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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
THE SCOTTS COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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[THE SCOTTS COMPANY LOGO]
THE SCOTTS COMPANY
PROXY STATEMENT
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<PAGE> 3
[THE SCOTTS COMPANY LOGO]
THE SCOTTS COMPANY
14111 SCOTTSLAWN ROAD
MARYSVILLE, OHIO 43041
January 12, 1998
Dear Fellow Shareholders:
The Annual Meeting of the Shareholders (the "Annual Meeting") of The Scotts
Company, an Ohio corporation (the "Company"), will be held at 10:00 a.m., local
time, on Wednesday, February 18, 1998, at the Adam's Mark Hotel, 50 North Third
Street, Columbus, Ohio. The enclosed Notice of Annual Meeting of Shareholders
and Proxy Statement contain detailed information about the business to be
transacted at the Annual Meeting.
The Board of Directors has nominated three directors, each for a term to
expire at the 2001 Annual Meeting. The Board of Directors recommends that you
vote FOR the nominees.
On behalf of the Board of Directors and management, I cordially invite you
to attend the Annual Meeting. Whether or not you plan to attend the Annual
Meeting, the prompt return of your proxy in the enclosed return envelope will
save the Company additional expenses of solicitation and will help ensure that
as many shares as possible are represented.
Sincerely,
/s/ Charles M. Berger
CHARLES M. BERGER
Chairman, President and Chief
Executive Officer
<PAGE> 4
[THE SCOTTS COMPANY LOGO]
THE SCOTTS COMPANY
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, FEBRUARY 18, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of The Scotts Company, an Ohio corporation (the "Company"), will be
held at the Adam's Mark Hotel, 50 North Third Street, Columbus, Ohio, on
Wednesday, February 18, 1998 at 10:00 a.m., local time, for the following
purposes:
1. To elect three directors, each for a term of three years to expire at
the 2001 Annual Meeting; and
2. To transact such other business as may properly come before the
Annual Meeting or any adjournment(s) thereof.
The close of business on December 30, 1997, has been fixed by the Board of
Directors of the Company as the record date for determining the shareholders
entitled to notice of, and to vote at, the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, you may insure your representation by
completing, signing, dating and promptly returning the enclosed proxy card. A
return envelope, which requires no postage if mailed in the United States, has
been provided for your use. If you attend the Annual Meeting and inform the
Secretary of the Company in writing that you wish to vote your shares in person,
your proxy will not be used.
By Order of the Board of Directors,
/s/ G. Robert Lucas
G. ROBERT LUCAS,
Senior Vice President, General Counsel
and Corporate Secretary
14111 Scottslawn Road
Marysville, Ohio 43041
January 12, 1998
<PAGE> 5
[THE SCOTTS COMPANY LOGO]
THE SCOTTS COMPANY
14111 SCOTTSLAWN ROAD
MARYSVILLE, OHIO 43041
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, FEBRUARY 18, 1998
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors of The Scotts Company, an Ohio corporation (the
"Company"), of proxies for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held at the Adam's Mark Hotel, 50 North Third Street,
Columbus, Ohio, on Wednesday, February 18, 1998, at 10:00 a.m., local time, and
at any adjournment(s) thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. This Proxy Statement and the
accompanying form of proxy are first being mailed to shareholders on or about
January 12, 1998. Only holders of record of the Company's common shares, without
par value (the "Common Shares"), and the Company's Class A Convertible Preferred
Stock, without par value (the "Convertible Preferred Stock"), will be entitled
to vote at the Annual Meeting. As of December 30, 1997, there were 18,677,146
Common Shares outstanding and 195,000 shares of Convertible Preferred Stock
outstanding. Each Common Share entitles the holder thereof to one vote. Each
share of Convertible Preferred Stock entitles the holder thereof to the number
of votes equal to the number of Common Shares into which such share of
Convertible Preferred Stock could be converted as of the record date for the
Annual Meeting. As of December 30, 1997, the holders of the Convertible
Preferred Stock were entitled to an aggregate of 10,263,158 votes. A quorum for
the Annual Meeting is a majority of the voting shares outstanding. There is no
cumulative voting. Other than the Common Shares and the Convertible Preferred
Stock, there are no other voting securities of the Company outstanding.
Common Shares and shares of Convertible Preferred Stock represented by
signed proxies that are returned to the Company will be counted toward the
quorum even though they are marked as "Withhold Authority" or they are not
marked at all. Broker/dealers who hold their customers' shares in street name
may, under the applicable rules of the exchange and other self-regulatory
organizations of which the broker/dealers are members, sign and submit proxies
for such street name shares and may vote such shares on "routine" matters,
which, under such rules, typically include the election of directors. Since it
is presently anticipated that the only matter to be voted upon at the Annual
Meeting is the election of directors, there should be no "broker non-votes."
If the accompanying proxy card is properly signed and returned to the
Company prior to the Annual Meeting and not revoked, it will be voted in
accordance with the instructions contained therein. If no instructions are
given, the persons designated as proxies in the accompanying proxy card will
vote FOR the election as directors of those persons named below.
The Board of Directors is not currently aware of any matters other than
those referred to herein which will come before the Annual Meeting. If any other
matter should be presented at the Annual Meeting for action, the persons named
in the accompanying proxy card will vote the proxy in their own discretion.
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by delivering written notice of revocation to the Secretary of
the Company, by submitting a subsequently dated proxy, or by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not,
in itself, constitute revocation of the proxy.
The expense of preparing, printing and mailing proxy materials to the
Company's shareholders will be borne by the Company. In addition, proxies may be
solicited personally or by telephone, mail or telegram. Officers or
<PAGE> 6
employees of the Company may assist with personal or telephone solicitation and
will receive no additional compensation therefor. The Company will also
reimburse brokerage houses and other nominees for their reasonable expenses in
forwarding proxy materials to beneficial owners of the Common Shares.
If a shareholder is a participant in The Scotts Company Profit Sharing and
Savings Plan (the "PSP") and Common Shares have been allocated to such person's
account in the PSP, the trustee will vote the allocated Common Shares.
BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY
The following table furnishes certain information as of December 1, 1997
(except as otherwise noted), as to the Common Shares beneficially owned by each
of the directors of the Company, by each of the individuals named in the Summary
Compensation Table and by all directors and executive officers of the Company as
a group, and, to the Company's knowledge, by the only persons beneficially
owning more than 5% of the outstanding Common Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
----------------------------------------------------
COMMON SHARES WHICH
CAN BE ACQUIRED
UPON
CONVERSION OF
CONVERTIBLE
PREFERRED
STOCK OR UPON
EXERCISE
OF OPTIONS OR
COMMON SHARES WARRANTS
PRESENTLY EXERCISABLE PERCENT OF
NAME OF BENEFICIAL OWNER HELD WITHIN 60 DAYS TOTAL CLASS(2)
- ---------------------------------- ------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C>
James B Beard..................... 16,727(3) 22,000 38,727 (4)
Charles M. Berger(5).............. 11,517(6) 200,000 211,517 1.12%
John S. Chamberlin................ 22,727 22,000 44,727 (4)
Joseph P. Flannery................ 10,000 22,000 32,000 (4)
Horace Hagedorn................... 0 19,859(7) 19,859 (4)
James Hagedorn(5)................. 0 13,283,631(8) 13,283,631 41.56%(8)
Albert E. Harris.................. 300(9) 0 300 (4)
John Kenlon(5).................... 0 255,642(10) 255,642 1.35%(10)
Karen G. Mills.................... 2,000 14,000 16,000 (4)
Jean H. Mordo(5).................. 20,000 50,000 70,000 (4)
James L. Rogula(5)................ 2,000 17,000 19,000 (4)
John M. Sullivan.................. 1,000 18,000 19,000 (4)
L. Jack Van Fossen................ 1,200 18,000 19,200 (4)
All directors and executive
officers as a group (20
persons)........................ 194,003(11) 14,103,912 14,307,915 43.66%
Hagedorn Partnership, L.P......... 0 13,262,631(12) 13,262,631 41.52%(12)
800 Port Washington Blvd.
Port Washington, NY 11050
Trimark Financial Corporation..... 1,318,100(13) 0 1,318,100(13) 7.06%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario, M5X 1E5
Dresdner RCM Global Investors
LLC............................. 967,400(14) 0 967,400(14) 5.18%
Four Embarcadero Center, Suite
2900
San Francisco, CA 94111-4189
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Leon G. Cooperman................. 1,040,800(15) 0 1,040,800(15) 5.57%
c/o Omega Advisors, Inc.
88 Pine Street
Wall Street Plaza-31st Floor
New York, New York 10005
</TABLE>
- ---------------
(1) Unless otherwise indicated, the beneficial owner has sole voting and
dispositive power as to all Common Shares reflected in the table.
(2) The percent of class is based upon the sum of (i) 18,676,480 Common Shares
outstanding on December 1, 1997, and (ii) the number of Common Shares as to
which the named person has the right to acquire beneficial ownership upon
conversion of Convertible Preferred Stock or upon the exercise of options
or warrants exercisable within 60 days of September 30, 1997.
(3) Includes 11,727 Common Shares owned by Dr. Beard's wife.
(4) Represents ownership of less than 1% of the outstanding Common Shares of
the Company.
(5) Individual named in the Summary Compensation Table.
(6) Includes 517 Common Shares allocated to Mr. Berger's account and held by
the trustee under the PSP.
(7) Mr. Horace Hagedorn owns (beneficially and of record) 10 shares of
Convertible Preferred Stock (less than 1% of such class) which are
convertible into 526 Common Shares. Mr. Hagedorn is the father of the
general partners of Hagedorn Partnership, L.P., a Delaware limited
partnership (the "Hagedorn Partnership"), but is not himself a partner of,
and does not have sole or shared voting or dispositive power with respect
to any of the Convertible Preferred Stock or Warrants held by, the Hagedorn
Partnership. See note (12) below. Mr. Hagedorn also holds currently
exercisable options to purchase 19,333 Common Shares.
(8) Mr. James Hagedorn is a general partner in the Hagedorn Partnership and has
shared voting and dispositive power with respect to the Convertible
Preferred Stock and Warrants held by the Hagedorn Partnership. See note
(12) below. Mr. Hagedorn also holds currently exercisable options to
purchase 21,000 Common Shares.
(9) Common Shares owned by Mr. Harris' wife.
(10) Mr. Kenlon beneficially owns 4,332 shares of Convertible Preferred Stock
(2.2% of such class), which are convertible into 228,000 Common Shares, and
Warrants to purchase 6,642 Common Shares. Each of Mr. Kenlon's four
children beneficially owns Warrants to purchase an additional 15,000 Common
Shares, for which Mr. Kenlon disclaims beneficial ownership. The Hagedorn
Partnership has the right to vote all of the Company's securities held by
Mr. Kenlon and his children, and has a right of first refusal with respect
to such securities. See note (12) below. Mr. Kenlon also holds currently
exercisable options to purchase 21,000 Common Shares.
(11) See notes (3) and (6) through (10) above and note (12) below. Also includes
Common Shares held by the respective spouses of executive officers of the
Company and by their children who live with them; and Common Shares
allocated to the accounts of executive officers and held by the trustee
under the PSP.
(12) The Hagedorn Partnership owns (beneficially and of record) 190,658 shares
of Convertible Preferred Stock (97.8% of such class), which are convertible
into 10,034,631 Common Shares, and Warrants to purchase 2,933,358 Common
Shares, and has the right to vote, and a right of first refusal with
respect to, the Company's securities held by Mr. Kenlon and his children.
See note (10) above. The general partners of the Hagedorn Partnership are
Mr. James Hagedorn, Ms. Katherine Hagedorn Littlefield, Mr. Paul Hagedorn,
Mr. Peter Hagedorn, Mr. Robert Hagedorn and Ms. Susan Hagedorn, each of
whom is a child of Mr. Horace Hagedorn and a former shareholder of Stern's
Miracle-Gro Products Inc. Community Funds, Inc., a New York not-for-profit
corporation, is a limited partner in the Hagedorn Partnership.
The Amended and Restated Agreement and Plan of Merger, dated as of May 19,
1995 (the "Merger Agreement"), among Stern's Miracle-Gro Products, Inc.
("Miracle-Gro Products"), Stern's Nurseries, Inc., Miracle-Gro Lawn
Products Limited, the Hagedorn Partnership, the general partners of the
Hagedorn Partnership, Horace Hagedorn, Community Funds, Inc., and John
Kenlon, the Company and ZYX Corporation, provides for certain voting rights
of, and certain voting restrictions on, the holders of the Convertible
Preferred Stock and the Warrants (collectively, including the general and
limited partners of the
3
<PAGE> 8
Hagedorn Partnership, the "Miracle-Gro Shareholders"). The Merger Agreement
also limits the ability of the Miracle-Gro Shareholders to acquire
additional voting securities of the Company or to transfer the Convertible
Preferred Stock or the Warrants. See "-- Voting Restrictions on the
Miracle-Gro Shareholders" and "-- Standstill Restrictions on the
Miracle-Gro Shareholders" below.
(13) Based on information contained in Amendment No. 1 to Schedule 13G, dated
February 5, 1997, filed with the Securities and Exchange Commission (the
"SEC"), as of December 31, 1996, certain Trimark mutual funds (the "Funds")
were the owners of record of an aggregate of 1,318,100 Common Shares of the
Company. Trimark Investment Management Inc. ("TIMI") is a manager and
trustee of the Funds. Trimark Financial Corporation ("TFC") owns 100% of
the voting equity securities of TIMI. Consequently, TFC may be deemed to be
the beneficial owner of such Common Shares.
(14) Based on information contained in a Form 13F dated November 13, 1997,
Dresdner RCM Global Investors LLC (formerly known as RCM Capital
Management, L.L.C.) has shared investment power with respect to 967,400
Common Shares of the Company. Of such Common Shares, it has sole voting
authority with respect to 798,100 Common Shares and no voting authority
with respect to 169,300 Common Shares.
(15) Based on information contained in a Schedule 13D, dated October 31, 1997,
Mr. Cooperman is the Managing Member of Omega Associates, L.L.C., the
general partner of the three limited partnerships Omega Capital Partners,
L.P. ("OCP"), Omega Institutional Partners, L.P. ("OIP") and Omega Capital
Investors, L.P. ("OCI"). OCP owns 315,500 Common Shares of the Company, OIP
owns 27,500 Common Shares, and OCI owns 16,200 shares. Mr. Cooperman is
also President and majority stockholder of Omega Advisors, Inc. ("OAI").
OAI serves as investment manager to Omega Overseas Partners, Ltd., which
has sole voting and investment power with respect to 462,400 Common Shares.
OAI also shares voting and dispositive power with respect to 219,200 Common
Shares owned by unrelated third parties for whom it serves as investment
manager.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. Lawrence M. McCartney, an executive officer of the Company, filed late
his Form 3 reporting that he had been renamed an executive officer in September
1997.
VOTING RESTRICTIONS ON THE MIRACLE-GRO SHAREHOLDERS
The Merger Agreement provides that until the earlier of May 19, 2000 (the
"Standstill Period") and such time as the Miracle-Gro Shareholders cease to own
at least 19% of the Company's Voting Stock (as that term is defined in the
Merger Agreement), the Miracle-Gro Shareholders will be required to vote their
shares of Convertible Preferred Stock and Common Shares (i) for the Company's
nominees to the Board of Directors, in accordance with the recommendation of the
Board of Directors' Nominating and Corporate Governance Committee and (ii) on
all matters to be voted on by holders of Voting Stock, in accordance with the
recommendation of the Board of Directors, except with respect to a proposal as
to which shareholder approval is required under the Ohio General Corporation Law
relating to (a) the acquisition of Voting Stock of the Company, (b) a merger or
consolidation, (c) a sale of all or substantially all of the assets of the
Company, (d) a recapitalization of the Company or (e) an amendment to the
Company's Amended Articles of Incorporation or Code of Regulations which would
materially adversely affect the rights of the Miracle-Gro Shareholders. The
Company has agreed that, without the prior consent of the Shareholder
Representative (as that term is defined in the Merger Agreement), it will not
(x) issue Voting Stock (or Voting Stock equivalents) constituting in the
aggregate more than 12.5% of total voting power of the outstanding Voting Stock
(the "Total Voting Power") (other than pursuant to employee benefit plans in the
ordinary course of business) or (y) in a single transaction or series of related
transactions, make any acquisition or disposition of assets which would require
disclosure pursuant to Item 2 of Form 8-K under the Securities Exchange Act of
1934 (the "Exchange Act"); provided, however, that if five-sixths of the Board
of Directors determine that it is in the best interests of the Company to make
an acquisition pursuant to clause (y), such acquisition may be made without the
consent of the Shareholder Representative. In addition, during the Standstill
Period, the Miracle-Gro Shareholders will be limited in their ability to enter
into any voting trust agreement without the Company's consent or to solicit
proxies or become participants in any election contest (as such terms are used
in Rule 14a-11 of Regulation 14A under the Exchange
4
<PAGE> 9
Act) relating to the election of directors of the Company. Following the
Standstill Period or such time as the Miracle-Gro Shareholders cease to own at
least 19% of the Voting Stock, the voting restrictions provided in the Merger
Agreement will expire.
STANDSTILL RESTRICTIONS ON THE MIRACLE-GRO SHAREHOLDERS
The Merger Agreement provides that during the Standstill Period, the
Miracle-Gro Shareholders may not acquire or agree to acquire, directly or
indirectly, beneficial ownership of Voting Stock representing more than 43% of
the Total Voting Power (the "Standstill Percentage"). For purposes of
calculating beneficial ownership of Voting Stock against the Standstill
Percentage, Common Shares underlying unexercised Warrants or any subsequently
granted employee stock options will not be included. However, the terms of the
Warrants provide that, if exercised during the Standstill Period and to the
extent that such exercise would increase the aggregate beneficial ownership of
the Miracle-Gro Shareholders to more than 43% of the Total Voting Power, such
exercise may only be for cash and not for Common Shares. To the extent that a
recapitalization of the Company or a Common Share repurchase program by the
Company increases the aggregate beneficial ownership of the Miracle-Gro
Shareholders to an amount in excess of 44% of the Total Voting Power, the
Miracle-Gro Shareholders will be required to divest themselves of sufficient
shares of Voting Stock to fall within the 44% of Total Voting Power limit. The
Company has agreed that it will use reasonable efforts to ensure that employee
stock options are funded with Common Shares repurchased in the open market
rather than with newly-issued Common Shares.
The Miracle-Gro Shareholders have agreed that, after the Standstill Period,
they will not acquire, directly or indirectly, beneficial ownership of Voting
Stock representing more than 49% of the Total Voting Power except pursuant to a
tender offer for 100% of the Total Voting Power, which tender offer is
conditioned upon the receipt of at least 50% of the Voting Stock beneficially
owned by shareholders of the Company other than the Miracle-Gro Shareholders and
their affiliates and associates.
RESTRICTIONS ON TRANSFERS
During the Standstill Period, the Merger Agreement provides that no
Miracle-Gro Shareholder may transfer any Common Shares obtained upon conversion
of the Convertible Preferred Stock or exercise of the Warrants, except (i) to
the Company or any person approved by the Company; (ii) to a Permitted
Transferee (as that term is defined in the Merger Agreement) who agrees in
writing to abide by the provisions of the Merger Agreement; (iii) pursuant to a
merger or consolidation of the Company or a plan of liquidation which has been
approved by the Company's Board of Directors; (iv) in a bona fide public
offering registered under the Securities Act of 1933 (the "Securities Act") and
designed to prevent any person or group from acquiring beneficial ownership of
3% or more of the Total Voting Power; (v) subject to the Company's right of
first offer, pursuant to Rule 145 or Rule 144A under the Securities Act,
provided that such sale would not knowingly result in any person or group's
acquiring beneficial ownership of 3% or more of the Total Voting Power and all
such sales by the Miracle-Gro Shareholders within the preceding three months
would not exceed, in the aggregate, the greatest of the limits set forth in Rule
144(e)(1) under the Securities Act; (vi) in response to a tender offer made by
or on behalf of the Company or with the approval of the Company's Board of
Directors; or (vii) subject to the Company's right of first offer, in any other
transfer which would not to the best knowledge of the transferring Miracle-Gro
Shareholder result in any person or group's acquiring beneficial ownership of 3%
or more of the Total Voting Power.
Neither the Convertible Preferred Stock nor, during the Standstill Period,
the Warrants may be transferred except (i) to the Company or any person or group
approved by the Company; (ii) to a Permitted Transferee who agrees in writing to
abide by the provisions of the Merger Agreement; (iii) pursuant to a merger or
consolidation of the Company or a plan of liquidation of the Company; or (iv)
with respect to Convertible Preferred Stock representing no more than 15% of the
outstanding Common Shares on a fully diluted basis or any number of Warrants:
(A) subject to the Company's right of first offer, pursuant to Rule 145 or Rule
144A under the Securities Act, provided that such sale would not knowingly
result in any person or group's acquiring beneficial ownership of 3% or more of
the Total Voting Power and all such sales by the Miracle-Gro Shareholders within
the preceding three months would not exceed, in the aggregate, the greatest of
the limits set forth in Rule 144(e)(1) under the Securities Act; or (B) subject
to the Company's right of first offer, in any other transfer
5
<PAGE> 10
which would not, to the best knowledge of the transferring Miracle-Gro
Shareholder, result in any person or group's acquiring beneficial ownership of
3% or more of the Total Voting Power. For purposes of clauses (A) and (B) only,
the Company's right of first offer with respect to shares of Convertible
Preferred Stock would be at a price equal to (x) the aggregate Market Price (as
that term is defined in the Merger Agreement) of the Common Shares into which
such shares of Convertible Preferred Stock could be converted at the time of the
applicable transfer notice multiplied by (y) 105%.
Following the Standstill Period, the Warrants and the Common Shares
underlying the Warrants and the Convertible Preferred Stock will be freely
transferable, subject to the requirements of the Securities Act and applicable
law.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Code of Regulations of the Company, the Board of Directors
has set the authorized number of directors at twelve (12), divided into three
classes with regular three-year staggered terms. The three Class III directors
hold office for terms expiring at the Annual Meeting, the three Class I
directors (reduced from four due to the resignation of Tadd C. Seitz on
September 24, 1997) hold office for terms expiring in 1999, and the four Class
II directors hold office for terms expiring in 2000. John S. Chamberlin, a Class
III director, has chosen not to serve another term and has withdrawn from
re-nomination as a Class III director. On November 21, 1997, Albert E. Harris
was selected by the Company's Board of Directors to fill the vacancy in Class
III created by the resignation of Donald A. Sherman on November 17, 1997.
The election of each class of directors is a separate election. Pursuant to
the terms of the Merger Agreement, the Miracle-Gro Shareholders, through their
Shareholder Representative, designated Messrs. Horace Hagedorn, Kenlon and James
Hagedorn as Board members. Until the earlier of expiration of the Standstill
Period and such time as the Miracle-Gro Shareholders no longer beneficially own
at least 19% of the Voting Stock of the Company, the Shareholder Representative
will continue to be entitled to designate one person to be nominated for
election as a director in the class whose term expires in any year.
As a result of the withdrawal of John S. Chamberlin from re-nomination, a
vacancy will be created in Class III as of the Annual Meeting date. Also as a
result of the resignation of Tadd C. Seitz, a vacancy was created and continues
to exist in Class I. As of the date of this Proxy Statement, no persons have
been selected by the Board of Directors to fill such vacancies. The Board of
Directors does not contemplate selection of individuals to fill the vacancies in
such classes until such time as the Nominating and Corporate Governance
Committee makes a recommendation to the Board with respect to the nominees,
after a pending search of qualified candidates. Upon the conclusion of such
search, the Board, pursuant to Ohio law and the Company's Code of Regulations,
will fill the vacancies in such classes for the remainder of the respective
unexpired terms. The proxies cannot be voted for more than three nominees for
election as Class III directors at the Annual Meeting.
The Board of Directors proposes that the three nominees described below be
elected to Class III for a new term to expire at the Annual Meeting of
Shareholders to be held in 2001 and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal. The Board of
Directors has no reason to believe that any of the nominees will not serve if
elected, but if any of them should become unavailable to serve as a director,
and if the Board designates a substitute nominee, the persons named in the
accompanying proxy card will vote for the substitute nominee designated by the
Board of Directors.
The following information, as of December 1, 1997, with respect to the
principal occupation or employment, other affiliations and business experience
of each director during the last five years has been furnished to the Company by
each director. Except where indicated, each director has had the same principal
occupation for the last five years.
6
<PAGE> 11
NOMINEES STANDING FOR RE-ELECTION TO THE BOARD OF DIRECTORS
CLASS III -- TERMS TO EXPIRE AT THE 2001 ANNUAL MEETING
JOSEPH P. FLANNERY, age 65
Director of the Company since 1987
Mr. Flannery has been President, Chief Executive Officer and Chairman of
the Board of Directors of Uniroyal Holding, Inc. since 1986. Mr. Flannery is
also a director of Ingersoll-Rand Company, Kmart Corporation, Newmont Mining,
Arvin Industries, Inc. and APS Holding Corporation.
Committee Membership: Compensation and Organization (Chairman)
HORACE HAGEDORN, age 82
Vice Chairman of the Board and Director of the Company since 1995
Mr. Hagedorn was named Vice Chairman of the Board and a director of the
Company, and Chairman of the Board and Chief Executive Officer of Scotts'
Miracle-Gro Products, Inc. ("Scotts' Miracle-Gro"), in May 1995. In March 1997,
he retired as an officer of Scotts' Miracle-Gro. Mr. Hagedorn founded
Miracle-Gro Products in 1950 and served as Chief Executive Officer of
Miracle-Gro Products from 1985 until May 1995. Horace Hagedorn is the father of
James Hagedorn.
Committee Membership: None at this time
ALBERT E. HARRIS, age 65
Director of the Company since November 1997
In November 1997, Mr. Harris was selected by the Company's Board of
Directors to fill the vacancy on the Board created by the resignation of Donald
A. Sherman, for the remainder of Mr. Sherman's unexpired term. Mr. Harris is
co-founder and, effective July 1997, the retired President of EDBH Inc., a
company which develops international optical businesses. From 1988 until July
1997, he served as either Chairman or President of that company, which has
established a chain of approximately 200 superoptical stores, operating under
the "Vision Express" name and located primarily in the United Kingdom. Since
1992, Mr. Harris has also been a Trustee of Fountain Square Funds, a mutual
funds family established by The Fifth Third Bank, and is currently the Chairman
of that group of funds. Fountain Square Funds is registered as an investment
company under the Investment Company Act of 1940.
Committee Membership: Nominating and Corporate Governance
CLASS I -- TERMS TO EXPIRE AT THE 1999 ANNUAL MEETING
CHARLES M. BERGER, age 61
Chairman of the Board, President and Chief Executive Officer of the Company
since August 1996
Mr. Berger was elected Chairman of the Board, President and Chief Executive
Officer of the Company in August 1996. Mr. Berger came to the Company from H. J.
Heinz Company, where he served as Chairman, President and Chief Executive
Officer of Weight Watchers International, a Heinz affiliate, from November 1978
to September 1994. From October 1994 to August 1996, he was Chairman and CEO of
Heinz India Pvt. Ltd. (Bombay); and he served as Managing Director and CEO of
Heinz-Italy (Milan), the largest Heinz profit center in Europe, from August 1975
to November 1978. During his 32-year career at Heinz, he also held the positions
of General Manager, Marketing, for all Heinz U.S. grocery products; Marketing
Director for Heinz UK (London)
7
<PAGE> 12
and Director of Corporate Planning at Heinz World Headquarters. He is also a
former director of Miracle-Gro Products.
Committee Membership: None at this time
JAMES HAGEDORN, age 42
Executive Vice President, U.S. Business Groups, of the Company since October
1996 and Director of the Company since 1995
Mr. Hagedorn was named Executive Vice President, U.S. Business Groups, of
the Company in October 1996. From May 1995 to October 1996, he served as Senior
Vice President, Consumer Gardens Group, of the Company. Mr. Hagedorn has also
been Executive Vice President of Scotts' Miracle-Gro since May 1995. Mr.
Hagedorn was Executive Vice President of Miracle-Gro Products from 1989 until
May 1995. He was previously an officer and an F-16 pilot in the United States
Air Force. James Hagedorn is the son of Horace Hagedorn.
Committee Membership: Nominating and Corporate Governance
KAREN G. MILLS, age 44
Director of the Company since 1994
Ms. Mills is President of MMP Group, Inc., an advisory company serving
leveraged buy-out firms, company owners and CEOs. From 1983 to 1993, she served
as Managing Director at E.S. Jacobs and Company and as Chief Operating Officer
of its Industrial Group. Ms. Mills is currently on the boards of Triangle
Pacific Corp. and Arrow Electronics, Inc.
Committee Membership: Nominating and Corporate Governance (Chairman)
CLASS II -- TERMS TO EXPIRE AT THE 2000 ANNUAL MEETING
JAMES B BEARD, age 62
Director of the Company since 1989
Dr. Beard is Professor Emeritus of Turfgrass Physiology and Ecology at
Texas A&M University where he served from 1975 to 1992. He has been President
and Chief Scientist at the International Sports Turf Institute since July 1992.
Dr. Beard is the author of seven books and over 500 scientific articles on
turfgrass science and is an active lecturer and consultant both nationally and
internationally. He is a Fellow of the American Society of Agronomy and of the
American Association of the Advancement of Science, and was the first President
of the International Turfgrass Society. He has also served as President of the
Crop Science Society of America.
Committee Membership: Audit
JOHN KENLON, age 66
Director of the Company since 1995
Mr. Kenlon was named President, Consumer Gardens Group, of the Company, in
December 1996. He remains Chief Operating Officer and President of Scotts'
Miracle-Gro, positions held since May 1995. Mr. Kenlon was the President of
Miracle-Gro Products from December 1985 until May 1995. Mr. Kenlon began his
association with the Miracle-Gro companies in 1960.
Committee Membership: None at this time
JOHN M. SULLIVAN, age 62
Director of the Company since 1994
Mr. Sullivan was Chairman of the Board from 1987 to 1993, and President and
Chief Executive Officer from 1984 to 1993, of Prince Holdings, Inc., a
corporation which, through its subsidiaries, manufactures sporting goods. Since
his retirement from Prince Holdings, Inc. and its subsidiaries in 1993, Mr.
Sullivan has served as an
8
<PAGE> 13
independent director for various corporations, none of which, other than the
Company, is registered under or subject to the requirements of the Exchange Act
or the Investment Company Act of 1940.
Committee Membership: Compensation and Organization
L. JACK VAN FOSSEN, age 60
Director of the Company since 1993
Mr. Van Fossen was Chief Executive Officer and President of Red Roof Inns,
Inc., an owner and operator of motels, from May 1991 to June 1995. Since July
1988, Mr. Van Fossen has served as President of Nessoff Corporation, a privately
owned investment company. Mr. Van Fossen is also a director of Cardinal Health,
Inc.
Committee Membership: Audit (Chairman)
RECOMMENDATION AND VOTE
Under Ohio law and the Company's Code of Regulations, the three nominees
for election in Class III receiving the greatest number of votes will be
elected.
Common Shares and shares of Convertible Preferred Stock represented by the
accompanying proxy card will be voted FOR the election of the above nominees
unless authority to vote for one or more nominees is withheld. Shareholders may
withhold authority to vote for the entire slate as nominated or, by writing the
name of one or more nominees in the space provided in the proxy card, withhold
the authority to vote for such nominee or nominees. Common Shares and shares of
Convertible Preferred Stock as to which the authority to vote is withheld will
be counted for quorum purposes but will not be counted toward the election of
directors, or toward the election of the individual nominees specified on the
form of proxy.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE
CLASS III DIRECTOR NOMINEES.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors held seven regularly scheduled or special meetings
during the fiscal year ended September 30, 1997 (the "1997 fiscal year"). The
Board of Directors has three standing committees: the Audit Committee; the
Compensation and Organization Committee; and the Nominating and Corporate
Governance Committee. Each current member of the Board attended at least 75% of
the aggregate of the total number of meetings of the Board of Directors and of
the committees on which he or she served during the 1997 fiscal year.
Audit Committee. The Audit Committee reviews and approves the scope and
results of any outside audit of the Company and the fees therefor and makes
recommendations to the Board of Directors or management concerning auditing and
accounting matters and the selection of outside auditors. The Audit Committee
met seven times during the 1997 fiscal year.
Compensation and Organization Committee. The Compensation and Organization
Committee reviews, considers and acts upon matters of salary and other
compensation and benefits of all officers and other employees of the Company,
and acts upon all matters concerning, and exercises such authority as is
delegated to it under the provisions of, any benefit, retirement or pension plan
maintained by the Company. This Committee also advises the Board regarding
executive officer organizational issues and succession plans. The Compensation
and Organization Committee met five times during the 1997 fiscal year.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee recommends policies on the composition of the
Board of Directors and nominees for membership on the Board. This Committee has
not established a procedure for shareholders to recommend nominees to the Board
for the Annual Meeting, but rather conducts, and will conduct, its own search
for available, qualified nominees. The Nominating and Corporate Governance
Committee met six times during the 1997 fiscal year.
9
<PAGE> 14
COMPENSATION OF DIRECTORS
Each director of the Company, other than any director employed by the
Company (the "Nonemployee Directors"), receives a $25,000 annual retainer for
Board and committee meetings plus all reasonable travel and other expenses of
attending such meetings. Effective at the Annual Meeting, each Nonemployee
Director will receive a $30,000 annual retainer.
Directors who are committee members, other than the Nonemployee Directors,
receive an annual grant, on the first business day following the date of each
annual meeting of shareholders, of options to purchase 5,500 Common Shares at an
exercise price equal to the fair market value on the date of the grant. For
Nonemployee Directors who chair a committee, the grant is of 6,000 Common
Shares. Options granted to a Nonemployee Director become exercisable six months
after the date of grant and remain exercisable until the earlier to occur of (i)
the tenth anniversary of the date of grant or (ii) the first anniversary of the
date the Nonemployee Director ceases to be a member of the Company's Board of
Directors.
(Remainder of page intentionally left blank)
10
<PAGE> 15
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended September 30, 1997,
1996 and 1995, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
FISCAL --------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#)(1) COMPENSATION($)
- --------------------------------- ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Charles M. Berger:............... 1997 $407,000 $352,000 0 $ 3,200(2)
Chairman of the Board, 1996 $ 61,667 $ 0 250,000 $ 0
President and Chief 1995 -- -- -- --
Executive Officer(3)
James Hagedorn:.................. 1997 $253,500 $180,000 126,000 $ 3,200(2)
Executive Vice President, U.S. 1996 $208,058 $ 0 0 $ 0
Business Groups(4) 1995 $ 75,000(5) $100,000 24,000 $ 0
Jean H. Mordo:................... 1997 $232,707 $190,000 150,000 $ 110,810(6)
Executive Vice President and 1996 -- -- -- --
Chief Financial Officer(7) 1995 -- -- -- --
John Kenlon:..................... 1997 $228,123 $141,600 55,000 $ 3,200(2)
President, Consumer Gardens 1996 $193,934 $125,000 0 $ 0
Group(8) 1995 $ 73,125(5) $125,000 24,000 $ 0
James L. Rogula:................. 1997 $213,000 $165,946 55,000 $ 3,200(2)
Senior Vice President, Consumer 1996 $213,750 $ 0 0 $ 0
Lawns Group 1995 $151,462 $ 0 18,000 $ 0
</TABLE>
- ---------------
(1) These numbers represent options for Common Shares granted pursuant to the
Company's 1992 Long Term Incentive Plan ("1992 Plan") or the Company's 1996
Stock Option Plan, as amended (the "1996 Plan"). See the table under "OPTION
GRANTS IN LAST FISCAL YEAR" for more detailed information on such options.
(2) Contributions made by the Company to the PSP.
(3) Mr. Berger was elected Chairman, President and Chief Executive Officer of
the Company in August 1996.
(4) Mr. James Hagedorn was named Executive Vice President, U.S. Business Groups,
of the Company in October 1996. From May 1995 to October 1996, he served as
Senior Vice President, Consumer Gardens Group, of the Company.
(5) Includes compensation paid during the portion of the fiscal year following
completion of the transactions contemplated by the Merger Agreement (the
"Merger Transactions") in May 1995.
(6) Includes a $107,610 (net $70,000) sign-on bonus, and a contribution of
$3,200 made by the Company to the PSP.
(7) Mr. Mordo was named Executive Vice President and Chief Financial Officer in
January 1997.
(8) Mr. Kenlon was named President, Consumer Gardens Group, of the Company in
December 1996. Since May 1995, he has also been Chief Operating Officer and
President of Scotts' Miracle-Gro.
GRANTS OF OPTIONS
The following table sets forth information concerning individual grants of
options made during the 1997 fiscal year to each of the individuals named in the
Summary Compensation Table. The Company has never granted stock appreciation
rights.
11
<PAGE> 16
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------- ------------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Berger............ 0 -- -- -- -- --
James Hagedorn............... 15,000(3) 1.32% $ 18.00 11/10/06 $ 169,802 $ 430,310
111,000(4) 9.83% $ 19.375 12/09/06 $ 1,352,516 $ 3,427,542
Jean H. Mordo................ 150,000(5) 13.23% $ 21.25 02/28/07 $ 2,004,602 $ 5,080,054
John Kenlon.................. 15,000(3) 1.32% $ 18.00 11/10/06 $ 169,802 $ 430,310
40,000(4) 3.54% $ 19.375 12/09/06 $ 487,393 $ 1,235,150
James L. Rogula.............. 15,000(3) 1.32% $ 18.00 11/10/06 $ 169,802 $ 430,310
40,000(4) 3.54% $ 19.375 12/09/06 $ 487,393 $ 1,235,150
</TABLE>
- ---------------
(1) In the event of a "Change in Control" (as defined in the 1992 Plan and the
1996 Plan), each option will be canceled in exchange for the payment to the
optionee of cash in an amount equal to the excess of the highest price paid
(or offered) for Common Shares of the Company during the preceding 30 day
period over the exercise price for such option. Notwithstanding the
foregoing, if the Compensation and Organization Committee determines that
the optionee will receive a new award (or have the options honored or
assumed), no cash payment will be made as a result of a Change in Control.
If any cash payment is to be made with respect to options granted within six
months of the date on which a Change in Control occurs, the cash payment
will be deferred until the first time at which such cash payment may be made
without subjecting the optionee to potential liability under Section 16(b)
of the Exchange Act by reason of such cash payment. In the event of
termination of employment by reason of retirement, long-term disability or
death, the options may thereafter be exercised in full for a period of five
years, subject to the stated term of the options. The options are forfeited
if the holder's employment is terminated for cause. In the event an option
holder's employment is terminated for any reason other than retirement,
long-term disability, death or cause, any exercisable options held by him at
the date of termination may be exercised for a period of 30 days, subject to
the stated terms of the options.
(2) The amounts reflected in this table represent certain assumed rates of
appreciation only. Actual realized values, if any, on option exercises will
be dependent on the actual appreciation of the Common Shares of the Company
over the term of the options. There can be no assurances that the Potential
Realizable Values reflected in this table will be achieved.
(3) These options were granted on November 11, 1996 under the 1996 Plan and are
exercisable in three equal installments on December 13 of the years 1996
through 1998.
(4) These options were granted on December 10, 1996 under the 1996 Plan and
become exercisable December 10, 1999.
(5) These options were granted on March 1, 1997 under the 1996 Plan. Options
covering 50,000 Common Shares are immediately exercisable; options covering
50,000 Common Shares are exercisable after twelve months of employment; and
options covering the remaining 50,000 Common Shares are exercisable after
twenty-four months of employment.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to options
exercised during the 1997 fiscal year and unexercised options held as of the end
of the 1997 fiscal year by each of the individuals named in the Summary
Compensation Table.
12
<PAGE> 17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER NUMBER OF SECURITIES VALUE OF UNEXERCISED
OF SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
UNDERLYING OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
OPTIONS VALUE --------------------------- ---------------------------
NAME EXERCISED REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Berger.......... 0 -- 200,000 50,000 $ 1,025,000 $ 256,250
James Hagedorn............. 0 -- 21,000 129,000 $ 52,375 $ 451,250
Jean H. Mordo.............. 0 -- 50,000 100,000 $ 81,250 $ 162,500
John Kenlon................ 0 -- 21,000 58,000 $ 52,375 $ 202,750
James L. Rogula............ 0 -- 17,000 56,000 $ 100,875 $ 227,000
</TABLE>
- ---------------
(1) "Value of Unexercised In-the-Money Options at FY-End" is based upon the fair
market value of the Company's Common Shares on September 30, 1997 ($26.25)
less the exercise price of in-the-money options at the end of the 1997
fiscal year.
PENSION PLANS
The Company maintains a tax-qualified non-contributory defined benefit
pension plan (the "Pension Plan"). All U.S. associates of the Company and its
subsidiaries (except for Hyponex, Sierra, Republic and their respective
subsidiaries) are eligible to participate upon meeting certain age and service
requirements. The following table shows the estimated annual benefits (assuming
payment made in the form of a single life annuity) payable upon retirement at
normal retirement age (65 years of age) to an associate in specified
compensation and years of service classifications.(1)
PENSION PLANS TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ---------------------------------------------------------------------------
FINAL PAY 10 15 20 25 30
- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 13,011.00 $ 19,516.50 $ 26,002.00 $ 32,527.50 $ 39,033.00
250,000 35,511.00 53,266.50 71,022.00 88,777.50 106,533.00
500,000 73,011.00 109,516.50 146,022.00 182,527.50 219,033.00
750,000 110,511.00 165,766.50 221,022.00 276,277.50 331,533.00
1,000,000 148,011.00 222,016.50 296,022.00 370,027.50 444,033.00
1,250,000 185,511.00 278,266.50 371,022.00 463,777.50 556,533.00
</TABLE>
Monthly benefits under the Pension Plan upon normal retirement (age 65) are
based upon an associate's average final pay and years of service and are reduced
by 1.25% of the associate's PIA times the number of years of such associate's
service. Average final pay is the average of the 60 highest consecutive months'
compensation during the 120 months prior to retirement. Pay includes all
earnings plus 401(k) contributions and salary reduction contributions for
welfare benefits, but does not include earnings in connection with foreign
service, the
- ---------------
(1) The Internal Revenue Code of 1986, as amended (the "Code"), places certain
limitations on the annual pension benefits which can be paid from the
Pension Plan. Such limitations are not reflected in the table. This table
reflects the total aggregate benefits payable annually upon retirement under
both the Pension Plan and The O. M. Scott & Sons Company Excess Benefit Plan
(which has been assumed by and is maintained by the Company) (the "Excess
Benefit Plan"), which is discussed on the following page. The Pension Plan
and the Excess Benefit Plan require an offset of 1.25% of the Social
Security primary insurance amount ("PIA") for each year of service and such
amount has been deducted from the figures in the table. The PIA used in
developing the figures in the table is $15,912.00. Thus, the offset is
$5,967.00 for a person with 30 years of service. The maximum possible offset
is $7,956.00 for a person with 40 years of service.
13
<PAGE> 18
value of a company car, separation or other special allowances. Additional
provisions for early retirement are included.
At September 30, 1997, the credited years of service (including prior
service with the Miracle-Gro companies) and the 1997 annual covered compensation
for purposes of the Pension Plan and the Excess Benefit Plan of the five
executive officers of the Company named in the Summary Compensation Table were
as follows:
<TABLE>
<CAPTION>
COVERED
YEARS OF SERVICE COMPENSATION
------------------- ------------
<S> <C> <C>
Charles M. Berger................... 1 year, 2 months $ 399,999.96
James Hagedorn...................... 10 years, 9 months 240,000.00
Jean H. Mordo....................... 7 months 172,083.31
John Kenlon......................... 33 years, 6 months 353,123.06
James L. Rogula..................... 2 years, 9 months 209,000.04
</TABLE>
Effective October 1, 1993, the Excess Benefit Plan was established. The
Excess Benefit Plan provides additional benefits to participants in the Pension
Plan whose benefits are reduced by limitations imposed under Sections 415 and
401(a)(17) of the Code. Under the Excess Benefit Plan, executive officers and
certain key employees will receive, at the same time and in the same form as
benefits paid under the Pension Plan, additional monthly benefits in an amount
which, when added to the benefits paid to the participant under the Pension
Plan, will equal the benefit amount such participant would have earned but for
the limitations imposed by the Code to the extent such limitations apply.
Effective December 31, 1997, the Pension Plan was frozen, and effective
January 1, 1998, associates will participate in the Company's Retirement Savings
Plan (fka The Scotts Company Profit Sharing and Savings Plan). The new
Retirement Savings Plan consolidates various retirement plans in effect at the
Company and its U.S. subsidiaries, and will permit 401(k) contributions,
employee after-tax contributions, Company matching contributions and Company
retirement contributions.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company entered into an Employment Agreement with Mr. Berger effective
August 7, 1996 (the "Berger Agreement"), providing for his employment as
Chairman, President and Chief Executive Officer of the Company until August
1999, at an annual base salary of at least $400,000 per year, plus incentive
bonus under The Scotts Company Executive Management Incentive Plan (the "Bonus
Plan") (of at least $100,000 for fiscal 1997). If Mr. Berger's employment is
terminated by the Company without "cause" (as defined in the Berger Agreement),
as a result of his death or disability, as a result of "cause" by Mr. Berger
(also as defined) or as a result of a "change of control" (as defined), he will
be entitled to have his base salary continued at the rate then in effect for two
years thereafter, and to receive incentive compensation comparable to the prior
year's levels, also for the two-year period after the date of termination. In
connection with the entering into of his Employment Agreement, pursuant to a
Stock Option Agreement dated as of August 7, 1996, Mr. Berger was granted
options to purchase 250,000 Common Shares of the Company, which vested sixty
percent on the date of grant and twenty percent on the first anniversary of his
date of employment. The other twenty percent will vest on the second anniversary
of his date of employment. Options are exercisable at a purchase price of $17.75
per share, subject to adjustment in the event of certain corporate changes.
These options expire ten years from the date of grant.
In connection with the Merger Transactions, the Company and Scotts'
Miracle-Gro entered into an employment agreement with John Kenlon and the
Company entered into an employment agreement with James Hagedorn (together, the
"Employment Agreements"). Under such Employment Agreements, John Kenlon is to
serve as President of Scotts' Miracle-Gro and James Hagedorn is to serve as
Senior Vice President of the Company. In October 1996, John Kenlon was named
President, Consumer Gardens Group, of the Company, and James Hagedorn was named
Executive Vice President, U.S. Business Groups, of the Company.
Each of the Employment Agreements has a term of three years, and is
automatically renewed for an additional year each subsequent year, unless either
party notifies the other party of his/its desire not to renew. The
14
<PAGE> 19
Employment Agreements provide for a minimum annual base salary of $195,000 and
$200,000 for John Kenlon and James Hagedorn, respectively, and participation in
the various benefit plans available to senior executive officers of the
respective employers. In addition, the Company granted to each of John Kenlon
and James Hagedorn options to acquire 24,000 Common Shares.
Upon certain types of termination of employment with the applicable
employer (e.g., a termination by the applicable employer for any reason other
than "cause" (as defined in the Employment Agreements) or a termination by the
employee entering into such Employment Agreement (the "Employee") constituting
"good reason" (as defined in the Employment Agreements)), the Employee will
become entitled to receive certain severance benefits including a payment equal
to three times the sum of such Employee's base salary then in effect plus such
Employee's highest annual bonus in any of the three preceding years. Upon
termination of employment for any other reason, the Employee or his beneficiary
will be entitled to receive all unpaid amounts of base salary and benefits under
the executive benefit plans in which he participated.
The Employment Agreements contain confidentiality and noncompetition
provisions which prevent the applicable Employee from disclosing confidential
information about the Company and from competing with the Company during his
employment therewith and for an additional three years thereafter.
The Company entered into an employment arrangement with Mr. Mordo effective
March 1, 1997, relating to his employment as Executive Vice President and Chief
Financial Officer of the Company. Mr. Mordo is to receive an annual base salary
of $295,000, plus a full year incentive bonus under the Bonus Plan (of at least
$100,000 for fiscal 1997). If Mr. Mordo's employment is terminated by the
Company without "cause," as a result of his death or disability, or as a result
of a "change of control," he will be entitled to have his base salary continued
at the rate then in effect for two years thereafter, and to receive incentive
compensation comparable to the prior year's level, also for the two-year period
after termination. Mr. Mordo was also granted options to purchase 150,000 Common
Shares of the Company, one-third of which vested in March 1997, and one-third of
which will vest on each of the first and second anniversaries of his date of
employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Berger, the Company's Chairman, President and Chief Executive Officer,
and his spouse were the obligors pursuant to a promissory note in the amount of
$1.06 million, dated November 8, 1996, with the Company as obligee. The loan was
incurred as a result of the purchase of Mr. Berger's residence in Ohio.
Principal and interest on the loan were due and payable in six months. Interest
accrued at a fixed formula tied to the Company's borrowing rate under its credit
facility. The rate was the six month London interbank offered rate on the date
of the note, plus the Company's borrowing margin under its credit facility
(which varied during the term of the note). The note was secured by a first
mortgage on the newly purchased property. On May 8, 1997, the principal and
interest on the loan were fully repaid.
Mr. James Hagedorn is the President and Treasurer and owns 83% of the
shares of Hagedorn Aviation, a company which owns the aircraft used for certain
business travel by James Hagedorn and, on occasion, the senior management of the
Company. Horace Hagedorn is the Vice President of Hagedorn Aviation and owns the
remaining 17% equity interest. The Company pays charges by Hagedorn Aviation for
flight time at the rate of $150 per hour of flight. The charges cover the cost
to operate and maintain the aircraft. During fiscal 1997, the Company paid a
total of approximately $35,000 to Hagedorn Aviation for such service, which
constitutes more than five percent of Hagedorn Aviation's consolidated gross
revenues for its last full fiscal year.
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
Company's cumulative total shareholder return (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the measurement period,
assuming dividend reinvestment, and (B) the difference between the price of the
Company's Common Shares at the end and the beginning of the measurement period;
by (ii) the price of the Company's Common Shares at the beginning of the
measurement period) against the cumulative return of (a) the Standard & Poor's
500 Composite Stock Index ("S&P 500 Comp"); (b) an index comprised of the common
stock of First Brands Corporation, Lesco Inc., Newell Co., Rubbermaid
Incorporated and The Stanley Works (the "Peer
15
<PAGE> 20
Group"); and (c) Standard & Poor's 500 Consumer Household Non-Durable Products
Index ("S&P 500 Household"); each for the period from September 30, 1992 to
September 30, 1997. The common stock of Duracell International, Inc. was, in
prior years, included in the Peer Group, but is omitted for the year ending
September 30, 1997, due to its merger with The Gillette Company. The comparison
assumes $100 was invested on September 30, 1992 in the Company's Common Shares
and in each of the foregoing indices and assumes reinvestment of dividends. For
fiscal 1997 and hereafter, the Company intends to include the S&P 500 Household
Index in lieu of the Peer Group Index because the Company's consumer products,
like the products of those companies included in the S&P 500 Household Index,
are non-durable household products which are branded consumer products sold
through similar distribution channels and in similar retail locations and
constitute repeat product purchases by consumers.
<TABLE>
<CAPTION>
S&P 500
Measurement Period S&P 500 Comp Household
(Fiscal Year Covered) Scotts Company Index Index Peer Group
<S> <C> <C> <C> <C>
Sep-92 100 100 100 100
Sep-93 117 113 98 108
Sep-94 98 117 117 116
Sep-95 140 152 154 125
Sep-96 122 183 203 153
Sep-97 167 257 285 197
0
</TABLE>
REPORT OF THE COMPENSATION AND ORGANIZATION COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART,
THIS REPORT AND THE GRAPH SET FORTH ABOVE UNDER "EXECUTIVE COMPENSATION --
PERFORMANCE GRAPH" SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
The Compensation and Organization Committee of the Board of Directors of
the Company (the "Committee") is comprised of three outside directors, none of
whom is or was formerly an officer of the Company. During the 1997 fiscal year,
none of the Company's executive officers served on the board of any entity of
which any director of the Company was an executive officer. The Committee has
retained outside legal counsel and compensation consultants.
Role of the Compensation and Organization Committee
The Committee's primary function is to oversee the Company's executive
compensation program. In this role, the Committee reviews the general
compensation philosophy of the Company and, in keeping with such philosophy,
recommends the forms and terms of compensation to be paid to the Chairman,
President and Chief
16
<PAGE> 21
Executive Officer (the "CEO") and the other executive officers of the Company
(the "Executive Officers"). The Committee annually reviews the performance of
the CEO and the Executive Officers, and in light of their performance,
recommends the respective compensation adjustments, if any, they should receive.
Additionally, the Committee oversees the operation of the Company's
Executive Management Incentive Plan (the "Bonus Plan") by evaluating and
approving the targets and objectives to be met by the Company and the Executive
Officers before bonuses will be paid. At the end of each fiscal year, the
Committee determines the extent to which these targets and objectives have been
met and awards bonuses accordingly.
The Committee is also charged with the responsibility for administering the
Company's 1992 Plan and the Company's 1996 Plan (collectively, the "Plans"). It
makes awards of stock options to key employees of the Company and its
subsidiaries pursuant to the Plans.
Finally, the Committee provides recommendations to the management of the
Company and to the Board of Directors (the "Board") on issues regarding
management organization and development. It provides recommendations regarding
the appointment of Executive Officers and annually reviews executive continuity
plans of the Company.
Compensation Philosophy
In designing the compensation philosophy for the CEO and the Executive
Officers, the Committee follows the principle that base salaries and bonuses
should be set at competitive levels in comparison to similar companies (see
further explanation set forth below under "Committee Activity During Fiscal
1997"). Additionally, the Committee believes that the bonus compensation to be
paid to the CEO and the Executive Officers should reflect the financial
performance of the Company for the fiscal year and the extent to which the
Company's, the CEO's and the Executive Officers' goals and objectives have been
met.
In making its compensation decisions, the Committee considers the following
objectives:
- Bonus compensation should be meaningfully related to the financial
performance of the Company for the fiscal year. The Committee has
linked executive performance to corporate performance by making awards
under the Bonus Plan contingent upon specific business units'
achievements and the Company's earnings per share.
- Executives should be rewarded for their achievement of individual
goals and objectives.
- The various elements of the Company's compensation program should
assist it in recruiting, retaining and motivating the executive talent
necessary to meet the Company's strategic goals.
- Performance should be a key determinant of pay.
Committee Activity During Fiscal 1997
The Committee met five times during fiscal year 1997 and conducted the
following business:
Recommendation re: Chief Financial Officer. The Committee recommended to
the Board the appointment of Jean H. Mordo as Chief Financial Officer and
Executive Vice President.
Stock Option Grants. In December 1996, the Committee approved the issuance
of 700,000 stock options to 125 individuals under the Company's 1996 Plan. In
addition, in November 1996, the Committee approved the issuance of 500,000
options to 65 individuals under the 1996 Plan, which were originally intended to
be granted in December 1995 under the 1992 Plan.
The Committee also approved a proposal to seek shareholder approval to
amend the 1996 Plan to authorize an additional 1.5 million Common Shares for
future option grants. The amendment to the 1996 Plan was approved by the
shareholders at the Company's Annual Meeting of Shareholders in March of 1997.
1997 Bonus Plan. All Executive Officers of the Company are eligible to
participate in the Bonus Plan. Payouts for Executive Officers in the Company's
six business units are based on the Company's earnings per
17
<PAGE> 22
share, the adjusted contribution margin of their particular business unit as
well as individual goals. Payouts for corporate Executive Officers are based on
the Company's earnings per share as well as on individual goals.
Incentive Pay Deferral Plan. In September 1997, an Incentive Pay Deferral
Plan for the Executive Officers was approved by the Committee. This Plan allows
Executive Officers to defer all or a portion of any compensation received by
them under the Bonus Plan. Previously, there were no deferral options for the
Executive Officers.
Approved New Retirement Savings Program. Early in 1996, the Committee
authorized the Company's Pension Administrative Committee to develop a defined
contribution plan to replace six existing retirement plans for U.S.-based
associates of the Company and its subsidiaries. A new Retirement Savings Plan
recommendation was approved by the Committee and subsequently approved by the
Board at its September 1997 meeting. The present six retirement plans of the
Company and certain of its subsidiaries were merged into two plans. The defined
benefit plans were merged into The Scotts Company Employee Pension Plan and
frozen as of December 31, 1997. The existing defined contribution plans were
merged into the new amended and restated 401(k) plan (Retirement Savings Plan)
effective January 1, 1998. Special transition credits are being provided to
associates with long periods of service and/or who are near retirement. The
Committee also approved the $2,250,000 budgeted 1997 contribution to the Scotts
and Hyponex Profit Sharing Plans on behalf of participants therein. Since these
plans are being merged into the new Retirement Savings Plan effective December
31, 1997, future contributions will be through the Company matching contribution
to the 401(k) Plan.
Salary Adjustments, Bonus Awards and Stock Options Grants During the 1997
Fiscal Year
Salary Adjustments. During fiscal 1997, no base salary merit increases
were given to the CEO or the Executive Officers since the salary review process
was changed from review at employment anniversary date to review in October of
each year for all associates, including the Executive Officers.
Bonus Awards Pursuant to the 1997 Bonus Plan. Based upon the Company's
consolidated results, business unit performance and individual goal attainment
for the year, bonuses were paid to the CEO and all of the Executive Officers.
The bonus payments were based upon targets set forth in the 1997 Bonus Plan and
approved by the Committee. The "Summary Compensation Table" on page 11 of this
Proxy Statement sets forth the bonus payments to the CEO and the four other most
highly compensated Executive Officers.
Stock Options. As discussed previously under "Committee Activity During
Fiscal 1997," 700,000 stock options were granted under the 1996 Plan in December
1996. The CEO received no grant of stock options during fiscal 1997, due to his
grant upon hire in August 1996. Stock options were granted under the 1996 Plan
to Jean H. Mordo in connection with his employment as Chief Financial Officer
and Executive Vice President. In determining the terms of his grant, the
Committee considered the experience that he brought to the Company and the terms
necessary to attract and retain him in his position. Mr. Mordo's stock option
grant is reflected in the "Option Grants In Last Fiscal Year" table set forth on
page 12 of this Proxy Statement. During the 1997 fiscal year, a stock option
grant was also made to an Executive Officer who was not one of the five most
highly compensated Executive Officers of the Company.
Section 162(m) of the Internal Revenue Code of 1986, as amended, prohibits
a publicly-held corporation, such as the Company, from claiming a deduction on
its federal income tax return for compensation in excess of $1 million paid for
a given fiscal year to the chief executive officer (or person acting in that
capacity) at the close of the corporation's fiscal year and the four most highly
compensated officers of the corporation, other than the chief executive officer,
at the end of the corporation's fiscal year. The $1 million compensation
deduction limitation does not apply to "performance-based compensation." The
Internal Revenue Service issued final regulations on December 19, 1995, which
give some guidance to publicly-held corporations about how to qualify
compensatory plans to meet the "performance-based compensation" requirements.
The Company has determined that the 1996 Plan meets those requirements so that
compensation which may be deemed to have been paid to Executive Officers under
Section 162(m) would be considered "performance-based."
The Company does not have a policy that requires all compensation payable
in 1997 and thereafter to the covered Executive Officers to be deductible under
Section 162(m). Whenever possible, without distorting or
18
<PAGE> 23
discouraging incentives for performance that enhance the value of the Company,
the Company will endeavor to cause such compensation to be structured so that
all of it will be tax deductible. In all cases, however, whether or not some
portion of a covered Executive Officer's compensation is tax deductible, the
Company will continue to carefully consider the net cost and value to the
Company of its compensation policies.
SUBMITTED BY THE COMPENSATION AND ORGANIZATION COMMITTEE OF THE COMPANY:
JOSEPH P. FLANNERY, CHAIRMAN,
JOHN S. CHAMBERLIN AND JOHN M.
SULLIVAN
INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed Coopers & Lybrand
L.L.P. as the Company's independent auditors for the 1998 fiscal year. Coopers &
Lybrand L.L.P., a certified public accounting firm, has served as the Company's
independent auditors since 1986.
A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Annual Meeting to respond to appropriate questions and to make such
statements as he may desire.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals by shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Secretary of the Company no
later than September 14, 1998, to be included in the Company's proxy, notice of
meeting and proxy statement relating to such meeting and should be mailed to The
Scotts Company, 14111 Scottslawn Road, Marysville, Ohio 43041, Attention:
Secretary.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be presented
for action at the 1998 Annual Meeting. If any other matter requiring a vote of
the shareholders properly comes before the Annual Meeting, the persons
authorized under management proxies will vote and act according to their best
judgments in light of the conditions then prevailing.
ANNUAL REPORT
The Company's 1997 Annual Report to Shareholders containing audited
financial statements for the 1997 fiscal year is being mailed to all
shareholders of record with this Proxy Statement.
/s/ Charles M. Berger
CHARLES M. BERGER
Chairman, President and Chief
Executive Officer
19
<PAGE> 24
THE SCOTTS COMPANY
1998 ANNUAL MEETING OF SHAREHOLDERS
Adam's Mark Hotel
50 North Third Street
Columbus, Ohio
(614) 228-5050
Fax (614) 228-2525
FEBRUARY 18, 1998 AT 10:00 A.M.
[MAP]
Directions:
FROM I-71 NORTH (COMING FROM THE SOUTH) -- take I-71 North to I-70 East. Take
the Fourth Street Exit. See below under caption "From I-70 East" for further
directions.
FROM I-71 SOUTH (COMING FROM THE NORTH) -- take I-71 South to I-670 West. Take
the Third Street Exit (Third Street is one way going South). See below under
caption "From the Airport" for further directions.
FROM THE AIRPORT -- from I-670 West, take the Third Street Exit (Third Street is
one way going South). Follow Third Street for about five blocks to the hotel
which is on the left hand side at the corner of Gay Street and Third Street.
FROM I-70 EAST (COMING FROM THE WEST) -- take I-70 East to the Fourth Street
Exit. This will take you onto Livingston Avenue. Follow Livingston Avenue to
Fourth Street North. Follow Fourth Street for seven blocks to Gay Street. Turn
left onto Gay Street, then left at the next light which is Third Street. The
hotel is immediately on your left.
FROM I-70 WEST (COMING FROM THE EAST) -- take the Fourth Street Exit. Follow
Fourth Street for seven blocks to Gay Street. Turn left onto Gay Street, then
left at the next light which is Third Street. The hotel is immediately on your
left.
<PAGE> 25
THE SCOTTS COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 18, 1998
The undersigned holder(s) of shares of The Scotts Company (the "Company") hereby
appoints Charles M. Berger or G. Robert Lucas, the Proxies of the undersigned,
with full power of substitution, to attend the Annual Meeting of Shareholders of
the Company to be held at the Adam's Mark Hotel, 50 North Third Street,
Columbus, Ohio, on Wednesday, February 18, 1998, at 10:00 a.m., local time, and
any adjournment(s) thereof, and to vote all of the shares which the undersigned
is entitled to vote at such Annual Meeting or at any adjournment(s) thereof:
<TABLE>
<S> <C>
1. To elect three Directors in Class III for terms to expire at the 2001 Annual Meeting:
Joseph P. Flannery, Horace Hagedorn, Albert E. Harris
[ ] Vote for all nominees [ ] Vote for all nominees except _____________________
</TABLE>
In their discretion, the Proxies are authorized to vote upon such other matters
(none known at the time of solicitation of this Proxy) as may properly come
before the Annual Meeting or any adjournment(s) thereof.
(This Proxy continues and must be signed and dated on the reverse side)
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WHEN PROPERLY
EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE
NOMINEES LISTED IN ITEM NO. 1 AS DIRECTORS OF THE COMPANY. IF ANY OTHER MATTERS
ARE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT(S) THEREOF, OR
IF A NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN THE PROXY STATEMENT IS UNABLE
TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH MATTERS OR FOR SUCH
SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND. PROXIES CANNOT BE VOTED
FOR MORE THAN THREE NOMINEES FOR ELECTION AS CLASS III DIRECTORS AT THE ANNUAL
MEETING.
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
of Shareholders, dated January 12, 1998, the Proxy Statement furnished
therewith, and the Annual Report of the Company for the fiscal year ended
September 30, 1997. Any proxy heretofore given to vote the shares which the
undersigned is entitled to vote at the Annual Meeting of Shareholders is hereby
revoked.
Dated , 1998
---------------------
--------------------------------
--------------------------------
Shareholder sign name exactly as
it is stenciled hereon.
Note: Please fill in, sign and
return this Proxy in the
enclosed envelope. When signing
as Attorney, Executor,
Administrator, Trustee or
Guardian, please give full title
as such. If holder is a
corporation, please sign the
full corporate name by
authorized officer. Joint Owners
should sign individually.
(Please note any change of
address on this Proxy).
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE SCOTTS COMPANY
Proxy Card
