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 --------------------------------------------43215 --------------------- 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
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 8.625% Senior Subordinated Notes due 2009 $330,000,000$70,000,000 100% $91,740$6,440 - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Guarantee of 8.625% Senior Subordinated Notes due 2009 $70,000,000 (2) (2) - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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 --------------------- 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. ------------------------ 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 4 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. iii 5 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. 2 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:
------------------------------------------------------------------------------------ MARKET SHARE* ----------- CATEGORY 1998 2001 LEADING BRANDS ------------------------------------------------------------------------------------ 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) ------------------------------------------------------------------------------------
* 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. 2 6 - 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. 16 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. 20 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. 21 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; 22 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. 34 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. 35 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. 36 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; 42 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 43 47 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. 36 48 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 45 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 46 50 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"); 47 51 - 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: 48 52 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. 49 53 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 50 54 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. 51 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 52 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 5340 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: 54 58
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. 5542 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: 56 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: 57 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: 58 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. 59 63 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; 62 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. 63 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 64 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. 65 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. 68 72 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 69 73 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. 70 74 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 71 75 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. 72 76 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 73 77 (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; 74 78 (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 59 "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 75 79 (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 60 (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. 76 80 "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; 61 (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; 77 81 (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 62 (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 82 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 63 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 79 83 (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 80 84 (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 66 (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. 81 85 "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. 82 86 "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 68 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; 83 87 (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; 69 (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; 84 88 (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; 70 (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 71 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; 86 90 (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 72 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 91 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 73 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. 74 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. 75 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 76 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. 77 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 88 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 78 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). 79 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: 80 - 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. 81 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 82 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. 83 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
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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. II-8
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.
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