PROSPECTUS Filed Pursuant to Rule 424(b)(4)
Registration No. 333-92186
[Scotts Logo]
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:
- The exchange offer expires at 5:00 p.m., New York City time, on Monday,
October 28, 2002, unless extended.
- We will exchange all outstanding original 8.625% Series A senior
subordinated notes that are validly tendered and not validly withdrawn
for an equal principal amount of our new 8.625% Series B senior
subordinated notes which are registered under the Securities Act.
- The exchange offer is not subject to any conditions other than that it
not violate applicable law or any applicable interpretation of the staff
of the SEC.
- The terms of the new 8.625% Series B senior subordinated notes are
substantially identical to the original 8.625% Series A senior
subordinated notes, except that the original notes contain transfer
restrictions and registration rights that the exchange notes do not
contain.
- You may withdraw tenders of original notes at any time before the
exchange offer expires.
- You may tender outstanding original notes only in denominations of
$1,000 and multiples of $1,000.
- We will not receive any proceeds from the exchange offer, and we will
pay all expenses of the exchange offer.
- Our affiliates may not participate in the exchange offer.
PLEASE REFER TO THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 12 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.
September 27, 2002
IN MAKING YOUR INVESTMENT DECISION, YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
OTHER INFORMATION. IF YOU RECEIVE ANY OTHER INFORMATION, YOU SHOULD NOT RELY ON
IT. WE ARE NOT MAKING AN OFFER OF THESE NOTES IN ANY STATE WHERE THE OFFER IS
NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS IS ACCURATE AS OF 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
Disclosure regarding forward-looking
statements.......................... i
Prospectus summary.................... 2
Risk factors.......................... 12
The exchange offer.................... 22
Ratio of earnings to fixed charges.... 31
Use of proceeds....................... 31
Capitalization........................ 32
Selected consolidated financial
data................................ 33
Description of certain other
indebtedness........................ 35
PAGE
Description of notes.................. 38
Book-entry, settlement and
clearance........................... 76
Certain U.S. federal tax
considerations...................... 79
ERISA considerations.................. 83
Plan of distribution.................. 85
Legal matters......................... 85
Experts............................... 86
Where you can find more information... 86
Incorporation by reference............ 86
The Scotts Company is an Ohio corporation. Our principal executive offices are
located at 14111 Scottslawn Road, Marysville, Ohio 43041, and our telephone
number at that address is (937) 644-0011. Our 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). Unless otherwise indicated, all other trademarks, service
marks or brand names appearing in this prospectus are the property of Scotts.
FORWARD-LOOKING STATEMENTS
This prospectus includes, and incorporates by reference, "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act, including, in particular, the statements
about Scotts' plans, strategies and prospects under the headings "Prospectus
summary," "Selected consolidated financial data," "Management's discussion and
analysis 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 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
prospectus are set forth under the caption "Risk factors" and elsewhere in this
prospectus or the documents incorporated by reference herein. All
forward-looking statements are expressly qualified in their entirety by those
cautionary statements.
i
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and their notes appearing
elsewhere in, or incorporated by reference into, this prospectus. This
prospectus includes, or incorporates by reference, the specific terms of the
exchange offer and the notes, as well as information regarding our business and
risk factors. Because this is only a summary it may not contain all of the
information important to you or that you should consider before making an
investment decision. Therefore, we urge you to read this prospectus and the
documents to which we have referred you. Unless 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
our outstanding 8.625% Series A senior subordinated notes as the "original
notes," and will refer to the 8.625% Series B senior subordinated notes as the
"exchange notes." Unless indicated otherwise, the term "notes" refers to both
the original notes and the exchange notes.
In this prospectus, we rely on and refer to information regarding the lawn and
garden market and its segments in the United States provided by Triad Systems
Corporation market research reports covering the period January 2001 through
June 2002 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. Wal,Mart, one of our largest customers, stopped reporting sales
data to Triad in July 2001. Triad independently projected Wal,Mart sales data
for the period August 2001 through October 2001. Therefore, market share data
for periods after October 2001 exclude Wal,Mart.
COMPANY OVERVIEW
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 mid 1900's, we became
widely known for the innovation and development of quality lawn fertilizers and
grass seeds that led to the creation of a new industry -- consumer lawn care.
Today, the Scotts(R), Miracle-Gro(R), Ortho(R) and Roundup(R) brands make us one
of the most widely recognized companies in lawn and garden care in the United
States. For our fiscal year ended September 30, 2001, revenues, net income and
adjusted EBITDA (as defined herein) were $1.7 billion, $15.5 million and $255.7
million, respectively.
In the 1990's, we significantly expanded our product offering by acquiring two
additional leading brands in the U.S. consumer lawn and garden industry. In
fiscal 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 controls
portfolio. We are among the most widely recognized marketers and manufacturers
of products for lawns, gardens and professional 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 advertising, superior product performance and the strength of
our extensive relationships with major U.S. retailers in our categories.
In 1997, our presence in Europe expanded with the acquisition of several
established brands. We now have a strong presence in the consumer lawn and
garden business in the
2
United Kingdom, France and Germany, and expect to increase our share in these
markets through consumer-focused marketing, a model we have successfully
followed in the United States. We also have a presence in the remaining European
countries, Australia, the Far East, Latin America and South America.
COMPETITIVE STRENGTHS
- Strong Portfolio of Brand Names. We are the world's largest marketer
of consumer lawn and garden fertilizer, controls and value-added growing
media products. We have been able to achieve this market-leading position
through a combination of internal growth driven by product line
extensions, award-winning advertising campaigns, and acquisitions.
The following table shows our portfolio of consumer brands that we
believe hold the leading market share position in their respective U.S.
markets:
------------------------------------------------------------------------------------
MARKET
SHARE*
-----------
CATEGORY 1998 2002 LEADING BRANDS
------------------------------------------------------------------------------------
Lawns............................. 56% 63% Scotts(R)
Gardens........................... 55% 60% Miracle-Gro(R); Osmocote(R)
Growing media..................... 46% 71% Miracle-Gro(R); Scotts(R);
Hyponex(R)
Grass seed........................ 23% 49% Scotts(R)
Controls.......................... 41% 46% Ortho(R) (owned since Jan. 1999);
Roundup(R) (marketed since Sept.
1998)
------------------------------------------------------------------------------------
* Based on Triad Systems market research reports for 1998 and January
2001 through June 2002.
In addition, we have the following significant brands in Europe, which
vary from country to country: Miracle-Gro(R) plant fertilizers, Weedol(R)
and Pathclear(R) herbicides, EverGreen(R) lawn fertilizer and Levington(R)
growing media in the United Kingdom; KB(R) and Fertiligene(R) in France;
Celaflor(R), Nexa-Lotte(R) and Substral(R) in Germany and Austria; and
ASEF(R), KB(R) and Substral(R) in the Benelux countries.
- Diverse Product Offering. Through new product introductions, product
line extensions, acquisitions and licensing agreements, we have broadened
our product portfolio, so that we offer leading products across all four
major categories including lawn care, garden care, growing media and
controls. We also provide residential lawn care, tree and shrub care and
perimeter pest control services through our Scotts LawnService(R). With a
broad portfolio of products and services, we have increased our
geographic presence, improved our earnings and are well positioned to
meet consumers' lawn and garden needs.
- Proven Brand Leverage Capability. We have demonstrated success in
leveraging the power of our brands through introduction of new products
and product line extensions. For example, in Growing Media, we introduced
Miracle-Gro(R) Potting Mix, Miracle-Gro(R) Garden Soil and Scotts(R) Lawn
Soil(TM), thereby creating a value-added product in what was once a
commodity category. By leveraging our brands, the Growing Media business
is now second to our Lawn's business in profitability. Introduced in
1997, Miracle-Gro(R) Potting Mix alone has recently surpassed $100
million in annual revenues.
3
- Strong Relationships with Key U.S. Retailers. We believe that our leading
brands and our industry-leading media advertising make our products
"traffic builders" at the retail locations. This, in addition to our
position as the leading nationwide 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*Mart, Lowe's, Kmart and the hardware co-ops (e.g., Ace
Hardware Corporation, TruServ Corporation and Do It Best Corp.), and we
have business development teams in place at each of these retailers to
work with their buyers and supply chain management to maximize mutual
sales opportunities and efficient distribution of products. In addition,
we serve as the lawn and garden category manager for Wal*Mart and Kmart.
In fiscal 2001, in order to help meet the changing needs of our key
customers and efficiently operate our business, we completed
implementation of an enterprise resource planning (or ERP) software
system in North America and realigned our sales force with our "one face
to the customer" initiative.
- Supply Chain Expertise. In North America, over the past several years,
we have focused on building world-class manufacturing and distribution
capabilities and expertise to handle the seasonal demands of our
business. We have invested, and continue to invest, in systems to allow
us to better capture and analyze supply chain information, which has
permitted the incorporation of supply chain related metrics into our key
business and incentive measures. For instance, in fiscal 2001, we
completed the implementation of an ERP system for our North American
businesses at a cost of approximately $55 million. In addition, we have
invested over $100 million over the past three years to upgrade our North
American manufacturing facilities. This level of investment and focus has
allowed us to develop what we believe is a significant competitive
advantage in serving our retail customers and to improve our customer
service rates. This, coupled with shipments more closely tied to actual
consumer purchases, has allowed our customers to increase inventory turns
and reduce average inventory levels. Further, the investments in our
production facilities have enhanced our manufacturing flexibility,
allowing us to increase our inventory turns and reduce our average
inventory levels as well.
- Experienced and Incentivized Management Team. Our senior management team
has significant experience in the lawn and garden industry. Additionally,
as of August 30, 2002, our chief executive officer, together with his
family, collectively beneficially owned, with the other executive
officers and directors, more than 39% 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. For example, in fiscal 2001,
we spent over $73 million in advertising in North America alone, and we
have begun to leverage the current media market for more targeted
exposure to the key consumer audience primarily through prime time
television spots with a focus on Scotts' product superiority. We believe
this approach to marketing, which balances consumer-directed, pull
advertising with retailer-oriented promotions, builds brand awareness and
drives product sales growth. In North America, we have grown sales,
increased market share and expanded the lawn and garden category over the
past five years through successful execution of this strategy for our
four principal brands -- Scotts(R), Miracle-Gro(R), Ortho(R) and
Roundup(R).
4
- 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 our number of product listings (or SKUs), enhanced product
packaging and emphasized multiple fertilizer applications to drive
category growth. For example, in 2001, we introduced Turf Builder(R)
Grass Seed, which, according to Triad Systems data, helped increase the
category by 12% and increase our market share by 19%. Moreover, we
believe that the lawn and garden market should experience growth due to
favorable demographic trends. Based on industry sources, people between
the ages of 45-64 are more likely to engage in gardening, and census data
indicates this age group is the fastest growing segment of the U.S.
population. Overall, gardening is the third most popular leisure activity
in the U.S.
- Pursue Attractive Growth Initiatives. We believe that the power of our
portfolio of brands provides us with significant opportunities to extend
our business to new products and channels. To further pursue these
opportunities, we recently announced the creation of a new Business
Development Group within North America. This group's focus is on
extending our brands into adjacent consumer lawn and garden categories
that are currently not characterized by branded, value-added products,
and exploiting underdeveloped sales channels, such as grocery and drug
stores. In addition, it will seek to improve our business with
independent retailers through a combination of tailored programs and
unique products or packaging.
- Expand our Lawn Service Business. The number of lawn owners who want
lawn care but do not want to do it themselves represents a significant
portion of the total market. We have recognized that our Scotts(R) brand
provides us with a unique ability to extend our brands into the lawn
service business. We believe that the strength of our Scotts(R) brand
provides us with a significant competitive advantage in acquiring new
customers and have spent the past several years developing our business
model to exploit this advantage. The business is now growing
significantly, with sales of $45 million for the first nine months of
fiscal 2002 (an 83% increase over the same period in the prior year). We
expect to continue our aggressive growth strategy for the business to
expand both sales and profits which, given the high margins enjoyed by
this business, should enhance our overall profitability.
- Improve Our Return on Invested Capital. Entering fiscal 2001, we began a
company-wide initiative to improve our return on the capital invested in
the business (or ROIC). We have enhanced, and expect to continue to
enhance, our ROIC by significantly increasing the operating profitability
of our business through supply chain cost reductions, tight control of
selling, general and administrative costs and pursuit of higher-margin
businesses such as our Scotts LawnService(R) business. We have also
improved our ROIC through increased focus on managing our balance sheet,
particularly working capital, which has increased operating cash flows
and reduced indebtedness.
5
THE EXCHANGE OFFER
THE ORIGINAL NOTES....... 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 February 6, 2002. These initial purchasers
subsequently resold our Series A notes under Rule 144A
and Regulation S under the Securities Act. The
purchasers of our Series A notes agreed to comply with
transfer restrictions and other conditions.
The original notes are represented by three permanent,
global notes which are registered in the name of a
nominee of The Depository Trust Company. Participants
in the DTC system who have accounts with DTC hold
interests in the global notes in book-entry form.
Accordingly, ownership of beneficial interests in the
original notes is limited to DTC participants or
person who hold their interests through DTC
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 October 28, 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 exchange offer is not subject to any condition
other than it will not violate applicable law or any
applicable interpretation of the staff of the SEC. The
exchange offer is not conditioned upon the tender of
any minimum principal amount of original notes.
PROCEDURES FOR TENDERING
NOTES.................... If you want to accept the exchange offer, you must
transmit to State Street Bank and Trust Company, the
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."
6
SPECIAL 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."
7
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 22.
THE EXCHANGE NOTES
The form and terms of the exchange notes are the same as the form and terms of
the original notes, except that the exchange notes will be registered under the
Securities Act and, therefore, will not be subject to the transfer restrictions,
registration rights and provisions for an increase in interest rate applicable
to the original notes. The exchange notes will evidence the same debt as the
original notes. The indenture governing the exchange notes is the same indenture
that governs our the exchange notes, and both series of notes will be entitled
to the benefits of the indenture and treated as a single class of debt
securities. The 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.
As of June 29, 2002, the notes and the subsidiary
guarantees were subordinated to $383.7 million of
senior debt.
8
In addition, the subsidiary guarantees were
structurally subordinated to $203.9 million of current
operating liabilities of the non-guarantor
subsidiaries as of June 29, 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............. In evaluating an investment in the notes, you should
carefully consider, along 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.
9
SUMMARY CONSOLIDATED FINANCIAL DATA
The 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 end of, each of the nine month periods ended June 30,
2001 and June 29, 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. You should read the following information in
conjunction with "Management's discussion and analysis of financial condition
and results of operations," "Selected consolidated financial data" and our
consolidated financial statements and related notes, which are included in, or
incorporated by reference into, this prospectus.
- -----------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -------------------------
------------------------------ JUNE 30, JUNE 29,
1999 2000 2001 2001 2002
- -----------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Net sales(1)....................... $1,550.6 $1,655.4 $1,696.6 $1,459.1 $1,457.3
Gross profit(1).................... 563.3 603.0 597.2(2) 541.6(2) 541.6(2)
Roundup(R) marketing agreement(3):
Gross commission................. 30.3 39.2 39.1 37.2 30.8
Contribution expenses(4)......... 1.6 9.9 18.3 13.8 17.5
Net commission................... 28.7 29.3 20.8 23.4 13.3
Advertising(1)(5).................. 87.0 89.0 89.9 77.2 68.6
Selling, general and
administrative(1)................ 285.5 312.0 324.1 253.3 245.9
Restructuring and other charges.... 1.4 -- 68.4 15.1 1.8
Amortization of goodwill and other
intangibles...................... 25.6 27.1 27.7 21.1 3.8
Other income, net.................. (3.6) (6.0) (8.5) (8.6) (8.9)
Income from operations............. 196.1 210.2 116.4 206.9 243.7
Interest expense(6)................ 79.1 93.9 87.7 69.7 58.8
Income before income taxes......... 117.0 116.3 28.7 137.2 184.9
Income taxes....................... 47.9 43.2 13.2 58.3 71.2
Income before cumulative effect of
accounting change(7)............. 63.2 73.1 15.5 78.9 113.7
Cumulative effect of accounting
change for intangible assets, net
of tax........................... -- -- -- -- (18.5)
Net income(7)...................... 63.2 73.1 15.5 78.9 95.2
Basic earnings per share(8)(9)..... $ 2.93 $ 2.39 $ 0.55 $ 2.79 $ 3.27(10)
Diluted earnings per
share(9)(11)..................... 2.08 2.25 0.51 2.61 3.01(12)
Common shares used in basic
earnings per share calculation... 18.3 27.9 28.4 28.3 29.1
Common shares and potential common
shares used in diluted earnings
per share calculation............ 30.5 29.6 30.4 30.3 31.6
OTHER FINANCIAL DATA:
Adjusted EBITDA(13)................ $ 253.7 $ 271.2 $ 255.7 $ 270.9 $ 279.3
Depreciation....................... 29.0 29.0 32.6 24.4 26.0
Capital expenditures............... 66.7 72.5 63.4 36.2 33.9
BALANCE SHEET DATA:
Working capital.................................................................. $ 321.2
Total assets..................................................................... 2,070.1
Total debt....................................................................... 836.0
Total shareholders' equity....................................................... 621.8
- -----------------------------------------------------------------------------------------------
10
(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 new
method of presentation. The amounts reclassified for the fiscal years ended
September 30, 1999, 2000 and 2001 and for the nine month period ended June 30,
2001 are as follows:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -----------------
---------------------------- JUNE 30,
1999 2000 2001 2001
------ ------ ------ --------
(UNAUDITED)
Net sales................................................... $(51.9) $(53.6) $(51.1) $(40.3)
Gross profit................................................ (51.9) (55.5) (54.2) (42.8)
Advertising................................................. (56.2) (64.8) (61.1) (50.6)
Selling, general and administrative......................... 4.3 9.3 6.9 7.8
(2) Includes $7.3 million of restructuring and other charges for the year ended
September 30, 2001, $0.9 million for the nine months ended June 30, 2001 and
$1.5 million for the nine months ended June 29, 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 $2.5
million in each of the nine month periods ended June 30, 2001 and June 29, 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) 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:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -----------------
------------------------- JUNE 30,
1999 2000 2001 2001
----- ----- ----- --------
(UNAUDITED)
Income available to common shareholders..................... $68.5(7) $83.4 $32.1 $91.2
Basic EPS................................................... $3.76(8) $2.98 $1.13 $3.22
Diluted EPS................................................. 2.57(11) 2.81 1.05 3.01
(10) Includes cumulative effect of change in accounting for intangible assets,
net of income tax benefit, of $(0.64) per share.
(11) Includes extraordinary loss of $0.19 per share for fiscal 1999.
(12) Includes cumulative effect of change in accounting for intangible assets,
net of income tax benefit, of $(0.59) per share.
(13) Adjusted EBITDA is defined as income from operations, plus restructuring
and other charges, depreciation and amortization. Adjusted 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.
Adjusted EBITDA is included in this prospectus 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.
11
RISK FACTORS
You should carefully consider the risks described below as well as other
information and data included in the prospectus 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 following 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 notes.
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 your original notes arise because we issued the original notes
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities laws. We do not intend to register the
original notes under the Securities Act.
If you do not tender your original notes or if we do not accept some of your
original notes, those notes will continue to be subject to the transfer and
exchange restrictions in:
- the indenture;
- the legend on the original notes; and
- the offering memorandum relating to the original notes.
Moreover, to the extent original notes are tendered and accepted in the exchange
offer, the trading market, if any, for the original notes would be adversely
affected.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS.
We have a significant amount of debt. As of June 29, 2002, we had approximately
$836.0 million of total indebtedness, approximately $383.7 million of which was
senior or secured debt.
Our substantial indebtedness could have important consequences for you. For
example, it could:
- make it more difficult for us to satisfy our obligations under the
notes and otherwise;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of cash flows from
operations to payments on our indebtedness, which would reduce the cash
flows 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;
12
- place us at a competitive disadvantage compared to our competitors that
have less debt;
- limit our ability to borrow additional funds; and
- expose us to risks 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 under 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
13
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 in 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
resetting of certain negative and affirmative covenants. We were in compliance
with all covenants at June 29, 2002.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE 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 credit facility permits additional borrowings of
up to $1.1 billion. All of those borrowings would be senior to the notes and the
subsidiary guarantees. If new debt is added to our current debt levels, the
related risks that we and they now face could intensify.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND, POSSIBLY, ALL OF OUR FUTURE BORROWINGS.
The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness and all of our and their future
borrowings, except:
- trade payables; and
- any future indebtedness that expressly provides that it ranks equal
with, or is subordinated in right of payment to, the notes 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, the holders of senior debt will be entitled to be paid in full in
cash before any payment may be made on the notes or the subsidiary guarantees.
In addition, all payments on the notes 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 Scotts or the subsidiary guarantors, holders of the notes
will participate with all other holders of subordinated indebtedness in the
assets remaining after we have paid all of the senior debt. Because the
indenture requires that amounts otherwise payable to holders of the notes in a
bankruptcy or similar proceeding be paid to holders of senior debt, holders of
the notes may receive less, ratably, than holders of trade payables in any
bankruptcy 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 notes may receive less, ratably, than the holders of senior debt. We
will be permitted to borrow substantial additional indebtedness, including
senior debt, in the future under the terms of the indenture.
THE NOTES WILL BE STRUCTURALLY JUNIOR TO ALL INDEBTEDNESS OF OUR SUBSIDIARIES
THAT ARE NOT GUARANTORS OF THE NOTES.
You will not have any claim as a creditor against our subsidiaries that are not
guarantors of the notes, and indebtedness and other liabilities, including trade
payables, whether secured or
14
unsecured, of those subsidiaries will effectively be senior to your claims
against those subsidiaries. For the 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 June 29, 2002, respectively, these subsidiaries
represented approximately 26.9% and 28.9% of our total assets. As of September
30, 2001 and June 29, 2002, respectively, these subsidiaries had approximately
$411 million and $380 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 claims 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 IMPACT FINANCIAL RESULTS.
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 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 two fiscal years, more than 75% of our net
sales have occurred in the second and third fiscal quarters combined. 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 affect on our ability to conduct 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 manufacture and market a number of complex chemical products, such as
fertilizers, growing media, herbicides and pesticides, bearing one of our
brands. On occasion, customers
15
and some current or former employees have alleged that some products failed to
perform up to expectations or have caused damage or injury to individuals or
property. Public perception that our products are not safe, whether justified or
not, could impair our reputation, damage our brand names and materially
adversely affect our 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
70% of our fiscal year 2001 net sales and 35% of our outstanding accounts
receivable for the past couple of fiscal years. Our top four customers, Home
Depot, Wal-Mart, Lowe's and Kmart, hold significant positions in the retail lawn
and garden market. The loss of, or reduction in orders from, Home Depot,
Wal-Mart, Lowe's, Kmart 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.
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 us with respect to pricing and payment terms.
Kmart, one of our top customers, filed for bankruptcy relief under Chapter 11 of
the bankruptcy 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 be adversely affected.
IF MONSANTO WERE TO TERMINATE THE MARKETING AGREEMENT FOR CONSUMER ROUNDUP(R)
PRODUCTS, WITHOUT BEING REQUIRED TO PAY ANY TERMINATION FEE, WE WOULD LOSE A
SUBSTANTIAL SOURCE OF FUTURE EARNINGS.
If we were to commit a serious default under the marketing agreement with
Monsanto for consumer Roundup(R) products, Monsanto may have the right to
terminate the agreement. If Monsanto were to terminate the marketing agreement
rightfully, we would not be entitled to any termination fee, and we would lose
all, or a significant portion, of the significant source of earnings we believe
the marketing agreement provides. Monsanto may also be able to terminate the
marketing agreement within a given region, including North America, without
paying us a termination fee if sales to consumers in that region decline:
- Over a cumulative three fiscal year period; or
- By more than 5% for each of two consecutive fiscal years.
THE EXPIRATION OF PATENTS RELATING TO ROUNDUP(R) AND THE SCOTTS TURF BUILDER(R)
LINE OF PRODUCTS COULD SUBSTANTIALLY INCREASE OUR COMPETITION IN THE UNITED
STATES.
Glyphosate, the active ingredient in Roundup(R), was subject to a patent in the
United States that expired in September 2000. We cannot predict the success of
Roundup(R) now that
16
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. Any
such decline in sales would adversely affect our financial results through the
reduction of commissions as calculated under the Roundup(R) marketing agreement.
We are aware that Spectrum Brands produced glyphosate one-gallon products for
Home Depot and Lowe's to be sold under the 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 covered Scotts Turf
Builder(R), Scotts Turf Builder(R) Plus 2(R) with Weed Control and Scotts Turf
Builder(R) with Halts(R) Crabgrass Preventer, expired 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.
THE HAGEDORN PARTNERSHIP L.P. BENEFICIALLY OWNS APPROXIMATELY 38% OF THE
OUTSTANDING COMMON SHARES OF SCOTTS ON A FULLY DILUTED BASIS.
The Hagedorn Partnership L.P. beneficially owns approximately 38% of the
outstanding common shares of Scotts on a fully diluted basis and has sufficient
voting power to significantly influence the election of directors and the
approval of other actions requiring the approval of our shareholders.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER PUBLIC HEALTH REGULATIONS COULD INCREASE
OUR COST OF DOING BUSINESS.
Local, state, federal and foreign laws and regulations relating to environmental
matters affect us in several ways. In the United States, all products containing
pesticides must be registered with the United States Environmental Protection
Agency ("U.S. EPA") and, in many cases, similar state agencies before they can
be sold. The inability to obtain or the cancellation of any registration could
have an adverse effect on 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. 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 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 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
from retailers by
17
December 2004 of residential uses of products containing diazinon, used also 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 some pesticide and fertilizer products may
include requirements that only certified or professional users apply the
product, that the products be used only in specified locations or that certain
ingredients not be used. Users may be required to post notices on properties to
which products have been or will be applied and may be required to notify
individuals in the vicinity that products will be applied in the 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 operating results in the past and could materially affect
future quarterly or annual operating results.
The harvesting of peat for our growing media business 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 have been required to create water
retention ponds to control the sediment content of discharged water. In the
United Kingdom, our peat extraction efforts are also the subject of legislation.
In addition to the regulations already described, local, state, federal and
foreign agencies regulate the disposal, handling and storage of waste, air and
water discharges from our facilities. In June 1997, the Ohio Environmental
Protection Agency ("Ohio EPA") initiated an enforcement action against us with
respect to alleged surface water violations and inadequate treatment
capabilities at our Marysville facility and seeking corrective action under the
Resource Conservation Recovery Act. We have met with the Ohio EPA and the Ohio
Attorney General's office to negotiate an amicable resolution of these issues.
On December 3, 2001, an agreed judicial Consent Order was submitted to the Union
County Common Pleas Court and was entered by the court on January 25, 2002.
For the nine months ended June 29, 2002, we made approximately $1.9 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
based on our operating in substantial compliance with applicable environmental
and public health laws and regulations and several significant assumptions:
- that we have identified all of the significant 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
18
health laws and regulations, it could have a material impact on future
environmental capital expenditures and other environmental expenses and our
results of operations, financial position and 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, particularly in the United Kingdom, Germany and France. Our
international operations have increased with the acquisitions of Levington,
Miracle Garden Care Limited, Ortho and Rhone-Poulenc Jardin and with the
marketing agreement for consumer Roundup(R) products. In fiscal year 2001,
international sales accounted for approximately 20% of our total sales.
Accordingly, we are subject to risks associated with operations in foreign
countries, including:
- fluctuations in currency exchange rates;
- limitations on the conversion of foreign currencies into U.S. dollars;
- limitations on the remittance of dividends and other payments by
foreign subsidiaries;
- additional costs of compliance with local regulations; and
- historically, higher rates of inflation than in the United States.
In addition, our operations outside the United States are subject to the risk of
new and different legal and regulatory requirements in local 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.
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 specific kinds of change of control events, we will be
required to offer to repurchase all outstanding notes 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 notes or that restrictions
in our credit facility will not allow 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 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.
Therefore, 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" section under the heading "Repurchase at the option of
holders -- Change of control."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
SUBSIDIARY GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the subsidiary guarantees could be voided. Alternatively, claims
in respect of the subsidiary
19
guarantees could be subordinated to all other debts of any subsidiary guarantor.
Either of these events could occur if the subsidiary guarantor, at the time it
incurred the indebtedness evidenced by its subsidiary guarantee, received less
than reasonably equivalent value or fair consideration for the incurrence of
such indebtedness, and:
- was insolvent or rendered insolvent by reason of the incurrence of the
indebtedness; or
- was engaged in a business or transaction for which the 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 as they mature.
In addition, any payment by any subsidiary guarantor under a subsidiary
guarantee could be voided and required to be returned to the subsidiary
guarantor, or to a fund for the benefit of the creditors of the 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, 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.
We cannot be certain as to the standards a court would use 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 not be subordinated to the subsidiary 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.
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 notes 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 that they intend to make a market in the 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, and the
market price quoted for the 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. Historically,
20
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
negative effect on you as the holder of the note or, if issued, the exchange
note, regardless of our prospects or financial performance.
21
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.
22
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 registration rights
agreement and the applicable requirements of the 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.
23
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term expiration date will mean 5:00 p.m., New York City time on Monday,
October 28, 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 the signatures guaranteed if required by the letter of
transmittal; and
24
- mail or otherwise deliver the letter of transmittal or the facsimile to
the exchange 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
25
- 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.
26
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
27
(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
28
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 subsequent 90-day period, in
each case until the exchange offer is completed or the shelf registration
statement, if required, is declared effective or the original notes cease to be
registrable securities, up to a maximum of 1.50% 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
29
assistance, 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: Mackenzie Elijah Corporate Trust Window, Fifth Floor
2 Avenue de Lafayette Attn: Mackenzie Elijah
Boston, MA 02111-1724 2 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:
Mackenzie Elijah
(617) 662-1525
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 exchange offer
and will not make any payments to brokers, 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 transfer tax is imposed for any
reason other than the exchange of the original notes pursuant to the 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
you.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the exchange 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 are not
30
exchanged for exchange notes pursuant to the exchange offer will remain
restricted securities. Accordingly, those original notes may be resold only:
- to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
- in a transaction meeting the requirements 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 based 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 States or any other
applicable jurisdiction.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for each
of the periods shown:
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -----------------
-------------------------------- JUNE 29,
1997 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges.... 3.3x 2.6x 2.3x 2.1x 1.3x 3.7x
- --------------------------------------------------------------------------------------------
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the exchange notes. The
net proceeds from the offering of the original notes, after deducting fees and
expenses (including discounts and commissions), was approximately $69.8 million.
The net proceeds were used to repay outstanding 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 credit facility bore interest at a weighted average rate of 6.82% as of June
29, 2002.
31
CAPITALIZATION
The following table sets forth our capitalization at June 29, 2002.
- -----------------------------------------------------------------------------------
(IN MILLIONS) AS OF JUNE 29, 2002
- -----------------------------------------------------------------------------------
(UNAUDITED)
Debt (including current portion):
Credit facility:
Revolving credit facility.............................. $ 0.3
Term loans............................................. 383.4
8.625% senior subordinated notes(1)....................... 391.5
Other debt(2)............................................. 60.8
--------
Total debt........................................... 836.0
Shareholders' equity........................................ 621.8
--------
Total capitalization................................. $1,457.8
- -----------------------------------------------------------------------------------
(1) Amounts are net of the unamortized balance of $8.5 million relating to
interest rate lock contracts which were settled in 1998 at a total cost of $12.9
million.
(2) Includes $38.7 million of notes due to sellers, $10.7 million of foreign
bank borrowings and term loans and $11.4 million of capital lease obligations.
32
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the historical financial data included in the table for, and as
of the end of, each of the fiscal years in the five-year period ended September
30, 2001, from our audited consolidated financial statements. The historical
financial data for the nine months ended June 30, 2001 and June 29, 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 results of operations for the periods specified. Such
results, however, are not necessarily indicative of the results which may be
expected for the full fiscal year. You should read the following information in
conjunction with our consolidated financial statements and the notes thereto,
and the information contained in "Management's discussion and analysis of
financial condition and results of operations" which are incorporated by
reference into this prospectus.
- --------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -------------------------
---------------------------------------------------- JUNE 30, JUNE 29,
1997 1998 1999 2000 2001 2001 2002
- --------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Net sales(1)...................... $857.8 $1,066.0 $1,550.6 $1,655.4 $1,696.6 $1,459.1 $1,457.3
Gross profit(1)................... 284.2 351.0(2) 563.3 603.0 597.2(2) 541.6(2) 541.6(2)
Roundup(R) marketing agreement(3):
Gross commission................ -- -- 30.3 39.2 39.1 37.2 30.8
Contribution expenses(4)........ -- -- 1.6 9.9 18.3 13.8 17.5
Net commission.................. -- -- 28.7 29.3 20.8 23.4 13.3
Advertising(1)(5)................. 42.4 57.4 87.0 89.0 89.9 77.2 68.6
Selling, general and
administrative(1)............... 131.6 169.9(6) 285.5 312.0 324.1 253.3 245.9
Restructuring and other charges... -- 15.4 1.4 -- 68.4 15.1 1.8
Amortization of goodwill and other
intangibles..................... 10.2 12.9 25.6 27.1 27.7 21.1 3.8
Other expense (income), net....... 5.2 1.3 (3.6) (6.0) (8.5) (8.6) (8.9)
Income from operations............ 94.8 94.1 196.1 210.2 116.4 206.9 243.7
Interest expense(7)............... 25.2 32.2 79.1 93.9 87.7 69.7 58.8
Income before income taxes........ 69.6 61.9 117.0 116.3 28.7 137.2 184.9
Income taxes...................... 30.1 24.9 47.9 43.2 13.2 58.3 71.2
Income before cumulative effect of
accounting change(8)............ 39.5 36.3 63.2 73.1 15.5 78.9 113.7
Cumulative effect of accounting
change for intangible assets,
net of tax...................... -- -- -- -- -- -- (18.5)
Net income(8)..................... 39.5 36.3 63.2 73.1 15.5 78.9 95.2
Dividends on convertible preferred
stock........................... 9.8 9.8 9.7 6.4 -- -- --
Income applicable to common
shareholders.................... 29.7 26.5 53.5 66.7 15.5 78.9 95.2
Basic earnings per common
share(9)........................ $1.60 $ 1.42(10) $ 2.93(10) $ 2.39 $ 0.55 $ 2.79 $ 3.27(11)
Diluted earnings per common
share(9)........................ 1.35 1.20(12) 2.08(12) 2.25 0.51 2.61 3.01(13)
Common shares used in basic
earnings per share
calculation..................... 18.6 18.7 18.3 27.9 28.4 28.3 29.1
Common shares and potential shares
used in diluted earnings per
share calculation............... 29.3 30.3 30.5 29.6 30.4 30.3 31.6
OTHER FINANCIAL AND OPERATING
DATA:
Cash flows from operating
activities...................... $121.1 $ 71.0 $ 78.2 $ 171.5 $ 65.7 $ 65.5 $ 152.0
Cash flows from investing
activities...................... ( 72.5) (192.1) (571.6) (89.5) (101.0) (70.7) (66.6)
Cash flows from financing
activities...................... ( 46.2) 118.4 513.9 (78.2) 21.4 45.7 29.8
33
- --------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -------------------------
---------------------------------------------------- JUNE 30, JUNE 29,
1997 1998 1999 2000 2001 2001 2002
- --------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
Adjusted EBITDA(14)............... 121.6 149.0 253.7 271.2 255.7 270.9 279.3
Depreciation...................... 16.6 21.6 29.0 29.0 32.6 24.4 26.0
Capital expenditures.............. 28.6 41.3 66.7 72.5 63.4 36.2 33.9
BALANCE SHEET DATA:
Working capital................... $146.5 $ 135.3 $ 274.8 $ 234.1 $ 249.1 $ 332.2 $ 321.2
Total assets...................... 787.6 1,035.2 1,769.6 1,761.4 1,843.0 2,003.9 2,070.1
Total debt........................ 221.3 372.5 950.0 862.8 887.8 896.7 836.0
Shareholders' equity.............. 389.2 403.9 443.3 477.9 506.2 566.6 621.8
- --------------------------------------------------------------------------------------------------------------------
(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:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -----------------
---------------------------------------------- JUNE 30,
1997 1998 1999 2000 2001 2001
------ ------ ------ ------ ------ -----------------
(UNAUDITED)
Net sales........................................ $(13.9) $(17.3) $(51.9) $(53.6) $(51.1) $(40.3)
Gross profit..................................... (13.9) (17.3) (51.9) (55.5) (54.2) (42.8)
Advertising...................................... (13.9) (17.3) (56.2) (64.8) (61.1) (50.6)
Selling, general and administrative.............. -- -- 4.3 9.3 6.9 7.8
(2) Includes $2.9 million and $7.3 million of restructuring and other charges in
1998 and 2001, respectively, $0.9 million for the nine month period ended June
30, 2001 and $1.5 million for the nine month period ended June 29, 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 $2.5
million for each of the nine month periods ended June 30, 2001 and June 29,
2002.
(5) Advertising represents the cost of Scotts' external media campaign and
related fees and expenses
(6) Includes $2.1 million of restructuring and other charges.
(7) Includes amortization of deferred financing costs, interest rate locks and
debt discount.
(8) Includes extraordinary losses of $0.7 million and $5.9 million, net of
income tax benefits, for 1998 and 1999, respectively.
(9) 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:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, -----------------
---------------------------- JUNE 30,
1999 2000 2001 2001
------ ------ ------ -----------------
(UNAUDITED)
Income available to common shareholders..................... $ 68.5(8) $ 83.4 $ 32.1 $91.2
Basic EPS................................................... $ 3.76(10) $ 2.98 $ 1.13 $3.22
Diluted EPS................................................. 2.57(12) 2.81 1.05 3.01
(10) Includes extraordinary losses of $0.04 and $0.32 per share for 1998 and
1999, respectively.
(11) Includes cumulative effect of change in accounting for intangible assets,
net of income tax benefit, of $(0.64) per share.
(12) Includes extraordinary losses of $0.02 and $0.19 per share for 1998 and
1999, respectively.
(13) Includes cumulative effect of change in accounting for intangible assets,
net of income tax benefit, of $(0.59) per share.
(14) Adjusted EBITDA is defined as income from operations, plus restructuring
and other charges, depreciation and amortization. Adjusted 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.
Adjusted EBITDA is included in this prospectus 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.
34
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
CREDIT FACILITY
The following description is a summary of material provisions of our credit
facility. It does not restate the credit facility in its entirety. We urge you
to read the credit facility because it, and not this description, defines the
terms of our other material outstanding indebtedness. We have not included the
definitions of many of the defined terms contained in the credit facility, and
we urge you to refer to such document for the definitions of capitalized terms
in the following summary. Copies of the credit facility are available as set
forth under the section entitled "Where you can find additional information."
Scotts and certain of its 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 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 credit facility establishes aggregate financing for Scotts and certain of
our subsidiaries which are designated (either at closing or in the future) as
co-borrowers in the aggregate principal amount of $1.1 billion. The credit
financing under the credit facility is provided by a lending syndicate group
consisting of more than 90 lenders worldwide, with JPMorgan Chase Bank serving
as administrative agent.
AMOUNT OF ADDITIONAL CREDIT AVAILABLE
The credit facility provides for aggregate total senior secured credit financing
in the principal amount of up to $1.1 billion, consisting of term loan
facilities in the aggregate amount of $525 million and a revolving credit
facility in the amount of $575.0 million. A portion of the revolving credit
facility may be used for permitted acquisitions of up to $200.0 million
(increasing to $225.0 million on October 1, 2002).
SPECIFIC CREDIT FACILITIES
The term loan facilities consist of two tranches. The first, the Tranche A term
loan facility, consists of a 6 1/2 year term loan facility in an aggregate
approximate principal amount equal to $265.0 million, which is divided into
three sub-tranches of French Francs, German Deutsche Marks and British Pounds
Sterling, the first two sub-tranches of which will now be repaid in euros. The
Tranche A term loans are to be repaid in quarterly principal installments
maturing on June 30, 2005. The Tranche B term loan facility consists of a 7 year
term loan facility in an aggregate principal amount equal to $260.0 million,
which is to be repaid in nominal quarterly installments for the first 6 years
and in substantial quarterly installments in the final year. The Tranche B term
loan facility matures on December 31, 2007.
The revolving credit facility consists of revolving credit loans in the amount
of up to $575.0 million, which is available on a revolving basis for a term of 6
1/2 years. A portion of the revolving credit facility not to exceed $100.0
million is available for the issuance of letters of credit. Additionally, a
portion of the revolving credit facility not to exceed $55.0 million is
available from JPMorgan Chase or Credit Lyonnais for swing line loans in U.S.
Dollars on same-day notice. Portions of such swing line limit, not to exceed
certain sub-limits, are also available
35
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 facility not to exceed
$360.0 million is available for borrowing in various optional currencies,
including the Euro, provided that the outstanding revolving credit loans in
optional currencies other than British Pounds Sterling does not exceed $200.0
million. The outstanding principal amount of all revolving credit loans may not
exceed $150.0 million for at least 30 consecutive days during any calendar year.
The revolving credit facility matures on June 30, 2005.
PREPAYMENTS
Loans may be prepaid and commitments may be reduced in certain specified minimum
amounts. Optional prepayments of the term loans shall be applied pro rata to the
two tranches thereof ratably to the respective installments thereof. As long as
any Tranche A term loans are outstanding, each holder of Tranche B term 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. Optional prepayments of the term loans may not be reborrowed.
The credit 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, (b) 100% of the net proceeds of any incurrence of
indebtedness 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 (d) 75% of excess cash flow, subject to reductions as
specified if certain leverage ratios are met.
INTEREST
A pricing grid establishes various interest rate options on the revolving credit
facility and the term loans and is based upon the leverage ratio as determined
by our consolidated financial statements. The interest rate options include a
LIBOR option, and a base rate determined by a calculation which takes into
effect the prime rate, the base CD rate, and the Federal Funds effective rate in
effect as of any date of determination.
GUARANTIES
Scotts executed an unconditional guaranty of all of the indebtedness and
obligations under the credit facility incurred by its subsidiary borrowers.
Additionally, most of our domestic direct and indirect subsidiaries executed
guaranties as well. Our offshore indirect subsidiaries did not execute any
guaranties.
COLLATERAL
Scotts and all of its domestic subsidiaries pledged substantially all of their
personal property assets to secure the indebtedness and obligations under the
credit facility. Additionally, Scotts and its domestic subsidiaries pledged any
real property assets having a value in excess of $500,000. Scotts and its
domestic subsidiaries pledged primarily all of their intellectual property
assets as well. Scotts 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.
36
COVENANTS
The credit facility contains standard negative covenants, including covenants
which impose limitations on our ability to, among other things, (a) place liens
on property, or incur contingent obligations, (b) sell all or substantially all
of our assets, and (c) make any fundamental changes, or acquisitions,
investments, loans or advances, except for acquisitions in an amount not to
exceed $225.0 million without consent. The credit facility also contains
financial covenants consisting of the maintenance of a specified leverage ratio
and an interest coverage ratio, over the life of the credit facility. These
financial covenants are based upon operating performance levels in effect
throughout the term of the credit facility.
OUTSTANDING 8.625% SENIOR SUBORDINATED NOTES
In January 1999, we issued $330 million aggregate principal amount of 8.625%
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 offering registered under the Securities Act that was completed in
2001. The outstanding 8.625% Series B senior subordinated notes due 2009 are
identical to the original notes issued on February 6, 2002, except that the
outstanding 8.625% Series B senior subordinated notes due 2009 have been
registered under the Securities Act. The outstanding 8.625% Series B senior
subordinated notes due 2009 will be identical to the exchange notes.
37
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under the
subheading "Certain Definitions." In this description, the words "Company,"
"Issuer," "Scotts," "us," "we" and "our" refer only to The Scotts Company and
not to any of its subsidiaries.
The Company issued the original Notes, and will issue the 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") 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
are pari passu with the outstanding notes and are identical in all respects,
except that the 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, 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 because it, and not this description, defines your rights as holders
of these Notes. Copies of the Indenture are available as set forth below under
"Where you can find more information."
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE 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 are 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.
As of June 29, 2002, the Company and the Guarantors had total Senior Debt of
approximately $383.7 million. As indicated above and as discussed in detail
below under the subheading
38
"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 covenants -- Restricted 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 23.4% of our consolidated revenues and 11.7% of our consolidated
EBITDA for the year ended September 30, 2001 and held approximately 26.9% and
28.9% of our consolidated assets as of September 30, 2001 and June 29, 2002,
respectively. They did not represent a positive percentage of our operating
income or earnings before taxes. See note 23 of the notes to our consolidated
financial statements in our Form 10-K for the fiscal year ended September 30,
2001, as amended by the Form 8-K/A filed with the SEC on September 13, 2002,
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.
As 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 $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 accrues at the rate of 8.625% per annum from 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, 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.
39
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.
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
(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
40
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 option of holders -- Asset 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 defeasance and 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
defeasance and covenant defeasance") if:
(1) payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
41
(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 waived
for a period of not less than 90 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.
OPTIONAL REDEMPTION
The 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 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:
- -------------------------------------------------------------------------
YEAR PERCENTAGE
- -------------------------------------------------------------------------
2004........................................................ 104.313%
2005........................................................ 102.875%
2006........................................................ 101.438%
2007 and thereafter......................................... 100.000%
- -------------------------------------------------------------------------
42
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"
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.
43
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 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
44
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:
(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.
45
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.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(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
indebtedness and issuance of 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
46
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 $156.4 million under this covenant as of June 29,
2002.
So long as no Default has occurred and is continuing or would be caused thereby,
the preceding provision will not prohibit:
(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;
47
(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" 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.
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
48
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 option of
holders -- Asset 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 (according to the Company's calculations,
the Company may utilize $17.0 million of this $20.0 million basket as of
June 29, 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 to the prior payment in full in cash of
49
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 (a) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding or (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 (according to the Company's calculations, the Company may
utilize $47.8 million of this $60.0 million basket as of June 29, 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 (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 indebtedness and
issuance of 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
50
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 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;
51
(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;
(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
52
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 indebtedness and issuance of
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 or sale of
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.
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.
53
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;"
(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
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 indebtedness and
issuance of 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;
54
(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 option of holders -- Asset 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.
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 option of holders -- Change of control," "Repurchase
at the option of holders -- Asset sales,"
55
"Certain covenants -- Restricted payments" or "Certain
covenants -- Incurrence of indebtedness and issuance of 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.
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.
56
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, 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 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.
57
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;
58
(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.
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 option of 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 option of 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;
59
(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
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.
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" 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" 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
60
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"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 of control" and/or the provisions described above under the
caption "-- Merger, consolidation or sale of assets" and not by the
provisions of the Asset Sale covenant; and
(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;" and
61
(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" 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" 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.
"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" 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" 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;
62
(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" 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;
(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 A CONVERTIBLE PREFERRED STOCK" means 195,000 shares of the Company's 5%
Class A Convertible Preferred Stock, liquidation preference $1,000 per share,
all of which has been converted into common shares of the 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
63
(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 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").
"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
64
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");
(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" 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" 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, JP Morgan Chase 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
(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" 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" 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."
65
"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" 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" 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" 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" 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" 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
(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
66
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" 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" 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" 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" means:
(1) each Wholly Owned Domestic Restricted Subsidiary of the Company on
the date of the Indenture; and
67
(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.
"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 indebtedness and issuance of preferred stock."
"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" 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
68
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 covenants -- Restricted payments."
"ISSUE DATE" means the date of first issuance of the Notes under the Indenture.
"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" 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" 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" 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
69
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" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"PERMITTED INVESTMENTS" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(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 option of holders -- Asset 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 (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" means:
(1) Liens securing Senior Debt that was permitted by the terms of the
Indenture to be incurred;
70
(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;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"Incurrence of indebtedness and issuance of 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" 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;
71
(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" 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" means the Hagedorn Partnership, L.P., and any Partner or Affiliate
thereof or of such Partner.
"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 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" 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" 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" means an Investment other than a Permitted Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"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
72
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" 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;
(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" 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" 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" 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" 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
73
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"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" 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" 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 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 covenants -- Restricted payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of
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the Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of indebtedness and issuance of 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 covenants -- Incurrence of indebtedness and issuance
of 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" 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" 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" means, with respect to the
Company, any Domestic Restricted Subsidiary that meets the definition of a
Wholly Owned Restricted Subsidiary.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary
of such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned by
such Person and/or by one or more Wholly Owned Restricted Subsidiaries of such
Person.
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BOOK-ENTRY, SETTLEMENT AND CLEARANCE
THE GLOBAL NOTE
The exchange notes will be issued in the form of a registered note in global
form, without interest coupons (the "global note"). Upon issuance, the global
note will be deposited with the Trustee as custodian for The Depository Trust
Company and registered in the name of Cede & Co., as nominee of DTC.
OWNERSHIP OF BENEFICIAL INTERESTS IN THE GLOBAL NOTE WILL BE LIMITED TO PERSONS
WHO HAVE ACCOUNTS WITH DTC ("DTC PARTICIPANTS") OR PERSONS WHO HOLD INTERESTS
THROUGH DTC PARTICIPANTS. WE EXPECT THAT UNDER PROCEDURES ESTABLISHED BY DTC:
- upon deposit of the global note with DTC's custodian, DTC will credit
portions of the principal amount of the global note to the accounts of
the DTC participants designated by the initial purchasers; and
- ownership of beneficial interests in the global note will be shown on,
and transfer of ownership of those interests will be effected only
through, records maintained by DTC (with respect to interests of DTC
participants) and the records of DTC participants (with respect to other
owners of beneficial interests in the global note).
Investors may hold their interests in the global note directly through Euroclear
or Clearstream, if they are participants in those systems, or indirectly through
organizations that are participants in those systems. After the Distribution
Compliance Period ends, investors may also hold their interests in the global
note through organizations other than Euroclear or Clearstream that are DTC
participants. Each of Euroclear and Clearstream will appoint a DTC participant
to act as its depositary for the interests in the global note that are held
within DTC for the account of each settlement system on behalf of its
participants.
Beneficial interests in the global note may not be exchanged for notes in
physical, certificated form except in the limited circumstances described below.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTE
All interests in the global note will be subject to the operations and
procedures of DTC, Euroclear and Clearstream. We provide the following summaries
of those operations and procedures solely for the convenience of investors. The
operations and procedures of each settlement system are controlled by that
settlement system and may be changed at any time. We are not responsible for
those operations or procedures.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State
of New York;
- a "banking organization" within the meaning of the New York State
Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
- a "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
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DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants. DTC's
participants include securities brokers and dealers, including the initial
purchasers; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a custodial relationship with a DTC participant,
either directly or indirectly. Investors who are not DTC participants may
beneficially own securities held by or on behalf of DTC only through DTC
participants or indirect participants in DTC.
So long as DTC's nominee is the registered owner of a global note, that nominee
will be considered the sole owner or holder of the notes represented by that
global note for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in a global note:
- will not be entitled to have notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical, certificated
notes; and
- will not be considered the owners or holders of the notes under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee under the Indenture.
As a result, each investor who owns a beneficial interest in a global note must
rely on the procedures of DTC to exercise any rights of a holder of notes under
the Indenture (and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC participant through which the
investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the notes
represented by a global note will be made by the Trustee to DTC's nominee as the
registered holder of the global note. Neither we nor the Trustee will have any
responsibility or liability for the payment of amounts to owners of beneficial
interests in a global note, for any aspect of the records relating to or
payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's procedures
and will be settled in same-day funds. Transfers between participants in
Euroclear or Clearstream will be effected in the ordinary way under the rules
and operating procedures of those systems.
Cross-market transfers between DTC participants, on the one hand, and Euroclear
or Clearstream participants, on the other hand, will be effected within DTC
through the DTC participants that are acting as depositaries for Euroclear and
Clearstream. To deliver or receive an interest in a global note held in a
Euroclear or Clearstream account, an investor must send transfer instructions to
Euroclear or Clearstream, as the case may be, under the rules and procedures of
that system and within the established deadlines of that system. If the
transaction meets its settlement requirements, Euroclear or Clearstream, as the
case may be, will send instructions to its DTC depositary to take action to
effect final settlement by delivering or receiving interests in the relevant
global notes in DTC, and making or receiving
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payment under normal procedures for same-day funds settlement applicable to DTC.
Euroclear and Clearstream participants may not deliver instructions directly to
the DTC depositaries that are acting for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant that purchases an interest in a global note from a DTC
participant will be credited on the business day for Euroclear or Clearstream
immediately following the DTC settlement date. Cash received in Euroclear or
Clearstream from the sale of an interest in a global note to a DTC participant
will be received with value on the DTC settlement date but will be available in
the relevant Euroclear or Clearstream cash account as of the business day for
Euroclear or Clearstream following the DTC settlement date.
DTC, Euroclear and Clearstream have agreed to the above procedures to facilitate
transfers of interests in the global notes among participants in those
settlement systems. However, the settlement systems are not obligated to perform
these procedures and may discontinue or change these procedures at any time.
Neither we nor the Trustee will have any responsibility for the performance by
DTC, Euroclear or Clearstream or their participants or indirect participants of
their obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each person
that DTC identifies as a beneficial owner of the related notes only if:
- DTC notifies us at any time that it is unwilling or unable to continue
as depositary for the global notes and a successor depositary is not
appointed within 90 days;
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
90 days;
- we, at our option, notify the Trustee that we elect to cause the
issuance of certificated notes; or
- certain other events provided in the Indenture should occur.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of material U.S. federal income and estate
tax considerations relating to the exchange of the 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 summary 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 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 statements made and the conclusions reached in the
following summary, and there can be no assurance that the IRS will agree with
such statements and conclusions.
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 resident 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 vary depending upon
the particular situation of such holder. United States persons acquiring the
notes are subject to different rules than those discussed below. In addition,
certain other holders (including insurance companies, tax exempt organizations,
financial institutions, holders who do not hold the notes as capital assets and
broker-dealers) may be subject to special rules not discussed below. If a
partnership holds our notes, the tax 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 notes pursuant to the
exchange offer should not be treated as a taxable transaction for federal income
tax 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 holders exchanging original notes for
exchange notes pursuant to the exchange offer. Moreover, a
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holder should have the same adjusted basis and holding period in an exchange
note as it had in an original note immediately prior to the exchange. Therefore,
references to "notes" should apply equally to the exchange notes and the
original notes.
UNITED STATES HOLDERS
AMORTIZABLE BOND PREMIUM
If you purchased the notes for an amount in excess of the sum of all amounts
payable on the note other than qualified stated interest, you will be considered
to have purchased the note at a "premium." You generally may elect to amortize
the premium over the remaining term of the note on a constant yield method as an
offset to interest when includible in income under your regular accounting
method. In the case of instruments that provide for alternative payment
schedules, bond premium is calculated by assuming that (a) you will exercise or
not exercise options in a manner that maximizes your yield, and (b) we will
exercise or not exercise options in a manner that minimizes your yield (except
that we will be assumed to exercise call options in a manner that maximizes your
yield). If you do not elect to amortize bond premium, that premium will decrease
the gain or increase the loss you would otherwise recognize on disposition of
the note. Your election to amortize premium on a constant yield method will also
apply to all debt obligations held or subsequently acquired by you on or after
the first day of the first taxable year on which the election applies. You may
not revoke the election without the consent of the IRS. You should consult your
own tax advisor before making this election.
NON-UNITED STATES HOLDERS
INTEREST
Interest paid by Scotts to a holder that is not a United States Holder (a
"Non-United States Holder" will not be subject to United States federal income
or withholding tax if such interest is not effectively connected with the
conduct of a trade or business within the United States by such Non-United
States Holder and such Non-United States Holder:
- does not actually or constructively own 10% of the total combined
voting power of all classes of stock of Scotts;
- is not a "controlled foreign corporation" within the meaning of the
Code, with respect to which Scotts is a "related person" (within the
meaning of the Code); and
- certifies, under penalties of perjury, that it is not a United States
person and provides its name and address in an appropriate form
(currently IRS Form W-8BEN) to Scotts or an agent appointed by Scotts for
such purpose (or, a security clearing organization, bank or other
financial institution, which holds the notes on your behalf in the
ordinary course of its trade or business, certifies on your behalf that
it has received such certification from you and provides a copy to Scotts
or its agent of such certificates).
If you are not qualified for exemption under these rules, interest paid to you
may be subject to withholding tax at the rate of 30% (or any lower applicable
treaty rate, provided that applicable certification requirements are met). The
payment of interest effectively connected with your United States trade or
business, however, would not be subject to a 30% withholding tax so long a you
provide Scotts or its paying agent an adequate certification as to that effect
(currently IRS Form W-8ECI).
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GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a note unless:
- such investment gain on the notes is effectively connected with a
United States trade or business that is conducted by you;
- you are a nonresident alien individual and you are present in the
United States for 183 or more days in the taxable year within which such
sale, redemption or other disposition takes place and certain other
requirements are met; or
- you are subject to provisions of United Sates tax law applicable to
certain United States expatriates.
If you conduct a United States trade or business and the income on the notes is
effectively connected with such United States trade or business, the payment of
interest or of gain on the sale of the notes will be subject to United States
federal income tax on a net basis at the rates applicable to United States
persons generally (and, if you are a corporation, may also be subject to a 30%
branch profits tax).
FEDERAL ESTATE TAXES
If interest on the notes is exempt from withholding of United States federal
income tax under the rules described above, the notes will not be included in
the estate of a deceased Non-United States Holder for United States federal
estate tax purposes, provided that (1) you do not actively (or constructively)
own 10% or more of the total combined voting power of all classes of our voting
stock within the meaning of the Code and applicable U.S. Treasury regulations
and (2) interest on that note would not have been, if received at the time of
your death, effectively connected with the conduct by you of a trade or business
in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Scotts will, where required, report to the holders of notes and the Internal
Revenue Service the amount of any interest paid on the notes in each calendar
year and the amounts of tax withheld, if any, from those payments.
In the case of payments of interest to Non-United States Holders, a backup
withholding tax and certain information reporting requirements will not apply to
payments for which the requisite certification, as described above, has been
received or an exemption has otherwise been established; provided that neither
Scotts nor its payment agent has actual knowledge that the holder is a United
States person or that the conditions of any other exemption are not in fact
satisfied. These information reporting and backup withholding requirements will
apply, however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the notes by or through a United States office of a United States
or foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or the holder
otherwise establishes an exemption. As a general matter, information reporting
and backup withholding will not apply to a payment of the proceeds of a
disposition of the notes by or through a foreign office of a foreign broker.
Information
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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:
- 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, 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 NOTES SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS,
OF EXCHANGING ORIGINAL NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER.
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ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase of the notes and exchange notes by employee benefit plans that are
subject to Title I of ERISA, plans, individual retirement accounts and other
arrangements that are subject to Section 4975 of the Code or provisions under
any federal, state, local, non-U.S. or other laws or regulations that are
substantially similar to the provisions of Title I of ERISA or Section 4975 of
the Code ("Similar Laws"), and entities whose underlying assets are considered
to include "plan assets" of such plans, accounts and arrangements (each, a
"Plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of a
Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such an ERISA Plan or the management or disposition of the assets of such an
ERISA Plan, or who renders investment advice for a fee or other compensation to
such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering an investment in the notes of a portion of the assets of any
Plan, a fiduciary should determine whether the investment is in accordance with
the documents and instruments governing the Plan and the applicable provisions
of ERISA, the Code or any Similar Law relating to a fiduciary's duties to the
Plan, including, without limitation, the prudence, diversification, delegation
of control and prohibited transaction provisions of ERISA, the Code and any
other applicable Similar Laws.
Any insurance company proposing to invest assets of its general account in the
notes should consider the extent that such investment would be subject to the
requirements of ERISA in light of the U.S. Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under any
subsequent legislation or other guidance that has or may become available
relating to that decision, including the enactment of Section 401(c) of ERISA by
the Small Business Job Protection Act of 1996 and the regulations promulgated
thereunder.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entitles who are "parties in interest," within the meaning of ERISA or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engages in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code. The acquisition and/or holding of notes by an ERISA Plan with respect to
which we or the initial purchasers are considered a party in interest or
disqualified person may constitute or result in a direct or indirect prohibited
transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless
the investment is acquired and is held in accordance with an applicable
statutory, class or individual prohibited transaction exemption. In this regard,
the U.S. Department of Labor has issued prohibited transaction class exemptions
("PTCEs") that may apply to the acquisition and holding of the notes. These
class
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exemptions include, without limitation, PTCE 84-14, respecting transactions
determined by independent qualified professional asset managers, PTCE 90-1,
respecting insurance company pooled separate accounts, PTCE 91-38, respecting
bank collective investment funds, PTCE 95-60, respecting life insurance company
general accounts and PTCE 96-23, respecting transaction determined by in-house
asset managers, although there can be no assurance that all of the conditions of
any such exemptions will be satisfied.
Because of the foregoing, the notes should not be purchased or held by any
person investing "plan assets" of any Plan, unless such purchase and holding
(and the exchange of the notes for exchange notes) will not constitute a
non-exempt prohibited transaction under ERISA and the Code or violation of any
applicable Similar Laws.
REPRESENTATION
Accordingly, by acceptance of a note or an exchange note, each purchaser and
subsequent transferee will be deemed to have represented and warranted that
either (1) no portion of the assets used by such purchaser or transferee to
acquire and hold the notes constitutes assets of any Plan or (2) the purchase
and holding of the notes (and the exchange of notes for exchange notes) by such
purchaser or transferee will not constitute a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code or a violation under any
applicable Similar Laws.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering purchasing
the notes (or exchanging the notes) on behalf of, or with the assets of, any
Plan, consult with their counsel regarding the potential applicability of ERISA,
Section 4975 of the Code and any Similar Laws to such transaction and whether an
exemption would be applicable.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for original
notes where the broker-dealer acquired the original notes as a result of
market-making activities or other trading activities. We have agreed that for a
period of up to 180 days after the date that this registration statement is
declared effective by the SEC, we will make this prospectus, as amended or
supplemented, available to any broker-dealer that requests it in the letter of
transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. Broker-dealers may sell exchange notes
received by broker-dealers for their own account pursuant to the exchange offer
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell exchange notes directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
exchange notes. Any broker-dealer that resells exchange notes that were received
by it for its own account pursuant to the exchange offer and any broker or
dealer that participates in a distribution of the exchange notes may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit on
any resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to our performance of, or compliance
with, the registration rights agreement and will indemnify you against
liabilities under the Securities Act. By its acceptance of the exchange offer,
any broker-dealer that receives exchange notes pursuant to the exchange offer
agrees to notify us before using the prospectus in connection with the sale or
transfer of exchange notes. The broker-dealer further acknowledges and agrees
that, upon receipt of notice from us of the happening of any event which makes
any statement in the prospectus untrue in any material respect or which requires
the making of any changes in the prospectus to make the statements in the
prospectus not misleading or which may impose upon us disclosure obligations
that my have a material adverse effect on us, which notice we agree to deliver
promptly to the broker-dealer, the broker-dealer will suspend use of the
prospectus until we have notified the broker-dealer that delivery of the
prospectus may resume and have furnished copies of any amendment or supplement
to the prospectus to the broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the notes offered hereby will be passed
upon for us by Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio.
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EXPERTS
The financial statements of The Scotts Company incorporated into this prospectus
by reference to the Current Report on Form 8-K/A dated September 13, 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 accounting.
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 the 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
information 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 fiscal
year ended September 30, 2001 (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 for the fiscal quarter ended March
30, 2002;
- our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29,
2002;
- our Current Report on Form 8-K filed with the SEC on January 30, 2002;
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- our Current Report on Form 8-K filed with the SEC on June 24, 2002 and
our Current Report on Form 8-K/A filed with the SEC on September 13,
2002, which amend certain items in our Form 10-K for the fiscal year
ended September 30, 2001, to reflect retroactively the disclosures and
presentations required by 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
filed with the Commission on December 20, 2001.
Later information that we file with the SEC will update and/or supercede this
information. We are also incorporating by reference all other reports that we
file with the SEC under Sections 13(a), 13(c), 14 or 15(d) between the date of
this prospectus and the date of the consummation of the exchange offer.
Information furnished under Item 9 of any of our Current Reports on Form 8-K is
not incorporated by reference in this prospectus. We furnished information under
Item 9 of our Current Report on Form 8-K to the SEC on August 9, 2002, August
22, 2002 and September 18, 2002.
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