictive covenants,
which limit cash dividends and distributions.
Interest Rate Hedge Agreements
The Company uses interest rate collar agreements (the "Agreements") to
reduce the impact of changes in interest rates on its floating rate term debt.
Premiums paid for such Agreements are being amortized to debt issuance costs
over the terms of the Agreements. Unamortized premiums are included in other
assets in the balance sheets. Amounts to be paid or received, if any, under the
Agreements are recognized as an increase or decrease, respectively, in interest
expense. The counterparty to the Company's Agreements is a major financial
institution.
The current effective cap rate is set at 7.50% (plus the applicable
margin). The effective floor rate is set at 5.50% (plus the applicable margin).
The notional principal under the Agreements is $25.0 million. As of December 28,
1996, and December 27, 1997, the Company had total variable rate debt
outstanding in the amount of $43.6 million and $17.0 million, respectively. The
aggregate premiums paid for the Agreements was $103,000.
Under the Agreements, the Company would receive payments from the
counterparty if the three-month LIBOR rate exceeds the cap rate and make payment
to the counterparties if the three-month LIBOR rate falls below the floor rates.
The payments would be calculated based upon the respective notional principal
amount. During fiscal 1996 and 1997 the Company made no payments under the
Agreements. At December 27, 1997, the three-month LIBOR rate was 5.91%.
Risk associated with the Agreements include those associated with changes
in market value and interest rates. At December 27, 1997, the fair value of the
Company's interest rate collars was immaterial and management considers the
potential loss in future earnings and cash flows attributable to such Agreements
to be immaterial.
F-40
<PAGE> 111
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- TRANSITION RELATED COSTS
Transition related expenses represent one time costs incurred to integrate
the Hubbard acquisition. These costs include transitional employee compensation,
relocation expenses, recruiting fees, training costs, system conversion costs
and other unique transitional expenses. Transition related costs for the year
ended December 27, 1997 were approximately $1.6 million.
NOTE 11 -- INCOME TAXES
Holdings files a federal income tax return on a consolidated basis with its
wholly-owned subsidiaries. State income tax returns are filed by Holdings and
the Company on a separate company basis or on a combined basis depending on the
particular laws in each state. Holdings' income tax provision is computed as if
all income tax returns were filed on a consolidated basis.
The income tax expense (benefit) is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
TEN MONTH YEARS ENDED
PERIOD ENDED ---------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense:
Federal.......................................... $ -- $ -- $ 7,763
State............................................ -- -- 1,443
---- ---- -------
Total current provision.................. -- -- 9,206
---- ---- -------
Deferred tax expense (benefit):
Federal.......................................... -- 641 (8,249)
State............................................ -- 183 (1,531)
---- ---- -------
Total deferred expense (benefit)......... -- 824 (9,780)
---- ---- -------
Total income tax expense (benefit)....... $ -- $824 $ (574)
==== ==== =======
</TABLE>
Holdings' tax provision in 1997 reflects taxes paid on the gain for tax
purposes on the sale of the animal feed business as well as the recognition of a
$12.3 million reduction in deferred taxes established for the gain at the time
of the acquisition of Hubbard.
F-41
<PAGE> 112
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets -- current:
Post-retirement benefits.................................. $ -- $ 1,006
Accrued expenses.......................................... -- 502
Package design costs...................................... -- 323
Other..................................................... 30 504
------- --------
Total deferred tax assets -- current.............. 30 2,335
------- --------
Deferred tax assets -- non-current:
Loss carryforwards........................................ 1,078 --
State taxes............................................... -- 666
------- --------
Total deferred tax assets -- non-current.......... 1,078 666
------- --------
Deferred tax liabilities -- non-current:
Depreciation.............................................. (202) (7,805)
Goodwill.................................................. (2,743) (4,144)
Prepaid pension........................................... -- (981)
Other..................................................... -- (126)
------- --------
Total deferred tax liabilities -- non-current..... (2,945) (13,056)
------- --------
Net deferred tax liability........................ $(1,837) $(10,055)
======= ========
</TABLE>
Holdings has not recorded a valuation allowance for its deferred tax
assets. Management believes that Holdings' deferred tax assets are more likely
than not to be realized.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
(Benefit) provision for income taxes at U.S.
statutory rate..................................... $638 $(814)
(Decrease) increase in tax resulting from:
Nondeductible expenses............................. 65 314
State taxes, net of federal benefit................ 121 (74)
---- -----
$824 $(574)
==== =====
</TABLE>
NOTE 12 -- LEASES
The Company leases certain facilities, machinery and equipment under
operating lease agreements with varying terms and conditions. The leases are
noncancellable operating leases which expire on various dates through 2012.
F-42
<PAGE> 113
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future annual minimum lease payments under these leases at December 27,
1997 are summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 890
1999........................................................ 850
2000........................................................ 748
2001........................................................ 607
2002........................................................ 604
Thereafter.................................................. 2,037
------
$5,736
======
</TABLE>
Rent expense was $159,000, $248,000, $669,000, $160,000, and $412,000 for
the ten-month period ended December 30, 1995, the years ended December 28, 1996
and December 27, 1997, and for the unaudited six-month periods ended June 28,
1997 and June 27, 1998, respectively.
NOTE 13 -- SAVINGS AND BENEFIT PLANS
The Company maintains a defined contribution plan for all employees with
eligibility conditioned upon full time employment. The Company makes annual
contributions based upon a percent of the employee's annual taxable wages.
Vesting in the plan is according to a graduated scale of one third per year with
full vesting at the end of the third year of employment. The employer
contribution for the ten month period ended December 30, 1995, the years ended
December 28, 1996 and December 27, 1997, and the unaudited six-month periods
ended June 28, 1997 and June 27, 1998 was $72,000, $206,000 and $369,000, $0,
and $0, respectively. Eligible employees are also given the opportunity to make
their own contributions to the plan on a tax deferred basis.
Employee Benefit Plans
In connection with the acquisition of Hubbard, the Company succeeded in
interest to two noncontributory, defined benefit pension plans covering hourly
and salaried employees. The following tables set forth the funded status of the
pension plans and the amount recognized in the Company's balance sheet as of
December 27, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------- -------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested.............................................. $ 5,382 $ 9,739 $15,122
Nonvested........................................... 325 311 636
------- ------- -------
Accumulated benefit obligation.............. 5,707 10,050 15,758
Effect of projected future salary increases........... 1 939 940
------- ------- -------
Projected benefit obligation................ 5,708 10,989 16,698
Market value of plan assets........................... 5,894 15,323 21,217
------- ------- -------
Plan assets in excess of projected benefit
obligation................................ 186 4,334 4,519
Unrecognized net gain................................. (596) (1,449) (2,045)
------- ------- -------
(Pension liability) prepaid pension cost.... $ (410) $ 2,885 $ 2,474
======= ======= =======
</TABLE>
F-43
<PAGE> 114
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN TOTAL
------- -------- -------
<S> <C> <C> <C>
The net periodic pension cost (benefit) components
were as follows for the year ended December 27, 1997
(dollars in thousands):
Service cost earned during the year................. $ 54 $ 148 $ 202
Interest cost on projected benefit obligation....... 277 531 808
Actual return on plan assets........................ (1,340) (2,775) (4,115)
Deferred gain....................................... 987 1,882 2,869
------- ------- -------
Pension (benefit)........................... $ (22) $ (214) $ (236)
======= ======= =======
</TABLE>
The principal actuarial assumptions used for December 27, 1997 were:
<TABLE>
<CAPTION>
HOURLY SALARIED
PLAN PLAN
------ --------
<S> <C> <C>
Discount rate............................................... 7.25% 7.25%
Long-term rate of compensation increase..................... 5.0% 5.0%
Long-term rate of return on plan assets..................... 8.0% 8.0%
</TABLE>
Other Benefits
In connection with the acquisition of Hubbard, the Company acquired a
retiree medical payment plan, which provides health care benefits for eligible
retired associates and their covered dependents and spouses. Employees must be
55 years or older with 10 years of service upon retirement to be eligible for
coverage under the current plan. Depending on the date of retirement, the
retiree must pay the premium cost associated with health care coverage. The plan
is not funded.
The accumulated post-retirement obligation included the following
components (dollars in thousands):
<TABLE>
<S> <C>
Retirees.................................................... $2,046
Eligible active plan participants........................... 114
Other active plan participants.............................. 672
------
Accumulated post-retirement benefit obligation.... 2,832
Unrecognized loss........................................... 318
------
Accrued post-retirement benefit obligation........ $2,514
======
</TABLE>
Under Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, postretirement
benefit expense included the following components (dollars in thousands):
<TABLE>
<S> <C>
Current service............................................. $ 27
Interest on accumulated benefits obligation................. 111
----
Total postretirement benefit expense.............. $138
====
</TABLE>
The discount rate used to determine the accumulated post-retirement benefit
obligation was 7.25%. The assumed health care cost trend rate used to measure
the obligation was 9.7% for 1997. A one-percentage point increase in the assumed
health care cost trend rate would have increased the 1997 accumulated post-
retirement obligation by $341,000.
F-44
<PAGE> 115
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- RELATED PARTY TRANSACTIONS
The Company is party to an Amended and Restated Management Services
Agreement, dated as of May 2, 1997, with Dartford Partnership, L.L.C.
("Dartford") pursuant to which Dartford provides management oversight to the
Company. Management services provided by Dartford include, but are not limited
to, operations oversight, corporate and financial planning, identification of
possible acquisitions and advice on the financing thereof and definition and
development of business opportunities. In the ten-month period ended December
30, 1995, and the years ended December 28, 1996 and December 27, 1997, the
Company paid a total of $250,000, $458,000 and $807,000, respectively, in
management fees to Dartford, a member of LLC, who is also a shareholder of
Holdings. The annual management fee was $250,000 prior to the acquisition of the
Heinz Pet Food Brands, $500,000 prior to the merger of Old Windy Hill and
Hubbard, and $1.0 million after the merger of Old Windy Hill and Hubbard. The
terms of the Amended and Restated Management Services Agreement were negotiated
among the equity investors of Holdings.
In connection with the acquisitions of the Heinz pet food brands and
Hubbard, the Company paid to certain members of LLC and shareholders of
Holdings, who are also represented on the Board of Directors or officers of the
Company and beneficial owners, fees for services rendered in connection with the
acquisitions of Heinz pet food brands and Hubbard and related financing of
acquisitions. The aggregate amount paid to certain members of LLC and
shareholders of Holdings was $2.5 million and was funded by the proceeds of the
financings. Of this $2.5 million, $1.8 million was paid to Dartford and $0.7
million was paid to Bruckmann, Rosser, Sherrill & Co. The fee amounts were
negotiated among the equity investors of Holdings.
The Company paid certain members of LLC fees totaling $420,000 during the
ten-month period ended December 30, 1995 and $525,000 during the year ended
December 28, 1996. The fees were paid for services provided in identifying,
negotiating and consummating the Company's acquisitions. The fees were included
in the costs of the acquisitions.
NOTE 15 -- INCENTIVE COMPENSATION PLAN
The Windy Hill Pet Food Holdings, Inc. Stockholders Agreement
("Stockholders Agreement") dated as of April 29, 1996 and amended as of May 21,
1997, contains an incentive compensation arrangement (the "Incentive Plan") a
means by which certain key employees and other specifically designated persons
("Key Personnel") of the Company, and/or affiliated with the Company, may be
given an opportunity to benefit from the appreciation in value of the Company.
Under the Incentive Plan, Key Personnel were issued non-voting Class B Common
Stock of Holdings ("Class B Stock"), at a $.01 per share, as a means to
participate in the appreciation of the Company. The Class B Stock is subject to
vesting requirements based on terms of employment or other factors. A portion of
the vesting period was deemed achieved at date of issuance of the Class B Stock.
The holders of vested Class B Stock will be entitled to receive certain
payments or distributions based on the amounts paid or distributed to investors
in Holdings. In general, there will be no payments to holders of vested Class B
Stock until the Preferred Series A and B Stock of Holdings ("Preferred Stock")
and associated accrued and unpaid dividends on the Preferred Stock, and Class A
Common Stock of Holdings ("Class A Stock") have received their respective return
of capital. The type of payment will be cash or non-cash consideration,
depending on the type of distribution to the Holdings' investors. Shares of
Class B Stock are convertible into an equal number of shares of Class A Stock
once the Preferred Stock and Class A Stock have received their priority
distribution.
Based on management's assessment of the valuation of the Company at the
date of issuance of the Class B Stock, there was no excess value attributable to
the Class B stock and therefore, no accrual for compensation expense was
necessary.
F-45
<PAGE> 116
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- STOCKHOLDERS' EQUITY
On February 28, 1995, under Old Windy Hill's previous ownership structure,
LLC was initially capitalized with a capital contribution from its members in
the gross amount of $6.0 million. Offering costs associated with this capital
contribution were $109,000. In connection with the acquisition of the Heinz
Business (Note 3), LLC contributed its capital in the net amount of $5.9 million
to Holdings. In exchange for the net capital contribution, LLC was issued Series
B preferred stock and 500 shares of Class A common stock.
On April 29, 1996, Holdings was capitalized with LLC's net capital
contribution and an additional capital contribution from its shareholders in the
gross amount of approximately $4.8 million. Offering costs associated with this
capital contribution were $210,000. The aggregate equity capital along with the
PIK A Notes and the Promissory Note were contributed to the Company and used to
fund the Company's acquisition of certain assets from Heinz.
On May 21, 1997, the shareholders of Holdings contributed an additional
gross capital contribution of $10.0 million. Offering costs associated with this
capital contribution were $224,000. In connection with the acquisition of
Hubbard (Note 3), Holdings contributed its additional capital in the net amount
of approximately $9.8 million to the Company. In exchange for the net capital
contribution, the shareholders were issued 1,428.6 shares of Class A common
stock.
Preferred Stock
Each holder of preferred stock is entitled to a cumulative 10% annual stock
dividend on the stated value through April 29, 2003. Thereafter, each holder is
entitled to a cumulative 12% annual return on the stated value. Each share of
preferred stock (i) is not entitled to vote, with few exceptions, (ii) can be
redeemed at the option of Holdings, and (iii) possess anti-dilution privileges.
The stock dividend is payable upon the Board of Directors' approval and payment
is also restricted by the Credit Agreement. In addition, when the holder of the
Old Note exercised its warrants, the holder was issued 416.667 shares of Series
B preferred stock of Holdings. The Company also has authorized 45,000 shares of
Series A preferred stock with no shares issued.
Common Stock
In addition to the Company's issued and outstanding Class A common stock,
the Company has also authorized 2,000 shares of Class B common stock, with 569
shares issued and outstanding. Under the securities purchase agreements dated
April 29, 1996 and May 21, 1997, certain officers and Dartford were issued Class
B common stock, par value $0.01 per share. In addition, when the holder of the
Old Note exercised its stock warrants, the holder was issued 111.11 shares of
Class A common stock of Holdings and 27.77 shares of Class B common stock of
Holdings.
Warrants
On April 28, 1996, warrants were issued to a bank affiliate (Note 9), which
entitled the holder to purchase up to 10% of the stock of Holdings at a nominal
exercise price. The holder of the warrants was also the holder of the Old Note.
The warrants were subject to anti-dilution covenants. The warrants expired the
later of ten years from closing or four years after the Old Note was repaid. The
holder of the warrants also had the right to "put" the warrants or stock to
Holdings at a price as specified in the agreement, beginning after the earlier
of five years from the closing, a sale or merger of the Company, or an event of
default on the Old Note.
On May 21, 1997, in conjunction with the merger of Hubbard and Old Windy
Hill and payment of the Old Note, the holder of the warrants exercised the
warrants in exchange for 416.667 shares of Series B preferred stock of Holdings,
111.11 shares of Class A common stock of Holdings, 27.77 shares of Class B
F-46
<PAGE> 117
WINDY HILL PET FOOD HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock of Holdings and was issued a PIK A-1 Promissory Note of Holdings in
the principal amount of $416,667.
NOTE 17 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, the ultimate outcome of any existing litigation will
not have a material adverse effect on the Company's financial condition or
results of operations.
NOTE 18 -- SUBSEQUENT EVENT (UNAUDITED)
On February 23, 1998, the Company acquired all of the assets of the pet
food division (the "AGP Business") of Consolidated Nutrition, L.C. The assets
acquired by the Company include four plants located in the states of Alabama,
Kansas, Missouri and Nebraska. The Company intends to use the acquired assets to
produce its current products. The purchase price was approximately $12.4
million. The acquisition was accounted for using the purchase method of
accounting. The Company financed the acquisition of the AGP Business and related
costs with a $12.5 million borrowing under the terms of its Acquisition
Facility.
F-47
<PAGE> 118
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Forward-looking Statements............ 9
Risk Factors.......................... 9
The Company........................... 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Dilution.............................. 18
Capitalization........................ 19
Unaudited Pro Forma Financial
Statements.......................... 20
Selected Consolidated Financial
Data................................ 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 38
Management............................ 47
Certain Transactions.................. 55
Principal and Selling Stockholders.... 58
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 63
Description of Senior Credit
Facility............................ 63
Description of Senior Subordinated
Notes............................... 64
Underwriting.......................... 66
Legal Matters......................... 68
Experts............................... 68
Available Information................. 69
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
16,250,000 SHARES
DOANE PET CARE ENTERPRISES LOGO
DOANE PET CARE
ENTERPRISES, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
CHASE SECURITIES INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 119
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
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 225,000
Printing expenses........................................... 350,000
Transfer Agent fees......................................... 10,000
Miscellaneous............................................... 428,650
----------
TOTAL............................................. $1,800,000
==========
</TABLE>
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 Ten of the Amended and 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 VI of the Registrant's Amended and
Restated 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 Amended and Restated
Bylaws were adopted or as may be thereafter amended.
Article VI of the Registrant's Amended and Restated 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 Eight of the Registrant's Amended and Restated Certificate of
Incorporation contains such a provision.
II-1
<PAGE> 120
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the 1996 Management Stock Purchase Plan and the 1997 Management
Stock Purchase Plan, 500,000 shares of Common Stock of the Company were sold for
$2.50 per share to certain key employees. The sales of such Common Stock were
deemed to be exempt from registration under Rule 701 of Regulation F under the
Securities Act. See "Management -- Stock Option and Stock Purchase Plans."
Pursuant to the 1996 Stock Option Plan, 543,672 shares of Common Stock have
been sold to certain employees as a result of the exercise of options, all at an
exercise price of $2.50 per share, including 298,000 shares purchased by Bob L.
Robinson and 200,000 shares purchased by Douglas J. Cahill. The sales of such
shares of Common Stock were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 of Regulation F thereof. See
"Management -- Stock Option Grants" and "-- Stock Option Exercises."
On August 3, 1998, the Company issued 6,366,168 shares of Common Stock to
certain stockholders of Windy Hill in connection with the Windy Hill
Acquisition. The issuances of such securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) thereof as
transactions by an issuer not involving any public offering. In addition, the
recipients of the securities in such transactions represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. To the Company's
knowledge, all recipients had adequate access, through their relationships with
the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of
Doane Pet Care Enterprises, Inc.
*3.2 -- Amended and Restated Bylaws of Doane Pet Care
Enterprises, Inc.
*4.1 -- Specimen Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
**9.1 -- Amended and Restated Investors' Agreement dated as of
August 3, 1998 among Doane Pet Care Enterprises, Inc.,
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
9.2 -- First Amendment to First Amended and Restated Investors'
Agreement dated as of October 14, 1998 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First Esc, L.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
(incorporated by reference to Exhibit 9.2 of Doane's
Registration Statement on Form S-4, Reg. No 333-70757
(the "Doane Form S-4")
</TABLE>
II-2
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*9.3 -- Second Amendment to First Amended and Restated Investors'
Agreement dated as of February 4, 1999 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First Esc, L.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
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
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
and Richard D. Wohlschlaeger (incorporated by reference
to Exhibit 10.4 to the Doane Form S-4)
10.5 -- Employment Agreement dated January 1, 1998, between Doane
and Richard A. Hannasch (incorporated by reference to
Exhibit 10.5 to the Doane Form S-4)
10.6 -- Employment Agreement dated January 1, 1998, between Doane
and David L. Horton (incorporated by reference to Exhibit
10.6 to the Doane Form S-4)
10.7 -- Doane Pet Care Enterprises, Inc.'s 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K for the year ended December 31, 1996)
10.8 -- 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)
10.9 -- Second Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.9 to the Doane 1997 Form 10-K)
*10.10 -- Doane Pet Care Enterprises, Inc.'s 1999 Stock Option Plan
10.11 -- 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 Company, Inc. on
Form 10-Q filed on May 12, 1998)
**10.12 -- Indenture, dated November 12, 1998 between Doane and
Wilmington Trust Company
**10.13 -- Revolving Credit and Term Loan Agreement dated as of
November 12, 1998 among Doane Pet Care Enterprises, Inc.,
Doane, DLJ Capital Funding, Inc., as syndication agent,
Mercantile Bank National Association, as documentation
agent, and The Chase Manhattan Bank, as administrative
agent, and the banks named therein
**21.1 -- List of subsidiaries of Doane Pet Care Enterprises, Inc.
*23.1 -- Consent of KPMG LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
**24.1 -- Powers of Attorney
*27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* Filed herewith.
** Previously filed.
(b) Consolidated Financial Statement Schedules, Years ended December 31,
1996, 1997 and 1998.
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
II-3
<PAGE> 122
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 4th day of March, 1999.
DOANE PET CARE ENTERPRISES, INC.
By /s/ THOMAS R. HEIDENTHAL
-----------------------------------
Thomas R. Heidenthal
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
* Chairman of the Board and Director March 4, 1999
- -----------------------------------------------------
George B. Kelly
* Chief Executive Officer, President March 4, 1999
- ----------------------------------------------------- and Director (Principal
Douglas J. Cahill Executive Officer)
/s/ THOMAS R. HEIDENTHAL Senior Vice President and Chief March 4, 1999
- ----------------------------------------------------- Financial Officer (Principal
Thomas R. Heidenthal Financial Officer and Principal
Accounting Officer)
* Director March 4, 1999
- -----------------------------------------------------
Peter T. Grauer
* Director March 4, 1999
- -----------------------------------------------------
M. Walid Mansur
Director March 4, 1999
- -----------------------------------------------------
Bob L. Robinson
* Director March 4, 1999
- -----------------------------------------------------
Jeffrey C. Walker
* Director March 4, 1999
- -----------------------------------------------------
Ray Chung
* Director March 4, 1999
- -----------------------------------------------------
Stephen C. Sherrill
*By: /s/ THOMAS R. HEIDENTHAL
------------------------------------------------
Thomas R. Heidenthal,
as attorney-in-fact
Dated: March 4, 1999
</TABLE>
II-5
<PAGE> 124
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of
Doane Pet Care Enterprises, Inc.
*3.2 -- Amended and Restated Bylaws of Doane Pet Care
Enterprises, Inc.
*4.1 -- Specimen Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
**9.1 -- Amended and Restated Investors' Agreement dated as of
August 3, 1998 among Doane Pet Care Enterprises, Inc.,
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
9.2 -- First Amendment to First Amended and Restated Investors'
Agreement dated as of October 14, 1998 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First Esc, L.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
(incorporated by reference to Exhibit 9.2 of the Doane
Form S-4)
*9.3 -- Second Amendment to First Amended and Restated Investors'
Agreement dated as of February 4, 1999 among Doane Pet
Care Company, Doane Pet Care Enterprises, Inc., Summit
Capital Inc., Summit/DPC Partners, L.P., Chase Manhattan
Investment Holdings, Inc., Baseball Partners, DLJ
Merchant Banking Partners, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ First Esc, L.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
and Douglas J. Cahill (incorporated by reference to
Exhibit 10.3 to the Doane 1997 Form 10-K)
10.3 -- Employment Agreement dated January 1, 1998, between Doane
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
and Richard D. Wohlschlaeger (incorporated by reference
to Exhibit 10.4 to the Doane Form S-4)
10.5 -- Employment Agreement dated January 1, 1998, between Doane
and Richard A. Hannasch (incorporated by reference to
Exhibit 10.5 to the Doane Form S-4)
10.6 -- Employment Agreement dated January 1, 1998, between Doane
and David L. Horton (incorporated by reference to Exhibit
10.6 to the Doane Form S-4)
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 -- Doane Pet Care Enterprises, Inc.'s 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K for the year ended December 31, 1996)
10.8 -- 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)
10.9 -- Second Amendment to Doane Pet Care Enterprises, Inc.'s
1996 Stock Option Plan (incorporated by reference to
Exhibit 10.9 to the Doane 1997 Form 10-K)
*10.10 -- Doane Pet Care Enterprises, Inc.'s 1999 Stock Option Plan
10.11 -- 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 Company, Inc. on
Form 10-Q filed on May 12, 1998)
**10.12 -- Indenture, dated November 12, 1998 between Doane and
Wilmington Trust Company
**10.13 -- Revolving Credit and Term Loan Agreement dated as of
November 12, 1998 among Doane Pet Care Enterprises, Inc.,
Doane, DLJ Capital Funding, Inc., as syndication agent,
Mercantile Bank National Association, as documentation
agent, and The Chase Manhattan Bank, as administrative
agent, and the banks named therein
**21.1 -- List of subsidiaries of Doane Pet Care Enterprises, Inc.
*23.1 -- Consent of KPMG LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
**24.1 -- Powers of Attorney
*27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
Shares
DOANE PET CARE ENTERPRISES, INC.
Common Stock
UNDERWRITING AGREEMENT
, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
SCHRODER & CO. INC.
CHASE SECURITIES INC.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Doane Pet Care Enterprises, Inc., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "UNDERWRITERS"), and certain stockholders of the Company
named in Schedule II hereto (the "SELLING STOCKHOLDERS") severally propose to
sell to the several Underwriters, an aggregate of _____________ shares of the
common stock, par value $0.0001 of the Company (the "FIRM SHARES"), of which
______________ shares are to be issued and sold by the Company and
______________ shares are to be sold by the Selling Stockholders, each Selling
Stockholder selling the amount set forth opposite such Selling Stockholder's
name in Schedule II hereto. Donaldson, Lufkin & Jenrette Securities
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Schroder & Co.
Inc. and Chase Securities Inc. shall act as representatives (the
"REPRESENTATIVES") of the several Underwriters.
The Company also proposes to issue and sell to the several
Underwriters not more than an additional _________________ shares of its
common stock, par value $0.0001 (the "ADDITIONAL SHARES") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the
Additional Shares are hereinafter referred to collectively as the "SHARES." The
shares of common stock of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON
STOCK." The Company and the Selling Stockholders are hereinafter sometimes
referred to collectively as the "SELLERS."
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the
<PAGE> 2
Commission thereunder (collectively, the "ACT"), a registration statement on
Form S-1, including a form of prospectus, relating to the Shares. The
registration statement, as amended at the time it became effective, including
the information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Act, is hereinafter
referred to as the "REGISTRATION STATEMENT"; and the prospectus in the form
first used to confirm sales of Shares is hereinafter referred to as the
"PROSPECTUS." If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "RULE 462(B) REGISTRATION
STATEMENT"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements.
On the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, (i) the Company agrees to issue and
sell _____________ Firm Shares, (ii) each Selling Stockholder agrees, severally
and not jointly, to sell the number of Firm Shares set forth opposite such
Selling Stockholder's name in Schedule II hereto and (iii) each Underwriter
agrees, severally and not jointly, to purchase from each Seller at a price per
Share of $______ (the "PURCHASE PRICE") the number of Firm Shares (subject to
such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the total number of Firm Shares to be sold by such
Seller as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to __________ Additional Shares from
the Company at the Purchase Price. Additional Shares may be purchased solely
for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. The Underwriters may exercise their right to
purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Company within 30 days after the date of this
Agreement. The Representatives shall give any such notice on behalf of the
Underwriters and such notice shall specify the aggregate number of Additional
Shares to be purchased pursuant to such exercise and the date for payment and
delivery thereof, which date shall be a business day (i) no earlier than two
business days after such notice has been given (and, in any event, no earlier
than the Closing Date (as hereinafter defined)) and (ii) no later than ten
business days after such notice has been given. If any Additional Shares are
to be purchased, each Underwriter, severally and not jointly, agrees to
purchase from the Company the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number
of Firm Shares.
Each Seller hereby agrees 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
-2-
<PAGE> 3
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, or such other securities, in cash or otherwise), except to the
Underwriters pursuant to this Agreement, for a period of 180 days after the
date of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. Notwithstanding the foregoing, during such
period (i) the Company may grant stock options pursuant to the Company's
existing stock option plan and (ii) the Company may issue shares of Common
Stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof. The Company also agrees not to file any
registration statement with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. In addition,
each Selling Stockholder agrees that, for a period of 180 days after the date
of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, it will not make any demand for, or exercise
any right with respect to, the registration of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock. The Company shall, prior to or concurrently with the execution of this
Agreement, deliver an agreement executed by (i) each Selling Stockholder, (ii)
each of the directors and officers of the Company who is not a Selling
Stockholder and (iii) each stockholder listed on Annex I hereto to the effect
that such person will not, during the period commencing on the date such person
signs such agreement and ending 180 days after the date of the Prospectus,
without the prior written consent of Donaldson, Lufkin & Jenrette Corporation,
(A) engage in any of the transactions described in the first sentence of this
paragraph or (B) make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock.
The Company and the Selling Stockholders hereby confirm their
engagement of Merrill Lynch, Pierce, Fenner & Smith Incorporated as, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated hereby confirms its
agreement with the Company and the Selling Stockholders to render services as,
a "qualified independent underwriter," within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. with
respect to the offering and sale of the Shares. Merrill Lynch, Pierce, Fenner
& Smith Incorporated, solely in its capacity as the qualified independent
underwriter and not otherwise, is referred to herein as the "QIU." The price
at which the Shares will be sold to the public shall not be higher than the
maximum price recommended by the QIU.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
-3-
<PAGE> 4
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations
and registered in such names as Donaldson, Lufkin & Jenrette Securities
Corporation shall request no later than two business days prior to the Closing
Date or the applicable Option Closing Date (as defined below), as the case may
be. The Shares shall be delivered by or on behalf of the Sellers, with any
transfer taxes thereon duly paid by the respective Sellers, to Donaldson,
Lufkin & Jenrette Securities Corporation through the facilities of The
Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against payment to the Sellers of the Purchase Price therefore by
wire transfer of Federal or other funds immediately available in New York City.
The certificates representing the Shares shall be made available for inspection
not later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time
and date of delivery and payment for the Firm Shares shall be 9:00 A.M., New
York City time, on ________, 1999 or such other time on the same or such other
date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company
shall agree in writing. The time and date of delivery and payment for the Firm
Shares are hereinafter referred to as the "CLOSING DATE". The time and date of
delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by the Representatives pursuant to
Section 2 or such other time on the same or such other date as Donaldson,
Lufkin & Jenrette Securities Corporation and the Company shall agree in
writing. The time and date of delivery and payment for any Additional Shares
are hereinafter referred to as an "OPTION CLOSING DATE."
The documents to be delivered on the Closing Date or any Option
Closing Date on behalf of the parties hereto pursuant to Section 9 of this
Agreement shall be delivered at the offices of Andrews & Kurth L.L.P., 600
Travis, Suite 4200, Houston, Texas 77002 and the Shares shall be delivered at
the Designated Office, all on the Closing Date or such Option Closing Date, as
the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm
such advice in writing, (i) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus or
for additional information, (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, (iii) when
any amendment to the Registration Statement becomes effective, (iv) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration Statement
has become effective and (v) of the happening of any event during the period
referred to in Section 5(d) below which makes any statement of a material fact
made in the Registration Statement or the Prospectus untrue or which requires
any additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any
-4-
<PAGE> 5
stop order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(b) To furnish to you five signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated
by you such number of conformed copies of the Registration Statement as so
filed and of each amendment to it, without exhibits, as you may reasonably
request.
(c) To prepare the Prospectus, the form and substance of which
shall be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been
advised or to which you shall reasonably object after being so advised; and,
during such period, to prepare and file with the Commission, promptly upon your
reasonable request, any amendment to the Registration Statement or amendment or
supplement to the Prospectus which may be necessary or advisable in connection
with the distribution of the Shares by you, and to use its best efforts to
cause any such amendment to the Registration Statement to become promptly
effective.
(d) Prior to 10:00 A.M., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to
prepare and, subject to Section 5(c), file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with applicable law, and to furnish to each Underwriter and to any
dealer as many copies thereof as such Underwriter or dealer may reasonably
request.
(f) Prior to any public offering of the Shares, to cooperate with
you and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other
-5-
<PAGE> 6
documents as may be necessary in order to effect such registration or
qualification; provided, however, that the Company shall not be required in
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters and
transactions relating to the Prospectus, the Registration Statement, any
preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as
soon as practicable an earnings statement covering the twelve-month period
ending March 31, 2000 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports or
other communications furnished to the record holders of Common Stock or
furnished to or filed with the Commission or any national securities exchange
on which any class of securities of the Company is listed and such other
publicly available information concerning the Company and its subsidiaries as
you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel, the Company's accountants and any Selling Stockholder's
counsel (in addition to the Company's counsel) in connection with the
registration and delivery of the Shares under the Act and all other fees and
expenses in connection with the preparation, printing, filing and distribution
of the Registration Statement (including financial statements and exhibits),
any preliminary prospectus, the Prospectus and all amendments and supplements
to any of the foregoing, including the mailing and delivering of copies thereof
to the Underwriters and dealers in the quantities specified herein, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) all
costs of printing or producing this Agreement and any other agreements or
documents in connection with the offering, purchase, sale or delivery of the
Shares, (iv) all expenses in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any Preliminary and
Supplemental Blue Sky Memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Underwriters in connection
with such registration or qualification and memoranda relating thereto), (v)
the filing fees and disbursements of counsel for the Underwriters in connection
with the review and clearance of the offering of the Shares by the National
Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the preparation and filing of the registration statement on
Form 8-A relating to the Common Stock and all costs and expenses incident to
the listing for quotation of the Shares on the Nasdaq National Market and other
national securities exchanges and foreign stock exchanges, (vii) the cost of
printing certificates representing the Shares, (viii) the costs and charges of
any transfer agent, registrar and/or depositary, (ix) the fees and expenses of
the QIU (including the fees and disbursements of counsel to the QIU), and (x)
all other costs and expenses
-6-
<PAGE> 7
incident to the performance of the obligations of the Company and the Selling
Stockholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supersede or otherwise
affect any agreement that the Company and the Selling Stockholders may
otherwise have for allocation of such expenses among themselves.
(j) To use its best efforts to list the Shares for quotation on
the Nasdaq National Market and to maintain the listing of the Shares for
quotation on the Nasdaq National Market for a period of three years after the
date of this Agreement.
(k) To use its best efforts to do and perform all things required
or necessary to be done and performed under this Agreement by the Company prior
to the Closing Date or any Option Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness
of this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on
the date of this Agreement and to pay to the Commission the filing fee for such
Rule 462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
(m) The Company will, for so long as any of the Common Stock is
outstanding and if, in the reasonable judgment of any Underwriter, such
Underwriter or any of its affiliates (as defined in the Act) is required to
deliver a prospectus in connection with sales of Common Stock (i) periodically
amend the Registration Statement so that the information contained in the
Registration Statement complies with the requirements of Section 10(a) of the
Act, (ii) amend the Registration Statement or amend or supplement the
Prospectus when necessary to reflect any material changes in the information
provided therein and promptly file such amendment or supplement with the
Commission, (iii) provide such Underwriter with copies of each amendment or
supplement so filed and such other documents, including opinions of counsel and
"comfort" letters, as such Underwriter may reasonably request and (iv)
indemnify such Underwriter and if applicable, contribute to any amount paid or
payable by such Underwriter in a manner substantially identical to the
specified in Section 7 hereof (with appropriate modifications).
SECTION 6. Representations and Warranties of the Company. The
Company represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
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(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (B) will comply in all material respects with the Act and
(iv) the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in any preliminary prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(d) Each of the Company and its subsidiaries as set forth on
Exhibit 21.1 to the Registration Statement has been duly incorporated or
organized, is validly existing as a corporation or other entity in good
standing under the laws of its jurisdiction of incorporation or formation and
has the corporate or other power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its properties, and
each is duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens granted or
issued by the Company or any of its subsidiaries relating to or entitling any
person to purchase or otherwise to acquire any shares of the capital stock of
the Company or any of its subsidiaries, except as otherwise disclosed in the
Registration Statement.
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<PAGE> 9
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares to be issued and
sold by the Company have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this Agreement, will
be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (i) require
any consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound, (iii) violate
or conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv)
result in the suspension, termination or revocation of any Authorization (as
defined below) of the Company or any of its subsidiaries or any other
impairment of the rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus
and are not so described; nor are there any statutes, regulations, contracts or
other
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<PAGE> 10
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated
any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or any provisions of the Foreign Corrupt Practices Act or the rules and
regulations promulgated thereunder, except for such violations which, singly or
in the aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operation of the Company and its
subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and notices to,
all governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole. Each such Authorization is
valid and in full force and effect and each of the Company and its subsidiaries
is in compliance with all the terms and conditions thereof and with the rules
and regulations of the authorities and governing bodies having jurisdiction
with respect thereto; and no event has occurred (including, without limitation,
the receipt of any notice from any authority or governing body) which allows
or, after notice or lapse of time or both, would allow, revocation, suspension
or termination of any such Authorization or results or, after notice or lapse
of time or both, would result in any other impairment of the rights of the
holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by the
Company.
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(p) KPMG Peat Marwick L.L.P. are independent public accountants
with respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated therein at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; the supporting schedules, if
any, included in the Registration Statement present fairly in accordance with
generally accepted accounting principles the information required to be stated
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books and
records of the Company.
(r) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company or to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement),
(i) there has not occurred any material adverse change or any development
involving a prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of the Company or any of
its subsidiaries and (iii) neither the Company nor any of its subsidiaries has
incurred any material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(v) The Company and its subsidiaries have good and indefeasible
title to all real property and good and marketable title to all personal
property owned by them and which is material to the business of the Company and
its subsidiaries, taken as a whole, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not
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<PAGE> 12
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries and which are material to the business of the
Company and its subsidiaries, taken as a whole, are held by them under valid,
subsisting and enforceable leases.
(w) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; and neither the Company nor any of its subsidiaries has
received notice from any insurer which indicates that the Company or such
subsidiary will not be able to renew its existing insurance coverage as and
when such coverage expires.
(x) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have
been prepared on a basis consistent with the historical financial statements of
the Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial
and statistical information and data set forth in the Registration Statement
and the Prospectus (and any supplement or amendment thereto) are, in all
material respects, accurately presented and prepared on a basis consistent with
the pro forma financial statements.
(y) All material tax returns required to be filed by the Company
and each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(z) Except as are not material to the business, prospects,
financial condition or results of operations of the Company, the Company has
such permits, licenses, franchises and authorizations of governmental or
regulatory authorities including the United States Food and Drug
Administration, the United States Department of Agriculture and the
Occupational Safety and Health Administration ("permits"), including, without
limitation, under any applicable Environmental Laws, as are necessary to own,
lease and operate their respective properties and to conduct its business; the
Company has fulfilled and performed all of its material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such permit;
and, except as described in the Prospectus, such permits contain no
restrictions that are materially burdensome to the Company.
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(aa) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(bb) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed therein by
Item 404 of Regulation S-K of the Commission.
(cc) Except as disclosed in the Prospectus, there is (i) no
significant unfair labor practice complaint pending against the Company or, to
the best knowledge of the Company, threatened against the Company, before the
National Labor Relations Board or any state or local labor relations board, and
no significant grievance or more significant arbitration proceeding arising out
of or under any collective bargaining agreement is so pending against the
Company or, to the best knowledge of the Company, threatened against the
Company, and (ii) no significant strike, labor dispute, slowdown or stoppage
pending against the Company or, to the best knowledge of the Company,
threatened against it except for such actions specified in clause (i) or (ii)
above, which, singly or in the aggregate, could not reasonably be expected to
have a material adverse effect.
SECTION 7. Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder represents and warrants to each
Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be sold
by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will
have, full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement signed
by such Selling Stockholder and _______________________ , as Custodian,
relating to the deposit of the Shares to be sold by such Selling Stockholder
(the "CUSTODY AGREEMENT") and the Power of Attorney of such Selling Stockholder
appointing certain individuals as such Selling Stockholder's attorneys-in-fact
(the "ATTORNEYS") to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement and the Custody Agreement
(the "POWER OF ATTORNEY") and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder in the manner provided herein and
therein.
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(d) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms.
(f) The Power of Attorney of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such
Selling Stockholder has, among other things, authorized the Attorneys, or any
one of them, to execute and deliver on such Selling Stockholder's behalf this
Agreement and any other document that they, or any one of them, may deem
necessary or desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling Stockholder
pursuant to this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and
the Custody Agreement and Power of Attorney of such Selling Stockholder by or
on behalf of such Selling Stockholder, the compliance by such Selling
Stockholder with all the provisions hereof and thereof and the consummation of
the transactions contemplated hereby and thereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over such Selling Stockholder
or any property of such Selling Stockholder.
(i) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any 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, in the light of the
circumstances under which they were made, not misleading.
(j) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(i), such Selling
Stockholder will immediately notify you of such change.
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<PAGE> 15
(k) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
SECTION 8. Indemnification of QIU. (a) The Company agrees to indemnify
and hold harmless the QIU, its directors, its officers and each person, if any,
who controls the QIU within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) related to, based upon or arising out of (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
QIU's activities as QIU under its engagement pursuant to Section 2 hereof,
except in the case of this clause (ii) insofar as any such losses, claims,
damages, liabilities or judgments are found in a final judgment by a court of
competent jurisdiction, not subject to further appeal, to have resulted solely
from the willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) (the "QIU
INDEMNIFIED PARTY"), the QIU Indemnified Party shall promptly notify the
Company in writing and the Company shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the QIU
Indemnified Party and the payment of all fees and expenses of such counsel, as
incurred. Any QIU Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the QIU Indemnified
Party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Company, (ii) the Company shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory to
the QIU Indemnified Party or (iii) the named parties to any such action
(including any impleaded parties) include both the QIU Indemnified Party and
the Company, and the QIU Indemnified Party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the Company (in which case
the Company shall not have the right to assume the defense of such action on
behalf of the QIU Indemnified Party). In any such case, the Company shall not,
in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all QIU
Indemnified Parties, which firm shall be designated by the QIU, and all such
fees and expenses shall be reimbursed as they are incurred. The Company shall
indemnify and hold harmless the QIU Indemnified Party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the Company shall have received a request from the QIU
Indemnified Party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the Company)
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and, prior to the date of such settlement, the Company shall have failed to
comply with such reimbursement request. The Company shall not, without the
prior written consent of the QIU Indemnified Party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any
pending or threatened action in respect of which the QIU Indemnified Party is
or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the QIU Indemnified Party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the QIU
Indemnified Party from all liability on claims that are or could have been the
subject matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the QIU
Indemnified Party.
(c) To the extent the indemnification provided for in this Section
8 is unavailable to a QIU Indemnified Party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then the
Company, in lieu of indemnifying such QIU Indemnified Party, shall contribute
to the amount paid or payable by such QIU Indemnified Party as a result of such
losses, claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault of the
Company on the one hand and the QIU on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the QIU on the other hand shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received
by the Company as set forth in the table on the cover page of the Prospectus,
and the fee received by the QIU pursuant to Section 2 hereof, bear to the sum
of such total net proceeds and such fee. The relative fault of the Company on
the one hand and the QIU 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 supplied by the Company or the QIU and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission and whether the QIU's activities as QIU
under its engagement pursuant to Section 2 hereof involved any willful
misconduct or gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and equitable
if contribution pursuant to this Section 8(c) 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 a QIU Indemnified Party as a result
of the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such QIU
Indemnified Party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
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(d) The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any QIU Indemnified Party at law or in equity.
SECTION 9. Indemnification. (a) The Sellers, jointly and severally,
agree to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement 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 necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company by
such Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter who failed to deliver a
Prospectus, as then amended or supplemented, (so long as the Prospectus and any
amendment or supplement thereto was provided by the Company to the several
Underwriters in the requisite quantity and on a timely basis to permit proper
delivery on or prior to the Closing Date) to the person asserting any losses,
claims, damages, liabilities or judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in the preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or alleged
material misstatement or omission was cured in the Prospectus, as so amended or
supplemented, and such Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person. Notwithstanding the
foregoing, the aggregate liability of any Selling Stockholder pursuant to this
Section 9(a) shall be limited to an amount equal to the total proceeds (before
deducting underwriting discounts and commissions and expenses) received by such
Selling Stockholder from the Underwriters for the sale of the Shares sold by
such Selling Stockholder hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Selling Stockholder and each person, if any, who controls such Selling
Stockholder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Sellers to
such Underwriter but only with reference to information relating to such
Underwriter furnished in writing to the Company by such Underwriter through you
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<PAGE> 18
expressly for use in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 9(a) or 9(b) (the
"INDEMNIFIED PARTY"), the 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 of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 9(a) and 9(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 9(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for (i) the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for all
Underwriters, their officers and directors and all persons, if any, who control
any Underwriter within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act, (ii) the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for the Company, its
directors, its officers who sign the Registration Statement and all persons, if
any, who control the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Selling Stockholders and all persons, if
any, who control any Selling Stockholder within the meaning of either such
Section, and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation. In the case of any such separate firm for the Company and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm
for the Selling Stockholders and such control persons of any Selling
Stockholders, such firm shall be designated in writing by the Attorneys. The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without
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<PAGE> 19
its written consent if the settlement is entered into more than twenty business
days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could
have been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this Section
9 is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each 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, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause 9(d)(i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 9(d)(i) above
but also the relative fault of the Sellers on the one hand and the Underwriters
on the other hand in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand shall be deemed
to be in the same proportion as the total net proceeds from the offering (after
deducting underwriting discounts and commissions, but before deducting
expenses) received by the Sellers, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Sellers on the one hand and the
Underwriters 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 supplied by the Company or the Selling Stockholders on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) 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, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in
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<PAGE> 20
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the 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. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9(d) are several in proportion to the respective
number of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 9 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates Doane Pet Care
Enterprises, Inc., 103 Powell Court, Suite 200, Brentwood, Tennessee, 37027, as
its authorized agent, upon which process may be served in any action which may
be instituted in any state or federal court in the State of New York by any
Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 9, and each Selling Stockholder
will accept the jurisdiction of such court in such action, and waives, to the
fullest extent permitted by applicable law, any defense based upon lack of
personal jurisdiction or venue. A copy of any such process shall be sent or
given to such Selling Stockholder, at the address for notices specified in
Section 13 hereof.
SECTION 10. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Douglas J. Cahill and Thomas R. Heidenthal,
in their capacities as the Chief Executive Officer and Principal Financial
Officer of the Company, respectively, confirming the matters set
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<PAGE> 21
forth in Sections 6(t), 10(a) and 10(b) and that the Company has complied with
all of the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by the Company on or prior to the
Closing Date.
(d) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement),
(i) there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken
as a whole, (ii) there shall not have been any change or any development
involving a prospective change in the capital stock or in the long-term debt of
the Company or any of its subsidiaries and (iii) neither the Company nor any of
its subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 10(d)(i),
10(d)(ii) or 10(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you
shall have received on the Closing Date a certificate dated the Closing Date
from each Selling Stockholder to such effect and to the effect that such
Selling Stockholder has complied with all of the agreements and satisfied all
of the conditions herein contained and required to be complied with or
satisfied by such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Vinson &
Elkins L.L.P., counsel for the Company and the Selling Stockholders, to the
effect that:
(i) each of the Company and its subsidiaries has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its
properties;
(ii) each of the Company and its subsidiaries is duly
qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
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<PAGE> 22
(iv) the Shares to be issued and sold by the Company
hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights;
(v) all of the outstanding shares of capital stock of
each of the Company's subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable, and are owned by
the Company, directly or indirectly through one or more subsidiaries,
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and by or on behalf of each Selling
Stockholder;
(vii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the
Prospectus;
(viii) the Registration Statement has become effective under
the Act, no stop order suspending its effectiveness has been issued
and no proceedings for that purpose are, to the best of such counsel's
knowledge after due inquiry, pending before or contemplated by the
Commission;
(ix) the statements under the captions "Management,"
"Certain Transactions," "Description of New Credit Facility,"
"Description of the Senior Subordinated Notes," "Description of
Capital Stock" and "Underwriting" in the Prospectus and Items 14 and
15 of Part II of the Registration Statement, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor
any of its subsidiaries is in default in the performance of any
obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken
as a whole, to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or their respective
property is bound;
(xi) the execution, delivery and performance of this
Agreement by the Company, the compliance by the Company with all the
provisions hereof and the consummation of the transactions
contemplated hereby will not (A) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (B) conflict with
or constitute a breach of any of the terms or provisions of, or a
default
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under, the charter or by-laws of the Company or any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, (C) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their
respective property or (D) result in the suspension, termination or
revocation of any Authorization of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of
any such Authorization;
(xii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is or could be a party or to which
any of their respective property is or could be subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not so described or filed as
required;
(xiii) neither the Company nor any of its subsidiaries has
violated any Environmental Law, any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations
promulgated thereunder, except for such violations which, singly or in
the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of
the Company and its subsidiaries, taken as a whole;
(xiv) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary
to own, lease, license and operate its respective properties and to
conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly
or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole; each such Authorization is
valid and in full force and effect and each of the Company and its
subsidiaries is in compliance with all the terms and conditions
thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and no
event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension
or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the
rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the
Company or any of its subsidiaries; except where such failure to be
valid and in full force and effect or to be in compliance, the
occurrence of any such event or the
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<PAGE> 24
presence of any such restriction would not, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
(xvi) to the best of such counsel's knowledge after due
inquiry, there are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement;
(xvii) (A) the Registration Statement and the Prospectus and
any supplement or amendment thereto (except for the financial
statements and other financial data included therein as to which no
opinion need be expressed) comply as to form with the Act, (B) such
counsel has no reason to believe that at the time the Registration
Statement became effective or on the date of this Agreement, the
Registration Statement and the prospectus included therein (except for
the financial statements and other financial data as to which such
counsel need not express any belief) contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (C) such counsel has no reason to believe that the
Prospectus, as amended or supplemented, if applicable (except for the
financial statements and other financial data, as aforesaid) contains
any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(xviii) each Selling Stockholder is the lawful owner of the
Shares to be sold by such Selling Stockholder pursuant to this
Agreement and has good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever;
(xix) each Selling Stockholder has full legal right, power
and authority, and all authorization and approval required by law, to
enter into this Agreement and the Custody Agreement and the Power of
Attorney of such Selling Stockholder and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder in the
manner provided herein and therein;
(xx) the Custody Agreement of each Selling Stockholder has
been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms;
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<PAGE> 25
(xxi) the Power of Attorney of each Selling Stockholder has
been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding instrument of such Selling
Stockholder, enforceable in accordance with its terms, and, pursuant
to such Power of Attorney, such Selling Stockholder has, among other
things, authorized the Attorneys, or any one of them, to execute and
deliver on such Selling Stockholder's behalf this Agreement and any
other document they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and
thereby and to deliver the Shares to be sold by such Selling
Stockholder pursuant to this Agreement;
(xxii) upon delivery of and payment for the Shares to be
sold by each Selling Stockholder pursuant to this Agreement, good and
clear title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever; and
(xxiii) the execution, delivery and performance of this
Agreement and the Custody Agreement and Power of Attorney of each
Selling Stockholder by such Selling Stockholder, the compliance by
such Selling Stockholder with all the provisions hereof and thereof
and the consummation of the transactions contemplated hereby and
thereby will not (A) require any consent, approval, authorization or
other order of, or qualification with, any court or governmental body
or agency (except such as may be required under the securities or Blue
Sky laws of the various states), (B) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which such Selling
Stockholder is a party or by which any property of such Selling
Stockholder is bound or (C) violate or conflict with any applicable
law or any rule, regulation, judgment, order or decree of any court or
any governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
The opinion of Vinson & Elkins L.L.P. described in Section 10(f) above
shall be rendered to you at the request of the Company and the Selling
Stockholders and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Andrews & Kurth L.L.P., counsel for the Underwriters, as
to the matters referred to in Sections 10(f)(iv), 10(f)(vi) (but only with
respect to the Company), 10(f)(ix) (but only with respect to the statements
under the caption "Description of Capital Stock" and "Underwriting") and
10(f)(xvii).
In giving such opinions with respect to the matters covered by Section
10(f)(xvii), Vinson & Elkins L.L.P. and Andrews & Kurth L.L.P. may state that
their opinion and belief are based upon their participation in the preparation
of the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
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<PAGE> 26
(h) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from KPMG Peat Marwick
L.L.P., independent public accountants, containing the information and
statements of the type ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholders shall not have failed
on or prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company
or the Selling Stockholders, as the case may be, on or prior to the Closing
Date.
(l) You shall have received on the Closing Date a certificate of
each Selling Stockholder who is not a Person (as defined under applicable
federal tax legislation) to the effect that such Selling Stockholder is not a
Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form
or statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to the Representatives on the
applicable Option Closing Date of such documents as they may reasonably
request with respect to the good standing of the Company, the due authorization
and issuance of such Additional Shares and other matters related to the
issuance of such Additional Shares.
SECTION 11. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by written notice to the Sellers if any of the following
has occurred: (i) any outbreak or escalation of hostilities or other national
or international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus, (ii)
the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
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<PAGE> 27
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not
more than one-tenth of the total number of Firm Shares or Additional Shares, as
the case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule I and
II bears to the total number of Firm Shares which all the non-defaulting
Underwriters have agreed to purchase, or in such other proportion as you may
specify, to purchase the Firm Shares or Additional Shares, as the case may be,
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Shares
which any Underwriter has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If on
the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Firm Shares to be purchased by all Underwriters and arrangements satisfactory
to you, the Company and the Selling Stockholders for purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case which does not result
in termination of this Agreement, either you or the Sellers shall have the
right to postpone the Closing Date, but in no event for longer than seven days,
in order that the required changes, if any, in the Registration Statement and
the Prospectus or any other documents or arrangements may be effected. If, on
an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
SECTION 12. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
-27-
<PAGE> 28
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
SECTION 13. Miscellaneous. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (i) if to the Company, to
Doane Pet Care Enterprises, Inc., 103 Powell Court, Suite 200, Brentwood,
Tennessee, 37027, Attn: President, (ii) if to the Selling Stockholders, to
[NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS OF ATTORNEY-IN-FACT] and (iii) if to
any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and
the several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, any QIU
Indemnified Party, the Company, the officers or directors of the Company, any
person controlling the Company, any Selling Stockholder or any person
controlling such Selling Stockholder, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 11), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including
the fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers, any persons controlling any of the Underwriters and the
QIU Indemnified Parties for any and all fees and expenses (including, without
limitation, the fees disbursements of counsel) incurred by them in connection
with enforcing their rights hereunder (including, without limitation, pursuant
to Section 9 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the QIU Indemnified Parties, the
Company's directors and the Company's officers who sign the Registration
Statement and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term
-28-
<PAGE> 29
"successors and assigns" shall not include a purchaser of any of the Shares
from any of the several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
-29-
<PAGE> 30
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
DOANE PET CARE ENTERPRISES, INC.
By:
Title:__________________________________
THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE II HERETO, ACTING
SEVERALLY
By:_________________________________________
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SCHRODER & CO. INC.
CHASE SECURITIES INC.
Acting severally on behalf of themselves and
the several Underwriters named in Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: ___________________________
-30-
<PAGE> 31
SCHEDULE I
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Schroder & Co. Inc.
Chase Securities Inc.
Total
-1-
<PAGE> 32
SCHEDULE II
Selling Stockholders
Name Number of Firm
Shares Being Sold
Total
-2-
<PAGE> 33
Annex I
[Insert names of stockholders of the Company who will be required to sign lock
ups]
-3-
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOANE PET CARE ENTERPRISES, INC.
FIRST: The name of the Corporation is Doane Pet Care Enterprises, Inc. (the
"Corporation").
SECOND: The address of its registered office in the State of Delaware is
The Corporation Trust Company, 1209 Orange Street, City of Wilmington, County of
New Castle, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD: The nature of the business, or purpose to be conducted or promoted,
is to engage in any lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is eighty million (80,000,000) shares, of which
sixty-five million (65,000,000) shares shall be designated Class A Common Stock,
par value $.0001 per share (the "Class A Common Stock"); of which five million
(5,000,000) shares shall be designated Class B Common Stock, par value $.0001
per share (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock") and of which ten million (10,000,000) shares shall be
designated Preferred Stock, par value $.01 per share (the "Preferred Stock").
Except as otherwise provided in this Article Fourth or as otherwise
required by Applicable Law (as defined below), all shares of Class A Common
Stock and Class B Common Stock shall be identical in all respects and shall
entitle the holders thereof to identical rights, preferences, privileges and
immunities.
The Preferred Stock may be divided into and issued from time to time in one
or more series as may be fixed and determined by the Board of Directors. The
relative rights and preferences of the Preferred Stock of each series shall be
such as shall be stated in any resolution or resolutions adopted by the Board of
Directors setting forth the designation of the series and fixing and determining
the relative rights and preferences thereof, any such resolution or resolutions
being herein called a "Directors' Resolution." The Board of Directors is hereby
authorized to fix and determine such variations in the designations,
preferences, and relative, participating, optional or other special rights
(including, without limitation, special voting rights, preferential rights to
receive dividends or assets upon liquidation, rights of conversion into Common
Stock or other securities, redemption provisions or sinking fund provisions) as
between series and as between the Preferred Stock or any series thereof and the
Common Stock, and the qualifications, limitations or restrictions of such
rights, all as shall be stated in a Directors' Resolution, and the shares of
Preferred Stock or any series thereof may have full or limited voting powers, or
be without voting powers, all as shall be stated in a Directors' Resolution.
<PAGE> 2
A. Voting Rights.
1. Class A Common Stock. Except as otherwise required by Applicable Law,
each outstanding share of Class A Common Stock shall be entitled to vote on each
matter on which the stockholders of the Corporation shall be entitled to vote,
and each holder of Class A Common Stock shall be entitled to one vote for each
share of such stock held by such holder. Except as otherwise provided by law,
the Class A Common Stock shall possess full and complete voting power for the
election of directors.
2. Class B Common Stock. Except as set forth herein or as otherwise
required by Applicable Law, each outstanding share of Class B Common Stock shall
not be entitled to vote on any matter on which the stockholders of the
Corporation shall be entitled to vote, and shares of Class B Common Stock shall
not be included in determining the number of shares voting or entitled to vote
on any such matters; provided that the holders of Class B Common Stock shall
have the right to vote as a separate class on any merger or consolidation of the
Corporation with or into another entity or entities (other than a merger that
does not result in any reclassification, conversion, exchange or cancellation of
the Common Stock) and any recapitalization or reorganization, in which merger,
consolidation, recapitalization or reorganization shares of Class B Common Stock
would receive or be exchanged for consideration different on a per share basis
from consideration received with respect to or in exchange for the shares of
Class A Common Stock or would otherwise be treated differently from shares of
Class A Common Stock in connection with such transaction, except that shares of
Class B Common Stock may, without being entitled to such a separate class vote,
receive or be exchanged in any such transaction for non-voting securities which
are otherwise identical on a per share basis in amount and form to the voting
securities received with respect to or exchanged for the Class A Common Stock so
long as (a) such non-voting securities are convertible into such voting
securities on the same terms as the Class B Common Stock is convertible into
Class A Common Stock and (b) all other consideration is equal on a per share
basis.
If the Class B Common Stock shall be entitled to vote as a class with
respect to any matter under the provisions of the laws of the State of Delaware,
the vote or concurrence of the holders of a majority of the outstanding shares
of Class B Common Stock shall be required for approval of such matter, unless
otherwise expressly required by law (and then only to the extent so required).
If the Class A Common Stock and the Class B Common Stock shall be entitled to
vote together as a single class with respect to any action under the provisions
of the law of the State of Delaware, the vote or concurrence of the holders of a
majority of the aggregate outstanding shares of Class A Common Stock and Class B
Common Stock, voting together as a single class, shall be required for approval
of such action, unless otherwise expressly required by Delaware law (and then
only to the extent so required).
B. Dividends. Any dividend or distribution on the Common Stock shall be
payable on shares of Class A Common Stock and Class B Common Stock, share and
share alike; provided, that, in the case of dividends payable in shares of
Common Stock of the Corporation, the shares so payable shall
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<PAGE> 3
be payable in shares of Common Stock of the same class upon which the dividend
or distribution is being paid.
C. Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation, and after payment
of any amounts due under the terms of any class or series of stock senior to the
Class A Common Stock or Class B Common Stock as to dividends or upon
liquidation, the holders of shares of Class A Common Stock and Class B Common
Stock shall be entitled to share ratably, share and share alike, in the
remaining net assets of the Corporation.
D. Conversion.
1. Conversion of Class A Common Stock. Subject to and upon compliance with
the provisions of this Section D, each record holder of Class A Common Stock
shall be entitled to convert, at any time and from time to time, any or all of
the shares of Class A Common Stock held by such stockholder into the same number
of shares of Class B Common Stock, but only to the extent necessary to enable
compliance by a Person, or its Bank Holding Company Affiliates (as defined
below), with the requirements of Regulation Y or other bank regulatory statute,
rule or regulation.
2. Conversion of Class B Common Stock. Subject to and upon compliance with
the provisions of this Section D, each record holder of Class B Common Stock
shall be entitled at any time and from time to time, to convert any or all of
the shares of Class B Common Stock held by such stockholder into the same number
of shares of Class A Common Stock.
3. Conversion Procedure. Each conversion of shares of Common Stock of the
Corporation into shares of another class of Common Stock of the Corporation
shall be effected by the surrender of the certificate or certificates
representing the shares to be converted (the "Converting Shares") at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by written notice to the holders of
Common Stock) at any time during its usual business hours, together with written
notice by the holder of such Converting Shares, stating that such holder desires
to convert the Converting Shares, or a stated number of the shares represented
by such certificate or certificates, into an equal number of shares of the class
into which such shares may be converted (the "Converted Shares"). Such notice
shall also state the name or names with addresses and denomination in which the
certificate or certificates for Converted Shares are to be issued and shall
include instructions for the delivery thereof. Promptly after such surrender and
the receipt of such written notice, the Corporation will issue and deliver in
accordance with the surrendering holder's instructions the certificate or
certificates evidencing the Converted Shares issuable upon such conversion and
the Corporation will deliver to the converting holder a certificate (which shall
contain such legends as were set forth on the surrendered certificate or
certificates) representing any shares which were represented by the certificate
or certificates that were delivered to the Corporation in connection with such
conversion, but which were not converted. Such conversion, to the extent
permitted by law, shall be deemed to have been effected as of the close of
3
<PAGE> 4
business on the date on which such certificate or certificates shall have been
surrendered and such notice shall have been received by the Corporation, and at
such time the rights of the holder of the Converting Shares as such holder shall
cease and the person or persons in whose name or names the certificate or
certificates for the Converted Shares are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the Converted
Shares. Upon issuance of shares in accordance with this Section D, such
Converted Shares shall be deemed to be duly authorized, validly issued, fully
paid and non-assessable. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any Applicable Law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance).
4. Certain Legal Requirements.
(a) No CMIHI Holder (as defined below) subject to the provisions of
Regulation Y (as defined below) shall, and no such CMIHI Holder shall permit any
of its Affiliates to, convert any shares of Class B Common Stock held by it into
shares of Class A Common Stock if, after giving effect to such conversion, (i)
such CMIHI Holder and its Affiliates would own more than 5% (or such higher
percentage as is permitted by the statutes, rules and regulations applicable to
bank holding companies and their Affiliates at the time of conversion) of the
total issued and outstanding shares of Class A Common Stock (the excess amount
of such shares of Class A Common Stock, the "Excess Shares"), or (ii) such CMIHI
Holder would be deemed under Regulation Y to control the Corporation; provided,
however, that any CMIHI Holder shall be entitled to effect such conversion, and
the Corporation shall effect such conversion, upon receipt by the Corporation of
a written representation from such CMIHI Holder stating that (A) the conversion
of shares of Class B Common Stock into the Excess Shares will occur only in
connection with a Permitted Transfer (as defined below) of such Excess Shares
other than a transfer to another CMIHI Holder, (B) the Excess Shares will not be
voted by such CMIHI Holder prior to the Permitted Transfer, and (C) the Excess
Shares will be promptly converted back into shares of Class B Common Stock if
the Permitted Transfer of such Excess Shares does not occur within the
period specified by the CMIHI Holder for such Permitted Transfer in such
representation. The Corporation shall be entitled to conclusively rely on a
written representation from such CMIHI Holder as to the compliance of any
proposed conversion with this Section 4(D)(4)(a).
(b) No CMIHI Holder shall transfer any shares of Class B Common Stock held
by it to any Person other than pursuant to a Permitted Transfer (as defined
below) of such shares of Class B Common Stock. The Corporation shall be entitled
to conclusively rely on a written representation from such CMIHI Holder as to
the compliance of any proposed transfer with this Section 4(D)(4)(b).
5. Stock Splits; Adjustments. If the Corporation shall in any manner
subdivide (by stock split, stock dividend or otherwise) or combine (by reverse
stock split or otherwise) the outstanding shares of the Class A Common Stock or
the Class B Common Stock, then the outstanding shares of each other class of
Common Stock shall be subdivided or combined, as the case may be, to the same
4
<PAGE> 5
extent, share and share alike, and effective provision shall be made for the
protection of the conversion rights hereunder.
In case of any reorganization, reclassification or change of shares of the
Class A Common Stock or Class B Common Stock (other than a change in par value
or from par to no par value or as a result of subdivision or combination), or in
case of any consolidation of the Corporation with one or more corporations or a
merger of the Corporation with another corporation (other than a consolidation
or merger in which the Corporation is the resulting or surviving corporation and
which does not result in any reclassification or change of outstanding shares of
Class A Common Stock or Class B Common Stock), each holder of a share of Class A
Common Stock or Class B Common Stock shall have the right at any time
thereafter, so long as the conversion right hereunder with respect to such share
would exist had such event not occurred, to convert such share into the kind and
amount of shares of stock and other securities and properties (including cash)
receivable upon such reorganization, reclassification, change, consolidation or
merger by a holder of the number of shares of Class A Common Stock or Class B
Common Stock into which such shares of Class A Common Stock or Class B Common
Stock, as the case may be, might have been converted immediately prior to such
reorganization, reclassification, change, consolidation or merger. In the event
of such reorganization, reclassification, change, consolidation or merger,
effective provision shall be made in the certificate of incorporation of the
resulting or surviving corporation or otherwise for the protection of the
conversion rights of the shares of Class A Common Stock and Class B Common Stock
that shall be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities and property deliverable upon conversion of
such shares of Class A Common Stock or Class B Common Stock into which such
Class A Common Stock or Class B Common Stock might have been converted
immediately prior to such event.
E. Definitions. As used herein, the following terms shall have the meanings
below:
1. "Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.
2. "Applicable Law" shall mean all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates, writs, decrees or orders
of any governmental authority applicable to the Person in question or any of its
asset or property.
3. "Bank Holding Company Affiliate" shall mean, with respect to any
stockholder of the Corporation subject to the provisions of Regulation Y, (i) if
such stockholder is a bank holding company, any company controlled by such bank
holding company, and (ii) otherwise, the bank holding company that controls such
stockholder and any Person (other than such stockholder) controlled by such bank
holding company.
4. "CMIHI" shall mean Chase Manhattan Investment Holdings, Inc.
5
<PAGE> 6
5. "CMIHI Holder" means CMIHI or any of its Affiliates that hold Class B
Common Stock.
6. "Excess Shares" shall have the meaning given to such term in Section
4(D)(4)(a) above.
7. "Permitted Transfer" shall mean a transfer by a CMIHI Holder of shares
of Class B Common Stock and/or Excess Shares of Class A Common Stock, in
accordance with any of the following: (a) to any Affiliate of such CMIHI Holder;
(b) in connection with any public offering or public sale of securities of the
Corporation (including a public sale pursuant to Rule 144 or 144A under the
Securities Act of 1933, as amended, or any similar rules then in force); (c) to
a Person or "group" of Persons (within the meaning of the Securities and
Exchange Act of 1934, as amended, 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 Corporation's
directors, provided that such sale has been approved by the Corporation'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
Corporation (excluding the portion of the securities being disposed of by such
selling shareholder (or an Affiliate of such selling shareholder) in connection
with such sale) which possess in the aggregate the ordinary voting power to
elect a majority of the Corporation's directors; (e) in a transfer in which no
Person or Group acquires more than 2% of the outstanding shares of Class A
Common Stock (or shares of Class B Common Stock convertible into more than 2% of
the outstanding shares of Class A Common Stock); (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 Corporation which possess in the aggregate the
ordinary voting power to elect a majority of the Corporation's directors; (g) in
connection with a merger, consolidation or similar transaction involving the
Corporation 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 Corporation's board or a committee thereof;
or (h) in a transfer which is otherwise permitted under the statutes, rules and
regulations then applicable to bank holding companies and their Affiliates.
8. "Person" or "person" shall be construed broadly and shall include an
individual, a partnership, a limited liability company, a corporation, a trust,
a joint venture, an unincorporated organization or a government or any
department or agency thereof.
9. "Regulation Y" shall mean Regulation Y promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 225 (or any successor to
such regulation).
FIFTH: The Board of Directors shall have the power to adopt, amend or
repeal by bylaws of the Corporation.
6
<PAGE> 7
SIXTH: The number of directors which shall constitute the whole board shall
be such as from time to time shall be fixed in the manner provided in the bylaws
of the Corporation or, in the absence of any such provision, by resolution of
the Board of Directors, but in no case shall the number be less than eight.
The right to cumulate votes in the election of directors is expressly
prohibited.
The directors shall be classified with respect to the time for which they
shall severally hold office by dividing them into three classes, which classes
shall consist of an equal, or as near to equal as possible, number of directors.
At the first election of directors following the effective time of the
certificate of amendment to the certificate of incorporation of the Corporation
reflecting this Article, the director or directors of the first class shall be
elected for a term expiring at the next succeeding annual meeting of
stockholders to be held in 2000; the director or directors of the second class
for a term expiring at the annual meeting to be held in 2001; and the director
or directors of the third class for a term expiring at the annual meeting to be
held in 2002. At each annual meeting, commencing with the annual meeting in
2000, the successor or successors to the class of directors whose term shall
expire in that year shall be elected to hold office for the term of three years,
so that the term of office for one class of directors shall expire in each year.
Any increase or decrease in the number of directors constituting the Board shall
be apportioned among the classes so as to maintain the number of directors in
each class as near as possible to one-third of the whole number of directors as
so adjusted. Any director elected or appointed to fill a vacancy shall hold
office for the remaining term of the class to which such directorship is
assigned. No decrease in the number of directors constituting the Corporation's
Board of Directors shall shorten the term of any incumbent director. Any vacancy
in the Board of Directors, whether arising through death, resignation or removal
of a director, or through an increase in the number of directors of any class,
shall be filled by the majority vote of the remaining directors, although less
than a quorum, or by a sole remaining director. The bylaws may contain any
provision regarding classification of the Corporation's directors not
inconsistent with the terms hereof.
A director may be removed by the stockholders of the Corporation only with
cause, upon the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding shares of the Corporation then entitled to vote in an
election of directors, voting together as a single class.
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law that might otherwise permit
a lesser or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the capital stock of the Corporation required
by law or by this Amended and Restated Certificate of Incorporation, the
affirmative vote of the holders of not less than eighty percent (80%) of the
outstanding shares of the Corporation then entitled to vote in an election of
directors, voting together as a single class, shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article Sixth.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any
7
<PAGE> 8
class of them, any court of equitable jurisdiction with the State of Delaware
may, on the application in a summary way of the Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the applicable of trustees in dissolution or of any
receiver or receivers appointed for the Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangements, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
EIGHTH: To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
NINTH: All actions which are required to be or may be taken by the
stockholders of the Corporation shall be taken at a meeting of the stockholders,
duly held and upon proper notice, may not be taken by written consent without a
meeting, and the power of stockholders to consent in writing to the taking of
any action is specifically denied.
TENTH: The Corporation may indemnify any director, officer, employee or
agent of the Corporation to the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended.
ELEVENTH: The Corporation, by action of the Board of Directors, shall have
the right, subject to any express provisions or restrictions contained in the
Certificate of Incorporation or bylaws of the Corporation, from time to time, to
amend the certificate of incorporation or any provision thereof in any manner
now or hereafter provided by law, and all rights and powers of any kind
conferred upon a director or stockholder of the Corporation by the certificate
of incorporation or any amendment thereof are subject to such right of the
Corporation.
8
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
DOANE PET CARE ENTERPRISES, INC.
A Delaware Corporation
Date of Adoption:
<PAGE> 2
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
OFFICES
Section 1. Registered Office ................................................... 1
Section 2. Other Offices ....................................................... 1
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings ................................................... 1
Section 2. Quorum; Adjournment of Meetings ..................................... 1
Section 3. Annual Meetings ..................................................... 2
Section 4. Special Meetings .................................................... 3
Section 5. Record Date ......................................................... 3
Section 6. Notice of Meetings .................................................. 3
Section 7. Stock List .......................................................... 3
Section 8. Proxies ............................................................. 4
Section 9. Voting; Elections; Inspectors ....................................... 4
Section 10. Conduct of Meetings ................................................. 5
Section 11. Treasury Stock ...................................................... 5
Section 12. Action Without Meeting .............................................. 5
Section 13. Nominations for Election as a Director .............................. 6
ARTICLE III
BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office ....................................... 7
Section 2. Quorum .............................................................. 7
Section 3. Place of Meetings; Order of Business ................................ 7
Section 4. First Meeting ....................................................... 8
</TABLE>
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<TABLE>
<S> <C>
Section 5. Regular Meetings .................................................... 8
Section 6. Special Meetings .................................................... 8
Section 7. Removal ............................................................. 8
Section 8. Vacancies; Increases in the Number of Directors ..................... 8
Section 9. Compensation ........................................................ 9
Section 10. Action Without a Meeting; Telephone Conference Meeting .............. 9
Section 11. Approval or Ratification of Acts or Contracts by Stockholders ....... 9
ARTICLE IV
COMMITTEES
Section 1. Designation; Powers ................................................. 9
Section 2. Procedure; Meetings; Quorum ......................................... 10
Section 3. Substitution of Members ............................................. 10
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office ................................... 10
Section 2. Salaries ............................................................ 10
Section 3. Removal ............................................................. 11
Section 4. Vacancies ........................................................... 11
Section 5. Powers and Duties of the Chief Executive Officer .................... 11
Section 6. Powers and Duties of the Chairman of the Board ...................... 11
Section 7. Powers and Duties of the President .................................. 11
Section 8. Vice Presidents ..................................................... 11
Section 9. Treasurer ........................................................... 12
Section 10. Assistant Treasurers ................................................ 12
Section 11. Secretary ........................................................... 12
Section 12. Assistant Secretaries ............................................... 12
Section 13. Action with Respect to Securities of Other Corporations ............. 12
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification ............................................ 13
Section 2. Indemnification of Employees and Agents ............................. 13
Section 3. Right of Claimant to Bring Suit ..................................... 14
Section 4. Nonexclusivity of Rights ............................................ 14
Section 5. Insurance ........................................................... 14
Section 6. Savings Clause ...................................................... 14
</TABLE>
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<TABLE>
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Section 7. Definitions ......................................................... 14
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock ............................................... 15
Section 2. Transfer of Shares .................................................. 15
Section 3. Ownership of Shares ................................................. 15
Section 4. Regulations Regarding Certificates .................................. 16
Section 5. Lost or Destroyed Certificates ...................................... 16
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year ......................................................... 16
Section 2. Corporate Seal ...................................................... 16
Section 3. Notice and Waiver of Notice ......................................... 16
Section 4. Resignations ........................................................ 16
Section 5. Facsimile Signatures ................................................ 17
Section 6. Reliance upon Books, Reports and Records ............................ 17
</TABLE>
ARTICLE IX
AMENDMENTS
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DELAWARE BYLAWS
OF
DOANE PET CARE ENTERPRISES, INC.
Article I
Offices
Section 1. Registered Office. The registered office of Doane Pet Care
Enterprises, Inc. (the "Corporation") required by the General Corporation Law of
the State of Delaware to be maintained in the State of Delaware, shall be the
registered office named in the original Certificate of Incorporation of the
Corporation, or such other office as may be designated from time to time by the
Board of Directors in the manner provided by law. Should the Corporation
maintain a principal office within the State of Delaware such registered office
need not be identical to such principal office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be specified or fixed in the notices
or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required
by law or provided in the Certificate of Incorporation or these bylaws, the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
any meeting of stockholders for the transaction of business and the act of a
majority of such stock so represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the meeting of stockholders. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of
Incorporation or these bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy, at any meeting of stockholders, whether or not a quorum is present,
shall have the power to adjourn such meeting from time to time, without any
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notice other than announcement at the meeting of the time and place of the
holding of the adjourned meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held on such date, and at such time as the Board of Directors shall fix
and set forth in the notice of the meeting, which date shall be within thirteen
(13) months subsequent to the last annual meeting of stockholders. At the annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the annual meeting. To be properly brought before
the annual meeting of stockholders, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (c) otherwise properly brought before the
meeting by a stockholder of the Corporation who is a stockholder of record at
the time of giving of notice provided for in this Section 3, who shall be
entitled to vote at such meeting and who complies with the notice procedures set
forth below in this Section 3. For business to be properly brought before an
annual meeting by a stockholder, the stockholder, in addition to any other
applicable requirements, must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of voting stock of the
Corporation which are beneficially owned by the stockholder, (iv) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to bring the proposed business before the annual meeting, and (v) a
description of any material interest of the stockholder in such business.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 3. The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 3, and if he should so determine, he shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.
Notwithstanding the foregoing provisions of this Section 3, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 3.
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Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board (if
any), by the President or by a majority of the Board of Directors, or by a
majority of the executive committee (if any), and shall be called by the
Chairman of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the holder(s) of at least fifty percent
(50%) of the issued and outstanding stock entitled to vote at such meeting.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a date as the record date for any such determination of stockholders, which date
shall not be more than sixty (60) days nor less than ten (l0) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VIII, Section 3 of these bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. If, in
accordance with Section 12 of this Article II, corporate action without a
meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Notice of Meetings. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Chairman of the Board (if any) or the President, the Secretary or the other
person(s) calling the meeting to each stockholder entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting. Such notice may be delivered either personally or by mail. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation.
Section 7. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of
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each such stockholder and the number of shares registered in the name of such
stockholder, shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The stock list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting who shall decide all questions touching upon the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he or she is of the proxies representing such
shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall have
one vote for each share of stock entitled to vote which is registered in his
name on the record date for the meeting. Shares registered in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the bylaw (or comparable instrument) of such corporation may prescribe,
or in the absence of such provision, as the Board of Directors (or comparable
body) of such corporation may determine. Shares registered in the name of a
deceased person may be voted by his executor or administrator, either in person
or by proxy.
All voting, except as required by the Certificate of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by stockholders holding a majority of the issued and
outstanding stock present in person or by proxy at any meeting a stock vote
shall be taken. Every stock vote shall be taken by written ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may
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be required under the procedure established for the meeting. All elections of
directors shall be by ballot, unless otherwise provided in the Certificate of
Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders shall
be presided over by the Chairman of the Board (if any), or if he is not present,
by the President, or if neither the Chairman of the Board (if any), nor
President is present, by a chairman elected at the meeting. The Secretary of the
Corporation, if present, shall act as secretary of such meetings, or if he is
not present, an Assistant Secretary shall so act; if neither the Secretary nor
an Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order. Unless the chairman of the meeting of stockholders shall otherwise
determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Stock. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
Section 12. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action permitted or required by law, the
Certificate of Incorporation or these bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock entitled to vote thereon having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all
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shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than a unanimous
written consent shall be given by the Secretary to those stockholders who have
not consented in writing.
Section 13. Nominations for Election as a Director. Only persons who
are nominated in accordance with the procedures set forth in these bylaws shall
be eligible for election by stockholders to serve as directors. Nominations of
persons for election to the Board of Directors may be made at a meeting of
stockholders (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 13, who shall be entitled to vote
for the election of directors at the meeting and who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (i) with respect to an election
to be held at the annual meeting of the stockholders of the Corporation, not
less than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders of the Corporation, and (ii) with
respect to an election to be held at a special meeting of stockholders of the
Corporation for the election of directors not later than the close of business
on the tenth (10th) day following the day on which notice of the date of the
special meeting was mailed to stockholders of the Corporation as provided in
these bylaws or public disclosure of the date of the special meeting was made,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (x) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serve as a
director if elected), and (y) as to the stockholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such stockholder
and (ii) the class and number of shares of voting stock of the Corporation which
are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. In the event that a person is validly designated as a nominee to
the Board of Directors in accordance with the procedures set forth in this
Section 13 and shall thereafter become unable or unwilling to stand for election
to the Board of Directors, the Board of Directors may designate a substitute
nominee. Other than directors chosen pursuant to the provisions of Article III,
Section 8, no person shall be eligible to serve as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 13.
The presiding officer of the meeting of stockholders shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these bylaws, and if he or she
should so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section 13, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this Section
13.
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Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be such number as determined from time to time by resolution of
the Board of Directors, but in no case shall the number be less than eight (8).
No decrease in the number of directors may be made by the Board of Directors
which would have the effect of shortening the term of an incumbent director. If
the Board of Directors makes no such determination, the number of directors
shall be the number set forth in the Certificate of Incorporation. Each director
shall hold office for the term for which he is elected, and until his successor
shall have been elected and qualified or until his earlier death, incapacity,
resignation or removal.
The Board of Directors shall be divided into three classes: Class I,
Class II and Class III. The number of directors in each class shall be the whole
number contained in the quotient arrived at by dividing the authorized number of
Directors by three and if a fraction is also contained in such quotient and if
such fraction is one-third, the extra Director shall be a member of Class III,
and if the fraction is two-thirds, one extra Director shall be a member of Class
III and the other shall be a member of Class II. Except as otherwise provided in
this Section 1, each Director elected at an annual meeting shall serve for a
term ending on the third annual meeting following the meeting at which such
Director was elected; provided, however, that the Directors first elected to
Class I shall serve for a term ending at the annual meeting in 2000, the
Directors first elected to Class II shall serve for a term ending at the annual
meeting in 2001 and the Directors first elected to Class III shall serve for a
term ending at the annual meeting in 2002. If for any reason the number of
Directors in the various classes shall not conform with the formula set forth in
this Section, the Board of Directors may redesignate any director in a different
class in order that the balance of Directors in such class shall conform
thereto; provided, however, that no such redesignation may have the effect of
reducing the term to which a Director was elected.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may hold
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provided by law, in such place or places, within or without
the State of Delaware, as the Board of Directors
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may from time to time determine by resolution. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the Chairman of the Board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board (if any), the President or, on the
written request of any two directors, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telecopy, cable or wireless notice to
each director. Such notice, or any waiver thereof pursuant to Article VIII,
Section 3 hereof, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the Certificate of
Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of Directors may
be removed solely with cause by the holders of not less than eighty percent
(80%) of the outstanding shares then entitled to vote at an election of
directors; provided that, unless the Certificate of Incorporation otherwise
provides, if the Board of Directors is not classified, then the stockholders may
effect such removal with or without cause; and provided further that, if the
Certificate of Incorporation expressly grants to stockholders the right to
cumulate votes for the election of directors and if less than the entire board
is to be removed, no director may be removed without cause if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which such director is a
part.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, unless sooner displaced.
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall qualify.
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Section 9. Compensation. Unless otherwise restricted by the Certificate
of Incorporation, the Board of Directors shall have the authority to fix the
compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (pro vided that a quorum is
present), shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote and such
consent shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
Article IV
Committees
Section 1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, including, if they shall so determine, an executive
committee, each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee
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shall have the power or authority of the Board of Directors in reference to
amending the Certifi cate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution of the Corporation, or amending, altering or repealing the bylaws or
adopting new bylaws for the Corporation and, unless such resolution or the
Certificate of Incorporation expressly so provides, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Any such designated committee may authorize the seal of the Corporation
to be affixed to all papers which may require it. In addition to the above such
committee or committees shall have such other powers and limitations of
authority as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own chairman, shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when requested, shall fix its own rules or procedures, and shall meet at such
times and at such place or places as may be provided by such rules, or by
resolution of such committee or resolution of the Board of Directors. At every
meet ing of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board and such other officers as the Board of Directors may from time to
time elect or appoint. Each officer shall hold office until his successor shall
be duly elected and shall qualify or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
provides otherwise. Except for the Chairman of the Board, if any, no officer
need be a director.
Section 2. Salaries. The salaries or other compensation of the officers
and agents of the Corporation shall be fixed from time to time by the Board of
Directors.
10
<PAGE> 15
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed, either with or without cause, by the vote of
a majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors, provided the
notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. In addition,
any officer may be removed, with or without cause, by any ranking officer of
such first officer, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors and the executive
committee (if any), the chief executive officer shall have general executive
charge, management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts, evidences
of indebtedness and other obligations in the name of the Corporation and may
sign all certificates for shares of capital stock of the Corporation; and shall
have such other powers and duties as designated in accordance with these bylaws
and as from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If elected,
the Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors; and he shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. In the absence of a designation by the Board of Directors of a Vice
President to perform the duties of the President, or in the event of his absence
or inability or refusal to act, the Vice President who is present and who is
senior in terms of time as a Vice
11
<PAGE> 16
President of the Corporation shall so act. The Vice Presidents shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge of
his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the seal
of the Corporation to all contracts of the Corporation and attest the affixation
of the seal of the Corporation thereto; he may sign with the other appointed
officers all certificates for shares of capital stock of the Corporation; he
shall have charge of the certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to inspection of any director upon
application at the office of the Corporation during business hours; he shall
have such other powers and duties as designated in these bylaws and as from time
to time may be assigned to him by the Board of Directors; and he shall in
general perform all acts incident to the office of Secretary, subject to the
control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the chief executive officer
shall have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with respect to any
action of security holders of any other corporation in which this Corporation
may hold securities and otherwise to exercise any and all rights and powers
which this Corporation may possess by reason of its ownership of securities in
such other corporation.
12
<PAGE> 17
Article VI
Indemnification of Directors,
Officers, Employees and Agents
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative, is or was or has agreed to become
a director or officer of the Corporation or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving or having agreed to
serve as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity hereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Article VI
shall be a contract right and shall include the right to be paid from time to
time (and within thirty (30) days after the indemnitee submits sufficient
evidence of the expenses incurred or to be incurred within sixty (60) days after
such request) by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
Delaware General Corporation Law requires, the payment of such expenses incurred
by a current, former or proposed director or officer in his or her capacity as a
director or officer or proposed director or officer (and not in any other
capacity in which service was or is or has been agreed to be rendered by such
person while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnified person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified person is not entitled to be
indemnified under this Section or otherwise.
Section 2. Indemnification of Employees and Agents. The Corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation, individually or as a group, with the same scope
and effect as the indemnification of directors and officers provided for in this
Article.
13
<PAGE> 18
Section 3. Right of Claimant to Bring Suit. If a written claim received
by the Corporation from or on behalf of an indemnified party under this Article
VI is not paid in full by the Corporation within ninety days after such receipt,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article VI shall not
be exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference to the
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger prior to (or, in the case of an entity specifically
designated in a resolution of the Board of Directors, after) the adoption hereof
and which, if its separate existence had continued, would have had the power and
authority to
14
<PAGE> 19
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another cor poration, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
Article VII
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form or forms, not
inconsistent with that required by law and the Certificate of Incorporation, as
shall be approved by the Board of Directors. The Chairman of the Board (if any),
President or a Vice President shall cause to be issued to each stockholder one
or more certificates, under the seal of the Corporation or a facsimile thereof
if the Board of Directors shall have provided for such seal, and signed by the
Chairman of the Board (if any), President or a Vice President and the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer certifying
the number of shares (and, if the stock of the Corporation shall be divided into
classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. The stock certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
15
<PAGE> 20
Section 4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which a new certificate of stock may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
Article VIII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required
to be given by law, the Certificate of Incorporation or under the provisions of
these bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission (including telecopy) or (ii) by
deposit of the same in a post office box in a sealed prepaid wrapper addressed
to the person entitled thereto at his post office address, as it appears on the
records of the Corpora tion, and such notice shall be deemed to have been given
on the day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or the bylaws.
Section 4. Resignations. Any director, member of a committee or officer
may resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time be specified, at the time of
its receipt by the chief executive officer or Secretary.
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<PAGE> 21
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors. Action taken by the Board
of Directors pursuant to Section 10 of Article II may be taken and evidenced by
facsimile signatures.
Section 6. Reliance upon Books, Reports and Records. Each director and
each member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
Article IX
Amendments
If provided in the Certificate of Incorporation of the Corporation, the
Board of Directors shall have the power to adopt, amend and repeal from time to
time bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such bylaws as adopted
or amended by the Board of Directors.
17
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C> <C> <C>
CLASS A CLASS A
COMMON STOCK COMMON STOCK
PAR VALUE $.0001 PAR VALUE $.0001
NUMBER SHARES
[DPC LOGO]
DPC INCORPORATED UNDER THE LAWS CUSIP 256008 10 3
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTIFICATE DEFINITIONS
DOANE PET CARE ENTERPRISES, INC.
This is to certify that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF
Doane Pet Care Enterprises, Inc. transferable on the books of the Corporation in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
[SEAL]
Dated:
/s/ D.J. CAHILL [LOGO]
COUNTERSIGNED AND REGISTERED: PRESIDENT
AMERICAN STOCK TRANSFER & TRUST COMPANY AND CHIEF EXECUTIVE OFFICER
TRANSFER AGENT
AND REGISTRAR
/s/ T. R. HEIDENTHAL
BY SENIOR VICE PRESIDENT
AUTHORIZED SIGNATURE AND CHIEF FINANCIAL OFFICER
</TABLE>
<PAGE> 2
DOANE PET CARE ENTERPRISES, INC.
This Corporation will furnish without charge to each stockholder who so
requests, a copy of the designations, powers, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such requests may be addressed to the Secretary
of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws and regulations:
<TABLE>
<S> <C> <C>
TEN COM = as tenants in common UNIF GIFT MIN ACT = Custodian
---------------- -----------------
(Cust) (Minor)
TEN ENT = as tenants by the entireties
under Uniform Gifts to Minors
JT TEN = as joint tenants with right of
survivorship and not as tenants Act
in common --------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sells, assigns and transfers unto
-----------------------------------------
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint _____________________________________________________
Attorney to transfer the said Stock on the books of the within-named Corporation
with full power of substitution in the premises.
<TABLE>
<S> <C>
Dated
----------------------------------- -----------------------------------
(Signature)
-----------------------------------
THE SIGNATURES TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
</TABLE>
Signature(s) Guaranteed
- ----------------------------------------------------
SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17 AD-15.
<PAGE> 1
EXHIBIT 5.1
[VINSON & ELKINS L.L.P. LETTERHEAD]
, 1999
Doane Pet Care Enterprises, Inc.
103 Powell Court, Suite 200
Brentwood, Tennessee 37027
Ladies and Gentlemen:
We have acted as counsel to Doane Pet Care Enterprises, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-1 (File No. 333-61027) as filed by the Company
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Registration Statement"), which Registration Statement
relates to the proposed offer and sale by the Company and certain stockholders
of the number of shares of the Company's common stock, $0.0001 par value
(including the underwriters' over-allotment option) described in the
Registration Statement (the "Shares"). In such connection, we are passing on
certain legal matters in connection with the sale of the Shares. At your
request, this opinion is being furnished to you for filing as an exhibit to the
Registration Statement.
In connection with rendering this opinion, we have examined such
certificates, instruments and documents and reviewed such questions of law as we
have considered necessary or appropriate for the purposes of this opinion. In
addition, we have relied as to factual matters on certificates of certain public
officials and officers of the Company.
Based upon the foregoing examination and review, we are of the opinion that
(i) with respect to the Shares that are currently issued and outstanding, such
Shares have been validly issued and are fully paid and non-assessable and (ii)
with respect to all other Shares, such Shares have been duly authorized for
issuance and, when the Registration Statement has been declared effective and
the Shares are issued in accordance with the provisions of the Underwriting
Agreement (as defined in the Registration Statement), such Shares will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, however, we do not hereby admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 and the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 9.3
SECOND AMENDMENT TO FIRST AMENDED
AND RESTATED INVESTORS' AGREEMENT
This Second Amendment to the First Amended and Restated Investors'
Agreement (this "Agreement") dated as of February 4, 1999, is entered into by
and among (i) Doane Pet Care Enterprises, Inc., formerly known as DPC
Acquisition Corp. (the "Company"), (ii) Doane Pet Care Company, formerly known
as Doane Products Company ("Doane"), (iii) Summit Capital Inc. ("Summit"), (iv)
Summit/DPC Partners, L.P. ("Summit/DPC"), (v) Chase Manhattan Investment
Holdings, Inc. ("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 stockholders and warrantholders of the Company are
parties to or bound by that certain First Amended and Restated Investors'
Agreement dated as of August 3, 1998, as amended (the "Original Agreement"); and
WHEREAS, the undersigned, constituting the holders of more than 75% of
the shares of Common Stock of the Company (including the Warrants on an "as-if
exercised" basis) desire to amend the Original Agreement on the terms of this
Agreement and, except as amended by this Agreement, ratify the terms of the
Original Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in exchange for the mutual
covenants herein, the parties hereto agree as follows:
AGREEMENTS
1. Defined Terms. Capitalized terms used in this Agreement that are not
defined herein shall have the meanings given to them in the Original Agreement.
2. Amendments. The Original Agreement is amended as follows:
(a) Section 2.1(a) is hereby amended in its entirety to provide as
follows:
"(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 behalf of the
Windy Hill Investors (each of the two foregoing designees, a
"Windy Hill
<PAGE> 2
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
the DLJ Designee (so long as a DLJ Designee then serves on the
Board) 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 either 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 thereby as of
August 3, 1998 (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 thereby as of August 3, 1998 (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) The lead-in paragraph to Section 2.4(b) (i.e., the paragraph
immediately preceding clauses (i) through (ix) of Section 2.4(b)) is
hereby amended in its entirety to provide as follows:
"(b) Until the 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
August 3, 1998 with respect to any of the following matters
without the affirmative approval of a majority of the members
of the Board, which majority must include (i) for so long as
the DLJ Entities own at least 50% of the number of shares of
Common Stock owned thereby as of August 3, 1998 (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),
the DLJMB Designee, (ii) for so long as the Summit-Investors
own at least 33 1/3% of the number of shares of Common Stock
owned
-2-
<PAGE> 3
thereby as of August 3, 1998 (in each case, disregarding stock
splits, recapitalizations and similar adjustments in number of
shares and stock dividends), at least one Summit-Investor
Designee, and (iii) for so long as the Windy Hill Investors
own at least 50% of the number of shares of Common Stock owned
thereby as of August 3, 1998 (in each case, disregarding stock
splits, recapitalizations and similar adjustments in number of
shares and stock dividends), at least one Windy Hill
Designee:"
3. Terminology. The phrases "as of the date of this Agreement" and "the
date hereof," when stated in the text of the Original Agreement, refer to August
3, 1998.
4. Ratification. Except as expressly set forth herein, the terms and
provisions of the Original Agreement, as amended prior to the date hereof, are
hereby ratified and confirmed.
5. Miscellaneous. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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/ T. R. HEIDENTHAL
---------------------------------------
Name: T. R. Heidenthal
-------------------------------------
Title: Senior Vice President and CFO
------------------------------------
DOANE PRODUCTS COMPANY
By: /s/ T. R. HEIDENTHAL
---------------------------------------
Name: T. R. Heidenthal
-------------------------------------
Title: Senior Vice President and CFO
------------------------------------
SUMMIT CAPITAL INC.
By: /s/ GEORGE B. KELLY
---------------------------------------
Name: George B. Kelly
-------------------------------------
Title: Chairman
------------------------------------
-3-
<PAGE> 4
CHASE MANHATTAN INVESTMENT
HOLDINGS, INC.
By: /s/ JEFFREY WALKER
---------------------------------------
Name: Jeffrey Walker
-------------------------------------
Title: CEO
------------------------------------
BASEBALL PARTNERS
By: /s/ JEFFREY WALKER
---------------------------------------
Name: Jeffrey Walker
-------------------------------------
Title: Managing Partner
------------------------------------
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/ P. GRAUER
---------------------------------------
Name: P. Grauer
-------------------------------------
Title:
------------------------------------
DLJ INTERNATIONAL PARTNERS, C.V.
BY DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/ P. GRAUER
---------------------------------------
Name: P. Grauer
-------------------------------------
Title:
------------------------------------
-4-
<PAGE> 5
DLJ OFFSHORE PARTNERS, C.V.
BY DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/ P. GRAUER
---------------------------------------
Name: P. Grauer
-------------------------------------
Title:
------------------------------------
DLJ FIRST ESC, L.L.C.
By: /s/ P. GRAUER
---------------------------------------
Name: P. Grauer
-------------------------------------
Title:
------------------------------------
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/ P. GRAUER
---------------------------------------
Name: P. Grauer
-------------------------------------
Title:
------------------------------------
THE ROSENTHAL 1989 TRUST
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
By:
-------------------------------------------
Dick H. Weber
By:
-------------------------------------------
Terry W. Bechtel
By: /s/ BOB L. ROBINSON
-------------------------------------------
Bob L. Robinson
By:
-------------------------------------------
Roy E. Hess
-5-
<PAGE> 6
By:
-------------------------------------------
Earl R. Clements
By:
-------------------------------------------
J. David Heaney
By: /s/ LAURA HAWKINS MANSUR
-------------------------------------------
Laura Hawkins Mansur
By:
-------------------------------------------
Gary L. Rosenthal
By:
-------------------------------------------
Lee H. Rosenthal
By:
-------------------------------------------
Fred A. Rosenthal
-6-
<PAGE> 7
The following signatories are the "Windy Hill Investors:"
DARTFORD PARTNERSHIP, L.L.C.
By: /s/ RAY CHUNG
---------------------------------------
Name: Ray Chung
-------------------------------------
Title: EVP
------------------------------------
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: /s/ STEPHEN SHERRILL
---------------------------------------
Name: Stephen Sherrill
-------------------------------------
Title:
------------------------------------
PNC CAPITAL CORP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
WINDY HILL PET FOOD COMPANY L.L.C.
By: /s/ RAY CHUNG
---------------------------------------
Name: Ray Chung
-------------------------------------
Title: EVP
------------------------------------
/s/ ROBERT V. DALE
------------------------------------------
Robert V. Dale
------------------------------------------
F. Donald Cowan, Jr.
------------------------------------------
Donald L. Gadd
-7-
<PAGE> 8
------------------------------------------
Henry G. Hurd, Jr.
------------------------------------------
Ben W. McCrory
------------------------------------------
Vaughn R. Oakley
/s/ CHARLES DUNLEAVY
------------------------------------------
Charles Dunleavy
-8-
<PAGE> 9
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
-9-
<PAGE> 1
EXHIBIT 10.10
DOANE PET CARE ENTERPRISES, INC.
1999 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the DOANE PET CARE ENTERPRISES, INC. 1999 STOCK INCENTIVE
PLAN is to provide a means through which DOANE PET CARE ENTERPRISES, INC., a
Delaware corporation, and its subsidiaries may attract able persons to serve as
directors, consultants, or advisors or to enter the employ of the Company or its
subsidiaries and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the Company
and its subsidiaries rest, and whose present and potential contributions to the
welfare of the Company and its subsidiaries are of importance, can acquire and
maintain stock ownership, thereby strengthening their concern for the welfare of
the Company and its subsidiaries. A further purpose of the Plan is to provide
such individuals with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company and its subsidiaries. Accordingly,
the Plan provides for granting Incentive Stock Options, options that do not
constitute Incentive Stock Options, Restricted Stock Awards, or any combination
of the foregoing, as is best suited to the circumstances of the particular
employee, consultant, advisor, or director as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option or Restricted
Stock Award.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
(d) "Committee" means the Board or a committee of the Board that is
selected by the Board as provided in Paragraph IV(a).
(e) "Common Stock" means the Class A common stock, par value $.0001 per
share, of the Company, or any security into which such Common Stock may be
changed by reason of any transaction or event of the type described in Paragraph
IX.
(f) "Company" means Doane Pet Care Enterprises, Inc., a Delaware
corporation.
(g) "Consultant" means any person who is not an employee and who is
providing advisory or consulting services to the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code).
(h) "Director" means an individual elected to the Board by the stockholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
(i) An "employee" means any person (including a Director) in an employment
relationship with the Company or any parent or subsidiary corporation (as
defined in section 424 of the Code).
(j) "Fair Market Value" means, as of any specified date, the mean of the
high and low sales prices of the Common Stock (i) reported by the National
Market System of NASDAQ on that date or (ii) if the Common Stock is listed on a
national stock exchange, reported on the stock exchange composite tape on that
date; or, in either case, if no prices are reported on that date, on the last
preceding date on which such prices of the Common Stock are so reported. If the
Common Stock is traded over the counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to
<PAGE> 2
the average between the reported high and low or closing bid and asked prices of
Common Stock on the most recent date on which Common Stock was publicly traded.
In the event Common Stock is not publicly traded at the time a determination of
its value is required to be made hereunder, the determination of its fair market
value shall be made by the Committee in such manner as it deems appropriate.
Notwithstanding the foregoing, the Fair Market Value of a share of Common Stock
on the date of an initial public offering of Common Stock shall be the offering
price under such initial public offering.
(k) "Holder" means an employee, Consultant, or Director who has been
granted an Award.
(l) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
(m) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(n) "Option" means an award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options that
do not constitute Incentive Stock Options to purchase Common Stock.
(o) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
(p) "Plan" means the Doane Pet Care Enterprises, Inc. 1999 Stock Incentive
Plan, as amended from time to time.
(q) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(r) "Restricted Stock Award" means an award granted under Paragraph VIII of
the Plan.
(s) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(t) "Stock Appreciation Right" shall have the meaning assigned to such term
in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the Board,
provided the Plan is approved by the stockholders of the Company within twelve
months thereafter. Notwithstanding any provision in the Plan, in any Option
Agreement or in any Restricted Stock Agreement, no Option shall be exercisable
and no Restricted Stock Award shall vest prior to such stockholder approval. No
further Awards may be granted under the Plan after ten years from the date the
Plan is adopted by the Board. The Plan shall remain in effect until all Options
granted under the Plan have been exercised or expired, and all Restricted Stock
Awards granted under the Plan have vested or been forfeited.
IV. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by the Board
or a committee of, and appointed by, the Board, comprised solely of two or more
outside Directors (within the meaning of the term "outside directors" as used in
section 162(m) of the Code and applicable interpretive authority thereunder and
within the meaning of "Non-Employee Director" as defined in Rule 16b-3).
(b) Powers. Subject to the express provisions of the Plan, the Committee
shall have authority, in its sole discretion, to determine which employees,
Consultants, or Directors shall receive an Award, the time or times when such
Award shall be made, whether an Incentive Stock Option or nonqualified Option
shall be granted, and the number of shares to be subject to each Option or
Restricted Stock Award. In making such determinations, the Committee shall take
into account the nature of the services rendered by the respective
2
<PAGE> 3
employees, Consultants, or Directors, their present and potential contribution
to the Company's success and such other factors as the Committee in its sole
discretion shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, this shall include the power to construe the Plan and
the respective agreements executed hereunder, to prescribe rules and regulations
relating to the Plan, and to determine the terms, restrictions and provisions of
the agreement relating to each Award, including such terms, restrictions and
provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any agreement relating to an Award in the manner and to the
extent it shall deem expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this Paragraph IV shall be
conclusive.
V. SHARES SUBJECT TO THE PLAN; GRANT OF OPTIONS;
GRANT OF RESTRICTED STOCK AWARDS
(a) Shares Subject to the Plan and Award Limits. Subject to adjustment in
the same manner as provided in Paragraph IX with respect to shares of Common
Stock subject to Awards then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 4.2 million
shares (after giving effect to the Company's anticipated 4-for-1 stock split in
connection with its initial public offering). Shares shall be deemed to have
been issued under the Plan only (i) to the extent actually issued and delivered
pursuant to an Award or (ii) to the extent an Award is settled in cash. To the
extent that an Award lapses or the rights of its Holder terminate, any shares of
Common Stock subject to such Award shall again be available for the grant of an
Award under the Plan.
(b) Grant of Options. The Committee may from time to time grant Options to
one or more employees, Consultants, or Directors determined by it to be eligible
for participation in the Plan in accordance with the terms of the Plan.
(c) Grant of Restricted Stock Awards. The Committee may from time to time
grant Restricted Stock Awards to one or more employees, Consultants, or
Directors determined by it to be eligible for participation in the Plan in
accordance with the terms of the Plan.
(d) Stock Offered. Subject to the limitations set forth in Paragraph V(a),
the stock to be offered pursuant to the grant of an Award may be authorized but
unissued Common Stock or Common Stock previously issued and outstanding and
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Awards at the termination of the Plan shall cease
to be subject to the Plan but, until termination of the Plan, the Company shall
at all times make available a sufficient number of shares to meet the
requirements of the Plan.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not an
Incentive Stock Option, a Restricted Stock Award, or any combination thereof.
3
<PAGE> 4
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) Special Limitations on Incentive Stock Options. An Incentive Stock
Option may be granted only to an individual who is an employee at the time the
Option is granted. To the extent that the aggregate Fair Market Value
(determined at the time the respective Incentive Stock Option is granted) of
Common Stock with respect to which Incentive Stock Options granted after 1986
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of a
Holder's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Holder of such determination as
soon as practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such individual
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or subsidiary corporation,
within the meaning of section 422(b)(6) of the Code, unless (i) at the time such
Option is granted the option price is at least 110% of the Fair Market Value of
the Common Stock subject to the Option and (ii) such Option by its terms is not
exercisable after the expiration of five years from the date of grant. An
Incentive Stock Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable during the Holder's
lifetime only by such Holder or the Holder's guardian or legal representative.
(d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under section 422 of
the Code. Each Option Agreement shall specify the effect of termination of (i)
employment, (ii) the consulting or advisory relationship, or (iii) membership on
the Board, as applicable, on the exercisability of the Option. An Option
Agreement may provide for the payment of the option price, in whole or in part,
by the delivery of a number of shares of Common Stock (plus cash if necessary)
having a Fair Market Value equal to such option price. Moreover, an Option
Agreement may provide for a "cashless exercise" of the Option by establishing
procedures satisfactory to the Committee with respect thereto. Further, an
Option Agreement may provide for the surrender of the right to purchase shares
under the Option in return for a payment in cash or shares of Common Stock or a
combination of cash and shares of Common Stock equal in value to the excess of
the Fair Market Value of the shares with respect to which the right to purchase
is surrendered over the option price therefor ("Stock Appreciation Rights"), on
such terms and conditions as the Committee in its sole discretion may prescribe.
In the case of any such Stock Appreciation Right that is granted in connection
with an Incentive Stock Option, such right shall be exercisable only when the
Fair Market Value of the Common Stock exceeds the price specified therefor in
the Option or the portion thereof to be surrendered. The terms and conditions of
the respective Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the Committee
but, subject to adjustment as provided in Paragraph IX, (i) in the case of an
Incentive Stock Option, such purchase price shall not be less than the Fair
Market Value of a share of Common Stock on the date such Option is granted, and
(ii) in the case of an Option that does not constitute an Incentive Stock
Option, such purchase price shall not be less than 50% of the Fair Market Value
of a share of Common Stock on the date such Option is granted. The Option or
portion thereof may be exercised by delivery of an irrevocable notice of
exercise to the Company, as specified by the Committee. The purchase price of
the Option or portion thereof shall be paid in full in the manner prescribed by
the Committee. Separate stock certificates shall be issued by the Company for
those shares acquired pursuant to the exercise of an Incentive Stock Option and
for those shares acquired pursuant to the exercise of any Option that does not
constitute an Incentive Stock Option.
4
<PAGE> 5
(f) Stockholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which certificates
of stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation or other business combination of the employing corporation with
the Company or any subsidiary.
VIII. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of one or more
performance targets established by the Committee that are based on (1) the price
of a share of Common Stock, (2) the Company's earnings per share, (3) the
Company's market share, (4) the market share of a business unit of the Company
designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9) the
earnings before or after interest, taxes, depreciation, and/or amortization of
the Company or any business unit of the Company designated by the Committee,
(10) the economic value added, or (11) the return on stockholders' equity
achieved by the Company, (ii) the Holder's continued employment with the Company
or continued service as a Consultant or Director for a specified period of time,
(iii) the occurrence of any event or the satisfaction of any other condition
specified by the Committee in its sole discretion, or (iv) a combination of any
of the foregoing. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the sole discretion of the Committee.
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends with respect to Common Stock subject to a Restricted
Stock Award, to vote Common Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to delivery
of the stock certificate until the Forfeiture Restrictions have expired, (ii)
the Company shall retain custody of the stock until the Forfeiture Restrictions
have expired, (iii) the Holder may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the stock until the Forfeiture Restrictions
have expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of
the Restricted Stock Award. At the time of such Award, the Committee may, in its
sole discretion, prescribe additional terms, conditions or restrictions relating
to Restricted Stock Awards, including, but not limited to, rules pertaining to
the termination of employment or service as a Consultant or Director (by
retirement, disability, death or otherwise) of a Holder prior to expiration of
the Forfeitures Restrictions. Such additional terms, conditions or restrictions
shall be set forth in a Restricted Stock Agreement made in conjunction with the
Award.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Common Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
(d) Committee's Discretion to Accelerate Vesting of Restricted Stock
Awards. The Committee may, in its discretion and as of a date determined by the
Committee, fully vest any or all Common Stock awarded to a Holder pursuant to a
Restricted Stock Award and, upon such vesting, all restrictions applicable to
such Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this
5
<PAGE> 6
Subparagraph may vary among individual Holders and may vary among the Restricted
Stock Awards held by any individual Holder.
(e) Restricted Stock Agreements. At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. RECAPITALIZATION OR REORGANIZATION
(a) No Effect on Right or Power. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
subsidiary's capital structure or its business, any merger or consolidation of
the Company or any subsidiary, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or liquidation
of the Company or any subsidiary or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) Subdivision or Consolidation of Shares; Stock Dividends. The shares
with respect to which Awards may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an Award
theretofore granted, the Company shall effect a subdivision or consolidation of
shares of Common Stock or the payment of a stock dividend on Common Stock
without receipt of consideration by the Company, the number of shares of Common
Stock with respect to which such Award may thereafter be exercised or satisfied,
as applicable (i) in the event of an increase in the number of outstanding
shares shall be proportionately increased, and the purchase price per share
shall be proportionately reduced, and (ii) in the event of a reduction in the
number of outstanding shares shall be proportionately reduced, and the purchase
price per share shall be proportionately increased. Any fractional share
resulting from such adjustment shall be rounded down to the next whole share.
(c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Common Stock covered by
an Award theretofore granted shall be adjusted so that such Award shall
thereafter cover the number and class of shares of stock and securities to which
the Holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the Holder had
been the holder of record of the number of shares of Common Stock then covered
by such Award. If (i) the Company shall not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of an entity), (ii)
the Company sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets to any other person or entity, (iii) the
Company is to be dissolved and liquidated, (iv) any person or entity, including
a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains
ownership or control (including, without limitation, power to vote) of more than
50% of the outstanding shares of the Company's voting stock (based upon voting
power), or (v) as a result of or in connection with a contested election of
Directors, the persons who were Directors of the Company before such election
shall cease to constitute a majority of the Board (each such event is referred
to herein as a "Corporate Change"), no later than (x) ten days after the
approval by the stockholders of the Company of such merger, consolidation,
reorganization, sale, lease or exchange of assets or dissolution or such
election of Directors or (y) thirty days after a Corporate Change of the type
described in clause (iv), the Committee, acting in its sole discretion without
the consent or approval of any Holder, shall effect one or more of the following
alternatives, which alternatives may vary among individual Holders and which may
vary among Options held by any individual Holder: (1) accelerate the time at
which Options then outstanding may be exercised so that such Options may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Holders thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Holders of some or all of the outstanding Options held by such Holders
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Corporate Change,
6
<PAGE> 7
specified by the Committee, in which event the Committee shall thereupon cancel
each such Option and pay or cause to be paid to each Holder the securities or
other property (including, without limitation, cash) referred to in clause (4)
below with respect to the shares subject to such Option in exchange for payment
by such Holder of the exercise price(s) under such Option for such shares, (3)
make such adjustments to Options then outstanding as the Committee deems
appropriate to reflect such Corporate Change (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding), or (4) provide that the number and class of shares
of Common Stock covered by an Option theretofore granted shall be adjusted so
that such Option shall thereafter cover the number and class of shares of stock
or other securities or property (including, without limitation, cash) to which
the Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution, the Holder had
been the holder of record of the number of shares of Common Stock then covered
by such Option. Notwithstanding the foregoing, if (A) the Company is involved in
a merger or consolidation and, immediately after giving effect to such merger or
consolidation, less than 50% of the total voting power of the outstanding voting
stock of the surviving or resulting entity is then "beneficially owned" (within
the meaning of Rule 13d-3 under the 1934 Act) in the aggregate by the
stockholders of the Company immediately prior to such merger or consolidation or
(B) any person or entity, including a "group" as contemplated by Section
13(d)(3) of the 1934 Act, acquires or gains ownership or control (including,
without limitation, power to vote) of more than 50% of the outstanding shares of
the Company's voting stock (based upon voting power), then, except as provided
in any Award agreement, (I) outstanding Awards shall immediately vest and become
exercisable or satisfiable, as applicable, and (II) any such Award that is an
Option shall continue to be exercisable for the remainder of the applicable
Option term unless the Committee has determined, in its sole discretion, to take
the action described in clause (1) or (2) above with respect to such Option. The
provisions contained in this subparagraph shall not terminate any rights of the
Holder to further payments pursuant to any other agreement with the Company
following a Corporate Change.
(d) Other Changes in the Common Stock. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph IX, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
sole discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted to any one individual may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(e) Stockholder Action. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
(f) No Adjustments unless Otherwise Provided. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor,
7
<PAGE> 8
or upon conversion of shares or obligations of the Company convertible into such
shares or other securities, and in any case whether or not for fair value, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number of shares of Common Stock subject to Awards theretofore granted or
the purchase price per share, if applicable.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in any Award theretofore
granted may be made which would impair the rights of the Holder without the
consent of the Holder, and provided, further, that the Board may not, without
approval of the stockholders, amend the Plan to (a) increase the maximum
aggregate number of shares that may be issued under the Plan or (b) change the
class of individuals eligible to receive Awards under the Plan.
XI. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give an employee,
Consultant, or Director any right to be granted an Option, a right to a
Restricted Stock Award, or any other rights hereunder except as may be evidenced
by an Option Agreement or a Restricted Stock Agreement duly executed on behalf
of the Company, and then only to the extent and on the terms and conditions
expressly set forth therein. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the performance of its obligations
under any Award.
(b) No Employment/Membership Rights Conferred. Nothing contained in the
Plan shall (i) confer upon any employee or Consultant any right with respect to
continuation of employment or of a consulting or advisory relationship with the
Company or any subsidiary or (ii) interfere in any way with the right of the
Company or any subsidiary to terminate his or her employment or consulting or
advisory relationship at any time. Nothing contained in the Plan shall confer
upon any Director any right with respect to continuation of membership on the
Board.
(c) Other Laws; Withholding. The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel for the Company, there is no exemption from the registration
requirements of such laws, rules and regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in connection with all Awards any taxes required by law to
be withheld and to require any payments required to enable it to satisfy its
withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No employee, Consultant, Director,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.
8
<PAGE> 9
(f) Rule 16b-3. It is intended that the Plan and any grant of an Award made
to a person subject to Section 16 of the 1934 Act meet the requirements of Rule
16b-3 so that any transaction under the Plan involving a grant, award, or other
acquisition from the Company or disposition to the Company is exempt from
Section 16(b) of the 1934 Act. If any provision of the Plan or any such Award
would result in any such transaction not being exempt from Section 16(b) of the
1934 Act, such provision or Award shall be construed or deemed amended so that
such transaction will be exempt from Section 16(b) of the 1934 Act.
(g) Governing Law. THE PLAN SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE.
9
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Doane Pet Care Enterprises, Inc.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
KPMG LLP
Houston, Texas
March 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DOANE
PET CARE ENTERPRISES, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,350
<SECURITIES> 0
<RECEIVABLES> 98,432
<ALLOWANCES> (1,922)
<INVENTORY> 51,499
<CURRENT-ASSETS> 172,963
<PP&E> 237,150
<DEPRECIATION> (30,797)
<TOTAL-ASSETS> 710,448
<CURRENT-LIABILITIES> 143,039
<BONDS> 146,996
0
37,792
<COMMON> 2
<OTHER-SE> 70,674
<TOTAL-LIABILITY-AND-EQUITY> 710,448
<SALES> 686,663
<TOTAL-REVENUES> 686,663
<CGS> 554,447
<TOTAL-COSTS> 642,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,503
<INCOME-PRETAX> 8,054
<INCOME-TAX> 3,478
<INCOME-CONTINUING> 4,576
<DISCONTINUED> 0
<EXTRAORDINARY> 26,788
<CHANGES> 0
<NET-INCOME> (22,212)
<EPS-PRIMARY> (29.459)
<EPS-DILUTED> (29,459)
</TABLE>
