UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-24620
DARLING INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2495346
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
251 O'CONNOR RIDGE BLVD., SUITE 300, IRVING, TEXAS 75038
(Address of principal executive offices)
(972) 717-0300
(Registrant's telephone number)
Not applicable
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
The number of shares outstanding of the Registrant's common stock, $0.01 par
value, as of 15,580,152, was May 15, 1998.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 4, 1998
TABLE OF CONTENTS
Page No.
PART I: Financial Information
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets. . . . . . . . . . . . . 3
April 4, 1998 (unaudited) and January 3, 1998
Consolidated Statements of Operations (unaudited). . . . . . 4
Three Months Ended April 4, 1998 and March 29, 1997
Consolidated Statements of Cash Flows (unaudited). . . . . . 5
Three Months Ended April 4, 1998 and March 29, 1997
Notes to Consolidated Financial Statements (unaudited). . . . 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . 9
PART II: Other Information
Item 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . 13
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . 13
Signatures. . . . . . . . . . . . . . . . . . . 14
Index to Exhibits. . . . . . . . . . . . . . . . . 15
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 4, 1998 and January 3, 1998
(in thousands, except shares and per share data)
April 4, January 3,
1998 1998
---------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,494 $ 2,955
Accounts receivable 23,913 32,459
Inventories 12,828 13,897
Prepaid expenses 2,418 3,459
Deferred income tax assets 4,252 4,006
Other 682 383
-------- --------
Total current assets 47,587 57,159
Property, plant and equipment, less accumulated
depreciation of $88,659 at April 4, 1998 and
$81,552 at January 3, 1998 169,160 170,636
Collection routes and contracts, less accumulated
amortization of $10,312 at April 4, 1998 and
$8,700 at January 3, 1998 59,776 58,715
Goodwill, less accumulated amortization of $1,191
at April 4, 1998 and $949 at January 3, 1998 20,747 20,902
Other assets 5,256 5,565
-------- --------
$ 302,526 $ 312,977
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,113 $ 5,113
Accounts payable, principally trade 17,872 22,426
Accrued expenses 24,549 25,385
Accrued interest 933 911
-------- --------
Total current liabilities 48,467 53,835
Long-term debt, less current portion 138,208 142,181
Other non-current liabilities 22,304 21,391
Deferred income taxes 25,145 25,814
--------- --------
Total liabilities 234,124 243,221
-------- --------
Stockholders' equity
Common stock, $.01 par value;
25,000,000 shares authorized; 15,580,152 and
15,563,037 shares issued and outstanding at
April 4, 1998 and at January 3, 1998, respectively 156 156
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued - -
Additional paid-in capital 34,830 34,780
Retained earnings 33,416 34,820
Accumulated other comprehensive income - -
-------- --------
Total stockholders' equity 68,402 69,756
-------- --------
Contingencies (note 3)
$ 302,526 $ 312,977
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended April 4, 1998 and March 29, 1997
(in thousands, except per share data)
Three Months Ended
------------------
April 4, March 29,
1998 1997
------------ ------------
(unaudited)
Net sales $ 108,084 $ 125,809
Costs and expenses:
Cost of sales and operating expenses 87,432 102,365
Selling, general and administrative expenses 10,774 11,196
Depreciation and amortization 9,089 7,975
-------- --------
Total costs and expenses 107,295 121,536
-------- --------
Operating income 789 4,273
-------- --------
Other income (expense):
Interest expense (3,108) (3,656)
Other, net 77 104
-------- -------
Total other income (expense) (3,031) (3,552)
-------- -------
Income (loss) before income taxes (2,242) 721
Income tax expense (benefit) (838) 335
------- -------
Net earnings (loss) $ (1,404) $ 386
======= =======
Basic earnings (loss) per common share $ (0.09) $ 0.02
======= =======
Diluted earnings (loss) per common share $ (0.09) $ 0.02
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended April 4, 1998 and March 29, 1997
(in thousands)
Three Months Ended
April 4, March 29,
1998 1997
--------- ---------
(unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (1,404) $ 386
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 9,089 7,975
Deferred income tax (915) (194)
Loss on sales of assets 27 5
Changes in operating assets and liabilities:
Accounts receivable 8,546 8,174
Inventories and prepaid expenses 2,110 (4,711)
Accounts payable and accrued expenses (5,389) (7,748)
Accrued interest 22 (2,335)
Other (394) (208)
-------- -------
Net cash provided by operating activities 11,692 1,344
-------- -------
Cash flows from investing activities:
Recurring capital expenditures (5,913) (4,253)
Capital expenditures related to acquisitions - (1,825)
Gross proceeds from sale of property, plant
and equipment and other assets 87 73
Payments related to routes and other intangibles (407) (2,352)
-------- -------
Net cash used in investing activities (6,233) (8,357)
-------- -------
Cash flows from financing activities:
Proceeds from long-term debt 23,499 27,724
Payments on long-term debt (27,472) (30,773)
Contract payments (997) 316
Issuance of common stock 50 175
------- -------
Net cash used in financing activities (4,920) (2,558)
-------- -------
Net increase (decrease) in cash and cash equivalents 539 (9,571)
Cash and cash equivalents at beginning of period 2,955 12,956
------- -------
Cash and cash equivalents at end of period $ 3,494 $ 3,385
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 4, 1998
(unaudited)
(1) General
The accompanying consolidated financial statements for the three month
periods ended April 4, 1998 and March 29, 1997 have been prepared by
Darling International Inc. (Company) without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). The
information furnished herein reflects all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management,
necessary to present a fair statement of the financial position and
operating results of the Company as of and for the respective periods.
However, these operating results are not necessarily indicative of the
results expected for full fiscal year. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. However, management of
the Company believes that the disclosures herein are adequate to make the
information presented not misleading. The accompanying consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements contained in the Company's Form 10-K
for the fiscal year ended January 3, 1998.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Fiscal Periods
The Company has a 52/53 week fiscal year ending on the Saturday
nearest December 31. Fiscal periods for the consolidated financial
statements included herein are as of January 3, 1998, and include
the 13 weeks ended April 4, 1998 and the 13 weeks ended March 29,
1997.
(c) Earnings Per Common Share
In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 revised the
previous calculation methods and presentations of earnings per
share and requires that all prior-period earnings (loss) per
share data be restated. The Company adopted SFAS No. 128 in the
fourth quarter of 1997 as required by this Statement.
Basic earnings per common share are computed by dividing net
earnings attributable to outstanding common stock by the weighted
average number of common stock shares outstanding during the year.
Diluted earnings per common share are computed by dividing net
earnings attributable to outstanding common stock by the weighted
average number of common shares outstanding during the year
increased by dilutive common equivalent shares (stock options)
determined using the treasury stock method, based on the average
market price exceeding the exercise price of the stock options.
All prior-period earnings per share amounts have been restated in
accordance with SFAS No. 128.
<PAGE>
The weighted average common shares used for basic earnings per
common share was 15,567,000 and 15,477,000 for 1998 and 1997
respectively. The effect of dilutive stock options added 1,068,000
shares for 1997 for the computation of diluted earnings per common
share.
(3) Contingencies
(a) ENVIRONMENTAL
Chula Vista
The Company is the owner of an undeveloped property located in
Chula Vista, California (the "Site"). A rendering plant was
operated on the Site until 1982. From 1959 to 1978, a portion of
the Site was used as an industrial waste disposal facility, which
was closed pursuant to Closure Order No. 80-06, issued by the State
of California Regional Water Quality Control Board for the San
Diego Region (the "RWQCB"). The Site has been listed by the State
of California as a site for which expenditures for removal and
remedial actions may be made by the State pursuant to the
California Hazardous Substances Account Act, California Health &
Safety Code Section 25300 et seq. Technical consultants retained by
the Company have conducted various investigations of the
environmental conditions at the Site, and in 1996, requested that
the RWQCB issue a "no further action" letter with respect to the
Site. The RWQCB has not yet taken any formal action in response to
such request.
(b) LITIGATION
Other Litigation
The Company is also a party to several other lawsuits, claims and
loss contingencies incidental to its business, including assertions
by regulatory agencies related to the release of unacceptable odors
from some of its processing facilities.
The Company has established loss reserves for environmental and
other matters as a result of the matters discussed above. Although
the ultimate liability cannot be determined with certainty,
management of the Company believes that reserves for contingencies
are reasonable and sufficient based upon present governmental
regulations and information currently available to management. The
Company estimates the range of possible losses related to
environmental and litigation matters, based on certain assumptions,
is between $3.9 million and $12.9 million at April 4, 1998. The
accrued expenses and other noncurrent liabilities classifications
in the Company's consolidated balance sheets include reserves for
insurance, environmental and litigation contingencies of $15.1
million and $15.7 million at April 4, 1998 and January 3, 1998,
respectively. There can be no assurance, however, that final costs
will not exceed current estimates. The Company believes that any
additional liability relative to such lawsuits and claims which may
not be covered by insurance would not likely have a material
adverse effect on the Company's financial position, although it
could potentially have a material impact on the results of
operations in any one year.
<PAGE>
(4) Changes in Accounting Principles
(c) Effective January 4, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This Statement requires that all items
recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as the
other annual financial statements. This Statement also
requires that the Company classify items of other
comprehensive earnings by their nature in an annual financial
statement. Comprehensive income did not differ from net income
for the periods ended April 4, 1998 and March 29, 1997.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 4, 1998
PART I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion summarizes information with respect to the
liquidity and capital resources of the Company at April 4, 1998 and factors
affecting its results of operations for the three months ended April 4, 1998 and
March 29, 1997.
RESULTS OF OPERATIONS
Three Months Ended April 4, 1998 Compared to Three Months Ended March 29, 1997
GENERAL
The Company recorded a net loss of $1.4 million for the first quarter
of the fiscal year ending January 2, 1999 ("Fiscal 1998"), as compared to net
earnings of $0.4 million for the first quarter of the fiscal year ended January
3, 1998 ("Fiscal 1997"). Operating income decreased $3.5 million to $0.8 million
in the first quarter of Fiscal 1998 from $4.3 million in the first quarter of
Fiscal 1997. The decrease in operating income was primarily due to: 1) Declines
in overall finished goods prices; 2) Declines in the volume of raw materials
processed; and 3) Approximately $1.1 million in increased depreciation and
amortization expense related to acquisitions and capital expenditures. These
were partially offset by a $1.1 million decrease in steam expense. Interest
expense decreased from $3.7 million in Fiscal 1997 to $3.1 million in Fiscal
1998, primarily due to the refinancing of all outstanding debt on June 5, 1997,
resulting in a lower overall interest rate.
NET SALES
The Company collects and processes animal by-products (fat, bones and
offal), used restaurant cooking oil, and bakery by-products to produce finished
products of tallow, meat and bone meal, yellow grease and dried bakery product.
In addition, the Company provides grease trap collection services to
Restaurants. Sales are significantly affected by finished goods prices, quality
of raw material, and volume of raw material. Net sales include the sales of
produced finished goods, trap grease services, and finished goods purchased for
resale, which constitute less than 10% of total sales.
During the first quarter of Fiscal 1998, net sales decreased 14.1%, to
$108.1 million as compared to $125.8 million during the first quarter of Fiscal
1997 primarily due to the following: 1) Decreases in overall finished goods
prices resulted in a $15.2 million decrease in sales in the first quarter of
Fiscal 1998 versus the first quarter of Fiscal 1997. The Company's average
yellow grease prices were 24.4% lower, average tallow prices were 16.6% lower,
average meat and bone meal prices were 26.8% lower, and average corn prices were
8.3% lower; 2) Decreases in the volume of raw materials processed resulted in a
$3.1 million decrease in sales, offset by $1.6 million in yield gains; and 3)
Decreases in finished hides sales accounted for $1.4 million in sales decreases.
<PAGE>
COST OF SALES AND OPERATING EXPENSES
Cost of sales and operating expenses includes prices paid to raw
material suppliers, the cost of product purchased for resale, and the cost to
collect and process raw material. The Company utilizes both fixed and formula
pricing methods for the purchase of raw materials. Fixed prices are adjusted
where possible as needed for changes in competition and significant changes in
finished goods market conditions, while raw materials purchased under formula
prices are correlated with specific finished goods prices.
During the first quarter of Fiscal 1998, cost of sales and operating
expenses decreased $14.9 million (14.6%) to $87.4 million as compared to $102.4
million during the first quarter of Fiscal 1997 primarily as a result of the
following: 1) Lower raw material prices paid, correlating to decreased prices
for fats and oils, meat and bone meal and corn resulted in decreases of $11.7
million in cost of sales; 2) Decreases in the volume of raw materials collected
and processed resulted in a decrease of approximately $2.7 million in cost of
sales and operating expenses; and 3) Decreases in steam cost resulted in a $1.1
million decrease in operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs were $10.8 million during the
first quarter of Fiscal 1998, a $0.4 million decrease from $11.2 million for the
first quarter of Fiscal 1997. The repurchase of stock options held by the former
president of the Company in the first quarter of 1997 resulted in a decrease of
$1.7 million, somewhat offset by approximately $0.5 million in increased
expenses related to the functional reorganization of the Company by line of
business and other expenses related to legal and environmental matters.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges increased $1.1 million to $9.1
million during the first quarter of Fiscal 1998 as compared to $8.0 million
during the first quarter of Fiscal 1997. This increase was primarily due to
additional depreciation on fixed asset additions and amortization on intangibles
acquired as a result of various acquisitions. The Company adopted Fresh Start
Accounting in 1994. Under this method of accounting, the assets acquired prior
to December 1994 were restated at fair market value and depreciated over
estimated remaining lives of 5-15 years.
INTEREST EXPENSE
Interest expense decreased $0.6 million from $3.7 million during the
first quarter of Fiscal 1997 to $3.1 million during the first quarter of Fiscal
1998, primarily due to the refinancing of all outstanding debt on June 5, 1997
at a lower overall rate of interest.
INCOME TAXES
The income tax benefit of $0.8 million for the first quarter of Fiscal
1998 consists of federal tax benefit and various state and foreign taxes. This
is a decrease of $1.2 million from $0.3 million income tax expense during the
first quarter of Fiscal 1997.
CAPITAL EXPENDITURES
The Company made capital expenditures of $5.9 million during the first
quarter of Fiscal 1998 compared to capital expenditures of $6.1 million during
the first quarter of Fiscal 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Effective June 5, 1997, the Company entered into a Credit Agreement
(the "Credit Agreement") which provides for borrowings in the form of a
$50,000,000 Term Loan and $175,000,000 Revolving Credit Facility. As of April 4,
1998 the Company was in compliance with all provisions of the Credit Agreement.
The Term Loan provides for $50,000,000 of borrowing. The Term Loan
bears interest payable monthly at LIBOR (5.6875% at April 4, 1998), plus a
margin (the "Credit Margin") (1.25% at April 4, 1998) which floats based on the
achievement of certain financial ratios. The Term Loan is payable by the Company
in quarterly installments of $1,250,000 commencing on June 30, 1997 through
March 31, 1999: $2,500,000 commencing on June 30, 1999 through March 31, 2002;
and an installment of $10,000,000 due on June 5, 2002. As of April 4, 1998,
$45,000,000 was outstanding under the Term Loan.
The Revolving Credit Facility provides for borrowings up to a maximum
of $175,000,000 with sublimits available for letters of credit and a swingline.
Outstanding borrowings on the Revolving Credit Facility bear interest, payable
monthly, at various LIBOR rates (ranging from 5.6211% to 5.6875% at April 4,
1998) plus the Credit Margin as well as portions at a Base Rate (8.50% at April
4, 1998) or, for swingline advances, at the Base Rate. Additionally, the Company
must pay a commitment fee equal to 0.25% per annum on the unused portion of the
Revolving Credit Facility. The Revolving Credit Facility matures on June 5,
2002. As of April 4, 1998, $98,180,000 was outstanding under the Revolving
Credit Facility. As of April 4, 1998, the Company had outstanding irrevocable
letters of credit aggregating $8,373,000.
The Credit Agreement contains certain terms and covenants, which, among
other matters, restrict the incurrence of additional indebtedness, the payment
of cash dividends and the annual amount of capital expenditures, and requires
the maintenance of certain minimum financial ratios. As of April 4, 1998 no cash
dividends could be paid to the Company's stockholders pursuant to the Credit
Agreement.
The Company has only very limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap
agreements are used to reduce the potential impact of increases in interest
rates on floating-rate long-term debt. At April 4, 1998, the Company was party
to three interest rate swap agreements, each with a term of five years (all
maturing June 27, 2002). Under terms of the swap agreements, the interest
obligation of $70 million of Credit Agreement floating-rate debt was exchanged
for fixed rate contracts which bear interest, payable quarterly, at an average
rate of 6.6% plus a credit margin.
On April 4, 1998, the Company had a working capital deficit of $0.9
million and its working capital ratio was 0.98 to 1 compared to working capital
of $3.3 million and a working capital ratio of 1.06 to 1 on January 3, 1998.
This decrease in working capital is mainly attributable to decreases in accounts
receivable due to lower finished goods prices. Net cash provided by operating
activities has increased $10.4 million from $1.3 million during the first
quarter of Fiscal 1997 to $11.7 million during the first quarter of Fiscal 1998.
The Company believes that cash from operations and current cash balances,
together with the undrawn balance from the Company's loan agreements, will be
sufficient to satisfy the Company's planned capital requirements.
<PAGE>
ACCOUNTING MATTERS
In June 1997, the Financial Accounting standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 is effective for annual periods beginning after December 15, 1997. This
Statement established standards for the way that public business enterprises
report information about operating segments in annual financial statements. The
Statement defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company anticipates that this Statement will require
additional disclosure regarding operating segments in Fiscal 1998.
OTHER
As a result of computer programs being written using two digits rather
than four to define the applicable years, there is a concern by the business
community as to whether these systems will be able to process information
beginning in the year 2000. To deal with this concern, the Company has initiated
programs and information systems reviews in an attempt to ensure that key
systems and processes will remain functional. This objective is to be achieved
either by modifying present systems or by installing new systems. While there
can be no assurance that all modifications will be successful, management does
not expect that costs of modifications or consequences of any unsuccessful
modifications will have a material adverse effect on the Company.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in the Quarterly
Report on Form 10-Q, including, without limitation, the statements under the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Legal Proceedings" and located elsewhere herein
regarding industry prospects and the Company's financial position are
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. Important factors
that could cause actual results to differ materially from the Company's
expectations include: the Company's continued ability to obtain sources of
supply for its rendering operations; general economic conditions in the European
and Asian markets; and prices in the competing commodity markets which are
volatile and are beyond the Company's control. Future profitability may be
effected by the Company's ability to grow its restaurant services business and
the development of its value-added feed ingredients, all of which face
competition from companies which may have substantially greater resources than
the Company.
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 4, 1998
PART II: Other Information
Item 1. LEGAL PROCEEDINGS
The information required by this item is included on pages 7 and 8 of
this report and is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal quarter ended April 4, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits No. Description
3.1* Restated Articles of Incorporation.
3.2 Amended and Restated Bylaws, dated March 10, 1994 and March 31, 1995.
10.13 Master Lease Agreement between NBD and Darling International Inc.
dated as of February 17, 1998.
11 Statement re-computation of per share earnings.
27 Financial Data Schedule
* Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-79478).
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the three months ended
April 4, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DARLING INTERNATIONAL INC.
Registrant
Date: May 18, 1998 By: /s/ Dennis B. Longmire
--------------------------------
Dennis B. Longmire
Chairman and
Chief Executive Officer
Date: May 18, 1998 By: /s/ John O. Muse
--------------------------------
John O. Muse
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 4, 1998
INDEX TO EXHIBITS
Exhibits No. Description Page No.
3.1* Restated Articles of Incorporation
3.2 Amended and Restated Bylaws, dated March 10, 1994 and March 31, 1995.
10.13 Master Lease Agreement between NBD and Darling
International Inc. dated as of February 17, 1998. 17
11 Statement re-computation of per share earnings. 16
27 Financial Data Schedule
* Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-79478).
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The following table details the computation of basic and diluted earnings
(loss) per common share, in thousands except per share data.
Three Months Ended
-----------------------------
April 4, March 29,
1998 1997
------------------------------------------- ----------------- ------------
Earnings (Basic):
Net earnings (loss) available
to common stock $ (1,404) $ 386
======== =======
Shares (Basic):
Weighted average number of
common shares outstanding 15,567 15,477
======= =======
Basic earnings (loss) per common share $ (0.09) $ 0.02
======= =======
------------------------------------------- ----------------- ------------
Earnings (Diluted):
Net earnings (loss) available
to common stock $ (1,404) $ 386
======= =======
Shares (Diluted):
Weighted average number of
common shares outstanding 15,567 15,477
Additional shares assuming exercise of
stock options - 1,068
------- ------
Average common shares outstanding
and equivalents 15,567 16,545
======= ======
Diluted earnings (loss) per common share $ (0.09) $ 0.02
======= =======
=========================================== ================= ============
EXHIBIT A
This exhibit dated February 17, 1998 incorporates the Master Lease dated
February 17, 1998 between NBD Bank as Lessor and Darling International Inc. as
Lessee.
January 15, 1998
Mr. Brad Phillips
Treasurer
Darling International Inc.
251 O'Connor Ridge Boulevard
Suite 300
Irving, Texas 75038
Dear Brad:
At the request of Cory Olson and Jay Taparia, I am providing this letter which
outlines the general terms and conditions under which NBD Bank, ("Lessor")
proposes to purchase Cleanstar 2000 Automated Grease Recycling Systems
("Equipment") for the purpose of leasing the Equipment to Darling International
Inc. ("Lessee").
I. TRANSACTION INFORMATION
Acceptance Date: Not later than December 31, 1998
----------------
Equipment Cost: Not to exceed $15,000,000
---------------
Base Lease Term: 84 monthly payments in advance.
---------------
Rental Rates: Funding Date: Rental Factor:
------------- ------------- --------------
On or before 3/31/98 .0139936
4/1/98 to 6/30/98 .0139163
7/1/98 to 9/30/98 .0138443
10/1/98 to 12/31/98 .0137713
Early Buyout Options:
---------------------
Upon 30 days written notice, at the 42nd scheduled monthly
payment date, purchase the equipment for 58% of original equipment
cost, OR
Upon 30 days written notice, at the 66th scheduled monthly
payment date, purchase the equipment for 29% of original equipment
cost.
<PAGE>
End of Lease Options:
---------------------
A. Purchase all but not less than all the equipment at the then
fair market value
or
B. Return the equipment to Lessor with a 5% return
fee based on original equipment cost.
or
C. Re-rent the equipment at the then fair market
value rental.
II. LEASE PROPOSAL PROVISIONS
Rental Adjustment:
------------------
The rental factor quoted above will be adjusted by the following
factors for each basis point increase or decrease, or prorated portion
thereof, in the yield of the corresponding Treasury Note issue as
published in the Wall Street Journal:
Funding Date: Adjustment Factor:
------------- ------------------
1/1/98 through 6/30/98 .0000040
7/1/98 through 9/30/98 .0000038
10/1/98 through 12/31/98 .0000037
The rental factor will continue to be subject to adjustment until the
Lessor has been notified that the Equipment has been delivered and
accepted by the Lessee. Upon such notification, the Lessor will fix the
rental factor and prepare the necessary documentation for execution by
the Lessee. Funding must occur within 5 business days of rate setting
or the rate may be adjusted.
The Treasury Note issue for this transaction is the 6 1/4% note dated
February 2003 with a yield of 5.36% as published in the Wall Street
Journal dated January 15, 1998.
Lease Schedules:
----------------
All schedules funded under the Master Lease agreement will share the
same invoice date, the first day of the month following acceptance of
Equipment. Equipment initial delivery locations, for the purposes of
UCC filings and lease documentation, will be limited to the
approximately 20 regional Darling International plants, and then may be
kept at customer locations as provided in the Master Lease. Lessee will
provide a detailed listing of all Equipment by location on a semiannual
basis.
Advances:
---------
Advances toward the purchase of the asset(s) to be leased will be made
under a Purchase Agreement Assignment. Moneys will be advanced on a
demand note basis with monthly payments of interest which accrue
interest at the same interest rate charged under Darling International
Inc's Senior Credit Facility with First Chicago NBD and other lenders
dated June 5, 1997. Pricing is indexed over LIBOR and is adjusted
quarterly. Current pricing is LIBOR plus 1.25 percentage points.
<PAGE>
Interim Rent:
-------------
If the funding date is a date other than the rental payment date, the
Lessee will pay to Lessor Interim Rent at the daily rate of First
Chicago NBD's Prime Rate minus 1/2% (one-half percent) from the date of
funding to the Lease Commencement Date (the first day of the month
following acceptance of Equipment). Interim Rent will be billed
separately to Lessee at the time of Equipment acceptance.
Net Lease
---------
The Lessee will be responsible for all expenses incurred in connection
with the Equipment and the Lease, including those relating the
ownership, operation, maintenance, modifications, insurance, and taxes
(excluding, however, subject to customary limitations, taxes imposed
on, or measured solely by, the net income of the Lessor). The Lessor
will make no warranties of any kind with respect to the Equipment.
Lessee shall bear all risk of loss.
Environmental Indemnification:
------------------------------
Darling International Inc. will indemnify NBD Bank for any and all
liability arising from ownership of the Cleanstar 2000 units as
covered by the General Indemnity language referenced below.
General Indemnity
-----------------
The lease documents will include a general indemnity section which will
include provisions which are customary in transactions of this type.
III. TAX MATTERS
Tax Assumptions
---------------
The proposed Rental Payments have been calculated based on the
following assumptions for Federal Income Tax purposes: (i) five (5)
year depreciation (MACRS); (ii) marginal Corporate Federal income tax
rate of 35%; (iii) treatment of all income and loss deductions as U.S.
sourced; (iv) absence of income inclusions ("Tax Benefits").
Lessee Income Tax Representation and Warranties
-----------------------------------------------
Lessee will represent, warrant and covenant as to certain customary
tax matters, including that for Federal Income Tax purposes the
Equipment will constitute "five year Property", eligible to be
depreciated over a recovery period of five years, in accordance with
the provisions of Section 168 of the Internal Revenue Code of 1986.
General Tax Indemnity
---------------------
The Lessee will extend to the Lessor a general tax indemnity on
customary terms, and with customary exceptions, all mutually
satisfactory to the parties, covering all taxes imposed by Federal,
state, local and foreign taxing authorities.
Lessee will be responsible for all tax documentation and payment of all
personal property tax required on the Equipment. Lessee will indemnify
Lessor from any and all liability arising from such property taxes.
<PAGE>
IV. MISCELLANEOUS
Transactions Costs
------------------
All fees and expenses relating to the transaction, incurred by the
Lessee and Lessor will be paid by the Lessee and Lessor respectively,
except that certain out-of-pocket expenses incurred by the Lessor will
be payable by the Lessee. Out-of-pocket expenses may include, but not
be limited to, such items as UCC searches and filings.
Business Information
--------------------
Lessee shall make available to Lessor such financial and other business
information as may be reasonably requested.
Material Adverse Change
-----------------------
There will not have occurred, prior to the initial Funding Date, in the
opinion of Lessor, any material adverse change in the financial
position or in the circumstances involving the nature or the operation
of Lessee's business or equipment.
The terms and conditions stated in this proposal are supplementary to the Master
Lease and Schedules thereto. Any terms and conditions not specifically addressed
in this proposal shall be subject to mutual agreement between Lessee and Lessor,
and will be addressed in the lease documents.
Sincerely,
Stephen E. Green
Vice President
cc: Cory Olson
Jay Taparia
FCNBD
Accepted By:
DARLING INTERNATIONAL INC.
-----------------------------------
(Signature)
-----------------------------------
(Title)
-----------------------------------
(Date)
<PAGE>
MASTER LEASE
This Master Lease Agreement ("Master Lease") is dated February 17, 1998, between
NBD BANK ("Lessor"), and Darling International Inc. ("Lessee").
Lessee wants from time to time to lease from Lessor personal property to be
described in one or more schedules ("Schedule") of leased equipment. Lessor is
willing to lease such personal property to Lessee at the rent, for the term and
upon the conditions stated. Any Schedules and exhibits executed by Lessor and
Lessee which are identified as being a part of this Master Lease, shall be
deemed to incorporate by reference all the terms of this Master Lease except as
provided in the Schedules and exhibits. In the event of a conflict between this
Master Lease and any Schedule or exhibit, the provisions of such Schedule or
exhibit shall control.
1. Equipment Leased and Term. This Master Lease shall cover such personal
property as is described in any Schedule (the "Equipment") executed by the
parties. Lessor leases to Lessee and Lessee hires and takes from Lessor, subject
to the conditions of this Master Lease, the Equipment described in any Schedule.
The term for any item of Equipment shall be for the period as set forth in the
Schedule ("Initial Lease Term").
2. Rent. The rent for each item of Equipment shall be payable as, and in the
amount, shown on the Schedule.
3. Purchase and Acceptance. Lessee requests Lessor to acquire all scheduled
Equipment pursuant to an assignment of Lessee's purchase order(s) for the
Equipment. Delivery of each item of Equipment shall be deemed complete upon the
acceptance date ("Acceptance Date") stated in the Schedule. Lessor shall not be
liable for loss or damage or for the delay or failure of any supplier of the
Equipment ("Seller") to deliver any item of Equipment. THE LESSEE REPRESENTS
THAT LESSEE HAS SELECTED BOTH THE EQUIPMENT LISTED IN ANY SCHEDULE AND THE
SELLER BEFORE HAVING REQUESTED LESSOR TO ACQUIRE THE EQUIPMENT FOR LEASING TO
LESSEE.
4. Non-Cancelable Lease. THIS MASTER LEASE IS NON-CANCELABLE. When Lessee signs
and delivers a Certificate of Acceptance for the Equipment, its obligations to
pay all rent and other amounts (subject to the further provisions of this Master
Lease) for the Initial Lease Term and to perform as required under this Master
Lease are unconditional, irrevocable and independent. These obligations are not
subject to cancellation, termination, modification, repudiation, excuse or
substitution by Lessee. Lessee is not entitled to any abatement, reduction,
offset, defense or counterclaim with respect to these obligations for any reason
whatsoever, whether arising out of default or other claims against Lessor, the
Seller or the manufacturer of the Equipment, defects in or damage to the
Equipment, its loss or destruction.
5. Disclaimer of Warranties by Lessor; Rights of Lessee. LESSOR MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE
CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY
PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS-IS".
UNDER NO CIRCUMSTANCES SHALL LESSOR BE RESPONSIBLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS MASTER LEASE AND/OR THE EQUIPMENT.
LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD
PARTY, PROVIDED TO LESSOR BY THE SELLER IN CONNECTION WITH OR AS PART OF THE
CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT. LESSEE MAY COMMUNICATE WITH THE
SELLER AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF THOSE RIGHTS, PROMISES
AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF
REMEDIES.
6. Claims Against Seller; Seller Not An Agent of Lessor. If the Equipment is not
properly installed, does not operate as represented or warranted by the Seller
or is unsatisfactory for any reason, Lessee shall make any claim for same solely
against the Seller and shall nevertheless pay Lessor all rent payable under this
Master Lease. Lessor agrees to assign to Lessee, solely for the purpose of
making and prosecuting any such claim, any rights it may have against the Seller
for breach of warranty or representation regarding the Equipment.
Notwithstanding any fees that must be paid to Seller or any agent of Seller,
Lessee understands and agrees that neither the Seller nor any agent or employee
of the Seller is an agent or employee of the Lessor and that neither the Seller
nor its agent or employee is authorized to waive or alter any term or condition
of this Master Lease.
7. Title; Location of the Equipment; Equipment is Personal Property;
Termination. Title to the Equipment is in the Lessor and under no circumstances
shall pass to Lessee. The Equipment shall be kept at Lessee's address indicated
in the applicable Schedule and shall not be removed without the prior written
consent of Lessor, except that Equipment may be kept at customer locations as
indicated in the applicable schedule provided from Lessee to Lessor at six month
intervals. Lessee agrees that the Equipment is, and will at all times remain,
personal property. At each scheduled termination date, or upon Lessee's default,
Lessee, at its own expense, shall assemble and deliver the Equipment to Lessor
at the location designated by Lessor, in good order and repair, ordinary wear
and tear excepted. Lessee shall give Lessor 90 days written notice prior to each
scheduled termination date, that it is returning the Equipment.
<PAGE>
8. No Assignment by Lessee; Assignment by Lessor. THIS MASTER LEASE SHALL NOT BE
ASSIGNED BY LESSEE, NOR SHALL ANY OF THE EQUIPMENT BE SUBLEASED BY LESSEE
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHELD; PROVIDED, HOWEVER, THAT THIS LIMITATION ON SUBLEASING
SHALL NOT APPLY TO LEASES OR RENTALS OF INDIVIDUAL CLEANSTAR UNITS OR GROUPS OF
CLEANSTAR UNITS MADE IN THE ORDINARY COURSE OF LESSEE'S BUSINESS AND IN
CONNECTION WITH LESSEE'S SERVICES PROVIDED TO GENERATORS OF SPENT COOKING OIL.
Lessor may sell or assign all or part of its right, title and interest in this
Master Lease, any item of Equipment and/or any Schedule and/or exhibit and in
any monies to become due to the Lessor. The assignee shall not be liable for or
be required to perform any of Lessor's obligations to Lessee. In the event of an
assignment by Lessor of this Master Lease, such assignment will not relieve
Lessor from its duties and obligations hereunder or be construed to be an
assumption by the assignee of such obligations. All assigned rental payments
shall be paid directly to assignee, upon written notice to Lessee of such
assignment. Lessee's performance of all its obligations shall not be subject to
any defense, counterclaim or setoff which the Lessee may have against Lessor.
Lessee agrees that it will not assert any such defenses, setoffs, counterclaims
or claims against the assignee.
9. Casualty and Liability Insurance; Risk of Loss; Damage or Destruction. Lessee
shall keep all Equipment insured against loss by fire, theft and all other
hazards (comprehensive coverage) for its replacement cost but not less than the
casualty value ("Casualty Value") for such item indicated in the Casualty Value
Table attached to the applicable Schedule. Lessee may self-insure for damage to
the equipment resulting from fire, theft, and all other hazards. Should Lessee
choose to self-insure Physical Damage, it will provide Lessor with a letter
acknowledging Lessor's interest and agreeing to respond as the lease requires to
any loss. Lessee shall also insure the Lessor and Lessee with respect to
liability for personal injuries in amounts of at least $1,000,000 per bodily
injury per ocurrence, $3,000,000 per occurrence; and $1,000,000 per occurrence
for damage to or loss of use of property resulting from the ownership, use and
operation of the Equipment and against risks customarily insured against by the
Lessee for equipment owned by it. All policies shall be endorsed with Lessor as
a loss payee and additional insured and shall provide that the interest of
Lessor shall not be invalidated by any act of Lessee. Evidence of insurance must
be delivered to Lessor annually by April 15th. In the event of loss, destruction
or theft of, or damage to, any of the Equipment, Lessee will notify Lessor as
soon as practicable.
If Lessee defaults in obtaining any insurance, Lessor may but is not required
to, place such insurance. Any premiums paid by Lessor shall be additional rent
payable on demand with interest at the rate referenced in Section 23 of this
Master Lease from the date of payment. At Lessor's sole option, such amounts
together with interest may be added to the lease balance to be paid by Lessee as
additional monthly rent. Lessee assumes and shall bear all risks of loss of,
damage to or destruction of each item of Equipment, whether partial or complete.
Except as provided in this Section 9, no such event shall relieve the Lessee of
its obligation to pay the full rental payable for such item.
If any item of Equipment is destroyed, damaged beyond economical repair, lost or
stolen, or taken by governmental action for a stated period extending beyond the
Initial Lease Term for such item (an "Event of Loss"), Lessee must promptly
notify Lessor and any assignee and pay to Lessor or the assignee, as the case
may be, on the next rent payment date following the Event of Loss the Casualty
Value of the item of Equipment. Upon such payment, Lessee's obligation to pay
rent for such item of Equipment will cease and provided no Event of Default as
defined in Section 12 has occurred and is continuing, Lessee will be entitled to
receive any insurance proceeds or other recovery received by the Lessor or
assignee in connection with the Event of Loss.
10. Repairs; Use; Alterations; Attachments. Lessee, at its own expense, shall
keep the Equipment maintained in good repair, condition, working order, and in
accordance with the manufacturer's recommended maintenance procedures and
specifications, normal wear and tear excepted; shall use the Equipment lawfully;
and shall not materially alter the Equipment without the Lessor's prior written
consent. Lessee shall take no action which would void the manufacturer's
warranty on the Equipment. All items which become attached to or a part of the
Equipment become the property of Lessor.
11. Liens and Taxes. Lessee at its expense shall keep the Equipment free and
clear of all levies and liens. Lessee shall reimburse the Lessor (or pay
directly if, but only if instructed by Lessor) for all charges and taxes (local,
state and federal) imposed or levied upon this Master Lease, any Schedules,
rentals, operation, leasing, sale, ownership, possession or use of the Equipment
excluding all taxes based upon income or gross receipts of Lessor.
<PAGE>
12. Default. Any of the following shall constitute an event of default ("Event
of Default") by Lessee: (a) Lessee fails to pay when due any scheduled rent or
other amount within 3 days as required by this Master Lease; (b) Lessee breaches
any covenant of this Master Lease or fails to promptly perform any of its terms
or conditions, including but not limited to return of the leased Equipment at
the expiration of any scheduled lease term provided Lessee has not exercised its
purchase option with respect to such Equipment; (c) Lessee makes an assignment
for the benefit of creditors; (d) a petition is filed by or against Lessee in
bankruptcy or for the appointment of a receiver and is not dismissed within 60
days; (e) dissolution or suspension of Lessee's usual business; (f) Lessee makes
a bulk transfer or bulk sale of any assets outside the normal course of
business, (g) any representation, warranty, or signature made by Lessee in this
Master Lease or related document is incorrect, fraudulent or breached; or (h)
Lessee defaults under the terms of any agreement or instrument relating to any
lease or debt for borrowed money such that the lessor terminates the lease or
the creditor declares the debt due before its maturity and such lease or debt is
in the principal amount of at least $1,000,000. Lessee agrees to give Lessor
prompt notice upon the occurrence of an Event of Default.
13. Lessor's Remedies upon Default by Lessee. Upon the occurrence and during the
continuance of an Event of Default, Lessor, without further notice, and in
addition to any remedy provided by law, may (i) recover from Lessee the Casualty
Value of the Equipment together with any unpaid rent then due and (ii)
regardless of whether such amounts are paid, take possession of any items of
Equipment and at Lessor's option sell or lease at public auction or by private
sale or otherwise dispose of such items of Equipment.
If Lessee has paid the Casualty Value, all unpaid rent then due and all other
amounts owing under this Master Lease and if any items of Equipment have been
taken from Lessee, the proceeds of any reletting or sale (less all costs and
expenses including reasonable attorneys' fees) shall be paid to reimburse the
Lessee for the Casualty Value up to the amount previously paid. Any surplus
remaining after such payment will be retained by the Lessor.
Regardless of any sale or lease of the Equipment or any payment of the Casualty
Value, Lessee will remain liable to Lessor for all damages as provided by law
and for all costs and expenses caused by Lessee's breach, including court costs
and reasonable attorneys' fees (whether attributable to Lessor's in-house
counsel or outside counsel). These costs and expenses shall include, without
limitation, any costs or expenses incurred by Lessor in any bankruptcy,
reorganization, insolvency or other similar proceeding relating to Lessee.
14. Renewal. If the Equipment is not delivered to Lessor at any scheduled
termination date in accordance with paragraph 7, then the Initial Lease Term
shall renew on a month to month basis upon the same terms and conditions,
subject to the right of Lessor or Lessee to terminate the renewed term on 30
days written notice, in which event, the Equipment shall immediately be returned
to Lessor.
15. Late Charges. Without limiting Lessor's remedies above, if Lessee fails to
pay any amount of rental or other payment for a period of ten days after its due
date, Lessee agrees to pay Lessor a late charge of 5% of each such payment or
installment with a minimum late charge of $25.00. This late charge shall be
reassessed in each subsequent month that the rental or other payment remains
unpaid.
16. Financing Statements. The Lessor is authorized to file a financing statement
in accordance with the Uniform Commercial Code signed by Lessee or by Lessor, as
Lessee's attorney in fact.
17. Jurisdiction; Venue; Severability. THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF MICHIGAN. No provision which may be construed as
unenforceable shall in any way invalidate any other provision, all of which
shall remain in full force and effect.
18. Warranties by Lessee. Lessee warrants and represents that: (a) the Equipment
is being leased for business purposes; (b) all signatures are genuine; and (c)
the person signing the Master Lease is authorized to do so. If Lessee is other
than a natural person, it further represents that (a) it is duly organized,
existing and in good standing pursuant to the laws under which it is organized;
and (b) the execution and delivery of this Master Lease and the performance of
the obligations it imposes are within its powers and have been duly authorized
by all necessary action of its governing body and do not contravene the terms of
its articles of incorporation or organization, its bylaws, or any partnership,
operating or other agreement governing its affairs:
19. Indemnity by Lessee. LESSEE AGREES TO INDEMNIFY AND HOLD LESSOR OR ANY
ASSIGNEE HARMLESS FROM ANY AND ALL CLAIMS, ACTIONS, PROCEEDINGS, EXPENSES,
DAMAGES AND LIABILITIES, INCLUDING ATTORNEYS' FEES (collectively "Losses"),
ARISING OUT OF OR IN ANY MANNER PERTAINING TO THE EQUIPMENT OR THIS MASTER LEASE
INCLUDING, WITHOUT LIMITATION, THE OWNERSHIP, SELECTION, POSSESSION, PURCHASE,
DELIVERY, INSTALLATION, LEASING, OPERATION, USE, CONTROL, MAINTENANCE AND RETURN
OF THE EQUIPMENT AND THE RECOVERY OF CLAIMS UNDER INSURANCE POLICIES, EXCEPT TO
THE EXTENT SUCH LOSSES ARE CAUSED BY LESSOR'S OR ANY ASSIGNEE OF LESSOR'S GROSS
NEGLIGENCE OR WILLFULL MISCONDUCT.
<PAGE>
Lessee acknowledges that the Equipment is owned by Lessor ("Owner"). It is the
intent of Owner/Lessor and Lessee that this Lease constitute a true lease for
Federal income tax purposes so that, for the purpose of determining its
liability for Federal income taxes, Owner shall be entitled to the tax benefits
as are provided by the Internal Revenue Code of 1986, as amended, (the "Code")
to an owner of personal property.
In addition notwithstanding any other provision of this Master Lease, if as to
any Equipment, the modified accelerated cost recovery system or depreciation
deductions allowed under the Code shall be lost, disallowed, eliminated,
reduced, recaptured or otherwise unavailable to Lessor for any reason except due
to Lessor's gross negligence or willful misconduct, then Lessee shall pay to
Lessor as additional rent within 30 days after such a loss an amount equal to
the sum of (i) the additional federal, state, local and foreign income or any
other taxes payable as a result of such loss, disallowance, elimination,
reduction, recapture or unavailability of accelerated cost recovery or
depreciation deductions plus (ii) the amount of any interest, penalties or
additions to tax payable by the Lessor as a result of such additional tax.
The indemnities given and liabilities assumed by the Lessee pursuant to this
Section 19 shall continue in full force and effect notwithstanding the
expiration or other termination of this Master Lease.
20. Notices. Notice from one party to another relating to this Master Lease
shall be deemed effective if made in writing (including telecommunications) and
delivered to the recipient's address, telex number or telecopier number set
forth under its name below.
21. Labels Affixed to Equipment. Lessor shall have the right, but not the
obligation, to attach or require Lessee to attach ownership identification
labels to the Equipment. Lessee agrees to not remove any such labels.
22. Lessor's Expense. Lessee shall pay Lessor all reasonable costs and expenses,
including reasonable attorneys' fees, incurred by Lessor in enforcing any terms
of, or in protecting Lessor's interests under, this Master Lease.
23. Performance by Lessor. If the Lessee fails to promptly perform any of its
obligations under this Master Lease, Lessor may, at its option, perform such act
or make such payment which the Lessor deems necessary. All sums paid or incurred
by Lessor including reasonable attorneys' fees shall be immediately due and
payable by Lessee, upon demand, and shall bear interest at 2% (two percent)
above the contract rate charged under Darling International Inc's Senior Credit
Facility with First Chicago NBD and other lenders dated June 5, 1997.
24. Entire Agreement. This Master Lease and subsequent Schedules and exhibits
constitute the entire agreement of the parties. Neither party relies on any
other statements, understandings, representations or assurances, the same, if
any having been merged into this agreement. This agreement cannot be modified
except by a writing signed by each party. This agreement inures to the benefit
of the successors and assigns of the parties.
25. Waiver. No delay on the part of Lessor in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by Lessor of any
right or remedy shall preclude any other future exercise of it or the exercise
of any other right or remedy. No waiver by Lessor of any default shall be
effective unless in writing and signed by Lessor, nor shall a waiver on one
occasion be construed as a bar to or waiver of that right on any future
occasion.
26. Financial Reports. Upon request by Lessor, Lessee will promptly furnish to
Lessor all financial reports required under the terms of the most recent Credit
Agreement between First Chicago NBD and Darling International Inc.
27. Waiver of Jury Trial. Lessor and Lessee, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Master Lease, or any related agreement, or any
course of conduct, dealing or statements (whether oral or written). These
provisions shall not be deemed to have been modified in any respect or
relinquished by either Lessor or Lessee except by a written instrument executed
by both of them.
<PAGE>
THIS MASTER LEASE AGREEMENT THE UNDERSIGNED (AND IF MORE THAN
SHALL NOT BE BINDING ON LESSOR ONE, JOINTLY AND SEVERALLY) AGREE
UNTIL IT HAS BEEN ACCEPTED AND TO ALL TERMS AND CONDITIONS ABOVE
EXECUTED BY AN OFFICER OF LESSOR. WHICH ARE PART OF THIS MASTER
LEASE AGREEMENT.
Accepted by Lessor: NBD BANK Lessee: DARLING INTERNATIONAL INC.
By: ____________________________ By: _________________________
Title: ____________________________ Title: _________________________
Date: _____________________ By: _________________________
Title: _________________________
Date: _______________________
Address For Notices: Address For Notices:
660 Woodward Avenue 251 O'Connor Ridge Boulevard
Suite #200 Suite 300
Detroit, MI 48226 Irving, Texas 75038
Fax No.: (313) 226-1959 Fax No.: (972) 281-4449
<PAGE>
SCHEDULE 1
This Schedule dated February 17, 1998
incorporates the Master Lease
dated February 17, 1998
between NBD BANK as Lessor,
and Darling International Inc. as Lessee.
Lessee: Darling International Inc. Lessor: NBD BANK
251 O'Connor Ridge Blvd. 39555 Orchard Hill Place Dr.
Irving, Texas 75038 Suite 340
Novi, MI 48375
Tax I.D. No. YY
Location of Equipment: YY
Model/ Serial
Quantity Feature Description Number
- -------- --------- ------------ --------
Rent Payment Due Date: The first day of each month in advance.
Initial Lease Term: The Lease Term for each leased item commences on the
Acceptance Date and continues for 84 months.
Rent: $QQ.
(If the First Rent Payment Due Date is after the Acceptance Date, the
first Rent payment shall be the total of (i) the first installment of
Rent as specified above, plus (ii) an amount equal to First Chicago
NBD's Prime Rate minus 1/2% (one-half percent), multiplied by the number
of days from and including the Acceptance Date for a leased item but
excluding the First Rent Payment Due Date.)
Rent is computed by multiplying the Equipment cost x YY. In the event the
Equipment cost varies from $YY, Rent will be adjusted accordingly.
At the end of 42 months, or at the end of 66 months, the Equipment may be
purchased for 58% or 29% of original equipment cost, respectively. If these
options are not exercised, the rent will continue to the end of the lease term.
Master Lease: This Schedule is issued pursuant to the Master Lease identified on
Page 1. All of the terms and conditions of the Master Lease are incorporated
herein and made a part hereof as if such terms and conditions were set forth in
this Schedule. By the execution and delivery of this Schedule, the parties
reaffirm all of the terms and conditions of the Master Lease except as modified.
NBD BANK DARLING INTERNATIONAL INC.
By: By:
----------------------- ------------------------
Name: Name:
----------------------- ------------------------
Title: Title:
----------------------- ------------------------
Date: Date:
----------------------- ------------------------
THIS SCHEDULE HAS 2 COUNTERPARTS. THIS IS COUNTERPART NO. .
---
A SECURITY INTEREST MAY BE CREATED ONLY IN COUNTERPART NO. 1.
<PAGE>
SCHEDULE 1
CERTIFICATE OF ACCEPTANCE
This Schedule dated February 17, 1998
incorporates the Master Lease
dated February 17, 1998
between NBD BANK as Lessor,
and Darling International Inc. as Lessee
1. EQUIPMENT
Lessee certifies that the equipment described in this Schedule, has
been delivered to the location indicated below, inspected by Lessee,
found to be in good order and are accepted on the Acceptance Date set
forth below:
Location of Equipment:
XX
YY
2. Acceptance Date: , 199 .
-------------- --
DARLING INTERNATIONAL INC.
By:
Name:
Title:
Date:
THIS SCHEDULE HAS 2 COUNTERPARTS. THIS IS COUNTERPART NO. . A SECURITY INTEREST
MAY BE CREATED ONLY IN COUNTERPART NO. 1.
<PAGE>
SCHEDULE 1
CASUALTY VALUE TABLE
This Schedule dated February 17, 1998
incorporates the Master Lease
dated February 17, 1998
between NBD BANK as Lessor,
and Darling International Inc. as Lessee
The Casualty Value of a leased item of Equipment is equal to the original cost
multiplied by the Casualty Value Percentage opposite the monthly rental period
in which the Event of Loss occurs.
<TABLE>
<CAPTION>
Monthly Rental Casualty Value Monthly Rental Casualty Value Monthly Rental Casualty Value
Period Percentage Period Percentage Period Percentage
<S> <C> <C> <C> <C> <C>
1 and Prior 109.07 31 76.53 61 37.89
2 108.14 32 75.33 62 36.51
3 107.18 33 74.13 63 35.13
4 106.20 34 72.91 64 33.74
5 105.21 35 71.69 65 32.34
6 104.22 36 70.47 66 30.94
7 103.21 37 69.24 67 29.54
8 102.20 38 68.00 68 28.13
9 101.17 39 66.76 69 26.72
10 100.14 40 65.51 70 25.31
11 99.09 41 64.26 71 23.88
12 98.04 42 63.00 72 22.46
13 96.98 43 61.73 73 21.03
14 95.91 44 60.46 74 19.60
15 94.83 45 59.18 75 18.16
16 93.74 46 57.89 76 16.72
17 92.64 47 56.60 77 15.27
18 91.54 48 55.30 78 13.81
19 90.43 49 54.00 79 12.35
20 89.31 50 52.69 80 10.89
21 88.18 51 51.37 81 9.43
22 87.05 52 50.05 82 7.95
23 85.91 53 48.72 83 6.48
24 84.76 54 47.38 84 5.00
25 83.61 55 46.04
26 82.44 56 44.69
27 81.28 57 43.34
28 80.10 58 41.99
29 78.92 59 40.63
30 77.73 60 39.26
</TABLE>
<PAGE>
SCHEDULE 1
PURCHASE OPTION RIDER
This Schedule dated February 17, 1998
incorporates the Master Lease dated
February 17, 1998 between NBD BANK as Lessor
and Darling International Inc. as Lessee
LESSEE'S OPTIONS UPON EXPIRATION OF THE LEASE TERM:
In lieu of surrendering the Equipment described herein upon expiration
of the Lease, provided the Lease has not been earlier terminated and Lessee is
not in default, Lessee may elect, by written notice delivered to Lessor not less
than ninety (90) days prior to expiration of the Lease Term, to purchase all,
but not less than all, of the Equipment then subject to the Lease (Check
applicable option):
[ X ] A. At a purchase price equal to the Fair Market
Value (as defined below) of said Equipment upon
expiration of the Lease Term.
[ ] B. At a purchase price equal to the then Fair Market Value
(as defined below) which purchase price shall not be less
than % of the original equipment cost
nor more than % of the original equipment cost.
---------
[ ] C. At a purchase price of $ .
----------------
[ ] D. At a purchase price equal to % of the cost of the Equipment.
----
The Fair Market Value of the Equipment shall be determined on the basis
of, and shall be equal in amount to the value which would obtain, assuming the
Equipment had not been installed and was in good repair, condition and working
order, ordinary wear and tear resulting from proper use excepted, in an arm's
length transaction between an informed and willing buyer under no compulsion to
buy and an informed and willing seller under no compulsion to sell and, in such
determination, cost of removal from the location of current use shall not be a
deduction from such value. If Lessor and Lessee do not agree on the Fair Market
Value within ten (10) days after receipt by Lessor of notice that Lessee is
exercising its option to purchase the Equipment, such Fair Market Value shall be
determined by an independent source considered reliable and knowledgeable as to
values for such Equipment by Lessor in its reasonable judgment. The expenses and
fees shall be borne by Lessee.
If Lessee elects to purchase the Equipment, the purchase price shall be
payable on or within 10 days of the expiration of the Initial Lease Term. Upon
payment of the purchase price, Lessor shall, upon request of Lessee, execute and
deliver to Lessee, or to Lessee's assignee or nominee, a Bill of Sale without
representations or warranties, express or implied, except that such Equipment is
free and clear of all claims, liens, security interests and other encumbrances
by or in favor of a person claiming by, through or under Lessor for such
Equipment, other than liens and claims which Lessee assumed or is obligated to
discharge under the terms of the Lease. Lessee agrees to pay or cause to be paid
all sales and/or use taxes payable in connection with such sales, and any unpaid
property taxes theretofore assessed or levied against said Equipment. Purchase
of the Equipment is on an AS IS, WHERE IS, WITH ALL FAULTS BASIS.
Accepted this day of , 19 .
--------------- ------------------------------ ------
NBD BANK DARLING INTERNATIONAL INC.
By: By:
------------------- --------------------------
Its: Its:
------------------- --------------------------
<PAGE>
SCHEDULE 1
PURCHASE AGREEMENT ASSIGNMENT RIDER
This Schedule dated February 17, 1998
incorporates the Master Lease dated February 17, 1998
between NBD BANK as Lessor
and Darling International Inc. as Lessee
Darling International Inc. (the "Assignor") has entered into Purchase
Orders ("Purchase Agreement(s)") for the items of equipment described in this
Schedule or Exhibit A (the "Equipment"), the Assignor has agreed to sell its
right, title and interest in and to the Equipment to the Lessor and the Lessor
shall purchase the Equipment and lease the same to the Assignor, pursuant to the
Master Lease.
NOW, THEREFORE, in consideration of the mutual promises below, and the
execution and delivery of the Master Lease and this Schedule, the parties agree
as follows:
1. The Assignor sells, assigns, transfers and sets over to the Lessor,
its successors and assigns, all of its right, title and interest in and to the
Equipment and in and to the Purchase Agreement(s), including, without
limitation, (a) the right to purchase the Equipment pursuant to the Purchase
Agreement(s), the right to take title to the Equipment or any portion thereof,
and the right, but not the obligation, to be named the purchaser in each bill of
sale to be delivered by the Supplier(s) for the Equipment or any portion
thereof, (b) the right to assert all claims for damages arising as a result of
any default by the Supplier(s) under the Purchase Agreement(s), including
without limitation all warranty and indemnity provisions contained in the
Purchase Agreement(s), and (c) any and all rights of the Assignor to compel
performance of the terms of the Purchase Agreement(s).
2. It is agreed that, notwithstanding this assignment: (a) the Assignor
shall at all times remain liable to the Supplier(s) under the Purchase
Agreement(s) to perform all of the duties and obligations of the buyer to the
same extent as if this assignment had not been executed; (b) the exercise by the
Lessor of any of the rights assigned shall not release the Assignor from any of
its duties or obligations to the Supplier(s) under the Purchase Agreement(s)
except to the extent that such exercise by the Lessor shall constitute
performance of such duties and obligations; and (c) the Lessor shall not have
any obligation or liability to perform any of the obligations or duties of the
Assignor under the Purchase Agreement(s), to make any payment (other than to pay
the purchase price for the Equipment to the extent and upon the terms and
conditions set forth in the Master Lease), to make any inquiry as to the
sufficiency of any payment, to present or file any claim, or to take any other
action to collect or enforce any claim for any payment assigned.
3. The Assignor represents and warrants that the Purchase Agreement(s)
is (are) in full force and effect and is (are) enforceable in accordance with
its (their) terms; that the Assignor is not in default thereunder, and that the
Assignor has not assigned or pledged, and covenants that it will not assign or
pledge, so long as this assignment shall remain in effect, the whole or any part
of the rights thereunder assigned to anyone other than the Lessor. The Assignor
shall not amend, modify, terminate or waive, nor consent to any amendment,
modification, termination or waiver of any of the provisions of the Purchase
Agreement(s) without the written consent of the Lessor.
4. The Assignor agrees to indemnify and hold the Lessor, and its
assigns, directors, officers and agents, harmless from and against any and all
losses, claims, liabilities and expenses (including reasonable legal expenses
and court costs) (collectively "losses") which arise out of or relate to this
Assignment, the Purchase Agreement(s) or the manufacture, purchase, acceptance,
rejection, ownership and delivery and sale of the Equipment (including claims
for patent, trademark, or copyright infringement) except to the extent such
losses are caused by Lessor's gross negligence or willful misconduct.
5. In the event that Lessor, at the request of Assignor, makes payment
to the Supplier(s) under said purchase order(s) prior to the Acceptance Date of
this Schedule, Assignor shall pay on the first day of each month prior to the
Acceptance Date rent to Lessor at the rate of interest equal to the rate charged
under Darling International Inc's Senior Credit Facility with First Chicago NBD
and other lenders dated June 5, 1997 from the date of each prepayment until the
Acceptance Date. In the event that a Certificate of Acceptance has not been
executed and delivered by the Assignor with respect to any item of Equipment on
or before N/A , unless the Lessor has otherwise agreed in writing: (a) this
Assignment shall terminate, provided, however, that the Assignor's obligation to
indemnify and hold the Lessor harmless shall survive any such termination, and
(b) the Assignor shall reimburse the Lessor for any and all payments made by the
Lessor to the Supplier(s) on account of such item of Equipment, together with
interest at the above rate from the date of each such payment.
<PAGE>
SCHEDULE VV
PURCHASE AGREEMENT ASSIGNMENT RIDER
This Schedule dated February 17, 1998 incorporates the Master Lease dated
February 17, 1998 between NBD BANK as Lessor, and Darling International
Inc. as Lessee
LESSOR ASSIGNOR
NBD BANK DARLING INTERNATIONAL INC.
By: By:
--------------------- ----------------------
Its: Its:
--------------------- ----------------------
Date: Date:
--------------------- ----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 3,385
<SECURITIES> 0
<RECEIVABLES> 28,083
<ALLOWANCES> 291
<INVENTORY> 17,034
<CURRENT-ASSETS> 55,300
<PP&E> 237,683
<DEPRECIATION> 62,217
<TOTAL-ASSETS> 315,258
<CURRENT-LIABILITIES> 66,561
<BONDS> 132,624
0
0
<COMMON> 52
<OTHER-SE> 64,542
<TOTAL-LIABILITY-AND-EQUITY> 315,258
<SALES> 125,809
<TOTAL-REVENUES> 125,809
<CGS> 102,365
<TOTAL-COSTS> 121,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,656
<INCOME-PRETAX> 721
<INCOME-TAX> 335
<INCOME-CONTINUING> 386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 3,494
<SECURITIES> 0
<RECEIVABLES> 23,913
<ALLOWANCES> 139
<INVENTORY> 12,828
<CURRENT-ASSETS> 47,587
<PP&E> 257,819
<DEPRECIATION> 88,659
<TOTAL-ASSETS> 302,526
<CURRENT-LIABILITIES> 48,467
<BONDS> 143,321
0
0
<COMMON> 156
<OTHER-SE> 68,246
<TOTAL-LIABILITY-AND-EQUITY> 302,526
<SALES> 108,084
<TOTAL-REVENUES> 108,084
<CGS> 87,432
<TOTAL-COSTS> 107,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,108
<INCOME-PRETAX> (2,242)
<INCOME-TAX> (838)
<INCOME-CONTINUING> (1,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,404)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
