1
As filed with the Securities and Exchange Commission on April 20, 1999AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 2002
REGISTRATION NO. 333-XXXXX
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE SCOTTS COMPANY
(Exact name of Registrant as specified in its charter)AND THE GUARANTORS IDENTIFIED IN FOOTNOTE 1 BELOW
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 2875 31-119948131-1414921
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
14111 SCOTTSLAWN ROAD, MARYSVILLE, OHIO 43041, (937) 644-0011
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
G. ROBERT LUCASDAVID M. ARONOWITZ
14111 SCOTTSLAWN ROAD
MARYSVILLE, OHIO 43041
(937) 644-0011
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
RONALD A. ROBINS, JR.
VORYS, SATER, SEYMOUR AND PEASE LLP
52 EAST GAY STREET
P.O. BOX 1008
COLUMBUS, OHIO 43216-1008
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement as the Registrant shall determine.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT REGISTRATION FEE
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8.625% Senior Subordinated Notes due 2009 $330,000,000$70,000,000 100% $91,740$6,440
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Guarantee of 8.625% Senior Subordinated Notes due 2009 $70,000,000 (2) (2)
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(1) The following domestic direct and indirect subsidiaries of Scotts are
guarantors of the notes and co-registrants. Each of the guarantors is
incorporated in the state indicated and has the I.R.S. Employer Identification
Number indicated: Scotts Manufacturing Company, a Delaware corporation
(42-1508875); Miracle-Gro Lawn Products, Inc., a New York corporation
(11-3186421); OMS Investments, Inc., a Delaware corporation (51-0357374);
Hyponex Corporation, a Delaware corporation (31-1254519); EarthGro, Inc., a
Connecticut corporation (06-1317438); Scotts Products Co., an Ohio corporation
(31-1269080); Scotts Professional Products Co., an Ohio corporation
(31-1269066); Scotts Temecula Operations, LLC, a Delaware limited liability
company (33-0978312); Scotts-Sierra Horticultural Products Company, a California
corporation (94-1634227); Scotts-Sierra Crop Protection Company, a California
corporation (77-0153275); Scotts-Sierra Investments, Inc., a Delaware
corporation (51-0371209); and Swiss Farms Products, Inc., a Delaware corporation
(88-0407223).
(2) No additional consideration for the guarantees of the 8.625% Senior
Subordinated Notes due 2009 will be furnished. Pursuant to Rule 457(n), no
separate fee is payable with respect to such guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the prospectus is delivered in final form. This
prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE PROSPECTUS IS DELIVERED IN FINAL FORM. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 20, 1999JULY 10, 2002
PRELIMINARY PROSPECTUS
[Company[Scotts Logo] $330,000,000
THE SCOTTS COMPANY
$70,000,000
OFFER TO EXCHANGE ITS
8.625% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR AN EQUAL PRINCIPAL AMOUNT OF ITS
8.625% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE NOT BEEN REGISTERED
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MATERIAL TERMS OF THE EXCHANGE OFFER, INCLUDING THE WITHDRAWAL RIGHTS, WILL EXPIRE ATOFFER:
- The exchange offer expires at 5:00 P.M.p.m., NEW YORK CITY TIME, ONNew York City time,
on , 1999, UNLESS EXTENDED
By this prospectus2002, unless extended.
- We will exchange all outstanding original 8.625% Series A senior
subordinated notes that are validly tendered and the accompanying letter of transmittal, Scotts is
offering to exchange up to $330,000,000 innot validly withdrawn
for an equal principal amount of itsour new 8.625% Senior
Subordinated Notes due 2009,Series B senior
subordinated notes which have beenare registered under the Securities ActAct.
- The exchange offer is not subject to any conditions other than that it
not violate applicable law or any applicable interpretation of 1933, as amended, for a like principal amountthe staff
of its outstandingthe SEC.
- The terms of the new 8.625% Senior Subordinated Notes due 2009, which have not been so registered. TheSeries B senior subordinated notes which have been registered are
referredsubstantially identical to as the "Exchange Notes." Theoriginal 8.625% Series A senior
subordinated notes,
which are outstanding and which have not been registered are referred to as the
"Original Notes." The Exchange Notes and the Original Notes are identical, except that the Original Notes containedoriginal notes contain transfer
restrictions and registration rights that the Exchange Notesexchange notes do not
contain.
The Exchange Offer is not conditioned upon the tender- You may withdraw tenders of any minimum amount of
Original Notes. The Exchange Offer will remain open for at least 30 days from
today. For a description of the customary conditions to the Exchange Offer, see
"The Exchange Offer."
The notes will bear interest at the rate of 8.625% per year. Interest on the
notes is payable on January 15 and July 15 of each year, beginning on July 15,
1999. The notes will mature on January 15, 2009. Scotts may redeem some or all
of theoriginal notes at any time after January 15, 2004. The redemption prices are
discussed underbefore the
caption "Descriptionexchange offer expires.
- You may tender outstanding original notes only in denominations of
Notes -- Optional Redemption."
If Scotts cannot make payments on the notes, its subsidiary guarantors will make
them instead. Not all$1,000 and multiples of Scotts' subsidiaries will be subsidiary guarantors.
The notes and the subsidiary guarantees will be unsecured senior subordinated
obligations of Scotts and the subsidiary guarantors and will be subordinated in
right of payment to all of Scotts' and its subsidiary guarantors' senior
indebtedness.
The notes are expected to trade in the Private Offerings, Resales, and Trading
through Automatic Linkages Market ("Portal Market").
Scotts$1,000.
- We will not receive any proceeds from the Exchange Offerexchange offer, and we will
pay all expenses incident toof the Exchange Offer.
INVESTING INexchange offer.
- Our affiliates may not participate in the exchange offer.
PLEASE REFER TO THE NOTES INVOLVES CERTAIN RISKS. SEESECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 13.11 FOR A
DESCRIPTION OF RISKS THAT YOU SHOULD CONSIDER WHEN EVALUATING THIS INVESTMENT.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
, 19992002
3IN MAKING YOUR INVESTMENT DECISION, YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENTOTHER INFORMATION. SCOTTS ISIF YOU RECEIVE ANY OTHER INFORMATION, YOU SHOULD NOT RELY ON
IT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIESNOTES IN ANY STATE WHERE THE OFFER IS
NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCEAPPEARING IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF THIS PROSPECTUS
ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE. THE DELIVERY OF THIS PROSPECTUS SHALL UNDER NO
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE ON THE COVER OF THIS PROSPECTUS.
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TABLE OF CONTENTS
Page
Incorporation of Documents by Reference...........................
General Information...............................................
Disclosure Regarding Forward-Looking Statements...................
Prospectus Summary................................................
Risk Factors......................................................
PAGE
Disclosure regarding forward-looking
statements.......................... i
Prospectus summary.................... 2
Risk factors.......................... 11
The exchange offer.................... 21
Ratio of earnings to fixed charges.... 30
Use of proceeds....................... 30
Capitalization........................ 31
Selected consolidated financial
data................................ 32
Description of certain other
indebtedness........................ 34
PAGE
Description of notes.................. 37
Book-entry, settlement and
clearance........................... 75
Certain U.S. federal tax
considerations...................... 78
ERISA considerations.................. 82
Plan of distribution.................. 84
Legal matters......................... 84
Experts............................... 85
Where you can find more information... 85
Incorporation by reference............ 85
The Transactions..................................................
Ratio of Earnings to Fixed Charges................................
Use of Proceeds...................................................
Capitalization....................................................
Unaudited Selected Pro Forma Combined Financial Data..............
Selected Financial Information....................................
The Exchange Offer................................................
Description of Notes..............................................
Selected United States Federal Tax Considerations.................
Plan of Distribution..............................................
Legal Matters.....................................................
Independent Auditors..............................................
INCORPORATION OF DOCUMENTS BY REFERENCE
We are incorporating the following documents into this Prospectus by reference:
(i) our Annual Report on Form 10-K for the fiscal year ended September 30, 1998;
(ii) our Quarterly Report on Form 10-Q for the fiscal quarter ended January 2,
1999; (iii) our Current Reports on Form 8-K dated as of December 21, 1998 and
January 7, 1999; and (iv) all other documents that we file pursuant to Sections
13(a), 13(c), 14 or 15(d) prior to the consummation of the Exchange Offer.
TheScotts Company is currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and files periodic reports and
other information with the Securities and Exchange Commission (the
"Commission").an Ohio corporation. Our periodic reports and other information filed with the
Commission may be inspected without charge at the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
will also be available for inspection and copying at the regionalprincipal executive offices of the
Commissionare
located at Seven World Trade Center, 13th Floor, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of such material may also be
obtained at prescribed rates from the Public Reference Section of the Commission
upon payment of certain prescribed fees. In addition, the Commission maintains a
website that contains periodic reports and other information filed by the
Company. This website can be accessed at www.sec.gov. Copies of such material
can also be obtained from the Company upon request.
Copies of documents incorporated in this Prospectus by reference may be obtained
upon request without charge by contacting The Scotts Company, 14111 Scottslawn Road, Marysville, Ohio 43041, Attention: Treasurer, (614)and our telephone
number at that address is (937) 644-0011. i
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GENERAL INFORMATIONOur World Wide Web site address is
http://www.scotts.com. The information on our website is not part of this
prospectus.
Roundup(R) is a registered trademark of Monsanto Technology LLC (an affiliate of
Monsanto Company, ("Monsanto")now known as Pharmacia Corporation). Unless otherwise
indicated, all other trademarks, service marks or brand names appearing in this
Prospectusprospectus are the property of the Company.
This Prospectus contains summaries, believed to be accurate, of selected terms
of relevant documents. However, we refer you to the actual documents, copies of
which we will make available upon request, for the complete information
contained therein. All summaries of these documents are qualified in their
entirety by this reference.
This Exchange Offer is not being made, nor will we accept surrenders for
exchange from, holders of Original Notes in any jurisdiction in which this
Exchange Offer or our acceptance of Original Notes, would not be in compliance
with the applicable securities or blue sky laws.
Scotts expects that the Exchange Notes will be represented by one or more Global
Notes (as defined herein), which will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in its name or in the
name of Cede & Co., its nominee. Beneficial interests in the Global Notes
representing the Exchange Notes will be shown on, and transfers thereof will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Notes, Exchange Notes in certificated
form will be issued in exchange for the Global Notes only under limited
circumstances on the terms set forth in the Indenture. See "Description of Notes
- -- Book-Entry; Delivery and Form."
Scotts will not receive any cash proceeds from the issuance of the Exchange
Notes offered by this Prospectus. We are not using any dealer-manager for this
Exchange Offer.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL TOGETHER CONSTITUTE THE
"EXCHANGE OFFER" AND CONTAIN IMPORTANT INFORMATION. HOLDERS OF ORIGINAL NOTES
SHOULD READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY
BEFORE DECIDING WHETHER TO TENDER THEIR ORIGINAL NOTES IN THIS EXCHANGE OFFER.
DISCLOSURE REGARDINGScotts.
FORWARD-LOOKING STATEMENTS
This Prospectusprospectus includes, and incorporates by reference, "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,
including, in particular, the statements
about the Company'sScotts' plans, strategies and prospects under the headings "Prospectus
Summary,summary," "Selected Historical and
Pro Forma Consolidated Financial Data,consolidated financial data," "Management's Discussiondiscussion and
Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations"operations" and "Business."
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from the
forward looking statements we make in, or incorporate by reference into, this
Prospectusprospectus are set forth below under the caption "Risk Factors"factors" and elsewhere in this
prospectus or the documents incorporated by reference to "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Forward-Looking
Statements" in our Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.herein. All
forward-looking statements are expressly qualified in their entirety by those
cautionary statements.
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PROSPECTUS SUMMARY
Throughout this prospectus, the words "Scotts," "Company" and "we" refer to The
Scotts Company and its subsidiaries.
The following summary contains basicis qualified in its entirety by the more detailed
information aboutand consolidated financial statements and their notes appearing
elsewhere in, or incorporated by reference into, this prospectus. This
prospectus includes, or incorporates by reference, the Companyspecific terms of the
exchange offer and the notes, as well as information regarding our business and
risk factors. Because this exchange offering. It likely doesis only a summary it may not contain all of the
information that is important to you. For a more complete
understanding of this exchange offer,you or that you should consider before making an
investment decision. Therefore, we encourageurge you to read this entire
documentprospectus and the
documents to which we have referred you. For purposesUnless the context otherwise requires,
"Scotts," "we," "us," "our" and similar terms refer to The Scotts Company and
its subsidiaries. We will refer to the $70 million aggregate principal amount of
this
prospectus, when we describe informationour outstanding 8.625% Series A senior subordinated notes as being on a "pro forma" basis, unlessthe "original
notes," and will refer to the 8.625% Series B senior subordinated notes as the
"exchange notes." Unless indicated otherwise, indicated, we are assuming that the RPJ Acquisition,term "notes" refers to both
the Ortho
Acquisitionoriginal notes and the Roundup Marketing Agreement (each as defined herein and,
collectively, the "Transactions"), Scotts' new credit facility and the offering
of the Original Notes had been completed on the first day of the period
indicated, in the case of sales or other income statement information, or as of
the day indicated, in the case of assets, liabilities or other balance sheet
information.exchange notes.
In this prospectus, we rely on and refer to information regarding the consumer lawn and
garden market and its segments in the United States provided by Triad Systems
Corporation market research reports covering the period January 19982001 through
September 19982001 and, with regard to other market share data, other publicly
available sources. Although we believe this information is reliable, we cannot
guarantee the accuracy and completeness of the information and have not
independently verified it.
THE COMPANY We areOVERVIEW
The Scotts Company, an Ohio corporation, traces its heritage back to a company
founded by O.M. Scott in Marysville, Ohio in 1868. In the leading global marketer and manufacturer of branded productsmid 1900's, we became
widely known for the development of quality lawn fertilizers and grass seeds
that led to the creation of a new industry -- consumer lawn care. Today, the
Scotts(R) Turf Builder(R), Miracle-Gro(R), Ortho(R) and Roundup(R) brands make
us the most widely recognized company in lawn care in the United States. Our
fiscal year ended September 30, 2001 revenues and EBITDA (excluding the effect
of restructuring charges) were $1.7 billion and $255.7 million, respectively.
In the 1990's, we significantly expanded our product offering by acquiring two
powerful leading brands in the U.S. home lawn and garden care, professional turf careindustry. In 1995,
through a merger, we acquired the Miracle-Gro(R) brand, the industry leader in
water-soluble garden plant foods. In fiscal 1999, we acquired the Ortho(R) brand
and exclusive rights to market the consumer Roundup(R)brand, thereby adding
industry-leading pesticides and herbicides to our portfolio. We are among the
most widely recognized marketers and manufacturers of products for lawns,
gardens and professional horticultural markets.horticulture, and we are rapidly expanding into the
lawn care service industry through our Scotts LawnService(R). We believe that
our market leadership is driven by our leading brands, consumer-focused
marketing, superior product performance and extensive relationships with major nationalU.S.
retailers.
Our portfolioIn 1997, our presence in Europe expanded with the acquisition of leadingseveral
established brands. We now have a strong presence in the consumer brands, including recent transactions, includes the following:
- SCOTTS (R), the leading brand of consumer lawn fertilizersgarden
business in the United States withKingdom, France and Germany, and expect to increase our
share in these markets through consumer-focused marketing, a 54% market share, more than four times that
of the next leading competitor.
- MIRACLE-GRO(R), the leading brand of consumer water-soluble
garden fertilizersmodel we have
successfully followed in the United States with an 86% market share.
- ORTHO(R), the leading brand of selective herbicidesStates. We also sell consumer lawn and
outdoor
insecticidesgarden products in Latin America, Australia and Japan. In addition, we have a
strong presence in the United States with a 63%professional horticulture market share and 39%
market share, respectively.in Europe.
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COMPETITIVE STRENGTHS
- Strong Portfolio of Brand Names. We acquiredare the Ortho(R) family of
products from Monsanto on January 20, 1999.
- ROUNDUP(R), the leading brand of non-selective herbicides in the
United States with a 69% market share. In September 1998, we
entered into an agreement with Monsanto, which owns the
Roundup(R) brand, to market and distribute consumer Roundup(R)
products.
- MIRACLE-GRO(R), WEEDOL(R), LEVINGTON(R), KB(R), FERTILIGENE(R),
CELAFLOR(R) AND NEXA-LOTTE(R), the leading brandsworld's largest supplier
of consumer lawn and garden fertilizers, herbicidesfertilizer products, and insecticides in the
European Union.
- HYPONEX(R),pesticides. We have
been able to achieve this market leading position through a combination
of internal growth driven by product line extensions, award winning
marketing campaigns and acquisitions.
The following table shows our portfolio of consumer brands that we
believe hold the leading brand of consumer growing media products
in the United States.
We support our consumer brands through national television and print
advertising, ongoing consumer research, superior products, technological
advancements and consumer education programs. Our extensive sales and
distribution network includes key relationships with home improvement centers,
mass merchandisers, hardware stores, garden centers and other retailers. On a
pro forma basis, our 1998 total revenues and Adjusted EBITDA (as defined in this
prospectus) were $1.5 billion and $231.2 million, respectively.
We have built our company through a series of strategic acquisitions, mergers
and marketing alliances which have significantly enhanced our geographic
presence and broadened our product lines. Our strategy has been to acquire
undermarketed brands and apply our marketing expertise to grow sales by
increasing market share position in their respective U.S.
markets:
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MARKET
SHARE*
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CATEGORY 1998 2001 LEADING BRANDS
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Lawns............................. 56% 61% Turf Builder(R)
Gardens........................... 55% 60% Miracle-Gro(R); Osmocote(R)
Growing media..................... 46% 57% Miracle-Gro(R); Scotts(R); Hyponex(R)
Grass seed........................ 23% 41% Scotts(R)
Controls.......................... 41% 45% Ortho(R); Roundup(R)
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* Based on Triad Systems market research reports for 1998 and growing the overall category. Since 1995,January
2001 through September 2001.
In addition, we have entered into five strategic transactions that have positioned us as a global
leaderthe following significant brands in all categories of the lawn and garden consumables market.
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- In January 1999, we acquired Ortho from Monsanto for $300
million, subject to adjustment.
- In October 1998, we acquired Rhone-Poulenc Jardin ("RPJ")Europe:
Celaflor(R), a
leading European manufacturer and marketer of consumer products
for garden and household plants, including theFertiligene(R), KB(R) and
Fertiligene(R) brands. RPJ was acquired for approximately $216
million, including approximately $36 million (on a present value
basis) payable over the next four years.
- In September 1998, we entered into an exclusive marketing and
agency agreement for the marketing and distribution rights to
consumer Roundup(R) products in the United States and other
specified countries, including Australia, Austria, Canada,
France, Germany and the United Kingdom.
- In January 1997, we purchased the outstanding interest in Miracle
Garden Care Ltd. ("Miracle Garden") that we did not already own
for $47.0 million. In December 1997, we acquired Levington Group
Limited ("Levington") for $94.0 million and integrated it with
Miracle Garden. Together, they make us the leading marketer and
manufacturer of consumer and professional lawn fertilizers and
growing media in the United Kingdom.
- In February 1998, we acquired EarthGro, Inc. ("EarthGro"), a
leading regional manufacturer and marketer of growing media in
the northeastern United States for $47.0 million.
BUSINESS GROUPS
We operate in three market segments: North American Consumer (which
includes Consumer Lawns, Consumer Gardens, Consumer Growing Media and
Ortho), International and Professional.
Consumer Lawns (24.2% of pro forma fiscal 1998 sales)
The Consumer Lawns Business Group consists of product categories in lawn
fertilizer and combination fertilizer and control products (herbicides and
insecticides), grass seed and spreaders. This business features the
Scotts(R) brand with products including Scotts Turf Builder(R), Scotts Turf
Builder with Plus 2(TM) Weed Control and Scotts Turf Builder(R) with
Halts(R) Crabgrass Preventer.
Consumer Gardens (8.7% of pro forma fiscal 1998 sales)
The Consumer Gardens Business Group's product categories include plant
foods, ornamental plant care products, no-clog feeders and indoor plant
care products. This group is led by the Miracle-Gro(R) brand for water
soluble garden fertilizers, and also includes consumer Osmocote(R)
controlled-release garden fertilizer products.
Consumer Growing Media (15.2% of pro forma fiscal 1998 sales)
The Consumer Growing Media Business Group's product categories include
potting and planting soils, soil conditioners, barks and mulches. These
products are marketed under the Hyponex(R)Levington(R), Miracle-Gro(R),
Scotts(R) and
EarthGro(R) brands.
Ortho (17.6% of pro forma fiscal 1998 sales)
The Ortho Business Group was formed in October 1998 for the purpose of
operating the Ortho assets upon consummation of the Ortho Acquisition and
to implement the Roundup Marketing Agreement. Ortho(R) and Roundup(R) are
the market leaders in the North American consumer lawn and garden
herbicides and insecticides market.
International (22.5% of pro forma fiscal 1998 sales)
The International segment is a leader in the European Union lawn and garden
market. The segment has leading positions in pesticides, lawn and garden
fertilizers and growing media through the Miracle-Gro(R), Weedol(R),
Pathclear(R), Grasshopper(R), Levington(R)Nexa-Lotte(R), Shamrock(R), KB(R),
Fertiligene(R), Celaflor(R)Substral(R) and Nexa Lotte(R) brands. Our international
sales, distribution and manufacturing infrastructure provides a platform to
expand the market
3
7
position of other Scotts products overseas. Our products are sold in
consumer and professional markets throughout the European Union and in
other international markets including Australia, Japan, New Zealand and
Latin America.
Professional (11.8% of pro forma fiscal 1998 sales)
The Professional segment is a leader in providing innovative products,
services and consultative sales support to professional turf care and
horticulture customers. Our product categories include turf fertilizers,
grass seed, spreaders, custom application service, fertilizers, plant
protection products and growing media. These products are marketed under
the Pro Turf(R), Osmocote(R), Miracle-Gro(R) and Peter's(R) brands. The
group's main customers include golf courses, professional sports stadiums,
landscape companies, commercial nurseries and specialty crop growers.
BUSINESS STRATEGY
Enhance Market Leadership Through Consumer-Focused Brand Management. We
will continue to execute our successful demand-pull marketing strategy to
strengthen our leading market positions. We believe this approach, which
emphasizes consumer-directed marketing rather than price promotion, builds
brand awareness and drives product sales growth. We have grown the sales
and market share of the three principal brands we owned prior to the Ortho
Acquisition -- Scotts(R), Miracle-Gro(R) and Hyponex(R) -- since fiscal
1996 through the successful execution of this strategy. Ortho(R), which we
acquired in the Ortho Acquisition, and Roundup(R), which we market pursuant
to the Roundup Marketing Agreement, provide usWeedol(R).
- Strong Relationships with additional growth
opportunities through the application of our demand-pull marketing
strategy.
Capitalize on Relationships With LeadingKey Retailers. We believe that our leading
brands and our aggressive advertising make our products "traffic
builders" at the retail location.locations. This, in addition to our position as
the leading nationwidenation-wide supplier of a full line of consumer lawn and
garden products, gives us an advantage in selling to retailers, who value
the efficiency of dealing with a limited number of suppliers. We are the
largest vendor to the lawn and garden departments at Home Depot,
Wal*MartWal-Mart, Lowe's and Kmart. In addition, during fiscal 1998,Kmart, and we became "category manager"have business development teams in
place at each of these four retailers to work with their management. We
serve as the lawn and garden fertilizer category at Wal*Martmanager for Wal-Mart and category co-manager
with KmartKmart. We
are also the largest supplier of itsconsumer lawn and garden product category. As category manager,products to the
hardware coop channel. In addition, in fiscal 2001, we completed
implementation of enterprise resource planning (or ERP) software systems
in North America and realigned our representatives work togethersales force with retailersour "one face to determine advantageous
product mix, merchandising, shelvingthe
customer" initiative to help meet the changing needs of our key
customers.
- Significant Brand Investment. We are the major media advertiser in the
North American lawn and pricing, basedgarden industry. During fiscal year 2001, we
spent over $73 million advertising our leading portfolio of brands
utilizing various media outlets in North America. We believe that we can
leverage the current media market for more targeted exposure, primarily
with prime time television spots to reach the key consumer audience.
- Focus on consumer data.Product Innovation. We believe in the benefits of research
and development to improve our existing products, manufacturing
processes, packaging and delivery systems and to develop new products,
manufacturing processes and package and delivery systems. Over the past
three years we have invested over $70 million in research and development
which has resulted in a portfolio of patents worldwide which support most
of our fertilizers and many of our grass seeds and application devises.
3
- Favorable Industry Characteristics. We believe that the additionlawn and
garden market should experience growth due to favorable demographic
trends. Based on industry sources, people over the age of 50 are more
likely to engage in gardening, which is the third largest U.S. leisure
activity. According to census data, the fastest growing segment of the
U.S. population is 50 and over.
- Experienced and Incentivised Management Team. Our senior management
team has significant experience in the lawn and garden industry.
Additionally as of November 27, 2001, our board of directors and
executive officers collectively owned, individually or in partnership
with members of their families, approximately 43% of our common shares.
BUSINESS STRATEGY
- Enhance Market Leadership through Consumer-focused Brand
Management. We intend to continue to execute our successful push-pull
marketing strategy to strengthen our leading market positions. We believe
this approach, which balances consumer-directed, pull marketing with
retailer-oriented promotions, builds brand awareness and drives product
sales growth. We have grown sales, increased market share and grown the
lawn and garden category by utilizing our four principal
brands -- Scotts(R), Miracle-Gro(R), Ortho(R) and Roundup(R) brands provide
us opportunities to become category manager at additional leading
retailers.-- in the
past five years through the successful execution of this strategy.
- Increase Sales by Growing the Overall Consumer Lawn and Garden
Market. Our strategy is to grow the overall consumer lawn and garden
category and to capture substantially all of this growth. In recent
years, we have increased consumer advertising, expanded our range of
products while reducing theour number of SKUs, enhanced product packaging
and emphasized year-round fertilizer applications to drive category
growth. Recent new product introductions
include Scotts(R) branded potting soils, GrubEx(R),For example, in fiscal 2001, we introduced Turf Builder(R) Grass
Seed, which provides
season-long protection against grubs, the No-Clog-4 in 1(R), which allows
for sprinkler feeding of fertilizer, and Miracle-Gro(R) branded potting
mixes. In fiscal 1999, the Company introduced Miracle-Gro(R) Flower Seeding
Mix, Miracle-Gro(R) Bloom Booster(R) and Miracle-Gro(R) Tree Spikes.
Enhance Competitive Position Through Recent Acquisitions. We recently
completed three important transactions: we acquired RPJ; we acquired Ortho
and we entered into the Roundup Marketing Agreement. These transactions
enhance our product portfolio, expand our geographic presence and
strengthen our position with retailers. Specifically, the Ortho Acquisition
and the Roundup Marketing Agreement immediately providedhelped us with a leading
positionachieve 15 point market share growth in the U.S. pesticides segment of the consumer lawngrass
seed category.
- Realize Cost Savings. During fiscal year 2001, in an effort to improve
our profitability and garden
category,increase our return on capital, we initiated a
restructuring program and the RPJ Acquisition established a strong presence for us in
continental Europe. In addition, we expectsupply chain initiatives which are expected to
achieve $18 million to $27
million of annualgenerate cost savings from reductions in general and
administrative, sales, distribution, purchasing, research and development
and corporate overhead costs to be fully realized in the 2001 fiscal year.
These cost savings have not beenof at least $30 million on an annual basis. The
initiatives included in the pro forma financial
information included in this prospectus, and there can be no assurance that
these cost savings will be realized to the extent indicated, or at all. We
expect to redirect a significant portion of these cost savings into
increased consumer marketing spending. These transactions substantially
complete our transformation into the global leader in the lawn and garden
consumables market.
4
8
THE TRANSACTIONS
RPJ ACQUISITION
In October 1998, we acquired Rhone-Poulenc Jardin, the consumer lawn and
garden division of Rhone-Poulenc S.A. and related entities (the "RPJ
Acquisition"). The total consideration for the RPJ Acquisition was
approximately $216 million, including approximately $36 million (on a
present value basis) payable over the next four years.
ORTHO ACQUISITION
We entered into an Asset Purchase Agreement with Monsanto dated as of
November 11, 1998 (the "Ortho Agreement") and agreed to acquire
substantially all of the non-Roundup assets of Monsanto's consumer lawn and
garden division for $300 million, subject to adjustment depending on the
level of normalized working capital as of the closing date (the "Ortho
Acquisition"). These assets include the Ortho(R), Green Cross(R), White
Swan(R) and Defender(R) product lines, as well as formulationseveral facilities in
Fort Madison, Iowa and Corwen, United Kingdom. We closed the Ortho
Acquisition on January 21, 1999. As of such date, the working capital
adjustment was $39.9 million. The parties are still in the process of
determining the final working capital adjustment, which may be greater than
or less than $39.9 million.
ROUNDUP MARKETING AGREEMENT
On September 30, 1998, we entered into an Exclusive Agency and Marketing
Agreement with Monsanto (as amended and restated, the "Roundup Marketing
Agreement"). Pursuant to the Roundup Marketing Agreement, we became
Monsanto's exclusive agent for the marketing and distribution of consumer
Roundup(R) products in the consumer lawn and garden market in the United States and
other specified countries, including Australia, Austria, Canada,
France, GermanyEurope, reducing headcount, streamlining our North American salesforce
and the United Kingdom. In addition, if Monsanto develops
new products containing glyphosate, the active ingredient in Roundup(R), or
other non-selective herbicides, we have specified rights to market such
products as well in the consumer lawnsupply chain, consolidating our world headquarters and garden market.
Under the Roundup Marketing Agreement, weNorth American
headquarters and Monsanto will jointly develop
global consumer and trade marketing programs for Roundup(R), and we have
assumed responsibility for sales support, merchandising, distribution and
logistics. We have already taken responsibility for these functions in
North America, with a longer transition expected in Europe and Australia.
Monsanto will continue to own all the assets of the consumer Roundup
business and will provide significant oversight of its brand. In addition,
Monsanto will continue to own, operate and market the agricultural Roundup
business.
NEW CREDIT FACILITY
On Decembereliminating certain product lines.
4
1998, we and certain of our subsidiaries entered into a new
credit agreement (the "New Credit Facility") which provides for aggregate
borrowings of up to $1.025 billion and consists of a $500 million revolving
credit facility and $525 million of term loan facilities. We used the
proceeds of the New Credit Facility to refinance our then existing credit
facility and to fund the RPJ Acquisition. On a pro forma basis, as of
April 3, 1999, we would have had $_____ million outstanding under the
New Credit Facility and $_____ million available.
5
9
THE ISSUANCE OFEXCHANGE OFFER
THE ORIGINAL NOTES
The Original Notes were originallyNOTES....... We issued and sold $70 million in principal amount of
our 8.625% Series A senior subordinated notes due 2009
to J.P. Morgan Securities, Inc.; Banc of America
Securities LLC; First Union Securities, Inc.; ABN AMRO
Incorporated and Credit Lyonnais Securities (USA) Inc.
on January 21, 1999, in
a transaction not registeredFebruary 6, 2002. These initial purchasers
subsequently resold our Series A notes under the Securities Act in reliance upon an
exemption from the registration requirements thereof. The initial purchaser
(the "Initial Purchaser") of the Original Notes was Salomon Smith Barney
Inc. The Initial Purchaser subsequently offered and resold the Original
Notes pursuant to Rule 144A
and Regulation S under the Securities Act. In
connectionThe
purchasers of our Series A notes agreed to comply with
the issuance of the Original Notes, the Company entered
into a Registration Rights Agreement with the Initial Purchaser (the
"Registration Rights Agreement") which provides the holders of the Notes
with registrationtransfer restrictions and exchange rights.other conditions.
The Exchange Offer is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement.
The Original Notesoriginal notes are represented by two,three permanent,
global notes which are registered in the name of a
nominee of DTC.The Depository Trust Company. Participants
in the DTC system who have accounts with DTC ("DTC Participants") hold
interests in the global notes in book-entry form.
Accordingly, ownership of beneficial interests in such Notesthe
original notes is limited to DTC Participantsparticipants or
personsperson who hold suchtheir interests through DTC
Participants.participants.
THE EXCHANGE OFFER....... We are offering to exchange up to $70 million in
principal amount of our exchange notes which have been
registered under the Securities Act for a like amount
of our outstanding original notes that are properly
tendered and accepted.
You may tender outstanding original notes only in
denominations of $1,000 and multiples of $1,000. We
will issue the exchange notes on or promptly after the
exchange offer expires.
EXPIRATION DATE.......... This exchange offer will expire at 5:00 p.m., New York
City time, on , 2002, unless extended, in
which case the expiration date will be the latest date
and time to which we extend the exchange offer.
CONDITIONS TO THE
EXCHANGE OFFER........... The term "Book-Entry Holder" with respectexchange offer is not subject to any Notes meanscondition
other than it will not violate applicable law or any
applicable interpretation of the DTC
Participant thatstaff of the SEC. The
exchange offer is listed asnot conditioned upon the holdertender of
such Notes inany minimum principal amount of original notes.
PROCEDURES FOR TENDERING
NOTES.................... If you want to accept the records
maintained by DTC.
THE EXCHANGE OFFER
The Exchange Offer.................. Upexchange offer, you must
transmit to $330 million in principal
amount of the Exchange Notes are
being offered in exchange for a like
principal amount of Original Notes.
Scotts is making the Exchange Offer
in order to satisfy its obligations
under the Registration Rights
Agreement relating to the Original
Notes. We provide a description of
the procedures for tendering
Original Notes in the section
entitled "The Exchange Offer --
Procedures for Tendering."
Expiration Date..................... 5:00 p.m., New York City time, on
, 1999, unless the Exchange Offer is
extended (in which case the
Expiration Date will be the latest
date and time to which the Exchange
Offer is extended).
Conditions of the Exchange Offer.... The Exchange Offer is subject to the
condition that the Exchange Offer
does not violate applicable law or
the Securities and Exchange
Commission's staff interpretations.
If Scotts determines that applicable
federal law does not permit the
Exchange Offer, we may terminate the
Exchange Offer. The Exchange Offer
is not conditioned upon the tender
of any minimum principal amount of
Original Notes.
Resale of the Exchange Notes........ Based on an interpretation by the
staff of the Securities and Exchange
Commission set forth in no-action
letters to third parties, Scotts
believes that Exchange Notes issued
pursuant to the Exchange Offer in
exchange for Original Notes
generally may be offered for resale
and may be resold or otherwise
transferred by any holder of
Exchange Notes without restriction.
However, a broker-dealer who
purchased Original Notes directly
from Scotts for resale pursuant to
Rule 144A or any other available
exemption under the Securities Act
must comply with the registration
and prospectus delivery provisions
of the Securities Act. Restrictions
also apply to resales by a person
that is an "affiliate" of Scotts
within the meaning of Rule 405 under
the Securities Act.
6
10
Scotts will require that each holder
of Original Notes who wants to
acquire Exchange Notes represent to
Scotts that the holder is acquiring
the Exchange Notes in the ordinary
course of business and is not
participating, and has no
arrangement or understanding with
any person to participate, in the
distribution of the Exchange Notes.
If a holder inaccurately makes this
representation and transfers
Exchange Notes in violation of the
prospectus delivery provisions of
the Securities Act and without an
exemption from registration, the
holder may incur liability under the
Securities Act. Scotts does not
assume or indemnify holders of
Exchange Notes against liability
under the Securities Act, although
Scotts does not believe that any
such liability should exist.
Broker-dealers that receive Exchange
Notes for their own accounts in
exchange for Original Notes should
refer to the applicable provisions
described in the section entitled
"Plan of Distribution."
All resales of Exchange Notes must
be made in compliance with
applicable state securities or "blue
sky" laws. Scotts assumes no
responsibility for compliance by
holders of Exchange Notes with these
requirements. Scotts is not making
the Exchange Offer to and will not
accept surrenders for exchange from
holders of Original Notes in any
jurisdiction in which the Exchange
Offer or the acceptance of the
Exchange Offer would not be in
compliance with the applicable
securities or "blue sky" laws.
Procedures for Tendering Notes...... Each holder of Original Notes
that wants to accept the Exchange
Offer must complete, sign and date
the accompanying Letter of
Transmittal or a copy of it in
accordance with the applicable
instructions. The holder must then
mail the Letter of Transmittal,
together with the Original Notes and
any other required documentation to
the Exchange Agent at the address on
the Letter of Transmittal. By
executing a Letter of Transmittal,
each holder will represent that:
- the Exchange Notes are being
obtained in the ordinary course
of business of the person
receiving the Exchange Notes,
whether or not that person is
the holder of record;
- neither the holder or record nor
the person who will receive the
Exchange Notes has any
arrangement or understanding
with any person to participate
in the distribution of the
Exchange Notes;
- neither the holder or record nor
the person who will receive the
Exchange Notes is engaged in, or
intends to engage in, a
distribution of the Exchange
Notes; and
- neither the holder of record nor
the person who will receive the
Exchange Notes is an
"affiliate," as defined in Rule
405 under the Securities Act, of
the Company.
Special Procedures for Beneficial
Owners.............................. Any beneficial owner whose Original
Notes are registered in the name of
a broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender should contact
the registered holder promptly and
instruct the registered holder to
tender on the beneficial owner's
behalf.
Guaranteed Delivery Procedures...... Holders of Original Notes who want
to tender their Original Notes and
7
11
whose Original Notes are not
immediately available or who cannot
deliver their Original Notes, the
Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent,
or who cannot comply with the
procedures for book-entry transfer,
prior to the Expiration Date must
tender their Original Notes
according to the guaranteed delivery
procedures described in the section
entitled "The Exchange Offer" under
the heading "Guaranteed Delivery
Procedures."
Untendered Notes.................... Following the closing of the
Exchange Offer, holders of Original
Notes eligible to participate in the
Exchange Offer but who do not tender
their Original Notes will not have
any further exchange rights, and
their Original Notes will continue
to be subject to the restrictions on
transfer on the Original Notes.
Accordingly, the liquidity of the
market for those Original Notes
could be adversely affected by the
Exchange Offer.
Consequences of Failure to
Exchange............................ The Original Notes that are not
exchanged in the Exchange Offer will
remain restricted securities and may
be resold only:
- to Scotts;
- to a qualified institutional
buyer under Rule 144A or Rule
144 under the Securities Act;
- in an offshore transaction under
Rule 903 or Rule 904 of
Regulation S under the
Securities Act;
- to an institutional accredited
investor or otherwise pursuant
to an exemption from
registration under the
Securities Act; or
- pursuant to an effective
registration statement under the
Securities Act.
Shelf Registration Statement........ In the limited circumstances
described in the section entitled
"Description of Notes" under the
heading "Registration Rights;
Liquidated Damages," Scotts may be
required to file a shelf
registration statement covering
resales of the Original Notes.
Withdrawal Rights................... Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City
time, on the Expiration Date.
Acceptance of Original Notes and
Delivery of Exchange Notes.......... Scotts will accept for exchange any
Original Notes that are properly
tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on
the Expiration Date. Scotts will
deliver Exchange Notes promptly
following the Expiration Date.
Federal Income Tax Consequences..... The exchange pursuant to the
Exchange Offer will generally not be
a taxable event for U.S. federal
income tax purposes.
Use of Proceeds..................... There will not be any cash proceeds
to Scotts from the Exchange Offer.
Exchange Agent...................... State Street Bank and Trust Company,
8the
exchange agent, on or before the expiration date,
either
- a computer generated message transmitted through The
Depository Trust Company's Automated Tender Offer
Program system and received by the exchange agent and
forming a part of a confirmation of book-entry
transfer in which you acknowledge and agree to be
bound by the terms of the letter of transmittal; or
- a properly completed and duly executed letter of
transmittal, which accompanies this prospectus, or a
facsimile of the letter of transmittal, together with
your original notes and any other required
documentation, to the exchange agent at the address
listed in this prospectus and on the front cover of
the letter of transmittal.
If you cannot satisfy either of these procedures on a
timely basis, then you should comply with the
guaranteed delivery procedures described below. By
executing the letter of transmittal, you will make the
representations to us described in the section
entitled "The exchange offer -- Procedures for
tendering."
5
12SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ If you are a beneficial owner whose original notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender your original notes in the exchange offer, you
should contact the registered holder promptly and
instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, you
must either (1) make appropriate arrangements to
register ownership of the original notes in your name
or (2) obtain a properly completed bond power from the
registered holder, before completing and executing the
letter of transmittal and delivering your original
notes.
GUARANTEED DELIVERY
PROCEDURES............... If you want to tender your original notes and time
will not permit the documents required by the letter
of transmittal to reach the exchange agent before the
expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, you
must tender your original notes according to the
guaranteed delivery procedures described in the
section entitled "The exchange offer -- Guaranteed
delivery procedures."
ACCEPTANCE OF ORIGINAL
NOTES AND DELIVERY OF
EXCHANGE NOTES........... Subject to the satisfaction or waiver of the condition
to the exchange offer, we will accept for exchange any
and all original notes which are validly tendered in
the exchange offer and not withdrawn before 5:00 p.m.,
New York City time, on the expiration date.
WITHDRAWAL RIGHTS........ You may withdraw the tender of your original notes at
any time before 5:00 p.m., New York City time, on the
expiration date, by complying with the procedures for
withdrawal described in this prospectus in the section
entitled "The exchange offer -- Withdrawal of
tenders."
MATERIAL U.S. FEDERAL
INCOME TAX
CONSIDERATIONS........... The exchange of notes should not be a taxable event
for U.S. federal income tax purposes. For a discussion
of the material federal income tax consequences
relating to the exchange of notes, see the section
entitled "Material U.S. federal income tax
considerations."
EXCHANGE AGENT........... State Street Bank and Trust Company, the trustee under
the indenture governing the notes, is serving as the
exchange agent.
CONSEQUENCES OF FAILURE
TO EXCHANGE ORIGINAL
NOTES.................... If you do not exchange your original notes for
exchange notes, you will continue to be subject to the
restrictions on transfer provided in the original
notes and in the indenture governing the original
notes. In general, the original notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act
and applicable state securities laws. We do not
currently plan to register the original notes under
the Securities Act. See "Risk factors -- If you do not
exchange your original notes pursuant to this exchange
offer, you may never be able to sell your original
notes."
6
REGISTRATION RIGHTS
AGREEMENT................ If you are a holder of original notes, you are
entitled to exchange your original notes for exchange
notes with substantially identical terms. The exchange
offer satisfies this right. After the exchange offer
is completed, you will no longer be entitled to any
exchange or registration rights with respect to your
original notes.
WE EXPLAIN THE EXCHANGE OFFER IN GREATER DETAIL BEGINNING ON PAGE 21.
THE EXCHANGE NOTES
The Exchange Offer applies to $330 million aggregate principal amount of
the Original Notes. Theform and terms of the Exchange Notes will be substantially
identical to thoseexchange notes are the same as the form and terms of
the Original Notesoriginal notes, except that the Exchange Notesexchange notes will be registered under the
Securities Act and, therefore, will not bear
legends restricting transfer and will not be subject to the terms oftransfer restrictions,
registration rights and provisions for an increase in interest rate applicable
to the Registration Rights Agreement.original notes. The Exchange Notesexchange notes will evidence the same debt as the
Original Notesoriginal notes. The indenture governing the exchange notes is the same indenture
that governs our the exchange notes, and both series of Notesnotes will be entitled
to the benefits of the Indentureindenture and treated as a single class of debt
securities.
Total Amount of Notes Offered....... $330 million in principal amount of
8.625% Senior Subordinated Notes due
2009 registered under the Securities
Act.
Maturity............................ January 15, 2009.
Interest............................ Annual fixed rate -- 8.625%.
Payment frequency - every six
months on January 15 and July 15.
First payment -- July 15, 1999.
Subsidiary Guarantors............... Each subsidiary guarantor is a
wholly owned domestic subsidiary of
Scotts. Scotts' foreign subsidiaries
are not subsidiary guarantors of the
Exchange Notes. If Scotts cannot
make payments on the Exchange Notes
when they are due, the subsidiary
guarantors must make them instead.
Ranking............................. The Exchange Notes and the
subsidiary guarantees are senior
subordinated debts. They rank
behind all of Scotts' and its
subsidiary guarantors current and
future indebtedness (other than
trade payables), except indebtedness
that expressly provides that it is
not senior to the Exchange Notes and
the subsidiary guarantees.
Assuming this offering had been
completed on April 3, 1999, and the
proceeds had been applied as
intended, and assuming the
Transactions and the New Credit
Facility had been closed as of such
date, the Exchange Notes and the
subsidiary guarantees would have
been subordinated to $_____ of
senior debt.
In addition, the subsidiary
guarantees would have been
structurally subordinated to $_____
million of current operating
liabilities of the non-guarantor
subsidiaries as of April 3, 1999.
Optional Redemption................. On or after January 15, 2004,
Scotts may redeem some or all of
the Exchange Notes at any time at
the redemption prices listed in
the "Description of Notes" section
under the heading "Optional
Redemption."
Before January 15, 2002, Scotts may
redeem up to 35% of the Notes with
the proceeds of one or more public
equity offerings of Scotts' common
shares at the price listed in the
"Description of Notes" section under
the heading "Optional Redemption."
Mandatory Offer to Repurchase....... If Scotts sells certain assets or
experiences specific kinds of
changes of control, it must offer to
repurchase the Exchange Notes at the
prices listed in the "Description of
Notes" section under the heading
"Redemption at the Option of
Holders."
Basic Covenants of Indenture........ Scotts will issue the Exchange
Notes under an indenture with
State
9The indenture also governs $330 million in principal amount of our
8.625% Series B senior subordinated notes due 2009 which are currently
outstanding, which are identical to the exchange notes and which rank on a
parity with the original notes and will rank on a parity with the exchange
notes.
ISSUER................... The Scotts Company
SECURITIES............... $70 million in principal amount of 8.625% Series B
senior subordinated notes due 2009.
MATURITY................. January 15, 2009.
INTEREST PAYMENT DATES... January 15 and July 15 of each year, commencing
January 15, 2003.
SUBSIDIARY GUARANTORS.... Each subsidiary guarantor is a wholly-owned domestic
subsidiary of Scotts. In the future, our non-wholly
owned, restricted domestic subsidiaries that are
significant subsidiaries and that guarantee other
indebtedness will be required to guarantee the notes.
Our foreign subsidiaries are not subsidiary guarantors
of the notes. If we cannot make payments on the notes
when they are due, the subsidiary guarantors must make
them instead.
RANKING.................. The notes and the subsidiary guarantees are senior
subordinated obligations. They rank behind all of our
and our subsidiary guarantors' current and future
indebtedness (other than trade payables), except
indebtedness that expressly provides that it is not
senior to the notes and the subsidiary guarantees.
Assuming the offering of the original notes had been
completed on March 30, 2002, and the proceeds had been
applied as intended, the notes and the subsidiary
guarantees would have been subordinated to $593.0
million of senior debt.
7
13
Street Bank and Trust Company, as trustee. The indenture will,
among other things, restrict Scotts' ability and the
ability of its subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other companies.
For more details, see the "Description of Notes" section under the
heading "Certain Covenants.In addition, the subsidiary guarantees would have been
structurally subordinated to $207.5 million of current
operating liabilities of the non-guarantor
subsidiaries as of March 30, 2002.
OPTIONAL REDEMPTION...... On or after January 15, 2004, we may redeem some or
all of the notes at any time at the redemption prices
listed in the "Description of notes" section under the
heading "Optional redemption."
MANDATORY OFFER TO
REPURCHASE............... If we sell certain assets or experience specified
kinds of changes of control, we must offer to
repurchase the notes at the prices listed in the
"Description of notes" section under the heading
"Repurchase at the option of holders."
BASIC COVENANTS.......... The indenture governing the exchange notes contains
covenants that restrict our ability and the ability of
our subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other
companies.
For more details, see the "Description of notes"
section under the heading "Certain covenants."
FORM OF EXCHANGE NOTES... The exchange notes will be represented by one or more
permanent global certificates, in fully registered
form, deposited with a custodian for, and registered
in the name of a nominee of, The Depository Trust
Company, as depositary. You will not receive exchange
notes in certificated form unless one of the events
described in the section entitled "Book-entry,
settlement and clearance" occurs. Instead, beneficial
interests in the exchange notes will be shown on, and
transfers of these notes will be effected only
through, records maintained in book-entry form by The
Depository Trust Company and its participants.
USE OF PROCEEDS.......... We will not receive any cash proceeds in the exchange
offer.
RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors thatFACTORS............. In evaluating an investment in the notes, you should
carefully consider, before investingalong with the other information
set forth in, or incorporated by reference into, this
prospectus, specific factors set forth under the
section entitled "Risk factors" for risks involved
with an investment in the Notes.
10notes.
8
14
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN MILLIONS)
WeThe following summary consolidated operating and balance sheet data for, and as
of the end of, each of the fiscal years in the three year period ended September
30, 2001, have been derived from our audited consolidated financial statements,
and for, and as of the historicalend of, each of the six month periods ended March 31,
2001 and March 30, 2002, have been derived from our unaudited consolidated
financial statements. The following other financial data included in the following summary
financial datahave been derived from
the Company'sour audited and unaudited consolidated financial statements which are incorporated by reference herein. The following pro forma
consolidated financial data are presented as ifand accounting
records for the Transactions and the
offering of the Original Notes had occurred and the New Credit Facility was in
place on October 1, 1997. The following pro forma balance sheet data give effect
to the Transactions, the New Credit Facility and the offering of the Original
Notes and the use of proceeds therefrom as they had occurred on April 3, 1999.
The selected pro forma consolidated financial data is not necessarily indicative
of the results of operations the Company would have obtained had the
Transactions, the New Credit Facility and the offering of the Original Notes
actually occurred as of October 1, 1997.respective periods. You should read the following information in
conjunction with the Consolidated Financial Statements"Management's discussion and analysis of the
Companyfinancial condition
and the Notes thereto, the Financial Statementsresults of RPJ, the Financial
Statements of Orthooperations," "Selected consolidated financial data" and the information containedour
consolidated financial statements and related notes, which are included in, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," all of which areor
incorporated by reference into, this prospectus.
- -----------------------------------------------------------------------------------------------
SIX MONTHS ENDED,
YEAR ENDED SEPTEMBER 30, -------------------------
------------------------------ MARCH 31, MARCH 30,
1999 2000 2001 2001 2002
- -----------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
OPERATING DATA:
Net sales(1)....................... $1,576.6 $1,665.2 $1,696.6 $ 860.5 $ 765.1
Gross profit(1).................... 589.3 612.8 597.2(2) 323.2 270.9(2)
Roundup(R) marketing agreement(3):
Gross commission................. 30.3 39.2 39.1 16.5 8.4
Contribution expenses(4)......... 1.6 9.9 18.3 9.1 11.7
Net commission................... 28.7 29.3 20.8 7.4 (3.3)
Advertising(1)(5).................. 117.3 107.1 89.9 46.1 38.0
Selling, general and
administrative(1)................ 281.2 303.7 324.1 168.9 159.4
Restructuring and other charges.... 1.4 -- 68.4 -- 1.2
Amortization of goodwill and other
intangibles...................... 25.6 27.1 27.7 14.2 3.7
Other income, net.................. (3.6) (6.0) (8.5) (2.5) (3.9)
Income from operations............. 196.1 210.2 116.4 103.9 69.2
Interest expense(6)................ 79.1 93.9 87.7 47.4 40.2
Income before income taxes......... 117.0 116.3 28.7 56.5 29.0
Income taxes....................... 47.9 43.2 13.2 22.9 11.1
Income before cumulative effect of
accounting change(7)............. 63.2 73.1 15.5 33.6 17.9
Cumulative effect of accounting
change for intangible assets, net
of tax........................... -- -- -- -- (18.5)
Net income (loss)(7)............... 63.2 73.1 15.5 33.6 (0.6)
Basic earnings (loss) per
share(8)(10)..................... $ 2.93 $ 2.39 $ 0.55 $ 1.19 $ (0.02)(11)
Diluted earnings (loss) per
share(9)(10)..................... 2.08 2.25 0.51 1.12 (0.02)(12)
OTHER FINANCIAL DATA:
EBITDA(13)......................... $ 253.7 $ 271.2 $ 255.7 $ 135.7 $ 92.8
Depreciation....................... 29.0 29.0 32.6 16.0 16.0
Capital expenditures............... 66.7 72.5 63.4 26.7 22.3
BALANCE SHEET DATA:
Working capital.................... $ 274.8 $ 234.1 $ 249.1 $ 339.6 $ 378.2
Total assets....................... 1,769.6 1,761.4 1,843.0 2,346.9 2,240.3
Total debt......................... 950.0 862.8 887.8 1,208.2 1,126.7
Total shareholders' equity......... 443.3 477.9 506.2 519.2 516.9
- -----------------------------------------------------------------------------------------------
9
(1) For fiscal 2002, we adopted an accounting policy that requires that certain
consideration from a vendor to a retailer be classified as a reduction in sales.
Like many other companies, we have historically classified these as advertising
and promotion costs. The information for all periods presented reflects this Prospectus.new
method of presentation. The amounts reclassified for the fiscal years ended
September 30, 1999, 2000 and 2001 and for the six month period ended March 31,
2001 are as follows:
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, ACTUAL PRO FORMA
ACTUAL PRO FORMA APRIL 4, APRIL 3, APRIL 3,
1996 1997(1) 1998(2) 1998 1998----------------
---------------------------- MARCH 31,
1999 1999
---- ------- ------- ---- ---- ---- ----
OPERATING DATA:2000 2001 2001
------ ------ ------ ---------
(UNAUDITED)
Sales................................ $ 750.4 $ 899.3 $ 1,113.0 $1,526.5
Cost of sales........................ 512.4 573.6 715.0 948.1
-------- --------- ---------- --------Net sales................................................... $(25.9) $(43.8) $(51.1) $(28.6)
Gross profit......................... 238.0 325.7 398.0 578.4
(Income) from Roundup Marketing -- -- -- (35.0)
Agreementprofit................................................ (25.9) (45.7) (54.2) (30.4)
Advertising................................................. (25.9) (46.7) (61.1) (34.7)
Selling, general & administrative.... 185.8 214.4 271.6 413.4
Amortization of goodwill and other 8.8 10.2 12.9 25.8
intangibles..........................
Restructuring and other charges...... 17.7administrative......................... -- 15.4 17.2
Other expense (income), net.......... (0.6) 6.3 4.0 4.4
-------- --------- ---------- --------
Income from operations............... 26.3 94.8 94.1 152.6
Interest expense..................... 25.0 25.2 32.2 86.3
-------- --------- ---------- --------
Income before income taxes........... 1.3 69.6 61.9 66.3
Income tax provision ................ 3.8 30.1 24.9 26.7
-------- --------- ---------- --------
Income before extraordinary item (2.5) 39.5 37.0 39.6
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit................ -- -- 0.7 --
-------- --------- ---------- --------
Net income (loss).................... (2.5) 39.5 36.3 39.6
Preferred stock dividends............ 9.8 9.8 9.8 9.8
-------- --------- ---------- --------
Income (loss) applicable to common
shareholders...................... $ (12.3) $ 29.7 $ 26.5 $ 29.8
========= ========= ========== ========
OTHER FINANCIAL DATA:
EBITDA (3)........................... $ 55.6 $ 125.2 $ 131.9 $ 209.0
Adjusted EBITDA (4).................. 73.3 125.2 152.3 231.2
Cash interest expense (5)............ 24.1 24.2 31.5 81.7
Depreciation and amortization (6).... 29.3 30.4 37.8 56.4
Capital expenditures................. 18.2 28.6 41.3 45.3
Ratio of Adjusted EBITDA to cash
interest expense..................... 3.0x 5.2x 4.8x 2.8x
Ratio of total debt to Adjusted EBITDA 3.1x 1.8x 2.4x 4.3x
Ratio of earnings to fixed charges... 1.0x 3.3x 2.6x 1.7x1.0 6.9 4.3
11
15(2) Includes $7.3 million of restructuring and other charges for the year ended
September 30, 2001 and $1.1 million for the six months ended March 30, 2002.
(3) Reflects commissions received and contribution expenses paid under the
marketing agreement with Monsanto relating to the marketing and distribution of
consumer Roundup(R) products in the United States and other countries around the
world. For more information, see "Business -- Roundup(R) Marketing Agreement" in
our Form 10-K for the fiscal year ended September 30, 2001, which is
incorporated by reference into this prospectus.
(4) Includes amortization expense associated with the amortization of the $32
million marketing fee under the Roundup(R) marketing agreement of $1.6 million,
$4.9 million and $3.3 million for 1999, 2000 and 2001, respectively, and $1.6
million in each of the six month periods ended March 31, 2001 and March 30,
2002.
(5) Advertising represents the cost of Scotts' external media campaign and
related fees and expenses.
(6) Includes amortization of deferred financing costs, interest rate locks and
debt discount.
(7) Includes extraordinary loss of $5.9 million, net of income tax benefit, for
fiscal 1999.
(8) Includes extraordinary loss of $0.32 per share for fiscal 1999.
(9) Includes extraordinary loss of $0.19 per share for fiscal 1999.
(10) Income available to common shareholders and basic and diluted earnings per
share would have been as follows if the accounting change for intangible assets
adopted in the fiscal year beginning October 1, 2001, had been adopted as of
October 1, 1998:
BALANCE SHEET DATA:
AS OF APRIL 3,SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, ----------------
---------------------------- MARCH 31,
1999 -----------------------------
ACTUAL PRO FORMA2000 2001 2001
------ ------ ------ ---------
(UNAUDITED)
Working capital...............
Total assets..................
Total debt....................
Total shareholders' equity (7)
Income available to common shareholders(7).................. $ 68.5 $ 83.4 $ 32.1 $41.9
Basic EPS................................................... $ 3.76(8) $ 2.98 $ 1.13 $1.48
Diluted EPS................................................. 2.57(9) 2.81 1.05 1.40
- ----------------
(1)(11) Includes results from Miracle Garden from January 1997.
(2)cumulative effect of change in accounting for intangible assets,
net of income tax benefit, of $(0.64) per share.
(12) Includes results from Levington Group Limited from December 1997 and
EarthGro from February 1998.
(3) "EBITDA"cumulative effect of change in accounting for intangible assets,
net of income tax benefit, of $(0.59) per share.
(13) EBITDA is defined as income from operations, plus restructuring and other
charges, depreciation and amortization. EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles and
should not be used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. EBITDA is included in
this Prospectusoffering memorandum because it is a basis upon which Scotts' management
assesses financial performance. While EBITDA is frequently used as a measure of
operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other companies due
to potential inconsistencies in the method of calculation.
(4) "Adjusted EBITDA" reflects EBITDA10
RISK FACTORS
You should carefully consider the risks described below as calculatedwell as other
information and data included in note (3) above adjusted
for the effectprospectus and in the documents
incorporated by reference before making a decision to tender your original notes
in the exchange offer. The risk factors set forth below, other than the first
risk factor set forth below, are generally applicable to the original notes as
well as the exchange notes. If any of the non-recurring restructuring charges taken byfollowing risks actually occur, our
business, financial condition, operating results and prospects could be
materially adversely affected, which in turn could adversely affect our ability
to repay the Companynotes.
IF YOU DO NOT EXCHANGE YOUR ORIGINAL NOTES PURSUANT TO THIS EXCHANGE OFFER, YOU
MAY NEVER BE ABLE TO SELL YOUR ORIGINAL NOTES.
It may be difficult for you to sell original notes that are not exchanged in the
exchange offer. Those notes may not be offered or sold unless they are
registered or they are exempt from the registration requirements under the
Securities Act and applicable state securities laws. The restrictions on
transfer of $17.7 million duringyour original notes arise because we issued the fiscal year ended September 30, 1996
and byoriginal notes
pursuant to an exemption from the Company of $20.4 million (of which $15.4 million is included in
restructuring and other charges, $2.9 million is included in cost of sales
and $2.1 million is included in selling, general and administrative) and
RPJ of $1.8 million during the twelve months ended September 30, 1998 and
by the Company of $1.4 million for the six months ended April 3, 1999.
(5) Cash interest expense excludes amortization of deferred financing costs and
interest rate locks.
(6) Depreciation and amortization excludes amortization of deferred financing
costs and debt discount.
(7) Includes $195 million aggregate liquidation preference of convertible
preferred stock, convertible at $19 per common share, which is callable at
the option of the Company after May 19, 2000.
12
16
RISK FACTORS
This Prospectus includes and incorporates by reference "forward looking
statements" within the meaning of Section 27Aregistration requirements of the Securities
Act and Section
21E ofapplicable state securities laws. We do not intend to register the
Exchange Act including, in particular, the statements about the
Company's plans, strategies, and prospectsoriginal notes under the headings "Prospectus
Summary," "Selected Historical and Pro Forma Consolidated Financial Data,"
"Management's Discussion and AnalysisSecurities Act.
If you do not tender your original notes or if we do not accept some of Financial Condition and Results of
Operations" and "Business." Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we can give no assurance that such plans, intentions or expectationsyour
original notes, those notes will continue to be achieved. Important factors that could cause actual results to differ
materially from the forward looking statements we make or incorporate by
reference in this Prospectus are set forth below and are incorporated by
reference to our periodic reports filed under the Exchange Act. All
forward-looking statements attributablesubject to the Company or persons actingtransfer and
exchange restrictions in:
- the indenture;
- the legend on our
behalfthe original notes; and
- the offering memorandum relating to the original notes.
Moreover, to the extent original notes are expressly qualifiedtendered and accepted in their entirety by the following cautionary
statements.
SUBSTANTIAL LEVERAGE --exchange
offer, the trading market, if any, for the original notes would be adversely
affected.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THEOUR FINANCIAL HEALTH OF THE COMPANY AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THE NOTES.
Following the offering of the Original Notes, weOBLIGATIONS.
We have a significant amount of indebtedness. The following chart shows important credit statistics and is
presented assuming we had completed the Transactions, the New Credit Facility
anddebt. As of March 30, 2002, on an as adjusted
basis after giving effect to the offering of the Original Notes asoriginal notes, we had
approximately $1,126.7 million of the datetotal indebtedness, approximately $593.0
million of which was senior or at the beginning of the
period specified below and applied the proceeds as intended:
AT APRIL 3, 1999
(DOLLARS IN MILLIONS)
Total indebtedness......................................
Stockholders' equity....................................
Debt to equity ratio....................................
secured debt.
Our substantial indebtedness could have important consequences tofor you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect
tounder the
Notes;notes and otherwise;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital
expenditures, research and development costs and other general
corporate requirements;
- require us to dedicate a substantial portion of our cash flowflows from
operations to payments on our indebtedness, thereby reducingwhich would reduce the availability of our cash
flowflows available to fund working capital, capital expenditures, research
and development efforts and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
11
- place us at a competitive disadvantage compared to our competitors that
have less debt;
and
13
17
- limit along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds. And, failingfunds; and
- expose us to complyrisks inherent in interest rate fluctuations because some
of our borrowings are at variable rates of interest, which could result
in higher interest expense in the event of increases in interest rates.
Our ability to make payments on and to refinance our indebtedness, including the
notes, and to fund planned capital expenditures and research and development
efforts will depend on our ability to generate cash in the future. This, to some
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow from
operations or that currently anticipated cost savings and operating improvements
will be realized on schedule or at all. We also cannot assure that future
borrowings will be available to us under our credit facility in amounts
sufficient to enable us to pay our indebtedness, including the notes, or to fund
our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, on or before maturity. We cannot assure that we will be able to
refinance any of our indebtedness on commercially reasonable terms or at all.
RESTRICTIVE COVENANTS MAY ADVERSELY AFFECT US.
The indenture governing the notes contains various covenants that limit our
ability to engage in specified types of transactions. These covenants limit our
ability to:
- incur additional debt or issue redeemable preferred stock or subsidiary
preferred stock;
- incur liens;
- redeem or repurchase capital stock or subordinated debt;
- engage in transactions with affiliates;
- engage in businesses unrelated to our current businesses;
- make some types of investments or sell assets; or
- consolidate or merge with or into, or sell substantially all of our
assets to, another person.
In addition, our credit facility contains restrictive covenants and requires us
to maintain specified financial ratios and satisfy other financial condition
tests. See "Description of certain other indebtedness -- Credit facility." Our
ability to meet those financial ratios and tests can be affected by events
beyond our control, and we cannot assure you that we will meet those tests. A
breach of any of these covenants could result in a default under our credit
facility and/or the notes. Upon the occurrence of an event of default which, ifunder our
credit facility, the lenders could elect to declare all amounts outstanding
under our credit facility to be immediately due and payable and terminate all
commitments to extend further credit. If we were unable to repay those amounts,
the lenders under the credit facility could proceed against the collateral
granted to them to secure that indebtedness. We have pledged a significant
portion of our assets as security under our credit facility. If the lenders
under the
12
credit facility accelerate the repayment of borrowings, we cannot assure you
that we will have sufficient assets to repay our credit facility and our other
indebtedness, including the notes.
At September 30, 2001, we were not curedin compliance with the covenants pertaining
to net worth, leverage and interest coverage under our credit facility. A waiver
of non-compliance for these covenant violations was received in October 2001. In
December 2001, we amended our credit facility resulting in the elimination or
waived, could have a material
adverse effect on us.
See "Descriptionresetting of Notes -- Repurchasecertain negative and affirmative covenants. We were in compliance
with all covenants at the Option of Holders -- Change of
Control."
ADDITIONAL BORROWINGS AVAILABLE --March 30, 2002.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND
OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional indebtedness
in the future. The terms of the indenture do not fully prohibit us or our
subsidiaries from doing so. Our New Credit Facilitycredit facility permits additional borrowings of
up to $1.025 billion and all$1.1 billion. All of those borrowings would be senior to the Notesnotes and the
subsidiary guarantees. If new debt is added to our and our
subsidiaries' current debt levels, the
related risks that we and they now face could intensify.
See "Capitalization" and "Description of Notes -- Repurchase at the Option of
Holders -- Change of Control."
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including the
Notes, and to fund planned capital expenditures and research and development
efforts will depend on our ability to generate cash in the future. This, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under the New Credit Facility will be adequate to meet
our future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or at all or that future borrowings
will be available to us under the New Credit Facility in amounts sufficient to
enable us to pay our indebtedness, including the Notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness,
including the Notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including the New Credit Facility and
the Notes, on commercially reasonable terms or at all.
SUBORDINATION --
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND, POSSIBLY, ALL OF OUR FUTURE BORROWINGS.
FURTHER, THE
GUARANTEES OF THE NOTES ARE JUNIOR TO ALL OUR SUBSIDIARY GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
The Notesnotes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness (other than trade payables) and all of our and their future
borrowings, (other thanexcept:
- trade payables), exceptpayables; and
- any future indebtedness that expressly provides that it ranks equal
with, or is subordinated in right of payment to, the Notesnotes and the
subsidiary guarantees.
As a result, upon any distribution to our creditors or the creditors of the
subsidiary guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding, relating to us or the subsidiary guarantors or to our or their
property, the holders of our senior debt and the senior debt of the subsidiary
guarantors will be entitled to be paid in full in
cash before any payment may be made with respect toon the Notesnotes or the subsidiary guarantees.
14
18
In addition, all payments on the Notesnotes and the subsidiary guarantees will be
blocked in the event of a payment default on senior debt and may be blocked for
up to 179 of 360 consecutive days in the event of certain non-payment defaults
on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our CompanyScotts or the subsidiary guarantors, holders of the Notesnotes
will participate with trade creditors and all other holders of subordinated indebtedness of the Company and the subsidiary guarantors in the
assets remaining after we and the subsidiary guarantors have paid all of the senior debt. However, becauseBecause the
indenture requires that amounts otherwise payable to holders of the Notesnotes in a
bankruptcy or similar proceeding be paid to holders of senior debt, instead, holders of
the Notesnotes may receive less, ratably, than holders of trade payables in any
suchbankruptcy or similar proceeding. In any of these cases, we and the subsidiary
guarantors may not have sufficient funds to pay all of our creditors, and
holders of Notesnotes may receive less, ratably, than the holders of senior debt.
Assuming we had completed the offering of the Original Notes on April 3, 1999,
and that the Transactions and the New Credit Facility had been completed
on that date, the Notes and the subsidiary guarantees would have been
subordinated to $________ million of senior debt, and approximately $________
million would have been available for borrowing as additional senior debt under
our New Credit Facility. We
will be permitted to borrow substantial additional indebtedness, including
senior debt, in the future under the terms of the indenture.
In addition, the Notes and the subsidiary guaranteesTHE NOTES WILL BE STRUCTURALLY JUNIOR TO ALL INDEBTEDNESS OF OUR SUBSIDIARIES
THAT ARE NOT GUARANTORS OF THE NOTES.
You will be
structurally subordinated to the current operating liabilities, including trade
payables, of all ofnot have any claim as a creditor against our subsidiaries that are not
subsidiary guarantors. See
note 21guarantors of the notes, and indebtedness and other liabilities, including trade
payables, whether secured or
13
unsecured, of those subsidiaries will effectively be senior to your claims
against those subsidiaries. For the Company's Consolidated Financial Statements,year ended September 30, 2001, non-guarantor
subsidiaries represent approximately 11.7% of our EBITDA but did not represent a
positive percentage of our operating income or earnings before taxes. At
September 30, 2001 and March 30, 2002, respectively, these subsidiaries
represented approximately 26.9% and 27.3% of our total assets. As of September
30, 2001 and March 30, 2002, respectively, these subsidiaries had approximately
$411 million and $558 million of outstanding liabilities, including trade
payables, but excluding intercompany obligations. In addition, the indenture
permits, subject to certain limitations, these subsidiaries to incur additional
indebtedness and does not contain any limitation on the amount of other
liabilities, such as trade payables, that may be incurred by these subsidiaries.
YOUR ABILITY TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO THOSE LENDERS WHO
HAVE A SECURITY INTEREST IN OUR ASSETS.
The notes will not be secured by any of our assets. However, our obligations
under our credit facility are, subject to certain exceptions, secured by a first
priority security interest in substantially all of our assets. If we become
insolvent or are liquidated, or if payments under our credit facility are
accelerated, the lenders under our credit facility would be entitled to exercise
the remedies available to secured lenders. Accordingly, these lenders will have
a claim on substantially all of our assets and will have priority over any claim
for payment under the notes or the guarantees. In any such event, because the
notes will not be secured by any of our assets, it is possible that there would
be no assets remaining from which are
incorporated by reference in this Prospectus.
INTEGRATION ISSUES -- INABILITY TO INTEGRATE THE ACQUISITIONS WE HAVE MADE COULD
PREVENT US FROM MAXIMIZING SYNERGIES ANDclaims of the holders of the notes could be
satisfied or, if any assets remained, they might be insufficient to satisfy such
claims fully.
ADVERSE WEATHER CONDITIONS COULD ADVERSELY AFFECT OURIMPACT FINANCIAL RESULTS.
WeWeather conditions in North America and Europe have made several substantial acquisitionsa significant impact on the
timing of sales in the spring selling season and overall annual sales. Periods
of wet weather can slow fertilizer sales, while periods of dry, hot weather can
decrease pesticide sales. In addition, an abnormally cold spring throughout
North America and/or Europe could adversely affect both fertilizer and pesticide
sales and therefore our financial results.
OUR HISTORICAL SEASONALITY COULD IMPAIR OUR ABILITY TO PAY OBLIGATIONS AS THEY
COME DUE IN ADDITION TO OUR OPERATING EXPENSES.
Because our products are used primarily in the spring and summer, our business
is highly seasonal. For the past four years. The Ortho
Acquisition representstwo fiscal years, approximately 75% to 77% of
our net sales have occurred in the largest acquisition we have ever made. The success of
any completed acquisition depends,second and the successthird fiscal quarters combined. We
believe that for this fiscal year a significant portion of the Ortho Acquisitionsales
historically made by Scotts in the second fiscal quarter will depend,be made in the
third fiscal quarter because Scotts' major customers have implemented general
policies to reduce their on hand inventories. The foregoing is our assessment of
current trends related to our customers' changing inventory management
practices; however, there can be no assurances that the fiscal year 2002 revenue
shortfall experienced through the second quarter of fiscal year 2002 will be
recovered during the balance of fiscal year 2002, or at all. Our working capital
needs and our borrowings peak near the middle of our second fiscal quarter
because we are generating fewer revenues while incurring expenditures in
preparation for the spring selling season. If cash on hand is insufficient to
pay our obligations as they come due, including interest payments on our
indebtedness, or our operating expenses, at a time when we are unable to draw on
our credit facility, this seasonality could have a material adverse
14
affect on our ability to integrate effectively the acquiredconduct our business. Adverse weather conditions could
heighten this risk.
PUBLIC PERCEPTIONS THAT THE PRODUCTS WE PRODUCE AND MARKET ARE NOT SAFE COULD
ADVERSELY AFFECT US.
We believemanufacture and market a number of complex chemical products, such as
fertilizers, growing media, herbicides and pesticides, bearing one of our
brands. On occasion, customers and some current or former employees have alleged
that the RPJ Acquisition and the Ortho Acquisition provide us with
significant cost saving opportunities. However, if wesome products failed to perform up to expectations or have caused damage or
injury to individuals or property. Public perception that our products are not
able to
successfully integrate Ortho, RPJsafe, whether justified or not, could impair our other acquired businesses, we will not
be able to maximize these cost saving opportunities. Rather, the failure to
integrate these acquired businesses, because of difficulties in the assimilation
of operationsreputation, damage our brand
names and products, the diversion of management's attention from other
business concerns, the loss of key employees or other factors, could materially adversely affect our financial results.
CUSTOMER CONCENTRATION --business.
BECAUSE OF THE CONCENTRATION OF OUR SALES TO A SMALL NUMBER OF RETAIL CUSTOMERS,
THE LOSS OF ONE OR MORE OF OUR TOP CUSTOMERS COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS.
Our top 10 North American retail customers together accounted for approximately
50%70% of our 1998 fiscal year 2001 net sales and 27%37% of our outstanding accounts
receivable as of September 30, 1998.2001. Our top twofour customers, The Home Depot,
Wal-Mart, Kmart and Kmart Corporation,Lowe's represented approximately 17%25%, 12%, 8% and 10%7%,
respectively, of our 1998 fiscal year 2001 net sales and approximately 12% and 2%, respectively, of our outstanding accounts receivable
at September 30, 1998. Wal*Mart sales represented approximately 9% of the
Company'scontinue to be significant
customers in fiscal 1998 sales. After allocating buying groups' sales to Wal*Mart,
Wal*Mart sales represented approximately 11% of our sales and 2% of our
outstanding trade accounts receivable at September 30, 1998. All three2002. These customers hold significant positions in the
retail lawn and garden market. The loss of, or reduction in orders from, Home
Depot, Wal-Mart, Kmart, Wal*MartLowe's or any other significant customer could have a
material adverse effect on our business and our financial results, as could
customer disputes regarding shipments, fees, merchandise condition or related
matters with, or ourmatters. Our inability to collect accounts receivable from any of these
customers could also have a material adverse affect.
We do not have long-term sales agreements or other contractual assurances as to
future sales to any of our major retail customers. In addition, continued
consolidation in the retail industry has resulted in an increasingly
concentrated retail base. To the extent such concentration continues to occur,
our net sales and operating income may be increasingly sensitive to a
deterioration in the financial condition of, or other adverse developments
involving our relationship with, one or more customers. As a result of
consolidation in the retail industry, our customers are able to exert increasing
pressure on a pro forma basis,us with respect to pricing and new product introductions.
Kmart, one of our top customers, filed for bankruptcy relief under Chapter 11 of
the Ortho Acquisitionbankruptcy code on January 22, 2002. Following such filing, we recommenced
shipping products to Kmart, and we intend to continue shipping products to Kmart
for the foreseeable future. If Kmart does not successfully emerge from its
bankruptcy reorganization, our business could result in even more significant customer concentration.
TERMINATION OF ROUNDUPbe adversely affected.
IF MONSANTO WERE TO TERMINATE THE MARKETING AGREEMENT -- IF MONSANTO TERMINATES THE ROUNDUP
MARKETING AGREEMENT,FOR CONSUMER ROUNDUP(R)
PRODUCTS, WE WOULD LOSE A SUBSTANTIAL SOURCE OF FUTURE EARNINGS.
15
19If we were to commit a serious default under the marketing agreement with
Monsanto hasfor consumer Roundup(R) products, Monsanto may have the right to
terminate the Roundup Marketing Agreement either as a
whole or within a particular region for certain events of default.agreement. If Monsanto rightfully terminateswere to terminate the Roundup Marketing Agreement pursuant to an event of
default,marketing agreement
rightfully, we would not be entitled to any termination fee, under the Roundup
Marketing Agreement and we would lose
all, or a significant portion, of the significant source of earnings that we believe
the Roundup Marketing Agreementmarketing agreement provides. In addition, Monsanto may also be able to
15
terminate the Roundup Marketing Agreementmarketing agreement within a given region, including North
America, without paying us a termination fee if sales to consumers in that
region decline on
a consumer sell-through basis overdecline:
- Over a cumulative three programfiscal year periodperiod; or
if
such sales decline by- By more than 5% for each of two consecutive program years,
unless we can demonstrate that the decline was caused by a severe decline of
general economic conditions or a severe decline in the lawn and garden market in
such region rather than by our failure to perform our duties under the Roundup
Marketing Agreement. See "The Transactions -- Roundup Marketing Agreement --
Termination."
POST-PATENT RESULTSfiscal years.
THE EXPIRATION OF PATENTS RELATING TO ROUNDUP(R) AND SCOTTS TURF BUILDER(R) IN THE UNITED
STATES -- WE CANNOT PREDICT THE SUCCESS OF ROUNDUP(R) AFTER GLYPHOSATE CEASES TO
BE PATENTED OR THE SUCCESS OF THESCOTTS TURF BUILDER(R)
LINE OF PRODUCTS AFTER
EXPIRATION OF THE METHYLENE-UREA PRODUCT COMPOSITION PATENT. SUBSTANTIAL NEWCOULD SUBSTANTIALLY INCREASE OUR COMPETITION IN THE UNITED
STATES COULD ADVERSELY AFFECT OUR BUSINESS.STATES.
Glyphosate, the active ingredient in Roundup(R), iswas subject to a patent in the
United States that expiresexpired in September 2000. SalesWe cannot predict the success of
Roundup(R) now that glyphosate is no longer patented. Substantial new
competition in the United States could adversely affect us. Glyphosate is no
longer subject to patent in Europe and is not subject to patent in Canada. While
sales of Roundup(R) in such countries have continued to increase despite the
lack of patent protection, sales in the United States may decline as a result of
increased competition after the U.S. patent expires.competition. Any such decline in sales would adversely affect our
Net Commissionfinancial results through the reduction of commissions as calculated under the
Roundup
Marketing AgreementRoundup(R) marketing agreement. We are aware that Spectrum Brands produced
glyphosate one-gallon products for Home Depot and therefore our financial results. Such a decline could
also trigger Monsanto's regional termination rightLowe's to be sold under the
Roundup Marketing
Agreement. See "The Transactions -- Roundup Marketing Agreement -- Termination."
Furthermore,Real- Kill(R) and No-Pest(R) brand names, respectively, in fiscal year 2001.
Additional competitive products have been introduced in fiscal year 2002. It is
too early to determine whether these product introductions will have a material
adverse effect on our sales of Roundup(R).
Our methylene-urea product composition patent, which coverscovered Scotts Turf
Builder(R), Scotts Turf Builder(R) Plus 2(TM)2(R) with Weed Control and Scotts Turf
Builder(R) with Halts(R) Crabgrass Preventer, is due to expireexpired in July 2001. This could
also result in increased competition. Any decline in sales of Turf
Builder(R)products after the expiration of the methylene-urea product
composition patent could adversely affect our financial results.
CONTROL BY SIGNIFICANT SHAREHOLDERS -- THE INTERESTSHAGEDORN PARTNERSHIP L.P. BENEFICIALLY OWNS APPROXIMATELY 40% OF THE
FORMER MIRACLE-GRO
SHAREHOLDERS COULD CONFLICT WITH THOSEOUTSTANDING COMMON SHARES OF THE OTHER SHAREHOLDERS OR THE HOLDERS
OF THE NOTES.SCOTTS ON A FULLY DILUTED BASIS.
The former shareholders of Miracle-Gro Products, Inc. (the "Miracle-Gro
Shareholders") (through the Hagedorn Partnership L.P.) beneficially ownowns approximately 42%40% of the
outstanding common shares of the CompanyScotts on a fully diluted basis. While the merger transactions involving Scottsbasis and Miracle-Gro
Products, Inc. placedhas sufficient
voting restrictions on the Miracle-Gro Shareholders
through May 19, 2000, the Miracle-Gro Shareholders have the right to designate
three members of the Company's Board of Directors and have the ability to veto
significant corporate actions by the Company. In addition, after May 19, 2000,
the Miracle-Gro Shareholders will be able to vote their shares without
restriction and will be ablepower to significantly controlinfluence the election of directors and the
approval of other actions requiring the approval of the Company'sour shareholders. The interests of the Miracle-Gro Shareholders could conflict with
those of the Company's other shareholders or the holders of the Notes.
EFFECT OF SEASONALITY -- OUR HISTORICAL SEASONALITY COULD IMPAIR OUR ABILITY TO
MAKE INTEREST PAYMENTS ON THE NOTES.
Because our products are used primarily in the Spring and Summer, our business
is highly seasonal. For the past two fiscal years, approximately 72% of our
sales have occurred in the combined second and third fiscal quarters. Our
working capital needs, and correspondingly our borrowings, peak near the end of
our first fiscal quarter during which we generate fewer revenues while incurring
expenditures in preparation for the Spring selling season. If cash on hand and
revenues are insufficient to cover payments due on the Notes and if, at that
time, we are unable to draw on our New Credit Facility, this seasonality could
adversely affect our ability to make interest payments as required by the Notes.
Adverse weather conditions could heighten this risk. See " -- Effect of Weather
Conditions."
EFFECT OF WEATHER CONDITIONS -- ADVERSE WEATHER CONDITIONS COULD ADVERSELY
IMPACT OUR FINANCIAL RESULTS.
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20
Weather conditions in North America and Europe have a significant impact on the
timing of sales in the Spring selling season and overall annual sales. Periods
of wet weather can slow fertilizer sales, while periods of dry, hot weather can
decrease pesticide sales. In addition, an abnormally cold Spring throughout
North America and/or Europe could adversely affect both fertilizer and
pesticides sales and therefore our financial results.
ENVIRONMENTAL REGULATION --
COMPLIANCE WITH ENVIRONMENTAL AND OTHER PUBLIC HEALTH REGULATIONS COULD RESULT IN THE EXPENDITUREINCREASE
OUR COST OF SIGNIFICANT CAPITAL
RESOURCES.DOING BUSINESS.
Local, state, federal and foreign laws and regulations relating to environmental
matters affect us in several ways. AllIn the United States, all products containing
pesticides must be registered with the United States Environmental Protection
Agency (and("U.S. EPA") and, in many cases, similar state and/or foreign agencies)agencies before they can
be sold. The inability to obtain or the cancellation of any such registration could
have an adverse effect on us.our business. The severity of the effect would depend
on which products were involved, whether another product could be substituted
and whether our competitors were similarly affected. We attempt to anticipate
regulatory developments and maintain registrations of, and access to, substitute
chemicals,
but wechemicals. We may not always be able to avoid or minimize these risks.
The Food Quality Protection Act, enacted by the U.S. Congress in August 1996,
establishes a standard for food-use pesticides, which is that a reasonable
certainty of no harm will result
16
from the cumulative effect of pesticide exposures. Under this act, the U.S. EPA
is evaluating the cumulative risks from dietary and non-dietary exposures to
pesticides. The pesticides in our products, certain of which may be used on
crops processed into various food products, continue to be evaluated by the U.S.
EPA as part of this exposure risk assessment. It is possible that the U.S. EPA
or a third party active ingredient registrant may decide that a pesticide we use
in our products will be limited or made unavailable to us. For example, in June
2000, DowAgroSciences, an active ingredient registrant, voluntarily agreed to a
gradual phase-out of residential uses of chlorpyrifos, an active ingredient used
by us in our lawn and garden products. In December 2000, the U.S. EPA reached
agreement with various parties, including manufacturers of the active ingredient
diazinon, regarding a phased withdrawal of residential uses of products
containing diazinon, used also by us in our lawn and garden products. We cannot
predict the outcome or the severity of the effect of the U.S. EPA's continuing
evaluations of active ingredients used in our products.
The use of certain pesticide and fertilizer products is regulated by various
local, state, federal and foreign environmental and public health agencies.
Regulations regarding the use of certainsome pesticide and fertilizer products may
include requirements that only certified or professional users apply the
product, or that certainthe products be used only onin specified locations or that certain
types of locations (such as
"not for use on sod farms or golf courses"),ingredients not be used. Users may require usersbe required to post notices on properties to
which products have been or will be applied and may require
notification ofbe required to notify
individuals in the vicinity that products will be applied in the future or may ban the use of certain ingredients. In addition, with the RPJ and
Ortho Acquisition, we have acquired many new pesticide product lines that are
subject to additional regulations.future. Even if
we are able to comply with all such regulations and obtain all necessary
registrations, we cannot assure that our products, particularly pesticide
products, will not cause injury to the environment or to people under all
circumstances. The costs of compliance, remediation or products liability have
adversely affected our operating results in the past and could materially affect
our future quarterly or annual operating results.
ADDRESSING YEAR 2000 ISSUES -- OUR FAILURE, OR THE FAILURE OF OUR THIRD PARTY
SUPPLIERS OR RETAILER CUSTOMERS, TO ADDRESS INFORMATION TECHNOLOGY ISSUES
RELATED TO THE YEAR 2000 COULD ADVERSELY AFFECT OUR OPERATIONS.
Like otherThe harvesting of peat for our growing media business entities,has come under increasing
regulatory and environmental scrutiny. In the United States, state regulations
frequently require us to limit our harvesting and to restore the property to an
agreed-upon condition. In some locations, we must addresshave been required to create water
retention ponds to control the abilitysediment content of discharged water. In the
United Kingdom, our computer
software applications and other business systems (e.g., embedded microchips) to
properly identifypeat extraction efforts are also the year 2000 due to a commonly used programming conventionsubject of using only two digits to identify a year. Unless modified or replaced, these
systems could fail or create erroneous results when referencing the Year 2000.
While we are assessing the relevant issues relatedlegislation.
In addition to the Year 2000 problemregulations already described, local, state, federal and
have implemented a readiness program to mitigateforeign agencies regulate the possibilitydisposal, handling and storage of business
interruption or other risks, we cannot be sure that we will have adequately
addressedwaste, air and
water discharges from our facilities. In June 1997, the issue, particularlyOhio Environmental
Protection Agency ("Ohio EPA") initiated an enforcement action against us with
respect to alleged surface water violations and inadequate treatment
capabilities at our recentMarysville facility and pending
acquisitions. Moreover, we rely on third party suppliers for finished goods, raw
materials, water, other utilities, transportationseeking corrective action under the
Resource Conservation Recovery Act. We have met with the Ohio EPA and a variety of other key
services. If one or morethe Ohio
Attorney General's office to negotiate an amicable resolution of these suppliers fail to address the Year 2000
problem adequately, such suppliers' operations could be interrupted. This
interruption, in turn, could adversely affect our operations. In addition, the
failure of our retailer customers adequately to address the Year 2000 problem
could adversely affect our financial results.
EFFECT OF NEW EUROPEAN CURRENCY -- THE IMPLEMENTATION OF THE EURO CURRENCY IN
CERTAIN EUROPEAN COUNTRIES BETWEEN 1999 AND 2002 COULD ADVERSELY AFFECT US.
In January 1999, the "euro"issues.
On December 3, 2001, an agreed judicial Consent Order was introduced in certain Economic and Monetary
Union ("EMU") countries. During 2002, all EMU countries are expected to be
operating with the euro as their single currency. Uncertainty exists assubmitted to the effectsUnion
County Common Pleas Court and was entered by the euro currencycourt on January 25, 2002.
For the six months ended March 30, 2002, we made approximately $1.5 million in
environmental capital expenditures, compared with approximately $0.6 million in
environmental capital expenditures and $2.1 million in other environmental
expenses for the entire fiscal year 2001. Management anticipates that
environmental capital expenditures and other environmental expenses for the
remainder of fiscal year 2002 will not differ significantly from those incurred
in fiscal year 2001. The adequacy of these anticipated future expenditures is
17
based on our operating in substantial compliance with applicable environmental
and public health laws and regulations and several significant assumptions:
- that we have on the marketplace. Additionally, the
European Commission has not yet defined and finalizedidentified all of the rulessignificant sites that must be
remediated;
- that there are no significant conditions of potential contamination
that are unknown to us; and
- that with respect to the agreed judicial Consent Order in Ohio, that
potentially contaminated soil can be remediated in place rather than
having to be removed and only specific stream segments will require
remediation as opposed to the entire stream.
If there is a significant change in the facts and circumstances surrounding
these assumptions or if we are found not to be in substantial compliance with
applicable environmental and public health laws and regulations, with regard to the euro currency. We are still assessing theit could have a
material impact the EMU formationon future environmental capital expenditures and euro implementation will have onother
environmental expenses and our internal systems and
the sale of our products. We expect to take appropriate actions based on the results of such assessment. However, we have not yet
17
21
determined the cost related to addressing this issueoperations, financial position and
there can be no
assurance that this issue and its related costs will not have a materially
adverse effect on us or our operating results and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS --cash flows.
OUR SIGNIFICANT INTERNATIONAL OPERATIONS MAKE US MORE SUSCEPTIBLE TO
FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND TO THE COSTS OF INTERNATIONAL
REGULATION.
We currently operate manufacturing, sales and service facilities outside of
North America, and particularly in the United Kingdom, Germany and France. Our
international operations have increased with the acquisitions of Levington,
Miracle Garden Care Limited, Ortho and RPJRhone-Poulenc Jardin and with the
Roundup Marketing Agreement and will increase
further through the Ortho Acquisition.marketing agreement for consumer Roundup(R) products. In fiscal 1998,year 2001,
international sales accounted for approximately 18%20% of our total sales, or approximately 23% on a
pro forma basis. Therefore,sales.
Accordingly, we are subject to risks associated with operations in foreign
countries, includingincluding:
- fluctuations in currency exchange rates, the
imposition ofrates;
- limitations on the conversion of foreign currencies into dollars orU.S. dollars;
- limitations on the remittance of dividends and other payments by
foreign subsidiaries. Many foreign
countries have tended to suffer from inflation more than the United States. In
addition, by operating in a large number of countries, we incursubsidiaries;
- additional costs of compliance with local regulations. We have attemptedregulations; and
- historically, higher rates of inflation than in the United States.
In addition, our operations outside the United States are subject to hedge somethe risk of
our
currency exchange rate risks, including by borrowingnew and different legal and regulatory requirements in local currencies, but
such hedges do not eliminate the risk completely.jurisdictions,
potential difficulties in staffing and managing local operations and potentially
adverse tax consequences. The costs related to our international operations
could adversely affect our operations and financial results in the future.
NOT ALL SUBSIDIARIES ARE GUARANTORS -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE
NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR SUBSIDIARIES
DECLARES BANKRUPTCY, LIQUIDATES OR REORGANIZES.
Some but not all of our subsidiaries will guarantee the Notes. In the event of a
bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for distribution to us.
Assuming we had completed the Transactions and the New Credit Facility and the
offering of the Original Notes on April 3, 1999, the Notes would have been
effectively junior to $______ million of current operating liabilities,
including trade payables, of these non-guarantor subsidiaries. The non-guarantor
subsidiaries generated approximately 19% (or 23% on a pro forma basis) of our
consolidated revenues in the year ended September 30, 1998 and held
approximately 26% (or 25% on a pro forma basis) of our consolidated assets as of
September 30, 1998.
FINANCING A CHANGE OF CONTROL OFFER --
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events, we will be
required to offer to repurchase all outstanding Notes. However, itnotes at 101% of their principal
amount. It is possible that we will not have sufficient funds at the time of the
change of control to make the required repurchase of Notesnotes or that restrictions
in our New
Credit Facilitycredit facility will not allow such repurchases. Accordingly, we may not be
able to satisfy our obligations to purchase your notes unless we are able to
refinance or obtain waivers under our credit facility. Our credit agreement also
provides that a change of control will be a default that permits lenders to
accelerate the
18
maturity of all borrowings thereunder. Any of our future debt agreements may
contain similar provisions. In addition, important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a "Change of Control" under the indenture. SeeTherefore, if an
event occurs that does not constitute a "Change of Control," we will not be
required to make a repurchase offer, and you may be required to continue to hold
your notes despite the event. For more detail, see the "Description of Notes -- Repurchasenotes"
section under the heading "Repurchase at the Optionoption of Holders.holders -- Change of
control."
FRAUDULENT CONVEYANCE MATTERS --
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE NOTES AND THE GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM THE COMPANY OR THE
SUBSIDIARY GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the Notes and the subsidiary guarantees could be voided, orvoided. Alternatively, claims
in respect of the Notes or the subsidiary guarantees could be subordinated to all other debts
of the Company or any subsidiary guarantorguarantor. Either of these events could occur if among other things, the Company or such
subsidiary guarantor, at the time it incurred the indebtedness evidenced by the Notes or its
subsidiary guarantee, received less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, and:
18
22
- was insolvent or rendered insolvent by reason of such incurrence;the incurrence of the
indebtedness; or
- was engaged in a business or transaction for which the Company's or
such subsidiary
guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by the Company or suchany subsidiary guarantor pursuant to
the Notes orunder a subsidiary
guarantee could be voided and required to be returned to the Company or such subsidiary
guarantor, or to a fund for the benefit of the creditors of the Company or such subsidiary
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, the Company or a subsidiary guarantor
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater
than the fair salable value of all of its assets; or
- if the present fair salable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, the Company and each subsidiary guarantor believes that, after
giving effectWe cannot be certain as to the indebtedness incurred in connection with the offering of
the Original Notes and the establishment of the New Credit Facility, it will not
be insolvent, will not have unreasonably small capital for the business in which
it is engaged and will not have incurred debts beyond its ability to pay such
debts as they mature. There can be no assurance, however, as to what standardstandards a court would apply in making such determinationsuse to determine whether
or not the subsidiary guarantors were solvent at the relevant time, or
regardless of the standard that a court uses, that the issuance of the
guarantees would agree with
our ornot be subordinated to the subsidiary guarantors' conclusions in this regard.
NO PRIOR MARKET FOR NOTES --guarantor's other debt.
If the subsidiary guarantees were legally challenged, any guarantee could also
be subject to the claim that, since the guarantee was incurred for our benefit,
and only indirectly for the benefit of the subsidiary guarantor, the obligations
of the applicable subsidiary guarantor were incurred for less than fair
consideration.
19
A court could thus void the obligations under the subsidiary guarantees,
subordinate them to the applicable subsidiary guarantor's other debt or take
other action detrimental to the holders of the notes.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
The Notesnotes are a new issue of securities with no established trading market and
will not be listed on any securities exchange. We have been informed by the
initial purchasers of the Original Notes that they intend to make a market in the Notes.exchange notes if
the exchange offer is completed. However, they may cease their market-making at
any time. In addition, the liquidity of the trading market in the Notes,notes, and the
market price quoted for the Notes,notes, may be adversely affected by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for the Notes.
19
23
THE TRANSACTIONS
The following descriptionnotes. Historically, the market for non-investment grade debt
has been subject to disruptions that have caused volatility in prices. It is
possible that the market for the exchange notes will be subject to disruptions.
Any such disruption may have a summarynegative effect on you as the holder of the materialnote
or, if issued, the exchange note, regardless of our prospects or financial
performance.
TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND WASHINGTON,
DC, ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE
MARKETS ON WHICH THE NOTES TRADE, THE MARKETS IN WHICH WE OPERATE, OUR
OPERATIONS AND OUR PROFITABILITY.
Terrorist attacks may negatively affect our operations and your investment.
There can be no assurance that there will not be further terrorist attacks
against the United States or U.S. businesses. These attacks or armed conflicts
may directly impact our physical facilities or those of our suppliers or
customers. Furthermore, these attacks may make travel and the transportation of
our supplies and products more difficult and more expensive and ultimately
affect our sales. Also as a result of terrorism, the United States has entered
into an armed conflict which could have a further impact on our sales, our
supply chain, and our ability to deliver product to our customers. Political and
economic instability in some regions of the world may also result and could
negatively impact our business. The consequences of any of these armed conflicts
are unpredictable, and we may not be able to foresee events that could have an
adverse effect on our business or your investment. More generally, any of these
events could cause consumer confidence and spending to decrease or result in
increased volatility in the United States and worldwide financial markets and
economy. They also could result in economic recession in the United States or
abroad. Any of these occurrences could have a significant impact on our
operating results, revenues and costs and may result in the volatility of the
market price for our securities and on the future price of our securities.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued the original notes on February 6, 2002 to J.P. Morgan Securities Inc.,
Banc of America Securities LLC; First Union Securities, Inc.; ABN AMRO
Incorporated and Credit Lyonnais Securities (USA) Inc., the initial purchasers,
pursuant to a purchase agreement. The initial purchasers subsequently sold the
original notes to "qualified institutional buyers," as defined in Rule 144A
under the Securities Act, in reliance on Rule 144A, and outside the United
States under Regulation S of the Securities Act. As a condition to the sale of
the original notes, we entered into a registration rights agreement with the
initial purchasers on February 6, 2002.
Pursuant to the registration rights agreement, we agreed that we would use our
reasonable best efforts (1) to file with the SEC and cause to become effective a
registration statement with respect to an exchange offer for the original notes,
(2) to keep the exchange offer open for at least 20 business days after the date
we mail notice of the exchange offer to the noteholders and (3) to complete the
exchange offer within 30 days after the effective date of the registration
statement.
We filed a copy of the registration rights agreement as an exhibit to the
registration statement.
RESALE OF THE EXCHANGE NOTES
Based upon an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may exchange original notes
for exchange notes in the ordinary course of business. For further information
on the SEC's position, see Exxon Capital Holdings Corporation, available May 13,
1988, Morgan Stanley & Co. Incorporated, available June 5, 1991 and Shearman &
Sterling, available July 2, 1993, and other interpretive letters to similar
effect. You will be allowed to resell exchange notes to the public without
further registration under the Securities Act and without delivering to
purchasers of the exchange notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act so long as you do not participate, do not
intend to participate, and have no arrangement with any person to participate,
in a distribution of the exchange notes. However, the foregoing does not apply
to you if you are:
- a broker-dealer who purchased the exchange notes directly from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act; or
- you are an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act.
In addition, if:
- you are a broker-dealer; or
- you acquire exchange notes in the exchange offer for the purpose of
distributing or participating in the distribution of the exchange notes,
you cannot rely on the position of the staff of the SEC contained in the
no-action letters mentioned above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available.
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Each broker-dealer that receives exchange notes for its own account in exchange
for original notes, which the broker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
The letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this prospectus, as it may be amended or supplemented from time to time, in
connection with resales of exchange notes received in exchange for original
notes which the broker-dealer acquired as a result of market-making or other
trading activities.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus and in
the letter of transmittal, we will accept any and all original notes validly
tendered and not withdrawn before the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding original notes surrendered pursuant to the exchange offer. You
may tender original notes only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms of
the original notes except that:
- we will register the exchange notes under the Securities Act and,
therefore, the exchange notes will not bear legends restricting their
transfer; and
- holders of the exchange notes will not be entitled to any of the rights
of holders of original note under the registration rights agreement,
which rights will terminate upon the completion of the exchange offer.
The exchange notes will evidence the same debt as the original notes. The
indenture governing the exchange notes is the same indenture that governs the
original notes.
As of the date of this prospectus, $70,000,000 in aggregate principal amount of
the original notes are outstanding and registered in the name of Cede & Co., as
nominee for The Depository Trust Company. Only registered holders of the
original notes, or their legal representative or attorney-in-fact, as reflected
on the records of the trustee under the indentures, may participate in the
exchange offer. We will not set a fixed record date for determining registered
holders of the original notes entitled to participate in the exchange offer.
You do not have any appraisal or dissenters' rights under the indenture or
applicable law in connection with the exchange offer. We intend to conduct the
exchange offer in accordance with the provisions of the RPJ
Acquisition, the Ortho Acquisitionregistration rights
agreement and the Roundup Marketing Agreement
(collectively,applicable requirements of the "Transactions")Securities Act, the Exchange
Act and the rules and regulations of the SEC.
We will be deemed to have accepted validly tendered original notes when, as and
if we had given oral or written notice of acceptance to the exchange agent. The
exchange agent will act as your agent for the purposes of receiving the exchange
notes from us.
If you tender original notes in the exchange offer you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of original notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
the applicable taxes described below, in connection with the exchange offer.
22
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term expiration date will mean 5:00 p.m., New York City time on ,
2002, unless we, in our sole discretion, extend the exchange offer, in which
case the term expiration date will mean the latest date and time to which we
extend the exchange offer.
To extend the exchange offer, we will:
- notify the exchange agent of any extension orally or in writing; and
- mail to each registered holder an announcement that will include
disclosure of the approximate number of original notes deposited to date,
each before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
- to delay accepting any original notes;
- to extend the exchange offer; or
- if any conditions listed below under "-- Conditions" are not satisfied,
to terminate the exchange offer by giving oral or written notice of the
delay, extension or termination to the exchange agent.
We will follow any delay in acceptance, extension or termination as promptly as
practicable by oral or written notice to the registered holders. If we amend the
exchange offer in a manner we determine constitutes a material change, we will
promptly disclose the amendment in a prospectus supplement that we will
distribute to the registered holders. We will also extend the exchange offer for
a period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure, if the exchange offer would otherwise
expire during the five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at the same rate and on the same terms as
the original notes. Consequently, the exchange notes will bear interest at a
rate equal to 8.625% per annum (calculated using a 360-day year). Interest will
be payable semi-annually on each January 15 and July 15.
You will receive interest on the exchange notes on January 15, 2003 in an amount
equal to the accrued interest on the original notes from the date of the last
interest payment date, July 15, 2002. We will deem the right to receive any
interest on the original notes waived by you if we accept your original notes
for exchange.
PROCEDURES FOR TENDERING
You may tender original notes in the exchange offer only if you are a registered
holder of original notes. To tender in the exchange offer, you must:
- complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal;
- have triedthe signatures guaranteed if required by the letter of
transmittal; and
23
- mail or otherwise deliver the letter of transmittal or the facsimile to
summarize the key
contractual provisionsexchange agent at the address listed below under "-- Exchange agent"
for receipt before the expiration date.
In addition, either:
- the exchange agent must receive certificates for the original notes
along with the letter of transmittal into its account at the depositary
pursuant to the procedure for book-entry transfer described below before
the expiration date;
- the exchange agent must receive a timely confirmation of a book-entry
transfer of the original notes, if the procedure is available, into its
account at the depositary pursuant to the procedure for book-entry
transfer described below before the expiration date; or
- you must comply with the guaranteed delivery procedures described
below.
Your tender, if not withdrawn before the expiration date, will constitute an
agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
The method of delivery of original notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or original notes to us. You may request
your respective brokers, dealers, commercial banks, trust companies or nominees
to effect the transactions described above for you.
If you are a beneficial owner of original notes whose original notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the original notes you must
either:
- make appropriate arrangements to register ownership of the original
notes in your name; or
- obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time. Unless the
original notes are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal; or
(2) for the account of:
- a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or
correspondent in the United States; or
24
- an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act that is a member of one of the
recognized signature guarantee programs identified in the letter
of transmittal,
an eligible guarantor institution must guarantee the signatures on a letter of
transmittal or a notice of withdrawal described below under "-- Withdrawal of
tenders."
If the letter of transmittal is signed by a person other than the registered
holder, the original notes must be endorsed or accompanied by a properly
completed bond power, signed by the registered holder as the registered holder's
name appears on the original notes. If the letter of transmittal or any original
notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, they should so indicate when signing, and
unless waived by us, they must submit evidence satisfactory to us of their
authority to so act with the letter of transmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender notes.
We will determine in our sole discretion all questions as to the validity, form,
eligibility, including time of receipt, acceptance and withdrawal of tendered
original notes, which determination will be final and binding. We reserve the
absolute right to reject any and all original notes not properly tendered or any
original notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular original notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
you must cure any defects or irregularities in connection with tenders of
original notes within the time we determine. Although we intend to notify you of
defects or irregularities with respect to tenders of original notes, neither we,
the exchange agent nor any other person will incur any liability for failure to
give you that notification. Unless waived, we will not deem tenders of original
notes to have been made until you cure the defects or irregularities.
While we have no present plan to acquire any original notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any original notes that are not tendered in the exchange offer, we
reserve the right in our sole discretion to purchase or make offers for any
original notes that remain outstanding after the expiration date. We also
reserve the right to terminate the exchange offer, as described below under
"-- Conditions," and, to the extent permitted by applicable law, purchase
original notes in the open market, in privately negotiated transactions or
otherwise. The terms of any of those purchases or offers could differ from the
terms of the exchange offer.
If you wish to tender original notes in exchange for exchange notes in the
exchange offer, we will require you to represent that:
- you are not an affiliate of ours;
- you will acquire any exchange notes in the ordinary course of your
business; and
- at the time of completion of the exchange offer, you have no
arrangement with any person to participate in the distribution of the
exchange notes.
25
In addition, in connection with the resale of exchange notes, any participating
broker-dealer who acquired the original notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the exchange notes, other than a resale of an unsold allotment
from the original sale of the notes, with this prospectus.
RETURN OF NOTES
If we do not accept any tendered original notes for any reason described in the
terms and conditions of the exchange offer or if you withdraw or submit original
notes for a greater principal amount than you desire to exchange, we will return
the unaccepted, withdrawn or non-exchanged notes without expense to you as
promptly as practicable. In the case of original notes tendered by book-entry
transfer into the exchange agent's account at the depositary pursuant to the
book-entry transfer procedures described below, we will credit the original
notes to an account maintained with the depositary as promptly as practicable.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the original notes at the depositary for purposes of the exchange offer, and any
financial institution that is a participant in the depositary's systems may make
book-entry delivery of original notes by causing the depositary to transfer the
original notes into the exchange agent's account at the depositary in accordance
with the depositary's procedures for transfer. However, although delivery of
original notes may be effected through book-entry transfer at the depositary,
you must transmit and the exchange agent must receive, the letter of transmittal
or a facsimile of the letter of transmittal, with any required signature
guarantees and any other required documents, at the address below under
"-- Exchange agent" on or before the expiration date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your original notes and (1) the notes are not immediately
available or (2) you cannot deliver the original notes, the letter of
transmittal or any other required documents to the exchange agent before the
expiration date, you may effect a tender if:
(a) the tender is made through an eligible guarantor institution;
(b) before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery, substantially in the form provided by us,
that:
- states your name and address, the certificate number(s) of the
original notes and the principal amount of original notes tendered,
- states that the tender is being made by that notice of guaranteed
delivery, and
- guarantees that, within three New York Stock Exchange trading days
after the expiration date, the eligible guarantor institution will
deposit with the exchange agent the letter of transmittal, together
with the certificate(s) representing the original notes in proper form
for transfer or a confirmation of a book-entry transfer, as the case
may be, and any other documents required by the letter of transmittal;
and
26
(c) within five New York Stock Exchange trading days after the expiration
date, the exchange agent receives a properly executed letter of
transmittal, as well as the certificate(s) representing all tendered
original notes in proper form for transfer and all other documents
required by the letter of transmittal.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your notes according to the guaranteed delivery
procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders of
original notes at any time before 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of original notes in the exchange offer, the exchange agent
must receive a written or facsimile transmission notice of withdrawal at its
address listed in this prospectus before the expiration date. Any notice of
withdrawal must:
- specify the name of the person who deposited the original notes to be
withdrawn;
- identify the original notes to be withdrawn, including the certificate
number(s) and principal amount of the original notes; and
- be signed in the same manner as the original signature on the letter of
transmittal by which the original notes were tendered, including any
required signature guarantees.
We will determine in our sole discretion all questions as to the validity, form
and eligibility of the notices, and our determination will be final and binding
on all parties. We will not deem any properly withdrawn original notes to have
been validly tendered for purposes of the exchange offer, and we will not issue
exchange notes with respect to those original notes, unless you validly retender
the withdrawn original notes. You may retender properly withdrawn original notes
by following one of the procedures described above under "-- Procedures for
tendering" at any time before the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be required to
accept for exchange, or exchange the exchange notes for, any original notes, and
may terminate the exchange offer as provided in this prospectus before the
acceptance of the original notes, if, in our reasonable judgment, the exchange
offer violates applicable law, rules or regulations or an applicable
interpretation of the staff of the SEC.
If we determine in our reasonable discretion that any of these conditions are
not satisfied, we may:
- refuse to accept any original notes and return all tendered original
notes to you;
- extend the exchange offer and retain all original notes tendered before
the exchange offer expires, subject, however, to your rights to withdraw
the original notes; or
- waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered original notes that have not been withdrawn.
If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the original notes, and we will extend
the exchange offer for a period of five to ten
27
business days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the exchange offer would otherwise
expire during the five to ten business day period.
TERMINATION OF RIGHTS
If you are a holder of original notes, all of your rights under the registration
rights agreement will terminate upon consummation of the exchange offer except
with respect to our continuing obligations:
- to indemnify you and parties related to you against liabilities,
including liabilities under the Securities Act; and
- to provide, upon your request, the information required by Rule
144A(d)(4) under the Securities Act to permit resales of the notes
pursuant to Rule 144A.
SHELF REGISTRATION
If (1) applicable law or interpretations of the staff of the SEC do not permit
us to consummate the exchange offer, (2) we do not consummate the exchange offer
on or before November 6, 2002 or (3) the initial purchasers determine, upon the
opinion of their counsel, that a registration statement must be filed and a
prospectus must be delivered by the initial purchasers in connection with any
offering or sale of the original notes, we will file with the SEC a shelf
registration statement to register for public resale the registrable securities.
For the purposes of the registration rights agreement, "registrable securities"
means each original note until the earliest date on which:
- a registration statement covering the original note has been declared
effective under the Securities Act and the note has been exchanged or
disposed of pursuant to such effective registration statement;
- the original note is eligible to be sold pursuant to Rule 144(k) (or
any similar provision then in force, but not Rule 144A) under the
Securities Act; or
- such original note ceases to be outstanding.
ADDITIONAL INTEREST ON ORIGINAL NOTES
If the exchange offer is not completed (or, if required, the shelf registration
statement is not declared effective) on or before November 6, 2002, the annual
interest rate borne by the original notes will be increased by (1) 0.50% per
annum for the first 90-day period immediately following November 6, 2002 and (2)
an additional 0.50% per annum with respect to each of these Transactions. However, we
urge you to readsubsequent 90-day period, in
each case until the following documents to fully understand each of the
Transactions:
- the Master Contract dated as of October 7, 1998 between Scotts and
Rhone-Poulenc regarding the RPJ Acquisition (the "RPJ Agreement");
- the Ortho Agreement; and
- the Roundup Marketing Agreement.
We have not included the definitions of many of the defined terms contained in
the RPJ Agreement, the Ortho Agreementexchange offer is completed or the Roundup Marketing Agreement, and
we urge youshelf registration
statement, if required, is declared effective or the original notes cease to refer to such agreements for the definitions of capitalized terms
in the following summary. Copies of the RPJ Agreement, the Ortho Agreement and
the Roundup Marketing Agreement are available as set forth below under
"Incorporation of Specified Documents by Reference."
RPJ ACQUISITION
In October 1998, the Company, through its subsidiaries, entered into the RPJ
Acquisition. The RPJ Acquisition consisted of the purchase from various
affiliates of Rhone-Poulenc Agro of: (i) the shares of Rhone-Poulenc Jardin SAS;
(ii) the shares of Celaflor GmbH.; (iii) the shares of Celaflor
Handelsgesellschaft m.b.H. and (iv) the home and garden business of
Rhone-Poulenc Agro S.A. (collectively, "RPJ"). The total consideration paid for
the RPJ Acquisition was approximately 1.2 billion French Francs, or
approximately $216 million, including 156 million French Francs, or
approximately $36 million on a present value basis, payable over the next four
years. RPJ is continental Europe's largest producer of consumer lawn and garden
products. It manufactures and sells a full line of consumer lawn and garden
pesticides, fertilizers and growing media in France, Germany, the Benelux
countries, Austria, Italy and Spain. Leading brands include KB(R),
Fertiligene(R), Celaflor(R) and Nexa Lotte(R).
ORTHO ACQUISITION
On November 13, 1998, we entered into the Ortho Agreement with Monsanto and
agreed to acquire substantially all of the non-Roundup assets of the Solaris
Division of Monsanto for $300 million, subject to adjustment depending on the
level of normalized working capital as of the closing date. These assets include
the Ortho(R), Green Cross(R), White Swan(R) and Defender(R) product lines, as
well as formulation facilities in Fort Madison, Iowa and Corwen, U.K. We closed
the Ortho Acquisition on January 21, 1999. As of such date, the working capital
adjustment was $39.9 million. The parties are still in the process of
determining the final working capital adjustment, which may be
greater than or
less than $39.9 million.
The Ortho Agreement includes various customary representations and warranties of
the parties for transactions of this type and contains customary, limited
carve-outs for materiality, knowledge and disclosed information. However, the
indemnification provisions limit our total exposure to assumed liabilities,
disputes with the Ortho's distributor and breaches of representation to $5
million in the aggregate.
Pursuant to the Ortho Agreement, we made offers to all but a very limited number
of Ortho employees who work primarily in the Ortho business. We also agreed to
pay severance costs for U.S. employees based on Monsanto's severance policy. In
return, Monsanto agreed to reimburse us for half of the costs of such
termination payments,registrable securities, up to a maximum of $5 million.
201.50% per annum of additional
interest.
We agree to pay any amount of additional interest due pursuant to clause (1) or
(2) above in cash on the same original interest payment dates as the original
notes.
EXCHANGE AGENT
We have appointed State Street Bank and Trust Company, the trustee under the
indenture, as exchange agent for the exchange offer. You should direct questions
and requests for
28
24
Inassistance, requests for additional copies of this prospectus or the letter of
transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
By registered or certified mail: By hand or overnight delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Division Corporate Trust Division
Attn: Meaghan Haight Corporate Trust Window, Fifth Floor
P.O. Box 778 Attn: Meaghan Haight
Boston, MA 02102-0078 Avenue de Lafayette
Reference: The Scotts Company Boston, MA 02111-1724
Reference: The Scotts Company
By facsimile:
(Eligible institutions only)
(617) 662-1452
Reference: The Scotts Company
For information or
confirmation by telephone:
Meaghan Haight
(617) 662-1603
Delivery to an address other than the one stated above or transmission via a
facsimile number other than the one stated above will not constitute a valid
delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail; however, our officers and regular employees may make
additional solicitations by facsimile, telephone or in person.
We have not retained any dealer manager in connection with the Ortho Acquisition, Scottsexchange offer
and Monsanto agreedwill not make any payments to enter
intobrokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange offer
which we estimate to be approximately $250,000. These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of notes
pursuant to the exchange offer. If, however, a supply agreement coveringtransfer tax is imposed for any
reason other than the supplyexchange of glyphosatethe original notes pursuant to Scotts for use in
non-Roundup(R) products that contain glyphosate and that were soldthe exchange
offer, then you must pay the amount of the transfer taxes. If you do not submit
satisfactory evidence of payment of the taxes or exemption from payment with the
letter of transmittal, we will bill the amount of the transfer taxes directly to
Scottsyou.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Ortho Acquisition. The agreement guarantees Scotts with a long-term supply
of glyphosate at a price competitive withexchange offer is voluntary. We urge you to consult your
financial and tax advisors in making your decisions on what action to take.
Original notes that obtainable in the open market
both now and after glyphosate ceases to be patented in the United States.
ROUNDUP TRANSACTION
On September 30, 1998, we entered the Roundup Marketing Agreement. Pursuantare not
29
exchanged for exchange notes pursuant to the Roundup Marketing Agreement, we became Monsanto's exclusive agent forexchange offer will remain
restricted securities. Accordingly, those original notes may be resold only:
- to a person whom the marketing and distributionseller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of consumer Roundup(R) productsRule
144A;
- in a transaction meeting the consumer lawn
and garden market withinrequirements of Rule 144 under the
Securities Act;
- outside the United States to a foreign person in a transaction meeting
the requirements of Rule 903 or 904 of Regulation S under the Securities
Act;
- in accordance with another exemption from the registration requirements
of the Securities Act and other specified countries,
including Australia, Austria, Canada, France, Germany andbased upon an opinion of counsel if we so
request;
- to us; or
- pursuant to an effective registration statement.
In each case, the original notes may be resold only in accordance with any
applicable securities laws of any state of the United Kingdom
(the "Included Markets"). In addition, if Monsanto develops new products
containing glyphosate, the active ingredient in Roundup(R),States or any other
non-selective herbicides, we have specified rightsapplicable jurisdiction.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to market such products as
well in the consumer lawn and garden market.
Under the Roundup Marketing Agreement, we and Monsanto will jointly develop
global consumer and trade marketing programsfixed charges for Roundup(R), and we have assumed
responsibility for sales support, merchandising, distribution and logistics. We
have already taken responsibility for these functions in North America with a
longer transition expected in Europe and Australia. Monsanto will continue to
own the consumer Roundup business and will provide significant oversight of its
brand. In addition, Monsanto will continue to own and operate the agricultural
Roundup business. A Steering Committee comprised of two Scotts designees and two
Monsanto designees will have ultimate oversight over the consumer Roundup
business. In the event of a deadlock, the president of Monsanto's Agricultural
("Ag") division is entitled to the tie-breaking vote.
COMMISSION STRUCTURE
We will be compensated based on the successeach
of the consumer Roundup business in
the Included Markets. In addition to recovering our out-of-pocket costs on a
fully burdened basis, we will receive a graduated commission to the extent that
the earnings before interest and taxes of the consumer Roundup business in the
Included Markets ("Program EBIT") exceed certain thresholds. To the extent that
Program EBIT is less than the First Commission Threshold set forth below, we
will not receive any Commission. Our Net Commission will be equal to the
Commission set forth in the following chart less the Contribution Payment we are
required to make, as described below. The Net Commission is the amount that we
will actually recognize on our income statements.
The commission structure is as follows:periods shown:
- --------------------------------------------------------------------------------
IF PROGRAM EBIT IS BETWEEN
THE FIRST AND SECOND IF PROGRAM EBIT IS GREATER
COMMISSION THRESHOLDS THE THAN SECOND COMMISSION
COMMISSION EQUALS THE THRESHOLD THE COMMISSION
FOLLOWING PERCENTAGE OF THE EQUALS THE FOLLOWING AMOUNT
FIRST SECOND DIFFERENCE BETWEEN PROGRAM PLUS 50% OF THE AMOUNT OF
COMMISSION COMMISSION EBIT AND THE PROGRAM EBITSIX MONTHS ENDED
YEAR THRESHOLD THRESHOLD FIRST COMMISSION THRESHOLD ABOVE $80 MILLION
---- --------- --------- -------------------------- -----------------ENDED SEPTEMBER 30, ---------------------
-------------------------------- MARCH 31, MARCH 30,
1997 1998 1999 2000 2001 2001 2002
- ---------------------------------------------------------------------------------------------
1999-2000...... $30,000,000 $80,000,000 46% $23,000,000
2001........... $31,250,000 $80,000,000 44% $21,450,000
2002........... $32,531,250 $80,000,000 40% $18,987,500
2003........... $33,844,531 $80,000,000 40% $18,462,188
2004........... $35,190,645 $80,000,000 40% $17,923,742
2005........... $36,570,411 $80,000,000 40% $17,377,836
2006........... $37,984,471 $80,000,000 40% $16,806,212
2007........... $39,434,288 $80,000,000 40% $16,226,285
2008........... $40,920,145 $80,000,000 40% $15,631,942
2009+.......... $30,000,000 $80,000,000 40% $20,000,000
(UNAUDITED) (UNAUDITED)
Ratio of earnings to fixed
charges.......................... 3.3x 2.6x 2.3x 2.1x 1.3x 2.0x 1.6x
- ---------------------------------------------------------------------------------------------
21
25
Program EBIT for the 1999 Program Year will be increased by $15 million for
purposes of calculating our commission.
Under the Roundup Marketing Agreement, we are required to make an annual fixed
Contribution Payment to Monsanto. Nominally, this Contribution Payment will be
$20 million per Program Year. However, we are not required to make any
Contribution Payment in the 1999 Program Year, and the Contribution Payments for
the 2000 and 2001 Program Years will be $5 million and $15 million,
respectively. Scotts and Monsanto have agreed to defer the difference between
the $20 million nominal Contribution Payment and the actual Contribution Payment
in the first three Program Years under the Roundup Marketing Agreement.
Beginning with the 2003 Program Year and extending through the 2018 Program
Year, we must make a Contribution Payment of $25 million per Program Year until
Monsanto recovers the $40 million deferred in the first three Program Years plus
interest of 8% per year. In addition, during the 2003 through 2008 Program Year
period, we will apply 50% of the amount by which our Net Commission exceeds
certain levels toward the reimbursement of the $40 million deferral.
Specifically, we will apply toward the deferral 50% of the amount by which our
Net Commission exceeds:
YEAR NET COMMISSION LEVEL
- ---- --------------------
2001................................................................. $32,500,000
2002................................................................. $28,100,000
2003................................................................. $26,700,000
2004................................................................. $30,500,000
2005................................................................. $34,600,000
2006................................................................. $38,900,000
2007................................................................. $43,500,000
2008................................................................. $49,000,000
TERM
The Roundup Marketing Agreement has no definite term with respect to all
Included Markets other than European Union countries. However, as set forth
below, for a period of 20 years Scotts will be entitled to receive a Termination
Fee in certain circumstances if Monsanto terminates the Roundup Marketing
Agreement upon a Change of Control of Monsanto or the sale of the consumer
Roundup business. With respect to the European Union countries, the initial term
of the Roundup Marketing Agreement extends through September 30, 2005.
Thereafter, the parties may agree to renew the Roundup Marketing Agreement with
respect to such countries through September 30, 2008, 2015 and 2018,
respectively. However, if Monsanto does not agree to any of the extension
periods with respect to the European Union countries, the "First Commission
Threshold" set forth above will become $0 with respect to the remaining Included
Markets.
TERMINATION
Monsanto has the right to terminate the Roundup Marketing Agreement upon an
Event of Default by Scotts or upon a Change of Control of Monsanto or the sale
of the consumer Roundup business, so long as the termination after a Change of
Control of Monsanto or the sale of the Roundup business occurs later than
September 30, 2003. The Events of Default by Scotts that could give rise to
termination by Monsanto include:
- "Material Breach" which is not cured within 90 days after written
notice from Monsanto and which is not remediable by the payment of
damages or by specific performance;
- "Material Fraud" which was engaged in with the intent to deceive
Monsanto and which is not cured, if curable, within 90 days after
written notice from Monsanto;
- "Material Willful Misconduct" which is not cured, if curable, within
90 days after written notice from Monsanto;
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26
- "Egregious Injury" to the Roundup(R) brand that is not cured, if
curable, within 90 days after notice from Monsanto, unless such
egregious injury resulted from the exercise by Monsanto of its
tie-breaking right with respect to deadlocked actions by the Steering
Committee or was caused primarily by an act or omission of Monsanto;
- Scotts' becoming insolvent;
- the acquisition of Scotts, by merger or asset purchase, or the
acquisition of more than 25% of Scotts' voting securities, in either
case without Monsanto's prior written approval, by a competitor of
Monsanto or by an entity that Monsanto reasonably believes will
materially detract from or diminish Scotts' ability to fulfill its
duties and obligations under the Roundup Marketing Agreement; or
- the assignment by Scotts of all, or substantially all, of its rights
or obligations under the Roundup Marketing Agreement.
In addition, Monsanto may terminate the Roundup Marketing Agreement within the
North America, U.K., France or Rest of the World regions for certain declines of
the consumer Roundup business on a sell-through basis (based on point-of-sale
unit movement at certain of the top-20 Roundup customers in such region).
Specifically, Monsanto may terminate the Roundup Marketing Agreement within a
given region if the sell-through consumer Roundup business declines on a three
Program Year cumulative basis or by more than five percent in two consecutive
Program Years within such region, unless we can demonstrate that the decline was
caused by a severe decline of general economic conditions or a severe decline in
the lawn and garden market in such region rather than by our failure to perform
our duties under the Roundup Marketing Agreement. Monsanto would also not be
able to terminate the Roundup Marketing Agreement if such decline was caused by
Monsanto's exercise of its right to break ties with respect to deadlocked
decisions of the Steering Committee.
We have rights similar to Monsanto's to terminate the Agreement upon a Material
Breach, Material Fraud or Material Misconduct by Monsanto. In addition, we may
terminate the Roundup Marketing Agreement upon a sale of the consumer Roundup
business, although we would lose the Termination Fee set forth below in such
event.
TERMINATION FEE
Except to the extent set forth below, if Monsanto terminates the Roundup
Marketing Agreement upon a Change of Control of Monsanto or the sale of the
consumer Roundup business, we will be entitled to receive a Termination Fee. We
will also be entitled to receive a Termination Fee if we terminate the Roundup
Marketing Agreement upon a Material Breach, Material Fraud or Material Willful
Misconduct by Monsanto. The Termination Fee will be calculated in accordance
with the following schedule:
THE TERMINATION FEE PAYABLE
IF TERMINATION OCCURS PRIOR TO SEPTEMBER 30, TO SCOTTS WILL BE EQUAL TO:
- -------------------------------------------- --------------------------
2003........................................................... $150,000,000 *
2004........................................................... $140,000,000
2005........................................................... $130,000,000
2006........................................................... $120,000,000
2007........................................................... $110,000,000
2008........................................................... $100,000,000
- -----------
* Neither Monsanto nor a successor to the consumer Roundup business may
terminate the Roundup Marketing Agreement prior to September 30, 2003 upon
a Change of Control or a sale of the consumer Roundup business. If Monsanto
or a successor were to do so despite such prohibition, the Termination Fee
payable to Scotts would be $185 million.
Between October 1, 2009 and September 30, 2018, if Monsanto terminates the
Roundup Marketing Agreement upon a sale of the consumer Roundup business or if a
successor terminates the Roundup Marketing Agreement
23
27
following a Change of Control of Monsanto, the Termination Fee will be equal to
the greater of (i) a percentage of the portion of the purchase price of the
consumer Roundup business in excess of a specified amount and (ii) $16 million.
In addition, if Monsanto terminates the Roundup Marketing Agreement for any
reason other than Egregious Injury, Material Fraud or Material Willful
Misconduct by Scotts, Monsanto will forfeit recovery of any unpaid portion of
the $40 million deferral of Contribution Payments described above.
SALE OF ROUNDUP
Monsanto has agreed to provide us with notice of any proposed sale of the
consumer Roundup business, allow us to participate in the sale process and
negotiate in good faith with us with respect to such a sale. If the sale is run
as an auction, we will further be entitled to a 15-day exclusive negotiation
period following the submission of all bids to Monsanto. During this period, we
may revise our original bid, but we will not have the right to review the terms
of any other bids.
In the event that we acquire the consumer Roundup business in such a sale, we
will receive credit against the purchase price in the amount of the Termination
Fee that would otherwise have been paid to us upon termination by Monsanto of
the Roundup Marketing Agreement upon such a sale.
If Monsanto decides to sell the consumer Roundup business to another party, we
must let Monsanto know within 30 days after receipt of notice of the purchaser
whether we intend to terminate the Roundup Marketing Agreement and forfeit any
right to a Termination Fee or whether we will agree to perform our obligations
under the Roundup Marketing Agreement on behalf of the purchaser, unless and
until such purchaser terminates us and pays us the applicable Termination Fee.
MARKETING FEE
Upon execution of the Roundup Marketing Agreement, we paid Monsanto a fee of $32
million in consideration for the rights we obtained under the Roundup Marketing
Agreement with respect to North America.
CENTRAL GARDEN
Central Garden & Pet Company ("Central Garden") has been providing distribution,
warehousing and other services to the Monsanto pursuant to an agreement that
will terminate on September 30, 1999. The Roundup Marketing Agreement does not
affect Monsanto's obligations under the agreement with Central Garden. However,
we do not believe that such agreement will materially interfere with our rights
or obligations under the Roundup Marketing Agreement. We are currently in
discussions with Central Garden regarding a continuing relationship between
Central Garden and the consumer Roundup business.
24
28
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the Exchange Notes.exchange notes. The
grossnet proceeds from the offering of the Original Notes, together with borrowings
under the New Credit Facility,original notes, after deducting fees and
expenses (including discounts and commissions), was approximately $69.8 million.
The net proceeds were used (i) to fund the payment to Monsanto for
the Ortho Acquisition; (ii) to repurchase the Company's thenrepay outstanding 9 7/8%
Senior Subordinated Notes Due 2004; and (iii) to pay certain fees and expenses.indebtedness under our revolving
credit facility (without any corresponding reduction in our commitment
thereunder). Our revolving credit facility commitment expires on June 30, 2005.
Our revolving credit facility bore interest at a weighted average rate of 5.40%
as of March 30, 2002.
30
CAPITALIZATION
The following table sets forth theour capitalization of the Company at April 3,
1999 and after giving effect to the offering of the Original Notes, the New
Credit Facility and the Transactions.March 30, 2002.
- -----------------------------------------------------------------------------------
(IN MILLIONS) AS OF APRIL 3, 1999
-------------------
ACTUAL PRO FORMA
------ ---------
(IN MILLIONS)MARCH 30, 2002
- -----------------------------------------------------------------------------------
(UNAUDITED)
Debt (including current portion) (1):
New Credit Facility (2):facility:
Revolving Credit Facility.........................credit facility.............................. $ $284.6
Term Loans........................................
9 7/8% Senior Subordinated Notes due 2004 (3)........loans............................................. 378.4
8.625% Notes.........................................senior subordinated notes(1)....................... 391.2
Other debt (4).......................................debt(2)............................................. 72.5
--------
Total debt.......................................debt........................................... 1,126.7
Shareholders' equity (5)...................................equity........................................ 516.9
--------
Total capitalization.............................capitalization................................. $1,673.6
- -----------------------------------------------------------------------------------
- ----------------
(1) For a descriptionAmounts are net of the Company's outstanding indebtedness, see
"Descriptionunamortized balance of New Credit Facility."$8.8 million relating to
interest rate lock contracts which were settled in 1998 at a total cost of $12.9
million.
(2) The New Credit Facility was closed on December 4, 1998. The total
commitment underIncludes $48.6 million of notes due to sellers, $11.8 million of foreign
bank borrowings and term loans and $12.1 million of capital lease obligations.
31
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the New Credit Facility is $1.025 billion.
(3) Approximately 97%historical financial data included in the table for, and as
of the Company's 9 7/8% Senior Subordinated Notes due
2004 were tendered pursuant to a tender offer that closed simultaneously
with the closingend of, each of the offeringfiscal years in the five-year period ended September
30, 2001, from our audited consolidated financial statements. The historical
financial data for the six months ended March 31, 2001 and March 30, 2002, have
been derived from our unaudited consolidated financial statements. The following
other financial data have been derived from our audited and unaudited
consolidated financial statements and accounting records for the respective
periods. In the opinion of our management, the unaudited consolidated financial
data presented below provides all normal and recurring adjustments necessary for
a fair presentation of the Original Notes. The Company intends
(i) to repurchase the remaining 9 7/8% Senior Subordinated Notes due 2004
or (ii) redeem such notes as soon as reasonably practicable after August 1,
1999, which is the first date the Company is permitted to do so under the
indenture with respect to the 9 7/8% Senior Subordinated Notes due 2004.
The Company and The Chase Manhattan Bank, N.A., as trustee, have entered
into a Fourth Supplemental Indenture dated asresults of January 15, 1999, that
amends the indenture withoperations for the 9 7/8% Senior Subordinated Notes due 2004
to eliminate substantially all of the significant covenants and related
defaults contained in the indenture.
(4) Consists of foreign subsidiary loans, capital leases and, on a pro forma
basis, RPJ seller notes and $2.5 million of assumed indebtedness of RPJ.
(5) Includes $195 million aggregate liquidation preference of convertible
preferred stock, convertible at $19 per common share, which is callable at
the option of the Company after May 19, 2000.
25
29
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS)
The following pro forma statements of operationsperiods specified. Such
results, however, are presented as if the
Transactions and the offering of the Original Notes had occurred and the New
Credit Facility was in place on October 1, 1997. The following pro forma balance
sheet gives effect to the Transactions, the New Credit Facility and the offering
of the Original Notes and the use of proceeds therefrom as if they had occurred
on April 3, 1999. The accompanying pro forma information is presented for
illustrative purposes and is not necessarily indicative of the financial
position or results of operations which would actually have been reported had
the above transactions been in effect during the periods presented or which may be
reported inexpected for the future. The Unaudited Selected Pro Forma Combined Financial
Data are based upon assumptions thatfull fiscal year. You should read the Company believes are reasonable and
should be readfollowing information in
conjunction with the Company's historicalour consolidated financial statements and the notes thereto,
and the information contained in "Management's discussion and analysis of
financial statementscondition and results of RPJ and Ortho thatoperations" which are incorporated by
reference herein.
26
30
UNAUDITED SELECTED PRO FORMA COMBINED STATEMENT OF INCOME
AND OTHER FINANCIAL DATAinto this prospectus.
FOR THE- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED,
YEAR ENDED SEPTEMBER 30, -------------------------
-------------------------------------------------- MARCH 31, MARCH 30,
1997 1998 -------------------------------------
SCOTTS RPJ ORTHO OTHER SCOTTS
HISTORICAL RPJ(1) ADJUSTMENTS ORTHO ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------ ----------- ----- ----------- ----------- ---------
STATEMENT OF INCOME DATA:1999 2000 2001 2001 2002
- -------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
Sales.......................
OPERATING DATA:
Net sales(1)....................... $857.8 $1,066.0 $1,576.6 $1,665.2 $1,696.6 $ 1,113.0860.5 $ 144.3 $ 211.4 $ 46.8(2) $1,526.5
11.0(3)
Cost of sales............... 715.0 75.4 128.8 21.2(2) 948.1
6.7(3)
1.0(4)
--------- -------- ------- ------- -------765.1
Gross profit................ 398.0 68.9 82.6 28.9 578.4
(Income )from Roundup
Marketing Agreement..... (35.0)profit(1).................... 284.2 351.0(2) 589.3 612.8 597.2(2) 323.2 270.9(2)
Roundup(R) marketing agreement(3):
Gross commission................. -- -- 30.3 39.2 39.1 16.5 8.4
Contribution expenses(4)......... -- -- 1.6 9.9 18.3 9.1 11.7
Net commission................... -- -- 28.7 29.3 20.8 7.4 (3.3)
Advertising(1)(5) (35.0)
SG&A........................ 271.6 55.7 59.0 25.6(2) 413.4
1.5(6).................. 42.4 57.4 117.3 107.1 89.9 46.1 38.0
Selling, general and
administrative(1)................ 131.6 169.9(6) 281.2 303.7 324.1 168.9 159.4
Restructuring and other charges.... -- 15.4 1.4 -- 68.4 -- 1.2
Amortization of goodwill and other
intangibles.......intangibles...................... 10.2 12.9 2.3 3.5(7) 17.8 (12.3)(8) 1.6(9) 25.8
Restructuring and other 15.4 1.8 -- -- 17.2
charges.....................25.6 27.1 27.7 14.2 3.7
Other expense (income), net. 4.0 0.4 -- -- 4.4
--------- -------- --------- ------- ------- ------- -------net........ 5.2 1.3 (3.6) (6.0) (8.5) (2.5) (3.9)
Income from operations...operations............. 94.8 94.1 8.7 (3.5) 5.8 14.1 33.4 152.6196.1 210.2 116.4 103.9 69.2
Interest expense............expense(7)................ 25.2 32.2 0.2 -- -- 53.9(10) 86.3
--------- -------- --------- ------- ------- ------- -------79.1 93.9 87.7 47.4 40.2
Income before income taxes..taxes......... 69.6 61.9 8.53 (3.5) 5.8 14.1 (20.5) 66.3
Provision117.0 116.3 28.7 56.5 29.0
Income taxes....................... 30.1 24.9 47.9 43.2 13.2 22.9 11.1
Income before cumulative effect of
accounting change(8)............. 39.5 36.3 63.2 73.1 15.5 33.6 17.9
Cumulative effect of accounting
change for income taxes.. 24.9 5.3intangible assets, net
of tax........................... -- -- -- (3.5)(11) 26.7
--------- -------- --------- ------- ------- ------- --------- -- -- (18.5)
Net income (loss)(8)............... 39.5 36.3 63.2 73.1 15.5 33.6 (0.6)
Dividends on convertible preferred
stock............................ 9.8 9.8 9.7 6.4 -- -- --
Income before extraordinary
item........................(loss) applicable to common
shareholders..................... 29.7 26.5 53.5 66.7 15.5 33.6 (0.6)
Basic earnings per common
share(11)........................ $1.60 $ 37.01.42(9) $ 3.22.93(9) $ (3.5)2.39 $ 5.80.55 $ 14.11.19 $ (17.0) $ 39.6
========= ======== ========= ======= ======= ======= =======(0.02)(12)
Diluted earnings per common
share(11)........................ 1.35 1.20(10) 2.08(10) 2.25 0.51 1.12 (0.02)(13)
OTHER FINANCIAL AND OPERATING DATA:
EBITDA (12).................Cash flows from operating
activities....................... $121.1 $ 131.971.0 $ 13.278.2 $ 171.5 $ 65.7 $ (308.2) $ (199.8)
Cash flows from investing
activities....................... ( 72.5) (192.1) (571.6) (89.5) (101.0) (49.3) (41.4)
Cash flows from financing
activities....................... ( 46.2) 118.4 513.9 (78.2) 21.4 342.4 262.2
32
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED,
YEAR ENDED SEPTEMBER 30, -------------------------
-------------------------------------------------- MARCH 31, MARCH 30,
1997 1998 1999 2000 2001 2001 2002
- -------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
EBITDA(14)......................... 121.6 149.0 253.7 271.2 255.7 135.7 92.8
Depreciation....................... 16.6 21.6 29.0 29.0 32.6 16.0 16.0
Capital expenditures............... 28.6 41.3 66.7 72.5 63.4 26.7 22.3
BALANCE SHEET DATA:
Working capital.................... $146.5 $ 135.3 $ 274.8 $ 234.1 $ 249.1 $ 339.6 $ 378.2
Total assets....................... 787.6 1,035.2 1,769.6 1,761.4 1,843.0 2,346.9 2,240.3
Total debt......................... 221.3 372.5 950.0 862.8 887.8 1,208.2 1,126.7
Shareholders' equity............... 389.2 403.9 443.3 477.9 506.2 519.2 516.9
- -------------------------------------------------------------------------------------------------------------------
(1) For fiscal 2002, we adopted an accounting policy that requires that certain
consideration from a vendor to a retailer be classified as a reduction in sales.
Like may other companies, we have historically classified these as advertising
and promotion costs. The information for all periods presented reflects this new
method of presentation. The amounts reclassified as a result of adopting this
new accounting policy are as follows:
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
---------------------------------------------- MARCH 31,
1997 1998 1999 2000 2001 2001
------ ------ ------ ------ ------ ----------------
(UNAUDITED)
Net sales......................................... $(13.9) $(17.3) $(25.9) $(43.8) $(51.1) $(28.6)
Gross profit...................................... (13.9) (17.3) (25.9) (45.7) (54.2) (30.4)
Advertising....................................... (13.9) (17.3) (25.9) (46.7) (61.1) (34.7)
Selling, general and administrative............... -- $ 27.1 $ 1.8 $ 35.0 $ 209.0
Adjusted EBITDA (13)........ 152.3 15.0 -- 27.1 1.8 35.0 231.2
Cash interest expense....... 31.5 0.2 51.2 81.7
Depreciation and amortization 37.8 4.5 3.5 21.3 (12.3) 1.6 56.4
Capital expenditures........ 41.3-- 1.0 3.0 45.36.9 4.3
See Notes to Unaudited Selected Pro Forma Combined Statement(2) Includes $2.9 million and $7.3 million of Incomerestructuring and Other
Financial Data.
27
31
NOTES TO UNAUDITED SELECTED PRO FORMA COMBINED STATEMENT OF INCOME
AND OTHER FINANCIAL DATA
(1) The statement of income data for RPJ have been translated from French
Francs to U.S. Dollars using the average exchange rateother charges in
1998 and 2001, respectively, and $1.1 million for the six month period ended
March 30, 2002.
(3) Reflects commissions received and contribution expenses paid under the
marketing agreement with Monsanto relating to the marketing and distribution of
consumer Roundup(R) products in the United States and other countries around the
world. For more information, see "Business -- Roundup(R) Marketing Agreement" in
our Form 10-K for the fiscal year ended September 30, 1998.
(2) Represents the reclassification of certain amounts to conform2001, which is
incorporated by reference into this prospectus.
(4) Includes amortization expense associated with the Company's presentation.
(3) Represents adjustment to salesamortization of the $32
million marketing fee under the Roundup(R) marketing agreement of $1.6 million,
$4.9 million and $3.3 million for 1999, 2000 and 2001, respectively, and $1.6
million for each of the six month periods ended March 31, 2001 and March 30,
2002.
(5) Advertising represents the cost of sales on certain shipments to
distributors. The Company intends to reflect these shipments as inventory
until such inventory is subsequently shipped to retailer locations. The
adjustment is calculated as follows:
Estimated increase in revenue.......................... $ 11.0
Cost of sales as a percentage of sales for the Ortho
business for fiscal 1998.......................... 60.9%
------------
Estimated increase in cost of sales.................... $ 6.7
(4) Represents estimated increase in costScotts' external media campaign and
related fees and expenses
(6) Includes $2.1 million of sales from change in basis for
Ortho inventory from LIFO to FIFO as described in note 3 to " -- Unaudited
Selected Pro Forma Combined Balance Sheet Data."
(5) Represents the estimated commission that would have been earned for the
1998 Program Year (the twelve months ended September 30, 1998) under the
applicable provisions of the Roundup Marketing Agreement relating to the
calculation of the Company's commission with respect to the first Program
Year (1999), applying such calculation to the unaudited earnings of the
consumer Roundup business for the twelve months ended September 30, 1998.
Therefore, the Contribution Payment for the 1998 Program Year is assumed to
be the same as the Contribution Payment for the 1999 Program Year. See "The
Transactions -- Roundup Marketing Agreement -- Commission Structure."
(6) Reflects the estimated increase in certain administrative costs (e.g.,
legal, payroll, risk management, tax department, human resources,
information systems, etc.) that are considered necessary to support the
Ortho business.
(7) Reflects adjustment to amortization of goodwillrestructuring and other intangibles
resulting from an allocation of the estimated purchase price of the RPJ
business as follows:
Estimated purchase price (including estimated transaction
costs of $7.3 million).................................. $ 216.3
Less amounts allocated to tangible assets and liabilities... (13.1)
----------
Amount allocated to goodwill and other intangibles.......... 203.2
Estimated average useful life (in years).................... 35.0
-----------
5.8
Less amortization included in historical RPJ financial
statements.............................................. 2.3
-----------
$ 3.5
A valuation of the RPJ business has not been completed as of the date of
this Prospectus. Accordingly, the allocation of the anticipated purchase
price is based on management's estimates and assumes that the book value
fixed assets reasonably approximates their fair value. The excess of the
purchase price over the value of tangible assets generally is assumed to
represent goodwill with an estimated useful life of 50 years, however
certain other intangible assets (e.g., trademarks, patents, etc) may be
identified in the valuation process which have useful lives of less than
40 years. Accordingly, the excess purchase price over the value of
tangible assets is being amortized over an average life of 35 years. The
Company expects that the final allocation of the purchase price will be
completed during the third quarter of fiscal 1999.
(8) Reflects adjustment to amortization of goodwill and other intangibles
resulting from an allocation of the estimated purchase price of the Ortho
business as follows:
29
32
Estimated purchase price (including estimated transaction
costs of $10.0 million)................................. $ 310.0
Less amounts allocated to tangible assets and liabilities... (116.0)
----------
Amount allocated to goodwill and other intangibles.......... 194.0
Estimated average useful life (in years).................... 35.0
-----------
5.5
Less amortization included in historical Ortho financial
statements.............................................. 17.8
-----------
$ (12.3)
A valuation of the Ortho business has not been completed as of the date
of this Prospectus. Accordingly, the allocation of the anticipated
purchase price is based on management's estimates and assumes that the
book value fixed assets reasonably approximates their fair value. The
excess of the purchase price over the value of tangible assets generally
is assumed to represent goodwill with an estimated useful life of 50
years, however certain other intangible assets (e.g., trademarks,
patents, etc) may be identified in the valuation process which have
useful lives of less than 40 years. Accordingly, the excess purchase
price over the value of tangible assets is being amortized over an
average life of 35 years. The Company expects that the final allocation
of the purchase price will be completed during the third or fourth
quarter of fiscal 1999.
In addition, the valuation does not address any adjustment for the level
of normalized working capital as of the closing date of the Ortho
Acquisition. No portion of such adjustment would be amortized. Rather it
will be reflected as an adjustment to working capital. The Company made
an additional payment to Monsanto of $39.9 million on the closing date of
the Ortho Acquisition based on Monsanto's estimate of normalized working
capital. The Company and Monsanto are still in discussions regarding the
actual amount of normalized working capital and expect the issue to be
resolved during second or third quarters of fiscal 1999. See "The
Transactions -- Ortho Acquisition."
(9) Represents amortization over a term of 20 years of the $32.0 million
payment by the Company to Monsanto in connection with the marketing
rights under the Roundup Marketing Agreement.
(10) Represents the net adjustment to interest expense as a result of the
anticipated bank borrowings under the New Credit Facility and the
offering of the Original Notes calculated as follows:
Revolving Credit Facility (a)............................... $ 11.6
Pound Sterling Term Loan (b)................................ 10.9
French Franc Term Loan (c).................................. 4.9
Deutschemark Term Loan (d).................................. 3.3
Tranche B Term Loan (e)..................................... 8.2
Tranche C Term Loan (f)..................................... 10.5
8.625% Senior Subordinated Notes due 2009 (g)............... 28.5
RPJ Seller Notes (h)........................................ 2.1
Amortization of rate locks (i).............................. 1.3
Amortization of deferred financing costs (j)................ 3.3
Interest on remaining indebtedness.......................... 1.7
-----------
Pro forma interest expense............................. 86.3
Less interest on refinanced indebtedness.................... 30.7
Less interest on remaining indebtedness..................... 1.7
-----------
Net adjustment......................................... 53.9
- ------------
(a) Represents interest on floating rate Revolving Credit Facility using an
assumed interest rate of 7.69%.
(b) Represents interest on floating rate Pound Sterling Term Loan using an
assumed interest rate of 9.10%.
(c) Represents interest on floating rate French Franc Term Loan using an
assumed interest rate of 6.06%.
30
33
(d) Represents interest on floating rate Deutschemark Term Loan using an
assumed interest rate of 5.98%.
(e) Represents interest on floating rate Tranche B Term Loan using an assumed
interest rate of 8.53%.
(f) Represents interest on floating rate Tranche C Term Loan using an assumed
interest rate of 8.78%.
(g) Represents interest on the $330.0 million fixed rate Original Notes.
(h) Represents interest on amounts due the seller of the RPJ business using an
assumed interest rate of 6.00%.
(i) Represents amortization of amounts deferred under treasury rate locks over
a period of 10 years.
(j) Representscharges.
(7) Includes amortization of deferred financing costs, over a periodinterest rate locks and
debt discount.
(8) Includes extraordinary losses of 8.1
years.
An increase or decrease$0.7 million and $5.9 million, net of
0.125%income tax benefits, for 1998 and 1999, respectively.
(9) Includes extraordinary losses of $0.04 and $0.32 per share for 1998 and
1999, respectively.
(10) Includes extraordinary losses of $0.02 and $0.19 per share for 1998 and
1999, respectively.
(11) Income available to common shareholders and basic and diluted earnings per
share would have been as follows if the accounting change for intangible assets
adopted in the assumed interest rate would change the
pro forma interest expense on floating rate debtfiscal year beginning October 1, 2001, had been adopted as follows:of
October 1, 1998:
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
---------------------------- MARCH 31,
1999 2000 2001 2001
------ ------ ------ ----------------
(UNAUDITED)
Revolving Credit Facility..................................
Income available to common shareholders(8).................. $ 0.2
Pound Sterling Term Loan................................... 0.1
French Franc Term Loan..................................... 0.1
Deutschemark Term Loan..................................... 0.1
Tranche B Term Loan........................................ 0.1
Tranche C Term Loan........................................ 0.2
-----------68.5 $ 0.8
===========83.4 $ 32.1 $41.9
Basic EPS................................................... $ 3.76(8) $ 2.98 $ 1.13 $1.48
Diluted EPS................................................. 2.57(9) 2.81 1.05 1.40
(11) Represents an estimated provision(12) Includes cumulative effect of change in accounting for intangible assets,
net of income taxes on a combined pro
forma basis using the effective tax ratebenefit, of $(0.64) per share.
(13) Includes cumulative effect of change in accounting for the Company on a stand-alone
basis for fiscal 1998intangible assets,
net of 40.3%.
(12) "EBITDA"income tax benefit, of $(0.59) per share.
(14) EBITDA is defined as income from operations, plus restructuring and other
charges, depreciation and amortization. EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles and
should not be used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. EBITDA is included in
this Prospectusoffering memorandum because it is a basis upon which Scotts' management
assesses financial performance. While EBITDA is frequently used as a measure of
operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other companies due
to potential inconsistencies in the method of calculation.
(13) "Adjusted EBITDA" reflects EBITDA as calculated in note (12) above
adjusted for the effect of the non-recurring restructuring charges taken
by the Company of $20.4 million (or which $15.4 million is included in
restructuring and other charges, $2.9 million is included in cost of
sales and $2.1 million is included in selling, general & administrative)
and RPJ of $1.8 million during the twelve months ended September 30,
1998.
(14) Cash interest expense includes amortization of deferred financing costs and
interest rate locks.
31
34
UNAUDITED SELECTED PRO FORMA COMBINED STATEMENT OF
INCOME AND OTHER FINANCIAL DATA
FOR THE SIX MONTHS ENDED APRIL 3, 1999
------------------------------------------------------------
SCOTTS ORTHO OTHER SCOTTS
HISTORICAL ORTHO ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------- ----------- ----------- ---------
Sales .........................
Cost of Sales .................
Gross profit...................
Income from marketing agreement
SG&A ...........................
Amortization of goodwill and
other intangibles .............
Restructuring and other charges
Other expense (income) .........
Loss from operations ...........
Interest expense ...............
Income before income taxes .....
Income taxes ...................
Income before extraordinary item
OTHER DATA:
EBITDA (8) .....................
Adjusted EBITDA (9) ............
Cash interest expense (10) .....
Depreciation and amortization ..
Capital expenditures ...........
- ---------------
(1) Represents the reclassification of certain amounts to conform with the
Company's presentation.
(2) Represents adjustment to sales and cost of sales on certain shipments to
distributors. The Company intends to reflect these shipments as inventory
until such inventory is subsequently shipped to retailer locations. The
adjustment is calculated as follows:
Estimated decrease in revenue ....................
Cost of sales as a percentage of sales for the
Ortho business for the six months ended
April 3, 1999 ..................................
Estimated decrease in cost of sales ..............
(3) Represents estimated increase in cost of sales resulting from change in
basis for Ortho inventory from LIFO to FIFO as described in note 3 to
"-- Unaudited Selected Pro Forma Combined Balance Sheet Data."
32
35
(4) Reflects the estimated increase in certain administrative costs (e.g.,
legal, payroll, risk management, tax department, human resources,
information systems, etc.) that are considered necessary to support the
Ortho business.
(5) Reflects adjustment to amortization of goodwill and other intangibles
resulting from an allocation of the estimated purchase price of the Ortho
business as follows:
Estimated purchase price (including estimated
transaction costs of $___ million)...........
Less amounts allocated to tangible assets and
liabilities..................................
Amount allocated to goodwill and other
intangibles..................................
Estimated average useful life (in quarters)....
Less amortization included in historical Ortho
financial statements.........................
A valuation of the Ortho business has not been completed as of the date
of this Registration Statement. Accordingly, the allocation of the
anticipated purchase price is based on management's estimates and assumes
that the book value of fixed assets reasonably approximates their fair
value. The excess of the purchase price over the value of tangible assets
generally is assumed to represent goodwill with an estimated useful life
of 40 years, however certain other intangible assets (e.g., trademarks,
patents, etc.) may be identified in the valuation process which have
useful lives of less than 40 years. Accordingly, the excess purchase
price over the value of tangible assets is being amortized over an
average life of 35 years. The Company expects that the final allocation
of the purchase price will be completed during the third or fourth
quarter of fiscal 1999.
33
36
In addition, the valuation does not address any adjustment for the level
of normalized working capital as of the closing date of the Ortho
Acquisition. No portion of such adjustment would be amortized. Rather it
will be reflected as an adjustment to working capital. The Company has
received an estimate of normalized working capital of $125.9 million from
Monsanto, which estimate resulted in an additional payment to Monsanto of
$39.9 million. The Company and Monsanto are still in discussion regarding
the actual amount of normalized working capital and expect the issue to be
resolved within 60 to 90 days after the closing. See "The Transactions --
Ortho Acquisition."
(6) Represents the net adjustment to interest expense as a result of the
anticipated bank borrowings under the Company's Revolving Credit Facility
and the Notes Offering calculated as follows:
Revolving Credit Facility(a)....................
Notes offered hereby(g).........................
Amortization of rate locks(c)...................
Amortization of deferred financing costs(d).....
Interest on remaining indebtedness..............
Pro forma interest expense...................
Less interest on refinanced indebtedness........
Less interest on remaining indebtedness.........
Net adjustment...............................
- ---------------
(a) Represents interest on floating rate Revolving Credit Facility using an
assumed average interest rate of 8.25%.
(b) Represents interest on the $330.0 million fixed rate Notes offered
hereby.
(c) Represents amortization of amounts deferred under treasury rate locks
over a period of 10 years.
(d) Represents amortization of deferred financing costs over a period of
8.1 years.
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37
(7) Represents an estimated provision for income taxes on a combined pro forma
basis using the effective tax rate for the Company on a stand-alone basis
for fiscal 1998 of 40.0%.
(8) "EBITDA" is defined as income from operations, plus depreciation and
amortization. EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles and should not be
used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. EBITDA is included
in this Offering Memorandum because it is a basis upon which Scotts'
management assesses financial performance. While EBITDA is frequently used
as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the method
of calculation.
(9) "Adjusted EBITDA" reflects EBITDA as calculated in note (8) above adjusted
for the effect of the restructuring and other charges taken by the Company.
(10) Cash interest expense excludes amortization of deferred financing costs and
interest rate locks.
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38
UNAUDITED SELECTED PRO FORMA COMBINED
BALANCE SHEET DATA
As of April 3, 1999
----------------------------------------------------------
Scotts Ortho Other Scotts
Historical Ortho Adjustments Adjustments Pro Forma
---------- ----- ----------- ----------- ---------
ASSETS
Cash
Accounts receivable
Inventory
Other current assets
Total current assets
Property, plant and
equipment, net
Goodwill and other
intangibles, net
Other assets
Total assets
LIABILITY AND EQUITY
Current portion of
long-term debt
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt, net of
current portion
Other long-term liabilities
Total liabilities
Preferred stock
Common shares
Capital in excess of par
Retained earnings
Divisional equity
Cumulative foreign currency
translation account
Treasury stock
Net assets to be sold
Total equity
Total liabilities
and equity
36
39
(1) Represents adjustment to restate inventory and eliminate accounts receivable
for the estimated impact of the Company's anticipated revenue recognition
policy as described in note 3 to "-- Unaudited Selected Pro Forma Combined
Statement of Income and Other Financial Data".
Ortho shipments included in accounts receivable.............
Gross profit margin as a % of sales for the Ortho business
for the six months ended April 3, 1999....................
Gross profit on shipments that would not be recognized under
the anticipated revenue recognition policy................
Amount reinstated to inventory..............................
- ---------------
(a) The tax effect of the gross profit that would not be recognized under the
Company's anticipated revenue recognition policy is reflected as a reduction
of the Company's current income tax liability using an assumed tax rate of
40.0%. The remaining amount, net of the tax effect, is reflected as a
reduction of retained earnings.
(2) Represents adjustment to convert LIFO basis inventory in historical Ortho
financial statements to the FIFO basis which management anticipates adopting
for Ortho inventory upon acquisition.
(3) Reflects net adjustment to goodwill and other intangibles as a result of the
Ortho Acquisition as follows:
Net amount of purchase price allocated to goodwill and other
intangibles (see note 8 to " -- Unaudited Selected Pro
Forma Combined Statement of Income and Other Financial
Data")....................................................
Goodwill and other intangibles included in historical Ortho
balance sheet.............................................
Pro forma adjustment...................................
(4) Represents the transaction costs related to the initial offering of the
Notes.
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40
(5) The following table summarizes the sources and uses of cash in connection
with the Ortho Acquisition and the Notes Offering:
Sources:
Revolving Credit Facility..............................
Notes .................................................
Total sources........................................
Uses:
Ortho Acquisition (a).....................................
Repayment of existing 9 7/8% Senior
Subordinated Notes (b)...................................
Transaction costs (c).....................................
Total uses...........................................
- ---------------
(a) Excludes any adjustment for the level of normalized working capital as
of the closing date of the Ortho Acquisition. See "The
Transactions -- Ortho Acquisition."
(b) Includes redemption of 97.1% of the currently outstanding 9 7/8% Senior
Subordinated Notes at a redemption premium of 107.258% and accrued
interest of $4.5 million. The difference between the estimated amount
to be paid to retire this portion of these notes and their carrying
value ($95.0 million, net of unamortized discount of $0.4 million and
bond issuances costs of $1.7 million) represents an extraordinary loss
on the retirement and is reflected as a reduction in retained earnings,
net of tax. The estimated tax effect is reflected as a reduction in the
Company's current income tax liability.
(c) Transaction costs include costs in connection with the Notes offering
($10.5 million), and costs in connection with the Ortho Acquisition ($8
million).
(6) Reflects the elimination of historical equity of the Ortho businesses.
37
41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We have derived the historical financial data included in the following summary
financial data from the Company's audited and unaudited consolidated financial
statements which are incorporated by reference herein. You should read the
following information in conjunction with the Consolidated Financial Statements
of the Company and the Notes thereto, and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are incorporated by reference in this Prospectus.
Results for the six months ended April 3, 1999 are not necessarily indicative
of the results to be expected for the full fiscal year.
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, --------------------
------------------------ APRIL 4, APRIL 3,
1994 1995(1) 1996 1997(2) 1998(3) 1998 1999
---- ------- ---- ------- ------- -------- --------
(DOLLARS IN MILLIONS)
OPERATING DATA:
Sales................................ $ 606.3 $ 731.1 $ 750.4 $ 899.3 $ 1,113.0 $ $
Cost of sales........................ 404.1 498.8 512.4 573.6 715.0
--------- --------- --------- --------- ---------
Gross profit..................... 202.2 232.3 238.0 325.7 398.0
Advertising and promotion (4)........ 64.5 69.2 83.9 104.4
Selling, general and administrative.. 116.6 130.5 167.2
Amortization of goodwill and other
intangibles...................... 3.6 6.0 8.8 10.2 12.9
Restructuring and other charges...... -- -- 17.7 -- 15.4
Other expense (income), net.......... (1.4) (4.4) (0.6) 6.3 4.0
---------- --------- --------- --------- ---------
Income from operations............... 59.3 60.9 26.3 94.8 94.1
Interest expense..................... 17.9 13.9 25.0 25.2 32.2
--------- --------- --------- --------- ---------
Income before income taxes........... 41.8 36.3 1.3 69.6 61.9
Income taxes......................... 17.9 13.9 3.8 30.1 24.9
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary
item............................. 23.9 22.4 (2.5) 39.5 37.0
Extraordinary loss on early extinguish-
ment to debt, net................ 1.0 -- -- -- 0.7
--------- --------- --------- --------- ---------
Net income (loss).................... $ 22.9 $ 18.8 $ (2.5) $ 39.5 $ 36.3
========= ========= ========= ========= =========
Preferred stock dividends............ $ -- $ 3.6 $ 9.8 $ 9.8 $ 9.8
Income (loss) applicable to common
shareholders.................... $ 22.9 $ 18.8 $ (12.3) $ 29.7 $ 26.5
========= ========= ========= ========= =========
OTHER DATA:
EBITDA (5)........................... $ 81.2 $ 86.6 $ 55.6 $ 125.2 $ 131.9
Adjusted EBITDA (6).................. 81.2 86.6 73.3 125.2 152.3
Depreciation and amortization (7).... 21.9 25.7 29.3 30.4 37.8
Capital expenditures................. 33.4 23.6 18.2 28.6 41.3
Ratio of earnings to fixed charges... 2.9x 2.2x 1.0x 3.3x 4.2x
BALANCE SHEET DATA (END OF PERIOD):
Working capital...................... $ 140.6 $ 227.0 $ 181.0 $ 146.5 $ 135.3
Total assets......................... 528.6 809.0 731.7 787.6 1,035.2
Total debt........................... 247.3 272.5 225.3 221.3 372.5
Shareholders' equity (8) 168.3 380.8 364.3 389.2 403.9
38
42
- ----------------
(1) For the 1995 fiscal year, certain reclassifications have been made to
conform the presentation with that of subsequent periods.
(2) Includes results from Miracle Garden from January 1, 1997.
(3) Includes results from Levington Group Limited from December 1997 and
EarthGro from February 1998.
(4) For the 1994 fiscal year, advertising and promotion expenses were not
separately identified but were included in selling, general and
administrative expenses.
(5) "EBITDA" is defined as income from operations, plus depreciation and
amortization. EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles and should not be
used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation.
(6) "Adjusted EBITDA" reflects EBITDA as calculated in note (5) above adjusted
for the effect of the non-recurring charges taken by the Company of $17.7
million during the fiscal year ended September 30, 1996, $20.4 million (of
which $15.4 million is included in restructuring and other charges, $2.9
million is included in cost of sales and $2.1 million is included in
selling, general & administrative) during the fiscal year ended September
30, 1998 and $1.4 million for the six months ended April 3, 1999.
(7) Depreciation and amortization excludes amortization of deferred financing
costs and debt discount.
(8) Includes $195 million aggregate liquidation preference of convertible
preferred stock, convertible at $19 per common share, which is callable at
the option of the Company after May 19, 2000.
39
43
DESCRIPTION OF NEWCERTAIN OTHER INDEBTEDNESS
CREDIT FACILITY
The following description is a summary of material provisions of the New Credit
Facility.our credit
facility. It does not restate the New Credit Facilitycredit facility in its entirety. We urge you
to read the New Credit Facilitycredit facility because it, and not this description, definedefines the
terms of our other material outstanding indebtedness. We have not included the
definitions of many of the defined terms contained in the New Credit
Facility,credit facility, and
we urge you to refer to such document for the definitions of capitalized terms
in the following summary. Copies of the New Credit Facility iscredit facility are available as set
forth under "Incorporation of Specified Documents by
Reference.the section entitled "Where you can find additional information."
On December 4, 1998,
Scotts and certain of ourits subsidiaries entered into the credit facility on
December 4, 1998. The credit facility has been amended several times
subsequently, including an amendment and restatement of the entire credit
facility on December 5, 2000 in connection with both an increase in the
revolving credit component and a new
Credit Agreement (the "New Credit Facility").refinancing of the original U.S. dollar-
denominated term loan components (new Tranche B) of the credit facility, both of
which are described below to reflect current terms.
The New Credit Facilitycredit facility establishes aggregate financing for Scotts and certain of
our subsidiaries which are designated (either at closing or in the future) as
co-borrowers ("Subsidiary
Borrowers") in the aggregate principal amount of $1.025$1.1 billion. The credit
financing under the New Credit Facilitycredit facility is provided by a lending syndicate group
consisting of approximately thirtymore than 90 lenders worldwide, with TheJPMorgan Chase Manhattan Bank serving
as Administrative Agent. At the time of the closing of the New
Credit Facility, the then-existing indebtedness of the Company and its
subsidiaries under the previous credit agreement was refinanced and repaid using
proceeds from the New Credit Facility.administrative agent.
AMOUNT OF ADDITIONAL CREDIT AVAILABLE
The New Credit Facilitycredit facility provides for aggregate total senior secured credit financing
in the principal amount of up to $1.025$1.1 billion, consisting of term loan
facilities in the aggregate amount of $525 million and a revolving credit
facility in the amount of $500 million (collectively, the "Loans"). Proceeds of
the Loans were used in part to finance the RPJ Transaction and a portion of the
purchase price of the Ortho Acquisition, as well as to refinance the
indebtedness of the Company and its subsidiaries under its previous credit
facility.$575.0 million. A portion of the revolving credit
facility will alsomay be used to
finance our continuing operations and for permitted acquisitions of up to $100
million.$200.0 million
(increasing to $225.0 million on October 1, 2002).
SPECIFIC CREDIT FACILITIES
The Term Loan Facilitiesterm loan facilities consist of threetwo tranches. The first, the Tranche A Term Loan Facility,term
loan facility, consists of a 6-1/6 1/2 year term loan facility in an aggregate
approximate principal amount equal to $265$265.0 million, which is divided into
three sub-tranches of French Francs, German DeutschemarksDeutsche Marks and British Pounds
Sterling.Sterling, the first two sub-tranches of which will now be repaid in euros. The
Tranche A Term Loansterm loans are to be repaid in quarterly principal installments
over a 6-1/2 year period.maturing on June 30, 2005. The Tranche B Term Loan Facilityterm loan facility consists of a 7-1/27 year
term loan facility in an aggregate principal amount equal to $140$260.0 million,
which is to be repaid in nominal quarterly installments for the first 6-1/26 years
and in substantial quarterly installments in the final year. The Tranche C
Term Loan Facility consists of an 8-1/2 yearB term
loan facility in an aggregate
principal amount equal to $120 million, which is to be repaid in nominal
quarterly installments for the first 7-1/2 years and in substantial quarterly
installments in the final year.matures on December 31, 2007.
The Term Loans were disbursed in a single
drawing on the Closing Date.
The Revolving Credit Facilityrevolving credit facility consists of Revolving Credit Loansrevolving credit loans in the amount
of up to $500$575.0 million, which is available on a revolving basis for a term of 6-1/6
1/2 years. A portion of the Revolving Credit Facilityrevolving credit facility not to exceed $100$100.0
million is available for the issuance of letters of credit. Additionally, a
portion of the Revolving Credit Facilityrevolving credit facility not to exceed $30$55.0 million is
available from JPMorgan Chase or Credit Lyonnais for swing line loans in U.S.
Dollars on same-day notice. APortions of such swing line limit, not to exceed
certain sub-limits, are also available
34
on a same-day notice basis from various eligible lenders within the lending
syndicate for swing line loans in various optional currencies. Further, on a
standard notice basis, a portion of the Revolving Credit Facilityrevolving credit facility not to exceed
$225$360.0 million is available for borrowing in various optional currencies,
including German Deutschemarks, British Pound
Sterling, French Francs, Belgian Francs, Italian Lira and other specified
currencies,the Euro, provided that the outstanding Revolving Credit Loansrevolving credit loans in
optional currencies other than British Pounds Sterling does not exceed $120$200.0
million. The outstanding principal amount of all Revolving Credit Loansrevolving credit loans may not
exceed $150$150.0 million for at least 30 consecutive days during any calendar year.
The revolving credit facility matures on June 30, 2005.
PREPAYMENTS
40
44
Loans may be prepaid and commitments may be reduced in certain specified minimum
amounts, and prepayment fees will be payable with respect to optional
prepayments.amounts. Optional prepayments of the Term Loansterm loans shall be applied pro rata to the
threetwo tranches thereof ratably to the respective installments thereof. As long as
any Tranche A Term Loansterm loans are outstanding, each holder of Tranche B Term
Loans and Tranche C Term Loansterm loans
shall have the right to refuse all or any portion of such prepayment allocated
to it, and the amount so refused will be applied to repay the Tranche A Term Loans.term
loans. Optional prepayments of the Term Loansterm loans may not be reborrowed.
The New Credit Facilitycredit facility also provides for mandatory prepayments in certain specified
events and in certain specified percentages, including (a) depending upon our
leverage ratio at the applicable time, 50% of the net proceeds of any sale or
issuance of equity, and(b) 100% of the net proceeds of any incurrence of
indebtedness subject to certain specified exceptions, (b)not currently expressly permitted by the credit facility, (c) 100%
of the net proceeds of any sale or other disposition of any assets, subject to
certain exceptions, and (c)(d) 75% of excess cash flow, subject to reductions as
specified if certain Leverage Ratiosleverage ratios are met.
INTEREST
A pricing grid establishes various interest rate options on the Revolving Credit
Facilityrevolving credit
facility and the Tranche A Loans, the Tranche B Term Loans and the Tranche C
Term Loans, respectively,term loans and is based upon the Leverage Ratioleverage ratio as determined
by theour consolidated financial statements of the Company and its Subsidiaries.statements. The interest rate options include a
LIBOR option, and a base rate determined by a calculation which takes into
effect the Prime Rate,prime rate, the Basebase CD Rate,rate, and the Federal Funds Effective Rateeffective rate in
effect as of any date of determination.
GUARANTIES
The CompanyScotts executed an unconditional guaranty (the "Scotts Guaranty") of all of the indebtedness and
obligations under the New Credit Facilitycredit facility incurred by the
Company and all of the Subsidiary Borrowers.its subsidiary borrowers.
Additionally, most of theour domestic direct and indirect subsidiaries of the Company executed
a guaranty of the
Scotts Guaranty. Offshoreguaranties as well. Our offshore indirect subsidiaries of the Company did not execute any
guaranties under the New Credit Facility.guaranties.
COLLATERAL
The CompanyScotts and all of its domestic subsidiaries pledged substantially all of their
personal property assets to secure the indebtedness and obligations under the
New Credit Facility.credit facility. Additionally, the CompanyScotts and its domestic subsidiaries pledged any
real property assets having a value in excess of $500,000. The
CompanyScotts and its
domestic subsidiaries pledged primarily all of their intellectual property
assets as well. The CompanyScotts and its direct and indirect subsidiaries also pledged
primarily all of the stock which each such entity owned in its own respective
subsidiaries, except to the extent where any such pledge was limited by laws of
a foreign country, or would have resulted in adverse tax consequences to the Company or any of its Subsidiaries.consequences.
35
COVENANTS
The New Credit Facilitycredit facility contains standard negative covenants, including covenants
which impose limitations on theour ability of the Company and its
Subsidiaries to, among other things, (a) place liens
on property, or incur contingent obligations, (b) sell all or substantially all
of theirour assets, and (c) make any fundamental changes, or acquisitions,
investments, loans or advances, except for acquisitions in an amount not to
exceed $100$225.0 million without consent. The New Credit Facilitycredit facility also contains
financial covenants consisting of the maintenance of a specified Leverage Ratio, a specified
Consolidated Net Worth,leverage ratio
and an Interest Coverage Ratio,interest coverage ratio, over the life of the New
Credit Facility.credit facility. These
financial covenants are based upon operating performance levels in effect
throughout the term of the New Credit Facility.
41
45
THE EXCHANGE OFFER
GENERAL
Pursuant to the Exchange Offer,credit facility.
OUTSTANDING 8.625% SENIOR SUBORDINATED NOTES
In January 1999, we will offer to the holdersissued $330 million aggregate principal amount of Original Notes
who are able to make the representations described below the opportunity to8.625%
Series A senior subordinated notes due 2009. The originally issued notes were
exchanged for new 8.625% Series B senior subordinated notes due 2009 in an
exchange their Original Notes for Exchange Notes. We may be required to file a
shelf registration statement with the Commission to cover resales of Original
Notes in the following circumstances:
- if we are not permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or
Commission policy; or
- if any holder of Original Notes notifies us within the specified
time period that (A) due to a change in law or policy the holder
is not entitled to participate in the Exchange Offer, (B) due to
a change in law or policy the holder may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this Prospectus is not appropriate or
available for a resale by the holder or (C) the holder is a
broker-dealer and owns Original Notes acquired directly from us
or one of our affiliates.
If we are required to file a shelf registration statement, we will use our
reasonable best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission.
For purposes of this discussion, "Transfer Restricted Notes" means each Original
Note until:
- the date on which the holder of the Original Note receives an
Exchange Note in the Exchange Offer;
- in the case of broker-dealers, the date on which an Exchange Note
held by the broker-dealer is sold to a purchaser who receives
from the broker-dealer a copy of this Prospectus;
- the date on which an Original Note has been effectivelyoffering registered under the Securities Act and disposed ofthat was completed in
accordance
with a shelf registration statement; or
- the date on which an Original Note is distributed2001. The outstanding 8.625% Series B senior subordinated notes due 2009 are
identical to the public
pursuant to Rule 144 under the Securities Act.
Under existing Commission interpretations, the Exchange Notes would, in general,
be freely transferable after the Exchange Offer without further registration
under the Securities Act. In the case of broker-dealers participating in the
Exchange Offer, a prospectus meeting the requirements of the Securities Act must
be delivered upon resale of the Exchange Notes by the broker-dealer. For 180
days after consummation of the Exchange Offer, we have agreed to make available
a prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any resale of any Exchange Notes acquired in the
Exchange Offer. A broker-dealer which delivers a prospectus to purchasers in
connection with resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of the Original Notes who wishes to receive Exchange Notes in the
Exchange Offer will be required to make the following representations:
- any Exchange Notes to be received by the holder will be acquired
in the ordinary course of its business;
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46
- the holder has no arrangement with any person to participate in
the distribution of the Exchange Notes; and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or, if it is an affiliate, it will
comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will also be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
Unless the Exchange Offer would not be permitted by applicable law or Commission
policy, we have agreed to use our reasonable best efforts to have the
Registration Statement of which this Prospectus is a part declared effective by
the Commissionoriginal notes issued on or prior to 270 days after the closing of the offering of the
Original Notes. We will commence the Exchange Offer and use reasonable best
efforts to issue, on or prior to 30 business days after the date on which the
Exchange Offer registration statement was declared effective by the Commission,
Exchange Notes in exchange for all Original Notes tendered prior thereto in the
Exchange Offer. If necessary, the Company will file a shelf registration
statement prior to 30 days after such filing obligation arises and to cause the
shelf registration statement to be declared effective by the Commission on or
prior to 90 days after such obligation arises. The Company will use its
reasonable best efforts to keep any shelf registration statement continuously
effective, supplemented and amended until the second anniversary of the closing
of the offering of the Original Notes or such shorter period that will terminate
when all the Transfer Restricted Notes covered by the shelf registration
statement have been sold pursuant thereto
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes which are not exchanged for Exchange Notes pursuant to the
Exchange Offer and are not included in a resale prospectus will remain Transfer
Restricted Notes. Transfer Restricted Notes may be offered, sold or otherwise
transferred prior to the date which is two years after the later of the date of
original issue and the last dateFebruary 6, 2002, except that the
Company or any affiliate of the
Company was the owner of the Transfer Restricted Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registration statement which has been declared effective under
the Securities Act, (c) for so long as the Original Notes are eligible for
resale pursuant to Rule 144A, to a person the owner reasonably believes is a
qualified institutional buyer that purchases for its own account or for the
account of a qualified institutional buyer to whom notice is given that the
transfer is being made in reliance to Rule 144A, (d) to an "accredited investor"
within the meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule
501 under the Securities Act that is purchasing for his own account or for the
account of such an "accredited investor" in each case in a minimum of Original
Notes with a purchase price of $500,000, or (c) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
its property or the property of such investor account or accounts be at all
times within its or their control. These restrictions on resale will not apply
after the Resale Restriction Termination Date. If any resale or other transfer
of the Original Notes is proposed to be made pursuant to clause (d) above prior
to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee to the Company and the Trustee, which shall provide,
among other things, that the transferee is an "accredited investor" within the
meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under
the Securities Act and that it is acquiring the Original Notes for investment
purposes and not for distribution in violation of the Securities Act. Prior to
any offer, sale or other transfer of Original Notes prior to the Resale
Restriction Termination Date pursuant to clauses (d) or (e) above, the issuer
and the Trustee may require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to each of them.
TERMS OF THE EXCHANGE OFFER
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Upon the terms and subject to the conditions set forth in this Prospectus and in
the Letter of Transmittal, the Company will accept any and all Original Notes
validly tendered and not withdrawn prior to the Expiration Date. The Company
will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of Original Notes accepted in the Exchange Offer. Holders may
tender some or all of their Original Notes pursuant to the Exchange Offer.
However, Original Notes may be tendered only in integral multiples of $1,000
principal amount.
The form and terms of the Exchange Notes are the same as the form and terms of
the Original Notes, except that (i) the Exchange Notesoutstanding 8.625% Series B senior subordinated notes due 2009 have been
registered under the Securities Act and therefore will not bear legends restricting their
transfer pursuant to the Securities Act, and (ii) the holders of Exchange Notes
will not be entitled to rights under the Registration Rights Agreement (except
under certain limited circumstances).Act. The Exchange Notes will evidence the same
debt as the Original Notes (which they replace), andoutstanding 8.625% Series B senior
subordinated notes due 2009 will be issued under, and
be entitled to the benefits of, the Indenture.
Solely for reasons of administration (and for no other purpose) the Company has
fixed the close of business on , 1999 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered holder
of Original Notes (or the holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of the Original Notes entitled to participate in the Exchange
Offer.
Holders of the Original Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Ohio or under the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if it has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of the
Original Notes for purposes of receiving the Exchange Notes.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned
without expense to the tendering holder thereof as promptly as practicable after
the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respectidentical to the exchange of the Original
Notes pursuant to the Exchange Offer. We will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time on , 1999,
unless the Company extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which such Exchange
Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, prior to 9:00 a.m., New York City time, on the next
Business Day after the previously scheduled Expiration Date.
We reserve the right, in our sole discretion, (i) to delay accepting any
Original Notes, (ii) extend the Exchange Offer, (iii) if the condition set forth
below under "-- Conditions of the Exchange Offer" shall not have been
satisfied, to terminate the Exchange Offer, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (iv) to amend the
terms of the Exchange Offer in any manner. Any delay in acceptance,
44notes.
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extension, termination or amendment will be followed as promptly as practicable
by a public announcement. If we determine that the Exchange Offer is amended in
a manner that would constitute a material change, we will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Original Notes, and the Exchange Offer will be
extended for a period of five to ten business days, as required by law,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which we may choose to make public announcement
of any delay, extension, termination or amendment of its Exchange Offer, we
shall not have an obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release thereof to the
Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal to the Exchange Agent at the address set forth below under " --
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for the Original Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Original Notes into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Letter of Transmittal and all other
required documents must be received by the Exchange Agent at the address set
forth below under " -- Exchange Agent" prior to the Expiration Date.
The tender by a holder will constitute an agreement between the holder and us in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal applicable to such Exchange Offer.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER DOCUMENTS TO BE DELIVERED TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE APPLICABLE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Original Notes, either make appropriate arrangements to register ownership of
the Original Notes in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, must be guaranteed by an Eligible Institution (as defined below) unless the
Original Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Delivery Instructions" on the
Letter of Transmittal designated for such Original Discount Notes, or (ii) for
the account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to be
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49
guaranteed, such guarantee must be by a participant in a recognized signature
guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Original Notes listed therein, such Original Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes, with signature guaranteed by an Eligible Institution.
If a Letter of Transmittal or any Original Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should indicate their status when signing, and evidence satisfactory to
the Company, as applicable, of their authority to so act must be submitted with
the Letter of Transmittal designated for such Original Notes.
All questions as to the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of tendered Original Notes will be determined by us in
our sole discretion, which determination will be final and binding. We reserve
the absolute right to reject any and all Original Notes not properly tendered or
any Original Notes the acceptance of which would, in the opinion of our counsel,
be unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Original Notes. The interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) by us will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Original
Notes must be cured within such time as we shall determine. Although we intend
to notify holders of defects or irregularities with respect to tenders of
Original Notes issued by them, neither we, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Original Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Original Notes received by the
Exchange Agent that are not validly tendered and as to which the defects or
irregularities have not been cured or waived, or if Original Notes are submitted
in a principal amount greater than the principal amount of Original Notes being
tendered by such tendering holder, such unaccepted or non-exchanged Original
Notes will be returned by the Exchange Agent to the tendering holders (or, in
the case of Original Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such unaccepted or non-exchanged Original
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility), unless otherwise provided in the Letter of Transmittal designated for
such Original Notes, as soon as practicable following the applicable Expiration
Date.
By tendering Original Notes in the Exchange Offer, each registered holder will
represent to us that, among other things:
- the Exchange Notes to be acquired by the holder and any
beneficial owner(s) of such Original Notes ("Beneficial
Owner(s)") in connection with the Exchange Offer are being
acquired by the holder and any Beneficial Owner(s) in the
ordinary course of business of the holder and any Beneficial
Owner(s) for the holder's own account, for investment and not
with a view to or for sale in connection with any distribution of
the Exchange Notes;
- the holder and each Beneficial Owner are not participating, do
not intend to participate, and have no arrangement or
understanding with any person to participate, in a distribution
of the Exchange Notes;
- the holder and each Beneficial Owner acknowledge and agree that
(x) any person participating in an Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction
with respect to the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the Commission set
forth in no-action letters that are discussed herein under " --
Resales of the Exchange Notes," and (y) any broker-dealer that
receives Exchange Notes for its own account in exchange for
Original Notes pursuant to an Exchange Offer, where such Original
Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
deliver a prospectus in connection with any resale of such
Exchange Notes (see "Plan of
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Distribution") but by so acknowledging, the holder shall not be
deemed to admit that, by delivering a prospectus, it is an
"underwriter" within the meaning of the Securities Act;
- neither the holder nor any Beneficial Owner is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company
except as otherwise disclosed to us in writing; and
- the holder and each Beneficial Owner understands that a secondary
resale transaction described in the third clause above should be
covered by an effective registration statement containing the
selling securityholder information required by Item 507 of
Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect to
the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offer, within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing the
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Original Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal, with any required
signature guarantees and any other documents, must be transmitted to and
received by the Exchange Agent at the address set forth below under " --
Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (x) whose Original Notes are
not immediately available, or (y) who cannot deliver their Original Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the applicable Expiration Date, may effect a tender if:
- the tender is made through an Eligible Institution;
- prior to the applicable Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by mail, hand
delivery or facsimile transmission) setting forth the name and
address of the Holder, the certificate number(s) of such Original
Notes and the principal amount of the Original Notes being
tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the applicable
Expiration Date, the applicable Letter of Transmittal together
with the certificate(s) representing the Original Notes (or a
Book-Entry Confirmation) and any other documents required by the
applicable Letter of Transmittal will be delivered by the
Eligible Institution to the Exchange Agent; and
- such properly completed and executed Letter of Transmittal, as
well as the certificate(s) representing all tendered Original
Notes in proper form for transfer (or a Book-Entry Confirmation)
and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within five business days after
the applicable Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to an
Exchange Offer may be withdrawn at any time prior to the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal must
be received by the Exchange Agent at its address prior to the Expiration Date.
Any notice of withdrawal must:
- specify the name of the person who deposited the Original Notes
to be withdrawn (the "Depositor");
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- identify the Original Notes to be withdrawn (including the
certificate number or numbers and aggregate principal amount of
such Original Notes); and
- be signed by the holder in the same manner as the original
signature on the applicable Letter of Transmittal (including any
required signature guarantees).
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of notices of withdrawal in our sole discretion,
which determination shall be final and binding on all parties. Any Original
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Original Notes so withdrawn are retendered. Properly withdrawn
Original Notes may be retendered by following one of the procedures described
above under " -- Procedures for Tendering" at any time prior to the applicable
Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the prior
termination of the Exchange Offer, or which have been validly withdrawn, will be
returned to the holder thereof (unless otherwise provided in the Letter of
Transmittal), as soon as possible following the Expiration Date or, if so
requested in the notice of withdrawal, promptly after receipt by the issuer of
the Original Notes of notice of withdrawal without cost to such holder.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or the
making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in Commission policy such that there is a substantial question whether
the Exchange Offer is permitted by applicable federal law, we have agreed to
seek a no-action letter or other favorable decision from the Commission allowing
us to consummate the Exchange Offer.
If we determine that the Exchange Offer is not permitted by applicable Federal
law, we may terminate the Exchange Offer. In connection therewith we may:
- refuse to accept any Original Notes and return any Original Notes
that have been tendered by the holders thereof;
- extend the Exchange Offer and retain all Original Notes tendered
prior to the Expiration Date of the Exchange Offer, subject to
the rights of such holders of tendered Original Notes to withdraw
their tendered Original Notes; or
- waive such termination event with respect to the Exchange Offer
and accept all properly tendered Original Notes that have not
been withdrawn.
If such waiver constitutes a material change in the Exchange Offer, we will
disclose such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Original Notes, and we will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Original Notes, if the Exchange Offer would otherwise expire
during such period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as "Exchange Agent" for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of the Prospectus or of the Letter of Transmittal and other
documents should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
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State Street Bank and Trust Company
Two International Place
Fourth Floor
Boston, MA 02110
Attention: _________, Corporate Trust Department
Facsimile Transmissions: 617-664-3290
Confirm by Telephone: 617-664-5587
(ELIGIBLE INSTITUTIONS ONLY)
Delivery to other than the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by telegraph,
telephone or in person by officers and regular employees of the Company and its
affiliates.
No dealer-manager has been retained in connection with the Exchange Offer and no
payments will be made to brokers, dealers or others soliciting acceptance of the
Exchange Offer. However, reasonable and customary fees will be paid to the
Exchange Agent for its service and it will be reimbursed for its reasonable
out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will be
paid by the Company and are estimated in the aggregate to be approximately
$ . Such expenses include fees and expenses of the Exchange Agent and the
Trustee under the Indenture, accounting and legal fees and printing costs, among
others. We will pay all transfer taxes, if any, applicable to the exchange of
the Original Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The carrying values of the Original Notes are not expected to be materially
different from the fair value of the Exchange Notes at the time of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be amortized over the term of the Exchange
Notes.
RESALES OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties and provided that the holder is acquiring the Exchange Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, we believe the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be offered for resale, resold and
otherwise transferred by any holder thereof , with the following exceptions:
- broker-dealers who purchased Original Notes directly from the
Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, or
- "affiliates" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act.
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Holders of Original Notes wishing to accept the Exchange Offer must represent to
us that such conditions have been met. In the event that our belief is
inaccurate, holders of Exchange Notes who transfer Exchange Notes in violation
of the prospectus delivery provisions of the Securities Act and without an
exemption from registration thereunder may incur liability under the Securities
Act. We do not assume or indemnify holders against such liability.
All resales must be made in compliance with applicable state securities or "blue
sky" laws. Such compliance may require that the Exchange Notes be registered or
qualified in a particular state or that the resales be made by or through a
licensed broker-dealer, unless exemptions from these requirements are available.
We assume no responsibility with regard to compliance with such requirements.
EACH AFFILIATE OF THE COMPANY MUST ACKNOWLEDGE THAT SUCH PERSON WILL COMPLY WITH
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT TO
THE EXTENT APPLICABLE. EACH BROKER-DEALER THAT RECEIVES EXCHANGE NOTES IN
EXCHANGE FOR ORIGINAL NOTES HELD FOR ITS OWN ACCOUNT, AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES, MUST ACKNOWLEDGE THAT IT WILL DELIVER
A PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES. ALTHOUGH A
BROKER-DEALER MAY BE AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT,
THE LETTER OF TRANSMITTAL STATES THAT BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT. THIS PROSPECTUS, AS IT
MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER
IN CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL
NOTES.
OTHER
We may seek to acquire untendered Original Notes, to the extent permitted by
applicable law, in open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. We have no present plans to acquire any
Original Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Original Notes.
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under the
subheading "Certain Definitions." In this description, the word "Company" referswords "Company,"
"Issuer," "Scotts," "us," "we" and "our" refer only to The Scotts Company and
not to any of its subsidiaries.
The Company issued the Originaloriginal Notes, and will issue the Exchange Notes to be delivered
in the exchange offer, under the Indenture dated as of January 21, 1999 (the
"Indenture") among itself, the Guarantors and State Street Bank and Trust
Company, as trustee (the "Trustee").
References in a private transaction that is not subject
to the registration requirements of the Securities Act. In 1999, $330 million
aggregate principal amount of notes were issued under the Indenture. The Notes
include bothare pari passu with the Original Notesoutstanding notes and are identical in all respects,
except that the Exchange Notes.outstanding notes have been registered under the Securities Act.
Each reference to "Issue Date" means January 21, 1999, and as a result we have
indicated, in the relevant clauses, the dollar amount of baskets that have been
used in the prior transaction, or the amount available for future application.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act").
The following description is a summary of the material provisions of the
Indenture, and the Registration Rights Agreement, including the definitions therein of certain terms used below. It
does not restate those agreements in their entirety. We urge you to read the
Indenture and the Registration Rights
Agreement because they,it, and not this description, definedefines your rights as holders
of these Notes. Copies of the Indenture and the Registration Rights Agreement
are available as set forth below under
"Additional Information."Where you can find more information."
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
The Notes
The Exchange Notes will be issued solely in exchange for an equal principal
amount of Original Notes pursuant to the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes and both series of Notes
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will be entitled to the benefits of the Indenture and treated as a single class
of debt securities. The terms of the Exchange Notes will be the same as the
Original Notes, except that:
- the Exchange Notes will be registered under the Securities Act
and, therefore, will not bear legends restricting transfer; and
- the Exchange Notes will not be entitled to the benefits of the
Registration Rights Agreement.
Holders of Original Notes who do not exchange their Original Notes for Exchange
Notes will vote together with holders of the Exchange Notes for all relevant
purposes under the Indenture.
All of theTHE NOTES
These Notes:
- are general obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Debt of the Company; and
- are senior in right of payment to any future junior subordinated
Indebtedness of the Company.
THE GUARANTEES
These Notes will beare guaranteed by all of the existing and future Wholly Owned
Domestic Restricted Subsidiaries and Significant Domestic Restricted
Subsidiaries of the Company.
The Guarantees of these Notes:
- are general obligations of each Guarantor;
- are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor; and
- are senior in right of payment to any future junior subordinated
Indebtedness of each Guarantor.
Assuming we had completedAs of March 30, 2002, on an as adjusted basis to give effect to the offering of
the Originaloriginal Notes, as of April 3,
1999, and that the Transactions and the Credit Facility had been completed on
that date, the Company and the Guarantors would have had total Senior
Debt of approximately
$_______37
$593.0 million. As indicated above and as discussed in detail below under the
subheading "Subordination," payments on the Notes and under the Guarantees will
be subordinated to the payment of Senior Debt. The Indenture permits us and the
Guarantors to incur additional Senior Debt. As of the date hereof, all of our
subsidiaries are "Restricted Subsidiaries." However, under the circumstances
described below under the subheading "Certain Covenantscovenants -- Restricted Payments,payments,"
we are permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries are not subject to many of the
restrictive covenants in the Indenture. Unrestricted Subsidiaries will not
guarantee these Notes. Not all of our "Restricted Subsidiaries" guarantee the
Notes. In the event of a bankruptcy, liquidation or reorganization of any of
these non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debt and their trade creditors before they will be able to
distribute any of their assets to us. The non-guarantor subsidiaries generated
approximately 19%
(or 23% on a pro forma basis)23.5% of our consolidated revenues and 11.7% of our consolidated
EBITDA for the year ended September 30, 19982001 and held approximately 26% (or 25% on a pro forma basis)26.9% and
27.3% of our consolidated assets as of September 30, 1998.2001 and March 30, 2002,
respectively. They did not represent a positive percentage of our operating
income or earnings before taxes. See note 2123 of the notes to our Consolidated Financial Statements that areconsolidated
financial statements in our Form 10-K for the fiscal year ended September 30,
2001, which is incorporated by reference into this prospectus, for more detail
about the division of our consolidated revenues and assets between our guarantor
and non-guarantor subsidiaries.
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55As of the date of this prospectus, the following subsidiaries are Guarantors of
these Notes:
Scotts Manufacturing Company
Miracle-Gro Lawn Products, Inc.
OMS Investments, Inc.
Hyponex Corporation
EarthGro, Inc.
Scotts Products Co.
Scotts Professional Products Co.
Scotts Temecula Operations, LLC
Scotts-Sierra Horticultural Products Company
Scotts-Sierra Crop Protection Company
Scotts-Sierra Investments, Inc.
Swiss Farms Products, Inc.
PRINCIPAL, MATURITY AND INTEREST
The Indenture provides that the Company may issue Notes with a maximum aggregate
principal amount of up to $400 million, of which $330$70 million is represented by
the Notes. As discussed above, $330 million aggregate principal amount of notes
was previously issued under the Indenture. The Notes are issued only in
denominations of $1,000 and integral multiples of $1,000. The Notes will mature
on January 15, 2009.
Interest on the Notes will accrueaccrues at the rate of 8.625% per annum andfrom February 6,
2002, the date these Notes were issued (not the original Issue Date). Interest
is payable semi-annually in arrears on January 15 and July 15, commencing on
July 15, 1999.2002. The Company will make each interest payment to the Holders of
record of the Notes on the immediately preceding January 1 and July 1.
38
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Company, the Company
will make all principal, premium and interest and Liquidated Damages, if any,
payments on the Notes owned by such Holder in accordance with those
instructions. All other payments on these Notes will be made at the office or
agency of the Paying Agent and Registrar within the City and State of New York
unless the Company elects to make interest payments by check mailed to the
Holders at their address set forth in the register of Holders.
We will pay principal of, premium, if any, and interest on, Notes in global form
registered in the name of The Depository Trust Company or its nominee in
immediately available funds to The Depository Trust Company or its nominee, as
the case may be, as the registered holder of such global Notes.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee is currently the Paying Agent and Registrar. The Company may change
the Paying Agent or Registrar without prior notice to the Holders of the Notes,
and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed. The
registered Holder of a Note will be treated as the owner of it for all purposes.
SUBSIDIARY GUARANTEES
The Guarantors jointly and severally guarantee the Company's obligations under
the Notes. Each Subsidiary Guarantee is subordinated to the prior payment in
full of all Senior Debt of that Guarantor. The obligations of each Guarantor
under its Subsidiary Guarantee are limited as necessary to prevent that
Subsidiary Guarantee from constituting a fraudulent conveyance under applicable
law.
See "Risk Factors -- Fraudulent Conveyance Matters."
A Guarantor may not sell or otherwise dispose of all or substantially all of its
assets, or consolidate with or merge with or into (whether or not such Guarantor
is the surviving Person), another Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
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56
(2) either:
(a) the Person acquiring the property in any such sale or disposition
or the Person formed by or surviving any such consolidation or merger
assumes all the obligations
39
of that Guarantor under its Subsidiary Guarantee pursuant to a
supplemental indenture satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation), if the Company applies the Net Proceeds of that
sale or other disposition, in accordance with the applicable provisions
of the Indenture; or
(2) in connection with any sale of all of the capital stock of a
Guarantor, if the Company applies the Net Proceeds of that sale in
accordance with the applicable provisions of the Indenture; or
(3) if the Company designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary.
See "Repurchase at the Optionoption of Holdersholders -- Asset Sales.sales."
Notwithstanding the foregoing, any Guarantor may sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge into,
the Company or another Guarantor, upon the consummation of which the Subsidiary
Guarantee of such Guarantor shall be released.
SUBORDINATION
The payment of principal, premium, interest and Liquidated Damages, if any, on
the Notes will be subordinated to the prior payment in full of all Senior Debt
of the Company.
The holders of Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the Holders of Notes will be entitled to receive any payment
with respect to the Notes (except that Holders of Notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"Legal Defeasancedefeasance and Covenant Defeasance"covenant defeasance"), in the event of any distribution to
creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the Notes (except in
Permitted Junior Securities or from the trust described under " --"-- Legal
Defeasancedefeasance and Covenant Defeasance"covenant defeasance") if:
(1) payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
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57
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated
Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest and
Liquidated Damages, if any, on the Notes that have come due have been
paid in full in cash.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived
for a period of not less than 18090 days.
The Company must promptly notify holders of Senior Debt if payment of the Notes
is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of the Company, Holders of these Notes
may recover less ratably than creditors of the Company who are holders of Senior
Debt.
See "Risk Factors -- Subordination."
OPTIONAL REDEMPTION
During the first 36 months after the Issue Date, the Company may on any one or
more occasions redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 108.625% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of one or
more public equity offerings; provided that:
(1) at least 65% of the aggregate principal amount of Notes remains
outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company and its Subsidiaries); and
(2) the redemption must occur within 90 days of the date of the closing of
the public equity offering.
Except pursuant to the preceding paragraph, theThe Notes will not be redeemable at the Company's option prior to January 15,
2004. After January 15, 2004, the Company may redeem all or a part of these
Notes upon not less than 30 nor more than 60 days'days notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on January 15 of the years indicated below:
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Year Percentage- -------------------------------------------------------------------------
YEAR PERCENTAGE
- -------------------------------------------------------------------------
2004..........................................................2004........................................................ 104.313%
2005..........................................................2005........................................................ 102.875%
2006..........................................................2006........................................................ 101.438%
2007 and thereafter........................................... 100.00%thereafter......................................... 100.000%
- -------------------------------------------------------------------------
41
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's Notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Company will offer a Change
of Control Payment in cash equal to 101% of the aggregate principal amount of
Notes repurchased plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the Change of Control Payment Date specified in such
notice, pursuant to the procedures required by the Indenture and described in
such notice. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Notes required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
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59
The Company's outstanding Senior Debt currently prohibits the Company from
purchasing any Notes, and also provides that certain change of control events
with respect to the Company would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek the
consent of its senior lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, likely constitute a default under such Senior Debt. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a Change
of Control if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The Company will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of, as determined in good faith by the Company's Board
of Directors; and
(2) either:
(a) the Company (or the Restricted Subsidiary, as the case may be)
issues Equity Interests or transfers assets in an exchange in
connection with which the Company receives an opinion of counsel that
such exchange should qualify under the provisions of Section 351 or
Section 368 of the United States Internal Revenue Code of 1986, as
amended; or
(b) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following
shall be deemed to be cash:
(i) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than
43
contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any Subsidiary Guarantee) that are
assumed by the transferee of any such assets; and
(ii) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that
within 90 days are converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received in that
conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds at its option:
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60
(1) to repay Senior Debt (and to effect a corresponding commitment
reduction if such Senior Debt is revolving credit borrowings);
(2) to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Related Business;
(3) to make a capital expenditure; and/or
(4) to acquire other long-term assets that are used or useful in a
Related Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding paragraph will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $10.0 million, the Company will make an Asset
Sale Offer to all Holders of Notes and all holders of other Indebtedness that is
pari passu with the Notes containing provisions similar to those set forth in
the Indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of Notes and such other
pari passu Indebtedness that may be purchased out of the Excess Proceeds. The
offer price in any Asset Sale Offer will be equal to 100% of principal amount
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and such other pari passu Indebtedness tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and such other pari passu Indebtedness to be purchased on a pro
rata basis as set forth below. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the Trustee will
select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
44
No Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
IMPORTANTCERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
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61
(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the
Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct
or indirect parent of the Company, in each case held by Persons other
than the Company or a Restricted Subsidiary of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except a payment
of interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption " --"-- Incurrence of
Indebtednessindebtedness and Issuanceissuance of Preferred Stock"preferred stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the
45
Indenture (excluding Restricted Payments permitted by clause (2), (3),
(4) or (5) of the next succeeding paragraph), is less than the sum,
without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from January 3, 1999 to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit); plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of the Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of the Company); plus
(c) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Restricted Investment; plus
(d) $25 million.
According to the Company's calculations, the Company could have made Restricted
Payments in the amount of $81.8 million under this covenant as of March 30,
2002.
So long as no Default has occurred and is continuing or would be caused thereby,
the preceding provision will not prohibit:
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62
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition (including the payment of any accrued and unpaid interest,
premium or consent fee, if any, in connection therewith) of the Company's
9 7/8% Senior Subordinated Notes due 2004 (none of which remain
outstanding) or of any of the outstanding 8.625% Senior Subordinated
Notes due 2009, the Notes or Exchange Notes;
(3) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any of its
Restricted Subsidiaries or any Equity Interests of the Company or any of
its Restricted Subsidiaries in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(3)(b) of the preceding paragraph;
(4) the redemption, repurchase, retirement, defeasance or other
acquisition of subordinated Indebtedness or Disqualified Stock of the
Company or any of its Restricted Subsidiaries with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness;
46
(5) the payment of any dividend by the Company to holders of its Class A
Convertible Preferred Stock; and
(6) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary
of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 million in any
twelve-month period.
The amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined in good faith by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee. Not later
than the date of making any Restricted Payment other than payments pursuant to
paragraphs (2), (3), (4), (5) or (6) of this covenant, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this "Restricted Payments"payments" covenant were computed.
Notwithstanding the foregoing, if any payment is made pursuant to the second
paragraph of this covenant and at the time of such payment there was a Default
(other than any Default caused thereby) that had occurred and was continuing,
then such payment shall not cause a Default under this covenant if the
pre-existing Default shall have been cured or waived prior to such Default
becoming an Event of Default.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if the designation would not cause a Default. All
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the designated Unrestricted Subsidiary will be treated as an Investment made at
the time of the designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant or Permitted Investments, as
applicable. All such outstanding Investments will be treated as Restricted
Investments equal to the fair market value of such Investments at the time of
the designation. The designation will not be permitted if such Restricted
Payment would not be permitted at that time and if such Restricted Subsidiary
does not otherwise meet the definition of an Unrestricted Subsidiary. The Board
of Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the
Company will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries that is not a Guarantor to issue any shares of preferred
stock; provided, however, that the Company and any Restricted Subsidiary may
incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and
the Company's Restricted Subsidiaries may issue preferred stock, if the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements
47
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock or preferred stock is issued
would have been at least 2.0 to 1.0, determined on a pro forma basis (including
a pro forma application of the net proceeds therefrom) as if the additional
Indebtedness had been incurred, or the Disqualified Stock or preferred stock had
been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness and letters of credit under the Credit Facility in an
aggregate principal amount (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and its Restricted Subsidiaries thereunder) not to exceed an amount equal
to $1.125 billion, including all Permitted Refinancing Indebtedness
incurred pursuant to clause (5) of this paragraph to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (1), less the
aggregate amount of all Net Proceeds of Asset Sales applied by the
Company or any of its Restricted Subsidiaries to repay term Indebtedness
under the Credit Facility or to reduce commitments with respect to
revolving credit borrowings under the Credit Facility pursuant to the
covenant described above under the caption "Repurchase at the Optionoption of
Holdersholders -- Asset Sales"sales";
(2) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes, the Subsidiary Guarantees, the Exchange Notes
and the Guarantees thereof;
(4) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, or in respect of a
sale and leaseback transaction, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred pursuant to
clause (5) of this paragraph to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed $20.0
million at any time outstanding;outstanding (according to the Company's calculations,
the Company may utilize $16.9 million of this $20.0 million basket as of
March 30, 2002);
(5) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace, Indebtedness
(other than intercompany Indebtedness) that is either Existing
Indebtedness or that was permitted to be incurred by the Indenture;
(6) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness, and such Indebtedness is held by a Restricted Subsidiary
that is not a Guarantor, such Indebtedness must be expressly
subordinated 60
64
to the prior payment in full in cash of
48
all Obligations with respect to the Notes, in the case of the Company,
or the Subsidiary Guarantee of such Guarantor, in the case of a
Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging (1)(a) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding or (2)(b) exchange rate risk or raw materials price risk;
(8) the guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(9) the shares of Class A Convertible Preferred Stock outstanding as of
the date of the Indenture;
(10)the incurrence by any of the Company's Foreign Subsidiaries of
Indebtedness in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred pursuant to clause (5) of this
paragraph to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (10), not to exceed $60.0 million at any time
outstanding;outstanding (according to the Company's calculations, the Company may
utilize $44.2 million of this $60.0 million basket as of March 30, 2002);
(11)the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with
respect to the Company and its other Restricted Subsidiaries (except for
Standard Securitization Undertakings); and
(12)the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (12), not to exceed $40.0
million.million (according to the Company's calculations, the Company may utilize
the full amount of this $40.0 million basket as of the date of this
prospectus).
For purposes of determining compliance with this "Incurrence of Indebtednessindebtedness and
Issuanceissuance of Preferred Stock"preferred stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (12) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company will be permitted
to classify such item of Indebtedness on the date of its incurrence (or later
reclassify such Indebtedness in whole or in part) in any manner that complies
with this covenant. In addition, the accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be treated as an incurrence of
Indebtedness; provided, in each such case, that the amount thereof is included
in Fixed Charges of the Company as accrued. Notwithstanding the foregoing, any
Indebtedness outstanding
49
pursuant to the Credit Facility on the date of the Indenture will be deemed to
have been incurred pursuant to clause (1) of the definition of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
The Company will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Debt of the Company and senior in any respect in right of payment to
the Notes. No Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any
61
65 Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of such Guarantor and senior in any respect
in right of payment to such Guarantor's Subsidiary Guarantee.
LIENS
The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, (1) assign or convey any right to receive income on any asset now
owned or hereafter acquired or (2) create, incur, assume or suffer to exist any
Lien of any kind securing Indebtedness, Attributable Debt or trade payables on
any asset now owned or hereafter acquired or on any income or profits therefrom
except Permitted Liens, unless the Notes and the Guarantees, as applicable, are
either (i) secured by a Lien on such property, assets, income or profits that is
senior in priority to the Lien securing such other Obligations, if such
Obligations are subordinated in right of payment to the Notes and/or the
Guarantees or (ii) equally and ratably secured by a Lien on such property,
assets, income or profits with the Lien securing such other Obligations, if such
Obligations are pari passu in right of payment with the Notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of the Company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Company or any of the
Company Restricted Subsidiaries;
(2) make loans or advances to the Company or any of the Company's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of the
Company's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the Indenture and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness,
as in effect on the date of the Indenture;
(2) the Indenture, the Notes and the Guarantees;
50
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in
the case of Indebtedness, such Indebtedness was permitted by the terms of
the Indenture to be incurred;
(5) customary non-assignment provisions in leases, licenses, contracts
and other agreements entered into in the ordinary course of business and
consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired
of the nature described in clause (3) of the preceding paragraph;
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66
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "
--"-- Liens" that limit the right of the Company or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(10)provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(11)customary provisions under Indebtedness of any Foreign Subsidiary
permitted to be incurred under the Indenture;
(12)restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(13)restrictions created in connection with a Qualified Securitization
Transaction.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not the Company is the surviving corporation);
or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is
51
a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes, the Indenture and the
Registration Rights Agreement pursuant to agreements reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger entered into solely for the purpose of
reincorporating the Company or any Restricted Subsidiary in another
jurisdiction, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) will, on the date of
such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above
under the caption " --"-- Incurrence of Indebtednessindebtedness and Issuanceissuance of
Preferred Stock.preferred stock."
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation,consolidation or Salesale of
Assets"assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Company and any of its
Wholly-Owned Restricted Subsidiaries.
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67
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$3.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
52
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, consulting or similar agreement (including any loan,
but not any forgiveness thereof) entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business or any
payment of directors' and officers' insurance premiums;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of the Company;
(4) dividends on or any repurchases of any shares of any series or class
of equity securities of the Company;
(5) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption " --"-- Restricted Payments."payments";
(6) any merger between or among the Company or any of its Restricted
Subsidiaries solely for the purpose of reincorporating the Company or
such Restricted Subsidiary in another jurisdiction for tax purposes; and
(7) transactions in connection with a Qualified Securitization
Transaction or an industrial revenue bond financing.
ADDITIONAL SUBSIDIARY GUARANTEES
If, after the date of the Indenture, the Company or any of its Wholly Owned
Domestic Restricted Subsidiaries acquires or creates another Wholly Owned
Domestic Restricted Subsidiary or a Significant Domestic Restricted Subsidiary,
including any other Domestic Restricted Subsidiary that at any time becomes a
Wholly Owned Domestic Restricted Subsidiary or a Significant Domestic Restricted
Subsidiary, then that newly acquired or created Wholly Owned Domestic Restricted
Subsidiary or Significant Domestic Restricted Subsidiary will, within 10
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68
Business Days of the date on which it was acquired or created, execute a
supplemental indenture or other instrument evidencing its Subsidiary Guarantee,
in either case in form satisfactory to the Trustee, and deliver an Opinion of
Counsel to the Trustee.
SALE AND LEASEBACK TRANSACTIONS
The Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company and any
Restricted Subsidiary may enter into a sale and leaseback transaction if:
(1) the Company or such Restricted Subsidiary, as applicable, could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described
above under the caption " --"-- Incurrence of Additional Indebtednessadditional indebtedness and
Issuanceissuance of Preferred Stock"preferred stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption
" --"-- Liens"; provided that the Lien to secure such Indebtedness does not
extend to or cover any assets of the Company or such Restricted
Subsidiary other than the assets which are the subject of the sale and
leaseback transaction;
53
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors, of the property that is the subject of such sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
"Repurchase at the Optionoption of Holdersholders -- Asset Sales.sales."
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, pay or cause to be paid any consideration to or for the benefit
of any Holder of Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes unless
such consideration is offered to be paid and is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the Commission, so long as any Notes are outstanding,
the Company will furnish to the Holders of Notes, within the time periods
specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the Commission, the Company will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
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69
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes, whether or not prohibited
by the subordination provisions of the Indenture;
(2) default in payment when due of the principal of or premium, if any,
on the Notes, whether or not prohibited by the subordination provisions
of the Indenture;
(3) failure by the Company or any of its Subsidiaries for 30 days after
notice to comply with the provisions described under the captions
"Repurchase at the Optionoption of Holdersholders -- Change of Control,control," "Repurchase
at the Optionoption of Holdersholders -- Asset Sales,sales,"
54
"Certain Covenantscovenants -- Restricted Payments"payments" or "Certain
Covenantscovenants -- Incurrence of Indebtednessindebtedness and Issuanceissuance of Preferred Stock"preferred stock";
(4) failure by the Company or any of its Subsidiaries for 60 days after
notice to comply with any of the other agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, if that
default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10.0 million or more;
(6) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, any Subsidiary Guarantee(s) of
any Guarantor that is a Significant Subsidiary or of any group of
Guarantors that collectively would constitute a Significant Subsidiary
shall be held in any judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect or any
Guarantor that is a Significant Subsidiary or any group of Guarantors
that collectively would constitute a Significant Subsidiary, or any
Person acting on behalf of any such Guarantor or group of Guarantors,
shall deny or disaffirm the obligations of each such Guarantor under its
Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Subsidiary that is a Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
immediately without further action or notice. If any other Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately.
66
70
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
55
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest, on, or the principal of, premium and Liquidated Damages, if any, on the
Notes.
In the case of any Event of Default occurring by reason of any willful action or
inaction taken or not taken by or on behalf of the Company with the intention of
avoiding payment of the premium that the Company would have had to pay if the
Company then had elected to redeem the Notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes. If an Event of Default occurs prior to January 15, 2004, by reason
of any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to January 15, 2004, then the premium specified in the Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company or
any Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantors under the Notes, the Indenture, the Subsidiary
Guarantees, the Registration Rights Agreement Agreements or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. The waiver may
not be effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages, if any, on such Notes when such payments are due from the trust
referred to below;
(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
6756
71
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest and Liquidated Damages, if any, on the outstanding
Notes on the stated maturity or on the applicable redemption date, as the
case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an Opinion of Counsel
to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
57
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(8) the Company must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
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AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the
caption "Repurchase at the Optionoption of Holders"holders");
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the
caption "Repurchase at the Optionoption of Holders"holders"); or
(8) make any change in the preceding amendment and waiver provisions,
except as set forth below.
In addition, any amendment to, or waiver of, the provisions of the Indenture
relating to subordination that adversely affect the rights of the Holders of the
Notes will require the consent of the Holders of at least 75% in aggregate
principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
58
(3) to provide for the assumption of the Company's obligations to Holders
of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder;
(5) to add any Person as a Guarantor; and
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
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If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that in case an Event of Default shall occur
and be continuing, the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the Indenture
and Registration Rights Agreement without charge by writing to The Scotts
Company, 14111 Scottslawn Road, Marysville, Ohio 43041, Attention: Treasurer.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, Notes were, and will be, issued in registered, global
form in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof.
The Original Notes are represented by two permanent Notes in registered, global
form without interest coupons (the "Original Global Notes"), and the Exchange
Notes will be represented by two, permanent Notes in registered, global form
without interest coupons (the "Exchange Global Notes" and, together with the
Original Global Notes, the "Global Notes"). The Original Global Notes are, and
the Exchange Global Notes will be, registered in the name of The Depository
Trust Company ("DTC"), in New York, New York, or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
Except as set forth below, the Global Notes may be transferred, in whole and not
in part, only to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the Global Notes may not be exchanged for Notes in
certificated form except in the limited circumstances described below. See " --
Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Certificated Notes
(as defined below). In addition, transfers of beneficial interests in the Global
Notes will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those of Euroclear
and Cedel), which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear and
Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
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DTC has advised the Company that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by it
ownership of interests in the Global Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interest in the Global
Notes).
All interests in a Global Note, including those held through Euroclear or Cedel,
may be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT HAVE
NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS"
THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant security
as shown on the records of DTC unless DTC has reason to believe it will not
receive payment on such payment date.
Payments by the Participants and the Indirect Participants to the beneficial
owners of Notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Trustee or the
Company. Neither the Company nor the Trustee will be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners of the
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Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest in
the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See " --Same Day Settlement
and Payment."
Transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance with
the rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be taken
by a Holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC reserves the right to exchange the
Global Notes for Notes in certificated form, and to distribute such Notes to its
Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Original Global Notes among
Participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Cedel or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered certificated
form ("Certificated Notes") if:
(1) DTC:
(a) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes and the Company thereupon fails to
appoint a successor depositary; or
(b) has ceased to be a clearing agency registered under the Exchange
Act;
(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes.
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In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with the Indenture. In all cases,
Certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to in "Transfer Restrictions," unless the Company determines otherwise
in compliance with applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial interests
in any Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes. See "Transfer Restrictions."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Notes in
certificated form, the Company will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Notes represented by the Global Notes are expected to be eligible
to trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will,
therefore, be required by DTC to be settled in immediately available funds. The
Company expects that secondary trading in any certificated Notes will also be
settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or Cedel
participant purchasing an interest in a Global Note from a Participant in DTC
will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the offering of the Original Notes, the Company, the
Guarantors and Salomon Smith Barney Inc. entered into the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company agreed to
file with the Commission the Registration Statement of which this Prospectus is
a part. Upon the effectiveness of the Registration Statement of which this
Prospectus is a part, Holders of Transfer Restricted Securities pursuant to the
Exchange Offer who are able to make certain representations will have the
opportunity to exchange their Transfer Restricted Securities for Exchange Notes.
The Company will file with the Commission a Shelf Registration Statement to
cover resales of the Notes by Holders who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration Statement
if:
(1) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy;
or
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(2) any Holder of Transfer Restricted Securities notifies the Company prior
to the 20th day following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating in
the Exchange Offer; or
(b) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns Notes acquired directly from
the Company or an affiliate of the Company.
The Company will use its reasonable best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each Note
until:
(1) the date on which such Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of a
Note for an Exchange Note, the date on which such Exchange Note is sold
to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement;
(3) the date on which the resale of such Note has been effectively
registered under the Securities Act and such Note has been disposed of
in accordance with the Shelf Registration Statement; or
(4) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Act.
The Registration Rights Agreement provides that:
(1) the Company will file an Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Closing Date;
(2) the Company will use its reasonable best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or
prior to 270 days after the Closing Date;
(3) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Exchange Offer and use
its reasonable best efforts to issue on or prior to 30 business days
after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for
all Notes tendered prior thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, the Company will
use its reasonable best efforts to file the Shelf Registration
Statement with the Commission on or prior to 30 days after such filing
obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 90 days after such
obligation arises.
The Company will pay Liquidated Damages to each Holder of Transfer Restricted
Securities if:
(1) the Company fails to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified
for such filing;
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(2) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date");
(3) the Company fails to consummate the Exchange Offer within 30 business
days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement; or
(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective
or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights (each such
event referred to in clauses (1) through (4) above a "Registration
Default").
The amount of Liquidated Damages will be $.05 per week per $1,000 principal
amount of Notes held by each Holder, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default.
Liquidated Damages will increase by $.05 per week per $1,000 principal amount of
Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages for all
Registration Defaults of $.50 per week per $1,000 principal amount of Notes. All
accrued Liquidated Damages will be paid by the Company on each Damages Payment
Date to the Global Note Holder by wire transfer of immediately available funds
or by federal funds check and to Holders of Certificated Securities by wire
transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt""ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with,
or in contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate""AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 25% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms
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"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Asset Sale""ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption
" --Change"-- Change of Control"control" and/or the provisions described above under the
caption " --Merger, Consolidation"-- Merger, consolidation or Salesale of Assets"assets" and not by the
provisions of the Asset Sale covenant; and
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(2) the issuance of Equity Interests by any of the Company's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $2.5 million; or
(b) results in net proceeds to the Company and its Subsidiaries of less
than $2.5 million;
(2) a transfer of assets (a) between or among the Company and its Wholly
Owned Restricted Subsidiaries, (b) by a Restricted Subsidiary to the
Company or any of its Wholly Owned Restricted Subsidiaries or (c) by the
Company or any of its Wholly Owned Restricted Subsidiaries to any
Restricted Subsidiary of the Company that is not a Wholly Owned
Restricted Subsidiary if, in the case of this clause (c), the Company or
the Wholly Owned Restricted Subsidiary, as the case may be, either
retains title to or ownership of the assets being transferred or receives
consideration at the time of such transfer at least equal to the fair
market value of the transferred assets;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to a Wholly Owned Restricted Subsidiary;
(4) the sale, transfer or discount of any receivables to lenders under
any Credit Facilities or to special purpose entities formed to borrow
from lenders under Credit Facilities against such receivables;
(5) a sale of assets (other than assets specified in any other clause of
this paragraph) by the Company or any of its Restricted Subsidiaries
prior to September 30, 2002, provided that (a) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the
time of each such sale at least equal to the fair market value of the
assets sold and (b) the aggregate fair market value of all such assets
sold in any fiscal year shall not exceed an amount equal to:
(i) for the Company's fiscal year ended September 30, 1999,
$25,000,000, and
(ii) for each of the Company's fiscal years ended September 30, 2000,
2001 and 2002, an amount equal to the sum of $25,000,000 plus the
difference between (A) $25,000,000 and (B) the aggregate consideration
received by the Company and its Restricted Subsidiaries for all sales
of assets (excluding assets specified in any other clause of this
paragraph) during the previous fiscal year;
(6) a Restricted Payment that is permitted by the covenant described
above under the caption " --"-- Restricted Payments"payments"; and
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(7) a disposition of inventory in the ordinary course of business or a
disposition of obsolete equipment or equipment that is no longer useful
in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in the ordinary course of business.
"Attributable Debt""ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the
time of determination, the present value of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"Beneficial Owner""BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
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"Capital Lease Obligation""CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock""CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions
of assets of, the issuing Person.
"Cash Equivalents""CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any lender party to the Credit Facility or with any
domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
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(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of
this definition.
"Change of Control""CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act) other than a
Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 30% of
the Voting Stock of the Company, measured by voting power rather than
number of shares;
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(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the consolidation or merger of the Company with or into any Person,
or the consolidation or merger of any Person with or into the Company, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, excluding any such transaction where the
Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving
or transferee Person (immediately after giving effect to such issuance).
"Class"CLASS A Convertible Preferred Stock"CONVERTIBLE PREFERRED STOCK" means 195,000 shares of the Company's 5%
Class A Convertible Preferred Stock, liquidation preference $1,000 per share,
outstanding asall of which has been converted into common shares of the Issue Date, which is redeemable at the option of the
Company at any time after May 19, 2000.
"Consolidated Cash Flow"Company.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus, without
duplication:
(1) an amount equal to any extraordinary gain or loss plus any net gain
or loss realized in connection with an Asset Sale or any other sale,
lease, conveyance or other disposition of any assets or rights (other
than sales of inventory in the ordinary course of business) in a single
transaction or in a series of related transactions that involves assets
or rights having an aggregate fair market value equal to or greater than
$2.5 million, in any such case to the extent such gains or losses were
excluded in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
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(3) consolidated net interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations but
excluding amortization of debt issuance costs), to the extent that any
such expense was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period), other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) and, in the case of
the Company and its Restricted Subsidiaries, restructuring charges
recorded in the Company's fourth fiscal quarter of fiscal 1998 in an
amount not to exceed $20.4 million in the aggregate, of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of the Company shall be added to Consolidated 78
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Net Income
to compute Consolidated Cash Flow of the Company only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders
(other than restrictions in effect on the Issue Date and other than restrictions
that are created or exist in compliance with the covenant under the caption
"Dividends and Other Payment Restrictions Affecting Subsidiaries"other payment restrictions affecting subsidiaries").
"Consolidated Net Income""CONSOLIDATED NET INCOME" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary
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or its stockholders (other than restrictions in effect on the Issue Date
and other than restrictions that are created or exist in compliance with
the covenant under the caption "Dividends and Other Payment Restrictions Affecting
Subsidiaries"other payment restrictions
affecting subsidiaries");
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified Person or one of
its Subsidiaries;
(5) restructuring charges and write-offs recorded prior to the first
anniversary of the date of the Indenture, in an aggregate amount not to
exceed $12.5 million, shall be excluded; and
(6) the cumulative effect of a change in accounting principles shall be
excluded.
"Continuing Directors""CONTINUING DIRECTORS" means, as of any date of determination, any member of the
Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the Indenture;
or
(2) nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
"Credit Facility""CREDIT FACILITY" means, with respect to the Company or any of its Restricted
Subsidiaries:
(1) that certain Credit Facility, dated as of December 4, 1998, by and
among the Company, certain of the Company's Subsidiaries, the lenders
party thereto, theJP Morgan Chase Manhattan Bank, as Administrative Agent, Salomon
Smith Barney Inc., as Syndication Agent, Credit Lyonnais Chicago Branch,
as Co-Documentation Agent and NBD Bank, as Co-Documentation Agent
providing for up to $500.0 million of revolving credit borrowings and
$525.0 million in term loans, in each case including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced from time to time; and
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(2) one or more debt facilities or commercial paper facilities, in each
case with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default""DEFAULT" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"Designated Senior Debt""DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness outstanding under the Credit Facility; and
(2) any other Senior Debt permitted under the Indenture the principal
amount of which is $10.0 million or more and that has been designated by
the Company as "Designated Senior Debt."
"Disqualified Stock"64
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible, or for which it is exchangeable,
in each case at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock.
"Domestic Restricted Subsidiary""DOMESTIC RESTRICTED SUBSIDIARY" means, with respect to the Company, any
Restricted Subsidiary that was formed under the laws of the United States of
America or any State thereof.
"Equity Interests""EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"Exclusive Agency and Marketing Agreement""EXCLUSIVE AGENCY AND MARKETING AGREEMENT" means the Exclusive Agency and
Marketing Agreement between the Company and Monsanto Company, dated as of
September 30, 1998 (as amended and restated as of November 11, 1998) as the same
may be amended, modified, restated, extended, renewed or replaced from time to
time.
"Existing Indebtedness""EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Restricted
Subsidiaries (in addition to Indebtedness under the Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges""FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated net interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations,
but excluding amortization of debt issuance costs and other non-cash
amortization; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
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(4) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock)
or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is
65
one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio""FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3)
of the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiary""FOREIGN SUBSIDIARY" means, with respect to the Company, any Subsidiary that
does not meet the definition of a Domestic Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee""GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors""GUARANTORS" means:
(1) each Wholly Owned Domestic Restricted Subsidiary of the Company on
the date of the Indenture; and
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(2) any other Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture;
and their respective successors and assigns.
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"Hedging Obligations""HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such
Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements or exchange rate or raw materials price
risk agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, in each case pursuant to any
Credit Facilities permitted pursuant to the covenant under the caption
"Incurrence of Indebtednessindebtedness and Issuanceissuance of Preferred Stock.preferred stock."
"Indebtedness""INDEBTEDNESS" means, with respect to any specified Person, without duplication,
any indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes, without duplication, all Indebtedness of others secured
by a Lien on any asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person) and, to the extent not otherwise included,
the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments""INVESTMENTS" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the forms of direct or indirect loans
(including guarantees of Indebtedness or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer
67
a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "Certain Covenantscovenants -- Restricted Payments.payments."
"Issue Date""ISSUE DATE" means the date of first issuance of the Notes under the Indenture.
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"Lien""LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income""NET INCOME" means, with respect to any Person, the net income (loss) of such
Person and its Restricted Subsidiaries, determined in accordance with GAAP and
before any reduction in respect of preferred stock dividends, excluding,
however:
(1) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with: (a) any Asset Sale or any
other sale, lease, conveyance or other disposition of any assets or
rights (other than sales of inventory in the ordinary course of business)
in a single transaction or in a series of related transactions that
involves assets or rights having an aggregate fair market value equal to
or greater than $2.5 million; or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment
of any Indebtedness of such Person or any of its Restricted Subsidiaries;
and
(2) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss; and
(3) any non-cash expenses attributable to grants or exercises of employee
stock options.
"Net Proceeds""NET PROCEEDS" means the aggregate cash proceeds received by the Company or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of
Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets
that were the subject of such Asset Sale.
"Non-Recourse Debt""NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness (other than the Notes) of the
Company or any of its Restricted Subsidiaries to declare a default on
such
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other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations""OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Investments""PERMITTED INVESTMENTS" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
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(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"Repurchase at the Optionoption of Holdersholders -- Asset Sales"sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) investments in accounts or notes receivable acquired in the ordinary
course of business;
(7) the designation of one or more Subsidiaries of the Company whose
assets and operations are exclusively related to the professional
business segment of the Company;
(8) any payment by the Company or any of its Restricted Subsidiaries
pursuant to the Exclusive Agency and Marketing Agreement; and
(9) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (9) that are at any time
outstanding, not to exceed $50.0 million.
"Permitted Junior Securities"million (according to the Company's
calculations, the Company could utilize the full amount of this basket as
of the date of this prospectus).
"PERMITTED JUNIOR SECURITIES" means: (1) Equity Interests in the Company or any
Guarantor; or (2) debt securities of the Company or any Guarantor that are
subordinated to all Senior Debt and any debt securities issued in exchange for
Senior Debt to substantially the same extent as, or to a greater extent than,
the Notes and the Subsidiary Guarantees are subordinated to Senior Debt pursuant
to Article 10 of the Indenture.
"Permitted Liens""PERMITTED LIENS" means:
(1) Liens securing Senior Debt that was permitted by the terms of the
Indenture to be incurred;
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(2) Liens in favor of the Company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Subsidiary of
the Company; provided that such Liens were not entered into in
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
the Company or the Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were
not entered into in contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
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(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"Incurrence of Indebtednessindebtedness and Issuanceissuance of Preferred Stock"preferred stock" covering
only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the Indenture;
(8) Liens on Assets of Guarantors to secure Senior Debt of such Guarantor
that was permitted by the Indenture to be incurred;
(9) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(10)Liens incurred in the ordinary course of business of the Company or
any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding; and
(11)Liens on assets of Unrestricted Subsidiaries that secure Non
Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness""PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of (or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith including premiums paid, if any, to the holders thereof);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
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(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness shall not be incurred by a Restricted Subsidiary
that is not a Guarantor to refinance debt of the Company or a Guarantor.
"Person""PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust or
unincorporated organization (including any subdivision or ongoing business of
any such entity or substantially all of the assets of any such entity,
subdivision or business).
"Principals""PRINCIPALS" means the Hagedorn Partnership, L.P., and any Partner or Affiliate
thereof or of such Partner.
"Qualified Securitization Transaction""QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (a) a Securitization Entity (in the
case of a transfer by the Company or any of its Restricted Subsidiaries) and (b)
any other Person (in case of a transfer by a Securitization Entity), or may
grant a security interest in, any accounts receivable or equipment (whether now
existing or arising or acquired in the future) of the Company or any of its
Restricted Subsidiaries, and any assets related thereto including, without
limitation, all collateral securing such accounts receivable and 85
89
equipment, all
contracts and contract rights and all Guarantees or other obligations in respect
of such accounts receivable and equipment, proceeds of such accounts receivable
and equipment and other assets (including contract rights) which are customarily
transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving accounts receivable
and equipment.
"Related Business""RELATED BUSINESS" means the business conducted (or proposed to be conducted) by
the Company and its Subsidiaries as of the Issue Date and any and all businesses
that in the good faith judgment of the Board of Directors of the Company are
reasonably related thereto.
"Related Party""RELATED PARTY" with respect to any Principal means:
(1) any controlling stockholder, 80% or more owned Subsidiary, or spouse
or immediate family member (in the case of an individual) of such
Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"Restricted Investment""RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment.
"Restricted Subsidiary""RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"Securitization Entity""SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable or equipment and related assets) that engages in no
activities other than in connection with the financing of
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accounts receivable or equipment and that is a Securitization Entity (a) no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any Restricted Subsidiary of the
Company (excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness)) pursuant to Standard Securitization Undertakings,
(ii) is recourse to or obligates the Company or any Restricted Subsidiary of the
Company in any way other than pursuant to Standard Securitization Undertakings
or (iii) subjects any property or asset of the Company or any Restricted
Subsidiary of the Company, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Restricted Subsidiary
of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
that are not Affiliates of the Company, other than fees payable in the ordinary
course of business in connection with servicing receivables of such entity, and
(c) to which neither the Company nor any Restricted Subsidiary of the Company
has any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results.
"Senior Debt""SENIOR DEBT" means:
(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto;
(2) any other Indebtedness permitted to be incurred by the Company under
the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with
or subordinated in right of payment to the Notes or the Subsidiary
Guarantees; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or owing
by the Company;
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(2) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture.
"Significant Domestic Restricted Subsidiary""SIGNIFICANT DOMESTIC RESTRICTED SUBSIDIARY" means any Domestic Restricted
Subsidiary, other than any Wholly Owned Domestic Restricted Subsidiary, that
both is a Significant Subsidiary of the Company and guarantees or otherwise
provides direct credit support for any Senior Debt of the Company.
"Significant Subsidiary""SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Standard Securitization Undertakings""STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company that are reasonably customary in an accounts receivable or equipment
transaction.
"Stated Maturity""STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any
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contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subsidiary""SUBSIDIARY" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate""TREASURY RATE" means, as of any Redemption Date, the yield to maturity as of
the Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the Redemption Date to January 15, 2004;
provided, however, that if the period from the Redemption Date to January 15,
2004 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
"Unrestricted Subsidiary""UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the
terms of any such agreement, contract, arrangement or understanding are
no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of
the Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such 87
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Person's financial condition or to cause such Person to achieve any
specified of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"Certain Covenantscovenants -- Restricted Payments.payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of
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the Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtednessindebtedness and Issuanceissuance of Preferred Stock,preferred stock," the Company shall
be in default of such covenant. The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenantscovenants -- Incurrence of Indebtednessindebtedness and Issuanceissuance
of Preferred Stock,preferred stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
If a Guarantor is designated as an Unrestricted Subsidiary, the Subsidiary
Guarantee of that Guarantor shall be released. If an Unrestricted Subsidiary
becomes a Restricted Subsidiary, such Restricted Subsidiary shall become a
Guarantor in accordance with the terms of the Indenture.
"Voting Stock""VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity""WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Domestic Restricted Subsidiary""WHOLLY OWNED DOMESTIC RESTRICTED SUBSIDIARY" means, with respect to the
Company, any Domestic Restricted Subsidiary that meets the definition of a
Wholly Owned Restricted Subsidiary.
"Wholly Owned Restricted Subsidiary""WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary
of such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned by
such Person and/or by one or more Wholly Owned Restricted Subsidiaries of such
Person.
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BOOK-ENTRY, SETTLEMENT AND CLEARANCE
THE GLOBAL NOTE
The exchange notes will be issued in the form of a registered note in global
form, without interest coupons (the "global note"). Upon issuance, the global
note will be deposited with the Trustee as custodian for The Depository Trust
Company and registered in the name of Cede & Co., as nominee of DTC.
OWNERSHIP OF BENEFICIAL INTERESTS IN THE GLOBAL NOTE WILL BE LIMITED TO PERSONS
WHO HAVE ACCOUNTS WITH DTC ("DTC PARTICIPANTS") OR PERSONS WHO HOLD INTERESTS
THROUGH DTC PARTICIPANTS. WE EXPECT THAT UNDER PROCEDURES ESTABLISHED BY DTC:
- upon deposit of the global note with DTC's custodian, DTC will credit
portions of the principal amount of the global note to the accounts of
the DTC participants designated by the initial purchasers; and
- ownership of beneficial interests in the global note will be shown on,
and transfer of ownership of those interests will be effected only
through, records maintained by DTC (with respect to interests of DTC
participants) and the records of DTC participants (with respect to other
owners of beneficial interests in the global note).
Investors may hold their interests in the global note directly through Euroclear
or Clearstream, if they are participants in those systems, or indirectly through
organizations that are participants in those systems. After the Distribution
Compliance Period ends, investors may also hold their interests in the global
note through organizations other than Euroclear or Clearstream that are DTC
participants. Each of Euroclear and Clearstream will appoint a DTC participant
to act as its depositary for the interests in the global note that are held
within DTC for the account of each settlement system on behalf of its
participants.
Beneficial interests in the global note may not be exchanged for notes in
physical, certificated form except in the limited circumstances described below.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTE
All interests in the global note will be subject to the operations and
procedures of DTC, Euroclear and Clearstream. We provide the following summaries
of those operations and procedures solely for the convenience of investors. The
operations and procedures of each settlement system are controlled by that
settlement system and may be changed at any time. We are not responsible for
those operations or procedures.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State
of New York;
- a "banking organization" within the meaning of the New York State
Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
- a "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
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DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants. DTC's
participants include securities brokers and dealers, including the initial
purchasers; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a custodial relationship with a DTC participant,
either directly or indirectly. Investors who are not DTC participants may
beneficially own securities held by or on behalf of DTC only through DTC
participants or indirect participants in DTC.
So long as DTC's nominee is the registered owner of a global note, that nominee
will be considered the sole owner or holder of the notes represented by that
global note for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in a global note:
- will not be entitled to have notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical, certificated
notes; and
- will not be considered the owners or holders of the notes under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee under the Indenture.
As a result, each investor who owns a beneficial interest in a global note must
rely on the procedures of DTC to exercise any rights of a holder of notes under
the Indenture (and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC participant through which the
investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the notes
represented by a global note will be made by the Trustee to DTC's nominee as the
registered holder of the global note. Neither we nor the Trustee will have any
responsibility or liability for the payment of amounts to owners of beneficial
interests in a global note, for any aspect of the records relating to or
payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's procedures
and will be settled in same-day funds. Transfers between participants in
Euroclear or Clearstream will be effected in the ordinary way under the rules
and operating procedures of those systems.
Cross-market transfers between DTC participants, on the one hand, and Euroclear
or Clearstream participants, on the other hand, will be effected within DTC
through the DTC participants that are acting as depositaries for Euroclear and
Clearstream. To deliver or receive an interest in a global note held in a
Euroclear or Clearstream account, an investor must send transfer instructions to
Euroclear or Clearstream, as the case may be, under the rules and procedures of
that system and within the established deadlines of that system. If the
transaction meets its settlement requirements, Euroclear or Clearstream, as the
case may be, will send instructions to its DTC depositary to take action to
effect final settlement by delivering or receiving interests in the relevant
global notes in DTC, and making or receiving
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payment under normal procedures for same-day funds settlement applicable to DTC.
Euroclear and Clearstream participants may not deliver instructions directly to
the DTC depositaries that are acting for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant that purchases an interest in a global note from a DTC
participant will be credited on the business day for Euroclear or Clearstream
immediately following the DTC settlement date. Cash received in Euroclear or
Clearstream from the sale of an interest in a global note to a DTC participant
will be received with value on the DTC settlement date but will be available in
the relevant Euroclear or Clearstream cash account as of the business day for
Euroclear or Clearstream following the DTC settlement date.
DTC, Euroclear and Clearstream have agreed to the above procedures to facilitate
transfers of interests in the global notes among participants in those
settlement systems. However, the settlement systems are not obligated to perform
these procedures and may discontinue or change these procedures at any time.
Neither we nor the Trustee will have any responsibility for the performance by
DTC, Euroclear or Clearstream or their participants or indirect participants of
their obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each person
that DTC identifies as a beneficial owner of the related notes only if:
- DTC notifies us at any time that it is unwilling or unable to continue
as depositary for the global notes and a successor depositary is not
appointed within 90 days;
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
90 days;
- we, at our option, notify the Trustee that we elect to cause the
issuance of certificated notes; or
- certain other events provided in the Indenture should occur.
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CERTAIN UNITED STATESU.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certainmaterial U.S. federal income and estate
tax consequencesconsiderations relating to the exchange of the Exchange Offer.original notes for the
exchange notes in this exchange offer and relevant to the ownership and
disposition of the exchange notes by holders thereof, but does not purport to be
a complete analysis of all the potential tax considerations relating thereto.
This discussionsummary is based on the current provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial
authority and administrative rulings and practice. This discussion is
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92
generally limitedpractice as of the date hereof. These
authorities may be changed, perhaps retroactively, so as to result in U.S.
federal income and estate tax consequences different from those set forth below.
We have not sought any ruling from the Internal Revenue Service or an opinion of
counsel with respect to the tax consequences to Holders that holdstatements made and the Exchange
Notes as capital assets (withinconclusions reached in the
meaning of Section 1221 of the Code). Therefollowing summary, and there can be no assurance that the Internal Revenue Service (the "Service")IRS will not
take a contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify theagree with
such statements and conditions set forth
herein. Any changesconclusions.
When we use the term "United States Holder," we generally mean a holder of notes
who (for United States Federal income tax purposes):
- is a citizen or interpretationsresident of the United States;
- is a corporation or partnership (including entities treated as
partnerships or corporations for federal income tax purposes) created or
organized in or under the laws of the United States or any state thereof
or the District of Columbia, unless, in the case of a partnership,
Treasury Regulations provide otherwise;
- is an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
- is a trust whose administration is subject to the primary supervision
of a United States court and which has one or more United States persons
who have the authority to control all substantial decisions of the trust.
The tax treatment applicable to each holder of the notes may or may not be retroactive and could
affectvary depending upon
the tax consequencesparticular situation of such holder. United States persons acquiring the
notes are subject to Holders. Some Holders, includingdifferent rules than those discussed below. In addition,
certain other holders (including insurance companies, tax-exempttax exempt organizations,
financial institutions, broker-dealers,
foreign corporationsholders who do not hold the notes as capital assets and
persons who are not citizens or residents of the United
States,broker-dealers) may be subject to special rules not discussed below. For U.S. federal incomeIf a
partnership holds our notes, the tax purposes,treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding notes, you should consult your tax
advisors. WE ADVISE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP, EXCHANGE AND SALE OF THE
NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH ACQUISITION, OWNERSHIP, EXCHANGE AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
THE EXCHANGE
The exchange of the original notes for the exchange of Original Notes for
Exchange Notesnotes pursuant to the
Exchange Offerexchange offer should not be treated as a taxable transaction for federal income
tax purposes.purposes, because the exchange notes should not be considered to differ
materially in kind or extent from the original notes. As a result, there should
be no federal income tax consequences to Holdersholders exchanging Original Notesoriginal notes for
Exchange Notesexchange notes pursuant to the Exchange Offer. A Holderexchange offer. Moreover, a
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holder should have the same adjusted basis and holding period in an Exchange Noteexchange
note as it had in an Original
Noteoriginal note immediately prior to the exchange. Therefore,
references to "notes" should apply equally to the exchange notes and the
original notes.
UNITED STATES HOLDERS
AMORTIZABLE BOND PREMIUM
If you purchased the notes for an amount in excess of the sum of all amounts
payable on the note other than qualified stated interest, you will be considered
to have purchased the note at a "premium." You generally may elect to amortize
the premium over the remaining term of the note on a constant yield method as an
offset to interest when includible in income under your regular accounting
method. In the case of instruments that provide for alternative payment
schedules, bond premium is calculated by assuming that (a) you will exercise or
not exercise options in a manner that maximizes your yield, and (b) we will
exercise or not exercise options in a manner that minimizes your yield (except
that we will be assumed to exercise call options in a manner that maximizes your
yield). If you do not elect to amortize bond premium, that premium will decrease
the gain or increase the loss you would otherwise recognize on disposition of
the note. Your election to amortize premium on a constant yield method will also
apply to all debt obligations held or subsequently acquired by you on or after
the first day of the first taxable year on which the election applies. You may
not revoke the election without the consent of the IRS. You should consult your
own tax advisor before making this election.
NON-UNITED STATES HOLDERS
INTEREST
Interest paid by Scotts to a holder that is not a United States Holder (a
"Non-United States Holder" will not be subject to United States federal income
or withholding tax if such interest is not effectively connected with the
conduct of a trade or business within the United States by such Non-United
States Holder and such Non-United States Holder:
- does not actually or constructively own 10% of the total combined
voting power of all classes of stock of Scotts;
- is not a "controlled foreign corporation" within the meaning of the
Code, with respect to which Scotts is a "related person" (within the
meaning of the Code); and
- certifies, under penalties of perjury, that it is not a United States
person and provides its name and address in an appropriate form
(currently IRS Form W-8BEN) to Scotts or an agent appointed by Scotts for
such purpose (or, a security clearing organization, bank or other
financial institution, which holds the notes on your behalf in the
ordinary course of its trade or business, certifies on your behalf that
it has received such certification from you and provides a copy to Scotts
or its agent of such certificates).
If you are not qualified for exemption under these rules, interest paid to you
may be subject to withholding tax at the rate of 30% (or any lower applicable
treaty rate, provided that applicable certification requirements are met). The
payment of interest effectively connected with your United States trade or
business, however, would not be subject to a 30% withholding tax so long a you
provide Scotts or its paying agent an adequate certification as to that effect
(currently IRS Form W-8ECI).
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GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a note unless:
- such investment gain on the notes is effectively connected with a
United States trade or business that is conducted by you;
- you are a nonresident alien individual and you are present in the
United States for 183 or more days in the taxable year within which such
sale, redemption or other disposition takes place and certain other
requirements are met; or
- you are subject to provisions of United Sates tax law applicable to
certain United States expatriates.
If you conduct a United States trade or business and the income on the notes is
effectively connected with such United States trade or business, the payment of
interest or of gain on the sale of the notes will be subject to United States
federal income tax on a net basis at the rates applicable to United States
persons generally (and, if you are a corporation, may also be subject to a 30%
branch profits tax).
FEDERAL ESTATE TAXES
If interest on the notes is exempt from withholding of United States federal
income tax under the rules described above, the notes will not be included in
the estate of a deceased Non-United States Holder for United States federal
estate tax purposes, provided that (1) you do not actively (or constructively)
own 10% or more of the total combined voting power of all classes of our voting
stock within the meaning of the Code and applicable U.S. Treasury regulations
and (2) interest on that note would not have been, if received at the time of
your death, effectively connected with the conduct by you of a trade or business
in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Scotts will, where required, report to the holders of notes and the Internal
Revenue Service the amount of any interest paid on the notes in each calendar
year and the amounts of tax withheld, if any, from those payments.
In the case of payments of interest to Non-United States Holders, a backup
withholding tax and certain information reporting requirements will not apply to
payments for which the requisite certification, as described above, has been
received or an exemption has otherwise been established; provided that neither
Scotts nor its payment agent has actual knowledge that the holder is a United
States person or that the conditions of any other exemption are not in fact
satisfied. These information reporting and backup withholding requirements will
apply, however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the notes by or through a United States office of a United States
or foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or the holder
otherwise establishes an exemption. As a general matter, information reporting
and backup withholding will not apply to a payment of the proceeds of a
disposition of the notes by or through a foreign office of a foreign broker.
Information reporting (but not backup withholding) will apply, however, to a
payment of the proceeds of a sale of notes by a foreign office of a broker that:
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- is a United States person;
- derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States;
- is a "controlled foreign corporation" within the meaning of the Code;
or
- is a foreign partnership in which one or more United States persons, in
the aggregate, own more than 50% of the income or capital interests in
the partnership or a foreign partnership which is engaged in a trade or
business in the United States.
Even if a broker meets one of these four conditions, information reporting will
not apply if the broker has documentary evidence in its records that the holder
is not a United States person and certain other conditions are met.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability provided that the
required information is furnished to the Internal Revenue Service.
THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE, REGULATIONS, TREASURY
REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE
SUBJECT TO CHANGE. ANY CHANGES MAY BE APPLIED RETROACTIVELY IN A MANNER THAT
COULD ADVERSELY AFFECT HOLDERS EXCHANGING NOTES. EACH HOLDER OF ORIGINAL NOTES SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS,
OF EXCHANGING ORIGINAL NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER.
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ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase of the notes and exchange notes by employee benefit plans that are
subject to Title I of ERISA, plans, individual retirement accounts and other
arrangements that are subject to Section 4975 of the Code or provisions under
any federal, state, local, non-U.S. or other laws or regulations that are
substantially similar to the provisions of Title I of ERISA or Section 4975 of
the Code ("Similar Laws"), and entities whose underlying assets are considered
to include "plan assets" of such plans, accounts and arrangements (each, a
"Plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of a
Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such an ERISA Plan or the management or disposition of the assets of such an
ERISA Plan, or who renders investment advice for a fee or other compensation to
such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering an investment in the notes of a portion of the assets of any
Plan, a fiduciary should determine whether the investment is in accordance with
the documents and instruments governing the Plan and the applicable provisions
of ERISA, the Code or any Similar Law relating to a fiduciary's duties to the
Plan, including, without limitation, the prudence, diversification, delegation
of control and prohibited transaction provisions of ERISA, the Code and any
other applicable Similar Laws.
Any insurance company proposing to invest assets of its general account in the
notes should consider the extent that such investment would be subject to the
requirements of ERISA in light of the U.S. Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under any
subsequent legislation or other guidance that has or may become available
relating to that decision, including the enactment of Section 401(c) of ERISA by
the Small Business Job Protection Act of 1996 and the regulations promulgated
thereunder.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entitles who are "parties in interest," within the meaning of ERISA or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engages in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code. The acquisition and/or holding of notes by an ERISA Plan with respect to
which we or the initial purchasers are considered a party in interest or
disqualified person may constitute or result in a direct or indirect prohibited
transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless
the investment is acquired and is held in accordance with an applicable
statutory, class or individual prohibited transaction exemption. In this regard,
the U.S. Department of Labor has issued prohibited transaction class exemptions
("PTCEs") that may apply to the acquisition and holding of the notes. These
class
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exemptions include, without limitation, PTCE 84-14, respecting transactions
determined by independent qualified professional asset managers, PTCE 90-1,
respecting insurance company pooled separate accounts, PTCE 91-38, respecting
bank collective investment funds, PTCE 95-60, respecting life insurance company
general accounts and PTCE 96-23, respecting transaction determined by in-house
asset managers, although there can be no assurance that all of the conditions of
any such exemptions will be satisfied.
Because of the foregoing, the notes should not be purchased or held by any
person investing "plan assets" of any Plan, unless such purchase and holding
(and the exchange of the notes for exchange notes) will not constitute a
non-exempt prohibited transaction under ERISA and the Code or violation of any
applicable Similar Laws.
REPRESENTATION
Accordingly, by acceptance of a note or an exchange note, each purchaser and
subsequent transferee will be deemed to have represented and warranted that
either (1) no portion of the assets used by such purchaser or transferee to
acquire and hold the notes constitutes assets of any Plan or (2) the purchase
and holding of the notes (and the exchange of notes for exchange notes) by such
purchaser or transferee will not constitute a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code or a violation under any
applicable Similar Laws.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering purchasing
the notes (or exchanging the notes) on behalf of, or with the assets of, any
Plan, consult with their counsel regarding the potential applicability of ERISA,
Section 4975 of the Code and any Similar Laws to such transaction and whether an
exemption would be applicable.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for original
notes where the broker-dealer acquired the original notes as a result of
market-making activities or other trading activities. We have agreed that for a
period of up to 180 days after the date that this registration statement is
declared effective by the SEC, we will make this prospectus, as amended or
supplemented, available to any broker-dealer that requests it in the letter of
transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. Broker-dealers may sell exchange notes
received by broker-dealers for their own account pursuant to the exchange offer
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell exchange notes directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
exchange notes. Any broker-dealer that resells exchange notes that were received
by it for its own account pursuant to the exchange offer and any broker or
dealer that participates in a distribution of the exchange notes may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit on
any resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to our performance of, or compliance
with, the registration rights agreement and will indemnify you against
liabilities under the Securities Act. By its acceptance of the exchange offer,
any broker-dealer that receives exchange notes pursuant to the exchange offer
agrees to notify us before using the prospectus in connection with the sale or
transfer of exchange notes. The broker-dealer further acknowledges and agrees
that, upon receipt of notice from us of the happening of any event which makes
any statement in the prospectus untrue in any material respect or which requires
the making of any changes in the prospectus to make the statements in the
prospectus not misleading or which may impose upon us disclosure obligations
that my have a material adverse effect on us, which notice we agree to deliver
promptly to the broker-dealer, the broker-dealer will suspend use of the
prospectus until we have notified the broker-dealer that delivery of the
prospectus may resume and have furnished copies of any amendment or supplement
to the prospectus to the broker-dealer.
LEGAL MATTERS
Certain legal matters relating toin connection with the Exchange Offer are beingnotes offered hereby will be passed
upon for the Companyus by Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio, counsel for
the Company.
INDEPENDENT PUBLIC ACCOUNTANTSOhio.
84
EXPERTS
The audited consolidated financial statements of The Scotts Company incorporated into this prospectus
by reference to the Current Report on Form 8-K dated June 24, 2002, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and its
Subsidiariesaccounting.
WHERE YOU CAN FIND MORE INFORMATION
Scotts is required to comply with the reporting requirements of the Securities
Exchange Act and must file annual quarterly and other reports with the SEC.
Scotts is also subject to the proxy solicitation requirements of the Securities
Exchange Act and, accordingly, will furnish audited financial statements to our
shareholders in connection with our annual meetings of shareholders.
Any statements made in this prospectus concerning the contents of any contract,
agreement or other document constitute summaries of the material terms thereof
and are not necessarily complete summaries of all of the terms. Some of these
documents have been filed as exhibits to our periodic filings with the SEC. Our
periodic reports and other information filed with the SEC may be inspected
without charge at the Public Reference Section of September 30, 1997the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain copies of
filed documents by mail from the public reference section of the SEC at Room
1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549 at prescribed rates. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Filed documents are also available to the public on the SEC's website at
http://www.sec.gov.
Copies of documents incorporated in this prospectus by reference or other
documents referred to in this prospectus may be obtained upon request without
charge by contacting The Scotts Company, 14111 Scottslawn Road, Marysville, Ohio
43041, Attention: Treasurer, (614) 644-0011.
INCORPORATION BY REFERENCE
We are "incorporating" the following documents into this prospectus by
reference, which means that we are disclosing important information to you by
referring to documents that contain such information. The information
incorporated by reference is an important part of this prospectus, and
1998information we file later with the SEC will automatically update and supersede
the information in this prospectus. We incorporate by reference the documents
listed below that we have previously filed with the SEC:
- our Annual Report on Form 10-K dated December 14, 2001, for the yearsfiscal
year ended September 30, 1996, 1997 and 19982001 (including information specifically
incorporated by reference into our Form 10-K from our 2001 Annual Report
to Shareholders and proxy statement for our 2002 annual meeting of
shareholders);
- our Quarterly Report on Form 10-Q/A dated June 5, 2002, for the fiscal
quarter ended December 29, 2001;
- our Quarterly Report on Form 10-Q dated May 10, 2002, for the fiscal
quarter ended March 30, 2002;
85
- our Current Report on Form 8-K filed with the SEC on June 24, 2002,
which amends certain items in this Prospectus have been
auditedour Form 10-K for the fiscal year ended
September 30, 2001, to reflect retroactively the disclosures and
presentations required by PricewaterhouseCoopers LLP, independent certified public accountants,accounting pronouncements initially adopted by
Scotts in our fiscal year beginning October 1, 2001; and
- our proxy statement for our 2002 annual meeting of shareholders, as
indicated in their reportfiled with respect thereto and incorporatedthe Commission on December 20, 2001.
We are also incorporating by reference herein.
The audited combined financial statementsall other reports that we file with the
SEC under Sections 13(a), 13(c), 14 or 15(d) between the date of Rhone-Poulenc Jardin asthis prospectus
and the date of December
31, 1997 and for the year then ended incorporated by reference in this
Prospectus have been audited by Coopers & Lybrand, independent certified public
accountants, as indicated in their report with respect thereto and incorporated
by reference herein.
89consummation of the exchange offer.
86
93
$330,000,000
THE SCOTTS COMPANY
8.625% SENIOR SUBORDINATED NOTES DUE 2009
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
[LOGO]
PROSPECTUS
, 1999[SCOTTS LOGO]
94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Division (E) of Section 1701.13 of the Ohio Revised Code governs indemnification
by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, other than an action
by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee, member, manager, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, associate, or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust or other enterprise,
against expenses, including attorney's fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal
action or proceeding, if he had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding
by judgment, order, settlement, or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he
had reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, member, manager, or agent of
the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty
to the corporation unless, and only to the extent that, the court of
common pleas or the court in which such action or suit was brought
determines, upon application, that, despite the adjudication of
liability, but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
as the court of common pleas or such other court shall deem proper;
II-1
95
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in division (E)(1)
or (2) of this section, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses, including attorney's
fees, actually and reasonably incurred by him in connection with the
action suit or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or
threatened by the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel
other than an attorney, or a firm having associated with it an
attorney, who has been retained by or who has performed services for
the corporation or any person to be indemnified within the past five
years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such action,
suit or proceeding referred to in division (E)(1) or (2) of this
section was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of
this section shall be promptly communicated to the person who threatened
or brought the action or suit by or in the right of the corporation under
division (E)(2) of this section, and, within ten days after receipt of
such notification, such person shall have the right to petition the court
of common pleas or the court in which such action or suit was brought to
review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1)
or (2) of this section, the articles or the regulations of a corporation
state, by specific reference to this division, that the provisions of
this division do not apply to the corporation and unless the only
liability asserted against a director in an action, suit, or proceeding
referred to in division (E)(1) or (2) of this section is pursuant to
section 1701.95 of the Revised Code, expenses, including attorney's fees,
incurred by a director in defending the action, suit, or proceeding shall
be paid by the corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, upon receipt of an
undertaking by or on behalf of the director in which he agrees to both of
the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act II-2
96
involved an act or
II-2
omission undertaken with deliberate intent to cause injury to the
corporation or undertaken with reckless disregard for the best
interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the action,
suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any
action, suit, or proceeding referred to in division (E)(1) or (2) of
this section, may be paid by the corporation as they are incurred, in
advance of the final disposition of the action, suit, or proceeding, as
authorized by the directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, trustee, officer,
employee, member, manager, or agent to repay such amount, if it
ultimately is determined that he is not entitled to be indemnified by
the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles, the regulations, any
agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions, and
shall continue as to a person who has ceased to be a director, trustee,
officer, employee, member, manager, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of
credit, or self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee,
officer, employee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section. Insurance may be purchased from or maintained with a
person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and
(7) of this section. Divisions (E)(1) and (2) of this section do not
create any obligation to repay or return payments made by the corporation
pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director,
officer, employee, trustee, member, manager, or agent of such a
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint
venture, trust, or other enterprise, shall stand in the same position
under this section with respect to the new or surviving corporation as he
would if he had served the new or II-3
97
surviving corporation in the same
capacity.
II-3
Section 5.01 of the Registrant's Code of Regulations governs indemnification by
Registrant and provides as follows:
SECTION 5.01. Mandatory Indemnification. The corporation shall indemnify
any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action threatened or
instituted by or in the right of the corporation), by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, member, manager or agent of another
corporation (domestic or foreign, nonprofit or for profit), limited
liability company, partnership, joint venture, trust or other enterprise,
against expenses (including, without limitation, attorneys' fees, filing
fees, court reporters' fees and transcript costs), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal
action or proceeding, he had no reasonable cause to believe his conduct
was unlawful. A person claiming indemnification under this Section 5.01
shall be presumed, in respect of any act or omission giving rise to such
claim for indemnification, to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal matter, to have had no
reasonable cause to believe his conduct was unlawful, and the termination
of any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, rebut such presumption.
In addition, the Registrant currently provides insurance coverage to its
directors and officers against certain liabilities which might be incurred by
them in such capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
Exhibit
No. Description
--- -----------
4 Indenture dated as January 20, 1999 between The Scotts Company
and State Street Bank and Trust Company, as trustee
5 * Opinion of Vorys, Sater, Seymour and Pease LLP
23.1* Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2* Consent of Coopers & Lybrand, Independent Accountants
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.1 Indenture dated as of January 20, 1999 among The Scotts
Company, the subsidiary guarantors listed on the signature
pages thereof and State Street Bank and Trust Company, as
trustee (filed as Exhibit 4 to the Registration Statement on
Form S-4 (File no. 333-76739) and incorporated by reference
herein).
4.2 Supplemental Indenture dated as of February 6, 2002 among
The Scotts Company, the subsidiary guarantors listed on the
signature pages thereof and State Street Bank and Trust
Company, as trustee.
4.3 Registration Rights Agreement, dated as February 6, 2002,
among The Scotts Company, the subsidiary guarantors listed
on the signature pages thereof and the Initial Purchasers
named therein.
5.1 Opinion of Vorys, Sater, Seymour and Pease LLP
12.1 Statement of Computation of Ratios
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2 Consent of Vorys, Sater, Seymour and Pease LLP (included in
Exhibit 5.1)
24.1 Powers of Attorney (included on signature pages)
II-4
98
Exhibit
No. Description
--- -----------
23.3* Consent of Vorys, Sater, Seymour and Pease LLP (included in
Exhibit 5)
24 Powers of Attorney (included on signature page)
25 Form T-1 - Statement of Eligibility of Trustee
99 Letter of Transmittal
- -----
* To be filed by amendment.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
25.1 Statement of Eligibility under the Trust Indenture Act of
1939 of a Corporation Designated to Act as Trustee of
Manufacturers and Traders Trust Company (Form T-1) (filed as
Exhibit 25 to the Registration Statement on Form S-4 (File
no. 333-76739) and incorporated by reference herein).
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Letter to DTC Participants
99.4 Letter to Beneficial Holders
99.5 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(b) FINANCIAL STATEMENT SCHEDULES
None
ITEM 22. UNDERTAKINGS.
(1)(a) The undersigned registrant hereby undertakes as follows: that priorundertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement,statement:
(i) To include any prospectus required by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the
Securities Act of 1933 and is used1933;
(ii) To reflect in connection with an offeringthe prospectus any facts or events arising after the
effective date of securities subject to Rule 145, will be filed
as a part of an amendment to the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and willany deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) of this
section do not apply if the registration statement is on Form S-3, Form
S-8 or Form F-3 and the information required to be used
until suchincluded in a
post-effective amendment by those paragraphs is effective, andcontained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement.
(2) That, for purposesthe purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted against the registrant by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(4)(d) The undersigned Registrantregistrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statementregistration statement when it became effective.
II-5II-6
99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Columbus,Marysville, State of Ohio, on April 19, 1999.July 9, 2002.
THE SCOTTS COMPANY
ByBy: /s/ CHARLES M. BERGER
---------------------------------
CHARLES M. BERGER
Chairman,JAMES HAGEDORN
------------------------------------
James Hagedorn
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of The Scotts Company. (the
"Company"), and each of us, do hereby constitute and appoint Jean H. MordoPatrick J. Norton
and G. Robert Lucas,David M. Aronowitz, or either of them, our true and lawful attorneys and
agents, each with full power of substitution, to do any and all acts and things
in our name and on our behalf in our capacities as directors and officers of the
Company and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys or agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with the filing of this
Registration Statement on Form S-4, including specifically but without
limitation, power and authority to sign for us or any of us in our names in the
capacities indicated below for the Company, any and all amendments (including
post-effective amendments) to such Registration Statement; and we do hereby
ratify and confirm all that said attorneys and agents, or their substitute or
substitutes, or any of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title DateSIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES HAGEDORN President, Chief Executive Officer July 9, 2002
------------------------------------------------ and Director
James Hagedorn (Principal Executive Officer)
/s/ PATRICK J. NORTON Executive Vice President, CFO and July 9, 2002
------------------------------------------------ Director (Principal Financial
Patrick J. Norton Officer)
/s/ CHRISTOPHER L. NAGEL Senior Vice President of Finance, July 9, 2002
------------------------------------------------ Corporate North America
Christopher L. Nagel (Principal Accounting Officer)
/s/ CHARLES M. BERGER Chairman of the Board President April 19, 1999
- ------------------------------------ and CEO
CHARLESJuly 9, 2002
------------------------------------------------
Charles M. BERGER (Principal Executive Officer)
/s/ JEAN H. MORDO Executive Vice President and CFO April 19, 1999
- ----------------------------------- (Principal Financial and
JEAN H. MORDO Accounting Officer)
JAMES B. BEARD Director April 19, 1999
- -----------------------------------
JAMES B. BEARD
JOSEPH P. FLANNERY Director April 19, 1999
- -----------------------------------
JOSEPH P. FLANNERY
HORACE HAGEDORN Director April 19, 1999
- -----------------------------------
HORACE HAGEDORN
/s/ JAMES H. HAGEDORN Director April 19, 1999
- -----------------------------------
JAMES H. HAGEDORN
ALBERT E. HARRIS Director April 19, 1999
- -----------------------------------
ALBERT E. HARRISBerger
II-6II-7
100
Signature Title DateSIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL P. KELTY, PH.D. Vice Chairman of the Board and July 9, 2002
------------------------------------------------ Executive Vice President
Michael P. Kelty, Ph.D.
/s/ ARNOLD W. DONALD Director July 9, 2002
------------------------------------------------
Arnold W. Donald
/s/ JOSEPH P. FLANNERY Director July 9, 2002
------------------------------------------------
Joseph P. Flannery
/s/ ALBERT E. HARRIS Director July 9, 2002
------------------------------------------------
Albert E. Harris
/s/ JOHN KENLON Director April 19, 1999
- -----------------------------------
JOHN KENLONJuly 9, 2002
------------------------------------------------
John Kenlon
/s/ KATHERINE HAGEDORN LITTLEFIELD Director July 9, 2002
------------------------------------------------
Katherine Hagedorn Littlefield
/s/ KAREN G. MILLS Director April 19, 1999
- -----------------------------------
KARENJuly 9, 2002
------------------------------------------------
Karen G. MILLS
/s/ PATRICK J. NORTON Director April 19, 1999
- -----------------------------------
PATRICK J. NORTONMills
/s/ JOHN M. SULLIVAN Director April 19, 1999
- -----------------------------------
JOHNJuly 9, 2002
------------------------------------------------
John M. SULLIVANSullivan
/s/ L. JACK VAN FOSSEN Director April 19, 1999
- -----------------------------------July 9, 2002
------------------------------------------------
L. JACK VAN FOSSENJack Van Fossen
/s/ JOHN WALKER, PH.D. Director April 19, 1999
- -----------------------------------
JOHN WALKER, PH.D.July 9, 2002
------------------------------------------------
John Walker, Ph.D.
II-7II-8
101SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, each of
the Registrants has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Marysville, State of Ohio, on July 9, 2002.
SCOTTS MANUFACTURING COMPANY (as
successor by merger to SCOTTS
MIRACLE-GRO PRODUCTS INC.), a Delaware
corporation
MIRACLE-GRO LAWN PRODUCTS, INC., a New
York corporation
OMS INVESTMENTS, INC., a Delaware
corporation
HYPONEX CORPORATION, a Delaware
corporation
EARTHGRO, INC., a Connecticut
corporation
SCOTTS PRODUCTS, INC., an Ohio
corporation
SCOTTS PROFESSIONAL PRODUCTS CO., an
Ohio corporation
SCOTTS-SIERRA HORTICULTURAL PRODUCTS
COMPANY, a California corporation
SCOTTS-SIERRA CROP PROTECTION COMPANY,
a California corporation
SCOTTS-SIERRA INVESTMENTS, INC., a
Delaware corporation
II-9
SWISS FARMS PRODUCTS, INC., a Delaware
corporation
By: /s/ DAVID M. ARONOWITZ
------------------------------------
David M. Aronowitz
Secretary
SCOTTS TEMECULA OPERATIONS, LLC, a
Delaware limited liability company (as
successor by merger to REPUBLIC TOOL &
MANUFACTURING CORP.)
By: The Scotts Company, sole member
By: /s/ DAVID M. ARONOWITZ
------------------------------------
David M. Aronowitz
Secretary
II-10
INDEX TO EXHIBITS
Exhibit
No. Description
--- -----------
4 Indenture dated as January 20, 1999 between The Scotts Company
and State Street Bank and Trust Company, as trustee
5* Opinion of Vorys, Sater, Seymour and Pease LLP
23.1* Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2* Consent of Coopers & Lybrand, Independent Accountants
23.3* Consent of Vorys, Sater, Seymour and Pease LLP (included in
Exhibit 5)
24 Powers of Attorney (included on signature page)
25 Form T-1 - Statement of Eligibility of Trustee
99 Letter of Transmittal
- ------
* To be filed by amendment.
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EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.1 Indenture dated as of January 20, 1999 among The Scotts
Company, the subsidiary guarantors listed on the signature
pages thereof and State Street Bank and Trust Company, as
trustee (filed as Exhibit 4 to the Registration Statement on
Form S-4 (File no. 333-76739) and incorporated by reference
herein).
4.2 Supplemental Indenture dated as of February 6, 2002 among
The Scotts Company, the subsidiary guarantors listed on the
signature pages thereof and State Street Bank and Trust
Company, as trustee.
4.3 Registration Rights Agreement, dated as February 6, 2002,
among The Scotts Company, the subsidiary guarantors listed
on the signature pages thereof and the Initial Purchasers
named therein.
5.1 Opinion of Vorys, Sater, Seymour and Pease LLP
12.1 Statement of Computation of Ratios
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2 Consent of Vorys, Sater, Seymour and Pease LLP (included in
Exhibit 5.1)
24.1 Powers of Attorney (included on signature pages)
25.1 Statement of Eligibility under the Trust Indenture Act of
1939 of a Corporation Designated to Act as Trustee of
Manufacturers and Traders Trust Company (Form T-1) (filed as
Exhibit 25 to the Registration Statement on Form S-4 (File
no. 333-76739) and incorporated by reference herein).
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Letter to DTC Participants
99.4 Letter to Beneficial Holders
99.5 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
II-11