-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VeIw+QPHknSX+pEW73Nh8KehYh2c+KGxEzrRz9aAgi0jw7pe5y+h1M4u4VfniLrl HoaOfbKiNNc46QYJbqit1A== 0000916540-98-000006.txt : 19980520 0000916540-98-000006.hdr.sgml : 19980520 ACCESSION NUMBER: 0000916540-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980519 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DARLING INTERNATIONAL INC CENTRAL INDEX KEY: 0000916540 STANDARD INDUSTRIAL CLASSIFICATION: FATS & OILS [2070] IRS NUMBER: 362495346 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13323 FILM NUMBER: 98627728 BUSINESS ADDRESS: STREET 1: 251 O CONNOR RIDGE BLVD STREET 2: STE 300 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 2147170300 10-Q 1 FORM 10-Q FOR DARLING INTERNATIONAL INC 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. 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 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. 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. 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. 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. 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. (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. 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. 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. 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. 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. 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. 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) 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). 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 ======= ======= =========================================== ================= ============ EX-10 2 EQUIPMENT LEASE 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. 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. 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. 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) 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. 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. 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. 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. 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 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. 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. 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.
Monthly Rental Casualty Value Monthly Rental Casualty Value Monthly Rental Casualty Value Period Percentage Period Percentage Period Percentage 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
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: ------------------- -------------------------- 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. 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: --------------------- ---------------------- EX-27 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1,000 3-MOS JAN-03-1998 DEC-29-1996 MAR-29-1997 3,385 0 28,083 291 17,034 55,300 237,683 62,217 315,258 66,561 132,624 0 0 52 64,542 315,258 125,809 125,809 102,365 121,536 0 0 3,656 721 335 386 0 0 0 386 0.02 0.02
EX-27 4 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1,000 3-MOS JAN-02-1999 JAN-04-1998 APR-04-1998 3,494 0 23,913 139 12,828 47,587 257,819 88,659 302,526 48,467 143,321 0 0 156 68,246 302,526 108,084 108,084 87,432 107,295 0 0 3,108 (2,242) (838) (1,404) 0 0 0 (1,404) (0.09) (0.09)
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