<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-11593
THE SCOTTS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-1414921
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14111 SCOTTSLAWN ROAD
MARYSVILLE, OHIO 43041
(Address of principal executive offices)
(Zip Code)
(937) 644-0011
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
18,350,343 OUTSTANDING AT MAY 3, 1999
Common Shares, voting, no par value
<PAGE> 2
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
INDEX
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements
Condensed, Consolidated Statements of Operations - Three
and six month periods ended April 3, 1999 and April 4, 1998 3
Condensed, Consolidated Statements of Cash Flows - Six
month periods ended April 3, 1999 and April 4, 1998 4
Condensed, Consolidated Balance Sheets - April 3, 1999,
April 4, 1998, and September 30, 1998 5
Notes to Condensed, Consolidated Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-32
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33-34
Part II. Other Information
Item 1. Legal Proceedings 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 36
Exhibit Index 37
</TABLE>
Page 2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales 631.5 430.1 815.9 554.9
Cost of sales 362.6 259.6 482.3 343.1
----- ----- ----- -----
Gross profit 268.9 170.5 333.6 211.8
Commission earned from agency agreements 12.6 -- 17.6 --
Operating expenses:
Advertising and promotion 86.0 50.7 102.7 61.0
Selling, general and administrative 72.5 46.2 126.4 78.1
Amortization of goodwill and other intangibles 5.3 3.4 10.2 6.1
Restructuring and other charges -- -- 1.4 --
Other expense, net 0.4 1.8 0.3 1.5
----- ----- ----- -----
Income from operations 117.3 68.4 110.2 65.1
Interest expense 24.6 10.1 34.4 16.5
----- ----- ----- -----
Income before taxes 92.7 58.3 75.8 48.6
Income tax expense 38.0 24.8 31.1 20.6
----- ----- ----- -----
Net income before extraordinary item 54.7 33.5 44.7 28.0
Extraordinary loss on early extinguishment of
debt, net of taxes 5.4 0.7 5.8 0.7
----- ----- ----- -----
Net income 49.3 32.8 38.9 27.3
Preferred stock dividends 2.5 2.5 4.9 4.9
----- ----- ----- -----
Income applicable to common shareholders 46.8 30.3 34.0 22.4
Basic earnings per common share:
Before extraordinary loss 2.86 1.66 2.17 1.24
Extraordinary loss, net of tax 0.30 0.04 0.32 0.04
----- ----- ----- -----
2.56 1.62 1.85 1.20
Diluted earnings per common share:
Before extraordinary loss 1.81 1.10 1.48 0.93
Extraordinary loss, net of tax 0.18 0.02 0.19 0.02
----- ----- ----- -----
1.63 1.08 1.29 0.91
Common shares used in basic earnings per share
Calculation 18.3 18.7 18.3 18.7
Common shares and potential common shares used in
diluted earnings per share calculation 30.3 30.4 30.2 30.1
</TABLE>
See notes to condensed, consolidated financial statements
Page 3
<PAGE> 4
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<CAPTION>
SIX MONTHS ENDED
----------------
APRIL 3, APRIL 4,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38.9 $ 27.3
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 25.0 17.6
Extraordinary loss, net of tax 5.8 0.7
Net change in certain components of working capital (303.9) (227.2)
Net change in other assets and liabilities and
other adjustments (25.9) (2.1)
------- -------
Net cash used in operating activities (260.1) (183.7)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant and equipment, net (26.6) (13.2)
Investment in acquired businesses, net of cash acquired (492.4) (134.4)
Other, net (6.4) 0.2
------- -------
Net cash used in investing activities (525.4) (147.4)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under term loans, revolving and bank
lines of credit 611.8 334.0
Issuance of senior subordinated notes 330.0 --
Extinguishment of $97.1 million senior subordinated notes (104.1) --
Settlement of interest rate locks (12.9) --
Financing and issuance fees (22.6) --
Dividends on Class A Convertible Preferred Stock (7.3) (4.9)
Other, net (0.6) 0.4
------- -------
Net cash provided by financing activities 794.3 329.5
------- -------
Effect of exchange rate changes on cash (0.5) (0.1)
------- -------
Net increase (decrease) in cash 8.3 (1.7)
Cash at beginning of period 10.6 13.0
------- -------
Cash at end of period $ 18.9 $ 11.3
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Businesses Acquired:
Fair value of assets acquired $ 631.2 $ 183.7
Liabilities assumed (101.8) (45.9)
Cash paid 4.8 0.4
Debt issued $524.6 $137.4
</TABLE>
See notes to condensed, consolidated financial statements
Page 4
<PAGE> 5
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<CAPTION>
ASSETS
UNAUDITED
-------------------------
APRIL 3, APRIL 4, SEPTEMBER 30,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash $ 18.9 $ 11.3 $ 10.6
Accounts receivable, less allowances of
$13.1, $6.2 and $6.3, respectively 589.6 413.8 146.6
Inventories, net 334.6 194.3 177.7
Current deferred tax asset 22.3 19.5 20.8
Prepaid and other assets 52.6 10.6 11.5
-------- -------- --------
Total current assets 1,018.0 649.5 367.2
-------- -------- --------
Property, plant and equipment, net 240.8 186.1 197.0
Intangible assets, net 808.7 429.9 435.1
Other assets 35.8 6.3 35.9
-------- -------- --------
Total assets $2,103.3 $1,271.8 $1,035.2
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 213.9 $ 2.8 $ 13.3
Accounts payable 178.2 104.5 77.8
Accrued liabilities 176.7 101.6 124.9
Accrued taxes 44.1 45.6 15.9
-------- -------- --------
Total current liabilities 612.9 254.5 231.9
Long-term debt 1,003.0 566.5 359.2
Other liabilities 55.7 40.3 40.2
-------- -------- --------
Total liabilities 1,671.6 861.3 631.3
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred Stock, no
par value 177.3 177.3 177.3
Common shares, no par value per share,
$.01 stated value per share, issued
21.1 shares in 1999 and 1998 0.2 0.2 0.2
Capital in excess of par value 208.7 207.8 208.7
Retained earnings 110.6 72.5 76.6
Treasury stock, 2.8, 2.4, and 2.8 shares,
respectively, at cost (56.9) (41.0) (55.9)
Accumulated other comprehensive income:
Foreign currency translation account (8.2) (6.3) (3.0)
-------- -------- --------
Total shareholders' equity 431.7 410.5 403.9
-------- -------- --------
Total liabilities and shareholders'
equity $2,103.3 $1,271.8 $1,035.2
-------- -------- --------
</TABLE>
See notes to condensed, consolidated financial statements
Page 5
<PAGE> 6
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN MILLIONS EXCEPT PER SHARE DATA OR AS OTHERWISE NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Scotts Company is engaged in the manufacture and sale of lawn care and
garden products. The Company's major customers include mass merchandisers,
home improvement centers, large hardware chains, independent hardware
stores, nurseries, garden centers, food and drug stores, golf courses,
professional sports stadiums, lawn and landscape service companies,
commercial nurseries and greenhouses, and specialty crop growers. The
Company's products are sold in the United States, Canada, the European
Union, the Caribbean, South America, Southeast Asia, the Middle East,
Africa, Australia, New Zealand, Mexico, Japan, and several Latin American
countries.
Organization and Basis of Presentation
The condensed, consolidated financial statements include the accounts of
The Scotts Company and its subsidiaries, (collectively, the "Company").
All material intercompany transactions have been eliminated.
The condensed, consolidated balance sheets as of April 3, 1999 and April
4, 1998, and the related condensed, consolidated statements of operations
and cash flows for the three and six month periods ended April 3, 1999 and
April 4, 1998 are unaudited; however, in the opinion of management, such
financial statements contain all adjustments necessary for the fair
presentation of the Company's financial position and results of
operations. Interim results reflect all normal recurring adjustments and
are not necessarily indicative of results for a full year. The interim
financial statements and notes are presented as specified by Regulation
S-X of the Securities and Exchange Commission, and should be read in
conjunction with the financial statements and accompanying notes in
Scotts' fiscal 1998 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying disclosures. The most significant of these
estimates are related to the allowance for doubtful accounts, inventory
valuation reserves, expected useful lives assigned to property, plant and
equipment and goodwill and other intangible assets, legal and
environmental accruals, post-retirement benefits, promotional and consumer
rebate liabilities, income taxes and contingencies. Although these
estimates are based on management's best knowledge of current events and
actions the Company may undertake in the future, actual results ultimately
may differ from the estimates.
Advertising and Promotion
The Company advertises its branded products through national and regional
media, and through cooperative advertising programs with retailers.
Retailers are also offered pre-season stocking and in-store promotional
allowances. Certain products are also promoted with direct consumer rebate
programs. The Company expenses advertising and promotion costs as
incurred, although costs incurred during interim periods are generally
expensed ratably in relation to revenues or related performance measures.
Reclassifications
Certain reclassifications have been made in prior periods' financial
statements to conform to fiscal 1999 classifications.
Page 6
<PAGE> 7
2. ACQUISITIONS
Effective January 1999, the Company acquired the assets of Monsanto
Company's consumer lawn and garden businesses, exclusive of the Roundup(R)
business ("Ortho"), for approximately $300 million, subject to adjustment
based on working capital as of the closing date and as defined in the
purchase agreement.
Effective October 1998, the Company acquired Rhone-Poulenc Jardin ("RPJ"),
continental Europe's largest consumer lawn and garden products company.
The final purchase price, established subsequent to post-acquisition
working capital adjustments, was approximately $162 million as compared to
management's original estimate of approximately $216 million.
Effective February 1998, the Company acquired all the shares of EarthGro,
Inc. ("EarthGro"), a regional growing media company located in
Glastonbury, Connecticut, for approximately $47.0 million.
Effective December 1997, the Company acquired all the shares of Levington
Group Limited ("Levington"), a leading producer of consumer and
professional lawn fertilizer and growing media in the U.K., for
approximately $94.0 million.
During fiscal 1999 and 1998, the Company also invested in or acquired
other entities consistent with its long-term strategic plan. These
investments include Asef Holding BV, Scotts Lawn Service, Sanford
Scientific, Inc. (genetics) and certain intangible assets acquired in
Ireland.
Each of the above acquisitions was accounted for under the purchase method
of accounting. Accordingly, the purchase prices have been allocated to the
assets acquired and liabilities assumed based on their estimated fair
values at the date of acquisition. Final allocations of the purchase
prices to acquired net assets associated with the Ortho, RPJ and Asef
Holding BV acquisitions are pending. The excess of the purchase price over
the net book value of acquired assets is currently recorded on the balance
sheet as an intangible asset. Intangible assets associated with the
purchase of EarthGro and Levington were $23.3 million and $62.8 million,
respectively. Intangible assets associated with the other acquisitions
mentioned above, exclusive of RPJ and Ortho, are approximately $37.0
million on a combined basis.
The following unaudited pro forma results of operations give effect to the
Ortho, RPJ, Earthgro, and Levington acquisitions as if they had occurred
on October 1, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
APRIL 4, APRIL 3,
(in millions, except per share data) 1999 1998
---- ----
<S> <C> <C>
Net sales $850.2 $746.4
Income before extraordinary loss 30.6 26.3
Net income 24.8 25.6
Basic earnings per share:
Before extraordinary loss $ 1.41 $ 1.14
After extraordinary loss 1.09 1.10
Diluted earnings per share
Before extraordinary loss $ 1.01 $ 0.87
After extraordinary loss 0.82 0.85
</TABLE>
The pro forma information provided does not purport to be indicative of
actual results of operations if the Ortho, RPJ, Earthgro and Levington
acquisitions had occurred as of October 1, 1997, and is not intended to be
indicative of future results or trends.
Page 7
<PAGE> 8
3. AGENCY AGREEMENT
Effective September 30, 1998, the Company entered into an agreement with
Monsanto for exclusive international marketing and agency rights to
Monsanto's consumer Roundup(R) herbicide products. In connection with the
agreement, the Company paid a $32.0 million deferred marketing fee that is
being amortized over 20 years. The agreement covers most major consumer
lawn and garden markets in the world, including the U.S., Canada, Germany,
France, other parts of continental Europe, and Australia.
The agreement provides for the Company to earn a commission based on the
EBIT (as defined by the agreement) generated annually by the global
Roundup(R) business. The Company has recorded $17.6 million in the first
six months of fiscal 1999, representing a pro-rata share of the estimated
amount to be earned for the year.
4. INVENTORIES
Inventories, net of provisions of $21.5 million, $9.7 million and $12.0
million, respectively, consisted of:
<TABLE>
<CAPTION>
APRIL 3, APRIL 4, SEPTEMBER 30,
(in millions) 1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Finished goods $246.8 $128.5 $121.0
Raw materials 87.4 64.1 55.8
------ ------ ------
FIFO cost 334.2 192.6 176.8
LIFO reserve 0.4 1.7 0.9
------ ------ ------
Total $334.6 $194.3 $177.7
------ ------ ------
</TABLE>
5. INTANGIBLE ASSETS, NET
<TABLE>
<CAPTION>
APRIL 3, APRIL 4, SEPTEMBER 30,
(in millions) 1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Goodwill $625.8 $275.7 $268.1
Trademarks 137.9 135.2 144.0
Other 45.0 19.0 23.0
------ ------ ------
Total $808.7 $429.9 $435.1
------ ------ ------
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
APRIL 3, APRIL 4, SEPTEMBER 30,
(in millions) 1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Revolving loans under credit facility $ 322.8 $450.6 $253.5
Term loans under credit facility 509.9 -- --
Senior Subordinated Notes 320.0 99.5 99.5
Deferred acquisition price 37.5 5.6 5.6
Foreign term loans 9.0 9.0 9.0
Capital lease obligations and other 17.7 4.6 4.9
-------- ------ ------
1,216.9 569.3 372.5
Less current portions 213.9 2.8 13.3
-------- ------ ------
$1,003.0 $566.5 $359.2
-------- ------ ------
</TABLE>
In January 1999 the Company completed an offering of $330 million of
10-year 8 5/8% Senior Subordinated Notes ("the Notes") due 2009. The net
proceeds from the offering, together with borrowings under Scotts' bank
facility, were used to fund the Ortho acquisition and repurchase
approximately 97% of the Company's $100.0 million outstanding 9 7/8%
Senior Subordinated Notes due August 2004. The Company recorded an
extraordinary loss before tax on the extinguishment of the 9 7/8% notes of
approximately $9.2 million, including a call premium of $7.1 million and
the write-off of unamortized issuance costs and discounts associated with
the 9 7/8% notes of $2.1 million.
Page 8
<PAGE> 9
Coincidental with the Notes offering, the Company settled its then
outstanding interest rate locks for approximately $3.6 million. The
Company entered into two interest rate locks in fiscal 1998 to hedge its
anticipated interest rate exposure on the Note offering. In October 1998,
the Company settled one of the interest rate locks for $9.3 and entered
into a new interest rate lock instrument. The total amount paid under the
interest rate locks of $12.9 million has been recorded as a reduction of
the Notes' carrying value and is being amortized over the life of the
Notes.
On December 4, 1998, the Company and certain of its subsidiaries entered
into a new credit facility which provides for borrowings in the aggregate
principal amount of $1.025 billion and consists of term loan facilities in
the aggregate amount of $525 million and a revolving credit facility in
the amount of $500 million. Proceeds from borrowings under the new credit
facility of approximately $241.0 million were used to repay amounts
outstanding under the then existing credit facility. Gross borrowings and
gross repayments under the credit facility were $1.099 billion and $487
million, respectively, for the six months ended April 3, 1999. An $0.4
million extraordinary loss, net of tax, was recorded in connection with
the retirement of the old facility.
The term loan facilities consist of three tranches. The Tranche A Term
Loan Facility consists of three sub-tranches of French Francs, German
Deutschemarks and British Pounds Sterling in an aggregate principal amount
of $265 million which are to be repaid quarterly over a 6 1/2 year period.
The Tranche B Term Loan Facility is a 7 1/2 year term loan facility in an
aggregate principal amount of $140 million, which is to be repaid in
nominal quarterly installments for the first 6 1/2 years and in
substantial quarterly installments in the final year. The Tranche C Term
Loan Facility is a 8 1/2 year term loan facility in an aggregate principal
amount of $120 million, which is to be repaid in nominal quarterly
installments for the first 7 1/2 years and in substantial quarterly
installments in the final year.
The revolving credit facility provides for borrowings up to $500 million,
which are available on a revolving basis over a term of 6 1/2 years. A
portion of the revolving credit facility not to exceed $40 million is
available for the issuance of letters of credit. A portion of the facility
not to exceed $225 million is available for borrowings in optional
currencies, including German Deutschemarks, British Pounds Sterling,
French Francs, Belgian Francs, Italian Lira and other specified
currencies, provided that the outstanding revolving loans in optional
currencies other than British Pounds Sterling does not exceed $120
million. The outstanding principal amount of all revolving credit loans
may not exceed $150 million for at least 30 consecutive days during any
calendar year.
Interest rates and commitment fees pursuant to the new credit facility
vary according to the Company's leverage ratios and also within tranches.
In addition, the new credit facility requires that the Company enter into
hedge agreements to the extent necessary to provide that at least 50% of
the aggregate principal amount of the Senior Subordinated Notes and term
loan facilities is subject to a fixed interest rate. Financial covenants
include minimum net worth, interest coverage and net leverage ratios.
Other covenants include limitations on: indebtedness, liens, mergers,
consolidations, liquidations and dissolutions, sale of assets, leases,
dividends, capital expenditures, and investments, among others.
Approximately $12.3 million of financing costs associated with the new
credit facility have been deferred as of April 3, 1999 and are being
amortized over a period of approximately 7 years.
In conjunction with the acquisition of RPJ and Sanford Scientific, notes
were issued for certain portions of the total purchase price that are to
be paid in annual installments over a four year period. Remaining balances
for the notes
Page 9
<PAGE> 10
are $32.3 million and $4.6 million, respectively. The Company is imputing
interest on the non-interest bearing notes using a 9% and 8% discount
rate, respectively.
7. EARNINGS PER COMMON SHARE
The following table presents information necessary to calculate basic and
diluted earnings per common share ("EPS").
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income before extraordinary item $54.7 $33.5 $44.7 $28.0
Extraordinary loss on early extinguishment
of debt, net of taxes 5.4 0.7 5.8 0.7
----- ----- ----- -----
Net income 49.3 32.8 38.9 27.3
Preferred stock dividends 2.5 2.5 4.9 4.9
----- ----- ----- -----
Income applicable to common shareholders $46.8 $30.3 $34.0 $22.4
----- ----- ----- -----
Weighted-average common shares
outstanding during the period 18.3 18.7 18.3 18.7
Assuming conversion of Class A
Convertible Preferred Stock 10.3 10.3 10.3 10.3
Assuming exercise of warrants 0.9 0.7 0.8 0.5
Assuming exercise of options 0.8 0.7 0.8 0.6
----- ----- ----- -----
Weighted-average number of common shares
outstanding and potential common shares 30.3 30.4 30.2 30.1
----- ----- ----- -----
Basic earnings per common share:
Before extraordinary loss $2.86 $1.66 $2.17 $1.24
Extraordinary loss, net of tax 0.30 0.04 0.32 0.04
----- ----- ----- -----
$2.56 $1.62 $1.85 $1.20
----- ----- ----- -----
Diluted earnings per common share:
Before extraordinary loss $1.81 $1.10 $1.48 $0.93
Extraordinary loss, net of tax 0.18 0.02 0.19 0.02
----- ----- ----- -----
$1.63 $1.08 $1.29 $0.91
----- ----- ----- -----
</TABLE>
8. STATEMENT OF COMPREHENSIVE INCOME
Effective October 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income".
SFAS 130 requires that changes in the amounts of certain items, including
foreign currency translation adjustments, be presented in the Company's
financial statements. The components of other comprehensive income and
total comprehensive income for the six months ended April 3, 1999 and
April 4, 1998 are as follows:
Page 10
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(in millions) April 3, April 4, April 3, April 4,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $49.3 $32.8 $38.9 $27.3
Other comprehensive expense:
Translation adjustments (4.8) (0.8) (5.2) (2.0)
----- ----- ----- -----
Comprehensive income $44.5 $32.0 $33.7 $25.3
----- ----- ----- -----
</TABLE>
9. CONTINGENCIES
Management continually evaluates the Company's contingencies, including
various lawsuits and claims which arise in the normal course of business,
product and general liabilities, property losses and other fiduciary
liabilities for which the Company is self-insured. In the opinion of
management, its assessment of contingencies is reasonable and related
reserves, in the aggregate, are adequate; however, there can be no
assurance that future quarterly or annual operating results will not be
materially affected by final resolution of these matters. The following
details the more significant of the Company's identified contingencies.
Ohio Environmental Protection Agency
The Company has assessed and addressed certain environmental issues
regarding the wastewater treatment plants which had operated at the
Marysville facility. The Company decommissioned the old wastewater
treatment plants and has connected the facility's wastewater system with
the City of Marysville's municipal treatment system. Additionally, the
Company has been assessing, under Ohio's new Voluntary Action Program
("VAP"), the possible remediation of several discontinued on-site waste
disposal areas dating back to the early operations of its Marysville
facility.
In February 1997, the Company learned that the Ohio Environmental
Protection Agency ("OEPA") was referring certain matters relating to
environmental conditions at the Company's Marysville site, including the
existing wastewater treatment plants and the discontinued on-site waste
disposal areas, to the Ohio Attorney General's Office ("OAG").
Representatives from the OEPA, the OAG and the Company continue to meet to
discuss these issues.
In June 1997, the Company received formal notice of an enforcement action
and draft Findings and Orders ("F&O") from the OEPA. The draft F&O
elaborated on the subject of the referral to the OAG alleging: potential
surface water violations relating to possible historical sediment
contamination possibly impacting water quality; inadequate treatment
capabilities of the Company's existing and currently permitted wastewater
treatment plants; and that the Marysville site is subject to corrective
action under the Resource Conservation Recovery Act ("RCRA"). In late July
1997, the Company received a draft judicial consent order from the OAG
which covered many of the same issues contained in the draft F&O including
RCRA corrective action. As a result of ongoing discussions, the Company
received a revised draft of a judicial consent order from the OAG in late
April 1999, which is the focus of current negotiations.
In accordance with the Company's past efforts to enter into Ohio's VAP,
the Company submitted to the OEPA a "Demonstration of Sufficient Evidence
of VAP Eligibility Compliance" on July 8, 1997. Among other issues
contained in the VAP submission, was a description of the Company's
ongoing efforts to assess potential environmental impacts of the
discontinued on-site waste disposal areas as well as potential remediation
efforts. Pursuant to the statutes covering VAP, an eligible participant in
the program is not subject to State enforcement actions for those
environmental matters being addressed. On October 21, 1997, the Company
received a letter from the Director of the OEPA denying VAP eligibility
based upon the timeliness of and completeness of the submittal.
Page 11
<PAGE> 12
The Company has appealed the Director's action to the Environmental Review
Appeals Commission. No hearing date has been set and the appeal remains
pending.
The Company is continuing to meet with the OAG and the OEPA in an effort
to negotiate an amicable resolution of these issues but is unable at this
stage to predict the outcome of the negotiations. While negotiations have
narrowed the unresolved issues between the Company and the OAG/OEPA,
several critical issues remain the subject of ongoing discussions. The
Company believes that it has viable defenses to the State's enforcement
action, including that it had been proceeding under VAP to address certain
environmental issues, and will assert those defenses in any such action.
While the Company is unable to predict the ultimate outcome of this issue,
management believes that the probable range of outcome will not be
material to the Company. Many of the issues raised by the State are
already being investigated and addressed by the Company during the normal
course of conducting business.
Lafayette
In July 1990, the Philadelphia District of the U.S. Army Corps of
Engineers ("Corps") directed that peat harvesting operations be
discontinued at Hyponex's Lafayette, New Jersey facility, based on its
contention that peat harvesting and related activities result in the
"discharge of dredged or fill material into waters of the United States"
and therefore require a permit under Section 404 of the Clean Water Act.
In May 1992, the United States filed suit in the U.S. District Court for
the District of New Jersey seeking a permanent injunction against such
harvesting, and civil penalties in an unspecified amount. If the Corps'
position is upheld, it is possible that further harvesting of peat from
this facility would be prohibited. The Company is defending this suit and
is asserting a right to recover its economic losses resulting from the
government's actions. The suit was placed in administrative suspense
during fiscal 1996 in order to allow the Company and the government an
opportunity to negotiate a settlement, and it remains suspended while the
parties develop, exchange and evaluate technical data. In July 1997, the
Company's wetlands consultant submitted to the government a draft
remediation plan. Comments were received, and a revised plan was submitted
in early 1998. Further comments from the government were received during
1998. The Company believes agreement on the remediation plan has
essentially been reached. Before this suit can be fully resolved, however,
the Company and the government must reach agreement on the government's
civil penalty demand. Management does not believe that the outcome of this
case will have a material adverse effect on the Company's operations or
its financial condition. Furthermore, management believes the Company has
sufficient raw material supplies available such that service to customers
will not be materially adversely affected by continued closure of this
peat harvesting operation.
Hershberger
In September 1991, the Company was identified by the OEPA as a Potentially
Responsible Party ("PRP") with respect to a site in Union County, Ohio
(the "Hershberger site"), because the Company allegedly arranged for the
transportation, treatment or disposal of waste that allegedly contained
hazardous substances, at the Hershberger site. Effective February 1998,
the Company and four other named PRPs executed an Administrative Order on
Consent ("AOC") with the OEPA, by which the named PRPs will fund remedial
action at the Hershberger site. After construction of the leachate
collection system and reconstruction of the landfill cap, which was
substantially completed in August 1998, the Company expects its obligation
thereafter to consist primarily of its share of annual operating and
maintenance expenses. Management does not believe that its obligations
under the AOC will have a material adverse effect on the Company's results
of operations or financial condition.
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Bramford
In the U.K., major discharges of waste to air, water and land are
regulated by The Environment Agency (the "EA"). The Levington fertilizer
facility in Bramford (Suffolk), U.K., is subject to environmental
regulation by the EA. Manufacturing processes at this facility require
process authorizations and a waste management license. In connection with
the renewal of such authorizations and license, the EA has identified the
need for remediation of a lagoon at the site, and the potential for
remediation of a former landfill at the site. The Company intends to
comply with the reasonable remediation concerns of the EA, including
removal of any contaminated materials from the lagoon and filling and
capping of the lagoon. If, however, the EA should determine that the
Company has not adequately addressed the remediation concerns of the EA,
operations at the facility could be restricted and enforcement proceedings
could be brought by the EA. Management does not believe that its remedial
obligations at this site will have a material adverse effect on the
operations at the facility or on the Company's results of operations or
financial condition.
10. NEW ACCOUNTING STANDARDS
In June of 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". In February and August of 1998,
respectively, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." and SFAS No. 133, "Accounting
For Derivative Instruments and Hedging Activities." SFAS No. 131 and 132
are effective for financial statements for fiscal years beginning after
December 15, 1997. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999.
SFAS No. 131 establishes standards for the way that public enterprises
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders
commencing in the year after adoption. SFAS No. 131 defines business
segments as components of an enterprise about which separate financial
information is available and used internally for evaluating segment
performance and decision making on resource allocations. SFAS No. 131
requires reporting a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets; and other reporting about
geographic and customer matters. The Company plans to adopt SFAS No. 131
in fiscal 1999.
SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer useful. The Company
plans to adopt SFAS No. 132 in fiscal 1999.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. The
Company has not yet determined the impact this statement will have on its
operating results. The Company plans to adopt SFAS No. 133 in fiscal 2000.
See Note 8 for a discussion of SFAS No. 130.
11. RESTRUCTURING
Restructuring and other charges totaled $1.9 million in the first six
months of fiscal 1999, of which $0.5 million is included in SG&A charges.
These charges consist of severance and relocation costs to reorganize the
North American
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Professional Business Group to strengthen distribution and technical sale
support, integrate brand management across market segments and reduce
annual operating expenses. As of April 3, 1999, the Company has made
approximately $0.8 of the anticipated cash payments.
During fiscal 1998, the Company recorded $20.4 million of restructuring
and other charges. Included in these charges are the following: (1)$6.0
million for consolidation of the Company's two U.K. operations into one
lower-cost business, consisting primarily of property and equipment and
packaging costs of $3.9 million and severance costs of $1.4 million; (2)
$9.3 million for the closure of nine composting operations in the U.S.
that collect yard and compost waste for certain municipalities, consisting
primarily of losses under contractual commitments of $4.5 million and
inventory and fixed asset write-offs of $4.8 million; and (3) $5.1 million
for the sale or closure of certain other U.S. plants and businesses. The
Company expects that these restructuring efforts will be completed during
fiscal 1999.
In connection with the charges taken for the consolidation of the two U.K.
operations, the Company has made $3.1 million of the estimated $3.8
million cash payments accrued for in fiscal 1998, primarily related to
severance, packaging and information system costs. The Company estimates
that the majority of the remaining payments will be made in fiscal 1999
In connection with the charges taken for the closure of nine composting
operations, the Company made $1.5 million of the estimated $5.0 million
cash payments accrued for in fiscal 1998, primarily related to losses
under contractual commitments. The Company estimates that of the remaining
payments, $1.7 million will be made in fiscal 1999, while $1.8 million
will be made in fiscal 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(ALL AMOUNTS ARE IN MILLIONS EXCEPT PER SHARE DATA OR AS OTHERWISE NOTED)
OVERVIEW
The Company is a leading manufacturer and marketer of consumer branded products
for lawn and garden care, professional turf care and professional horticulture
businesses in the United States and Europe. The Company's operations are divided
into three business segments: North American Consumer, Professional and
International. The North American Consumer segment includes the Lawns, Gardens,
Growing Media and Ortho business groups.
The Company's sales are seasonal in nature and are susceptible to global weather
conditions, primarily in North America and Europe. For instance, periods of wet
weather can slow fertilizer sales but can create increased demand for pesticide
sales. Periods of dry, hot weather can have the opposite effect on fertilizer
and pesticide sales. The Company believes that its recent acquisitions diversify
both its product line risk and geographic risk to weather conditions.
On September 30, 1998, the Company entered into a long-term Exclusive Agency and
Marketing Agreement (the "Roundup(R) Marketing Agreement") with Monsanto for its
consumer Roundup(R) herbicide products. Under the Marketing Agreement, the
Company and Monsanto will jointly develop global consumer and trade marketing
programs for Roundup(R), and the Company has assumed responsibility for sales
support, merchandising, distribution, logistics and certain administrative
functions.
In addition, on January 21, 1999, the Company consummated the acquisition of the
assets of Monsanto Company's consumer lawn and garden businesses, exclusive of
the Roundup(R) business. These transactions with Monsanto will further the
Company's strategic objective of entering the pesticides segment of the consumer
lawn and garden category. These businesses make up the newly created Ortho
business group within the North American Consumer segment.
Over the past two years, the Company has made several other acquisitions to
strengthen its global market position in the lawn and garden category. In
October 1998, the Company acquired Rhone-Poulenc Jardin ("RPJ"). RPJ is a
leading European consumer lawn and garden business. The RPJ acquisition provides
a significant addition to the Company's existing European platform and
strengthens its foothold in the continental European consumer lawn and garden
market. Through this acquisition, the Company will establish a strong presence
in France, Germany, Austria, and the Benelux countries. The RPJ acquisition may
also mitigate, to a certain extent, the Company's susceptibility to weather
conditions by expanding the regions in which the Company operates.
In February 1998, the Company acquired EarthGro, Inc. ("Earthgro") a
Northeastern U.S. growing media producer. In December 1997, the Company acquired
Levington Group Limited ("Levington"), a leading producer of consumer and
professional lawn fertilizer and growing media in the United Kingdom. In January
1997, the Company acquired the approximate two-thirds interest in Miracle
Holdings Limited ("Miracle Holdings") which the Company did not already own.
Miracle Holdings owns Miracle Garden Care Limited ("MGC"), a manufacturer and
distributor of lawn and garden products in the United Kingdom. These
acquisitions are consistent with the Company's stated objective of becoming the
world's foremost branded lawn and garden company.
In addition, on December 15, 1998, the Company acquired Asef Holding B.V., a
privately-held Netherlands-based lawn and garden products company, for
approximately $23.0 million.
Management believes that the acquisitions will provide the Company with several
strategic benefits including immediate market penetration, geographic expansion,
brand leveraging opportunities, and the achievement of substantial cost savings.
The Company is currently a leader in four segments of the consumer lawn and
garden category: lawn fertilizer, garden fertilizer, growing media and grass
seeds. The acquisition of Ortho and the Marketing Agreement for Roundup(R) will
provide
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the Company with an immediate entry into the fifth segment of the consumer lawn
and garden category: the U.S. pesticides segment. The addition of the U.S.
pesticides product line completes the Company's product portfolio and positions
the Company as the only national company with a complete offering of consumer
products.
The addition of strong pesticide brands completes the Company's product
portfolio of powerful branded consumer lawn and garden products that should
provide the Company with brand leveraging opportunities for revenue growth. For
example, the Company's strengthened market position should create category
management opportunities to enhance shelf positioning, consumer communication,
trade incentives and trade programs. In addition, significant synergies should
be realized from the combined businesses, including reductions in general and
administrative, sales, distribution, purchasing, research and development, and
corporate overhead costs. Management expects to redirect a portion of these cost
savings into increased consumer marketing spending in support of the Ortho
brand.
RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated results of operations,
cash flows and financial position of the Company should be read in conjunction
with the Condensed, Consolidated Financial Statements of the Company included
elsewhere in this report. Scotts' Annual Report on Form 10-K for the fiscal year
ended September 30, 1998 includes additional information about the Company, its
operations, and its financial position, and should be read in conjunction with
this Quarterly Report on Form 10-Q.
The following table sets forth sales by business segment for the three and six
months ended April 3, 1999 and April 4, 1998:
<TABLE>
<CAPTION>
Three Months Ended Period Six Months Ended Period
April 3, April 4, To Period April 3, April 4, To Period
1999 1998 Change 1999 1998 Change
<S> <C> <C> <C> <C> <C> <C>
Consumer Lawns $245.6 $191.9 28.0% $284.8 $222.1 28.2%
Consumer Gardens 64.3 53.9 19.3 77.8 66.3 17.4
Consumer Growing Media 79.5 70.5 12.8 99.6 86.6 15.0
Consumer Ortho 69.5 na na 69.5 na na
------ ------ ------ ------
Domestic Consumer 458.9 316.3 45.1 531.7 375.0 41.8
------ ------ ------ ------
Professional 40.9 44.5 (8.1) 73.4 76.9 (4.6)
International 131.7 69.3 90.0 210.8 103.0 104.7
------ ------ ------ ------
Consolidated $631.5 $430.1 46.8% $815.9 $554.9 47.0%
------ ------ ------ ------
</TABLE>
The following table sets forth the components of income and expense as a
percentage of sales for the three and six months ended April 3, 1999 and April
4, 1998:
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<PAGE> 17
<TABLE>
<CAPTION>
Three Months Ended Period Six Months Ended Period
To To
April 3, April 4, Period April 3, April 4, Period
1999 1998 Change 1999 1998 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 46.8% 100.0% 100.0% 47.0%
Cost of sales 57.4 60.4 39.7 59.1 61.8 40.6
----- ----- ----- ----- ----- -----
Gross profit 42.6 39.6 57.7 40.9 38.2 57.5
Commission earned from agency agreements 2.0 -- na 2.2 -- na
Operating Expenses:
Advertising and promotion 13.6 11.8 69.6 12.6 11.0 68.4
Selling, general and administrative 11.5 10.7 56.9 15.5 14.1 61.8
Amortization of goodwill & other
intangibles 0.8 0.8 55.9 1.3 1.1 67.2
Restructuring and other charges -- -- na 0.2 0.0 na
Other expense, net 0.1 0.4 (77.8) 0.0 0.3 (80.0)
----- ----- ----- ----- ----- -----
Income from operations 18.6 15.9 71.5 13.5 11.7 69.3
Interest expense 3.9 2.3 143.6 4.2 3.0 108.5
----- ----- ----- ----- ----- -----
Income before taxes 14.7 13.6 59.0 9.3 8.8 56.0
Income tax expense 6.0 5.8 53.2 3.8 3.7 51.0
----- ----- ----- ----- ----- -----
Net income before extraordinary item 8.7 7.8 63.3 5.5 5.0 59.6
Extraordinary loss on early
extinguishment of debt, net of taxes 0.9 0.2 671.4 0.7 0.1 728.6
----- ----- ----- ----- ----- -----
Net income 7.8 7.6 50.3 4.8 4.9 42.5
Preferred stock dividends 0.4 0.6 0.0 0.6 0.9 0.0
----- ----- ----- ----- ----- -----
Income applicable to common shareholders 7.4% 7.0% 54.5% 4.2% 4.0% 51.8%
</TABLE>
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THREE MONTHS ENDED APRIL 3, 1999 VERSUS THE THREE MONTHS ENDED APRIL 4, 1998
Sales for the three months ended April 3, 1999 totaled $631.5 million, an
increase of 46.8% over the three months ended April 4, 1998 of $430.1 million.
On a pro forma basis, assuming that the Ortho, RPJ, Levington and Earthgro
acquisitions had occurred on October 1, 1997, sales for the second quarter of
fiscal 1999 increased 16.3% over pro forma sales for the second quarter of
fiscal 1998 of $552.9 million. The increase in these pro forma sales was driven
by improved performance across the majority of the Company' business groups,
especially Consumer Lawns and Consumer Gardens as discussed below.
North American Consumer segment sales were $458.9 million in the second quarter
of fiscal 1999, an increase of $142.6 million, or 45.1%, over sales for the
second quarter of fiscal 1998 of $316.3 million. Sales in the Consumer Lawns
business group within this segment increased $53.7 million, or 28.0%, from
fiscal 1998 to fiscal 1999, reflecting significant volume growth
period-to-period in the Company's Turf Builder(R) line of products. Sales in the
Consumer Gardens business group increased $10.4 million, or 19.3%, from the
second quarter of fiscal 1998 to fiscal 1999, primarily due to strong volume in
the Miracle-Gro(R) product line. Sales in the Consumer Growing Media business
group increased $9.0 million, or 12.8%, primarily the result of the Earthgro
acquisition made in February of fiscal 1998. On a pro forma basis, including the
Earthgro acquisition, sales in the Consumer Growing Media business group
increased 7.9% from the second quarter of fiscal 1998 to fiscal 1999, driven
primarily by the sales of higher margin, value added potting soil products and
certain bark material products. Sales for the Ortho business group, acquired in
January 1999, were $69.5 million for the post-acquisition period. On a pro forma
basis, assuming Ortho had been acquired effective October 1, 1997, sales for the
Ortho business group increased 8.8% in the three month period. Selling price
changes did not have a material impact in the North American Consumer segment in
the second quarter of fiscal 1999.
Professional segment sales of $40.9 million in the second quarter of fiscal 1999
were down slightly in comparison to second quarter of fiscal 1998 sales of $44.5
million. Results reflect the offsetting performance of the Company's
horticultural products, sales of which increased $2.1 million period-to-period,
and ProTurf(R) products which decreased $5.7 million. The decrease in ProTurf(R)
sales was driven by short-term interruptions associated with the reorganization
of the Professional business group made to strengthen distribution and technical
sales support and to integrate brand management. The increase in horticultural
products stems from strong sales volume for controlled-release fertilizers used
in the nursery and greenhouse segments.
International segment sales were $131.7 million in the second quarter of fiscal
1999, an increase of $62.4 million, or 90.0% over the second quarter of fiscal
1998. After considering the RPJ and Levington acquisitions, on a pro forma
basis, sales in the International segment increased 15.2% from the second
quarter of fiscal 1998 to fiscal 1999, primarily the result of a $12.5 million
increase in the RPJ businesses as well as improved performance in the European
professional business, partially offset by lower sales levels in the group's
U.K. business and the impact of foreign currency translation. The decrease in
the U.K was caused by slower than anticipated orders and supply chain
interruptions resulting from the integration of the recently acquired
businesses. Excluding the effects of currency translation, pro forma sales would
have been 19.9% higher than the second quarter of the prior year.
Gross profit increased to $268.9 million in the second quarter of fiscal 1999,
an increase of 57.7% over fiscal 1998 gross profit of $170.5 million. As a
percentage of sales, gross profit was 42.6% of sales for fiscal 1999 compared to
39.6% of sales for the second quarter of fiscal 1998, primarily due to start-up
costs associated with the upgrade of certain domestic manufacturing facilities
and demolition costs associated with the removal of certain old manufacturing
facilities that had an adverse impact on margins in the second quarter of fiscal
1998.
The "commission earned from agency agreement" of $12.6 million in the second
quarter of fiscal 1999 was generated from the Company's agreement with Monsanto
for exclusive international marketing and agency rights to Monsanto's consumer
Roundup(R) herbicide products. The agreement provides for the Company to earn a
commission based on EBIT
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(as defined by the agreement) generated annually by the global Roundup(R)
business. The $12.6 million recorded in the second quarter of fiscal 1999
represents a pro-rata share of the estimated amount to be earned for the year.
Advertising and promotion expenses in the second quarter of fiscal 1999 were
$86.0 million, an increase of $35.3 million, or 69.6% over fiscal 1998
advertising and promotion expenses of $50.7 million. The newly acquired Ortho
and RPJ businesses contributed $11.3 million and $8.2 million, respectively, to
the increase. The remaining increase reflects continued emphasis on building
consumer demand through consumer-oriented marketing efforts, and is highlighted
by 28.1% and 35.2% increases in advertising and promotion expenses in the
Consumer Lawns and Consumer Gardens business units, respectively. As a
percentage of sales, advertising and promotion increased to 13.6% compared to
11.8% for the prior year.
Selling, general and administrative (SG&A) expenses in the second quarter of
fiscal 1999 were $72.5 million, an increase of $26.3 million, or 56.9% over
similar expenses in the second quarter of fiscal 1998 of $46.2 million. As a
percentage of sales, SG&A was 11.5% for the second quarter of fiscal 1999
compared to 10.7% for fiscal 1998. The newly acquired Ortho and RPJ businesses
contributed $8.3 million and $9.2 million, respectively to the increase. The
remaining increase of $8.8 million was primarily due to the following factors:
additional information systems expenses of $0.8 million for year 2000 compliance
and $1.5 million for enterprise system implementation efforts; increased charges
for bad debt expense of $4.0 million; and increased selling and marketing
expense in the Consumer Lawns group of $1.5 million.
Amortization of goodwill and other intangibles increased to $5.3 million in the
second quarter of fiscal 1999, compared to $3.4 million in the prior year, due
to additional intangibles resulting from the RPJ, Levington and Earthgro
acquisitions.
Other expense for the second quarter of fiscal 1999 was $0.4 million compared to
$1.8 million in the prior year. The decrease was primarily due to lower foreign
currency and asset retirement losses, partially offset by increased legal and
environmental costs.
Income from operations for the second quarter of fiscal 1999 was $117.3 million
compared to $68.4 million for the second quarter of fiscal 1998, primarily due
to increases realized from the newly acquired Ortho and RPJ businesses and
significant improvement in the Consumer Lawns business, partially offset by
increased SG&A charges associated with information systems expense for year 2000
compliance and enterprise system implementation efforts and bad debt expenses.
On a pro forma basis, including the Ortho, RPJ, Levington and EarthGro
acquisitions, income from operations for the second quarter of fiscal 1999 was
$118.5 million, a 19.9% improvement over the second quarter of fiscal 1998 of
$98.8 million.
Interest expense for the second quarter of fiscal 1999 was $24.6 million, an
increase of 143.6% over fiscal 1998 interest expense of $10.1 million. The
increase in interest expense was due to increased borrowings to fund the Ortho,
RPJ, Levington, and EarthGro acquisitions. The increase was also due to higher
average borrowing rates determined by the terms and conditions of the Company's
new credit facility as discussed below.
Income tax expense was $38.0 million for fiscal 1999 compared to $24.8 million
in the prior year. The Company's effective tax rate was 41.0% in the second
quarter of fiscal 1999 compared to 42.5% in fiscal 1998 as a result of favorable
tax planning strategies.
As discussed further in "Liquidity and Capital Resources", in conjunction
with the Ortho acquisition, in January 1999 the Company completed an offering of
$330 million of 10-year 8 5/8% Senior Subordinated Notes ("the Notes") due 2009.
The net proceeds from the offering, together with borrowings under Scotts' bank
facility, were used to fund the Ortho acquisition and repurchase approximately
97% of the Company's $100.0 million outstanding 9 7/8% Senior Subordinated Notes
due August 2004. The Company recorded an extraordinary loss before tax on the
extinguishment of the 9 7/8% notes of approximately $9.2 million, including a
call premium of $7.1 million and the
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write-off of unamortized issuance costs and discounts associated with the 9 7/8%
notes of $2.1 million.
The Company reported net income of $49.3 million for the second quarter of
fiscal 1999, or $1.63 per common share on a diluted basis, compared to net
income of $32.8 million for fiscal 1998, or $1.08 per common share. Excluding
the impact of the extraordinary loss discussed above, the Company reported
earnings per share of $1.81 per share on a diluted basis as compared to $1.10 in
the prior year. On a pro forma basis, diluted earnings per common share before
extraordinary items increased to $1.80 as compared to $1.48 in the second
quarter of the prior year.
SIX MONTHS ENDED APRIL 3, 1999 VERSUS THE SIX MONTHS ENDED APRIL 4, 1998
Sales for the six months ended April 3, 1999 totaled $815.9 million, an increase
of 47.0% over the six months ended April 4, 1998 of $554.9 million. On a pro
forma basis, assuming that the Ortho, RPJ, Levington and Earthgro acquisitions
had occurred on October 1, 1997, sales for the six months of fiscal 1999 of
$850.2 million increased 13.9% over pro forma sales for the six months of fiscal
1998 of $746.4 million. The increase in these pro forma sales was driven by
improved performance in the majority of the Company's business groups,
especially Consumer Lawns and Consumer Gardens as discussed below.
North American Consumer segment sales were $531.7 million for the six months of
fiscal 1999, an increase of $156.7 million, or 41.8%, over sales for the six
months of fiscal 1998 of $375.0 million. Sales in the Consumer Lawns business
group within this segment increased $62.7 million, or 28.2%, from fiscal 1998 to
fiscal 1999, reflecting significant volume growth period-to-period in the
Company's Turf Builder(R) line of products. Sales in the Consumer Gardens
business group increased $11.5 million, or 17.4%, from the six months of fiscal
1998 to fiscal 1999, primarily due to strong volume in the Miracle-Gro(R)
product line. Sales in the Consumer Growing Media business group increased $13.0
million, or 15.0%, primarily the result of the Earthgro acquisition made in
February of fiscal 1998. On a pro forma basis, including the Earthgro
acquisition, sales in the Consumer Growing Media business group increased 7.1%
from the six months of fiscal 1998 to fiscal 1999, driven primarily by the sales
of higher margin, value added potting soil products and certain bark material
products. Sales for the Ortho business group, acquired in January 1999, were
$69.5 million for the post-acquisition period. On a pro forma basis, assuming
Ortho had been acquired effective October 1, 1997, sales for the Ortho business
group would have increased 12.7% in the six month period. Selling price changes
did not have a material impact in the North American Consumer segment in the
second quarter of fiscal 1999.
Professional segment sales of $73.4 million in the six months of fiscal 1999
were down slightly in comparison to six months of fiscal 1998 sales of $76.9
million. Results reflect the offsetting performance of the Company's
horticultural products, sales of which increased $5.5 million period-to-period,
and ProTurf(R) products which decreased $9.0 million. The decrease in ProTurf(R)
sales was driven by short-term interruptions associated with the reorganization
of the Professional business group made to strengthen distribution and technical
sales support and to integrate brand management. The increase in horticultural
products stems from strong sales volume for controlled-release fertilizers used
in the nursery and greenhouse segments.
International segment sales were $210.8 million in the six months of fiscal
1999, an increase of $107.8 million, or 104.7% over the six months of fiscal
1998. After considering the RPJ and Levington acquisitions, on a pro forma
basis, sales in the International segment increased 7.6% from the six months of
fiscal 1998 to fiscal 1999, primarily the result of a $18.1 million increase in
the RPJ businesses as well as improved performance in the European professional
business, partially offset by lower sales levels in the group's U.K. business
and the impact of foreign currency translation. The decrease in the U.K was
caused by slower than anticipated orders and supply chain interruptions
resulting from the integration of the recently acquired businesses. Excluding
the effects of currency translation, pro forma sales would have been 9.3% higher
than the six months of the prior year.
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Gross profit increased to $333.6 million in the six months of fiscal 1999, an
increase of 57.5% over fiscal 1998 gross profit of $211.8 million. As a
percentage of sales, gross profit was 40.9% of sales for fiscal 1999 compared to
38.2% of sales for the second quarter of fiscal 1998, primarily due to improved
raw material costs, improved manufacturing efficiencies, and start-up costs
associated with the upgrade of certain domestic manufacturing facilities and
demolition costs associated with the removal of certain old manufacturing
facilities that had an adverse impact on margins in the six months of fiscal
1998.
The "commission earned from agency agreement" of $17.6 million in the six months
of fiscal 1999 was generated from the Company's agreement with Monsanto for
exclusive international marketing and agency rights to Monsanto's consumer
Roundup(R) herbicide products. The agreement provides for the Company to earn a
commission based on EBIT (as defined by the agreement) generated annually by the
global Roundup(R) business. The $17.6 million recorded in the six months of
fiscal 1999 represents a pro-rata share of the estimated amount to be earned for
the year.
Advertising and promotion expenses in the six months of fiscal 1999 were $102.7
million, an increase of $41.7 million, or 68.4% over fiscal 1998 advertising and
promotion expenses of $61.0 million. The newly acquired Ortho and RPJ businesses
contributed $11.3 million and $10.5 million, respectively, to the increase. The
remaining increase reflects continued emphasis on building consumer demand
through consumer-oriented marketing efforts, and is highlighted by 30.6%, 30.5%
and 20.7% increases in advertising and promotion expenses in the Consumer Lawns,
Consumer Gardens and core International business units, respectively. As a
percentage of sales, advertising and promotion increased to 12.6% compared to
11.0% for the prior year.
Selling, general and administrative (SG&A) expenses in the six months of fiscal
1999 were $126.4 million, an increase of $48.3 million, or 61.8% over similar
expenses in the six months of fiscal 1998 of $78.1 million. As a percentage of
sales, SG&A was 15.5% for the six months fiscal 1999 compared to 14.1% for
fiscal 1998. The newly acquired Ortho and RPJ businesses contributed $8.7
million and $17.8 million, respectively to the increase. The remaining increase
of $21.8 million was primarily due to the following factors: additional
information systems expenses of $1.9 million for year 2000 compliance and $3.2
million for enterprise system implementation efforts; increased charges for bad
debt expense of $4.0 million; increased marketing and selling expenses in the
Consumer Lawns group of $1.9 million and $1.7 million, respectively; and an
overall increase in research and development costs of $3.0 million.
Amortization of goodwill and other intangibles increased to $10.2 million in the
six months of fiscal 1999, compared to $6.1 million in the prior year, due to
additional intangibles resulting from the RPJ, Levington and Earthgro
acquisitions.
Other expense for the second quarter of fiscal 1999 was $0.3 million compared to
$1.5 million in the prior year. The decrease was primarily due to lower foreign
currency and asset retirement losses, partially offset by increased legal and
environmental costs.
Income from operations for the six months of fiscal 1999 was $110.2 million
compared to $65.1 million for the six months of fiscal 1998, primarily due to
increases realized from the newly acquired Ortho and RPJ businesses and
significant improvement in the Consumer Lawns business, partially offset by
increased SG&A charges associated with information systems expense for year 2000
compliance and enterprise system implementation efforts and bad debt expenses.
On a pro forma basis, including the Ortho, RPJ, Levington and EarthGro
acquisitions, income from operations for the six months of fiscal 1999 was $94.4
million, a 11.7% improvement over the six months of fiscal 1998 of $84.5
million.
Interest expense for the six months of fiscal 1999 was $34.4 million, an
increase of 108.5% over fiscal 1998 interest expense of $16.5 million. The
increase in interest expense was due to increased borrowings to fund the Ortho,
RPJ, Levington, and EarthGro acquisitions. The increase was also due to higher
average borrowing rates
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determined by the terms and conditions of the Company's new credit facility as
discussed below.
Income tax expense was $31.1 million for fiscal 1999 compared to $20.6 million
in the prior year. The Company's effective tax rate was 41.0% in the six months
of fiscal 1999 compared to 42.5% in fiscal 1998 as a result of favorable tax
planning strategies.
As discussed further in "Liquidity and Capital Resources", in conjunction with
the Ortho acquisition, in January 1999 the Company completed an offering of $330
million of 10-year 8 5/8% Senior Subordinated Notes ("the Notes") due 2009. The
net proceeds from the offering, together with borrowings under Scotts' bank
facility, were used to fund the Ortho acquisition and repurchase approximately
97% of the Company's $100.0 million outstanding 9 7/8% Senior Subordinated Notes
due August 2004. The Company recorded an extraordinary loss before tax on the
extinguishment of the 9 7/8% notes of approximately $9.2 million, including a
call premium of $7.1 million and the write-off of unamortized issuance costs and
discounts associated with the 9 7/8% notes of $2.1 million.
The Company reported net income of $38.9 million for the six months of fiscal
1999, or $1.29 per common share on a diluted basis, compared to net income of
$27.3 million for fiscal 1998, or $0.91 per common share. Excluding the impact
of the extraordinary loss discussed above, the Company reported earnings per
share of $1.48 per share on a diluted basis as compared to $0.93 in the prior
year. On a pro forma basis, diluted earnings per common share before
extraordinary items increased to $1.01 as compared to $0.87 in the six months of
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities totaled $260.1 million for the six months
ended April 3, 1999 compared to a use of $183.7 million for the six months ended
April 4, 1998. The seasonal nature of the Company's operations generally
requires cash to fund significant increases in certain components of working
capital (primarily inventory and accounts receivable) during the first and
second quarters. The third fiscal quarter is a significant period for collecting
accounts receivable and liquidating inventory levels. The additional cash used
in operating activities for the six months of fiscal 1999 is attributable to the
increased build of inventory levels needed to cover expected revenue growth,
cash required for operations of recently acquired businesses, and for the
payment of marketing fees associated with the Roundup(R) agency agreement.
Cash used in investing activities totaled $525.4 million for the six months
ended April 3, 1999 as compared to $147.4 million in the prior year. This
increase in cash used was primarily due to the cost of the Ortho, RPJ and ASEF
businesses acquired during the period. Additionally, capital investments were
$26.6 million in the six months of fiscal 1999, a $13.4 increase in comparison
to the prior year. The increase in capital investments is primarily due to cost
associated with the enterprise resource planning project of $11.7 million. The
Company's new credit facilities (as described below) restrict annual capital
investments to $70.0 million.
Financing activities generated cash of $794.3 million for the six months ended
April 3, 1999 compared to $329.5 million in the prior year. Cash generated in
the first six months of fiscal 1999 was generally provided by the Company's new
$1.025 billion credit facility and the January 1999 Senior Subordinated Notes
offering of $330 million. Borrowings were primarily used to provide funds for
the following: acquisitions of Ortho, RPJ and Asef; marketing fees associated
with the Roundup(R) agency agreement; financing fees associated with the new
credit facility (as discussed below); issuance fees associated with the Note
offering; payments associated with the then outstanding interest rate locks
(also described below); and dividends on Class A Preferred Stock.
Total debt was $1.2 billion as of April 3, 1999, an increase of $857.3 million
compared with debt at September 30, 1998 and an increase of $660.5 million
compared with debt levels at April 4, 1998. The increase in debt, period to
period, was
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primarily due to borrowings made to fund the financing activities previously
mentioned.
The primary sources of liquidity for the Company are funds generated by
operations and borrowings under the Company's credit facility. On December 4,
1998, the Company and certain of its subsidiaries entered into a new credit
facility which provides for borrowings in the aggregate principal amount of
$1.025 billion and consists of term loan facilities in the aggregate amount of
$525 million and a revolving credit facility in the amount of $500 million.
Proceeds from borrowings under the new credit facility of approximately $241.0
million were used to repay amounts outstanding under the then existing credit
facility.
The term loan facilities consist of three tranches. The Tranche A Term Loan
Facility consists of three sub-tranches of French Francs, German Deutschemarks
and British Pounds Sterling in an aggregate principal amount of $265 million
which are to be repaid quarterly over a 6 1/2 year period. The Tranche B Term
Loan Facility is a 7 1/2 year term loan facility in an aggregate principal
amount of $140 million, which is to be repaid in nominal quarterly installments
for the first 6 1/2 years and in substantial quarterly installments in the final
year. The Tranche C Term Loan Facility is a 8 1/2 year term loan facility in an
aggregate principal amount of $120 million, which is to be repaid in nominal
quarterly installments for the first 7 1/2 years and in substantial quarterly
installments in the final year.
The revolving credit facility provides for borrowings up to $500 million, which
are available on a revolving basis over a term of 6 1/2 years. A portion of the
revolving credit facility not to exceed $100 million is available for the
issuance of letters of credit. A portion of the facility not to exceed $225
million is available for borrowings in optional currencies, including German
Deutschemarks, British Pounds Sterling, French Francs, Belgian Francs, Italian
Lira and other specified currencies, provided that the outstanding revolving
loans in optional currencies other than British Pounds Sterling does not exceed
$120 million. The outstanding principal amount of all revolving credit loans may
not exceed $150 million for at least 30 consecutive days during any calendar
year.
The Company funded the acquisition of RPJ and Asef with borrowings under the
newly created credit facility. Certain other borrowings under the credit
facility, along with proceeds from the January 21, 1999 offering of $330 million
of 10-year 8 5/8% Senior Subordinated Notes due 2009, were used to fund the
Ortho acquisition and to repurchase approximately 97% of the Company's $100.0
million outstanding 9 7/8% Senior Subordinated Notes due August 2004.
Coincidental with the Notes offering, the Company settled its then outstanding
interest rate locks for approximately $3.6 million. The Company entered into two
interest rate locks in fiscal 1998 to hedge its anticipated interest rate
exposure on the Notes offering. In October 1998, the Company settled one of the
interest rate locks for $9.3 and entered into a new interest rate lock
instrument. The total amount paid under the interest rate locks of $12.9 million
has been recorded as a reduction of the Notes' carrying value and is being
amortized over the life of the notes
In July 1998, the Board of Directors of the Company authorized the repurchase of
up to $100 million of the Company's common shares on the open market or in
privately negotiated transactions on or prior to September 30, 2001 ("the
Repurchase Program"). As of April 3, 1999, approximately 300,000 common shares
($8.7 million) were repurchased under the Repurchase Program. The timing and
amount of any future purchases under the Repurchase Program will be at the
Company's discretion and will depend upon market conditions and the Company's
operating performance and liquidity. Any repurchase will also be subject to the
covenants contained in the Company's credit facilities as well as its other debt
instruments. The repurchased shares will be held in treasury and will thereafter
be used for the exercise of employee stock options and for other valid corporate
purposes. The Company anticipates that repurchases would be made pro rata (42%
of shares repurchased) from the Hagedorn Partnership, L.P. upon terms no less
favorable to the Company than those obtainable in the public market. The
agreement governing the merger transactions with the former shareholders of
Stern's Miracle-Gro Products, Inc. ("the Miracle-Gro shareholders") requires
that the they reduce their
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percentage ownership in the Company to no more than 44% on a fully diluted basis
to the extent that repurchases by the Company would cause such ownership to
exceed 44%.
In the opinion of the Company's management, cash flows from operations and
capital resources will be sufficient to meet debt service and working capital
needs during fiscal 1999, however, the Company cannot ensure that its business
groups will generate sufficient cash flow from operations, that currently
anticipated cost savings and operating improvements will be realized on schedule
or at all, or that future borrowings will be available under the newly created
credit facility in amounts sufficient to pay indebtedness or fund other
liquidity needs. The Company cannot ensure that it will be able to refinance any
indebtedness, including the newly created credit facility, on commercially
reasonable terms, or at all.
ENVIRONMENTAL MATTERS
The Company is subject to local, state, federal and foreign environmental
protection laws and regulations with respect to its business operations and
believes it is operating in substantial compliance with, or taking action aimed
at ensuring compliance with, such laws and regulations. The Company is involved
in several environmental related legal actions with various governmental
agencies. While it is difficult to quantify the potential financial impact of
actions involving environmental matters, particularly remediation costs at waste
disposal sites and future capital expenditures for environmental control
equipment, in the opinion of management, the ultimate liability arising from
such environmental matters, taking into account established reserves, should not
have a material adverse effect on the Company's financial position; however,
there can be no assurance that future quarterly or annual operating results will
not be materially affected by the resolution of these matters. Additional
information on environmental matters affecting the Company is provided in Note 9
to the Company's unaudited Consolidated Financial Statements as of and for the
six months ended April 3, 1999 and in the 1998 Annual Report on Form 10-K under
the "BUSINESS" and "LEGAL PROCEEDINGS" sections.
YEAR 2000 READINESS
GENERAL
The Company may be impacted by the inability of its computer software
applications and other business systems (e.g., embedded microchips) to properly
identify the Year 2000 due to a commonly used programming convention of using
only two digits to identify a year. Unless modified or replaced, these systems
could fail or create erroneous results when referencing the Year 2000.
Management is assessing the extent and impact of this issue and is implementing
a readiness program to mitigate the possibility of business interruption or
other risks. The objective of the program is to have all significant business
systems Year 2000 compliant by mid-1999.
The Company has established a Year 2000 Program Office to oversee the readiness
program. The Program Office functions include regular communication with Year
2000 project managers and site visits to the Company's various businesses to
monitor remediation efforts and verify progress toward stated compliance goals.
The Program Office reports to senior management, who in turn reports regularly
to the Board of Directors regarding the Company's progress toward Year 2000
readiness.
INFORMATION TECHNOLOGY (IT) SYSTEMS
Currently, the mainframe computer operations at the Company's Marysville, Ohio
headquarters support all U. S. business groups with the exception of Scotts'
Miracle-Gro Products, Inc., the Republic Tool (spreaders) manufacturing
operation, and Ortho business group. The Company's foreign operations generally
do not electronically interface with the U.S. headquarters.
The headquarters mainframe operations consist primarily of internally developed
systems which have been remediated, while other domestic and international
operations
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utilize commercial packaged software which, if not Year 2000 compliant, is being
upgraded or replaced. Remediation of headquarters applications, which is the
Company's most complex and costly effort, was completed in April 1999.
Personal computers are being made Year 2000 compliant by systematic upgrade
through lease renewals. Many other hardware/software upgrades are being executed
under ongoing maintenance and support agreements with vendors. Testing of
upgrades is being performed internally.
In support of the Company's long-range strategic plans, an enterprise-wide
application systems (ERP) project is under way to link all business groups. This
enterprise-wide system will be implemented in stages starting in 1999 and is
expected to be completed in 2000. The primary software provider for the
enterprise-wide system has represented that its software is Year 2000 compliant,
which will be verified as part of testing prior to implementation.
The Company's Year 2000 compliance efforts are being concentrated on the
currently existing systems to ensure there is adequate information systems
support until implementation of the enterprise-wide system is completed.
NON-IT SYSTEMS
Non-IT systems, comprised mainly of equipment and machinery operating and
control systems, telecommunication systems, building air management systems,
security and fire control systems, electrical and natural gas systems are being
assessed by each business group with advice from the suppliers of these
systems/services. Upgrades or replacements are being made as necessary.
THIRD PARTY SUPPLIERS
The Company relies on third party suppliers for finished goods, raw materials,
water, other utilities, transportation and a variety of other key services.
Interruption of supplier operation due to Year 2000 issues could affect Company
operations. The Company is evaluating the status of suppliers' efforts through
confirmation and follow-up procedures, including selected site assessment trips,
to determine contingency planning where necessary.
RECENT ACQUISITIONS
The Company completed the Ortho and RPJ acquisitions earlier this fiscal year,
as well as the Roundup(R) Marketing Agreement. The Ortho and RPJ acquisitions
have both IT and non-IT Year 2000 considerations. The Roundup(R) Marketing
Agreement does not involve the acquisition of assets; however, additional
efforts are necessary to confirm Year 2000 readiness by the Company's business
partners. Representations have been provided in the definitive agreement signed
in conjunction with the Ortho transaction that the Ortho business is Year 2000
compliant in all material respects. The Company is in the process of compiling
Year 2000 reporting from these operations and performing site visits as part of
the verification efforts.
STATE OF READINESS
Each business group has completed an internal inventory to identify IT and
non-IT systems that are susceptible to system failure or processing errors as a
result of Year 2000 issues.
The headquarters mainframe remediation project is complete (including testing).
Plans are in place for the upgrade or replacement, and testing of IT systems at
other U. S. operations by mid-1999. Non-IT efforts are being performed
concurrently and replacement and testing is expected to be completed by
mid-1999. Site visits are being conducted by the Program Office to verify
progress against plans.
Year 2000 readiness plans are being executed within the International segment.
Upgrades of packaged software for the primary systems will be completed by
mid-1999. Completion of all IT and non-IT upgrades and testing is scheduled for
calendar mid-
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1999. Site visits are being conducted by the Program Office to verify progress
against plans.
A confirmation process with respect to third party suppliers is in progress.
Plans are being executed for site visits with critical suppliers to determine if
alternative sources are needed.
COSTS
The Company has been tracking incremental Year 2000 costs which exclude the
costs of internally dedicated resources. The current estimate of incremental
costs for the Year 2000 efforts (excluding those related to the ERP project) is
approximately $5.7 million. Of this amount, $3.8 million has been incurred to
date. These costs, with the exception of relatively small capital expenditures,
are being expensed as incurred and are being funded through operating cash
flows. A summary of the cost components follows ($ in millions):
<TABLE>
<CAPTION>
AS OF REMAINDER OF
APRIL 3, FISCAL
LOCATION 1999 1999 TOTAL
- -------- ---- ---- -----
(ACTUAL) (ESTIMATE)
<S> <C> <C> <C>
Headquarters mainframe $2.8 $0.2 $3.0
Other U. S. Operations 0.4 0.9 1.3
International operations 0.6 0.8 1.4
---- ---- ----
Total $3.8 $1.9 $5.7
==== ==== ====
</TABLE>
The Company believes that Year 2000 costs have not had and will not have a
material impact on the Company's results of operations, financial condition or
cash flows.
RISKS
The principal business risks to the Company relating to completion of Year 2000
efforts are:
- - Reliance on key business partners to not have disruption in ability to
provide goods and services as a result of Year 2000 issues.
- - The ability to recruit and/or retain key staff for the Year 2000 effort.
- - Unforeseen issues arising in connection with recent and future
acquisitions/business partnerships.
- - Forecasting unreliability due to customers' departures from expected
buying patterns.
- - The ability to continue to focus on Year 2000 issues by internal and
external resources.
Because the Company's Year 2000 readiness is dependent upon key business
partners also being Year 2000 ready, there can be no guarantee that the
Company's efforts will prevent a material adverse impact on its results of
operations, financial condition and cash flows. The possible consequences to the
Company of its key business partners' inability to provide goods and services as
a result of Year 2000 issues include temporary plant closings; delays in
delivery of finished products; delays in receipt of key ingredients, containers
and packaging supplies; invoice and collection errors; and inventory and supply
obsolescence. The Company believes that its readiness efforts, which include
confirmation, site visits and other testing with critical suppliers to determine
if contingency planning is needed, should reduce the likelihood of such
disruptions.
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CONTINGENCY PLANS
A formal contingency plan process is being developed. The Company will continue
to assess where alternative courses of action are needed as the IT and non-IT
readiness plans are executed. The drive for formal contingency planning is in
the second and third calendar quarters of 1999, once a significant amount of the
business groups' readiness plans have been completed.
ONGOING PROCESS
The Company's readiness program is an ongoing process and the estimates of costs
and completion dates for various components of the program described above are
subject to change.
ENTERPRISE RESOURCE PLANNING ("ERP")
In July 1998, the Company announced a project designed to bring its information
system resources in line with the Company's current strategic objectives. The
project will include the redesign of certain key business processes in
connection with the installation of new software on a world-wide basis over the
course of the next two fiscal years. The Company estimates that the project will
cost $50.0 million, approximately 75% of which will be capitalized over a period
of four to eight years. SAP has been selected as the primary software provider
for this project.
The Company has expensed approximately $4.4 million related to the project since
its inception.
EURO
In January 1999, a new currency called the "euro" began to be introduced in
certain Economic and Monetary Union ("EMU") countries. During 2002, all EMU
countries are expected to be operating with the euro as their single currency.
Uncertainty exists as to the effects the euro currency will have on the
marketplace. Additionally, the European Commission has not yet defined and
formalized all of the final rules and regulations. The Company is still
assessing the impact the EMU formation and euro implementation will have on its
internal systems and the sale of its products. The Company expects to take
appropriate actions based on the results of such assessment. The Company has not
yet determined the cost related to addressing this issue and there can be no
assurance that this issue and its related costs will not have a materially
adverse effect on the Company's business, operating results and financial
condition.
MANAGEMENT'S OUTLOOK
Results for the six months of fiscal 1999 are in line with the Company's
long-term strategy for profitable growth. The performance in 1999 reflects the
successful continuation of its primary growth drivers: to emphasize
consumer-oriented marketing efforts to pull demand through its distribution
channels, and to make strategic acquisitions to increase market share in global
markets and within segments of the lawn and garden category. Restructuring
charges taken in fiscal 1998 reflect the costs to integrate recent acquisitions
and to exit businesses that are not strategically aligned with the Company's
core businesses. Going forward, these actions should allow the Company to fully
realize the operational synergies created by the acquisitions and to focus
resources in businesses that provide opportunities for growth.
Looking forward, the Company maintains the following broad tenets to its
strategic plan:
(1) Promote and capitalize on the strengths of the Scotts(R),
Miracle-Gro(R) and Hyponex(R) industry-leading brands, as well as
those brands acquired in conjunction with the RPJ and Ortho
transactions. This involves a commitment to investors and retail
partners that the Company will support these brands through
advertising and promotion unequaled in the lawn and garden
consumables market. In the Professional categories, it signifies a
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commitment to customers to provide value as an integral element in
their long-term success;
(2) Commit to continuously study and improve knowledge of the market,
the consumer and the competition;
(3) Simplify product lines and business processes, to focus on those
that deliver value, evaluate marginal ones and eliminate those that
lack future prospects; and
(4) Achieve world leadership in operations, leveraging technology and
know-how to deliver outstanding customer service and quality.
Within the Company's four-year strategic plan, management has established
challenging, but realistic, financial goals, including:
(1) Sales growth of 8% to 10%;
(2) An aggregate operating margin improvement of at least 2% over the
next four years; and
(3) Minimum compounded annual EPS growth of 15%.
FORWARD-LOOKING STATEMENTS
The Company has made and will make certain forward-looking statements in its
Annual Report, Form 10-K and in other contexts relating to future growth and
profitability targets, and strategies designed to increase total shareholder
value. The Private Securities Litigation Reform Act of 1995 (the "Act") provides
a "safe harbor" for forward-looking statements to encourage companies to provide
prospective information, so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statements. The Company
desires to take advantage of the "safe harbor" provisions of the Act.
These forward-looking statements represent challenging goals for the Company,
and the achievement thereof is subject to a variety of risks and assumptions,
and numerous factors beyond the Company's control. These forward-looking
statements include, but are not limited to, information regarding the future
economic performance and financial condition of the Company, the plans and
objectives of the Company's management, and the Company's assumptions regarding
such performance and plans. Therefore, it is possible that the Company's future
actual financial results may differ materially from those expressed in these
forward-looking statements due to a variety of factors, including:
- - EFFECT OF WEATHER CONDITIONS --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. In particular, an abnormally cold spring
throughout the United States could adversely affect the Company's
financial results;
- - EFFECT OF SEASONALITY --Historical seasonality could impair the Company's
ability to make interest payments on indebtedness. Because the Company's
products are used primarily in the spring and summer, the business is
highly seasonal. Approximately 72% of sales occur in the second and third
fiscal quarters. Working capital needs, and correspondingly borrowings,
peak at the end of the first fiscal quarter during which the Company
generates less revenues while incurring expenditures in preparation for
the spring selling season. If the Company is unable to draw on the new
credit facility when an interest payment is due on the other indebtedness,
this seasonality could adversely affect the Company's ability to make
interest payments as required by the other indebtedness. Adverse weather
conditions could heighten this risk;
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- - CONTINUED MARKETPLACE ACCEPTANCE OF THE COMPANY'S NORTH AMERICAN CONSUMER
GROUPS' "PULL" ADVERTISING MARKETING STRATEGIES - Acceptance is
particularly important in the Consumer Lawns group which refocused its
general marketing strategy beginning in fiscal 1996;
- - THE ABILITY TO MAINTAIN PROFIT MARGINS ON ITS PRODUCTS, TO PRODUCE ITS
PRODUCTS ON A TIMELY BASIS, AND TO MAINTAIN AND DEVELOP ADDITIONAL
PRODUCTION CAPACITY AS NECESSARY TO MEET DEMAND;
- - COMPETITION AMONG LAWN AND GARDEN CARE PRODUCT PRODUCERS SUPPLYING THE
CONSUMER AND PROFESSIONAL MARKETS, BOTH IN NORTH AMERICA AND EUROPE;
- - COMPETITION BETWEEN AND THE RECENT CONSOLIDATION WITHIN THE RETAIL OUTLETS
SELLING LAWN AND GARDEN CARE PRODUCTS PRODUCED BY THE COMPANY;
- - PUBLIC PERCEPTIONS REGARDING THE SAFETY OF THE PRODUCTS PRODUCED AND
MARKETED BY THE COMPANY;
- - RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- The Company's
significant international operations make it more susceptible to
fluctuations in currency exchange rates and to the costs of international
regulation. The Company currently operates manufacturing, sales and
service facilities outside of North America and particularly in the U.K.,
Germany and France. International operations have increased with the
acquisitions of Levington, Miracle Garden Care and RPJ and will increase
further through the Roundup(R) Marketing Agreement and the Ortho
Acquisition. In fiscal 1998, international sales accounted for
approximately 18% of total sales. Therefore, the Company is subject to
risks associated with operations in foreign countries, including
fluctuations in currency exchange rates, the imposition of limitations on
conversion of foreign currencies into dollars or remittance of dividends
and other payments by foreign subsidiaries. Many foreign countries have
tended to suffer from inflation more than the United States. In addition,
by operating in a large number of countries, the Company incurs additional
costs of compliance with local regulations. The Company has attempted to
hedge some currency exchange rate risks, including by borrowing in local
currencies, but such hedges do not eliminate the risk completely. The
costs related to international operations could adversely affect
operations and financial results in the future;
- - EFFECT OF NEW EUROPEAN CURRENCY -- The implementation of the euro currency
in certain European countries in 2002 could adversely impact the Company.
In January 1999, a new currency called the "euro" began to be introduced
in certain Economic and Monetary Union ("EMU") countries. During 2002, all
EMU countries are expected to be operating with the euro as their single
currency. Uncertainty exists as to the effects the euro currency will have
on the marketplace. Additionally, all of the final rules and regulations
have not yet been defined and finalized by the European Commission with
regard to the euro currency. The Company is still assessing the impact the
EMU formation will have on internal systems and the sale of products. The
Company expects to take appropriate actions based on the results of such
assessment. However, the Company has not yet determined the cost related
to addressing this issue and there can be no assurance that this issue and
its related costs will not have a materially adverse effect on operating
results and financial condition;
- - CHANGES IN ECONOMIC CONDITIONS IN THE UNITED STATES AND THE IMPACT OF
CHANGES IN INTEREST RATES;
- - ADDRESSING YEAR 2000 ISSUES -- The failure of the Company, or the failure
of third party suppliers or retailer customers, to address information
technology issues related to the Year 2000 could adversely affect
operations. Like other business entities, the Company must address the
ability of its computer software applications and other business systems
(e.g., embedded microchips) to properly identify the year 2000 due to a
commonly used programming convention of using only two digits to identify
a year. Unless modified or replaced, these systems could fail or create
erroneous results when referencing the year 2000.
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While the Company is assessing the relevant issues related to the Year
2000 problem and has implemented a readiness program to mitigate the
possibility of business interruption or other risks, the Company cannot be
sure that it will have adequately addressed the issue, particularly with
respect to recent and pending acquisitions. Moreover, the Company relies
on third party suppliers for finished goods, raw materials, water, other
utilities, transportation and a variety of other key services. If one or
more of these suppliers fail to address the Year 2000 problem adequately,
such suppliers' operations could be interrupted. Such interruption, in
turn, could adversely affect the Company's operations. In addition, the
failure of retailer customers adequately to address the Year 2000 problem
could adversely affect financial results;
- - THE ABILITY TO IMPROVE PROCESSES AND BUSINESS PRACTICES TO KEEP PACE WITH
THE ECONOMIC, COMPETITIVE AND TECHNOLOGICAL ENVIRONMENT, INCLUDING
SUCCESSFUL COMPLETION OF PROJECT CATALYST;
- - ENVIRONMENTAL REGULATION -- Compliance with environmental and other public
health regulations could result in the expenditure of significant capital
resources. Local, state, federal and foreign laws and regulations relating
to environmental matters affect the Company in several ways. All products
containing pesticides must be registered with the United States
Environmental Protection Agency ("United States EPA") (and in many cases,
similar state and/or foreign agencies) before they can be sold. The
inability to obtain or the cancellation of any such registration could
have an adverse effect on the Company. The severity of the effect would
depend on which products were involved, whether another product could be
substituted and whether competitors were similarly affected. The Company
attempts to anticipate regulatory developments and maintain registrations
of, and access to, substitute chemicals, but may not always be able to
avoid or minimize these risks. Regulations regarding the use of certain
pesticide and fertilizer products may include requirements that only
certified or professional users apply the product or that certain products
be used only on certain types of locations (such as "not for use on sod
farms or golf courses"), may require users to post notices on properties
to which products have been or will be applied, may require notification
of individuals in the vicinity that products will be applied in the future
or may ban the use of certain ingredients. In addition, with the
acquisitions of RPJ and Ortho, the Company has acquired many new pesticide
product lines that are subject to additional regulations. Even if the
Company is able to comply with all such regulations and obtain all
necessary registrations, the Company cannot assure that its 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;
- - CONTROL BY SIGNIFICANT SHAREHOLDERS -- The interests of the Miracle-Gro
Shareholders could conflict with those of the other shareholders or
noteholders. The Miracle-Gro Shareholders (through the Hagedorn
Partnership, L.P.) beneficially own approximately 42% of the outstanding
common shares of the Company on a fully diluted basis. While the merger
agreement pursuant to which Scotts and Miracle-Gro merged places certain
voting restrictions on the Miracle-Gro Shareholders through May 19, 2000,
the Miracle-Gro Shareholders have the right to designate three members of
the Company's Board of Directors and have the ability to veto significant
corporate actions by the Company. In addition, after May 19, 2000, the
Miracle-Gro Shareholders will be able to vote their shares without
restriction and will be able to significantly control the election of
directors and the approval of other actions requiring the approval of the
Company's shareholders. The interests of the Miracle-Gro Shareholders
could conflict with those of the Company's other shareholders or the
holders of the Company issued notes;
- - SUBSTANTIAL LEVERAGE -- The Company's substantial indebtedness could
adversely affect the financial health of the Company and prevent the
Company from fulfilling its obligations under certain indebtedness. As a
result of the Notes offering, the Company has a significant amount of
indebtedness. This
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<PAGE> 31
substantial indebtedness could have important consequences. For example,
it could:
- make it more difficult to satisfy obligations with respect to
indebtedness;
- increase vulnerability to general adverse economic and industry
conditions;
- limit the ability to fund future working capital, capital
expenditures, research and development costs and other general
corporate requirements;
- require the Company to dedicate a substantial portion of cash flow
from operations to payments on indebtedness, thereby reducing the
availability of cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
- limit flexibility in planning for, or reacting to, changes in the
Company's business and the industry in which it operates;
- place the Company at a competitive disadvantage compared to
competitors that have less debt; and
- limit, along with the financial and other restrictive covenants in
the Company's indebtedness, among other things, the ability to
borrow additional funds. And, failing to comply with those covenants
could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company;
- - ADDITIONAL BORROWINGS AVAILABLE -- Despite current indebtedness levels,
the Company and its subsidiaries may be able to incur substantially more
debt. This could further exacerbate the risks described above. The terms
of the indenture do not fully prohibit the Company or its subsidiaries
from doing so. If new debt is added to the Company and its subsidiaries'
current debt levels, the related risks that the Company now face could
intensify;
- - ABILITY TO SERVICE DEBT -- To service indebtedness, the Company will
require a significant amount of cash. The Company's ability to generate
cash depends on many factors beyond its control. The ability to make
payments on and to refinance indebtedness, and to fund planned capital
expenditures and research and development efforts will depend on the
ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond the Company's control. Based
on current level of operations and anticipated cost savings and operating
improvements, the Company believes its cash flow from operations,
available cash and available borrowings under the new credit facility will
be adequate to meet its future liquidity needs for at least the next few
years. The Company cannot assure, however, that its business will generate
sufficient cash flow from operations, that currently anticipated cost
savings and operating improvements will be realized on schedule or at all
or that future borrowings will be available under the new credit facility
in amounts sufficient to enable us to pay our indebtedness, or to fund
other liquidity needs. The Company may need to refinance all or a portion
of its indebtedness, on or before maturity. The Company cannot ensure that
it will be able to refinance any of its indebtedness, on commercially
reasonable terms or at all;
- - INTEGRATION ISSUES -- Inability to integrate the acquisitions made could
prevent the Company from maximizing synergies and could adversely affect
financial results. The Company has made several substantial acquisitions
in the past four years. The Ortho acquisition represents the largest. The
success of any completed acquisition depends, and the success of the Ortho
acquisition will depend, on the ability to integrate effectively the
acquired business. The
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<PAGE> 32
Company believes that the RPJ acquisition and the Ortho acquisition
provide significant cost saving opportunities. However, if the Company is
not able to successfully integrate Ortho, RPJ or other acquisitions, the
Company will not be able to maximize such cost saving opportunities.
Rather, the failure to integrate such acquired businesses, because of
difficulties in the assimilation of operations and products, the diversion
of management's attention from other business concerns, the loss of key
employees or other factors, could materially adversely affect financial
results;
- - CUSTOMER CONCENTRATION -- Because of the concentration of sales to a small
number of retail customers, the loss of one of the top 10 customers could
adversely affect financial results. The Company's top 10 customers
together accounted for approximately 50% of 1998 fiscal year sales and 27%
of outstanding accounts receivable as of September 30, 1998. The top two
customers, The Home Depot and Wal*Mart, represented approximately 17% and
10%, respectively, of our 1998 fiscal year sales and approximately 12% and
2%, respectively, of outstanding accounts receivable at September 30,
1998. The loss of, or reduction in orders from, The Home Depot, Wal*Mart
or any other significant customer could have a material adverse effect on
the Company and its financial results, as could customer disputes
regarding shipments, fees, merchandise condition or related matters with,
or the inability to collect accounts receivable from, any of such
customers;
- - TERMINATION OF ROUNDUP(R) MARKETING AGREEMENT -- If Monsanto terminates
the Roundup(R) Marketing Agreement without having to pay a termination
fee, the Company would lose a substantial source of future earnings.
Monsanto has the right to terminate the Roundup(R) Marketing Agreement
either as a whole or within a particular region for certain events of
default. If Monsanto rightfully terminates the Company pursuant to an
event of default, the Company would not be entitled to any termination fee
under the Roundup(R) Marketing Agreement and would lose the significant
source of earnings that the Company believes the Roundup(R) Marketing
Agreement provides. In addition, Monsanto may terminate the Company within
a given region, including North America, without paying a termination fee,
if sales decline on a consumer sell-through basis over a cumulative three
program year period or if such sales decline by more than 5% for each of
two consecutive program years, unless the Company can show, in effect,
that such declines were not its fault;
- - POST-PATENT RESULTS OF ROUNDUP(R) IN THE UNITED STATES -- The Company
cannot predict the success of Roundup(R) after glyphosate ceases to be
patented. Substantial new competition in the United States could adversely
affect the Company. Glyphosate, the active ingredient in Roundup(R), is
subject to a patent in the United States that expires in September 2000.
Glyphosate is no longer subject to patent in the European Union and is not
subject to patent in Canada. While sales of Roundup(R) in such countries
have continued to increase despite the lack of a patent, sales in the
United States may decline as a result of increased competition after the
U.S. patent expires. Any such decline in sales would adversely affect the
Company's net commission under the Roundup(R) Marketing Agreement and
therefore financial results. Such a decline could also trigger Monsanto's
regional termination right under the Roundup(R) Marketing Agreement.
- - ANTITRUST REVIEW -- FEDERAL GOVERNMENT REVIEW OF THE NON-SELECTIVE
HERBICIDE MARKET UNDER THE ANTITRUST LAWS COULD ADVERSELY AFFECT FINANCIAL
RESULTS.
The applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") with respect to the Ortho
acquisition has expired, and the Company believes that no further
governmental approvals are required with respect to the Ortho acquisition.
However, the Company understands that the Federal Trade Commission (the
"FTC") is reviewing the non-selective herbicide market under the various
antitrust laws of the United States. Pursuant to this review, the FTC has
requested additional information from the Company regarding Roundup(R) and
Finale(R), a brand of non-selective herbicide that was bought from AgrEvo
Environmental Health, Inc. in May 1998, and information from Monsanto
regarding Roundup(R). The Company has subsequently divested the Finale(R)
business. Any modification of the Roundup Marketing Agreement, as a result
of the FTC's review, could adversely affect financial results.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of its ongoing business, the Company is exposed to certain market risks,
including fluctuations in interest rates, foreign currency exchange rates,
commodity prices, and its common share price. The Company uses derivative
financial and other instruments, where appropriate, to manage these risks. The
Company does not enter into transactions designed to mitigate its market risks
for trading or speculative purposes.
INTEREST RATE RISK
The Company has various debt instruments outstanding at April 3, 1999 that are
impacted by changes in interest rates. As a means of managing its interest rate
risk on these debt instruments, the Company has entered into interest rate swap
agreements to effectively convert certain variable rate debt obligations to
fixed rates as follows:
A 20 million British Pound Sterling notional amount swap used to convert
obligations denominated in British Pounds Sterling to a fixed rate. The
exchange rate used to convert British Pounds Sterling to U.S. dollars at
April 3, 1999 was $1.60:1 GBP.
Four interest rate swaps with a total notional amount of $105.0 million
which are used to hedge certain variable-rate obligations under the
Company's credit facility. The credit facility requires that the Company
enter into hedge agreements to the extent necessary to provide that at
least 50% of the aggregate principal amount of the senior subordinated
notes and term loan facilities is subject to a fixed interest rate.
The following table summarizes information about the Company's derivative
financial instruments and its debt instruments that are sensitive to changes in
interest rates as of April 3, 1999. For debt instruments, the table presents
principal cash flows and related weighted-average interest rates by expected
maturity dates. For interest rate swaps, the table presents expected cash flows
based on notional amounts and weighted-average interest rates by contractual
maturity dates. Weighted-average variable rates are based on implied forward
rates in the yield curve at April 3, 1999. The information is presented in U.S.
dollars (in millions):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
- ---------------
Fixed rate debt $(332.9) $(332.9) $(343.7)
Average rate 8.625% 8.625%
Variable rate debt $(3.0) $(26.0) $(33.0) $(44.0) $(48.0) $(678.7) $(832.7) $(832.7)
Average rate 7.35% 6.95% 6.93% 6.90% 6.90% 7.64% 7.51%
INTEREST-RATE
DERIVATIVES:
- ------------
Interest rate swap $(0.4) $(0.8) $(0.7) $(0.4) $ (2.1)
Average rate 7.62% 7.62% 7.62% 7.62%
Interest rate swap $ 0.0 $ 0.1 $ 0.2 $ 0.1 $ 0.3
Average rate 5.05% 5.05% 5.05% 5.05%
Interest rate swap $ 0.0 $ 0.1 $ 0.1 $ 0.0 $ 0.2
Average rate 5.08% 5.08% 5.08% 5.08%
Interest rate swap $ 0.0 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.3
Average rate 5.11% 5.11% 5.11% 5.11% 5.11%
Interest rate swap $ 0.0 $ 0.1 $ 0.1 $ 0.1 $ 0.2 $ 0.1 $ 0.4
Average rate 5.18% 5.18% 5.18% 5.18% 5.18% 5.18%
</TABLE>
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On January 21, 1999, the Company issued $330 million of Senior Subordinated
Notes due in 2009 bearing interest at 8.625%, retired approximately 97% of its
$100.0 million Senior Subordinated Notes then outstanding and unwound its then
outstanding interest rate locks. See additional discussion of the Company's
indebtedness in "Liquidity and Capital Resources" in "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
EQUITY PRICE RISK
In May 1998, the Company sold 0.3 million put options which give the holder the
option to sell one of the Company's common shares at a specified price for each
option held. The put options have a strike price of $35.32 per share and expire
in May 1999. The put options can only be exercised on their date of expiration.
At April 3, 1999 the buy-out value of these put options was $0.2 million as
estimated using an option pricing model.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Footnote 9 to the Condensed, Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of shareholders of the Company (the "Annual
Meeting") was held in Columbus, Ohio on February 23, 1999.
The result of the vote of the shareholders for the matter of the
election of four directors, for terms of three years each, submitted to
the shareholders at the Annual Meeting, is as follows:
Nominee Votes For Withheld
------- --------- --------
Charles M. Berger 24,545,315 302,804
James Hagedorn 24,539,102 309,017
Karen G. Mills 24,582,290 265,829
John Walker, Ph.D. 24,536,548 311,571
Each of the nominees was elected. The other directors whose terms of
office continue after the Annual Meeting are James B. Beard, Ph.D.,
John Kenlon, John M. Sullivan, L. Jack Van Fossen, Joseph P. Flannery,
Horace Hagedorn, Albert E. Harris and Patrick J. Norton.
The result of the vote of the shareholders for the matter of the
further amendment to the Company's 1996 Stock Option Plan, to increase
the number of common shares available thereunder from 3,000,000 to
5,500,000, is as follows:
Votes For Votes Against Abstain Not Voted
--------- ------------- ------- ---------
15,782,144 6,956,504 23,513 2,445,958
The proposal to amend the Company's 1996 Stock Option Plan, was
adopted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index at page 37 for a list of the exhibits included
herewith.
(b) The Registrant filed a Current Report on Form 8-K dated January 7,
1999, reporting under "Item 5. Other Events", information concerning
the RPJ acquisition, the Ortho acquisition, the Roundup(R) Marketing
Agreement, the New Credit Facility, and the funding of the Ortho
acquisition through a private placement of $300 million aggregate
principal amount of senior subordinated notes pursuant to Rule 144a
under the Securities Act of 1933, as amended.
The Registrant filed a Current Report on Form 8-K dated February 5,
1999, reporting under "Item 2. Acquisition or Disposition of Assets"
and "Item 7. Financial Statements and Exhibits", additional information
concerning the Ortho acquisition, financial statements of businesses
acquired and pro forma financial information.
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<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SCOTTS COMPANY
Date: May 17, 1999 /s/ CHRISTOPHER L. NAGEL
Christopher L. Nagel
Acting Chief Financial Officer
Vice President and Corporate Controller
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<PAGE> 37
<TABLE>
THE SCOTTS COMPANY
QUARTERLY REPORT ON FORM 10-Q FOR
FISCAL QUARTER ENDED APRIL 3, 1999
EXHIBIT INDEX
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
<S> <C> <C>
2(a) Asset Purchase Agreement, dated as *
of November 11, 1998, between
Monsanto Company and the Registrant
(replaces and supersedes Exhibit
2(d) to the Registrant's Annual
Report on Form 10-K for the fiscal
year ended September 30, 1998 (File
No. 001-13292))**
2(b) Amended and Restated Exclusive *
Agency and Marketing Agreement,
dated as of September 30, 1998,
between Monsanto Company and the
Registrant (replaces and supersedes
Exhibit 10(u) to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended September 30,
1998 (File No. 001-13292))**
4 Indenture, dated as of January 21, Incorporated herein by
1999, between The Scotts Company and reference to Exhibit 4 to the
State Street Bank and Trust Company, Registrant's Registration
as Trustee Statement on Form S-4
(Registration No.
333-76739) filed April 21, 1999
10 The Scotts Company 1996 Stock Incorporated herein by
Option Plan (as amended through reference to the Registrant's
4/1/99) Registration Statement on
Form S-8 filed with the SEC
on April 21, 1999 (Registration
No. 333-76697) [Exhibit 10]
27 Financial Data Schedule *
</TABLE>
- ------------
*Filed herewith
**Certain portions of these Exhibits have been omitted based upon a request for
confidential treatment filed with the Securities and Exchange Commission
("SEC"). The non-public information has been filed separately with the SEC in
connection with that request.
Page 37
<PAGE> 1
Exhibit 2(a)
------------
* Asset Purchase Agreement
dated as of November 11, 1998
between Monsanto Company
and The Scotts Company
* Certain portions of this Exhibit, indicated in the text by asterisk, have
been omitted based upon a request for confidential treatment filed with the
Securities and Exchange Commission ("SEC"). The non-public information has been
filed separately with the SEC in connection with that request.
<PAGE> 2
[EXECUTION COPY]
ASSET PURCHASE AGREEMENT
DATED AS OF
NOVEMBER 11, 1998
BETWEEN
MONSANTO COMPANY
AND
THE SCOTTS COMPANY
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I. - PURCHASE AND SALE OF ASSETS........................................................................1
Section 1.1. Purchase and Sale...........................................................................1
Section 1.2. Excluded Assets.............................................................................4
Section 1.3. Transfer....................................................................................4
ARTICLE II. - PURCHASE PRICE.....................................................................................4
Section 2.1. Purchase Price..............................................................................4
Section 2.2. Purchase Price Adjustment...................................................................5
Section 2.3. Assumption of Liabilities...................................................................8
Section 2.4. Purchase Price Allocation...................................................................8
Section 2.5. Like-Kind Exchange..........................................................................9
ARTICLE III. - SELLER'S REPRESENTATIONS AND WARRANTIES............................................................9
Section 3.1. Organization and Corporate Standing........................................................10
Section 3.2. Corporate Power and Authority..............................................................10
Section 3.3. [Intentionally Omitted]....................................................................10
Section 3.4. Absence of Certain Changes and Events......................................................11
Section 3.5. No Violation of Law........................................................................12
Section 3.6. Properties.................................................................................13
Section 3.7. Title to Assets............................................................................14
Section 3.8. Leases.....................................................................................14
Section 3.9. Intellectual Property......................................................................15
Section 3.10. Litigation.................................................................................15
Section 3.11. Employees of the Business..................................................................15
Section 3.12. Employee Benefit Plans.....................................................................16
Section 3.13. Collective Bargaining......................................................................17
Section 3.14. Labor Matters..............................................................................17
Section 3.15. Environmental Matters......................................................................17
Section 3.16. Permits....................................................................................19
Section 3.17. Contracts..................................................................................19
Section 3.18. Required Consents, Approvals and Filings...................................................20
Section 3.19. No Conflict................................................................................20
Section 3.20. Assets Are Year 2000 Compliant.............................................................21
Section 3.21. Foreign Customers..........................................................................21
Section 3.22. Inventory..................................................................................21
Section 3.23. Accounts Receivable........................................................................22
Section 3.24. Assets.....................................................................................22
Section 3.25. Insurance..................................................................................23
Section 3.26. Products...................................................................................23
Section 3.27. Taxes......................................................................................23
Section 3.28. No Undisclosed Material Liabilities........................................................24
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Section 3.29. Transactions with Affiliates...............................................................24
Section 3.30. Rule 10b-5.................................................................................24
Section 3.31. Disclaimer.................................................................................24
Section 3.32. Aggregation................................................................................25
ARTICLE IV. - BUYER'S REPRESENTATIONS AND WARRANTIES.............................................................25
Section 4.1. Organization...............................................................................25
Section 4.2. Corporate Power and Authority..............................................................25
Section 4.3. Required Consents, Approvals and Filings...................................................26
Section 4.4. No Conflict................................................................................26
Section 4.5. Litigation.................................................................................27
Section 4.6. Rule 10b-5.................................................................................27
ARTICLE V. - COVENANTS OF THE PARTIES...........................................................................27
Section 5.1. Operations Pending Closing.................................................................27
Section 5.2. Access.....................................................................................29
Section 5.3. Preparation of Supporting Documents........................................................30
Section 5.4. Approvals of Third Parties; Satisfaction of Conditions to Closing..........................30
Section 5.5. Hart-Scott-Rodino Notification.............................................................30
Section 5.6. Financial and Tax Services.................................................................31
Section 5.7. Transfer Taxes.............................................................................32
Section 5.8. Compliance with EEOC Consent Decree........................................................32
Section 5.9. [Intentionally Omitted]....................................................................32
Section 5.10. Amendment of Schedules.....................................................................32
Section 5.11. Consultation with Works Council............................................................33
Section 5.12. Monsanto Compliance with Obligations to Chevron and Other Predecessors.....................33
Section 5.13. Chemcopack Agreement.......................................................................34
Section 5.14. Notice of Certain Events...................................................................34
Section 5.15. Other Offers...............................................................................35
Section 5.16. Noncompetition.............................................................................35
Section 5.17 Financial Statements.......................................................................37
Section 5.18. Cooperation................................................................................38
ARTICLE VI. - CASUALTY AND CONDEMNATION.........................................................................38
Section 6.1. Casualty...................................................................................38
Section 6.2. Condemnation...............................................................................39
ARTICLE VII. - COVENANTS AS TO EMPLOYEES.........................................................................40
Section 7.1. Offers of Employment.......................................................................40
Section 7.2. Benefits and Employment Conditions of Transferred Employees in the United
States.....................................................................................42
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
Section 7.3. Access to Employee Information.............................................................45
Section 7.4. WARN Act Indemnification...................................................................46
Section 7.5. Workers' Compensation Claims...............................................................46
Section 7.6. General Employee Provisions................................................................46
Section 7.7. Employee Benefit Plans.....................................................................47
Section 7.8. Transfer of Employees in Europe............................................................48
Section 7.9. Transferred Employees Working on Visas or Work Permits....................................49
ARTICLE VIII. - CONDITIONS TO SELLER'S OBLIGATIONS...............................................................49
Section 8.1. Representations and Warranties True at Closing Date........................................49
Section 8.2. Litigation.................................................................................50
Section 8.3. Opinion of Counsel to Buyer................................................................50
Section 8.4. Required Governmental Approvals............................................................50
Section 8.5. Other Necessary Consents...................................................................50
Section 8.6. Supply Agreement...........................................................................51
Section 8.7. Formulation Agreement......................................................................51
Section 8.8. Transition Services Agreement..............................................................51
Section 8.9. No Material Adverse Change.................................................................51
ARTICLE IX. - CONDITIONS TO BUYER'S OBLIGATIONS................................................................52
Section 9.1. Representations and Warranties True at Closing Date........................................52
Section 9.2. Litigation.................................................................................52
Section 9.3. Opinion of Counsel to Seller...............................................................53
Section 9.4. Required Governmental Approvals............................................................53
Section 9.5. Other Necessary Consents...................................................................53
Section 9.6. Supply Agreement...........................................................................53
Section 9.7. Formulation Agreement......................................................................53
Section 9.8. Transition Services Agreement..............................................................53
Section 9.9. No Material Adverse Change.................................................................54
ARTICLE X. - CLOSING..........................................................................................54
Section 10.1. Closing....................................................................................54
Section 10.2. Termination Prior to Closing...............................................................54
Section 10.3. Termination of Obligations.................................................................56
ARTICLE XI. - INDEMNIFICATION..................................................................................57
Section 11.1. Seller Indemnification.....................................................................57
Section 11.2. Buyer Indemnification......................................................................58
Section 11.3. Indemnity Claims...........................................................................58
Section 11.4. Deductible.................................................................................59
Section 11.5. Notice of Claim............................................................................60
Section 11.6. Defense....................................................................................61
Section 11.7. Limitation of Liability....................................................................62
Section 11.8. Allocation and Apportionment of and Indemnification with Respect to Tax
Liabilities................................................................................63
Section 11.9. Exclusive Remedy; Release..................................................................64
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE XII. - MISCELLANEOUS.....................................................................................65
Section 12.1. Expenses...................................................................................65
Section 12.2. Entire Agreement...........................................................................65
Section 12.3. Waivers....................................................................................66
Section 12.4. Parties Bound by Agreement; Successors and Assigns.........................................66
Section 12.5. Counterparts...............................................................................66
Section 12.6. Notices....................................................................................66
Section 12.7. Brokerage..................................................................................67
Section 12.8. Governing Law; Jurisdiction................................................................68
Section 12.9. Public Announcements.......................................................................70
Section 12.10. No Third-Party Beneficiaries...............................................................70
Section 12.11. Definition of Affiliate....................................................................70
Section 12.12. Knowledge..................................................................................70
Section 12.13. Bulk Sales Laws............................................................................71
Section 12.14. Interpretation.............................................................................71
</TABLE>
iv
<PAGE> 7
SCHEDULES
- ---------
1.1(f) Equipment
1.2 Excluded Assets
2.2(b) U.S. Working Capital Assignments
2.3 Excluded Liabilities
3.4 Certain Changes and Events
3.5 No Violation of Law
3.6(a) Real Property
3.6(b) Material Personal Property
3.6(d) Liens
3.7 Title to Assets
3.8 Leases
3.9 Intellectual Property
3.10 Litigation
3.11 Employees
3.12 Employee Benefit Plans
3.13 Collective Bargaining Agreements
3.14 Labor Matters
3.15 Environmental Matters
3.16 Permits
3.17 Contracts
3.18 Seller Required Consents, Approvals and Filings
3.19 No Conflict
3.20 Year 2000 Compliance
3.21 Foreign Customers
3.28 Undisclosed Material Liabilities
3.29 Affiliate Transactions
4.3 Buyer Required Consents, Approvals and Filings
5.1 Operation Pending Closing
5.1(b) Actions Prior to Closing
5.11 Works Council
7.1(a)(i) Employees Outside 100% Requirement
7.1(c) Employees Not Actively at Work
7.2(h) Relocation Assistance
7.8 European Employees
9.4 Required Governmental Approvals
9.5 Required Other Consents
12.12 Seller's Knowledge
EXHIBITS
- --------
A Supply Agreement
B Formulation Agreement
v
<PAGE> 8
DEFINITIONS
- -----------
Term: First Defined in Section:
"1997 Balance Sheet" Section 3.3
"Affiliate" Section 12.11
"Acquisition Agreements" Section 5.12
"Acquisition Proposal" Section 5.15
"Agency Agreement" Section 10.2(h)
"Agreement" First paragraph of Agreement
"Assets" Section 1.1
"Assumed Liabilities" Section 2.3
"Assumed Liability Claims" Section 11.4(a)(ii)
"Assumed Liability Deduction" Section 11.4(a)(ii)
"Breaching Party" Section 5.16(g)
"Business" Section 1.1
"Buyer" First paragraph of Agreement
"Buyer Defined Benefit Plan" Section 7.2(a)
"Buyer Defined Contribution Plan" Section 7.2(b)
"Buyer Protected Parties" Section 11.1
"Buyer's General Deductible" Section 11.4(b)
"Cause" Section 7.1(b)
"Central Agreements" Section 5.13
"Central Garden" Section 5.13
"Central Garden Claims" Section 11.4(a)(i)
"Central Garden Deductible" Section 11.4(a)(i)
"Change of Control" Section 10.2(g)
"Closing" Section 10.1
"Closing Date" Section 10.1
"Code" Section 2.4
"comparable employment" Section 7.1(b)
"Consent Decree" Section 5.8
"Contracts" Section 1.1(e)
"Controlled Group Members" Section 7.7
"Employee Benefit Plans" Section 3.12
"Employees" Section 3.11
"Employees Acquired Rights Directive" Section 7.8
"Employment Date" Section 7.1(a)
"Environmental Claims" Section 3.15(a)(i)
"Environmental Laws" Section 3.15(a)(ii)
"Equipment" Section 1.1(f)
"Estimated Working Capital" Section 2.2(a)
"European Employees" Section 7.8
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"Excluded Assets" Section 1.2
"Excluded Liabilities" Section 2.3
"ERISA" Section 3.12
"FTC" Section 5.5
"Final Determination Date" Section 2.2(c)
"Financial Statements" Section 3.3
"Formulation Agreement" Section 8.7
"GAAP" Section 3.3
"Hazardous Materials" Section 3.15(a)(iii)
"HSR" Section 3.18
"Indemnifying Party" Section 11.5
"Independent Accounting Firm" Section 2.2(c)
"Information Systems" Section 3.20
"Justice Department" Section 5.5
"knowledge" Section 12.12
"Leases" Section 1.1(g)
"Lien" Section 3.6(a)
"Loss" Section 11.1
"Losses" Section 11.1
"Material" Section 3.17
"Nonbreaching Party" Section 5.16(g)
"Noncompetition Period" Section 5.16(a)
"Notice of Disagreement" Section 2.2(c)
"Off-Site Facility" Section 3.15(a)(iv)
"Other Intellectual Property" Section 1.1(b)(iv)
"Owned Real Property" Section 3.6(d)
"Patents" Section 1.1(b)(ii)
"Permits" Section 1.1(c)
"Permitted Liens" Section 3.6(d)
"Pre-Closing Tax Period" Section 3.27
"Purchase Price" Section 2.1
"Purchase Price Adjustment" Section 2.2(d)
"Real Property" Section 1.1(d)
"Registrations" Section 1.1(b)(iii)
"Release" Section 3.15(a)(v)
"Rights" Section 3.9
"Roundup Employee" Section 5.16(d)
"Seller" First paragraph of Agreement
"Seller's Deductible" Section 11.4(c)
"Seller's Defined Contribution Plans" Section 7.2(b)
"Seller's Pension Plans" Section 7.2(a)
"Seller Protected Parties" Section 11.2
"Software" Section 1.1(h)
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<PAGE> 10
"Solaris" Whereas clause
"Statement of Working Capital" Section 2.2(b)
"Supply Agreement" Section 8.6
"Termination Payments" Section 7.1(b)
"To the Seller's Knowledge" Section 12.12
"Trademarks" Section 1.1(b)(i)
"Transaction Agreements" Section 3.2
"Transferred Employees" Section 7.1(a)
"Transition Services Agreement" Section 8.8
"WARN Act" Section 7.4
"Working Capital" Section 2.2(b)
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), made and entered into
as of this 11th day of November, 1998, between Monsanto Company, a Delaware
corporation, having its principal place of business at 800 North Lindbergh
Blvd., St. Louis, Missouri 63167 (the "Seller"), and The Scotts Company, an Ohio
corporation, having its principal place of business at 14111 Scottslawn Road,
Marysville, Ohio 43041 (the "Buyer").
WITNESSETH:
WHEREAS, upon and subject to the terms and conditions of this
Agreement, the Seller desires to sell to the Buyer, and the Buyer desires to
purchase from the Seller, certain assets of the Solaris Group, an operating unit
of the Seller ("Solaris").
NOW, THEREFORE, in consideration of the mutual promises and covenants
and the terms and conditions set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I. - PURCHASE AND SALE OF ASSETS
SECTION 1.1. PURCHASE AND SALE. Subject to the terms of this Agreement,
at the Closing (as defined in Section 10.1), the Seller will sell, convey,
transfer, assign and deliver to the Buyer, and the Buyer will purchase, acquire
and accept from the Seller, free and clear of any Liens other than Permitted
Liens, the assets, properties and rights of every kind, nature, character or
description, currently used principally by the Seller in the non-glyphosate
Solaris business to (i) develop, manufacture, sell and market non-glyphosate
weed control products (except for such glyphosate-containing weed control
products set forth on Schedule 1.1), insect control products,
<PAGE> 12
garden seeds and decorative garden items, fertilizers and applicators for use by
consumers for lawn and garden care and (ii) participate in a joint venture to
market a series of gardening and home improvement books for consumers (such
clauses (i) and (ii), collectively, the "Business"), including any additions to
such assets, properties and rights in the ordinary course of business between
the date hereof and the Closing, but specifically excluding (X) the Excluded
Assets (as defined in Section 1.2) and (Y) any deletions to such assets,
properties and rights in the ordinary course of business consistent with past
practices, except as prohibited by Section 5.1, between the date hereof and the
Closing (the "Assets"), including, but not limited to:
(a) The originals or copies of records, operating data and
business files, including, but not limited to, customer lists and
files, customer credit files, advertising materials and sales
literature, information directly relating to purchasing histories and
procedures, vendor files and financial records (including all sales
invoices and purchase order records and supporting documents with
respect to accounts receivable and accounts payable outstanding at the
Closing), other marketing information, and electronic files of employee
data for the Transferred Employees (as defined in Section 7.1(a)) which
are in the Seller's possession on the Closing Date (as defined in
Section 10.1);
(b) (i) Copyrights, trade names, trademarks, service marks and
trademark and service mark registrations and registration applications,
including the goodwill associated with the same, including, but not
limited to those listed on Schedule 3.9 hereto (the "Trademarks"); (ii)
inventions, patents and patent applications (including utility patents
and applications), including, but not limited to those listed on
Schedule 3.9 hereto (the "Patents"); (iii) governmental registrations,
registration applications, temporary registrations, all data pertaining
to such registrations as submitted to governmental agencies,
experimental use permits, applications and emergency use exemptions,
including, but not limited to those listed on Schedule 3.9 hereto (the
"Registrations"), and (iv) trade secrets, processes or any other
proprietary intellectual property rights, including, but not limited
to, those listed on Schedule 3.9 hereto (collectively, the "Other
Intellectual Property");
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<PAGE> 13
(c) Governmental authorizations, licenses and permits (other
than the Registrations), including, but not limited to, those listed on
Schedule 3.16 (collectively, the "Permits");
(d) Real property (including the buildings, improvements and
fixtures located thereon), including that which is listed on Schedule
3.6(a) (the "Real Property");
(e) Contracts, agreements, intellectual property licenses,
arrangements, instruments, undertakings, commitments or understandings
(other than the Leases as defined in 1.1(g)), including any renewals
and amendments thereto and any new contracts entered into prior to the
Closing in accordance with the terms of this Agreement and in the
ordinary course of business, and including those listed on Schedule
3.17, but excluding any such contracts that expire or are terminated
prior to Closing (the "Contracts");
(f) Machinery, motor vehicles, tools, furniture, instruments,
laboratory equipment, research equipment, fixtures and personal
property, including, but not limited to those listed on Schedule 1.1(f)
hereto, and to the extent not included therein, those at Seller's Fort
Madison, Iowa and Corwen, UK facilities (the "Equipment");
(g) Leases of Real Property and Equipment, including those
listed on Schedule 3.8 (the "Leases");
(h) Computer, data processing and telecommunications systems
software, equipment and databases, including those listed on Schedule
3.9 (the "Software");
(i) Accounts receivable of the Business, net of trade or other
discounts, as of the Closing;
(j) Inventories shown on the books of the Business, including,
but not limited to, raw materials, finished goods and products, goods
and products in process, and other materials and supplies on hand and
in transit, as of the Closing; and
(k) All property, factual knowledge and information to the
extent used by the Seller principally in the Business, including all
chemical, biochemical, organic and manufacturing information and/or
formulation procedures whether or not capable of precise separate
description, but which in an accumulated form gives to the one
acquiring
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<PAGE> 14
it an ability to study, test or produce something which one otherwise
would not have known how to study, test or produce with the accuracy
or precision necessary for commercial success or acceptance by
governmental regulatory agencies.
SECTION 1.2. EXCLUDED ASSETS. The Assets shall not include assets,
properties and rights of Seller not currently used principally in the Business,
and all other assets, properties and rights identified on Schedule 1.2 (the
"Excluded Assets").
SECTION 1.3. TRANSFER. The sale, conveyance, transfer, assignment and
delivery of the Assets by the Seller to the Buyer will be effected by such
deeds, bills of sale, endorsements, assignments, transfers and other instruments
of transfer and conveyance in forms reasonably satisfactory to the parties, and
the Seller and the Buyer hereby agree to cooperate in executing any such further
instruments necessary to consummate the transfer after the Closing Date as may
be reasonably requested from time to time by the parties.
ARTICLE II. - PURCHASE PRICE
SECTION 2.1. PURCHASE PRICE. The purchase price for the Assets shall be
Three Hundred Million Dollars ($300,000,000.00) subject to adjustment in
accordance with Section 2.2 hereof and, if applicable, Article 6 hereof (the
"Purchase Price"). The Purchase Price is payable by Buyer to Seller at Closing
in immediately available funds by wire transfer.
SECTION 2.2. PURCHASE PRICE ADJUSTMENT.
(a) At least five (5) business days prior to the Closing, the
Seller shall furnish to the Buyer a statement setting forth the
Seller's best estimate of Working Capital (as defined in Section
2.2(b)) as of the Closing Date (the "Estimated Working Capital"),
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<PAGE> 15
based on the most recent unaudited financial statements of the Business
prepared in the ordinary course of business. To the extent that
the Estimated Working Capital is less than (or greater than) the sum of
$86,000,000 plus the Load Adjustment, if any, the cash payable to the
Seller at the Closing shall be decreased (or increased) dollar for
dollar by the amount of such difference; provided, however, that no
adjustment to the Purchase Price shall be made if the difference
between Estimated Working Capital and $86,000,000 plus such Load
Adjustment is less than $1,000,000. For purposes of this Section 2.2,
"Load Adjustment" shall mean the amount, calculated utilizing a
weighted average methodology, equal to the difference between (i) the
value of the accounts receivable reflected on the books of the Business
with respect to inventory deployed at Monsanto's initiative into
Central Garden & Pet Company branches and sub-agent branches from the
date hereof through the Closing in excess of Ten Million Dollars
($10,000,000), which inventory is not sold through to retail customers
prior to the Closing, and (ii) the inventory value of such accounts
receivable for inventory not sold through to retail customers prior to
the Closing.
(b) Within sixty (60) days after the Closing Date, the Buyer
shall cause its independent auditors to prepare and deliver to the
Seller a statement setting forth each of the components of Working
Capital as of the close of business on the Closing Date (the "Statement
of Working Capital"). As used herein, the term "Working Capital"
consists of the following items relating to the Business and included
in the Assets (i) accounts receivable of the Business, net of trade or
other discounts; plus (ii) inventory calculated on a first-in,
first-out basis (excluding the inventory premium associated with the
acquisition of the Ortho business as shown in the Financial
Statements); minus (iii) accounts payable and accrued liabilities,
except such payables and accrued liabilities which are Excluded
Liabilities (as defined in Section 2.3); provided that the items
described in clauses (i) through (iii) above shall be determined in
accordance with the principles set forth on Schedule 2.2(b) attached
hereto, and in each case shall be determined as of the close of
business on the Closing Date. The Statement of Working Capital shall be
prepared in accordance with the principles set forth on Schedule 2.2(b)
attached hereto.
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<PAGE> 16
(c) During the thirty (30) days immediately following the
receipt of the Statement of Working Capital by the Seller, the Seller
and its accountants shall, at the Seller's expense, be entitled to
review the Statement of Working Capital and any working papers, trial
balances and similar materials (collectively, "Working Papers")
relating to the Statement of Working Capital prepared by the Buyer.
During such thirty (30) day period, the Buyer will provide the Seller
and its accountants with access, not unreasonably interfering with the
operations of the Business, during normal business hours, to the
personnel, properties, books and records of the Business. The
Statement of Working Capital shall become final and binding upon the
parties on the thirty-first (31st) day following delivery thereof
unless the Seller gives written notice to the Buyer of its disagreement
with the Statement of Working Capital (a "Notice of Disagreement")
prior to such date. Any Notice of Disagreement shall specify in
reasonable detail the nature of any disagreement so asserted. If a
timely Notice of Disagreement is delivered by the Buyer, then the
Statement of Working Capital (as revised, if at all, in accordance with
this Section 2.2), shall become final and binding upon the parties on
the earlier of (X) the date the parties hereto resolve in writing all
differences they have with respect to any matter specified in the
Notice of Disagreement or (Y) the date all matters in dispute are
finally resolved by the Independent Accounting Firm (as defined below)
(the date on which the Statement of Working Capital so becomes final
and binding being hereafter referred to as the "Final Determination
Date"). During the thirty (30) days immediately following the delivery
of any Notice of Disagreement, the Buyer and the Seller shall seek in
good faith to resolve in writing any differences which they may have
with respect to any matters specified in such Notice of Disagreement.
During such period, the Buyer and the Seller shall have access to the
other's working papers prepared in connection with the Statement of
Working Capital and the Notice of Disagreement, as the case may be. At
the end of such thirty (30) day period, the Buyer and the Seller shall
submit to an independent, national public accounting firm which has no
prior relationship with the Buyer or the
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<PAGE> 17
Seller (the "Independent Accounting Firm") for review and resolution of
any and all matters which remain in dispute and which are included in
the Notice of Disagreement. The Independent Accounting Firm shall reach
a final resolution of all matters and shall furnish such resolution in
writing to the Buyer and Seller as soon as practicable, but in no event
more than thirty (30) days, after such matters have been referred to
the Independent Accounting Firm. Such resolution shall be made in
accordance with this Agreement and will be conclusive and binding upon
the Buyer and the Seller. The cost of such resolution shall be
allocated to the parties such that the party against whom any item set
forth in the Notice of Disagreement is resolved shall bear the costs
attributable to such item.
(d) Upon final determination of the Working Capital in
accordance with this Section 2.2, the following purchase price
adjustment will be paid in accordance with Section 2.2(f) (the
"Purchase Price Adjustment"):
i. If Working Capital (as finally stated in the
Statement of Working Capital) is greater than the Estimated
Working Capital by more than $1,000,000, then the Buyer shall
pay to the Seller the amount by which Working Capital exceeds
the Estimated Working Capital; or
ii. If Working Capital (as finally stated in the
Statement of Working Capital) is less than the Estimated
Working Capital by more than $1,000,000, then the Seller shall
pay to the Buyer the amount by which the Estimated Working
Capital exceeds Working Capital.
If Working Capital is equal to Estimated Working Capital or the
adjustment would be less than $1,000,000, no adjustment shall be made
to the Purchase Price.
(e) If no Notice of Disagreement has been given by the Seller,
the Seller shall remit to the Buyer or the Buyer shall remit to the
Seller, as the case may be, in immediately available funds, all amounts
constituting a Purchase Price Adjustment within thirty-three (33) days
after receipt by the Seller of the Statement of Working Capital in
accordance with this Section 2.2. If the Seller gives the Buyer a
Notice of Disagreement, payment shall be made in immediately available
funds within three (3) business days after the Final Determination
Date. Each payment made pursuant to this
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<PAGE> 18
Section 2.2 shall be made with interest on the amount of such payment
at an annual rate equal to the prime interest rate per annum as stated
in the Wall Street Journal on the date of such payment for the period
from the Closing Date to the date of payment.
SECTION 2.3. ASSUMPTION OF LIABILITIES. At the Closing, pursuant to one
or more written agreements in a form reasonably satisfactory to the parties, the
Buyer will assume and agree to pay, perform and discharge, and, to the extent
set forth herein, to indemnify Seller against and hold it harmless from, all
obligations and liabilities of the Seller relating to the Assets or the Business
of any nature or kind, known or unknown, fixed, accrued, absolute or contingent,
which arise, accrue or are incurred before or after the Closing Date relating to
or based upon the past, present or future Business or operation of the Assets or
the Business as heretofore, currently or hereafter conducted ("Assumed
Liabilities"), including without limitation: (i) all liabilities and obligations
of Seller under the Contracts, Permits or Leases included in the Assets; (ii)
all accounts payable and accrued liabilities; (iii) all liabilities shown on the
books and records of the Business as of the Closing Date; (iv) the obligations
with respect to the Transferred Employees in accordance with Article 7 of this
Agreement; (v) the obligations of Seller pursuant to Section 2.3 of that certain
Asset Purchase Agreement, dated April 15, 1996 by and between the Seller and
White Swan, Ltd.; and (vi) all liabilities under Environmental Laws (as defined
in Section 3.15). Notwithstanding the foregoing, the Assumed Liabilities shall
not include, and Buyer shall not assume or become liable for, the obligations
and liabilities of Seller set forth on Schedule 2.3 (the "Excluded
Liabilities").
SECTION 2.4. PURCHASE PRICE ALLOCATION. Seller and Buyer agree that
they will report (and will cause their respective Affiliates to report, as
appropriate), to the extent required under Section 1060 of the Internal Revenue
Code of 1986, as amended or any successor federal tax legislation (the "Code")
and the temporary regulations thereunder and any other applicable laws and
regulations, the allocation of the Purchase Price (and all other capitalized
costs) to the Assets in a manner consistent with an appraisal to be performed
within ninety (90) days after the Closing Date. The firm conducting the
appraisal shall be selected by agreement between Seller and Buyer. The cost of
the appraisal shall be borne equally by the Buyer and the Seller.
8
<PAGE> 19
SECTION 2.5. LIKE-KIND EXCHANGE. Notwithstanding any other provision
hereof, in the event that Seller desires to transfer any of the Assets located
in the United States as part of a like-kind exchange pursuant to Section 1031 of
the Code, Buyer agrees that Seller may, upon prior written notice to Buyer,
assign its rights under this Agreement (but not its obligations under the
Agreement) insofar as may be required in order to effect such exchange, and
thereafter such assignee shall have such rights as assigned; provided, however,
Seller agrees to indemnify the Buyer for, and to hold the Buyer harmless from
and against, any and all damages arising or resulting from, such assignment or
like-kind exchange; and provided, further, that the Buyer shall incur no
additional costs, expenses, fees, delays or liabilities of any kind as a result
of or connected with such like-kind exchange.
ARTICLE III. - SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller makes the representations and warranties set forth in this
Article.
SECTION 3.1. ORGANIZATION AND CORPORATE STANDING. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on and conduct the Business as it is now being conducted and to own or
lease the Assets, and is duly qualified and in good standing in every
jurisdiction in which the conduct of the Business or the ownership of the Assets
requires it to be so qualified, and the absence of such qualification would have
a material adverse effect. For purposes of Articles III, V and VI of this
Agreement, a material adverse effect shall mean any material adverse effect on
the financial condition, the Assets or the operation of the Business, taken as a
whole. The terms "material" and "material adverse change" shall have a
corresponding meaning.
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<PAGE> 20
SECTION 3.2. CORPORATE POWER AND AUTHORITY. The Seller has the right,
power and capacity to execute, deliver and perform this Agreement and all the
documents and instruments referred to herein and contemplated hereby together
with all other agreements to be signed or delivered at Closing (the "Transaction
Agreements") and to consummate the transaction contemplated by this Agreement.
The execution, delivery and performance of this Agreement and the Transaction
Agreements, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of the Seller. This Agreement has been, and each of the Transaction
Agreements after execution and delivery thereof at the Closing will have been,
duly and validly executed and delivered by the Seller and constitute the
Seller's legal, valid and binding obligations, enforceable in accordance with
their respective terms.
SECTION 3.3. [INTENTIONALLY OMITTED].
SECTION 3.4. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth
on Schedule 3.4, since December 31, 1997, the Seller has conducted the Business
in the ordinary course in all material respects, and has not:
(a) suffered any damage or destruction to the Assets which
individually or in the aggregate had a material adverse effect on the
Assets or the Business;
(b) caused the Business to incur or discharge any obligation
or liability, except in the ordinary course of business or obligations
and liabilities that did not have a material adverse effect;
(c) increased the rate or terms of the compensation payable to
the Transferred Employees (as defined in Section 7.1(a)); or increased
or amended any Employee Benefit Plan (as defined in Section 3.12) in
which the Transferred Employees participate; granted
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<PAGE> 21
any severance or termination pay to any Transferred Employee; or
entered into any employment, deferred compensation or similar agreement
with any Transferred Employee, except increases, amendments, grants or
agreements occurring in the ordinary course of normal periodic
performance reviews and related compensation and benefit increases, or
as required by any Contract;
(d) incurred any material adverse change or any event,
occurrence, development or state of circumstances or facts which could
reasonably be expected to result in a material adverse change;
(e) effected any change in any method of accounting or
accounting practice with respect to the Business other than any change
required to conform to GAAP;
(f) incurred any indebtedness for borrowed money or agreed to
become contingently liable, by guaranty or otherwise, for the
obligations or indebtedness of any other Person, other than endorsement
of negotiable instruments for deposit or collection;
(g) other than as disclosed in any Schedule to this Agreement
or except in the ordinary course of business consistent with past
practices, engaged in any transaction with any Affiliate;
(h) created or assumed any Lien (as defined in Section 3.6) on
the Assets, except for Permitted Liens (as defined in Section 3.6);
(i) sold, transferred or otherwise disposed of any of the
Assets, except in the ordinary course of business and transfers which
did not have a material adverse effect;
(j) waived any claims or rights, except any waiver which did
not have a material adverse effect;
(k) entered into, amended or terminated any material contract,
agreement, franchise, permit or license except in the ordinary course
of business and except that did not have a material adverse effect;
(l) acquired any assets which are material, individually or in
the aggregate, to the Business, except in the ordinary course of
business and except that did not have a material adverse effect;
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(m) made any capital expenditure or commitment for a capital
expenditure, for additions to or improvements to property, plant or
equipment, except in the ordinary course of business consistent with
past practice;
(n) suffered any material labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor union
or representative thereof to organize any employees of the Business,
which employees were not subject to a collective bargaining agreement
as of December 31, 1997, or any lockouts, strikes, material slowdowns,
material work stoppages or, to the Seller's knowledge, threats thereof,
by or with respect to such employees;
(o) made any payment or other distribution reducing any
Excluded Liability, other than in the ordinary course of business
consistent with past practice; or
(p) agreed to take any action described in this Section 3.4.
SECTION 3.5. NO VIOLATION OF LAW. Except as described on Schedule 3.5,
to the Seller's knowledge, the Seller is not in violation of any applicable
foreign, local, state, federal or foreign law, ordinance, regulation, order,
judgment, injunction or decree, or any other requirement of any arbitrator,
governmental or regulatory official, body, agency or authority or court binding
on it, or relating to the Assets or the Business, except for violations, if any,
which would not have a material adverse effect. Except as set forth in Schedule
3.5, Seller has received no written notice of an enforcement action against
Seller relating to the Business in connection with any violation or alleged
violation of applicable law.
SECTION 3.6. PROPERTIES.
(a) Schedule 3.6(a) sets forth a list of Real Property that
the Seller owns or leases, has agreed (or has an option) to purchase,
sell or lease, or may be obligated to purchase, sell or lease, which is
included in the Assets, together with, in the case of Real Property
owned, any title insurance policies and surveys with respect thereto
and any title defects or objections, liens, restrictions, claims,
charges, security interests, easements or other encumbrances (each, a
"Lien") thereon except Permitted Liens (as defined below).
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(b) Schedule 3.6(b) sets forth a list of all material personal
property used in the Business included in the Assets, including but not
limited to the Equipment and other trade fixtures and fixed assets,
which the Seller owns, leases or subleases.
(c) (i) The Real Property includes all real property, as is
used or held for use primarily in connection with the conduct of the
Business as of Closing;
(ii) The plants, buildings, structures and equipment
included in the Assets have no material defects, are in good
operating condition and repair and have been reasonably
maintained (ordinary wear and tear excepted), are suitable for
their present uses and, in the case of plants, buildings and
other structures, are structurally sound.
(iii) The plants, buildings and structures included in
the Assets currently have access to (1) public roads or valid
easements over private streets or private property for such
ingress to and egress from all such plants, buildings and
structures and (2) water supply, storm and sanitary sewer
facilities, telephone, gas and electrical connections, fire
protection, drainage and other public utilities, as is
reasonably necessary for the conduct of the Business.
(iv) To the Seller's knowledge, none of the material
structures on the Real Property encroaches upon real property
of another Person, and no structure of any other Person
substantially encroaches upon any Real Property.
(d) Except for (X) the Liens set forth on Schedule 3.6(d); and
(Y) Permitted Liens (as defined herein), the Seller (i) has good and
marketable fee simple title to all Real Property which is identified as
"Owned Real Property" on Schedule 3.6(a), and (ii) owns such Owned Real
Property, free and clear of all Liens. "Permitted Liens" are (A) Liens
for taxes not yet due and payable; (B) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like liens arising in
the ordinary course of business, payment for which is not yet due or
which is being contested in good faith; (C) deposits to secure the
performance of utilities, leases, statutory obligations and surety and
appeal bonds and other obligations of a like nature incurred in the
ordinary course of business; and (D) title defects or objections,
liens, restrictions, claims, charges, security interests,
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easements or other encumbrances that do not materially affect the use
and enjoyment of such property for the purposes for which it is
currently used. The Real Property constitutes all of the real property
used in the Business, except for Excluded Assets.
SECTION 3.7. TITLE TO ASSETS. The Seller has good and marketable title
to the Assets which it owns, free and clear of all Liens, except (i) as set
forth on Schedule 3.7 and (ii) Permitted Liens.
SECTION 3.8. LEASES. Schedule 3.8 contains a list of material Leases
(including any capital leases) and lease-purchase arrangements pursuant to which
the Seller leases Real Property or Assets from others. Except as set forth on
Schedule 3.8, (i) all of the Leases are in full force and effect and have not
been modified or amended in any material respect, and (ii) there are no
disputes, oral agreements or forbearance programs in effect as to the Leases
except disputes, agreements and forbearance programs, if any, which would not
have a material adverse effect. There has not occurred any default by the Seller
of any such lease, except for defaults, if any, which would not have a material
adverse effect, and to the Seller's knowledge, there has not occurred any
material default thereunder by any other party thereto except for defaults, if
any, which would not have a material adverse effect.
SECTION 3.9. INTELLECTUAL PROPERTY. Schedule 3.9 sets forth a list of
all Trademarks, Patents, Registrations, Software and Other Intellectual Property
(collectively the "Rights"). Except as set forth on Schedule 3.9, the Seller
owns or is licensed to use all the Rights, free and clear of any Liens, except
for any Liens which would not have a material adverse effect. Unless otherwise
noted on Schedule 3.9, none of the Rights is subject to any pending or, to the
knowledge of the Seller, threatened challenge or reversion, except such
challenges which would not have a material adverse effect. To the Seller's
knowledge, the conduct of the Business as now being conducted, and the use of
the Rights in the conduct of the Business, do not infringe or otherwise conflict
with any trademarks, patents, registrations, or other intellectual property or
proprietary rights of others, nor has any claim been made that the
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conduct of the Business as now being conducted infringes or otherwise is covered
by the intellectual property of a third party, except for any conflict or
infringement which would not have a material adverse effect. To the knowledge of
the Seller, none of the Rights are currently being infringed by a third party.
SECTION 3.10. LITIGATION. Schedule 3.10 sets forth all litigation,
suits, actions, investigations, indictments or informations, or proceedings or
arbitrations pending, or to the knowledge of the Seller, threatened, before any
court, arbitration tribunal, or judicial, governmental or administrative agency,
against the Seller relating to the Business or the Assets that would have a
material adverse effect. Further, except as set forth in Schedule 3.10, there
are no judgments, orders, writs, injunctions, decrees, indictments or
informations, grand jury subpoenas or civil investigative demands, or awards
against the Seller relating to the Business or the Assets that would have a
material adverse effect.
SECTION 3.11. EMPLOYEES OF THE BUSINESS. Schedule 3.11 sets forth the
names and current compensation of all employees of the Seller who are now
working primarily in the Business (the "Employees"). Except as set forth on
Schedule 3.11, Seller has not received a copy of any agreement to which an
Employee is a party which would adversely affect the performance of his (or her)
duties as an employee of the Buyer.
SECTION 3.12. EMPLOYEE BENEFIT PLANS. Except as described on Schedule
3.12, the Seller's Employees do not participate in any employee benefit plans,
as defined in Section 3(3) of Employee Retirement Income Security Act of 1974,
as amended ("ERISA") nor any other type of retirement, deferred compensation,
insurance, bonus, medical, stock option, profit sharing, severance, retention,
vision, dental, vacation policy or other plan ("Employee Benefit Plans"). The
Seller has provided to the Buyer complete and correct copies of all Employee
Benefit Plans, related trust agreements, insurance contracts or other related
agreements, the current summary plan description for each Employee Benefit Plan
subject to ERISA, and any similar description of any other Employee Benefit
Plan. None of the Seller's
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Employees participate in a multiemployer plan (as defined in Section 3(37) of
ERISA) which is subject to Title IV of ERISA. The Employee Benefit Plans do not
violate any applicable local, state, federal or foreign law, ordinance,
regulation, order, judgment, injunction or decree or any other requirement of
any arbitrator or governmental or regulatory official, body, agency or authority
or court binding on it (including ERISA and the Code) except for violations, if
any, which would not have a material adverse effect. To Seller's knowledge, the
Assets are not currently subject to a lien or other process under Title IV of
ERISA and, except as described on Schedule 3.12, to the Seller's knowledge,
there is no threatened or pending action related to the Employee Benefit Plans
by an Employee or former employee, a plan participant, the Department of Labor,
Internal Revenue Service or Pension Benefit Guaranty Corporation or any other
party. Any group health plan maintained by the Seller covering any Employee or
former employee has, to Seller's knowledge, been administered in all material
respects in compliance with the health care continuation coverage provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985. Except as set forth
in Schedule 3.12, no officer of the Seller has agreed to any future increases in
benefit levels or the creation of new benefits with respect to any Employee
Benefit Plan.
SECTION 3.13. COLLECTIVE BARGAINING. Except as described on Schedule
3.13, Seller has no labor contracts or collective bargaining agreements covering
wages, hours or working conditions for any of the Employees and no collective
bargaining agreement or union contract is currently being negotiated by the
Seller. None of the Employees are represented by any union or labor
organization.
SECTION 3.14. LABOR MATTERS. The Seller is not in violation of any
applicable local, state, federal or foreign law, ordinance, regulation, order,
injunction, judgment or decree, or any other requirement of any arbitrator or
governmental or regulatory official, body, agency or authority or court binding
on it, respecting employment and employment practices except for violations, if
any, which would not have a material adverse effect. Except as set forth in
Schedule 3.14, the Seller has not received any written notification that any of
the Employees
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have any claim against the Seller. The Seller has received no notice of any
charge of, nor are there any actions or proceedings relating to, unfair labor
practices by the Seller pending before the National Labor Relations Board, the
Equal Employment Opportunity Commission, or the United States Department of
Labor. There is no labor strike or, to the knowledge of Seller, any other labor
trouble pending or threatened against the Business. To the Seller's
knowledge, there have not been any attempts to organize non-union employees.
SECTION 3.15. ENVIRONMENTAL MATTERS.
(a) Definitions. For purposes of this Section 3.15, the
following definitions apply:
i. The term "Environmental Claims" means any and
all administrative, regulatory or judicial actions or
proceedings relating to the Release (as defined in (v) below)
or alleged Release into the environment of any Hazardous
Material (as defined in (iii) below), including, without
limitation, Claims by any governmental or regulatory authority
or by any third party or other person for enforcement,
mitigation, cleanup, removal, response, remediation or other
actions for damages, fines, penalties, contribution,
indemnification, cost recovery, compensation or injunctive or
declaratory relief pursuant to any Environmental Law (as
defined in (ii) below).
ii. The term "Environmental Laws" means all
federal, state and local laws, rules and regulations relating
to the regulation or protection of human health, safety,
natural resources or the environment and applicable to the
Business, including but not limited to the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., as amended; the ComprehensivE Environmental Response,
Compensation & Liability Act of 1980, 42 U.S.C. Section 9601,
et seq., as amended; the Clean Water Act, 33 U.S.C. Section
1251, et seq., as amended; the Clean Air Act, 42 U.S.C.
Section 7401, et seq., as amended; the Toxic Substances
Control Act, 15 U.S.C. Section 2601, et seq., as amended; and
the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Section 136, et seq., as amended.
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iii. The term "Hazardous Materials" means any
substance or material that is included within the definition
of a "hazardous substance," "hazardous waste," "hazardous
constituent," "hazardous material," "hazardous chemical" or
"extremely hazardous substance" contained in the Environmental
Laws.
iv. The term "Off-Site Facility" means any site or
property other than the Real Property used by, for or in
connection with the Business.
v. The term "Release" means spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the environment
(including the abandonment or discarding of barrels,
containers, and other closed receptacles containing any
Hazardous Materials).
(b) Seller's Premises. Except as disclosed in Schedule 3.15,
to the Seller's knowledge, during the Seller's ownership and operation
of the Business, there have been no Releases of Hazardous Materials to
the Real Property that would have a material adverse effect, nor are
there any pending Environmental Claims against or relating to the
Business that would have a material adverse effect.
(c) Off-Site Facilities. Except as disclosed in Schedule 3.15,
to the Seller's knowledge: there are no pending Environmental Claims
against any Off-Site Facility and relating to any transportation,
recycling, handling, treatment, storage or disposal of Hazardous
Materials used or generated by the Seller, its Affiliates (as defined
in Section 12.11) or by its toll contractors on behalf of Seller that
are expected to have a material adverse effect (on the Business); there
are no pending Environmental Claims against any Off-Site Facility
relating to the production, formulation, packaging or mixing of
products on behalf of the Seller or its Affiliates that are expected to
have a material adverse effect and there are no pending Environmental
Claims arising from the use, application, release or testing of any
products of the Business at any Off-Site Facility that are expected to
have a material adverse effect.
SECTION 3.16. PERMITS. Schedule 3.16 contains a list of all material
Permits. The Permits disclosed on
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Schedule 3.16 are all material Permits or other authorizations of governmental
authorities necessary or required for the production and sale of products of the
Business or for the conduct of the Business as is being conducted by Seller as
of the Closing Date. There is no action pending, or to the Seller's knowledge,
threatened, seeking the revocation, cancellation, suspension or adverse
modification or amendment of any Permit, which action, if determined adversely
to the Business, would have a material adverse effect.
SECTION 3.17. CONTRACTS. Schedule 3.17 sets forth a list of the
material Contracts. For purposes of this Section 3.17, "material" shall mean any
(i) contract which requires payments by or to the Business of $200,000 or more
in the aggregate; (ii) contract for employment of any employee; (iii) agreement
for the sale (otherwise than in the ordinary course of business) of any material
Assets; (iv) agreement, contract or indenture relating to the borrowing of
money; (v) agreement with unions; (vi) lease of any real or personal property
involving an annual rental of $200,000 or more; and (vii) agreement restricting
the Business from competing with any person or in any geographic area. Except as
set forth on Schedule 3.17, such Contracts are valid, in full force and effect
and have not been modified or amended. To the Seller's knowledge, there are no
disputes, oral agreements or forbearance programs in effect as to the Contracts
except for disputes, agreements and forbearance programs, if any, which would
not have a material adverse effect. There has not occurred any default by Seller
of any such Contracts except for defaults, if any, which would not have a
material adverse effect and, to the Seller's knowledge, there has not occurred
any default thereunder by any other party thereto except for defaults, if any,
which would not have a material adverse effect.
SECTION 3.18. REQUIRED CONSENTS, APPROVALS AND FILINGS. Except as set
forth in Schedule 3.18, no consent or approval is required by virtue of the
execution hereof by the Seller or the consummation of any of the transactions
contemplated herein by the Seller to avoid the violation or breach of, or the
default under, or the creation of a lien or other encumbrance on the Assets
pursuant to the terms of any regulation, order, decree or award of any court or
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governmental agency or any lease, agreement, contract, mortgage, note or license
to which the Seller is a party or to which the Business or the Assets is
subject, the absence of which would have a material adverse effect. Except for
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR"), and as set forth on Schedule 3.18, there are no filings or
similar procedures required of Seller with respect to any governmental body in
connection with the consummation of the transactions contemplated hereby.
SECTION 3.19. NO CONFLICT. Subject to obtaining the consents and
approvals and making the filings described in Section 3.18 and except as set
forth on Schedule 3.19, the execution, delivery and performance of this
Agreement by the Seller, and the consummation of the transactions contemplated
herein by the Seller will not: (i) violate or conflict with any of the
provisions of any charter document or bylaw of the Seller, or (ii) violate,
conflict with or result in a breach or default under or cause termination of any
term or condition of any mortgage, indenture, contract, license, permit,
instrument, or other agreement, document or instrument to which the Seller is a
party or by which the Seller or the Business or Assets may be bound or affected,
or (iii) violate any provision of law or any valid and enforceable requirement,
order, judgment, decree or ruling of any court, arbitrator, governmental or
regulatory official body or authority, to which the Seller is a party or by
which it, the Business or Assets may be bound or affected, or (iv) result in the
creation or imposition of any Lien upon any Asset except as to clauses (i)
through (iv) above, any such matters that would not (x) have a material adverse
effect, or (y) prevent the consummation of the transactions contemplated herein.
SECTION 3.20. ASSETS ARE YEAR 2000 COMPLIANT. All of the computer, data
processing and telecommunications systems software, equipment and databases (the
"Information Systems") that are being transferred to the Buyer as part of the
Assets are warranted to be year 2000 compliant by the vendors from whom Seller
purchased, leased or licensed the Information Systems except as set forth in
Schedule 3.20 and except any noncompliance which would not have a material
adverse effect.
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SECTION 3.21. FOREIGN CUSTOMERS. Schedule 3.21 contains a true and
correct list of the largest ten (10) foreign customers (based on sales for the
fiscal years 1996 and 1997, respectively) of the Business for the last two
years. Except as set forth in Schedule 3.21, the Seller has no knowledge which
might reasonably indicate that any of its ten (10) largest foreign customers
(based on sales for the fiscal year 1997) intends to cease dealing with the
Seller or materially reduce its business with the Seller.
SECTION 3.22. INVENTORY. All raw materials, works-in-process, and
finished goods, including but not limited to finished goods purchased for
resale, held by the Business for manufacturing, assembly, processing, finishing,
sale, or resale to others, from time to time in the ordinary course of the
Business, whether or not reflected in the Financial Statements, are of a quality
and quantity usable and saleable in the ordinary course of business, except for
obsolete items and items of below standard quality, all of which do not have a
material adverse effect. Items included in the foregoing are carried on the
books of the Business, and are valued in the Financial Statements, at the lower
of cost or market and, in any event, at not greater than their net realizable
value, after appropriate deduction for costs of manufacture, marketing costs,
transportation expense, and allocation of overhead, except that glyphosate-based
products are carried on the books of the Business at the adjusted transfer price
of * as set forth in the notes to the Financial Statements.
SECTION 3.23. ACCOUNTS Receivable. All accounts receivable of the
Business set forth in the Statement of Working Capital represent or will
represent valid obligations arising from sales actually made in the ordinary
course of business or in accordance with the distribution alliance agreements
between Solaris and Central Garden and Pet Company and are fully collectible in
the aggregate amount thereof in the ordinary course of business (assuming
diligent collection efforts of the Buyer following the Closing consistent with
past practices of the Business), subject to normal and customary trade discounts
and less the reserve for doubtful accounts recorded on the Statement of Working
Capital.
- ---------------
* Confidential provision omitted and filed separately with the Securities and
Exchange Commission ("SEC"), based upon a request for confidential treatment
filed with the SEC.
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SECTION 3.24. ASSETS. Except for assets disposed of in the ordinary
course of business consistent with past practices and Excluded Assets, the
Assets consist of all assets which have been used in the Business since December
31, 1997. Together with the assets and rights to be made available to the Buyer
pursuant to the Supply Agreement (described in Section 8.6) and the Transition
Services Agreement (described in Section 8.8), the Assets include all material
assets which are reasonably required to (i) operate the Business in the manner
the Business is being conducted by the Seller as of the Closing Date, and (ii)
allow Buyer to perform its obligations under the Formulation Agreement (as
defined in Section 8.7).
SECTION 3.25. INSURANCE. The Seller has provided to Buyer summaries of
all insurance policies owned by the Seller or inuring to the Seller's benefit
which insure any part of the Assets or the Business. All such insurance
policies are in full force and effect. The Seller has not knowingly made any
false statements in any application for such policies, and the Seller has no
knowledge of any failure to pay any premiums when due, or any other set of facts
or circumstances which might form the basis for termination of any such
policies. The Seller will maintain such insurance between the date hereof and
the Closing Date.
SECTION 3.26. PRODUCTS. Each of the products produced or sold by the
Seller in connection with the Business prior to the Closing (i) is, and except
as disclosed in Schedule 3.5, at all times has been, in compliance in all
material respects with all applicable Federal, state, local and foreign laws and
regulations and (ii) except as would not have a material adverse effect is, and
at all relevant times has been, fit for the ordinary purposes for which it is
intended to be used and conforms in all material respects to any promises or
affirmations of fact made on the container or label for such product or in
connection with its sale. Except as would not have a material adverse effect,
there is no design defect with respect to any of such products, and each of such
products contains adequate warnings, presented in a reasonably prominent manner,
in accordance with applicable laws and current industry practice with respect to
its contents and use.
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SECTION 3.27. TAXES. The Seller has timely paid all Taxes payable by it
for any Tax period (or portion thereof) ending on or before the close of
business on the Closing Date, or, with respect to any Tax period beginning
before and ending after the Closing Date, any portion thereof ending with the
close of business on the Closing Date (the "Pre-Closing Tax Period") which will
have been required to be paid on or prior to the Closing Date, the non-payment
of which would result in a Lien on any Assets, would otherwise materially
adversely affect the Business or would result in the Buyer becoming liable or
responsible therefor.
SECTION 3.28. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth
on Schedule 3.28, there are no material liabilities of a type required to be
disclosed or provided for in the Financial Statements of the Business of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and, to the Seller's knowledge, there is no condition, situation
or set of circumstances which could reasonably be expected to result in any such
liability, other than:
i. liabilities disclosed in the Financial
Statements for the fiscal year ended December 31, 1997; and
ii. liabilities incurred in the ordinary course of
business consistent with past practices since December 31,
1997 which would not in the aggregate have a material adverse
effect.
SECTION 3.29. TRANSACTIONS WITH AFFILIATES. Except as set forth on
Schedule 3.29, the Seller is not a party to any material agreement, arrangement
or understanding or other obligation with any Affiliate of the Seller with
respect to the Assets or the Business.
SECTION 3.30. RULE 10B-5. No representation or warranty made by the
Seller in this Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements contained
herein or therein not misleading.
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SECTION 3.31. DISCLAIMER. EXCEPT AS SET FORTH IN THIS ARTICLE 3, (a)
SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE
ASSETS OR THE BUSINESS, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR
WARRANTY AS TO VALUE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR
ORDINARY PURPOSES, OR ANY OTHER MATTER, AND (b) THE ASSETS AND BUSINESS OF THE
SELLER BEING TRANSFERRED TO THE BUYER ARE CONVEYED ON AN "AS IS, WHERE IS" BASIS
AS OF THE CLOSING, AND, EXCEPT TO THE EXTENT SET FORTH HEREIN, BUYER SHALL RELY
UPON ITS OWN EXAMINATION THEREOF.
SECTION 3.32. AGGREGATION. The representations and warranties of Seller
set forth in this Article 3, disregarding any materiality, material adverse
effect or knowledge qualifications contained in such representations and
warranties, are true and correct with only such exceptions as would not in the
aggregate be reasonably expected to cause a Loss (as defined in Section 11.1
herein) in excess of Two Million Dollars ($2,000,000.00).
ARTICLE IV. - BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer makes the representations and warranties set forth in this
Article.
SECTION 4.1. ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Ohio and has all
requisite corporate power and authority to carry on and conduct its business as
it is now being conducted, to own or lease its assets and properties and is duly
qualified and in good standing in every jurisdiction in which the conduct of its
business or ownership of its assets requires it to be so qualified, and the
absence of such qualification would have a material adverse effect on the Buyer.
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SECTION 4.2. CORPORATE POWER AND AUTHORITY. The Buyer has the right,
power and capacity to execute, deliver and perform this Agreement and the
Transaction Agreements and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement has been, and each of the Transaction Agreements after execution and
delivery thereof at the Closing will have been, duly and validly executed and
delivered by the Buyer and constitute the Buyer's legal, valid and binding
obligations, enforceable in accordance with their terms.
SECTION 4.3. REQUIRED CONSENTS, APPROVALS AND FILINGS. Except as set
forth in Schedule 4.3, no consent or approval is required by virtue of the
execution hereof by the Buyer or the consummation of any of the transactions
contemplated herein by the Buyer to avoid the violation or breach of, or the
default under, or the creation of a Lien on assets of the Buyer pursuant to the
terms of any regulation, order, decree or award of any court or governmental
agency or any lease, agreement, contract, mortgage, note, license, or any other
instrument to which the Buyer is a party or to which it or any of its property
is subject, the absence of which would have a material adverse effect upon the
Buyer's business, properties, financial condition, results of operations, or net
worth. Except for filings under HSR, and as set forth on Schedule 4.3, to the
Buyer's knowledge, there are no filings or similar procedures required with
respect to any governmental body in connection with the consummation of the
transactions contemplated hereby.
SECTION 4.4. NO CONFLICT. Subject to obtaining the consent and
approvals and making the filings described in Section 4.3, the execution and
delivery of this Agreement by the Buyer, and the consummation
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of the transactions contemplated herein by the Buyer will not, with or without
the giving of notice or the lapse of time, or both, (i) violate or conflict with
any of the provisions of any charter document or bylaw of the Buyer, (ii)
violate, conflict with or result in breach or default under or cause termination
of any term or condition of any mortgage, indenture, contract, license, permit,
instrument, or other agreement, document or instrument to which the Buyer is a
party or by which the Buyer or any of its properties may be bound, or (iii)
violate any provision of law or any valid and enforceable requirement, court
order, judgment or decree, or ruling of any court, arbitrator or governmental or
regulatory official, body or authority to which Buyer is a party or by which
Buyer or its properties may be bound, except, as to clauses (i) through (iii)
above, any such matters that would not (X) have a material adverse effect upon
Buyer's business, properties, financial condition, results of operations or net
worth, or (Y) prevent the consummation of the transactions contemplated herein.
SECTION 4.5. LITIGATION. There is no suit, investigation, action or
other proceeding pending, or to the Buyer's knowledge, threatened before any
court, arbitration tribunal, or judicial, governmental or administrative agency,
against the Buyer which would have a material adverse effect on the ability of
the Buyer to perform its obligations hereunder or which seeks to prevent the
consummation of the transactions contemplated herein.
SECTION 4.6. RULE 10B-5. No representation or warranty made by the
Buyer in this Agreement contains any untrue statement of material fact or omits
to state any material fact necessary to make the statements contained herein or
therein not misleading.
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ARTICLE V. - COVENANTS OF THE PARTIES
SECTION 5.1. OPERATIONS PENDING CLOSING. The Seller hereby agrees that,
except as set forth on Schedule 5.1 or as consented to in writing by the Buyer,
pending the Closing, the Seller will operate and conduct its business in the
ordinary course consistent with past practice. Pursuant thereto and not in
limitation of the foregoing:
(a) The Seller will maintain, in all material respects, the
Assets in their present state of repair (ordinary wear and tear
excepted), and will use commercially reasonable efforts to keep
available the services of the Employees and to preserve the goodwill of
the Business and relationships with the customers and suppliers, with
whom it has business relations.
(b) Except as forth on Schedule 5.1(b), the Seller will not
take any of the following actions after the date of this Agreement
without the prior written consent of the Buyer:
i. Sell, transfer or otherwise dispose of any
material Assets other than in the ordinary course of business;
ii. Enter into any new material contract, lease, or
commitment relating to the Business or the Assets (for
purposes of this Section 5.1, a "material" contract or
commitment shall mean a contract or commitment which would be
required to be disclosed on Schedule 3.17 hereto);
iii. Mortgage, pledge or subject to liens or other
encumbrances, any Assets, except by incurring Permitted Liens;
iv. Purchase or commit to purchase any capital
asset relating to the Business for a price exceeding $500,000
individually, or $1,000,000 in the aggregate;
v. Amend in any material respect or terminate any
Contract, including any Employee Benefit Plan (except as
otherwise contemplated by this Agreement) or any insurance
policy, in force on the date hereof relating to the Business
or the Assets;
vi. Make any election with respect to Taxes, or any
change in a current election with respect to Taxes, affecting
the Assets or the Business;
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vii. Deploy more than $10,000,000 of inventory into
Central Garden & Pet Company branches and sub-agent branches
during December 1998 without notifying the Buyer in writing of
the amount of such excess;
viii. Agree or commit to do any of the foregoing;
ix. Take or agree or commit to take any action that
would make any representation or warranty of the Seller
hereunder inaccurate in any material respect at, or as of any
time prior to, the Closing Date; or
x. Take, or fail to take, any other action which
would require disclosure on Schedule 3.4 under the terms of
Section 3.4 hereof.
SECTION 5.2. ACCESS From the date of this Agreement through the Closing
Date, the Seller will (i) provide the Buyer and its designees (officers,
counsel, accountants, actuaries, financing sources and other authorized
representatives) with such information, other than the employee information set
forth in Section 7.1 hereof, as the Buyer may from time to time reasonably
request with respect to the Assets and the Business and the transactions
contemplated by this Agreement, (ii) provide the Buyer and its designees access,
during regular business hours and upon reasonable notice, to the property,
books, records, offices, personnel, counsel, accountants and actuaries of the
Seller as such relate to the Business, other than the personnel records set
forth in Section 7.1 hereof, as the Buyer or its designees may from time to time
reasonably request; provided, however, that Buyer's designees shall not
intentionally interfere with or disrupt the ongoing management of the Business
prior to Closing, and (iii) permit the Buyer and its designees to make such
inspections thereof, as the Buyer may reasonably request. Any investigation will
be conducted in such a manner so as not to interfere unreasonably with the
operation of the business of the Seller, and any representative of Buyer shall,
at all times while in Seller's facilities, be accompanied by an employee or
representative of Seller. Buyer shall inform its representatives and agents of
the Confidentiality Agreement, by and between Seller and Buyer, and shall cause
said representatives to abide by such Confidentiality Agreement and Seller's
rules and regulations regarding safety, security and operations.
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SECTION 5.3. PREPARATION OF SUPPORTING DOCUMENTS. In addition to such
actions as the parties may otherwise be required to take under this Agreement or
applicable law in order to consummate this Agreement and the transactions
contemplated hereby and by the Transaction Agreements, the parties will take
such action, furnish such information, and prepare, or cooperate in preparing,
and execute and deliver such certificates, agreements and other instruments as
the other party may reasonably request from time to time, before, at or after
the Closing, with respect to compliance with obligations of the Buyer or the
Seller in connection with the transactions contemplated hereby or by the
Transaction Agreements.
SECTION 5.4. APPROVALS OF THIRD PARTIES; SATISFACTION OF CONDITIONS TO
CLOSING. The Seller and the Buyer will use their reasonable, good faith efforts,
and will cooperate with one another, to secure all necessary consents,
approvals, authorizations and exemptions from governmental agencies and other
third parties, including, without limitation, all consents required by Sections
8.4, 8.5, 9.4 and 9.5. The Seller will use its reasonable, good faith efforts to
obtain the satisfaction of the conditions specified in Article 9. The Buyer will
use its reasonable, good faith efforts to obtain the satisfaction of the
conditions specified in Article 8.
SECTION 5.5. HART-SCOTT-RODINO NOTIFICATION. The Seller and the Buyer
will each promptly prepare and file a notification with the United States
Justice Department (the "Justice Department") and the Federal Trade Commission
(the "FTC") as required by HSR by November 15, 1998. The Seller and the Buyer
will cooperate with each other in connection with the preparation of such
notification, including sharing information concerning sales and ownership and
such other information as may be needed to complete such notification, and
providing a copy of such notification to the other prior to filing. Each of the
Seller and the Buyer will keep confidential all information about the other
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obtained in connection with the preparation of such notification. The Buyer will
pay the filing fee required under the regulations promulgated pursuant to HSR.
Buyer and Seller will cooperate to respond to all inquiries and requests for
further information associated with the HSR filing. Buyer shall take all actions
as are reasonably prescribed by the FTC or the Justice Department as conditions
to the FTC's or the Justice Department's approval, pursuant to HSR, of the
transaction contemplated hereby; provided, however, Buyer need not take any such
action prescribed by the FTC or Justice Department which action, in the
reasonable judgment of Buyer, would materially and adversely affect the value of
the transactions contemplated by this Agreement or any other agreement between
the parties.
SECTION 5.6. FINANCIAL AND TAX SERVICES. It is recognized that one or
more parties may need tax, financial or other data after the Closing Date with
respect to the Business covering several fiscal periods prior to the Closing
Date in order to facilitate the preparation of Tax returns or in connection with
any audit, investigation, litigation, amended return, claim for refund or any
proceeding in connection therewith or to comply with the rules and regulations
of the Internal Revenue Service, the Securities and Exchange Commission or any
other governmental organization or agency. The parties will render reasonable
cooperation and will afford access during normal business hours to all books,
records, data and personnel concerning use and ownership of the Assets and the
operation and conduct of the Business, other than the personnel records set
forth in Section 7.1 hereof, with respect to periods prior to and including the
Closing Date to each other and their auditors, accountants, counsel or other
authorized representatives for such purpose; provided, however, that Buyer's
designees shall not intentionally interfere with or disrupt the ongoing
management of the Business prior to Closing. The parties will also each execute
such documents as the other may reasonably request in order to file any required
reports or Tax returns and provide the other with prompt written notice upon
receipt of any written claim, notice of deficiency or proposed or actual
assessment pertaining to the Business which could affect the Tax liability of
the other. The party requesting assistance from the other party will bear all
reasonable out-of-pocket costs and expenses incurred by such assisting party
(excluding salaries or wages of its employees).
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SECTION 5.7. TRANSFER TAXES. All sales or transfer Taxes, including but
not limited to, document recording fees, real property transfer Taxes, sales and
excise Taxes, arising out of or in connection with the consummation of the
transactions contemplated herein shall be paid equally by the Buyer and the
Seller.
SECTION 5.8. COMPLIANCE WITH EEOC CONSENT DECREE. Seller hereby
represents that it has complied in all material respects with each of the
obligations imposed by the Consent Decree entered in the United States District
Court for the Eastern District of Missouri in the matter of Billouin, et al. and
the Equal Employment Opportunity Commission v. Monsanto Company and Chevron
Chemical Company (the "Consent Decree"), up to and including the date of
Closing. Seller will undertake reasonable efforts to have the Consent Decree
vacated as soon as practicable following the Closing. From and after the
Closing, Buyer will assume any remaining obligations imposed by the Consent
Decree only to the extent provided by law; provided, however, that to the extent
Seller has any obligations under the Consent Decree following the Closing, Buyer
shall use reasonable efforts to assist Seller in complying with such
obligations.
SECTION 5.9. [Intentionally Omitted]
SECTION 5.10. AMENDMENT OF SCHEDULES. Each party hereto agrees that the
parties shall have the right and the obligation as of the Closing Date to
supplement or amend the Schedules hereto (except Schedule 1.2) with respect to
any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described in
the Schedules, and subject to Section 9.1 and the rights set forth in Section
10.2, such supplement or amendment shall be deemed to cure any breach of the
representation and warranty to which such Schedule applies with respect to such
matter but shall not relieve the Seller of its obligations pursuant to Section
11.1 hereof.
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SECTION 5.11. CONSULTATION WITH WORKS COUNCIL. Prior to the Closing
Date, the Seller agrees to consult with all appropriate Works Council in the
European Union. Buyer agrees to provide Seller with information regarding its
intent with respect to each overseas location with a Works Council for Seller's
use in its consultations with such Works Councils. Buyer agrees to indemnify and
hold Seller harmless for any and all Losses incurred as a result of its use of
the information provided by the Seller. A list of overseas locations with Works
Councils is attached as Schedule 5.11.
SECTION 5.12. MONSANTO COMPLIANCE WITH OBLIGATIONS TO CHEVRON AND OTHER
PREDECESSORS. From and after the Closing, Buyer shall use reasonable efforts to
assist Seller in complying with Seller's continuing rights and obligations under
the following agreements, which Seller has provided Buyer with true and correct
copies of: (i) Sections 6.4, 6.6, 19.11(c), 19.14 and Article 16 of that certain
Asset Sale Agreement and related agreements dated May 14, 1993, by and between
Chevron Chemical Company and Monsanto Company; (ii) that certain Sale of
Business Agreement dated May 5, 1997, by and between Monsanto Australia Limited,
Monsanto Company, Defender Garden Products Pty. Limited, Defender Home Garden
Pty. Limited and Select Harvests Limited; (iii) that certain Asset Purchase
Agreement and related agreements, dated April 15, 1996 between Monsanto Company
and White Swan, Ltd., (iv) those certain documents related to the "Phostrogen"
Business Acquisition, dated June 6, 1997, by and between Monsanto p.l.c.,
Monsanto Company, Phostrogen Ltd., Gaskell Properties Ltd., and S.V. Gaskell;
and (v) that certain Asset Purchase Agreement and related agreements, dated June
1, 1994, by and between Monsanto Canada Inc., Green Cross Garden Products Ltd.,
and Sun Gro Horticulture Canada Ltd. (collectively, the "Acquisition
Agreements"). Buyer will cooperate with Seller to establish procedures necessary
to enable Seller to comply with such obligations, including, but not limited to,
providing to Seller all necessary information and assistance necessary to enable
Seller to preserve and prosecute its rights to indemnification under the
Acquisition Agreements.
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SECTION 5.13. CHEMCOPACK AGREEMENT. From and after the Closing, (i)
Buyer shall use its reasonable efforts to assist Seller in benefitting from
Seller's continuing rights and complying with Seller's continuing obligations
and (ii) Seller shall use its reasonable efforts to assist Buyer in procuring
and benefitting from the applicable rights pertaining to the Business and
complying with the applicable obligations pertaining to the Business, in each
case, which rights and obligations arise pursuant to that certain Service
Agreement, between Monsanto Europe S.A. and Chemcopack N.V. dated July 1, 1998.
SECTION 5.14. NOTICE OF CERTAIN EVENTS. So long as Seller is permitted
by contract and law to do so, the Seller shall promptly notify Buyer, and, so
long as permitted by contract and law to do so, Buyer shall promptly notify the
Seller, of:
i. any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by
this Agreement;
ii. any notice of other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement; and
iii. any actions, suits, claims, investigations or
proceedings commenced or, to the knowledge of the Seller or
Buyer, as the case may be, threatened against, relating to or
involving or otherwise affecting the Seller or the Business
that, if pending on the date of this Agreement, would have to
have been disclosed pursuant to Section 3.10 or that relate to
the consummation of the transactions contemplated by this
Agreement.
SECTION 5.15. OTHER OFFERS. From the date hereof until the earlier of
the termination of this Agreement and the Closing, the Seller agrees that none
of the Seller or any officer, director, employee or other agent of the Seller
will, directly or indirectly, (i) solicit, initiate or encourage any inquiries
or the making or implementation of any proposal or offer with respect to a
merger,
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acquisition, consolidation or similar transaction involving, or any purchase of
all or any significant portion of the Assets or the Business (an "Acquisition
Proposal"), other than the transactions contemplated by this Agreement, or (ii)
engage in negotiations with, or disclose any nonpublic information relating to
the Assets or the Business or afford access to the properties, books or records
of the Seller relating to the Assets or the Business to any Person that the
Seller reasonably believes may be considering making, or has made, an
Acquisition Proposal. The Seller will promptly notify Buyer upon receipt of any
Acquisition Proposal or any indication that any Person is considering making an
Acquisition Proposal or any request for nonpublic information relating to the
Assets or the Business or for access to the properties, books or records of the
Seller relating to the Assets or the Business by any Person that may be
considering making, or has made, an Acquisition Proposal and will keep Buyer
fully informed of the status and details of any such Acquisition Proposal,
indication or request.
SECTION 5.16. NONCOMPETITION.
(a) Noncompetition Period. The "Noncompetition Period" shall
be five (5) years.
(b) Seller Covenant. Seller covenants and agrees that for the
Noncompetition Period, Seller will not, nor will it permit any Affiliate to,
directly or indirectly, own, manage, operate or control, or participate in the
ownership, management, operation or control of, or be connected with or have any
interest in, as a shareholder, partner, creditor or otherwise, any Competitive
Business; provided, that Seller shall not be deemed to have violated this
covenant if Seller undertakes a transaction in which Seller (i) is acquired by
or merges with an unrelated third party who is engaged in a Competitive Business
(defined below) or (ii) acquires an unrelated third party engaged in a
Competitive Business, and, with respect to this clause (ii) only, which
Competitive Business is not a material component of such party's overall
business so long as Seller divests itself of the Competitive Business in such
time period as is reasonable for the completion of a transaction of such type
and complexity, but in no event later than nine months following the closing of
the acquisition of the Competitive Business. A Competitive Business shall be any
business which, anywhere in the world (x) develops, manufactures, sells and
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markets non-glyphosate weed control products, insect control products, garden
seeds and decorative garden items, fertilizers and applicators for use by
consumers for lawn and garden care or (y) markets gardening and home improvement
books for consumers; provided, however, this Section 5.16 shall not apply to
those actions of Seller or any Affiliate (A) to the extent such actions are
expressly contemplated by the Agency Agreement (as defined in Section 10.2(h)
herein), for the duration of the Agency Agreement, (B) to the extent that
immediately upon termination of the Agency Agreement, for whatever reason,
Seller or any Affiliates or successor to the Roundup L&G Business (as defined in
the Agency Agreement) continues to operate the Roundup L&G Business, or (C) to
the extent that Seller's interest in a Competitive Business, as a shareholder,
partner, creditor or otherwise, is equal to or less than 5%.
(c) Consideration. The consideration for the agreements
contained in this Section 5.16 are the mutual covenants contained herein, the
agreement of the parties to consummate the Transaction, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged.
(d) Modification. In the event a court (or other authority)
refuses to enforce the covenants and agreements contained in this Section 5.16,
either because of the scope of the geographical area specified in this Section
5.16, the duration of the restrictions, or otherwise, the parties hereto
expressly confirm their intention that the geographical areas covered hereby,
the time period of the restrictions, or such other provision, be deemed
automatically reduced to the minimum extent necessary to permit enforcement.
(e) Injunctive Relief. The parties acknowledge and agree that
the extent of damages to one party (the "non-breaching party") in the event of
an actual or threatened breach of this Section 5.16 by the other party (the
"breaching party") may be impossible to ascertain and there may be available to
the non-breaching party no adequate remedy at law to compensate the
non-breaching party in the event of such an actual or threatened reach by the
breaching party. Consequently, the parties agree that, in the event that either
party breaches or threatens to breach any such covenant or agreement, the
non-breaching party shall be entitled, in addition to any other remedy or relief
to which it may be entitled, including without limitation, money damages, to
seek to enforce any or all of such agreements or covenants against the breaching
party by injunctive or other equitable relief ordered by any court of competent
jurisdiction.
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SECTION 5.17 FINANCIAL STATEMENTS. Seller will deliver to
Buyer, as soon as is reasonably practicable, (a) an audited statement of the
assets of the Business to be purchased and the liabilities of the Business to be
assumed by Buyer as of December 31, 1997 (the "1997 Statement of Assets and
Liabilities") and the related audited statement of net sales, cost of sales and
direct operating costs of the Business for the year then ended and (b) an
unaudited statement of the assets of the Business to be purchased and the
liabilities of the Business to be assumed as of September 30, 1998 (the "Interim
Statement of Assets and Liabilities") and the related unaudited statement of net
sales, cost of sales and direct operating costs of the Business for the nine
months ended September 30, 1998 and 1997 (collectively, the "Financial
Statements"). At such time, Seller will provide to Buyer the following
representation and warranty with respect to the Financial Statements: "The
Financial Statements have been prepared from the books and records of Solaris in
conformity with generally accepted accounting principles in the United States
("GAAP"), and, subject in the case of the Interim Statement of Assets and
Liabilities and the related unaudited statements of net sales, cost of sales and
direct operating costs for the nine months ended September 30, 1998 and 1997, to
the absence of notes, (i) the 1997 Statement of Assets and Liabilities and the
Interim Statement of Assets and Liabilities, respectively, fairly present, in
all material respects, the assets that would have been purchased and the net
liabilities that would have been assumed by Buyer as of December 31, 1997 and
September 30, 1998, if the transactions contemplated hereby had been consummated
on December 31, 1997 (in the case of the 1997 Statement of Assets and
Liabilities) and September 30, 1998 (in the case of the Interim Statement of
Assets and Liabilities), respectively, and (ii) the statements of net sales,
cost of sales and direct operating costs of the Business fairly present, in all
material respects, the net sales, cost of sales and direct operating costs of
the Business for the year ended December 31, 1997 and for the nine months ended
September 30, 1998 and 1997, respectively." Following the delivery of the
Financial Statements to Buyer, Buyer shall have five (5) business days to accept
such Financial Statements, in which case the foregoing representation shall
become part of Seller's representations and warranties in Article III hereof, or
terminate this Agreement pursuant to Section 10.2(h) hereof.
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SECTION 5.18. COOPERATION. The Seller agrees to reasonably cooperate,
and to use reasonable efforts to cause its accountants to cooperate, with the
Buyer in connection with the preparation of financial statements or information
with respect to the Business that comply with the rules and regulations of the
Securities and Exchange Commission, if, and to the extent, so requested by the
Buyer in connection with the transactions contemplated hereby. The Buyer agrees
to indemnify the Seller for 100% of the incremental costs of the Seller's
accountants in connection with the preparation of such financial statements.
ARTICLE VI. - CASUALTY AND CONDEMNATION
SECTION 6.1. CASUALTY. The Seller will bear the risk of any loss or
damage or destruction to any of the Assets from fire or other casualty or cause
at all times prior to the Closing. Upon the occurrence of any loss or damage to
any of the Assets as a result of fire, casualty, or other causes prior to the
Closing, the Seller will notify the Buyer of the same in writing as soon as
practicable thereafter. If such loss or damage could reasonably be deemed to
have a material adverse effect, the Buyer will have the option, exercisable
within ten (10) days after receipt of such notice from the Seller to terminate
this Agreement. If Buyer elects to terminate, this Agreement will be of no
further force or effect and neither the Seller nor the Buyer will have any
further rights, duties, or obligations hereunder. If Buyer does not elect to
terminate this Agreement, this Agreement will remain in full force and effect,
the Closing shall be consummated, and the Buyer will accept the Assets in their
"then" condition without reduction of the Purchase Price; provided, however, if
the diminution in value, net of proceeds received by the Buyer under the
insurance policies referred to in the next sentence exceeds $1,000,000, the
Purchase Price will be reduced by the
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amount of such diminution. The Seller will assign to the Buyer all rights under
any insurance claim covering the loss and will pay over to the Buyer any
proceeds under any such insurance policy theretofore received by the Seller with
respect thereto.
SECTION 6.2. CONDEMNATION. If, prior to the Closing, any of the Real
Property has been taken by condemnation in any proceeding by a public authority
or other body vested with the power of eminent domain or has been acquired by a
public or quasi-public body for public purposes, or if condemnation proceedings
therefor have been instituted, the Seller will give the Buyer prompt notice of
such occurrence. If such condemnation takes, or proposes to take, all or any
portion of the Real Property which would have a material adverse effect, the
Buyer may cancel this Agreement by giving the Seller notice to such effect
within ten (10) days after the Seller's notice to the Buyer of such occurrence,
with the date of the Closing to be extended, if necessary, to provide such a ten
(10) day period. If the Buyer so elects, this Agreement will be terminated and
the parties hereto will have no further rights, duties, or obligations
hereunder. If this Agreement is not terminated as provided above, this Agreement
will remain in full force and effect and the purchase contemplated herein, less
any portion of the Real Property taken by eminent domain or condemnation, or
sold in lieu thereof, will be consummated with a corresponding reduction of the
Purchase Price. In such event, the Seller will, at the Closing, assign,
transfer, and set over to the Buyer all of the Seller's right, title and
interest in and to any awards or proceeds paid or payable for such taking or
sale in lieu thereof.
ARTICLE VII. - COVENANTS AS TO EMPLOYEES
SECTION 7.1. OFFERS OF EMPLOYMENT.
(a) Transferred Employees. At least one week prior to Closing,
the Buyer shall offer employment with the Buyer to 100% of the
Employees other than the Employees
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set forth on Schedule 7.1(a). All personnel records maintained by
Seller shall remain with the Seller after Closing. The Seller and its
Affiliates agree to release from their employment those Employees who
are offered and accept employment with the Buyer ("Transferred
Employees") to enable them to commence their employment with the Buyer.
Seller shall furnish Buyer with an electronic file of employee data
related to such Transferred Employees. The Seller makes no
representations or warranties concerning such file, or the contents or
sufficiency thereof. An offer of employment made by the Buyer will be
in writing and will at least equal the salary or wages (including, as
applicable, shift differentials, and premiums) provided by the Seller
to the Transferred Employee immediately prior to Closing and will
include comparable employee benefits provided by the Buyer to its
similarly situated employees. The Buyer shall not reduce any
Transferred Employee's initial salary or wages (including, as
applicable, shift differentials and premiums) as an employee of Buyer
during the twelve (12) month period after the date on which such
Transferred Employee commences work for the Buyer (the "Employment
Date").
(b) Termination of Employees. If (i) the Buyer terminates the
employment of any Transferred Employee without cause during the
eighteen (18) month period after the Employment Date and such
Transferred Employee is not offered "comparable employment" by the
Buyer or an Affiliate of the Buyer through the eighteen (18) month
anniversary of the Employment Date or (ii) the Buyer relocates any
Transferred Employee during the eighteen (18) month period after such
Transferred Employee's Employment Date without the Transferred
Employee's consent, the Buyer shall pay to such Transferred Employee
either (w) an amount at least equal to the amount, and offer the
benefits, set forth in Schedule 7.1(b)(1), or (x) if such Transferred
Employee signs a settlement agreement and general release provided by
Seller, an amount at least equal to the amount, and offer the benefits,
set forth in Schedule 7.1(b)(2) (the "Termination Payments"). In
consideration of Buyer's agreement to make the Termination Payments to
such Transferred Employees, the Seller shall reimburse the Buyer for
the lesser of (y) fifty percent (50%) of such Termination Payments, or
(z) five million dollars
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($5,000,000.00). For the purposes of this Section 7.1(b), "cause" shall
mean (A) the conviction of a felony, (B) the willful failure to perform
reasonable job-related requests, (C) an act of intentional fraud,
embezzlement or theft, (D) an act or omission of gross misconduct
injurious to Buyer, or (E) a material violation of Buyer's rules,
policies or procedures. For the purposes of this Section 7.1(b),
"comparable employment" shall mean a job of equal pay (including, as
applicable, shift differentials, incentives and premiums) and benefits
comparable to those provided by Buyer to its similarly situated
employees. The Buyer agrees to indemnify and hold the Seller harmless
from and against any and all claims, damages, liabilities or losses
arising out of or related to the Buyer's hiring, promotion or
termination of any Transferred Employee, including any severance
payments required under this Section 7.1(b).
(c) Employees Not Actively at Work. Attached hereto as
Schedule 7.1(c) is a schedule which identifies each Employee who is on
short-term disability, long-term disability or personal leave. Any
Employee who is on short-term disability or personal leave on the
Closing Date shall be offered employment by the Buyer if such Employee
returns to work within six (6) months after the Closing Date with any
appropriate doctors' releases. Any other Employee who was not actively
at work on the Closing Date will continue to be the responsibility of
the Seller after such date.
(d) Buyer and Seller agree to work cooperatively to assist in
the transfer of a Transferred Employee who is working for Seller under
a nonimmigrant visa. Buyer shall pay all severance costs with respect
to any such Transferred Employee who is unable or unwilling to obtain a
visa.
SECTION 7.2. BENEFITS AND EMPLOYMENT CONDITIONS OF TRANSFERRED
EMPLOYEES IN THE UNITED STATES.
(a) Defined Benefit Pension Plans. Any tax-qualified defined
benefit pension plans of the Seller (the "Seller's Pension Plans") will
retain the liability for, and will fully
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vest the Transferred Employees in, their accrued benefits under such
plans and, upon application for distribution under the terms of such
plans, will provide for distributions to any Transferred Employee who
is eligible for a distribution under the terms of such plans. The Buyer
shall have no responsibility for any determination made under the
Seller's Pension Plans regarding the type, amount or time of payment of
any benefit payable to a Transferred Employee under such plan. So long
as the Buyer maintains one or more defined benefit pension plans for
its other similarly situated employees, the Buyer shall include the
Transferred Employees in such plan(s) (the "Buyer Defined Benefit
Plan"). The Buyer Defined Benefit Plan shall recognize the Transferred
Employees' service recognized by the Seller as of their Employment
Dates for purposes of eligibility to participate and vesting, but not
for benefit accrual purposes. The Buyer Defined Benefit Plan shall not
be responsible for providing any "subsidized" benefit that could have
been earned by a Transferred Employee under any of the Seller's Pension
Plans had the Transferred Employee remained employed by the Seller
after Closing.
(b) Qualified Defined Contribution Plans. Any tax-qualified
defined contribution plans of the Seller (the "Seller's Defined
Contribution Plans") will fully vest the Transferred Employees in, and
will provide for the distribution to or on behalf of the Transferred
Employees of, their account balances in accordance with such Plans'
regular distribution rules for employees whose employment with the
Seller and its Affiliates has terminated, provided that the Seller
determines that such distributions will not adversely affect the
qualified status of the Seller's Defined Contribution Plans under
Section 401(a) of the Code. The Buyer shall have no responsibility for
any determination made under the Seller's Defined Contribution Plans.
So long as the Buyer maintains one or more defined contribution pension
plans for its other similarly situated employees, the Buyer shall
include the Transferred Employees in such plans (the "Buyer Defined
Contribution Plan"). The Buyer Defined Contribution Plan shall
recognize the Transferred Employees' service recognized by the Seller
for purposes of eligibility to participate and vesting.
(c) Vacation Pay. Effective as of the Closing Date, the Buyer
shall adopt a vacation schedule for the Transferred Employees that is
substantially the same as the
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Buyer's vacation program provided by Buyer to its similarly situated
employees. The Buyer will recognize a Transferred Employee's service
with the Business for purposes of determining the Transferred
Employee's eligibility for and amount of vacation benefits. Seller will
pay, as of the applicable Employment Date, its liability to each
Transferred Employee for vacation accrued but not taken or paid for by
the Seller. Buyer shall provide unpaid vacation leave during the
calendar year in which the Transferred Employee's Employment Date
occurs to a Transferred Employee in an amount equal to the vacation
accrued but not taken by the Transferred Employee and paid for by the
Seller.
(d) Medical and Dental Plans. As of his or her Employment
Date, each Transferred Employee will be eligible to enroll in a medical
and dental plan established or maintained by the Buyer which shall
provide coverage comparable to that provided by the Buyer to its
similarly situated employees. The Buyer will cause the Buyer's medical
and dental plans to waive any pre-existing condition limitations to the
extent reasonably possible under the terms of the applicable plan of
Buyer and to recognize each such Transferred Employee's (and his or her
covered dependents') expenditures under the corresponding Seller
medical and dental plans for the calendar year in which the Employment
Date occurs toward any applicable deductible and annual out-of-pocket
limit for such calendar year. The Seller will cause the Seller's
medical and dental plans to be liable for covered expenses of the
Transferred Employees and their dependents that were incurred before
the applicable Employment Date or during hospital stays that began
before such Employment Date, and the Buyer's medical and dental plans
may exclude liability for such expenses. Any benefits provided by the
Buyer pursuant to this paragraph are subject to the Buyer's right to
amend or terminate its medical and dental plans at any time.
(e) [Intentionally omitted.]
(f) Life Insurance Coverage. The Buyer agrees that as of a
Transferred Employee's Employment Date, the Transferred Employee may
elect the Buyer's group term and supplemental life insurance coverage
on his or her life without evidence of
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insurability; provided that such Transferred Employee was a participant
in Seller's group term and supplemental life insurance coverage as of
the Closing. The Buyer agrees that the plan will recognize the
Transferred Employee's service with the Business for purposes of
determining the Transferred Employee's eligibility for and amount of
coverage. Any benefits provided under this paragraph are subject to the
Buyer's right to amend or terminate its group-term and supplemental
life insurance coverage at any time.
(g) Disability Coverage. The Buyer agrees that as of a
Transferred Employee's Employment Date, the Transferred Employee shall
be eligible to enroll in any short-term and long-term disability plan
established by the Buyer; provided that such Transferred Employee is
not currently receiving short-term or long-term disability benefits
from Seller or under a plan maintained by Seller. The plan will
recognize the Transferred Employee's service with the Business for
purposes of determining the Transferred Employee's eligibility for and
amount of benefits and shall treat the date the Transferred Employee
was employed by the Seller as the date the Transferred Employee was
employed by the Buyer for purposes of defining a preexisting condition.
Any benefits provided under this paragraph are subject to the Buyer's
right to amend or terminate its disability plan at any time.
(h) Relocation Assistance. Schedule 7.2(h) lists the Employees
who as of the date of this Agreement are receiving or eligible to
receive relocation assistance or who are on temporary domestic
assignments working in full-time positions, and shows for each Employee
listed, if determinable on the date of this Agreement, the amount of
relocation assistance, as applicable, which the Employee would receive
after the Closing Date under the Seller's relocation policy described
in Schedule 3.12 if the Employee remained an employee of the Seller.
With respect to Transferred Employees listed on Schedule 7.2(h), the
Buyer shall provide such relocation assistance, as applicable, which
the Transferred Employee would have received under the Seller's
relocation policy.
(i) International Assignment. Buyer shall provide all payments
and benefits to Transferred Employees on international assignment as of
their Employment Date as such Transferred Employees would have received
under Seller's international assignment
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policy and will assist all such Transferred Employees in obtaining any
necessary work visas or papers. If the employment agreement of a
Transferred Employee on international assignment cannot be assigned to
the Buyer, such Transferred Employee shall remain an employee of the
Seller until such time as the Transferred Employee's employment
agreement with the Seller can be assigned to the Buyer. Buyer shall
reimburse Seller for the cost of salary, benefits and other assistance
provided by the Seller to such Transferred Employee.
(j) Additional Benefits. Buyer shall implement immediately
after the Closing a retention incentive plan which will target
approximately 40% of the Transferred Employees. Buyer shall permit each
Transferred Employee to participate in any incentive plan in which
Buyer's similarly situated employees participate.
SECTION 7.3. ACCESS TO EMPLOYEE INFORMATION. After the Closing Date,
the parties hereto will cooperate with each other in the administration of any
applicable Employee Benefit Plans and programs.
SECTION 7.4. WARN ACT INDEMNIFICATION. With respect to the transactions
contemplated by this Agreement, Buyer will comply in all material respects with
the provisions of the Workers Adjustment and Retraining Notification Act of
1988, as amended ("WARN Act"). The Buyer agrees to indemnify the Seller and its
directors, officers, employees, consultants and agents for, and to hold the
Seller and its directors, officers, employees, consultants and agents harmless
from and against, any and all Losses (as defined in Section 11.1) arising or
resulting, or alleged to arise or result from the notification or other
requirements of the WARN Act. The indemnifications contained in this Section
will survive the Closing and remain effective concurrent with the legal
limitations period applicable to WARN Act liability.
SECTION 7.5. WORKERS' COMPENSATION CLAIMS. The Seller will be
responsible for any workers' compensation claims by any Transferred Employee for
injuries incurred prior to such Transferred
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Employee's Employment Date. The Buyer will be responsible for any workers'
compensation claims for injuries incurred by any Transferred Employee on or
after such Transferred Employee's Employment Date.
SECTION 7.6. GENERAL EMPLOYEE PROVISIONS.
(a) The Seller and the Buyer will give notices required by law
and take whatever other actions with respect to the plans, programs and
policies described in this Article 7 as may be reasonably necessary to
carry out the arrangements described in this Article 7.
(b) The Seller and the Buyer will provide each other with such
plan documents and descriptions or other information as may be
reasonably required to carry out the arrangements described in this
Article 7.
(c) If any of the arrangements described in this Article 7 are
finally determined by the Internal Revenue Service or other applicable
governmental authority, or by a court of competent jurisdiction, to be
prohibited by law, the Seller and the Buyer will modify such
arrangements to as closely as possible retain the intent and economic
benefits and burdens of the parties as reflected herein in a manner
which is not prohibited by law.
(d) No provision of this Agreement will create any third party
beneficiary rights to any person, including without limitation any
Transferred Employee or any dependent of a Transferred Employee, in
respect of continued employment or resumed employment, and no provision
of this Agreement will create any third party beneficiary rights in any
person, including without limitation any Transferred Employee or any
dependent of a Transferred Employee, in respect of any employee benefit
plan or arrangement or any other arrangement which may be maintained
from time to time by the Buyer.
(e) The Seller and the Buyer agree to utilize the "Alternative
Procedure" provided in Section 5 of the Revenue Procedure 84-77, 1984-2
Cumulative Bulletin 753, as modified and superseded by Revenue
Procedure 96-60, 1996 Cumulative Bulletin 399, with respect to filing
and furnishing Internal Revenue Service Forms W-2, W-3, and 941.
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SECTION 7.7. EMPLOYEE BENEFIT PLANS. Except as expressly provided in
this Article 7, the Buyer will not adopt, assume or otherwise become responsible
for, either primarily or as a successor employer, any of the Employee Benefit
Plans, arrangements, commitments or policies currently provided by the Seller or
by any member of its controlled group under Code Section 414 (the "Controlled
Group Members"). In particular, but not by way of limitation, the Buyer will not
assume liability for any retiree medical benefits, or for any group health
continuation coverage or coverage rights under Code Section 4980B and ERISA
Section 606 which exist prior to the Closing Date or which arise as a result of
the Seller's dissolution and/or termination of its group health plan or plans.
In addition, the Buyer will not assume the Seller's obligations under Code
Section 4980B and ERISA Section 606 relating to individuals who are neither
Transferred Employees or dependents of Transferred Employees. The Seller agrees
to indemnify the Buyer and its directors, officers, employees, consultants and
agents for, and to hold them harmless from and against, any and all Losses
caused by any employee benefit plan, arrangement or policy currently provided by
the Seller or any Controlled Group Member. The indemnifications contained in
this Section shall survive the Closing and remain effective concurrent with the
legal limitations period applicable to any such employee benefit plan,
arrangement or policy.
SECTION 7.8. TRANSFER OF EMPLOYEES IN EUROPE. In accordance with "The
Employees Acquired Rights Directive" (EU Directive 77/187 of February 14, 1977
as implemented in each of the relevant member states), all employment agreements
with employees employed by Seller in connection with the business and listed in
Schedule 7.8 hereto (the "European Employees") shall be automatically
transferred to the Buyer on the date of Closing by operation of law. Each
European Employee shall, as from the Closing Date be employed by the Buyer under
the terms and conditions applicable to such employee just prior to the date of
Closing and each European Employee's seniority rights shall, for all purposes,
be honored by the Buyer. As soon as practicable after Closing Date and effective
as of the Closing Date, the Buyer shall have in place or establish incentive
plans, benefit plans and
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pension plans providing overall benefits not less favorable than those enjoyed
by the European Employees immediately before Closing. Buyer and Seller shall
each select an actuary to review and agree upon pension fund transfers as
required under local laws and regulations. If such actuaries are unable to agree
upon such pension fund transfers, then they shall mutually select a third
actuary who shall make a final decision. Seller and the Buyer shall meet
promptly after Closing to take all appropriate steps to protect fully all
European Employees' existing pension rights. Seller agrees to assist the Buyer,
at Buyer's expense, with respect to the transfer of the European Employees and
provide all necessary transition services to the Buyer to ensure payment of the
European Employees' salaries, benefits and compensation, taxes and social
security in the name and on behalf of the Buyer during the transition period.
The Buyer shall indemnify and hold Seller harmless from any and all costs and
liabilities which may arise out of the provisions of such services.
SECTION 7.9. TRANSFERRED EMPLOYEES WORKING ON VISAS OR WORK PERMITS.
Buyer will use its reasonable efforts to have the visas and work permits for
those Employees who are working under a visa and/or a work permit transferred or
issued to Buyer as the employer of record for such Employees. Seller will assist
Buyer in such efforts at Buyer's expense. Until such time as there is a valid
visa and/or work permit issued for such Employee showing Buyer as the employer
of record, each such Employee shall remain an Employee of Seller. Buyer shall
reimburse Seller for the employment costs of such Employees quarterly during the
period needed to obtain the new or revised visas and/or work permits. Actual
business expenses incurred by such Employees shall be paid by Buyer. Upon the
issuance of new or revised visas and/or work permits, such Employees will become
employees of Buyer and will be treated as Transferred Employees.
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ARTICLE VIII. - CONDITIONS TO SELLER'S OBLIGATIONS
Each of the obligations of the Seller to consummate the transactions
contemplated hereby will be subject to the satisfaction (or written waiver by
the Seller) at or prior to the Closing Date of each of the following conditions.
SECTION 8.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING DATE.
Except for changes as may be contemplated by this Agreement, each of the
representations and warranties of the Buyer contained in this Agreement,
disregarding all qualifications and exceptions contained therein relating to
materiality or material adverse effect, must be true in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of such date, unless the representation or warranty is made as of a specified
date; the Buyer must have performed and complied in all material respects with
the covenants and agreements set forth herein to be performed or complied with
by it on or before the Closing Date; and the Buyer must have delivered to the
Seller a certificate dated the Closing Date and signed by its duly authorized
officer to all such effects.
SECTION 8.2. LITIGATION. No suit, investigation, action or other
proceeding may be pending or overtly threatened against the Seller or its
Affiliates or the Buyer before any court or governmental agency which has
resulted in the restraint or prohibition of the Seller, or, could in the
reasonable opinion of counsel for the Seller, result in the assessment of
material damages or other relief against the Seller, in connection with this
Agreement or the consummation of the transactions contemplated hereby.
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SECTION 8.3. OPINION OF COUNSEL TO BUYER. The Seller must have received
from counsel to the Buyer an opinion, dated the Closing Date, in a form
reasonably satisfactory to counsel to Seller.
SECTION 8.4. REQUIRED GOVERNMENTAL APPROVALS. All governmental
authorizations, consents and approvals set forth on Schedule 9.4 must have been
obtained and must be in full force and effect. All applicable governmental
pre-acquisition filing, information furnishing and waiting period requirements,
including expiration of all applicable waiting periods pursuant to HSR, as set
forth on Schedule 9.4, must have been met or such compliance must have been
waived by the governmental authority having authority to grant such waivers.
SECTION 8.5. OTHER NECESSARY CONSENTS. The parties must have obtained
all consents and approvals listed on Schedule 9.5.
SECTION 8.6. SUPPLY AGREEMENT. The Buyer must have executed and
delivered to the Seller the Supply Agreement in the form attached hereto as
Exhibit A (the "Supply Agreement").
SECTION 8.7. FORMULATION AGREEMENT. The Buyer must have executed and
delivered to the Seller the Formulation Agreement in the form attached hereto as
Exhibit B (the "Formulation Agreement").
SECTION 8.8. TRANSITION SERVICES AGREEMENT. The Buyer must have
executed and delivered to the Seller a Transition Services Agreement in a form
mutually satisfactory to the parties (the "Transition Services Agreement").
SECTION 8.9. NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change since December 31, 1997 in the business or financial
condition of the Buyer taken as a whole, or the financial ability of the Buyer
to consummate the transactions contemplated by this Agreement.
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ARTICLE IX. - CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of the Buyer to consummate the transactions
contemplated hereby is subject to the satisfaction (or written waiver by the
Buyer) at or prior to the Closing Date of each of the following conditions.
SECTION 9.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING DATE.
Except for changes as may be contemplated by this Agreement, each of the
representations and warranties of the Seller contained in this Agreement,
disregarding all qualifications and exceptions contained therein relating to
materiality or material adverse effect, must be true in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of such date, unless the representation or warranty is made as of a specified
date; the Seller must have performed and complied in all material respects with
the respective covenants and agreements set forth herein to be performed or
complied with by it on or before the Closing Date; and the Seller must have
delivered to the Buyer a certificate dated the Closing Date and signed by its
duly authorized officer to all such effects.
SECTION 9.2. LITIGATION. No suit, investigation, action or other
proceeding may be pending or overtly threatened against the Buyer or the Seller
or its Affiliates before any court or governmental agency which has resulted in
the restraint or prohibition of the Buyer, or, in the reasonable opinion of
counsel for the Buyer, is reasonably likely to result in the assessment of
material damages or other relief against the Buyer in connection with this
Agreement or the consummation of the transactions contemplated hereby.
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SECTION 9.3. OPINION OF COUNSEL TO SELLER. The Buyer must have received
from counsel to the Seller an opinion, dated the Closing Date, in a form
reasonably satisfactory to counsel to Buyer.
SECTION 9.4. REQUIRED GOVERNMENTAL APPROVALS. All governmental
authorizations, consents and approvals set forth on Schedule 9.4 must have been
obtained and must be in full force and effect. All applicable governmental
pre-acquisition filing, information furnishing and waiting period requirements,
including expiration of all applicable waiting periods pursuant to HSR, as set
forth on Schedule 9.4, must have been met or such compliance must have been
waived by the governmental authority having authority to grant such waivers.
SECTION 9.5. OTHER NECESSARY CONSENTS. The parties must have obtained
all consents and approvals listed on Schedule 9.5.
SECTION 9.6. SUPPLY AGREEMENT. The Seller must have executed and
delivered to the Buyer the Supply Agreement.
SECTION 9.7. FORMULATION Agreement. The Seller must have executed and
delivered to the Buyer the Formulation Agreement.
SECTION 9.8. TRANSITION SERVICES AGREEMENT. The Seller must have
executed and delivered to the Buyer the Transition Services Agreement.
SECTION 9.9. NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change since December 31, 1997 in the business, results of
operations or financial condition of the Business taken as a whole.
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ARTICLE X. - CLOSING
SECTION 10.1. CLOSING. The closing of the transactions contemplated
hereby (the "Closing") will take place at 10:00 a.m. Central Time on the
"Closing Date," at the Seller's offices located at 800 North Lindbergh Blvd.,
St. Louis County, Missouri, or at such other place as may be mutually agreeable.
Subject to satisfaction or waiver of the conditions to the Seller's and the
Buyer's obligations set forth in Articles 8 and 9, respectively, the Closing
Date will be the later of the following: (a) February 15, 1999; (b) the date
which is sixty (60) days after the date of Seller's delivery to Buyer of the
Financial Statements pursuant to Section 5.17; (c) the date which is five (5)
business days after the receipt of the governmental approvals contemplated by
Sections 8.4 and 9.4 hereof; or (d) such other date as the parties may agree to
in writing. At the Closing, the parties hereto will duly execute and deliver all
documents and instruments required to be delivered, and the Buyer will make all
payments to the Seller required to be paid at the Closing as provided in this
Agreement.
SECTION 10.2. TERMINATION PRIOR TO CLOSING. Notwithstanding the
foregoing, the parties will be relieved of the obligation to consummate the
Closing and purchase or sell the Assets:
(a) By the mutual written consent of the Buyer and the
Seller;
(b) By the Seller in writing, without liability, if the Buyer
(i) fails to perform in any material respect its agreements contained
herein required to be performed by it on or prior to the Closing Date,
or (ii) materially breaches any of its representations, warranties or
covenants contained herein, which in either case is not cured within
ten (10) days after the Seller has notified the Buyer of its intent to
terminate this Agreement pursuant to this subparagraph;
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(c) By the Buyer in writing, without liability, if the Seller
(i) fails to perform in any material respect its agreements contained
herein required to be performed by them on or prior to the Closing
Date, or (ii) materially breaches any of its representations,
warranties or covenants contained herein, which in either case is not
cured within ten (10) days after the Buyer has notified the Seller of
its intent to terminate this Agreement pursuant to this subparagraph;
(d) Subject to Section 5.5 hereof, by either the Seller or the
Buyer in writing, without liability, if there is issued any order,
writ, injunction or decree of any court or governmental or regulatory
agency binding on the Buyer or the Seller which prohibits or materially
restrains the Buyer or the Seller from consummating the transactions
contemplated hereby; provided that the Buyer and the Seller have used
their reasonable, good faith efforts to have any such order, writ,
injunction or decree lifted and the same has not been lifted within
sixty (60) days after entry, by any such court or governmental or
regulatory agency;
(e) By the Buyer in writing, without liability, if Buyer
elects to terminate pursuant to Section 6.1 or Section 6.2 hereof;
(f) By either the Seller or the Buyer in writing, without
liability, if for any reason the Closing has not occurred by March 31,
1999 other than as a result of the breach of this Agreement by the
party attempting to terminate this Agreement;
(g) By Seller in writing, without liability, upon a "Change of
Control" of Buyer (for purposes of this Agreement, a "Change of
Control" means (i) the acquisition by any individual, corporation,
company, association, joint venture or other entity, of beneficial
ownership of 25% or more of the voting securities of the Buyer; or (ii)
individuals who, as of the date of this Agreement, constitute the Board
of Directors of the Buyer cease for any reason to constitute at least a
majority of the Board of Directors of the Buyer; or (iii) the
consummation by the Buyer of a reorganization, merger or consolidation,
or exchange of shares or sale or other disposition of all or
substantially all of the assets of the Buyer, if immediately after
giving effect to such transaction the individuals or entities who
beneficially own voting securities immediately prior to such
transaction beneficially own
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in the aggregate less than 75% of such voting securities immediately
following such transaction; or (iv) the consummation by the Buyer of
the sale or other disposition of all or substantially all of the assets
of the Buyer; or (v) the consummation by the Buyer of a plan of
complete liquidation or dissolution of the Buyer; or (vi) the public
announcement of the Buyer's intention to consummate any of the actions
in (i)-(v) herein); or By the Buyer in writing, without liability, in
the event that any matter disclosed by Seller after the date hereof in
a supplemented or amended Schedule hereto, individually or taken
together with all other matters disclosed by Seller after the date
hereof, would, in the reasonable judgment of Buyer, be likely to cause
a material adverse change in the business, properties, financial
position, results of operations, or net worth of the Business taken as
a whole;
(h) By Buyer in writing, without liability, within five (5)
business days of Buyer's receipt of the Financial Statements, if the
Financial Statements show that the earnings before interest, taxes and
amortization of the Business: (i) was less than * for the year ended
December 31, 1997 or (ii) was less than * for the nine months ended
September 30, 1998.
SECTION 10.3. TERMINATION OF OBLIGATIONS. Termination of this Agreement
pursuant to Section 10.2 will terminate all obligations of the parties
hereunder, except for the obligations under Article XI (Indemnity Claims), and
Sections 12.1 (Expenses), 12.7 (Brokerage) and 12.9 (Public Announcements);
provided that termination pursuant to subparagraphs (b), (c), (f), or (g) of
Section 10.2 will not relieve a defaulting or breaching party from any liability
to the other party hereto. Notwithstanding the foregoing, in the event that
Seller terminates this Agreement pursuant to Section 10.2(b) above, and such
termination arises out of Buyer's failure to consummate the transactions
contemplated hereby as a result of Buyer's failure to obtain financing, Buyer
shall pay to Seller in immediately available funds by wire transfer an amount
equal to Twenty Million Dollars ($20,000,000) (the "Liquidated Amount"). If the
Liquidated Amount is owing to Seller pursuant hereto, Buyer shall pay to Seller
the Liquidated Amount within two (2) business days of
- ---------------
* Confidential provision omitted and filed separately with the Securities and
Exchange Commission ("SEC"), based upon a request for confidential treatment
filed with the SEC.
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Buyer's receipt of Seller's termination notice. Notwithstanding the foregoing,
Buyer shall not be obligated to pay such amount unless, at the time of such
termination, all of the conditions precedent to Buyer's obligation to consummate
the transactions contemplated hereby set forth in Article IX hereof have been
satisfied. Seller and Buyer agree that the agreement contained in this Section
10.3 concerning the Liquidated Amount is an integral part of the transactions
contemplated by this Agreement and constitutes liquidated damages and not a
penalty. Seller and Buyer agree that the injury which will be caused to the
Seller by the termination of this Agreement under the circumstances which shall
give rise to the payment of the Liquidated Amount, although foreseeable based on
the facts concerning Buyer's ability to finance the transactions contemplated
hereby and known by Buyer and Seller as of the date of this Agreement, is
nevertheless difficult or impossible of accurate estimation and that the sum
stipulated for the Termination Fee is a reasonable pre-estimate of the probable
loss which will be suffered by the Seller in the event of such termination,
including but not limited to lost opportunity costs, the expenses incurred
during the course of negotiating the transaction, and the likelihood of
consummating the sale with another party if the transactions contemplated hereby
should not be consummated.
ARTICLE XI. - INDEMNIFICATION
SECTION 11.1. SELLER INDEMNIFICATION. Except as otherwise provided in
this Article XI, Article VII, and Sections 2.5 and 12.7, the Seller will
indemnify and reimburse the Buyer for any and all claims, losses, liabilities,
damages, penalties, fines, costs and expenses (including reasonable attorneys'
fees, court costs and settlement costs) (individually, a "Loss", collectively,
"Losses") incurred by the Buyer and its Affiliates and their successors or
assigns, and their respective directors, officers, employees, consultants and
agents (the "Buyer Protected Parties"), as a result of, with respect to, or
arising out of (i) any Assumed Liabilities other than
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those set forth in the Statement of Working Capital or those arising after the
Closing; (ii) any breach or inaccuracy of any representation or warranty of the
Seller set forth in this Agreement; (iii) any breach of or noncompliance by the
Seller with any covenant of the Seller contained in this Agreement to be
performed after the Closing; or (iv) Excluded Liabilities.
SECTION 11.2. BUYER INDEMNIFICATION. Except as otherwise provided in
this Article XI, Article VII, and Sections 2.5 and 12.7, the Buyer will
indemnify and reimburse the Seller for any and all Losses incurred by the Seller
and its Affiliates and their successors or assigns, and their respective
directors, officers, employees, consultants and agents (the "Seller Protected
Parties") as a result of, or with respect to, (i) any breach or inaccuracy of
any representation or warranty of the Buyer set forth in this Agreement; (ii)
any breach of or noncompliance by the Buyer with any covenant or agreement of
the Buyer contained in this Agreement to be performed after the Closing, (iii)
the Assumed Liabilities; and (iv) the ownership or operation of the Assets or
the Business after the Closing.
SECTION 11.3. INDEMNITY CLAIMS.
(a) Survival. The representations, warranties, covenants and
agreements contained herein, except for covenants and agreements to be
performed by the parties prior to the Closing, will not be extinguished
by the Closing but will survive the Closing, subject to the limitations
set forth in subsection (b) below with respect to the time periods
within which claims for indemnity must be asserted. The covenants and
agreements to be performed by the parties prior to the Closing shall
expire at the Closing.
(b) Time to Assert Claims. All claims for indemnification
under this Article 11 which are not extinguished by the Closing in
accordance with Section 11.3(a) must be asserted no later than
September 30, 2000; provided, however, that claims with respect to
Losses arising out of or related in any way to the matters described in
Sections 3.7, 11.1(iii), 11.1(iv), 11.2(ii), 11.2(iii), 11.2(iv), or
11.8 may be made without limitation, except as limited by law.
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SECTION 11.4. DEDUCTIBLE.
(a) Buyer's Assumed Liability Deductible. The Buyer Protected
Parties may make no claim against the Seller for indemnification
pursuant to Section 11.1(i) unless and until:
i. With respect to any and all claims resulting
from or relating to the Central Agreements, including but not
limited to the writing off of any Accounts Receivable owing
from Central Garden & Pet Company to the Business (the
"Central Garden Claims"), the aggregate amount of Losses with
respect to such claims exceeds Two Million Dollars
($2,000,000) (subject to adjustment pursuant to Section
10.4(b), the "Central Garden Deductible") in excess of the
aggregate of the reserves provided for such Losses in the
Statement of Working Capital and net of any assets resulting
from or relating to the Central Agreements in excess of the
amounts provided for such assets in the Statement of Working
Capital, in which event the Buyer Protected Parties may claim
indemnification for the amount of such Losses in excess of the
Central Garden Deductible;
ii. With respect to any and all claims, resulting
from or relating to Assumed Liabilities, excluding the Central
Garden Claims and excluding other Assumed Liabilities set
forth in the Statement of Working Capital or arising after the
Closing (the "Assumed Liability Claims"), the aggregate amount
of Losses with respect to such claims exceeds One Million
Dollars ($1,000,000.00) (the "Assumed Liabilities Deductible")
and net of any assets, other than assets resulting from or
relating to the Central Agreements, in excess of the amounts
provided for such assets in the Statement of Working Capital,
in which event the Buyer Protected Parties may claim
indemnification for the amount of such Losses in excess of the
Assumed Liabilities Deductible;
(b) Buyer's General Deductible. The Buyer Protected Parties
may make no claim against the Seller for indemnification pursuant to
Section 11.1(ii) unless and until the aggregate amount of Losses with
respect to such claims exceeds Two Million Dollars
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($2,000,000.00) (the "Buyer's General Deductible") in which event the
Buyer Protected Parties may claim indemnification for the amount of
such Losses in excess of the Buyer's General Deductible; provided, that
the Buyer's General Deductible shall be increased by an amount equal to
that portion of each of the Central Garden Deductible and the Assumed
Liabilities Deductible which is in excess of the amount of Buyer's
Losses attributable to the Central Garden Claims and Assumed Liability
Claims, respectively, provided that the Central Garden Deductible, or
the Assumed Liabilities Deductible, as the case may be, shall be
reduced by a like amount. For purposes of determining whether the
Buyer's General Deductible has been reached, no effect shall be given
to the words "material," "material adverse effect," "knowledge" or
similar limiting language.
(c) Seller's Deductible. The Seller Protected Parties may make
no claim against the Buyer for indemnification pursuant to Section
11.2(i) unless and until the aggregate amount of Losses with respect to
such claims exceeds Five Million Dollars ($5,000,000.00) (the "Seller's
Deductible") in which event the Seller Protected Parties may claim
indemnification for the amount of such Losses in excess of the Seller's
Deductible. For purposes of determining whether the Seller's Deductible
has been reached, no effect shall be given to the words "material,"
"material adverse effect," "knowledge" or similar limiting language.
SECTION 11.5. NOTICE OF CLAIM. The Buyer Protected Party or the Seller
Protected Party, as the case may be, will notify the party against whom
indemnification under this Agreement is sought (the "Indemnifying Party"), in
writing, of any claim for indemnification, specifying in reasonable detail the
nature of the Loss, and, if known, the amount, or an estimate of the amount, of
the liability arising therefrom. The Buyer Protected Party or the Seller
Protected Party, as the case may be, will provide to the Indemnifying Party, as
promptly as practicable thereafter, such information and documentation as may be
reasonably requested by the Indemnifying Party to support and verify the claim
asserted, so long as such disclosure would not violate the attorney-client
privilege of the Buyer Protected Party or the Seller Protected Party, as the
case may be. Notwithstanding the foregoing, in the event of a claim for
indemnification based on a breach of
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Sections 3.22 or 3.23 hereof, the parties may, before making a formal claim for
indemnification under this Section 11.5, elect to meet and discuss such possible
claim and attempt to resolve such possible claim for a period of thirty (30)
days. Any formal claim for indemnification made subsequent to any meeting at
which the parties attempted to resolve such claim shall be deemed to be timely
made if made within thirty (30) days of such meeting notwithstanding the fact
that such claim may be made after September 30, 2000.
SECTION 11.6. DEFENSE.
(a) If the facts pertaining to a Loss arise out of the claim
of any third party, or if there is any claim against a third party
(other than a Buyer Protected Party or a Seller Protected Party)
available by virtue of the circumstances of the Loss, the Indemnifying
Party may assume the defense or the prosecution thereof by prompt
written notice to the Buyer Protected Party or the Seller Protected
Party, as the case may be, including the employment of counsel or
accountants, at the sole cost and expense of the Indemnifying Party.
The affected Protected Party will have the right to employ counsel
separate from counsel employed by the Indemnifying Party in any such
action and to participate therein, but the fees and expenses of such
counsel employed by the affected Protected Party will be at its
expense. The Indemnifying Party will not be liable for any settlement
of any such claim effected without its prior written consent, which
will not be unreasonably withheld; provided that if the Indemnifying
Party does not assume the defense or prosecution of a claim as provided
above within thirty (30) days after notice thereof from any Protected
Party, the affected Protected Party may settle such claim without the
Indemnifying Party's consent. The Indemnifying Party will not agree to
a settlement of any claim which provides for any payment of monetary
damages by any Protected Party or which could have a material
precedential impact or effect on the business or financial condition of
any Protected Party without the affected Protected Party's prior
written consent. Whether or not the Indemnifying Party chooses to so
defend or prosecute such claim, the Indemnifying Party and the affected
Protected Party will cooperate in the defense or prosecution thereof
and will furnish such records, information and testimony,
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and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
The Indemnifying Party will be subrogated to all rights and remedies of
any Protected Party, except to the extent they apply against another
Protected Party.
(b) To the extent claims with respect to Losses arising out of
or related to the matters described in Section 3.15 exceed the Buyer's
General Deductible in the aggregate with all other Losses, Seller may
assume the defense as provided in Section 11.6(a) above, or, if Seller
elects not to assume the defense, then Buyer shall consult with Seller
in defense of the claim or undertake the cleanup and shall obtain
Seller's consent before incurring significant cost or expense in
connection therewith. Seller, however, retains the right to access any
and all of the Real Property to verify the costs associated with the
claim.
SECTION 11.7. LIMITATION OF LIABILITY.
(a) In calculating any amount of damages to be paid by the
Indemnifying Party pursuant to this Agreement, the amount of such
damages will be reduced by all reimbursements credited to or received
by the other party, relating to such damages, and will be net of any
tax benefits and insurance proceeds received by the other party with
respect to the matter for which indemnification is claimed.
(b) In no event shall the Seller's aggregate obligation to
indemnify the Buyer Protected Parties nor the Buyer's aggregate
obligation to indemnify the Seller Protected Parties under Section
11.1(i), 11.1(ii), and 11.2(i), respectively, of this Agreement exceed
$100 million.
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SECTION 11.8. ALLOCATION AND APPORTIONMENT OF AND INDEMNIFICATION WITH
RESPECT TO TAX LIABILITIES.
(a) Real property, personal property and ad valorem Taxes or
other similar Taxes assessed upon the Assets and Real Property (whether
owned or leased) located in the State of Iowa, assessed on January 1,
1998 for the taxable year July 1, 1998 through June 30, 1999 shall be
prorated as of the Closing Date between the parties based upon their
respective periods of ownership during the taxable year 1998/1999.
(b) Real property, personal property and ad valorem Taxes or
other similar Taxes assessed upon the Assets and Real Property (whether
leased or owned) located in the State of California assessed on January
1, 1998 for the taxable period July 1, 1998 through June 30, 1999,
shall be prorated as of the Closing Date between the parties based upon
their respective periods of ownership during the taxable year
1998/1999. Any supplemental assessments resulting from the sale of the
Assets shall be the sole responsibility of the Buyer.
(c) Real property, personal property and ad valorem Taxes or
other similar Taxes assessed upon the Assets and Real Property (whether
leased or owned) located in any state other than Iowa and California
shall be prorated as of the Closing Date between the parties based upon
their respective periods of ownership, or tenancy as the case may be,
during the taxable period which includes the Closing Date, with
Seller's portion being from the beginning of any such period up to the
Closing Date.
(d) Seller shall be responsible for the timely payment of the
Taxes described in Section 11.8(a)-(c). Buyer shall reimburse Seller
for Buyer's pro rata share of such Taxes within twenty (20) days after
Seller pays such Taxes and notifies Buyer of Buyer's prorated share of
such taxes. Any benefits or additional Taxes and related costs derived
from a contest concerning the amount of such Taxes properly due shall
be prorated between the parties based upon their respective period of
ownership of the Assets during
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such Tax period, with Seller's portion being from the beginning of any
such period up to the Closing Date. Any expenses associated with such a
contest shall be prorated likewise, without regard to the success or
failure of the contest.
SECTION 11.9. EXCLUSIVE REMEDY; RELEASE.
(a) Except as otherwise provided in Section 10.3 hereof, the
indemnification provided pursuant to this Article XI, Article VII and
Sections 2.5, 12.7 and 12.14 shall be the sole and exclusive remedy
hereto for any Losses as a result of, with respect to or arising out of
the breach of this Agreement, or any of the transactions or other
agreements or instruments contemplated or entered into in connection
herewith (including, but not limited to, all Exhibits attached hereto);
provided, however, that such indemnification shall not be the sole and
exclusive remedy, and shall in no way limit the rights of the parties,
with respect to any breach or default under the Supply Agreement or the
Formulation Agreement.
(b) Except as specifically provided in this Article XI and
Sections 2.5 and 12.7, neither the Seller, nor its Affiliates or
representatives shall be liable to Buyer for, and Buyer hereby releases
and discharges Seller, its Affiliates, and their representatives from,
any and all Losses incurred as a result of, with respect to or arising
out of the ownership or operation of the Assets or the Business after
the Closing.
(c) Without limiting the generality of this Section 11.9,
Buyer understands and agrees that the rights accorded under this
Article XI are the sole and exclusive remedy of Buyer against Seller or
its Affiliates with respect to any matters relating to Environmental
Laws. Subject to the foregoing, Buyer hereby waives any right to seek
contribution or other recovery from Seller or its Affiliates under such
Environmental Laws, and Buyer hereby releases the Seller and its
Affiliates from any claims, demands or causes of actions that Buyer has
or may have in the future against Seller or its Affiliates under the
Environmental Laws.
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ARTICLE XII. - MISCELLANEOUS
SECTION 12.1. EXPENSES. Except as otherwise specifically provided in
this Agreement, the Seller and the Buyer will each pay all costs and expenses
incurred by each of them, or on their behalf respectively, in connection with
this Agreement and the transactions contemplated hereby, including fees and
expenses of their own financial consultants, accountants and counsel.
SECTION 12.2. ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits) and all other agreements to be signed or delivered at Closing
constitute the full understanding of the parties, a complete allocation of risks
between them and a complete and exclusive statement of the terms and conditions
of their agreement relating to the subject matter hereof and supersede any and
all prior agreements, whether written or oral, that may exist between the
parties with respect thereto; provided that this provision is not intended to
abrogate any Transaction Agreements executed with or after this Agreement.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement will be binding unless hereafter made in writing and signed by
the party to be bound, and no modification will be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement, except as
otherwise specifically agreed to by the parties in writing.
SECTION 12.3. WAIVERS. No waiver by a party with respect to any breach
or default or of any right or remedy and no course of dealing or performance,
will be deemed to constitute a continuing waiver of any other breach or default
or of any other right or remedy, unless such waiver is expressed in writing
signed by the party to be bound. Failure of a party to exercise any right will
not be deemed a waiver of such right or rights in the future.
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SECTION 12.4. PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The
terms, conditions and obligations of this Agreement will inure to the benefit of
and be binding upon the parties hereto and the respective successors and assigns
thereof. No Party shall transfer or assign its rights, duties or obligations
hereunder or any part thereof to any other person or entity without the prior
written consent of the other Party. Notwithstanding the foregoing, Buyer may at
any time transfer its rights hereunder to any one or more of its subsidiaries or
other Affiliates of Buyer so long as Buyer remains liable for all of its
obligations hereunder, and so long as Buyer gives the Seller prior written
notice of such assignment.
SECTION 12.5. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
SECTION 12.6. NOTICES. Any notice, request, instruction or other
document to be given hereunder by any party hereto to any other party hereto
must be in writing and delivered personally (including by overnight courier or
express mail service) or sent by registered or certified mail, or be transmitted
by facsimile or other means of electronic data transmission, confirmed by
express mail or overnight courier, in each case with postage or fees prepaid,
If to the Buyer: The Scotts Company
14111 Scottslawn Road
Marysville, Ohio 43041
Attention: Charles M. Berger
Telephone: (937) 644-0011
Facsimile: (937) 644-7072
With a copy to: Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, Ohio 43215
Attention: Ronald A. Robins, Jr.
Telephone: (614) 464-6223
Facsimile: (614) 464-6350
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<PAGE> 75
If to the Seller: Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Office of the General Counsel
Facsimile No.: (314) 694-6399
With a copy to: Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: Briggs L. Tobin
Telephone: (404) 527-4153
Facsimile: (404) 527-4198
or to such other address as may be specified from time to time in a notice given
by such party. Any notice which is delivered personally in the manner provided
herein will be deemed to have been duly given to the party to whom it is
directed upon actual receipt by such party or the office of such party. Any
notice which is addressed and mailed in the manner herein provided will be
conclusively presumed to have been duly given to the party to which it is
addressed at the close of business, local time of the recipient, on the fourth
business day after the day it is so placed in the mail or, if earlier, the time
of actual receipt.
SECTION 12.7. BROKERAGE. The Seller and the Buyer do hereby expressly
warrant and represent, each to the other, that except for Salomon Smith Barney
Inc. in the case of Buyer, and Goldman, Sachs & Co., in the case of Seller, no
broker, agent, or finder has rendered services in connection with the
transactions contemplated under this Agreement. The Seller hereby indemnifies
and agrees to hold harmless the Buyer from and against any and all Losses
arising or resulting, or sustained or incurred by the Buyer, by reason of any
claim by any broker, agent, finder, or other person or entity based upon any
arrangement or agreement made or alleged to have been made by the Seller in
connection with the transaction contemplated by this Agreement. The Buyer hereby
indemnifies and agrees to hold harmless the Seller from and against any and all
Losses arising or resulting, or sustained or incurred by the Seller, by reason
of any claim by any broker, agent, finder, or other person or entity based upon
any arrangement or agreement made or alleged to have been made by the Buyer in
connection with the transaction contemplated under this Agreement.
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SECTION 12.8. GOVERNING LAW; JURISDICTION.
(a) THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
AGREEMENT AND ANY DISPUTE CONNECTED WITH THIS AGREEMENT WILL BE
GOVERNED BY AND DETERMINED IN ACCORDANCE WITH THE STATUTORY, REGULATORY
AND DECISIONAL LAW OF THE STATE OF DELAWARE (EXCLUSIVE OF SUCH STATE'S
CHOICE OR CONFLICTS OF LAWS RULES) AND, TO THE EXTENT APPLICABLE, THE
FEDERAL STATUTORY, REGULATORY AND DECISIONAL LAW OF THE UNITED STATES
(EXCEPT FOR THE U.N. CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE
OF GOODS, APRIL 10, 1980, U.N. DOC. A/CONF. 97/18, 19 I.L.M. 668, 671
(1980) REPRINTED IN PUBLIC NOTICE, 52 FED. REG. 662-80 (1987), WHICH IS
HEREBY SPECIFICALLY DISCLAIMED AND EXCLUDED).
(b) Any suit, action or proceeding against any party hereto
with respect to the subject matter of this Agreement, or any judgment
entered by any court in respect thereof, must be brought or entered in
the United States District Court for the District of Delaware, and each
such party hereby irrevocably submits to the jurisdiction of such court
for the purpose of any such suit, action, proceeding or judgment. If
such court does not have jurisdiction over the subject matter of such
proceeding or, if such jurisdiction is not available, then such action
or proceeding against any party hereto shall be brought or entered in
the Court of Chancery of the State of Delaware, County of New Castle,
and each party hereby irrevocably submits to the jurisdiction of such
court for the purpose of any such suit, action, proceeding or judgment.
Each party hereto hereby irrevocably waives any objection which either
of them may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement
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brought as provided in this subsection, and hereby further irrevocably
waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. To the extent
each party hereto has or hereafter may acquire any immunity from
jurisdiction of any court or from legal process with respect to itself
or its property, each party hereto hereby irrevocably waives such
immunity with respect to its obligations under this subsection. The
parties hereto agree that exclusive jurisdiction of all disputes,
suits, actions or proceedings between the parties hereto with respect
to the subject matter of this Agreement lies in the United States
District Court for Delaware, or the Court of Chancery of the State of
Delaware, County of New Castle, as hereinabove provided. Buyer hereby
irrevocably appoints CT Corporation, having an address at 1209 Orange
Street, Wilmington, Delaware 19801 and Seller hereby irrevocably
appoints CT Corporation, having an address at 1209 Orange Street,
Wilmington, Delaware 19801, as its agent to receive on behalf of each
such party and its respective properties, services of copies of any
summons and complaint and any other pleadings or process of any summons
and complaint and any other pleadings or process which may be served in
any such action or proceedings. Service by mailing (by certified mail,
return receipt requested) or delivering a copy of such process to a
party in care of its agent for service of process as aforesaid shall be
deemed good and sufficient service thereof, and each party hereby
irrevocably authorizes and directs its respective agent for service of
process to accept such service on its behalf.
SECTION 12.9. PUBLIC ANNOUNCEMENTS. No public announcement may be made
by any person with regard to the transactions contemplated by this Agreement
without the prior consent of the Seller and the Buyer; provided that either
party may make such disclosure if advised by counsel that it is required to do
so by applicable law or regulation of any governmental agency or stock exchange
upon which securities of such party are registered. The Seller and the Buyer
will discuss any public announcements or disclosures concerning the transactions
contemplated by this Agreement with the other parties prior to making such
announcements or disclosures.
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SECTION 12.10. NO THIRD-PARTY BENEFICIARIES. With the exception of the
parties to this Agreement and the Protected Parties, there exists no right of
any person to claim a beneficial interest in this Agreement or any rights
occurring by virtue of this Agreement.
SECTION 12.11. DEFINITION OF AFFILIATE. As used in this Agreement,
"Affiliate" of a person or entity shall mean: (i) any other person or entity
directly, or indirectly through one or more intermediaries, controlling,
controlled by, or under common control with such person or entity, (ii) any
officer, director, partner, employee, or direct or indirect beneficial owner of
10% or greater of the equity or voting interests of such person or entity, or
(iii) any other person or entity for which a person or entity described in
clause (ii) acts in such capacity.
SECTION 12.12. KNOWLEDGE. As used in this Agreement, the phrase "to the
Seller's knowledge" shall mean to the actual knowledge of those individuals
listed on Schedule 12.12 hereto with respect to each such individual's area of
responsibility as indicated on Schedule 12.12, as of the date of this Agreement
or the date as of which a particular representation or warranty is given based
on the Seller's knowledge.
SECTION 12.13. BULK SALES LAWS. Buyer and the Seller each hereby waive
compliance by the Seller with the provisions of the "bulk sales," "bulk
transfer" or similar laws of any state. The Seller agrees to indemnify and hold
Buyer harmless against any and all claims, losses, damages, liabilities, costs
and expenses incurred by Buyer or any of its Affiliates as a result of a failure
to comply with any such "bulk sales," "bulk transfer" or similar laws.
SECTION 12.14. INTERPRETATION. Words of the masculine gender will be
deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number will include the plural number and
vice versa unless the context will otherwise indicate. References to Articles,
Sections and other subdivisions of this Agreement are
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to the Articles, Sections and other subdivisions of this Agreement as originally
executed. The headings of this Agreement are for convenience and do not define
or limit the provisions hereof. Words importing persons include firms,
associations and corporations. The terms "herein," "hereunder," "hereby,"
"hereto," "hereof" and any similar terms refer to this Agreement; the term
"heretofore" means before the date of execution of this Agreement; and the term
"hereafter" means after the date of execution of this Agreement.
[Signatures on Next Page]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives in the United States of
America as of the date first above written.
MONSANTO COMPANY, SELLER
By: /s/ ARNOLD W. DONALD
---------------------------------
Name: Arnold W. Donald
Title: Senior Vice President
THE SCOTTS COMPANY, BUYER
By: /s/ CHARLES M. BERGER
---------------------------------
Name: Charles M. Berger
Title: Chairman, President and C.E.O.
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SCHEDULES AND EXHIBITS TO ORTHO ASSET PURCHASE AGREEMENT
- --------------------------------------------------------
Dated as of November 11, 1998
Between Monsanto Company and The Scotts Company
1.1(f) Equipment
1.2 Excluded Assets
2.2(b) U.S. Working Capital Assignments
2.3 Excluded Liabilities
3.4 Certain Changes and Events
3.5 No Violation of Law
3.6(a) Real Property
3.6(b) Material Personal Property
3.6(d) Liens
3.7 Title to Assets
3.8 Leases
3.9 Intellectual Property
3.10 Litigation
3.11 Employees
3.12 Employee Benefit Plans
3.13 Collective Bargaining Agreements
3.14 Labor Matters
3.15 Environmental Matters
3.16 Permits
3.17 Contracts
3.18 Seller Required Consents, Approvals and Filings
3.19 No Conflict
3.20 Year 2000 Compliance
3.21 Foreign Customers
3.28 Undisclosed Material Liabilities
3.29 Affiliate Transactions
4.3 Buyer Required Consents, Approvals and Filings
5.1 Operation Pending Closing
5.1(b) Actions Prior to Closing
5.11 Works Council
7.1(a)(i) Employees Outside 100% Requirement
7.1(c) Employees Not Actively at Work
7.2(h) Relocation Assistance
7.8 European Employees
9.4 Required Governmental Approvals
9.5 Required Other Consents
12.12 Seller's Knowledge
<PAGE> 82
EXHIBITS
- --------
A Supply Agreement
B Formulation Agreement
The Schedules and Exhibits to the Asset Purchase Agreement have not been filed.
Titles to the omitted Schedules and Exhibits appear above. The Registrant hereby
agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to
the Securities and Exchange Commission upon its request.
<PAGE> 1
Exhibit 2(b)
------------
* Amended and Restated Exclusive
Agency and Marketing Agreement
dated as of September 30, 1998
between Monsanto Company and The Scotts Company
* Certain portions of this Exhibit, indicated in the text by asterisk, have
been omitted based upon a request for confidential treatment filed with the
Securities and Exchange Commission ("SEC"). The non-public information has
been filed separately with the SEC in connection with that request.
<PAGE> 2
AMENDED AND RESTATED
EXCLUSIVE AGENCY AND
MARKETING AGREEMENT
BY AND BETWEEN
MONSANTO COMPANY
AND
THE SCOTTS COMPANY
SEPTEMBER 30, 1998
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>
ARTICLE 1- DEFINITIONS AND RULES OF CONSTRUCTION..................................................................2
Section 1.1. Definitions............................................................................2
Section 1.2. Rules of Construction and Interpretation..............................................10
ARTICLE 2 - EXCLUSIVE AGENCY AND DISTRIBUTORSHIP.................................................................10
Section 2.1. Appointment of the Exclusive Agent....................................................11
Section 2.2. The Agent's Obligations and Standards.................................................11
Section 2.3 Appointment of Sub-Agents and Sub-Distributors........................................15
Section 2.4 Limitations on Agent..................................................................15
ARTICLE 3 - ACCOUNTING AND CASH FLOW FOR THE ROUNDUP L&G BUSINESS................................................16
Section 3.1. Bookkeeping and Financial Reporting...................................................16
Section 3.2. Ordering, Invoicing and Cash Flow Cycle...............................................17
Section 3.3. Expenses and Allocation Rules.........................................................18
Section 3.4. Resolution of Disputes Arising under Article 3........................................19
Section 3.5. Fixed Contribution to Expenses........................................................20
Section 3.6. Commission............................................................................22
Section 3.7. Marketing Fee.........................................................................24
Section 3.8. Additional Commission.................................................................24
ARTICLE 4 - ROUNDUP L&G BUSINESS MANAGEMENT STRUCTURE............................................................26
Section 4.1. Underlying principles for the Roundup L&G Business Management Structure...............26
Section 4.2. Steering Committee....................................................................27
Section 4.3. Business Units........................................................................28
Section 4.4. Global Support Team...................................................................29
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 5 - DUTIES AND OBLIGATIONS OF MONSANTO....................................................................30
Section 5.1. Monsanto's Obligations and Rights......................................................30
Section 5.2. Warranties.............................................................................31
ARTICLE 6 - REPORTS AND ADDITIONAL OBLIGATIONS OF THE PARTIES.....................................................31
Section 6.1. Cooperation............................................................................31
Section 6.2. Use of EDI.............................................................................31
Section 6.3. The Agent's Systems and Reporting Obligation...........................................31
Section 6.4. Employee Incentives....................................................................32
Section 6.5. Insurance..............................................................................32
Section 6.6. Liens..................................................................................33
Section 6.7. Promoting Safe Use-Practices...........................................................33
Section 6.8. Monsanto Inspection Rights.............................................................33
Section 6.9. Recalls................................................................................33
Section 6.10. New Roundup Products...................................................................33
Section 6.11. Confidentiality........................................................................34
Section 6.12. Noncompetition.........................................................................34
Section 6.13. Industrial Property....................................................................36
Section 6.14. Conflicts of Interest..................................................................38
Section 6.15. Records Retention......................................................................38
ARTICLE 7 - CENTRAL AGREEMENTS....................................................................................38
Section 7.1. Acknowledgment of Central Agreements...................................................38
Section 7.2. Notice of Termination..................................................................38
Section 7.3. Conflict...............................................................................38
Section 7.4. Action by Parties and Assignment of Rights.............................................39
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 8 - REPRESENTATIONS, WARRANTIES, AND COVENANTS............................................................39
Section 8.1. The Agent's Representations and Warranties.............................................39
Section 8.2. Monsanto's Representations and Warranties..............................................40
ARTICLE 9 - INDEMNIFICATION.......................................................................................41
Section 9.1. Indemnification and Claims Procedure...................................................41
ARTICLE 10 - TERMS, TERMINATION, AND FORCE MAJEURE................................................................42
Section 10.1. Terms..................................................................................42
Section 10.2. EU Initial Term and Renewal............................................................42
Section 10.3. Procedure to Renew.....................................................................43
Section 10.4. Termination by Monsanto................................................................43
Section 10.5. Termination by the Agent...............................................................50
Section 10.6. Roundup Sale...........................................................................51
Section 10.7. Effect of Termination..................................................................51
Section 10.8. Force Majeure..........................................................................52
Section 10.9. Special Termination Provisions.........................................................52
ARTICLE 11 - MISCELLANEOUS........................................................................................54
Section 11.1. Relationship of the Parties............................................................54
Section 11.2. Interpretation in accordance with GAAP.................................................54
Section 11.3. Currency...............................................................................55
Section 11.4. Monsanto Obligations...................................................................55
Section 11.5. Expenses...............................................................................55
Section 11.6. Entire Agreement.......................................................................55
Section 11.7. Modification and Waiver................................................................55
Section 11.8. Assignment.............................................................................56
Section 11.9. Notices................................................................................56
Section 11.10. Severability...........................................................................57
Section 11.11. Equal Opportunity......................................................................57
Section 11.12. Governing Law..........................................................................57
Section 11.13. Public Announcements...................................................................58
Section 11.14. Counterparts...........................................................................58
</TABLE>
iii
<PAGE> 6
LIST OF EXHIBITS
Exhibit A: Central Agreements
Exhibit B: Termination Notice Regarding Central Agreements
Exhibit C: Letter Agreement Regarding Plastid Transformation Technology
and Associated Genes
Exhibit D: Permitted Products
LIST OF SCHEDULES
Schedule 1.1(a): Included Markets
Schedule 1.1(b): Roundup Products
Schedule 2.2(a)(ii): Transition Services (to be provided)
Schedule 2.2(a): Annual Business Plan Format
Schedule 3.1: Services Outside North America (to be provided)
Schedule 3.2(d): Cash Flow Chart
Schedule 3.3(c): Income Statement Definitions and Allocation Methods
Schedule 3.8: Current Sales of 2.5 Gallon SKU into the Lawn &
Garden Channels
Schedule 4.1(a): Management Structure
Schedule 4.2(a): Steering Committee
Schedule 4.3(b): Assigned Employees
Schedule 4.4(a): Global Support Team
iv
<PAGE> 7
AMENDED AND RESTATED
EXCLUSIVE AGENCY AND
MARKETING AGREEMENT
THIS AMENDED AND RESTATED EXCLUSIVE AGENCY AND MARKETING AGREEMENT by
and between Monsanto Company, a Delaware corporation ("Monsanto"), and The
Scotts Company, an Ohio corporation (the "Agent"), shall be deemed effective as
of September 30, 1998, and amended and restated as of November 11, 1998, and
shall supersede in its entirety the previous such agreement between the parties
hereto, dated as of September 30, 1998. Monsanto and the Agent are some times
referred to herein as the "parties."
WITNESSETH:
WHEREAS, Monsanto is engaged in the research, development, and
commercialization of certain agricultural products;
WHEREAS, Monsanto has developed and sells Roundup Products (as defined
below) and is the exclusive owner of all rights, patents, licenses, and
trademarks associated therewith, and possesses the knowledge, know-how,
technical information, and expertise regarding the process and manufacture of
Roundup Products;
WHEREAS, the Agent has certain expertise in the promotion,
distribution, marketing, and sale of home and garden products;
WHEREAS, except to the extent that Central (as defined below) remains a
nonexclusive agent and distributor of Roundup Products prior to the termination
of the Central Agreements (as defined below), Monsanto does not currently
possess, nor desire to establish, a distribution system for Roundup Products;
WHEREAS, the Agent's distribution system is well-suited for the
promotion, distribution, marketing, and sale of Roundup Products;
WHEREAS, Monsanto desires that the Agent serve as Monsanto's exclusive
agent for the marketing and distribution of Roundup Products, and the Agent
desires to so serve, all on the terms set forth in this Agreement; and
NOW, THEREFORE, in consideration of the foregoing, the terms and
provisions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
<PAGE> 8
ARTICLE 1- DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1 DEFINITIONS. As used herein, the following terms shall
have the meanings ascribed to them below:
"Acquiror" shall have the meaning as set forth in the definition of a
"Change of Significant Ownership."
"Affiliate" of a person or entity shall mean: (i) any other person or
entity directly, or indirectly through one or more intermediaries, controlling,
controlled by, or under common control with such person or entity, (ii) any
officer, director, partner, member, or direct or indirect beneficial owner of
any 10% or greater of the equity or voting interests of such person or entity,
or (iii) any other person or entity for which a person or entity described in
clause (ii) acts in such capacity.
"Agent" means The Scotts Company, an Ohio corporation.
"Ag Market" means professionals who purchase and use Roundup Ag
Products for Ag, professional and industrial uses.
"Annual Business Plan" shall have the meaning set forth in Section
2.2(a) hereof.
"Approved Expense" shall have the meaning set forth in Section 3.3(a)
hereof.
"Allocated" means allocated pursuant to the Allocation Rules set forth
in Schedule 3.3(c) hereof.
"Assigned Employees" shall have the meaning set forth in Section 4.3(b)
hereof.
" Budget" shall have the meaning set forth in Section 3.3(a) hereof.
"Business Unit" shall have the meaning set forth in Section 4.3(a).
"Central" means Central Garden & Pet Company, a Delaware corporation.
"Central Agreements" means collectively, that certain Master Agreement
by and between The Solaris Group ("Solaris"), a strategic business unit of
Monsanto, and Central, dated as of July 21, 1995; that certain Exclusive Agency
and Distributor Agreement by and between Solaris and Central, dated as of July
21, 1995; that Compensation Agreement by and between Solaris and Central, dated
as of July 21, 1995; that Implementation and Transition Agreement by and between
Solaris and Central, dated as of July 21, 1995.
"Change of Control" means, with respect to a Person, (i) the
acquisition after the date hereof by any individual (or group of individuals
acting in concert), corporation, company,
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<PAGE> 9
association, joint venture or other entity, of beneficial ownership of 50% or
more of the voting securities of such Person; or (ii) the consummation by such
Person of a reorganization, merger or consolidation, or exchange of shares or
sale or other disposition of all or substantially all of the assets of such
Person, if immediately after giving effect to such transaction the individuals
or entities who beneficially own voting securities immediately prior to such
transaction beneficially own in the aggregate less than 50% of such voting
securities immediately following such transaction excluding the merger or
similar transaction currently contemplated between Monsanto and American Home
Products; or (iii) the consummation by such Person of the sale or other
disposition of all or substantially all of the assets of such Person other than
to an Affiliate of such Person; or (iv) the consummation by such Person of a
plan of complete liquidation or dissolution of such Person.
"Change of Significant Ownership" means, with respect to a Person, (i)
the acquisition (by purchase, reorganization, merger, consolidation, exchange of
shares, or otherwise), by any individual (or group of individuals acting in
concert), corporation, company, association, joint venture, or other entity
(collectively, the "Acquiror"), but excluding any member of the Hagedorn family
or their respectively controlled entities, of beneficial ownership of 25% or
more of the voting securities of such Person; and (ii) such Acquiror (A)
currently engages (directly or through its Affiliates) in the manufacture, sale,
marketing, or distribution of any product containing Glyphosate or any similar
active ingredient, or (B) currently sells, markets, or distributes (directly or
through its Affiliates) any product(s) in the Lawn and Garden Channels for Lawn
and Garden Use, which such product(s), in Monsanto's reasonable commercial
opinion, compete in a material manner with Roundup Products, or (C) may, in
Monsanto's reasonable commercial opinion, materially detract from, or diminish,
the Agent's ability to fulfill its duties and obligations with regard to the
Roundup Business, or (D) competes in any material respect with Monsanto in
Monsanto's "Ag" (including seed) or biotech businesses.
"Commission" shall have the meaning set forth in Section 3.6(a) hereof.
"Commission Statement" means, for any given Program Year, the statement
prepared by the Agent on behalf of Monsanto pursuant to Section 3.6(c) detailing
Program EBIT and the amount of the Commission for such Program Year.
"Conflict" shall have the meaning set forth in Section 7.1 hereof.
"Conflicting Provision" shall have the meaning set forth in Section 7.3
hereof.
"Contribution Payment" shall have the meaning set forth in Section
3.5(a) hereof.
"Cost of Goods Sold" means, for any given Program Year, the aggregate
cost, as determined in accordance with GAAP applied on a consistent basis, of
Roundup Products sold for such Program Year; provided, however, in computing
this amount, the cost of Glyphosate, which is a component of this Cost of Goods
Sold, shall equal the amount set forth in the Transfer Price, for such Program
Year.
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"Customers" means, with respect to the Included Markets, any Lawn and
Garden Channel purchaser of Roundup Products for resale to the Lawn and Garden
Market.
"EDI" means electronic data interchange.
"Effective Date" means September 30, 1998.
"Egregious Injury" means the occurrence of an event (caused directly or
indirectly by an act or omission of the Agent, its officers, directors, or
Affiliates), that in Monsanto's reasonable commercial opinion, has a material
adverse effect on the Roundup L&G Business, the Roundup brand or the
agricultural Roundup market; provided, however, no such event shall be deemed to
be an Egregious Injury if such event (or the act or omission resulting in such
event) resulted from the exercise by Monsanto's Ag president of his or her right
of veto, or was caused primarily by an act or omission of Monsanto or its
Affiliates, and such result or causal link, as the case may be, shall be
demonstrated by the Agent.
"EU Countries" means each country belonging (by treaty or otherwise) to
the world organization commonly known as the European Union.
"EU Term" shall have the meaning set forth in Section 10.1 hereof.
"Event of Default" shall have the meaning set forth in Section 10.4(b)
hereof.
"Excluded Markets" means each country not expressly set forth in the
Included Markets.
"Expense(s)" shall mean any expense or cost, direct or Allocated,
incurred by either party in connection with the Roundup L&G Business, including
(i) general, marketing, administrative and technical costs or expenses which
shall include (a) 50% of the Allocated cost of the salary and bonus of the
members of the Global Support Team, (b) 100% of the Allocated cost of the salary
and bonus of the Assigned Employees and (c) the Allocated portion of the salary
and bonus of the employees of Agent's Business Units to the extent such
employees are working on matters related to the Roundup L&G Business, (ii)
service costs directly related to the Roundup L&G Business, including any
expenses due under the Central Agreement, and (iii) any capital expenses
approved by the Steering Committee.
"FIFRA" means the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C.A. Section 135, et seq., as amended.
"Formulation Agreement" means that certain Formulation Agreement by and
between Monsanto and the Agent for the manufacture and packaging by the Agent of
Roundup Products solely for North America to be entered by the parties upon
closing of the sale of the Non-Roundup Assets.
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"GAAP" means generally accepted accounting principles as applied as of
the Effective Date, as referred to in paragraphs 10 and 11 of the American
Institute of Certified Public Accountants Statement on Auditing Standards No.
69.
"Global Support Team" shall have the meaning set forth in Section
4.4(a) hereof.
"Glyphosate" means N-phosphonomethylglycine in any form, including, but
not limited to its acids, esters, and salts.
"Import Price" means an amount within $0.75 of the weighted average
import statistics price on approved Glyphosate, expressed in U.S. Dollars per kg
of Glyphosate acid equivalent 100%; provided, however, if such statistic is not
available for a particular country within the Included Markets, then the amount
shall be within $0.75 of the weighted average price on approved Glyphosate for
Argentina, plus such additional amounts which Monsanto reasonably determines to
equal all additional costs which it would otherwise incur to import Glyphosate
to such country (including, without limitation, import duties, shipping, and
broker fees).
"Included Markets" means each country listed on Schedule 1.1(a);
provided, however, Schedule 1.1(a) may be amended from time to time in the
reasonable discretion of the Steering Committee, upon either the Agent,
Monsanto, or the Global Support Team proposing to the Steering Committee such
terms and conditions of amendment, including a proposed (i) term (i.e., duration
of amendment), (ii) adjustment to the calculation for the Commission, and (iii)
adjustment to the Commission Thresholds, provided, however, the proposal for
inclusion of a new country demonstrates, in the reasonable opinion of the
Steering Committee (x) the existence of, or the potential for, a distinct and
profitable Lawn & Garden market, (y) the value added by the Agent in terms of
sales and distribution network and synergies, and (z) the lack of adverse impact
on Monsanto's existing agricultural Roundup market.
"Income Taxes" means federal, state, local, or foreign taxes imposed on
net income or profits; provided, however, such term shall not include any "sales
or use" taxes or "ad valorem" taxes (as such terms are customarily used) imposed
on or resulting from the sale of Roundup Products.
"Industrial Property" shall have the meaning set forth in Section 6.14
hereof.
"Insolvency" of the Agent means that the Agent is generally not paying
its debts as they become due, or admits in writing its inability to pay its
debts generally, or makes a general assignment for the benefit of creditors or
institutes any proceeding or voluntary case seeking to adjudicate it a bankrupt
or insolvent or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors, or seeks the entry of any order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property; or the Agent takes any action to authorize any
of the actions described above in this definition, or any proceeding is
instituted
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against the Agent seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief or protection of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property, and, as to any such proceeding, if being contested by the Agent in
good faith, such proceedings remain undismissed or unstayed for a period of
sixty (60) days.
"Lawn and Garden Channels" include: (i) retail outlets primarily
serving the Lawn and Garden Market; (ii) independent nurseries and hardware
co-ops; (iii) home centers (like Home Depot or Lowes); (iv) mass merchants (like
Wal-Mart or K-Mart); (v) membership/warehouse clubs serving the Lawn and Garden
Market; and (vi) other current or future channels of trade generally accepted
and practiced as Lawn and Garden channels in the industry as may be determined
from time to time by the Steering Committee.
"Lawn and Garden Employee" shall have the meaning set forth in Section
6.13(e).
"Lawn and Garden Market" means non-professionals who purchase and use
Roundup Products for Lawn and Garden Uses.
"Lawn and Garden Use" means (a) Residential Use as defined in 40 C.F.R.
152.3(u), and (b) any use for which a pesticide can be registered for use under
FIFRA or other statutes, rules and regulations throughout the Included Markets
in connection with vegetation control in, on or around homes, residential lawns,
and residential gardens.
"Laws" shall mean, with respect to any country, such country's
statutes, regulations, rules, ordinances, or all other applicable laws.
"MM" means after each number million in U.S. Dollars.
"Marketing Fee" shall have the meaning as set forth in Section 3.7
hereof.
"MAT Expenses" means the expenses related to the Roundup L&G Business
specified as such in Schedule 3.3(c).
"Material Breach" shall mean:
(a) as to the Agent, a breach of this Agreement, which, as
initially determined by Monsanto, with the written agreement of the Agent, or as
determined by the Arbitrators pursuant to Section 10.4(g) of this Agreement: (i)
is material; (ii) has not been cured within ninety (90) days after written
notice thereof has been provided to Agent in accordance with Section 11.9
hereof; and (iii) is not remediable either by the payment of damages by Agent to
Monsanto or by a decree of specific performance issued against Agent.
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(b) as to Monsanto, a breach of this Agreement, which, as
initially determined by Agent, with the written agreement of Monsanto, or as
determined by the Arbitrators pursuant to Section 10.4(g) of this Agreement: (i)
is material; (ii) has not been cured within ninety (90) days after written
notice thereof has been provided to Monsanto in accordance with Section 11.9
hereof; and (iii) is not remediable either by the payment of damages by Monsanto
to Agent or by a decree of specific performance issued against Monsanto.
"Material Fraud" shall mean:
(a) as to Agent, one or more fraudulent acts or omissions
committed by Agent or its officers or employees, which, as initially determined
by Monsanto, with the written agreement of the Agent, or as determined by the
Arbitrators pursuant to Section 10.4(g) of this Agreement: (i) is material; (ii)
was engaged in with the intent to deceive Monsanto; and (iii) either a) has not
been cured within ninety (90) days after written notice thereof has been
provided to Agent in accordance with Section 11.9 hereof, or b) cannot be cured
in the commercially reasonable opinion of Monsanto, and, if applicable, the
Arbitrators.
(b) as to Monsanto, one or more fraudulent acts or omissions
committed by Monsanto or its officers or employees, which, as initially
determined by Agent, with the written agreement of Monsanto, or as determined by
the Arbitrators pursuant to Section 10.4(g) of this Agreement: (i) is material;
(ii) was engaged in with the intent to deceive Agent; and (iii) either a) has
not been cured within ninety (90) days after written notice thereof has been
provided to Monsanto in accordance with Section 11.9 hereof, or b) cannot be
cured in the commercially reasonable opinion of Agent, and, if applicable, the
Arbitrators.
"Material Willful Misconduct" shall mean:
(a) as to Agent, one or more acts or omissions committed by
Agent or its officers or employees, which, as initially determined by Monsanto,
with the written agreement of the Agent, or as determined by the Arbitrators
pursuant to Section 10.4(g) of this Agreement: (i) is material; (ii) constitutes
willful misconduct; and (iii) either a) has not been cured within ninety (90)
days after written notice thereof has been provided to Agent in accordance with
Section 11.9 hereof, or b) cannot be cured in the commercially reasonable
opinion of Monsanto, and, if applicable, the Arbitrators.
(b) as to Monsanto, one or more acts or omissions committed by
Monsanto or its officers or employees, which, as initially determined by Agent,
with the written agreement of Monsanto, or as determined by the Arbitrators
pursuant to Section 10.4(g) of this Agreement: (i) is material; (ii) constitutes
willful misconduct; and (iii) either a) has not been cured within ninety (90)
days after written notice thereof has been provided to Monsanto in accordance
with Section 11.9 hereof, or b) cannot be cured in the commercially reasonable
opinion of Agent, and, if applicable, the Arbitrators.
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"Monsanto" means Monsanto Company, a Delaware corporation.
"Netbacks" means the expenses related to the Roundup L&G Business
specified as such in Schedule 3.3(c).
"Net Commission" shall have the meaning set forth in Section 3.5(b)
hereof.
"New Product" shall have the meaning set forth in Section 6.11 hereof.
"Non-Roundup Assets" means the Lawn and Garden business of the Solaris
division of Monsanto, comprised of all products other than the Roundup Products
being sold separately to the Agent by Monsanto.
"North America" means the United States of America, Canada and Puerto
Rico.
"Person" means an individual, partnership, limited liability company,
joint venture, association, corporation, trust, or any other legal entity.
"Prime Rate" means, on any given date, the prime rate as published in
the Wall Street Journal, for such date or, if not published therein, in another
publication having national distribution.
"Product Offer" shall have the meaning set forth in Section 6.11
hereof.
"Program EBIT" means, for any given Program Year, the amount of Program
Sales Revenues for such Program year, less the amount of Program Expenses for
such Program Year, provided, however, for purposes of determining the Agent's
Commission, (i) the amount of the Program EBIT for the 1999 Program Year (as
otherwise determined herein) shall be increased by an amount equal to $15MM,
(ii) the portion of the aggregate amount representing product returns, inventory
not salable in the ordinary course of business, bad debts on trade accounts
receivable or any other charge-offs of trade or other receivables which in total
exceeds $4MM for the Program Year 1999 shall not be part of the Program Expenses
for such Program Year, and (iii) any and all expenses with respect to any
Program Year prior to 1999 shall be excluded from Program Expenses for the 2000
Program Year and thereafter, except to the extent any such item is fully
reserved as of the Effective Date.
"Program Expenses" means, for any given Program Year, applied on a
consistent basis and in accordance with GAAP and the terms of this Agreement,
the sum (without duplication) of (i) the aggregate Approved Expenses for such
Program Year and (ii) the Cost of Goods Sold for such Program Year.
"Program Sales Revenue" means, for any given Program Year, applied on a
consistent basis and in accordance with GAAP, all revenues received or accrued
by any party hereto from the sale of Roundup Products, less reasonable amounts
for returns and credits, consistent with past practice.
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"Program Year" means the period of time beginning on October 1st of a
specific calendar year and ending on September 30th of the immediately following
calendar year, or such shorter period if a particular Program Year starts or
ends in the middle of such Program Year. For example, the first Program Year
during the term of this Agreement shall be the 1999 Program Year (i.e.,
commencing October 1, 1998 and ending September 30, 1999).
"Quarter" means any consecutive three-month period of a calendar year.
"Roundup L&G Business" means the marketing, sale, and distribution of
Roundup Products through Lawn and Garden Channels to the Lawn and Garden Market
for Lawn and Garden Uses.
"Roundup Bank Accounts" shall have the meaning set forth in section
3.2(d) hereof.
"Roundup P&L" shall have the meaning set forth in Section 3.2(a)
hereof.
"Roundup Products" means (i) for each of the specific countries part of
the Included Markets the products registered for sale solely for Lawn and Garden
Uses under a primary or alternate brand now containing the Roundup or Ortho
Kleeraway trademarks as listed on Schedule 1.1(d) attached hereto in the
specific container sizes and formulations described thereon, it being understood
that any change of container size or formulation in any given country part of
the Included Markets shall require the approval of the Steering Committee, and
(ii) such products as may be added from time to time by mutual agreement of the
parties in accordance with the terms of this Agreement.
"Roundup Records" shall have the meaning as set forth in Section 6.4
hereof.
"Roundup Sale" means (i) any sale, transfer, assignment or other
disposition of all or substantially all of the assets or capital stock of the
Roundup L&G Business or (ii) the license of all or substantially all of the
Industrial Property.
"Sell-Through Business" means, with respect to any region, unit volume
sales determined by Program Year point-of-sale unit movement at those Customers
for which measurable data on a consistent basis is reasonably available and
which (i) are among the top 20 Customers in such region for each of the Program
Years in question and (ii) provide measurable data on a consistent basis for
each of the Program Years in question. Such point-of-sale information shall be
based on census data gathered from such top 20 Customers and transmitted via
electronic data interchange (EDI) on a weekly reported basis.
"Significant Deviation" shall have the meaning set forth in Section
4.3(c) hereof.
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"Steering Committee" shall have the meaning set forth in Section 4.1
hereof.
"Transfer Price" equals, for any given Program Year, expressed in kg of
Glyphosate acid on a 100% acid equivalent basis, the following amounts:
Program Years 1999-2001: Transfer Price equals *; and
Program Year 2002 and each subsequent Program Year: Transfer
Price equals the Import Price.
"USEPA" means the United States Environmental Protection Agency.
SECTION 1.2. RULES OF CONSTRUCTION AND INTERPRETATION.
(a) Section References. When a reference is made in this
Agreement to an Article, Section, Paragraph, Exhibit or Schedule such reference
shall be to an Article, Section or Paragraph of, or an Exhibit or Schedule to,
this Agreement unless otherwise indicated. Unless otherwise indicated, the words
"herein," "hereof," "hereunder" and other words of similar import refer to this
Agreement as a whole, and not to any particular Article, Section, Paragraph or
clause in this Agreement.
(b) Construction. Unless the context of this Agreement clearly
requires otherwise: (i) references to the plural include the singular and vice
versa, (ii) "including" is not limiting and (iii) "or" has the inclusive meaning
represented by the phrase "and/or."
(c) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) No Interpretation against Author. For purposes of contract
interpretation the parties to this Agreement agree they are joint authors and
draftspersons of this Agreement.
(e) Conflicts with related Documents. The parties contemplate
that various forms, including forms for submitting purchase orders, acceptance
of orders, shipping and transportation, will be used in carrying out this
Agreement. In the event of conflict between any such forms or other documents of
like import and this Agreement, the provisions of this Agreement shall be
controlling.
ARTICLE 2 - EXCLUSIVE AGENCY AND DISTRIBUTORSHIP
SECTION 2.1. APPOINTMENT OF THE EXCLUSIVE AGENT. Subject to the terms
and conditions hereof, Monsanto hereby appoints and agrees to use the Agent, and
the Agent hereby agrees to serve, as Monsanto's exclusive agent in the Lawn and
Garden Market, commencing on the Effective Date, to provide certain services in
connection with Monsanto's marketing, sales, and distribution of Roundup
Products to Customers within the Included Markets. Except as otherwise provided
in this Agreement, commencing on the Effective Date, Monsanto shall exclusively
use the Agent for the performance of all of the services contemplated by this
Agreement.
- ---------------
* Confidential provision omitted and filed separately with the Securities and
Exchange Commission ("SEC"), based upon a request for confidential treatment
filed with the SEC.
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SECTION 2.2. THE AGENT'S OBLIGATIONS AND STANDARDS.
(a) Services to be Performed by the Agent.
(i) It is the anticipation of the parties that for the duration
of the term of the Central Agreements, Central and its
subagents and subdistributors will continue to perform its
duties and obligations under the Central Agreements, and
Monsanto's payments to Central for services provided by
Central, subagents and subdistributors with respect to the
1999 Program Year only, under the Central Agreements as
amended or renegotiated, it being the intention of the
parties to amend or terminate the Central Agreements prior
to the end of the 1999 Program Year, shall be included in
the Expenses payable under this Agreement.
(ii) It is the understanding of the parties that the Agent
currently is not able to perform all or part of the services
described hereunder and that Monsanto shall perform such
services, or have such services performed, during a certain
transition period which may vary according to region and
service being contemplated. Accordingly the parties agree to
negotiate in good faith and agree, within ninety (90) days
from the date of this Agreement, on the terms and conditions
pursuant to which Monsanto shall continue to perform or have
performed on its behalf, all or part of the services
referred to hereunder, provided (x) Monsanto shall provide
such services on a basis necessary to service the Customer's
needs and in accordance with the Budget prescribed in the
1999 Program Year Annual Business Plan, and (y) Monsanto
shall be solely responsible for any MAT Expenses in excess
of the amount provided therefor in such Budget incurred with
respect to any such transition services wherever performed.
Upon agreement of the parties, such terms and conditions
shall be attached as Schedule 2.2(a)(ii) and shall be deemed
to form a part of this Agreement ab initio. Such Schedule
2.2(a)(ii) shall contain but not be limited to, the
allocation rules applicable in any such region, the prior
written notice to be given by the Agent to Monsanto prior to
taking over the performance of any given service, the amount
of severance cost, if any, which shall be shared by the
Agent in case of termination of such Monsanto employee(s) in
charge of performing the service being terminated, the
obligations of each party with regard to data information,
order processing and invoicing, and the Agent's right of
audit.
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Notwithstanding the foregoing, and excluding any duties or
obligations which Central continues to perform for the duration of the Central
Agreements or Monsanto during the above-mentioned transition period, the Agent
shall perform some or all of the following duties and obligations within the
parameters and to the extent required to implement the Annual Business Plan
approved by the Steering Committee:
(1) SALES. Pursuant to the Annual Business Plan, the Agent
shall perform selling, sales management, and other services related to the sale
of Roundup Products.
(2) MERCHANDISING AND IN-FACILITY SERVICES. The Agent shall
perform in-store merchandising, store set-up, and other services related to the
in-store promotion of Roundup Products.
(3) WAREHOUSING AND INVENTORY.
(i) Warehousing. The Agent shall arrange for warehouse
services for all Roundup Products until such time as the products are delivered
to proper carriers. The Agent agrees to comply with all applicable environmental
rules and regulations in owning or operating any warehouse.
(ii) Inventory. The Agent shall be responsible for:
o coordinating and staffing annual physical inventory
for all Roundup Products (including raw materials,
packaging- when the Agent shall formulate under the
Formulation Agreement- and finished goods).
Physical inventories shall be conducted by
September 30 of every calendar year and Monsanto
shall have the right to request physical counts on
specific product at any time upon reasonable
request (which shall be at Monsanto's cost if there
are more than two such counts in any Program Year)
and to observe or conduct physical counts with
Monsanto's representatives;
o reconciling the physical inventory to perpetual
records;
o physically moving the Roundup Products out of the
warehouse by following a First In, First Out
("FIFO") policy; and
o arranging for warehousing of adequate inventory
levels of Roundup Products in sufficient quantities
to satisfy the criteria set forth in the Annual
Business Plan.
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(4) ORDER AND GENERAL ADMINISTRATION. The Agent shall have the
authority and shall so perform all order taking, order processing, invoicing,
collection, reconciliation, general administration, and other related services
necessary for the marketing, sales, and distribution of Roundup Products, all of
which shall be subject to the Annual Business Plan and the terms of this
Agreement. Pursuant to the terms of this Agreement, the Agent shall be
responsible for the following obligations:
(i) The Agent shall offer to the Customers Roundup
Products at such price and under such terms as set forth in the Annual Business
Plan or as otherwise established by the Steering Committee.
(ii) The Agent shall accept orders for the sale of Roundup
Products; provided, however, the Agent shall accept all such orders subject to
the availability of Roundup Products on the requested delivery dates.
(iii) The Agent shall administer all claims and
adjustments for Roundup Products which are damaged during shipment or
warehousing.
(iv) Subject to Section 5.1, the Agent shall (i) maintain
or contract for adequate facilities and technologies to manage consumer
information and complaint calls or written correspondence and (ii) be
responsible for all reports relating thereto, including (without limitation)
reports to any regulatory or governmental authority pursuant to any applicable
Law.
(5) RETURNS OF ROUNDUP PRODUCTS. The Agent shall manage
requests by Customers that Roundup Products, previously sold or shipped, should
be returned for credit, either because such Roundup Products are defective or
for some other reason. The Agent shall receive any such returned Roundup
Products into its warehouses and prepare the appropriate credit memos, subject
to the joint approval of the Business Unit and the Global Support Team for any
return exceeding $500,000.
(6) INFORMATION ON ROUNDUP PRODUCTS AND CONSUMER INQUIRIES.
The Agent shall provide Customers or potential customers with detailed
information concerning the characteristics, uses and availability of Roundup
Products as shall be supplied by the Global Support Team. The Agent shall be
responsible for maintaining a consumer response center relating to Roundup
Products; provided that, unless the Business Unit and the Global Support Team
otherwise agree, any human and animal-related health calls shall be
automatically or via operator forwarded, with respect (i) to human emergency
calls to the Cardinal Glennon Poison Control Center and (ii) to animal emergency
calls to the National Animal Poison Control Center.
(7) PROMOTION OF ROUNDUP PRODUCTS. Continuously throughout the
term of this Agreement, the Agent shall promote the sale of Roundup Products no
less aggressively than any other product or product line that the Agent sells
and shall perform its duties as Agent in such a manner as to promote goodwill,
and particularly customer goodwill, toward Monsanto and Roundup Products.
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(8) ADVERTISING AND PROMOTIONAL PROGRAMS TO CUSTOMERS. The
Agent shall provide Customers with detailed information concerning the
advertising and promotional programs of Roundup Products and facilitate the use
by its Customers of such programs to the fullest extent possible (as set forth
in the Annual Business Plan).
(9) ROUNDUP BRAND IMAGE AND STEWARDSHIP. The Agent, in
consultation with the Global Support Team, shall promote, in accordance with the
Annual Business Plan or as directed by the Steering Committee, the sales and
consumer acceptance of Roundup Products using messages and vehicles that are not
inconsistent with the brand image established by Monsanto's Ag division in
support of its Roundup branded products and seeds, including but not limited to:
(i) Advertising in local and national media;
(ii) Providing suitable training of the Agent's
representatives or employees in the areas of product knowledge, product
stewardship, sales training, display techniques, promotion and advertising;
(iii) Determining the description of consumer and trade
communication programs to Customers regarding the sales and distribution of
Roundup Products; and
(iv) The handling of product complaints with the intent
of achieving consumer satisfaction.
(10) RETAIL RELATIONSHIPS. The Agent shall maintain retail
relationships between the Agent and the Customers, including relationships at
headquarters and regional stores.
(11) MERCHANDISING AND DISPLAY TECHNIQUES. The Agent shall
provide Customers with full information concerning the merchandising and display
techniques as set forth in the Annual Business Plan. The Agent shall use, fully
support and recommend, that Customers fully utilize all such merchandising and
display techniques.
(12) ANNUAL BUSINESS PLAN. The Business Units, jointly and in
cooperation with the Global Roundup Support Team, shall, prepare and deliver to
the Steering Committee (i) a preliminary draft for the annual business plan no
later than June 15 of each Program Year and (ii) a definitive version thereof no
later than September 15 of each Program Year (the "Annual Business Plan"), which
establishes the general marketing, distribution, sales information, and
specifications of Roundup Products for such Program Year (or shorter period, if
applicable) including the Agent's short and long-term sales goals with respect
to Roundup
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Products for such Program Year, and more specifically all of the items listed on
Schedule 2.2(a). Notwithstanding the foregoing, for the 1999 Program Year, the
parties shall have sixty (60) days to agree to the detailed costs and sales
components of the Annual Business Plan. Upon approval by the Steering Committee,
the Annual Business Plan shall serve as the Agent's parameters for implementing
the day-to-day operation of the Roundup Business; any Significant Deviations
from such Annual Business Plan shall require the prior approval of the Steering
Committee unless already approved by the Global Support Team and the Business
Unit pursuant to Section 4.2.(c ).
(13) ADDITIONAL ACTIONS. The Agent shall perform such
additional actions, consistent with this Agreement, as directed by the Steering
Committee, to implement any Significant Deviations from the Annual Business
Plans.
(b) Employee Performance Standards. The Annual Business Plan shall
set forth the employee performance standards required in the parties' opinion to
promote the achievement of the income targets for the Roundup L&G Business in
each given Program Year. The Annual Business Plan shall also specify the impact
which the failure to meet such performance standards may have on the incentive
schemes and bonus plans of the individual members of the Global Support Team and
those employees who are part of the Business Units in charge of the Roundup L&G
Business.
SECTION 2.3 APPOINTMENT OF SUB-AGENTS AND SUB-DISTRIBUTORS. The Agent
shall have the right to delegate part of its obligations under this Article 2 to
sub-agents and sub-distributors; provided, however, the Agent shall remain
primarily liable for all of its obligations hereunder and shall be primarily
liable for any act or omission of any such sub-agent or sub-distributor. To the
extent this Agreement creates any obligations on the Agent, such obligations
shall apply with respect to any sub-agents or sub-distributors, as the case may
be. In connection with the foregoing, any reports or other information to be
given to Monsanto shall be given by the Agent and shall include any information
applicable to sub-agents or sub-distributors, as the case may be.
Notwithstanding the foregoing, the Steering Committee shall have the exclusive
right to approve the appointment or termination of any sub-agent or
sub-distributor and the terms of any sub-agency or sub-distributorship agreement
(including any change or amendment thereto).
SECTION 2.4 LIMITATIONS ON AGENT. Notwithstanding anything in this
Agreement to the contrary, the Agent shall not, without the written consent of
the Steering Committee, take (or initiate) any of the following actions:
(a) Sell Roundup Products at a price or under terms not permitted
under the Annual Business Plan;
(b) Possess or use any property of Monsanto, except to the extent
necessary for Agent to perform its duties and obligations hereunder (e.g.,
in-store displays);
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<PAGE> 22
(c) Hold itself out as authorized to make on behalf of Monsanto
any oral or written warranty or representation regarding Roundup Products other
than what is stated on the applicable Roundup Products label or in other written
material furnished to the Agent by Monsanto; or
(d) Intentionally dilute, contaminate, adulterate, or substitute
any Roundup Products or sell any Roundup Products for which the indicated
measure or any other information on the label is known to the Agent to be
grossly false, misleading, or inadequate.
ARTICLE 3 - ACCOUNTING AND CASH FLOW FOR THE ROUNDUP L&G BUSINESS
The accounting and cash flow procedures and services described in
this Article 3 are intended to govern North America only, it being the
understanding of the parties that different procedures and services (including
the terms thereof) are required in regions other than North America. In
addition, the parties understand and agree that the services described in this
Article 3 with respect to North America will continue to be provided by Monsanto
until and unless the Agent acquires the Non-Roundup Assets. Accordingly, the
parties agree to negotiate in good faith and agree, within ninety (90) days from
the date of this Agreement, on the terms and conditions pursuant to which
Monsanto shall perform the services contemplated by this Article 3 in regions
other than North America. Upon agreement of the parties, such terms and
conditions shall be attached as Schedule 3.1 and shall be deemed to form a part
of this Agreement ab initio. Until the Agent assumes the performance of the
services described in this Article 3 with respect to North America and the
services to be described in Schedule 3.1 with respect to all other regions,
Monsanto shall continue to provide the services contemplated by this Article 3
on a basis necessary to service the Customers' needs and in accordance with the
Budget prescribed in the Annual Business Plan for the 1999 Program Year,
including the $35 MM cap on MAT Expenses.
SECTION 3.1. BOOKKEEPING AND FINANCIAL REPORTING.
(a) Bookkeeping. The Agent shall, on behalf of Monsanto, be
responsible for all the bookkeeping for the Roundup L&G Business, which shall
include, but not be limited to, (i) setting up a separate set of accounting
records reflecting all the items of income, profit, gain, loss and deduction
with respect to the Roundup L&G Business, including a profit and loss statement
("Roundup P&L") and all other records relating to the Roundup L&G Business
including sales invoices and customer data (the "Roundup Records") in accordance
with the written set of accounting policies (including the currency exchange
methodology used by Monsanto) as shall be provided by Monsanto; provided, that
if any change in Monsanto's accounting policies would adversely affect the
Agent's Commission (other than in a de minimis amount), the parties shall
negotiate in good faith to change the thresholds and/or the Commission, as
appropriate, to eliminate such adverse affect; (ii) collecting, recording and
safeguarding receipts of all receivables and payables, costs or expenses either
directly incurred by the Roundup L&G Business or Allocated thereto by either
party pursuant to the terms of
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<PAGE> 23
Section 3.3 hereof. At all times, the Agent shall make available via computer
and/or original documentation, to the Assigned Employees designated by Monsanto
continuous access to the Roundup Records as appropriate on a need-to-know basis,
such access shall include, but not be limited to, daily sales updates.
(b) Financial Reporting. The Agent shall provide to Monsanto
monthly financial statements, including (i) the Roundup P&L, balance sheet and
cash flow statements, (ii) the Netback expense detail (accruals and actuals),
(iii) all other Expense detail (accruals and actuals), and (iv) Cost of Goods
Sold detail. Such monthly financial statements shall be provided (i) in their
preliminary form, no later than four (4) business days following the end of the
calendar month, and (ii) in their final form, together with an estimate of sales
for the current month, no later than six (6) business days following the end of
the calendar month.
(c) Audit. Monsanto shall have the right to periodically audit or
have an independent accountant audit, on Monsanto's behalf, all the Roundup
Records. The audit shall be at the cost of Monsanto unless any material error
has been committed by the Agent, in which case the Agent shall bear the cost of
the audit. Upon exercise of its right of audit, and discovery of any disputed
item, Monsanto shall provide written notice of dispute to the Agent. The parties
shall resolve such dispute in the manner set forth in Section 3.4 hereof.
SECTION 3.2. ORDERING, INVOICING AND CASH FLOW CYCLE.
(a) Ordering and Invoicing. The Agent shall perform, on behalf of
Monsanto, all order taking, order processing and invoicing for the Roundup
Products, it being understood that orders filled for Roundup Products shall be
invoiced on the invoices used by the Agent for its other non-Roundup products
provided such invoices or their EDI version shall (i) identify the Agent as an
agent for Monsanto for the sale of all Roundup Products and Monsanto as the
actual transferor of title to Roundup Products; (ii) direct payment of such
invoice to be made directly to the account designated by the Agent; and (iii)
include all taxes (other than Income Taxes), duties, and other charges imposed
by governmental authorities based on the production or sale of Roundup Products
or their ownership or transportation to the place and time of sale
(b) Customer Remittances. Customers of Roundup Products shall be
directed, as per the invoices, to remit directly the invoiced amounts for all
Roundup Products to the Agent's designated bank account.
(c) Daily Receipts. On or before October 31, 1998, the parties
shall determine, based on the Program Year ending on September 30, 1998, the
average daily pro rata share of Customers' remittances for the purchase of
Roundup Products versus the non-Roundup products sold by Monsanto to said
Customers during such period. Using said daily pro rata share, the Agent shall,
on a daily basis, remit to the account designated by Monsanto for such purposes,
the estimated portion of Customers' remittances for the Roundup Products. At the
end of each month, the Agent shall verify the actual amount of the Customers'
remittances for the Roundup Products paid over the past month and shall send to
Monsanto a monthly reconciliation
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<PAGE> 24
statement, either with a check in the event the actual amount exceeds the total
daily prorated estimate paid out to Monsanto for such month or with an
adjustment request in the event the actual amount is below the total daily
prorated estimate paid out to Monsanto for such month. Customer payment
deductions that do not initially, clearly apply to Roundup Products shall not be
withheld by the Agent from the daily remittances to Monsanto. If the Agent
subsequently determines any of such payment deductions apply to sales of Roundup
Products, the Agent shall be reimbursed therefor as part of the monthly cash
reconciliation. Monsanto and the Agent agree that general Customer payment
deductions will be prorated based on applicable sales, for which the Agent will
also be reimbursed in the monthly cash reconciliation. Any non-Roundup Product
payment deductions, for whatever reason, shall not be applied against Roundup
Products.
(d) Roundup Bank Accounts. Monsanto shall establish or use
existing bank accounts (the "Roundup Bank Accounts") to serve as the bank
accounts dedicated exclusively to the Roundup L&G Business (i) for the receipt
of Monsanto's daily disbursements as described in Section 3.2(c), and (ii) for
making any and all payments incurred in connection with the Roundup L&G Business
either as direct Expenses of the Roundup L&G Business or as reimbursements to
either party for services rendered or out of pocket costs related to the Roundup
L&G Business as described more particularly in Section 3.3 hereof. Monsanto
shall grant the Agent's nominee the authority to manage the Roundup Bank
Accounts on Monsanto's behalf, and more generally take any and all actions
requested for the payment of all the Roundup L&G Business Expenses in compliance
with the terms of Section 3.3 hereunder as per the Cash Flow Chart attached
hereto as Schedule 3.2(d); provided that checks in an amount over $25,000 shall
also require the co-signature of an Assigned Employee or a member of the Global
Support Team. Monsanto shall further cause such Roundup Bank Accounts to have at
all times a zero balance account but to receive immediate and automatic funding
upon presentation of any checks. Monsanto may perform its own reconciliation of
the Roundup Bank Accounts and may conduct a weekly review of the check register.
SECTION 3.3. EXPENSES AND ALLOCATION RULES
(a) Expenses. Each and every Expense, either as a direct expense
or an allocated one, shall only be charged to the Roundup L&G Business and
consequently taken into account in the Program EBIT statements set forth in
Section 3.6(c) hereto if part of a category of Expenses specifically authorized
by the terms of the Annual Business Plan and within the aggregate amount
prescribed in the Annual Business Plan for such category of Expense ("Budget")
("Approved Expense"). Any Expense which shall exceed its prescribed Budget shall
solely be the responsibility of the party incurring it unless such expense is
required to implement an approved Significant Deviation from the Annual Business
Plan or is necessary to support sales orders above budgeted sales pursuant to
sales programs contemplated by the Annual Business Plan.
(b) Direct vs. Allocated. Each party shall have the right to
verify whether any particular Expense is an Approved Expense by sending a
written inquiry to that effect to the Agent's nominee. The party incurring an
Expense shall endeavor to promptly provide upon
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<PAGE> 25
request of the Agent's nominee the appropriate documentary evidence supporting
such Expense. Upon failure by the said party to provide the appropriate
documentary evidence, the inquiring party shall have the right to send a written
notice of dispute to the other party and the parties shall resolve such dispute
in the manner set forth in Section 3.4 hereof. Upon determination by such
Independent Accountant (as defined below) that the Expense was not Approved,
such Expense shall be deducted from the Program Expenses and the party having
incurred such Expense shall either promptly reimburse it to the Roundup Bank
Account, or shall withdraw its request for reimbursement if not reimbursed yet.
Expenses shall be classified into (i) direct expenses of the Roundup
L&G Business payable to vendors, which shall be submitted directly to the
Agent's nominee for payment out of the Roundup Bank Account or (ii) as Allocated
Expenses which shall be submitted by either party to the Agent's nominee for
reimbursement out of the Roundup Bank Account. Payment of any direct expenses
incurred by either party on behalf of the Roundup L&G Business shall be made as
they become due in accordance with the applicable commercial terms agreed upon
with each vendor.
Allocated Expenses shall be paid on the fifteenth (15th) day of each
month provided such allocated Expenses shall be submitted in writing no more
than five (5) days after the end of each month to the Agent's nominee in charge
of the Roundup Bank Account.
(c) Allocation Rules. In the performance of their obligations
under this Agreement, each party shall incur allocated Expenses directly related
to the Roundup L&G Business. Each allocated Approved Expense, regardless of the
party incurring it, shall be reimbursed as described in Section 3.5(b) provided
such expense shall be allocated in accordance with the Allocation Rules set
forth for each category of cost and service per country or region, as the case
may be, in Schedule 3.3(c) attached hereto ("Allocated Expense").
SECTION 3.4. RESOLUTION OF DISPUTES ARISING UNDER ARTICLE 3. Unless
otherwise agreed by the parties, each party shall have the right, within twenty
(20) days of receipt of the quarterly or annual financial statements to send a
written notice of dispute to the other party. Upon receipt of such notices of
dispute, the parties shall undertake the following steps:
(i) First, for a period of fifteen (15) days, the parties shall
negotiate in good faith for the purposes of attempting to mutually agree upon
the item in dispute;
(ii) Second, if parties are unable to mutually agree upon the item
in dispute, then within seven (7) business days following the expiration of such
fifteen (15) day period, the parties shall agree in writing upon the selection
of a nationally recognized independent accounting firm (the "Independent
Accountant") to resolve the dispute. If the parties cannot agree upon such
Independent Accountant within such time frame, then the Independent Accountant
shall thereupon be selected by the American Arbitration Association (the "AAA"),
with preference being given by the AAA in making such selection to any one of
the "Big Five" accounting firms (except for any firm which performs accounting
services for either party)
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<PAGE> 26
willing to perform the services required hereunder. The Independent Accountant
shall be instructed to act within thirty (30) days to resolve the dispute, and
its decisions with respect to the dispute shall be final and binding upon the
parties. The fees and expenses of the Independent Accountant with respect to the
settlement of the dispute shall be borne equally by the parties.
SECTION 3.5. FIXED CONTRIBUTION TO EXPENSES
(a) Amount and Purpose. Each Program Year the Agent shall make a
fixed contribution to the overall Expenses of the Roundup L&G Business in an
amount equal to twenty million U.S. Dollars ($20,000,000) ("Contribution
Payment"). Such Contribution Payment shall be payable by the Agent to Monsanto
in twelve equal monthly installments which shall be due on the first day of each
month and shall not be subject to any "set-off".
(b) Temporary Deferral. Notwithstanding the foregoing, but subject
to Section 10.9, for the first three Program Years, all or part of the
Contribution Payment shall be deferred as shown in Table 1 set forth below. Such
forty million U.S. Dollars ($40,000,000) deferral shall not be deemed to
constitute a loan by either party but a mere cash flow adjustment between the
parties.
<TABLE>
<CAPTION>
Table 1
-------
Year Contribution Payment Amount Deferred
---- -------------------- ---------------
<S> <C> <C>
1999 -0- $20MM
2000 $ 5MM $15MM
2001 $15MM $ 5MM
2002 $20MM
2003-18 $25MM until the full $40MM bearing an 8% interest
(starting to run on the date each monthly
installment would otherwise be due) is entirely
recovered by Monsanto, at which point the
Contribution Payment shall revert to $20MM per
Program Year.
</TABLE>
Notwithstanding the above payment schedule shown in Table 1 beginning
in Program Year 2001, recovery of such deferral shall be accelerated with the
Contribution Payment being increased by 50% of the amount by which the Agent's
Net Commission exceeds the amounts shown in Table 2 set forth below. Any such
increase of the Contribution Payment shall be paid by adjusting the latest
monthly installment upon receipt of the final Program EBIT statement by November
30 of every calendar year. For purposes of this Section 3.5(b), "Net Commission"
means the Commission as determined pursuant to the terms of Section 3.6(a) less
the Contribution Payment applicable pursuant to this Section 3.5.
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Table 2
-------
Year Net Commission Level
---- --------------------
2001 $32.5MM
2002 $28.1MM
2003 $26.7MM
2004 $30.5MM
2005 $34.6MM
2006 $38.9MM
2007 $43.5MM
2008 $49.0MM
Upon termination of this Agreement for any reason other than
Egregious Injury, Material Fraud or Material Willful Misconduct on the part of
the Agent, Monsanto shall forfeit recovery of any portion of the $40MM (or
interest thereon) unpaid on the date of termination.
SECTION 3.6. COMMISSION.
(a) Amount of Commission. In consideration to the Agent for
performance of its duties and obligations hereunder, the Agent shall be entitled
to a Commission ("Commission"). Such Commission shall represent a percentage of
the Program EBIT realized by the Roundup L&G Business, which percentage shall
vary in accordance with the formula set forth below.
<TABLE>
<CAPTION>
Amount of Program EBIT
--------------------------------------------------------------
Year First Commission Threshold Second Commission Threshold
---- -------------------------- ---------------------------
<S> <C> <C>
1999-2000 $30,000,000 $80MM
2001 $31,250,000 $80MM
2002 $32,531,250 $80MM
2003 $33,844,531 $80MM
2004 $35,190,645 $80MM
2005 $36,570,411 $80MM
2006 $37,984,471 $80MM
2007 $39,434,288 $80MM
2008 $40,920,145 $80MM
2009+ $30,000,000 $80MM
</TABLE>
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The Commission shall be equal to:
<TABLE>
<CAPTION>
Amount of Program EBIT Multiplied By
----------------------------------------- -------------
<S> <C>
(1) 0 - First Commission Threshold: 0%
(2) Second Commission Threshold less
First Commission Threshold: 46% in Program Year 1999*
44% in Program Year 2000
40% thereafter
(3) Above the Second Commission
Threshold: 50%**
</TABLE>
*1999 Program EBIT shall be increased by $15MM.
**subject to Section 3.5(b).
Provided both the First and Second Commission Thresholds set forth above may be
amended from time to time by mutual agreement of the parties following the
inclusion or exclusion of either new or existing countries in the Included
Markets. In the event of a Regional Performance Default in the UK or in France,
there shall be no adjustment to either the First Commission Threshold or the
Second Commission Threshold. In the event of a Regional Performance Default in
any region other than the UK and France, both thresholds shall be reduced by
such region's pro rata contribution to the preceding Program EBIT.
Notwithstanding the foregoing, in the event of the non-renewal of the EU Term
due to Monsanto, the First Commission Threshold shall be reduced to -0- for the
remainder of the term of this Agreement.
(b) Payment of Commission. Within thirty (30) days following the
end of each month, the Agent, on behalf of Monsanto shall determine whether a
Commission becomes payable, i.e., whether the cumulative Program EBIT for the
Program Year up to the preceding month equals an amount in excess of the First
Commission Threshold. If so, the Agent, on behalf of Monsanto shall by check or
wire transfer, to the Agent's designated account for the payment of the
applicable Commission pursuant to the formula set forth in Section 3.6(a)
subject to any adjustments pursuant to Section 3.6(c).
(c) Final Determination. Within fifteen (15) days following the
end of each Program Year, the Agent shall deliver to Monsanto a Commission
statement which shall contain the final determination of the Commission due at
the expiry of the Program Year and shall set forth any eventual adjustments, to
the amounts paid up to the Agent under Section 3.6(b) during the preceding
Program Year. If within fifteen (15) days following the receipt of such
Commission statement by the Agent, Monsanto does not provide the Agent written
notice of objection to the Commission statement, the amount of the Commission
for such Program Year shall be as provided thereon. If within such fifteen (15)
days following receipt of such Commission statement by Monsanto, Monsanto does
provide the Agent written notice of objection to the Commission statement, the
parties shall resolve such dispute in the manner set forth in Section 3.4
hereof.
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<PAGE> 29
SECTION 3.7. MARKETING FEE. In consideration for the rights and
benefits granted to the Agent hereunder exclusively for North America as hereby
expressly acknowledged and agreed to by both parties, the Agent shall pay to
Monsanto, on or before September 30, 1998, an amount equal to thirty-two million
U.S. Dollars ($32,000,000) (the "Marketing Fee") in immediately available funds.
SECTION 3.8. ADDITIONAL COMMISSION
(a) The parties acknowledge that Monsanto currently sells
Glyphosate-based products current under the Roundup trademark, directly or
indirectly, to professional, industrial and agricultural users ("Roundup Ag
Products"). Monsanto acknowledges that one of such Roundup Ag Products, the 2.5
gallon SKU containing 41% concentration of Glyphosate (the "2.5 Gallon SKU"), is
currently being sold through those certain Lawn and Garden Channels in the
United States set forth on Schedule 3.8 attached hereto and may be purchased by
consumers in the Lawn and Garden Market. Schedule 3.8 also sets forth Monsanto's
(but not its distributions) sales into Lawn and Garden Channels in the U.K. and
France. Monsanto also acknowledges its obligations pursuant to Section 6.13(b)
hereof.
(b) On and after the Effective Date, the Agent shall support and manage
the sale of the 2.5 Gallon SKUs that were previously being sold directly by
Monsanto through such Lawn and Garden Channels. As compensation therefor, in
addition to the Commission otherwise payable to the Agent hereunder, the Agent
shall be paid a 10% commission on all such sales of 2.5 Gallon SKUs sold through
the Lawn and Garden Channels in the United States set forth on Schedule 3.8. The
parties acknowledge that the sales resulting from such 2.5 Gallon SKUs shall not
be included in the Program Sales Revenues hereunder.
(c) Except to the extent provided in Section 3.8(b) above, on and after
the Effective Date, Monsanto shall use its reasonable efforts to ensure that
Roundup Ag Products are not sold, directly or indirectly, through Lawn and
Garden Channels to consumers in the Lawn and Garden Market in the Included
Markets. In the event that in the normal course of business the Agent determines
based on satisfactory evidence that a material amount of the 2.5 Gallon SKU is
being sold directly by Monsanto through Lawn and Garden Channels for Lawn and
Garden Use in the United States other than as set forth on Schedule 3.8 or a
material amount of additional Roundup Ag Products above historical sales levels
as of the date of this Agreement is being sold through Lawn and Garden Channels
to consumers for Lawn and Garden Use in the Included Markets, the parties shall
negotiate in good faith to include, subject to the principles set forth in
Section 3.8(e), an appropriate percentage of such incremental sales to reflect
such Lawn and Garden Use within the definition of Program Sales Revenues so that
the Agent receives credit therefor for purposes of calculating the Agent's
Commission.
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<PAGE> 30
(d) Prior to the finalization of the Annual Business Plan for each
program Year, Monsanto shall provide the Agent with notice of any significant
changes in the pricing of any Roundup Ag Product that may be sold through Lawn
and Garden Channels for Lawn and Garden Use in any Included Market during such
Program Year. For the thirty (30) days after receipt of such notice, the parties
shall negotiate in good faith, and the Steering Committee shall affect, if so
agreed, an appropriate adjustment to the Agent's Commission and/or Thresholds to
address the impact of such proposed pricing changes on the Annual Business Plan
for such Program Year. In the event the parties are unable to reach agreement
within such thirty (30) day period, the Agent's Commission and/or Thresholds
shall remain unchanged provided that at the end of the such Program Year the
Agent shall have the right to request a retroactive adjustment of the Commission
or Threshold for such Program Year upon demonstrating, based on actual numbers
for such Program Year, a significant impact on the Roundup Lawn and Garden
Business.
(e) In implementing the foregoing, the parties shall follow the
following principles: (i) that Monsanto's sales of Roundup Ag products are not
intended for Lawn and Garden Use and that Monsanto shall not sell Roundup Ag
Products directly or promote the indirect sale thereof, through Lawn and Garden
Channels to consumers for Lawn and Garden Use in the Included Markets and (ii)
that there shall be no transfer of historical or future sales of Roundup Ag
products in the Ag Market into Program Sales Revenues. Furthermore, the parties
acknowledge that Roundup Ag Products having a formulation consisting of 41% or
more Glyphosate and in container sizes over 2.5 gallons in the United States or
over one liter in the other Included Markets shall be presumed to have no Lawn
and Garden Use and therefor that sales of such Roundup Ag Products shall not be
deemed to compete with Roundup Products in a manner that would justify
adjustment of the calculation of Program Sales Revenues; provided that if the
Agent is able to demonstrate to the Steering Committee that a material change in
the amount of such Roundup Ag Products above historical sales levels as of the
date of this Agreement are being sold through Lawn and Garden Channels to
consumers for Lawn and Garden Use in the Included Markets, the parties shall
negotiate in good faith pursuant to Section 3.8(c) to adjust the calculation of
Program Sales Revenues.
(f) In order to demonstrate the foregoing, by way of example only: (i)
Assume that sales of 2.5 Gallon SKUs in the U.S. by Monsanto, directly or
indirectly, through Lawn and Garden Channels in the Included Markets set forth
on Schedule 3.8 for the 1999 Program Year are $10MM; (ii) assume that the sales
of such 2.5 Gallon SKUs for the corresponding period from October 1, 1997
through September 30, 1998 were $6MM; and (iii) assume that of such incremental
$4MM of sales in the 1999 Program Year, 40% are to consumers in the Lawn and
Garden Market and 60% are to consumers in the Ag Market. In such event, with
respect to the 1999 Program Year, the Agent would be entitled to an additional
commission equal to $840,000, comprised of 10% of $6MM (the historical sale
level of 2.5 Gallon SKUs) and 10% of $2.4MM (60% of the $4MM in incremental
sales of 2.5 Gallon SKUs), and that Program Sales Revenues for the 1999 Program
year will be increased by $1.6MM (40% of the incremental $4MM in sales). A
similar analysis would apply to sales of other Roundup Ag Products, other than
the 2.5 Gallon SKU, through Lawn and Garden Channels to consumers in the Lawn
and Garden Market.
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<PAGE> 31
ARTICLE 4 - ROUNDUP L&G BUSINESS MANAGEMENT STRUCTURE
SECTION 4.1. UNDERLYING PRINCIPLES FOR THE ROUNDUP L&G BUSINESS
MANAGEMENT STRUCTURE
(a) The Roundup L&G Business management structure, as described in this
Article and in Schedule 4.1(a), has been created for the purposes of fostering
and promoting the following interests of the parties:
(i) Common Interests:
(A) achieve the maximum volume and profit levels for the
Roundup Business;
(B) continue to strengthen the Roundup brand; and
(C) leverage the strengths of both parties while working
together in a constructive and harmonious way.
(ii) Monsanto's Interests:
(A) retain ability to resume full management of the Roundup
Business upon termination of this Agreement;
(B) retain control over key business decisions; and
(C) provide global stewardship of the Roundup brand.
(iii) The Agent's Interests:
(A) manage the Roundup Business within the parameters of
approved Annual Business Plans;
(B) have clear reporting relationship to Business Units heads
for all Assigned Employees within the Business Units; and
(C) have clear definition of roles and responsibilities for
all Assigned Employees within the Business Units.
(b) The parties understand that such structure may be amended from time
to time by mutual agreement of the parties provided any such change shall take
into account the respective interests of each party as described hereunder.
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<PAGE> 32
SECTION 4.2. STEERING COMMITTEE.
(a) Appointment. Monsanto and the Agent shall each appoint by April 1
of each year two (2) executives to a steering committee ("Steering Committee")
provided, however, any vacancy shall be filled in such a manner that the parties
shall maintain their respective proportionate representation on the Steering
Committee and that upon failure by either party to appoint said two (2)
executives by such time, the two (2) executives previously appointed by such
party shall be deemed appointed for another Program Year. Notwithstanding the
foregoing, the members of the Steering Committee for the Program Year 1999 shall
be the individuals whose names are set forth as Schedule 4.2(a) attached hereto.
In addition, the head of the North America Business Unit shall be entitled to
participate, with no voting right, at every meeting of the Steering Committee,
and to invite, as the need may arise, the heads of the other Business Units to
said meetings (equally without voting rights).
(b) Meetings, Quorum and Voting Requirements.
(1) Meetings. The Steering Committee shall meet at least once a
year for purposes of approving the Annual Business Plan no later than September
15 of every calendar year. Any member of the Steering Committee shall have the
right to call a special meeting of the Steering Committee provided a prior
written notice of at least fifteen (15) days shall be given to each member
together with an agenda for such meeting.
(2) Quorum and Voting Requirements. The quorum for any meeting of
the Steering Committee shall require the participation of all four (4) members
except that any member shall be deemed present when participating via phone or
video conference. Any decisions by the Steering Committee may be taken by the
affirmative vote of a majority of three (3) of the members of the Steering
Committee. In the event of a deadlock, when a particular vote is divided equally
between the four members, the matter shall be submitted to the president of
Monsanto's Ag division, who shall have the exclusive discretion to resolve the
matter and such decision shall bind the Steering Committee to such action or
inaction. Notwithstanding any future assignment of this Agreement to a third
party by reason of a Roundup Sale, the President of Monsanto's Ag division shall
retain its right of veto in case of deadlock of the Steering Committee.
For every meeting of the Steering Committee, minutes shall be
kept and circulated for approval to all four members. Every decision of the
president of Monsanto's Ag division shall also be recorded in writing and
distributed to the members of the Steering Committee.
(c) Authority. The Steering Committee shall:
(i) approve all Annual Business Plans, and any Significant
Deviations (as described in Section 4.3(c)) therefrom not
previously approved jointly by the Business Units and the
Global Support Team;
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(ii) approve any and all strategic plans;
(iii) review monthly reports submitted by the Business Units for
the purposes of monitoring achievement and redirecting the
Business Units by issuing a formal amendment to the Annual
Business Plan then in effect;
(iv) monitor and redirect, if need be, the performance of the
Global Support Team;
(v) approve any decisions relating to key personnel assigned to
the Roundup Business within the Business Units, including
Monsanto's and the Agent's employees;
(vi) resolve any disagreement occurring between a Business Unit
and the Global Support Team; and
(vii) decide any other matter mutually agreed upon by Monsanto and
the Agent.
SECTION 4.3. BUSINESS UNITS.
(a) Role and Reporting. The Roundup L&G Business shall be managed, on
behalf of the Agent, by its respective pesticide business units in North
America, Europe and Asia ("Business Units") provided that, for the management of
the Roundup L&G Business, the head of each of the three Business Units shall
report directly to the Steering Committee.
(b) Monsanto's Assigned Employees. For the term of this Agreement,
Monsanto shall assign the equivalent of fifteen (15) of its own employees
("Assigned Employees") to fulfill the functions set forth in Schedule 4.3(b)
within the three Business Units. The number of said Assigned Employees may vary
from time to time upon mutual agreement. Monsanto may, from time to time, with
the Agent's written approval, substitute individuals to serve as the Assigned
Employees, by providing prior written notice thereof to the Agent. The Assigned
Employees shall serve under the guidance and supervision of the Business Unit
head of the Business Unit they shall join.
Monsanto shall remain the employer of the Assigned Employees for
all purposes of any and all liability and health insurance, employee benefit
plans, and workers compensation coverage, and shall be responsible for all
compensation and other benefits. Performance reviews shall be first recommended
by the Business Unit head in charge of such Assigned Employees.
(c) Duties. The three Business Units shall be responsible for:
(i) taking any and all necessary actions to implement the
approved Annual Business Plan and strategic plans, as may be
amended from time to time, either by mutual agreement of the
Business Unit and the Global Support Team or by the Steering
Committee as described in Section 4.2(c);
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(ii) managing the day-to-day Roundup L&G Business;
(iii) developing and submitting, in cooperation with the Global
Support Team all strategic and Annual Business Plans;
(iv) communicating, in writing or via meetings, on a regular
basis, with the Global Support Team on all significant
issues affecting the Roundup L&G Business; and
(v) notifying the Global Support Team of any deviation to the
Annual Business Plan, which, in their view, is reasonably
likely to have a financial impact on the Program EBIT of at
least $500,000 or constitutes a significant deviation from a
non-financial item approved in the Annual Business Plan
("Significant Deviation").
SECTION 4.4. GLOBAL SUPPORT TEAM.
(a) Appointment. Monsanto shall name three (3) individual employees of
Monsanto to form a support team (the "Global Support Team") whose names and
individual responsibilities are described on Schedule 4.4(a) as attached hereto.
Monsanto may from time to time substitute any individual serving on the Global
Support Team, with the written approval of the Agent, by providing a prior
written notice to the Agent to such effect.
(b) Duties. The Global Support Team shall be responsible to:
(i) participate actively in the development of all strategic and
Annual Business Plans;
(ii) act as a liaison between any of Monsanto's functions or
departments providing a support service to the Roundup
Business (such as R&D, regulatory, etc.) and monitor the
quality of services rendered;
(iii) provide stewardship for the Roundup brand image worldwide;
(iv) prepare internal assessments of the performance of the
Roundup L&G Business for Monsanto management;
(v) review, and approve any performance reviews prepared by the
Business Unit head for any of the Assigned Employees;
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(vi) participate in planned key customer interactions and program
presentations, either by participation in meetings or in
preparatory sessions therefor;
(vii) review and approve any material change or deviation in
consumer communication, mass media, packaging design or any
other marketing tactic that directly impacts the consumer
perception and interface with the brand which may occur from
time to time;
(viii) review and approve any Significant Deviation from the
Annual Business Plan; and upon failure to agree with the
Business Unit, prepare a recommendation to submit to the
Steering Committee for resolution, provided that the
Business Unit may similarly prepare a recommendation to
submit to the Steering Committee.
ARTICLE 5 - DUTIES AND OBLIGATIONS OF MONSANTO
SECTION 5.1. MONSANTO'S OBLIGATIONS AND RIGHTS. Subject to Section
2.2(a)(ii) and Article 3, unless and until expressly directed otherwise by the
Business Units, with the prior written approval of the Steering Committee
Monsanto shall continue to support the Roundup L&G Business by performing
necessary services. Notwithstanding the foregoing, at all times during the term
of this Agreement, Monsanto shall be solely responsible for the following
functions:
(a) Research and Development. Monsanto shall, in its sole
discretion, continue to develop new Glyphosate-based herbicide formulations more
particularly as described in Section 6.10 hereof;
(b) Regulatory Compliance. Monsanto shall be responsible for
ensuring that all Roundup Products and the labels for such products comply with
the USEPA and applicable Laws of each state and country within the Included
Markets, including obtaining and maintaining all governmental registrations,
registration applications, temporary registrations, all data pertaining to such
registrations as submitted to governmental agencies, experimental use permits,
applications and emergency use exemptions, all with respect to the Roundup
Products;
(c) FIFRA 6(a)(2). Monsanto shall be responsible for maintaining a
customer response center relating to Roundup Products, which will solely manage
the medical response calls (including human and animal health-related calls) and
related FIFRA 6(a)(2) issues (the "CRC"). Monsanto shall be responsible for all
reports related thereto, including (without limitation) reports to any
regulatory or government authority pursuant to any applicable Law; and
(d) Sales Promotion. Monsanto shall, in accordance with the Annual
Business Plan, promote the sales and consumer acceptance of Roundup Products by:
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(i) providing suitable training to the Agent's representatives
or employees in the areas of product knowledge and product stewardship; and
(ii) providing the Agent and Customers with technical and
product information, manuals, promotional bulletins, presentation kits and other
sales aid materials.
SECTION 5.2. WARRANTIES. For Roundup Products with which Monsanto
offers a "written warranty," whether within the meaning of the Magnuson-Moss
Warranty--Federal Trade Commission Improvement Act, 15 United States Code
Annotated, Section 2301, or otherwise, Monsanto shall honor those warranties in
accordance with such terms.
ARTICLE 6 - REPORTS AND ADDITIONAL OBLIGATIONS OF THE PARTIES
SECTION 6.1. COOPERATION. The Agent and Monsanto shall cooperate with
each other so as to facilitate the objectives set forth in this Agreement and
shall act in good faith and in a commercially reasonable manner in performing
their respective duties hereunder.
SECTION 6.2. USE OF EDI. Monsanto, the Agent, the Steering Committee,
and the Global Support Team will exchange a broad range of operating data on a
periodic basis. The method of exchange will be approved by the Steering
Committee and will include both file transfer and EDI protocol.
SECTION 6.3. THE AGENT'S SYSTEMS AND REPORTING OBLIGATION. The Agent
shall establish and maintain all such systems and procedures (financial,
logistical, or otherwise) as reasonably requested by Monsanto or the Steering
Committee in connection with the Agent's performance under this Agreement. For
all reports, the data will include current period and current YTD; and
comparisons with same period and YTD for the year previous. Specifically, the
Agent shall provide the following reports:
(a) Weekly Reports. On the second business day of each week, the
Agent shall provide to the Global Support Team update reports for the prior
week, showing: (i) dollar and case shipments by the top 25 Customers and by SKU
(stock keeping unit), (ii) inventory levels by SKU for North America, (iii)
collection activities by the top 25 Customers, (iv) agency fill rate for the top
10 Customers (Roundup Products ordered by Customers and shipped by the Agent by
line item, unit and dollar amount), and (v) POS sell-through by SKU by the top 7
Customers that provide such information.
(b) Monthly Reports. On the sixth business day of each Month, the
Agent shall provide to the Steering Committee and Monsanto (i) the type of data
contained in the weekly reports (as set forth in Section 6.3(a)) for the prior
calendar month and the current year-to-date, (ii) full P&L, balance sheets and
cash flow statements, (iii) Netback expense detail (accruals and actuals), (iv)
Expense detail (accruals and actuals), (v) Cost of Goods Sold detail, in each
case comparing such information against budget, and against the previous year.
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(c) Quarterly Reports. The Agent shall provide to the Steering
Committee and Monsanto, on a Quarterly basis and on a form provided by the
Steering Committee (i) a summary of purchases of Roundup Products, in total
cases or units, made by each Customer which is designated by the Steering
Committee, (ii) inventory level by SKU by Customer and (iii) updated full year
forecast.
(d) Annual Reports. The Agent shall provide to the Steering
Committee and Monsanto, on an Annual basis and on a form provided by the
Steering Committee (i) bridge and tracking capability from Program Year to
calendar year, (ii) a budget and (iii) a long range plan.
(e) Other Reports. In addition, the Agent shall provide Monsanto or
the Steering Committee with such other reports as may be reasonably requested
within a period not to exceed thirty (30) days from such request.
SECTION 6.4. EMPLOYEE INCENTIVES. Recognizing that, as Monsanto's
exclusive agent for sale and distribution of Roundup Products, the Agent is to
promote the sale of Roundup Products NO LESS aggressively than any other product
or product line that the Agent sells, the Agent shall cause its appropriate
officers and other management to devote an appropriate portion of their personal
efforts to the sale and distribution of Roundup Products covered by this
Agreement. Further, the Agent shall ensure that the appropriate personnel are
compensated in a manner to encourage them to promote the sale of Roundup
Products no less aggressively than any other product or product line that the
Agent sells.
SECTION 6.5. INSURANCE. The Agent, shall, during the term of this
Agreement, maintain full insurance against the risk of loss or damages to the
Roundup Products for any Agents' warehouse where Roundup Products are under the
custody of the Agent and, upon request, shall furnish Monsanto with satisfactory
evidence of the maintenance of said insurance. Further, each party shall make
all contributions and pay all payroll taxes required under federal social
security laws and state unemployment compensation laws or other payments under
any laws of a similar character as to its own personnel involved in the Roundup
L&G Business (including any purported "independent contractors" subsequently
classified by any authority under any Law, as an employee) in connection with
the performance of this Agreement.
SECTION 6.6. LIENS. Subject to the provisions of any existing
intercreditor agreement to which Monsanto is currently a party (as the same may
be amended, modified or terminated) and except as may otherwise be agreed to by
Monsanto, which agreement shall not be unreasonably withheld in the case of
similar arrangements with existing or future institutional lenders, the Agent
agrees not to allow any liens or encumbrances of any nature to attach to Roundup
Products. At Monsanto's request, the Agent, sub-agent, or sub-distributor shall
execute such financing statements, security agreements and other documents as
Monsanto may reasonably request to create, perfect, and continue in effect its
security interests hereunder.
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SECTION 6.7. PROMOTING SAFE USE-PRACTICES. Roundup Products may be or
become hazardous unless used in strict accordance with Monsanto's product
labels. The Agent shall use commercially reasonable methods to inform and
familiarize its employees, agents, Customers, contractors (including
warehousemen and transporters) and others who may handle or use Roundup Products
of the potential hazards pertaining thereto (including accidental breakage or
fire), and shall stress the safe use and application of Roundup Products in
strict accordance with Monsanto's product labels. In addition, the Agent shall
provide HM126F training to its personnel as required by the United States
Department of Transportation (and such other training as may be required by
other countries within the Included Markets). The Agent shall have the
responsibility to dispose of waste materials in accordance with all applicable
Laws.
SECTION 6.8. MONSANTO INSPECTION RIGHTS. From time to time, as Monsanto
or the Steering Committee may request, the Agent shall permit, upon reasonable
request and during normal business hours, representatives of Monsanto or the
Steering Committee to inspect, with regard to Roundup Products, the Agent's
inventories, warehousing, and shipping procedures.
SECTION 6.9. RECALLS. The Agent shall cooperate with Monsanto, and
promptly take such actions as requested by Monsanto, with respect to any
defective product including any "stop-sales" or recalls for Roundup Products.
SECTION 6.10. NEW ROUNDUP PRODUCTS. During the term of this Agreement,
Monsanto covenants and agrees to first offer (the "Product Offer") to the Agent
the exclusive agency and distribution rights to any newly created non-selective
herbicide product, which is not marketed for Lawn and Garden Use as of the date
of this Agreement, and which Monsanto, in its exclusive, reasonable discretion,
determines to be suitable for sale as a new product for Lawn and Garden Use (the
"New Product"); provided, however, that for the Lawn and Garden Market, that any
new product containing Glyphosate or another non-selective herbicide shall be
considered to be a New Product. The Product Offer shall be in writing, shall be
in sufficient detail describing such New Product, and shall be made within sixty
(60) days of the date of commercialization of such New Product for uses other
than Lawn and Garden Use. In no event shall Monsanto, directly or indirectly,
commercialize any New Product for Lawn and Garden Use without first offering
such New Product to the Agent pursuant to the terms of this Section 6.10. If the
Agent agrees in writing within ninety (90) days of receipt of the Product Offer
to accept the New Product, then such New Product shall be, without further
action or amendment, included within the definition of Roundup Products and be
subject to the terms and conditions of this Agreement. In such event, the
parties shall adjust the Commission Thresholds to reflect this additional source
of revenue unless the New Product is a Glyphosate-based product or an
improvement of any existing Roundup Products in which case the Commission
Thresholds shall remain the same. If the Agent fails to agree in writing to
accept the Product Offer within such ninety (90) days of receipt, then Monsanto
shall have the exclusive right to manufacture, package, promote, distribute, and
sell such New Product, regardless of any actual or potential conflict with the
terms of Agreement.
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SECTION 6.11. [Intentionally Omitted.]
SECTION 6.12. CONFIDENTIALITY. Except as necessary for its performance
under this Agreement, except as may be required by the federal securities laws
or other applicable laws and except to the extent required under certain
existing agreements to which Monsanto is a party (i.e., AHP Merger Agreement),
neither party shall at any time or in any manner, either directly or indirectly,
and neither party shall permit its employees to use, divulge, disclose or
communicate to any person or entity any "confidential information" of the other
party. For purposes of this Section 6.12, "confidential information" includes
any information of any kind, nature, or description that is proprietary, treated
as confidential by, owned by, used by, or concerning any matters affecting or
relating to the business of a party or the subject matter of this Agreement,
including but not limited to, the names, business patterns and practices of any
of its customers, its marketing methods and related data, the names of any of
its vendors and suppliers, the prices it obtains or has obtained or at which it
sells or has sold products or services, lists, other written records, and
information relating to its manner of operation. Notwithstanding the foregoing,
"confidential information" shall not include any information which (i) is or
becomes public knowledge through no fault or wrongful act of the party
disclosing such information or its employees, (ii) was known by such party prior
to any agency or distributor relationship with the other party or any
predecessor, (iii) is received by such party pursuant to the Formulation
Agreement and which is not otherwise confidential information, or (iv) is
received from a third party who is not obligated to keep such information
confidential. All "confidential information" in any form (electronic or
otherwise) shall be and remain the sole property of the party possessing such
information and shall be returned to such party upon the termination of this
Agreement upon such party's reasonable request.
SECTION 6.13. NONCOMPETITION.
(a) Noncompetition Period. The "Noncompetition Period" shall be the
term of this Agreement, and for the two-year period following the termination,
cancellation or non-renewal of this Agreement; provided, however, that in the
event (i) Monsanto terminates this Agreement pursuant to Section 10.4(a)(2),
(ii) Monsanto does not renew the EU Term pursuant to Section 10.2 or (iii) the
Agent terminates this Agreement pursuant to Section 10.5(a), the Noncompetition
Period shall be deemed to terminate simultaneously upon the effective date of
the termination of this Agreement or, in the case of non-renewal of any EU Term
pursuant to Section 10.2 upon termination thereof with respect to EU Countries
only.
(b) Monsanto Covenant. Except as provided for in Section 3.8,
Monsanto covenants and agrees that for the Noncompetition Period, Monsanto will
not, nor will it permit any Affiliate to, directly or indirectly, own, manage,
operate or control, or participate in the ownership, management, operation or
control of, or be connected with or have any interest in, as a shareholder,
partner, creditor or otherwise, any "Competitive Business." A Competitive
Business shall be any business which, anywhere within the Included Markets, (x)
manufactures, sells, markets or distributes any non-selective weed control
product, whether residual or non-residual, for Lawn and Garden Use or (y)
competes with the Roundup L&G Business; provided,
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however, this Section 6.13(b) shall not apply to those actions of Monsanto or
any Affiliate (i) to the extent such actions are expressly contemplated by this
Agreement, for the duration of this Agreement, (ii) to the extent that
immediately upon termination of this Agreement for whatever reason Monsanto or
any Affiliates or successor to the Roundup L&G Business shall continue to
operate the Roundup L&G Business without infringing this covenant, or (iii) to
the extent that Monsanto's interest in a Competitive Business, as a shareholder,
partner, creditor or otherwise, is equal to or less than 5%. Furthermore, this
Section 6.13(b) shall not apply to any actions taken by Monsanto as authorized
by Section 10.7(a) during and after any period when Monsanto has given notice of
termination in accordance with Section 10.4(b).
(c) Agent's Covenant. The Agent covenants and agrees that during
the Noncompetition Period, the Agent will not, nor will it permit any Affiliate
to, directly or indirectly, own, manage, operate or control, or participate in
the ownership, management, operation or control of, or be connected with or have
any interest in, as a shareholder, partner, creditor or otherwise, any
Competitive Business; provided, however, this Section 6.13(c) shall not apply to
those actions of the Agent or any Affiliate (i) to the extent such actions are
expressly contemplated by this Agreement, for such term of this Agreement; (ii)
to the extent such actions relate to the products listed on Exhibit D hereto in
the countries listed therein, the products that the Agent either owns, has
contracted to purchase or entered into a letter of intent with respect to as of
the Effective Date and such additional products as the parties may from time to
time agree (the "Permitted Products"); (iii) to the extent that the Agent's
interest in a Competitive Business, as a shareholder, partner, creditor or
otherwise, is equal to or less than 5%; or (iv) to any separate agreement with
Monsanto with respect to transgenic technology sharing. The parties agree to
compile a list of the Permitted Products within sixty (60) days after the
Effective Date which shall be substituted as Exhibit D.
(d) Non-Solicitation by Monsanto. Monsanto agrees that for the
duration of the Noncompetition Period and for the two years thereafter, without
the prior written consent of the Agent, it will not, nor will it permit any of
its Affiliates to (i) solicit for employment any person then employed by the
Agent or any of its Affiliates or (ii) knowingly employ any employee of the
Agent or any of its Affiliates who voluntarily terminates such employment with
the Agent (or such Affiliate) after the Effective Date, until three months have
passed following termination of such employment.
(e) Non-Solicitation by the Agent. The Agent agrees that for the
duration of the Noncompetition Period, without the prior written consent of
Monsanto, it will not, nor will it permit any of its Affiliates to (i) solicit
for employment any person then employed who works primarily with Roundup
Products or with other products with Lawn & Garden Uses ("Lawn & Garden
Employee") by Monsanto or any of its Affiliates or (ii) knowingly employ any
Lawn & Garden Employee of Monsanto or any of its Affiliates who voluntarily
terminates such employment with Monsanto (or such Affiliate) after the Effective
Date, until three months have passed following termination of such employment.
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(f) Consideration. The consideration for the agreements contained
in this Section 6.13 are the mutual covenants contained herein, the agreement of
the parties to consummate the purchase of the Non-Roundup Assets, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged.
(g) Modification. In the event a court (or other authority) refuses
to enforce the covenants and agreements contained in this Section 6.13, either
because of the scope of the geographical area specified in this Section 6.13,
the duration of the restrictions, or otherwise, the parties hereto expressly
confirm their intention that the geographical areas covered hereby, the time
period of the restrictions, or such other provision, be deemed automatically
reduced to the minimum extent necessary to permit enforcement.
(h) Injunctive Relief. The parties acknowledge and agree that the
extent of damages to one party (the "non-breaching party") in the event of an
actual or threatened breach of this Section 6.13 by the other party (the
"breaching party") may be impossible to ascertain and there may be available to
the non-breaching party no adequate remedy at law to compensate the
non-breaching party in the event of such an actual or threatened breach by the
breaching party. Consequently, the parties agree that, in the event that either
party breaches or threatens to breach any such covenant or agreement, the
non-breaching party shall be entitled, in addition to any other remedy or relief
to which it may be entitled, including without limitation, money damages, to
seek to enforce any or all of such agreements or covenants against the breaching
party by injunctive or other equitable relief ordered by any court of competent
jurisdiction.
SECTION 6.14. INDUSTRIAL PROPERTY.
(a) Monsanto represents and warrants that Monsanto or Affiliates
are the exclusive owners of the trademarks, trade names, packages, copyrights
and designs used in the sale of Roundup Products (hereinafter referred to as
"Industrial Property"). To Monsanto's knowledge, the conduct of the Roundup L&G
Business as now being conducted and the use of the Industrial Property in the
conduct of the Roundup L&G Business, do not infringe or otherwise conflict with
any trademarks, registrations, or other intellectual property or proprietary
rights of others, nor has any claim been made that the conduct of the Roundup
L&G Business as now being conducted infringes or otherwise is covered by the
intellectual property of a third party, except for any conflict or infringement
which would not have a material adverse effect. To the knowledge of Monsanto,
none of the Industrial Property is currently being infringed upon by a third
party.
(b) The Agent acknowledges the validity of the trademarks which
designate and identify Roundup Products. The Agent further acknowledges that
Monsanto is the exclusive owner of the Industrial Property.
(c) The Agent agrees that, to the extent it uses Industrial
Property, such Industrial Property shall be used in its standard form and style
as it appears upon Roundup Products or as instructed in writing by Monsanto. No
other letter(s), word(s), design(s),
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symbol(s) or other matter of any kind shall be superimposed upon, associated
with or shown in such proximity to the Industrial Property so as to tend to
alter or dilute such Industrial Property, and the Agent further agrees not to
combine or associate any of such Industrial Property with any other industrial
property. The generic or common name of "Roundup" must always follow Roundup
Products' trademarks.
(d) In all advertisements, sales and promotional or other printed
matter in which any Industrial Property appears, the Agent shall identify itself
by full name and address and state its relationship to Monsanto. In all such
material, the Roundup trademark shall be identified as a trademark owned by
Monsanto Company. In the case of a registered trademark, a (R) shall be placed
adjacent to the trademark with the (R) referring to a footnote reading "(R)
Registered trademark of Monsanto Company." In the case of unregistered
trademarks, a "TM" shall be placed adjacent to the trademark with the "TM"
referring to a footnote reading "TM Trademark of Monsanto Company."
(e) On its letterheads, business cards, invoices, statements, etc.,
the Agent may identify itself as a distributor for the Industrial Property.
(f) The Agent agrees that it will never use any Industrial Property
or any simulation of such Industrial Property as part of the Agent's corporate
or other trading name or designation of any kind.
(g) Upon expiration or in the event of any termination of this
Agreement, the Agent shall promptly discontinue every use of the Industrial
Property and any language stating or suggesting the Agent is a distributor for
Roundup Products. All advertising and promotional materials which use Industrial
Property shall be destroyed.
(h) The Agent shall not use or facilitate the use of promotional
materials which disparage Roundup Products or Industrial Property. If the Agent
should become aware of any suspected counterfeiting of Roundup Products or
Industrial Property, the Agent shall promptly notify Monsanto of such suspected
counterfeiting. The Agent shall cooperate in any investigation or legal
proceedings that Monsanto deems desirable to protect its rights in the
Industrial Property. The Agent shall not promote the sale of products using
trademarks, packages or designs which are in Monsanto's opinion deceptively
similar to Industrial Property.
SECTION 6.15. CONFLICTS OF INTEREST. Conflicts of interest relating to
this Agreement are strictly prohibited. Except as otherwise expressly provided
herein, neither party nor any of its directors, employees or agents, or its
subcontractors or vendors shall give to or receive from any director, employee
or agent of the other party any gift, entertainment or other favor of
significant value, or any commission, fee or rebate. Likewise, neither party nor
its directors, employees or agents or its subcontractors or vendors shall,
without prior written notification thereof to the other party, enter into any
business relationship with any director, employee, or agent of the other party
or any of its Affiliates unless such person is acting for and on behalf of such
party. Each party shall promptly notify the other of any violation of this
Section 6.15 and any consideration received as a result of such violation shall
be paid over or credited to the other party.
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SECTION 6.16. RECORDS RETENTION. The Agent and Monsanto shall each
maintain true and complete records in connection with this Agreement and shall
retain all such records for at least forty-eight (48) months following the
termination or expiration of this Agreement. This obligation shall survive the
termination or expiration of this Agreement.
ARTICLE 7 - CENTRAL AGREEMENTS
SECTION 7.1. ACKNOWLEDGMENT OF CENTRAL AGREEMENTS. The parties
acknowledge that Monsanto is a party to, and bound by the terms and obligations
of, the Central Agreements (which are attached hereto as Exhibit A).
Accordingly, the parties acknowledge that (i) some of the terms and conditions
of this Agreement may conflict with the terms and conditions of the Central
Agreements, and/or (ii) some of the terms and conditions of the Central
Agreements may conflict with, or be prohibited by, the terms and conditions of
this Agreement. (Every such conflict or prohibited term or condition within the
meaning of clause (i) or (ii) of this Section 7.1 shall collectively be referred
to as a "Conflict"). This Article 7 sets forth the parties' agreement as to the
effect on this Agreement of such a Conflict.
SECTION 7.2. NOTICE OF TERMINATION. Monsanto hereby represents and
warrants to the Agent that on June 26, 1998, Monsanto provided to Central proper
notice of Monsanto's intent to terminate the Central Agreements, effective
September 30, 1999, which such notice is attached hereto as Exhibit B.
SECTION 7.4. CONFLICT. Notwithstanding anything in this Agreement (or
any agreement between the parties) to the contrary, during the duration of the
term of the Central Agreements (as may be further amended subject to the prior
written consent of the Agent), to the extent that any term or provision (taken
alone or in conjunction with any other term or provision) of this Agreement
results in a Conflict (such term(s) or provision(s) being referred to herein as
a "Conflicting Provision"), (i) the provision(s) of the Central Agreement shall
control and such Conflicting Provision shall be unenforceable against all
parties to this Agreement during the pendency of such Conflict, and (ii) neither
party shall be considered to be in breach or default of any such Conflicting
Provision, either directly or as a result of such Conflict, on any other terms
and conditions of this Agreement; provided, however, in such instance of a
Conflict, all other provisions of this Agreement (i.e. all provisions, excluding
all Conflicting Provisions) shall be interpreted and enforced in such manner as
is reasonable and necessary to further the intentions and contemplations of this
Agreement.
SECTION 7.6. ACTION BY PARTIES AND ASSIGNMENT OF RIGHTS. The parties
covenant and agree to jointly develop an approach to establishing arrangements
or relationships with Central to account for any Conflicting Provisions. In this
regard, Monsanto covenants and agrees that, upon notification by the Agent of a
Conflict, the Agent may, to the extent reasonable and with the Steering
Committee's prior written consent (which such consent shall not be unreasonably
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held), enter into a contract (or other arrangement) directly (or on behalf of
Monsanto) with Central for such time until September 30, 1999, as the Agent
deems necessary so that the parties to this Agreement can further the intentions
and contemplations hereof. Furthermore, Monsanto covenants and agrees that, to
the extent reasonable and pre-approved by the Steering Committee (which such
approval shall not be unreasonably held), Monsanto will assign to the Agent any
and all rights it has pursuant to the Central Agreements, which the Agent
reasonably requests, if such assignment would benefit the parties in furthering
the intentions and contemplations hereof.
ARTICLE 8 - REPRESENTATIONS, WARRANTIES, AND COVENANTS
SECTION 8.1. THE AGENT'S REPRESENTATIONS AND WARRANTIES. The Agent
hereby represents and warrants that all of the following are true:
(a) The Agent is a corporation duly incorporated, validly existing
and in good standing under the laws of Ohio and has all requisite corporate
power and authority to carry on and conduct its business as it is now being
conducted, to own or lease its assets and properties and is duly qualified and
in good standing in every jurisdiction in which the conduct of its business or
ownership of its assets requires it to be so qualified.
(b) (i) The Agent has the full authority and legal right to carry
out the terms of this Agreement; (ii) the terms of this Agreement will not
violate the terms of any other material agreement, contract or other instrument
to which it is a party, and no consent or authorization of any other person,
firm, or corporation is a condition precedent to the Agent's execution of this
Agreement; (iii) it has taken all action necessary to authorize the execution
and delivery of this Agreement; and (iv) this Agreement is a legal, valid, and
binding obligation of the Agent, enforceable in accordance with its terms.
(c) The Agent is in compliance in all material respects with all
applicable Laws relating to its business.
(d) There is no material suit, investigation, action or other
proceeding pending or threatened before any court, arbitration tribunal, or
judicial, governmental or administrative agency, against the Agent which would
have a material adverse effect on the ability of the Agent to perform its
obligations hereunder or which seeks to prevent the consummation of the
transactions contemplated herein.
(e) The Agent has available, and will have available on September
30, 1998, sufficient immediately available funds to enable the Agent to pay the
Marketing Fee to Monsanto and to effect the consummation of the transactions
described herein.
(f) There are no material disputes with underwriters under the
Agent's insurance policies; each such policy is valid and enforceable in
accordance with its terms and is in full force and effect; there exists no
default by the Agent under any such policy, and there has been no material
misrepresentation or inaccuracy in any application therefor, which default,
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<PAGE> 45
misrepresentation or inaccuracy would give the insurer the right to terminate
such policy, binder, or fidelity bond or to refuse to pay a claim thereunder;
and the Agent has not received notice of cancellation or non-renewal of any such
policy.
SECTION 8.2. MONSANTO'S REPRESENTATIONS AND WARRANTIES. Monsanto hereby
represents and warrants that all of the following are true:
(a) Monsanto is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware and has all requisite corporate
power and authority to carry on and conduct its business as it is now being
conducted, to own or lease its assets and properties and is duly qualified and
in good standing in every jurisdiction in which the conduct of its business or
ownership of its assets requires it to be so qualified.
(b) (i) Monsanto has the full authority and legal right to carry
out the terms of this Agreement; (ii) the terms of this Agreement will not
violate the terms of any other material agreement, contract or other instrument
to which it is a party, and no consent or authorization of any other person,
firm, or corporation is a condition precedent to this Agreement; (iii) it has
taken all action necessary to authorize the execution and delivery of this
Agreement; and (iv) this Agreement is a legal, valid, and binding obligation of
Monsanto, enforceable in accordance with its terms.
(c) Monsanto is in compliance, in all material respects, with all
applicable Laws relating to its business.
(d) There is no material suit, investigation, action or other
proceeding pending or threatened before any court, arbitration tribunal, or
judicial, governmental or administrative agency, against Monsanto which would
have a material adverse effect on the ability of Monsanto to perform its
obligations hereunder or which seeks to prevent the consummation of the
transactions contemplated herein.
ARTICLE 9 - INDEMNIFICATION
SECTION 9.1. INDEMNIFICATION AND CLAIMS PROCEDURE.
(a) Indemnification. Each party hereto agrees to indemnify, defend
and hold harmless the other party and its employees, officers, directors, agents
and assigns from and against any and all loss (including reasonable attorneys'
fees), damage, injury or liability and asserted by or on behalf of a third party
for injury to or death of a person for loss of or damage to property, including
employees and property of the indemnified party ("Loss"), to the extent
resulting directly or indirectly from the indemnifying party's (i) breach of a
duty, representation, or obligation of this Agreement, or (ii) negligence or
willful misconduct in the performance of its obligations under this Agreement,
except to the extent that such indemnification is void or otherwise
unenforceable under applicable law in effect on or validly retroactive to the
date of this Agreement.
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(b) Claims Procedure. Promptly after receipt by either party hereto
(the "Indemnitee") of any notice of any demand, claim or circumstances which,
with the lapse of time, would or might give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Indemnitee shall give
notice thereof (the "Claims Notice") to the party obligated to provide
indemnification pursuant to Section 9.1(a). The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary to the extent feasible) of the Loss that has been or
may be suffered by the Indemnitee. Thereafter, the following procedures shall
apply:
(1) The indemnifying party may elect to compromise or defend,
at its own expense by its own counsel, any Asserted Liability;
(2) If the indemnifying party elects to compromise or defend
such Asserted Liability, it shall within thirty (30) days (or sooner if the
nature of the Asserted Liability so requires) notify the Indemnitee of its
intent to do so, and the Indemnitee shall cooperate, at the expense of the
indemnifying party, in the compromise of, or defense against, such Asserted
Liability, and shall make available to the indemnifying party any books, records
or other documents within its control that are necessary or appropriate for such
defense;
(3) If the indemnifying party has elected to defend the
Asserted Liability, any offer to compromise or settle transmitted to the
indemnifying party shall thereafter be transmitted in writing to the Indemnitee.
If, after a reasonable period of time to consider such offer -- which time shall
be deemed to be ten (10) days from the date of transmittal of such offer using
the notice procedures set forth in Section 11.9, unless the circumstances
otherwise require -- the Indemnitee refuses to give consent to the settlement or
compromise of the Asserted Liability, then the liability of the indemnifying
party with respect to such Asserted Liability shall be thereafter limited to the
amount of the offer of settlement or compromise. This cap on liability shall not
be applicable if the Indemnifying Party does not elect to defend Indemnitee
against the Asserted Liability;
(4) Notwithstanding the foregoing, neither the indemnifying
party nor the Indemnitee may settle or compromise any claim over the objection
of the other, provided however, that consent to settlement or compromise shall
not be unreasonably withheld;
(5) If the indemnifying party elects not to compromise or
defend the Asserted Liability, fails to notify the Indemnitee of its election as
herein provided, or contests its obligation to indemnify under this Agreement,
the Indemnitee may pay, compromise or defend such Asserted Liability, with a
reservation of all rights to seek indemnification hereunder against the
indemnifying party; and
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(6) Notwithstanding the foregoing, the Indemnitee and the
indemnifying party may participate, in all instances, and at their own expense,
in the defense of any Asserted Liability.
ARTICLE 10 - TERMS, TERMINATION, AND FORCE MAJEURE
SECTION 10.1. TERMS. Notwithstanding anything in this Agreement to the
contrary, for all EU Countries within the Included Markets, this Agreement shall
be subject to the initial term and the renewal terms, as set forth in Section
10.2(a) (collectively, the "EU Term"). For all other countries within the
Included Markets, excluding the EU Countries, this Agreement shall commence as
of the Effective Date and shall continue unless and until terminated as provided
herein.
SECTION 10.2. EU INITIAL TERM AND RENEWAL.
(a) For each of the EU Countries within the Included Markets, the
initial term of this Agreement shall commence as of the Effective Date, and
continue through September 30, 2005, unless and until sooner terminated as
provided herein. Following the initial term of this Agreement, the parties have
the following options to renew the EU Term of this Agreement, subject to Section
10.3 below, under the same terms and conditions of this Agreement, unless and
until sooner terminated as provided herein:
(1) The parties may mutually agree to renew the initial EU
Term of this Agreement for three (3) years, unless otherwise prohibited herein;
(2) Following the renewal of the EU Term pursuant to Section
10.2(a)(1), the parties may mutually agree to renew the EU Term of this
Agreement for an additional seven (7) years, unless otherwise prohibited herein;
and
(3) Following the renewal of the EU Term pursuant to Section
10.2(a)(2), the parties may mutually agree to renew the EU Term of this
Agreement for three (3) years, unless otherwise prohibited herein.
SECTION 10.3. PROCEDURE TO RENEW.
EU Term. Not later than 6 months preceding the date in which
the initial EU Term, or any renewal EU Term, of this Agreement terminates
pursuant to section 10.2(a), the parties may (if otherwise permitted herein),
mutually agree in writing to renew the EU Term of this Agreement as provided in
Section 10.2(a).
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<PAGE> 48
SECTION 10.4. TERMINATION BY MONSANTO.
(a) Termination Rights. In addition to its right to terminate this
Agreement pursuant to Section 10.9, Monsanto shall have the right to terminate
this Agreement by giving the Agent a termination notice specified for each
termination event upon the occurrence and continuance of either of the
following:
(1) An Event of Default occurring at any time; or
(2) A Change of Control with respect to Monsanto (excluding
the merger currently contemplated with American Home Products) or a Roundup Sale
by giving the Agent a notice of termination, which termination shall be
effective at the end of the later of twelve (12) months or the next Program
Year, provided that in the event of a Change of Control or a Roundup Sale,
neither Monsanto nor the successor to the Roundup L&G Business shall have the
right to terminate this Agreement prior to the end of the fifth (5th) Program
Year.
(b) Event of Default. An Event of Default shall mean any of the
following occurrences:
(1) a Material Breach of this Agreement committed by the Agent
and established in accordance with the provisions of Section 10.4(g) of this
Agreement;
(2) a Material Fraud committed by the Agent and established in
accordance with the provisions of Section 10.4(g) of this Agreement;
(3) Material Willful Misconduct committed by the Agent and
established in accordance with the provisions of Section 10.4(g) of this
Agreement;
(4) (i) the occurrence of an Egregious Injury which is not
cured within ninety (90) days following the Agent's receipt of written notice
thereof, or (ii) the occurrence of an Egregious Injury which, in the
commercially reasonable opinion of Monsanto cannot be cured within a ninety (90)
day period;
(5) subject to Section 10.8, any decline of the Sell-Through
Business on a three (3) Program Years cumulative basis or two (2) consecutive
Program Years with a decline in the Sell-Through Business in each Program Year
in excess of five percent (5%) either in North America, the UK or France or in
the Rest of the World, ("Regional Performance Default") unless Agent
demonstrates to the Arbitrators in accordance with Section 10.4(g), in any
manner reasonably requested by the Arbitrators that (A) such decline is directly
caused by the exercise by Monsanto's Ag president of his or her right of veto as
provided for in Section 4.2(b) or (B) such decline was caused primarily by a
severe decline of the general economic conditions or an overall severe decline
in the market for lawn and garden consumables products in such region rather
than by the Agent's failure to perform its duties hereunder and further provided
that any Regional Performance Default shall only cause the termination of this
Agreement with respect to the region where such Regional Performance Default
occurs;
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(6) the Insolvency of Agent;
(7) the occurrence of a Change of Control of the Agent,
without the prior written consent of Monsanto; provided that the Acquiror in
such Change of Control (i) currently engages (directly or through its
Affiliates) in the manufacture, sale, marketing, or distribution of any product
containing Glyphosate or any similar active ingredient, or (ii) currently sells,
markets, or distributes (directly or through its Affiliates) any product(s) in
the Lawn and Garden Channels for Lawn and Garden Use, which such product(s), in
Monsanto's reasonable commercial opinion, compete in a material manner with
Roundup Products, or (iii) may, in Monsanto's reasonable commercial opinion,
materially detract from, or diminish, the Agent's (or such successor's) ability
to fulfill its duties and obligations with regard to the Roundup Business, or
(iv) competes in any material respect with Monsanto in Monsanto's Ag (including
seed) or biotech businesses.
(8) the occurrence of a Change of Significant Ownership of the
Agent, without the prior written consent of Monsanto; or
(9) except to the extent permitted herein, (i) the assignment
of all, or substantially all, of the Agent's rights, or (ii) the delegation of
all, or substantially all, of the Agent's obligations hereunder, in either
instance without the prior written consent of Monsanto.
As to any Event of Default defined in Sections 10.4(b)(1)-(4),
such termination shall take effect on the later of the first business day
following the thirtieth (30th) day after the sending of a termination notice to
the Agent in accordance with the provisions of Section 11.9, or the date
designated by Monsanto in said termination notice. As to an Event of Default
defined in Section 10.4(b)(5), such termination shall take effect at the later
of twelve (12) months or the end of the next Program Year. As to any Event of
Default defined in Sections 10.4(b)(6)-(9), such termination shall take effect
on the later of the first business day following the seventh (7th) day after the
sending of a termination notice to Agent, or the date designated by Monsanto in
said notice of termination.
(c) Payment of Termination Fee. Except for termination of this
Agreement by Monsanto upon any Event of Default, a Termination Fee (as specified
in Section 10.4.(d)) shall only be paid either by Monsanto or by the successor
to the Roundup Business, as the case may be, upon the following terms and
conditions:
(1) in the event the Agreement is effectively terminated by
either Monsanto or its successor or by the Agent upon
Material Breach, Material Fraud or Material Willful
Misconduct by Monsanto as provided for in Section
10.5.(c);
(2) no later than the effective date of the applicable
termination notice and no later than the effective date
of the termination; and
(3) only in the event the Agent does not become the successor
to the Roundup Business, in which case the Termination
Fee shall not be paid but shall be credited against the
purchase price as described in Section 10.4(d).
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(d) Termination Fee.
Monsanto and the Agent stipulate and agree that the injury
which will be caused to the Agent by the termination of this Agreement under the
circumstances which shall give rise to the payment of the Termination Fee are
difficult or impossible of accurate estimation; that by establishing the
Termination Fee they intend to provide for the payment of damages and not a
penalty; and that the sum stipulated for the Termination Fee is a reasonable
pre-estimate of the probable loss which will be suffered by the Agent in the
event of such termination.
The Termination Fee payable shall vary in accordance with the
Table hereunder:
<TABLE>
<CAPTION>
Program Year Termination Fee
------------ ---------------
<S> <C>
0-5 $150MM#
6 $140MM
7 $130MM
8 $120MM
9 $110MM
10 $100MM
11-20 Seven and a half percent (7.5%) of the
portion of the purchase price for the
Roundup Sale above * (which shall be no
less than $16MM in any event) provided
that in the event of a Change of Control
and subsequent termination of this
Agreement by the successor to the Roundup
Business and the absence of any purchase
price, the fair market value of the
Roundup Business shall be determined by
an independent accounting firm mutually
agreeable to the parties.
</TABLE>
#$185MM if Monsanto or any successor terminates within the first five (5) years
for anything other than an Event of Default on the part of the Agent.
(e) Remedies for Monsanto. Subject to Section 10.4(g), in case of
termination by Monsanto upon any of the Events of Default by the Agent specified
in Section 10.4(b)(1)-(4), Monsanto shall be entitled to exercise all remedies
available to it, either at law or in equity. In case of termination by Monsanto
upon the Event of Default by the Agent specified in Section 10.4(b)(5),
termination of this Agreement shall be the exclusive remedy of Monsanto. In
- ---------------
* Confidential provision omitted and filed separately with the Securities and
Exchange Commission ("SEC"), based upon a request for confidential treatment
filed with the SEC.
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the case of termination by Monsanto upon any of the Events of Default specified
in Sections 10.4(b)(6)-(9), the remedies of Monsanto shall be limited to (i)
termination of this Agreement and (ii) the recovery of reasonable and customary
out-of-pocket expenses incurred by Monsanto in transferring the Agent's duties
hereunder to a new agent; provided that in no case shall the amount of expenses
recoverable under this provision exceed $20MM.
(f) Exclusive Remedy. The payment of a Termination Fee to the
Agent under Section 10.4(c) shall be deemed to constitute the exclusive remedy
for any damages resulting out of the termination of this Agreement by Monsanto
or the successor to the Roundup Business pursuant to Section 10.4(c) and the
Agent shall waive its right to exercise any other remedies otherwise available
at law or in equity.
(g) Arbitration. In the event either party claims that a Material
Breach, a Material Fraud, or Material Willful Misconduct has been committed by
the other party (the "Breaching Party"), the following procedures shall apply:
(1) After the asserted occurrence of a Material Breach, a Material
Fraud, or Material Willful Misconduct, the party who contends that such breach,
fraud or misconduct has occurred (the "Claimant") shall send to the Breaching
Party a notice, in accordance with the notice provisions of Section 11.9 of this
Agreement, in which the Claimant shall: (i) identify the Material Breach,
Material Fraud, or Material Willful Misconduct which it contends has occurred;
(ii) appoint an arbitrator; and (iii) demand that the Breaching Party appoint an
arbitrator.
(2) Within fifteen (15) days after receipt of the notice, the
Breaching Party shall send a response to the Claimant, in accordance with the
notice provisions of Section 11.9 of this Agreement, in which the Breaching
Party shall: (i) indicate whether it contests the asserted occurrence of the
Material Breach, Material Fraud, or Material Willful Misconduct, as the case may
be; and (ii) if it does contest such asserted occurrence, appoint a second
arbitrator. The failure on the part of the Breaching Party to timely respond to
the notice, and/or to timely appoint its arbitrator, shall be deemed to
constitute acceptance of the arbitrator designated by the Claimant as the sole
arbitrator.
(3) If the Breaching Party appoints an arbitrator, then within
fifteen (15) days after the receipt of the Breaching Party's response by the
Claimant, the two arbitrators shall jointly appoint a third arbitrator. If the
arbitrators selected by the parties are unable or fail to agree upon the third
arbitrator, the third arbitrator shall be selected by the American Arbitration
Association. Upon their selection by either means, the three arbitrators (the
"Arbitrators") shall expeditiously proceed to determine whether a Material
Breach, Material Default or Material Willful Misconduct has occurred, in
accordance with the procedures hereafter set forth.
(4) Except as specifically modified herein, the arbitration
proceeding contemplated by this section (the "Arbitration") shall be conducted
in accordance with Title 9 of the US Code (United States Arbitration Act) and
the Commercial Arbitration Rules of the American Arbitration Association, and
judgment on the award rendered by the arbitrators may be
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entered in any court having jurisdiction thereof. The cost of the Arbitration
shall be borne equally by the parties, with the understanding that the
Arbitrators may reimburse the prevailing party, if any, as determined by the
Arbitrators for that party's cost of the Arbitration in connection with the
award made by the Arbitrators as described below.
(5) The award shall be made within three (3) months after the
appointment of the third Arbitrator, and each of the Arbitrators shall agree to
comply with this schedule before accepting appointment. However, this time limit
may be extended by agreement of the parties or by the Arbitrators, if necessary.
(6) Consistent with the expedited nature of arbitration, each
party will, upon the written request of the other party, promptly provide the
other with copies of documents relevant to the issues raised by the notice or
the response, including those documents on which the producing party may rely in
support of or in opposition to any claim or defense. Any dispute regarding
discovery, or the relevance or scope thereof, shall be determined by the
Arbitrators, which determination shall be conclusive. All discovery shall be
completed within 60 days following the appointment of the third Arbitrator.
(7) At the request of a party, the Arbitrators shall have the
discretion to order examination by deposition of witnesses to the extent the
Arbitrators deem such additional discovery relevant and appropriate. Depositions
shall be held within 30 days of the making of a request, and shall be limited to
a maximum of number of hours' duration as may be mutually agreed to by the
parties, or in the absence of such agreement as may be determined by the
Arbitrators. All objections are reserved for the arbitration hearing, except for
objections based on privilege and proprietary or confidential information.
(8) Either party may apply to the Arbitrators seeking injunctive
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Either party also may, without waiving any remedy under this
Agreement, seek from any court having jurisdiction any interim or provisional
relief that is necessary to protect the rights or property of that party,
pending the establishment of the arbitral tribunal (or pending the arbitral
tribunal's determination of the merits of the controversy).
(9) The scope of the Arbitration shall include the following:
(a) a determination as to whether the act(s) or omission(s)
set forth by the Claimant have occurred;
(b) a determination as to whether those act(s) or omissions(s)
determined to have occurred constitute a breach of this Agreement, fraudulent
conduct in connection with this Agreement, or willful misconduct in connection
with this Agreement, as the case may be;
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<PAGE> 53
(c) a determination as to whether those act(s) or omissions(s)
determined to have occurred constitute a Material Breach, a Material Fraud, or
Material Willful Misconduct, as the case may be;
(d) a determination as to the amount of monetary damages, if
any, suffered by the Claimant, as a result of those act(s) or omissions(s)
determined to have occurred which constitute a breach of this Agreement,
fraudulent conduct in connection with this Agreement, or willful misconduct in
connection with this Agreement, as the case may be, regardless of whether such
act(s) or omission(s) rise to the level of Material Breach, Material Fraud, or
Material Willful Misconduct, as the case may be;
(e) a determination, to the extent applicable, of the specific
performance which could and should be decreed to correct any breach, fraud or
material misconduct which the Arbitrators determine can be cured by the issuance
of such decree;
(f) a determination as to which party, if any, is the
prevailing party in the Arbitration, and the amount of such party's costs and
fees. "Costs and fees" means all reasonable pre-award expenses of the
arbitration, including the arbitrators' fees, administrative fees, travel
expenses, out-of-pocket expenses such as copying and telephone, court costs,
witness fees, and attorneys' fees; and
(g) a determination as to such matters as the Arbitrators deem
necessary and appropriate to carry out their duties in connection with the
Arbitration.
(10) The Arbitrators' award shall be in writing, shall be
signed by a majority of the Arbitrators, and shall include a statement regarding
the reasons for the disposition of any claim.
(11) The Arbitrators' award shall, as applicable, include the
following:
(a) to the extent that the Arbitrators determine that the
Claimant has suffered monetary damages as a result of those act(s) or
omissions(s) determined to have occurred which constitute a breach of this
Agreement, fraudulent conduct in connection with this Agreement, or willful
misconduct in connection with this Agreement, as the case may be, a monetary
award in the amount of those damages;
(b) to the extent that the Arbitrators determine that the harm
resulting from those act(s) or omissions(s) determined to have occurred can be
cured, in whole or in part by a decree of specific performance, such a decree of
specific performance implementing such determination as can be submitted to and
made the order of a Court of competent jurisdiction;
(c) to the extent that the Arbitrators determine that those
act(s) or omissions(s) determined to have occurred constitute a Material Breach,
a Material Fraud, or Material Willful Misconduct, as the case may be, an award
authorizing the Claimant to
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<PAGE> 54
immediately terminate this Agreement, together with damages or specific
performance, if determined by the Arbitrators to be appropriate;
(d) to the extent that the Arbitrators determine that there is
a prevailing party, and that said prevailing party should receive an award of
its Costs and Fees, such award to the prevailing party; and
(e) such other matters as the Arbitrators deem necessary and
appropriate to implement their determinations made in the Arbitration.
(12) The written determination of the Arbitrators shall be made
and delivered promptly to the parties to the Arbitration and shall be final and
conclusive upon the parties to the Arbitration.
(13) Except as may be required by law, neither a party nor an
Arbitrator may disclose the existence, content, or results of any Arbitration
hereunder without the prior written consent of both parties.
SECTION 10.5. TERMINATION BY THE AGENT.
(a) Material Breach, Material Fraud and Material Willful
Misconduct. The Agent may terminate this Agreement in accordance with the
provisions of Section 10.4(g) upon :
(1) a Material Breach of this Agreement committed by Monsanto
and established in accordance with the provisions of Section 10.4(g) of this
Agreement;
(2) a Material Fraud committed by Monsanto and established in
accordance with the provisions of Section 10.4(g) of this Agreement;
(3) Material Willful Misconduct committed by Monsanto and
established in accordance with the provisions of Section 10.4(g) of this
Agreement.
Such termination shall take effect on the later of the first business day
following the thirtieth (30th) day after the sending of a termination notice to
Monsanto in accordance with the provisions of Section 11.9, or the date
designated by the Agent in said termination notice.
(b) Roundup Sale. The Agent may terminate this Agreement by
written notice thereof to Monsanto upon receipt of notice of a Roundup Sale as
described in Section 10.6.
(c) Termination Fee. Upon termination of this Agreement by the
Agent pursuant to Section 10.5(a), Monsanto shall pay to the Agent the
Termination Fee applicable pursuant to the Table set forth in Section 10.4.(c).
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SECTION 10.6. ROUNDUP SALE.
(a) Notice of Sale; Quiet Period. Monsanto agrees to provide the
Agent with prior written notice of any contemplated Roundup Sale. Thereafter,
the Agent shall be entitled to participate in the Roundup Sale process, and the
parties agree to negotiate in good faith with respect thereto. In the event of
an auction in connection with a contemplated Roundup Sale, the Agent shall be
entitled to submit a bid and additionally shall be entitled to a fifteen (15)
day exclusive negotiation period following the receipt and review by Monsanto of
all bids (the "Quiet Period"), provided that the Agent's bid shall not be
discounted by any Termination Fee and that during the Quiet Period, the Agent
shall have the right to revise its original bid but shall not have the right to
review the terms of any other bids.
(b) Credit of Termination Fee. In the event that the Agent or any
of its Affiliates acquires the Roundup Business in a Roundup Sale, the
Termination Fee that would have been payable to the Agent upon a termination
pursuant to Section 10.4(a)(2) shall be credited against the purchase price to
be paid by the Agent or such Affiliate in the Roundup Sale.
(c) Agent's Election. In the event that Monsanto determines to
consummate a Roundup Sale with a party other than the Agent, Monsanto shall
deliver the Agent notice thereof and of the identity of such other party. Within
thirty (30) days of receipt of such notice, the Agent shall deliver written
notice to Monsanto stating either that:
(1) The Agent intends to terminate this Agreement pursuant to
Section 10.5(b), in which case such notice shall constitute a termination notice
for purposes of this Agreement provided that the termination shall be effective
at the end of the Third Program Year following the Program Year in which the
Agent delivers its Notice of Termination pursuant to this provision; or
(2) The Agent will not terminate this Agreement pursuant to
Section 10.5(b) and agrees to continue the performance of its obligations under
the Agreement unless and until the Agent receives a termination notice delivered
in accordance with the terms of this Agreement by the successor to the Roundup
Business.
(d) Successor. Upon consummation of a Roundup Sale to a party
other than the Agent, Monsanto's successor to the Roundup L&G Business shall
assume all rights and responsibilities of Monsanto under this Agreement.
SECTION 10.7. EFFECT OF TERMINATION.
(a) Nonexclusive Status. Notwithstanding anything contained in
this Agreement to the contrary, during and after any period when Monsanto has
given notice of termination in accordance with Section 10.4(b)(5), (i) Monsanto
may make this Agreement nonexclusive with respect to the sales and marketing
services to be provided by the Agent
49
<PAGE> 56
hereunder, provided that the sales revenues generated by such second agent shall
be included in Program Sales Revenues and any commercially reasonable commission
payable to such second agent shall be included in Program Expense, (ii) Monsanto
shall have access to all information held by the Agent with respect to the
subject matter of this Agreement, and (iii) the Agent shall cooperate with
Monsanto to establish an alternative distribution system for Roundup Products.
(b) Prior Obligations and Shipments. Termination shall not affect
obligations of Monsanto or of the Agent which have arisen prior to the effective
date of termination.
(c) Representations and Materials. Upon termination of this
Agreement for any reason, the Agent shall not continue to represent itself as
Monsanto's authorized agent to deal in Roundup Products, and shall remove, so
far as practical, any printed material relating to such products from its
salesperson's manuals and shall discontinue the use of any display material on
or about the Agent's premises containing any reference to Roundup Products.
(d) Return of Books, Records, and other Property. To the extent
not otherwise provided herein, upon termination of this Agreement, the Agent
shall immediately deliver to Monsanto all records, books, and other property of
Monsanto.
SECTION 10.8. FORCE MAJEURE.
If either party is prevented or delayed in the performance of any
of its obligations by force majeure and if such party gives written notice
thereof to the other party within twenty (20) days of the first day of such
event specifying the matters constituting force majeure, together with such
evidence as it reasonably can give, then the party so prevented or delayed will
be excused from the performance or punctual performance, as the case may be, as
from the date of such notice for so long as such cause of prevention or delay
continues. For the purpose of this Agreement, the term "force majeure" will be
deemed to include an act of God, war, hostilities, riot, fire, explosion,
accident, flood or sabotage; lack of adequate fuel, power, raw materials,
containers or transportation for reasons beyond such party's reasonable control;
labor trouble, strike, lockout or injunction (provided that neither party shall
be required to settle a labor dispute against its own best judgment); compliance
with governmental laws, regulations, or orders; breakage or failure of machinery
or apparatus; or any other cause whether or not of the class or kind enumerated
above, including, but not limited to, a severe economic decline or recession,
which prevents or materially delays the performance of this Agreement in any
material respect arising from or attributable to acts, events, non-happenings,
omissions, or accidents beyond the reasonable control of the party affected.
SECTION 10.9. SPECIAL TERMINATION PROVISIONS.
(a) In the event the parties fail to close the sale by Monsanto to
the Agent of the Non-Roundup Assets by the later of March 31, 1999 or such later
date as mutually agreed upon by the parties, the parties agree:
50
<PAGE> 57
(1) Monsanto may elect to terminate this Agreement by giving
notice of such termination to the Agent in accordance with the provisions of
Section 11.9 of this Agreement on the later of (k) March 31, 1999 and (y)
fifteen (15) calendar days after termination of the Asset Purchase Agreement
between Monsanto and the Agent, with respect to the sale of the Non-Roundup
Assets, pursuant to the terms thereof to Agent in accordance with the provisions
of Section 11.9 of this Agreement. Any such termination shall be effective on
September 30, 1999. In such event, (i) there shall be no deferral under Section
3.5(b) of the Contribution Payment required to be made by Agent, (ii) the MAT
Expenses in the Annual Business Plan for the 1999 Program Year shall be $35MM,
and the Netbacks for the 1999 Program Year shall not exceed twelve percent (12%)
of Program Sales Revenues unless already committed as the Effective Date and
(iii) the Agent's Commission specified in Section 3.6 shall not be applicable
and, in lieu thereof, the Agent's commission shall, effective as of October 1,
1998, be twenty-eight percent (28%) of Program Sales Revenue, payable quarterly
within fifteen (15) days following the end of each quarter, with each quarterly
payment being in an amount not to exceed the cumulative percentage of the
maximum applicable commission apportioned at twenty-five percent (25%) per
quarter, subject to the following limitations:
(A) A maximum commission of $52MM per Program Year if such
closing does not occur because the Agent has not sold or divested its Finale
business or otherwise disposed of the Finale business in a manner satisfactory
to Monsanto;
(B) A maximum commission of $55MM per Program Year if such
closing does not occur because the Federal Trade Commission issues an order
prohibiting the purchase of the Non-Roundup Assets by the Agent; and
(C) A maximum commission of $53.5MM per Program Year if
such closing does not occur for any other reason than specified in clauses (A)
or (B) above.
(b) In the event that Monsanto terminates this Agreement pursuant
to Section 10.9(a)(1), the provisions of this Section 10.9 shall supersede
Section 3.6 and Section 10.4 in their entirety.
(c) In the event that Monsanto elects not to terminate this
Agreement pursuant to Section 10.9(a)(1), (i) there shall be no deferral under
Section 3.5(b) of the Contribution Payment, (ii) the Agent's commission shall,
for Program Year 1999, be calculated as provided in Section 10.9(a)(1) at a
maximum commission of $53.5MM and in Program Year 2000 and thereafter the
Agent's commission shall be the Commission specified in Section 3.6; (iii)
Section 10.4(a)(2) shall be amended to the effect that Monsanto or any successor
shall have the right to terminate this Agreement at any time upon a Change of
Control with respect to Monsanto or a Roundup Sale by giving the Agent a notice
of termination which shall be effective at the end of the later of twelve (12)
months or the next Program Year; and (iv) the Agent shall not be entitled to any
the Termination Fee as specified in Section 10.4(d), but rather, subject to
Section 10.4(g), the Agent shall be entitled to exercise all remedies available
to it either at law or in equity for any breach of this Agreement by Monsanto.
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<PAGE> 58
ARTICLE 11 - MISCELLANEOUS
SECTION 11.1. RELATIONSHIP OF THE PARTIES. Notwithstanding anything
herein to the contrary, the parties' status with respect to each other shall be,
at all times during the term of this Agreement, that of independent contractors
retaining complete control over and complete responsibility for their respective
operations and employees. Except as expressly provided herein, this Agreement
shall not confer, nor shall be construed to confer, on either party any right,
power or authority (express or implied) to act or make representations for, or
on behalf of, or to assume or create any obligation on behalf of, or in the name
of the other party. Nothing in this Agreement shall confer, or shall be
construed to: (i) confer on the Agent any mutual proprietary interest in, or
subject the Agent to any liability for, the business, assets, profits, losses,
or obligations associated with Monsanto's manufacture, marketing, distribution
and sales of Roundup Products; (ii) otherwise make either party a partner,
member, or joint venturer of the other party (A) for purposes of the tax laws of
the United States or any other country, or (B) for any other purposes under any
other Laws; or (iii) create a franchise relationship between the parties. The
parties expressly agree that at no time during the term of this Agreement, shall
either party through its officers, directors, agents, employees, independent
contractors or other representatives or through their respective representatives
on the Steering Committee or Global Roundup Team take any action inconsistent
with the foregoing expression of the nature of their relationship, except as
required pursuant to applicable governmental authority under applicable Law or
with the express written consent of the other party. Accordingly, the parties
expressly agree to cooperate and communicate with the Steering Committee and the
Global Roundup Support Team from time to time and in all events, annually, to
ensure that both parties' actions are in compliance with this Section 11.1
SECTION 11.2. INTERPRETATION IN ACCORDANCE WITH GAAP. The parties
acknowledge that several terms and concepts (such as various financial and
accounting terms and concepts) used or referred to herein are intended to have
specific meanings and are intended to be applied in specific ways, but they are
not so expressly and fully defined and explained in this Agreement. In order to
supplement definitions and other provisions contained in this Agreement and to
provide a means for interpreting undefined terms and applying certain concepts,
the parties agree that, except as expressly provided herein, when costs are to
be determined or other financial calculations are to be made, GAAP as well as
the party's past accounting practices shall be used to interpret and determine
such terms and to apply such concepts. For example, when actual costs and
expenses are referred to herein, they are not intended to contain any margin or
profit for the party incurring such costs or expenses.
SECTION 11.3. CURRENCY. All amounts payable and calculations under this
Agreement shall be in United States dollars. As applicable, Program Sales
Revenue, Program Expenses, Cost of Goods Sold, Service Costs, and Program EBIT
shall be translated into United States dollars at the rate of exchange at which
United States dollars are listed in International Financial Statistics
(publisher, International Monetary Fund) or if it is not available, The Wall
Street
52
<PAGE> 59
Journal for the currency of the country in which the sales were made or the
transactions occurred at the average rate of exchange for the Quarter in which
such sales were made or transactions occurred.
SECTION 11.4. MONSANTO OBLIGATIONS. All permits, licenses, and
registrations needed for the sale of Roundup Products shall be obtained by
Monsanto. Monsanto shall assume the cost of all federal and state registration
fees related to the sale of Roundup Products, with such costs being included
within Program Expenses.
SECTION 11.5. EXPENSES. Except as otherwise specifically provided in
this Agreement, the Agent and Monsanto will each pay all costs and expenses
incurred by each of them, or on their behalf respectively, in connection with
this Agreement and the transactions contemplated hereby, including fees and
expenses of their own financial consultants, accountants and counsel.
SECTION 11.6. ENTIRE AGREEMENT. This Agreement, together with all
respective exhibits and schedules hereto, constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all representations, warranties, understandings, terms or conditions
on such subjects that are not set forth herein or therein. Agreements on other
subjects, such as security and other credit agreements or arrangements, shall
remain in effect according to their terms. The parties recognize that, from time
to time, purchase orders, bills of lading, delivery instructions, invoices and
similar documentation will be transmitted by each party to the other to
facilitate the implementation of this Agreement. Any terms and conditions
contained in any of those documents which are inconsistent with the terms of
this Agreement shall be null, void and not enforceable. This Agreement is for
the benefit of the parties hereto and is not intended to confer upon any other
person any rights or remedies hereunder. The provisions of this Agreement shall
apply to each division or subsidiary of the Agent and Monsanto and either the
Agent or Monsanto may seek enforcement of the provisions of this Agreement on
behalf of or with respect to a particular subsidiary or division without
changing the rights and obligations of the parties under this Agreement as to
other aspects of the Agent's or Monsanto's business.
SECTION 11.7. MODIFICATION AND WAIVER. No conditions, usage of trade,
course of dealing or performance, understanding or agreement purporting to
modify, vary, explain or supplement the terms or conditions of the Agreement and
no amendment to or modification of this Agreement, and no waiver of any
provision hereof, shall be effective unless it is in writing and signed by each
party hereto. No waiver by either Monsanto or the Agent, with respect to any
default or breach or of any right or remedy, and no course of dealing shall be
deemed to constitute a continuing waiver of any other breach or default or of
any other right or remedy, unless such waiver be expressed in writing signed by
the party to be bound.
SECTION 11.8. ASSIGNMENT. This Agreement is personal to the Agent and,
except as set forth in Section 2.3, the Agent shall not assign any rights or
delegate any duties that the Agent has or may have under this Agreement, either
voluntarily, involuntarily by operation of law or otherwise by sale, assignment,
transfer, delegation or other arrangement having similar effect, without
Monsanto's prior written consent except as specifically provided herein.
53
<PAGE> 60
The Agent agrees to the assignment of the Agreement to the new legal
entity that shall be formed as a result of the merger between Monsanto Company
and American Home Products.
SECTION 11.9. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given on the same business day if
delivered personally or sent by telefax with confirmation of receipt, on the
next business day if sent by overnight courier, or on the earlier of actual
receipt as shown on the registered receipt or five business days after mailing
if mailed by registered or certified mail (return receipt requested) to the
parties at the addresses set forth below (or at such other address for a party
as shall be specified by like notice):
If to the Agent, to: The Scotts Company
14111 Scottslawn Road
Marysville, OH 43041
Attn: President
Telephone: (937) 644-0011
Facsimile No.: (937) 644-7136
with a copy to: Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, Ohio 43215
Attn: Ronald A. Robins, Jr.
Telephone: (614) 464-6223
Facsimile: (614) 464-6350
If to Monsanto, to: Monsanto Company
800 North Lindbergh Boulevard
St. Louis, MO 63167
Attn: Monsanto Ag President
Telephone: (314) 694-1000
Facsimile No.: (314) 694-2120
with a copy to: Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attn: Ag Counsel
Telephone: (314)694-2851
Facsimile No.: (314) 694-2920
If any notice required or permitted hereunder is to be given a fixed amount of
time before a specified event, such notice may be given any time before such
fixed amount of time (e.g., a notice to be given 30 days prior to an event may
be given at any time longer than 30 days prior to such event).
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<PAGE> 61
SECTION 11.10. SEVERABILITY. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, under a
judgment, Law or statute now or hereafter in effect, the remainder of this
Agreement shall not thereby be impaired or affected.
SECTION 11.11. EQUAL OPPORTUNITY. To the extent applicable to this
Agreement, Monsanto and the Agent shall each comply with the following clauses
contained in the Code of Federal Regulations and incorporated herein by
reference: 48 C.F.R. Section 52.203-6 (Subcontractor Sales to Government); 48
C.F.R. Section 52.219-8, 52.219-9 (Utilization of Small and Small Disadvantaged
Business Concerns); 48 C.F.R. Section 52.219-13 (Utilization of Women-Owned
Business Concerns); 48 C.F.R. Section 52.222-26 (Equal Opportunity); 48 C.F.R.
Section 52.222-35 (Disabled and Vietnam Era Veterans); 48 C.F.R. Section
52.222-36 (Handicapped Workers); 48 C.F.R. Section 52.223-2 (Clean Air and
Water); and 48 C.F.R. Section 52.223-3 (Hazardous Material Identification and
Material Safety Data). Unless previously provided, if the value of this
Agreement exceeds $10,000, the Agent shall provide a Certificate of
Nonsegregated Facilities to Monsanto. Furthermore, Monsanto and the Agent shall
each comply with the Immigration Reform and Control Act of 1986 and all rules
and regulations issued thereunder. Each party hereby certifies, agrees and
covenants that none of its employees or employees of its subcontractors who
perform work under this Agreement is or shall be unauthorized aliens as defined
in the Immigration Reform and Control Act of 1986, and each party shall defend,
indemnify and hold the other party harmless from any and all liability incurred
by or sought to be imposed on the other party as a result of the first party's
failure to comply with the certification, agreement and covenant made by such
party in this Section.
SECTION 11.12. GOVERNING LAW.
(a) The validity, interpretation and performance of this Agreement
and any dispute connected with this Agreement will be governed by and determined
in accordance with the statutory, regulatory and decisional law of the State of
Delaware (exclusive of such state's choice of laws or conflicts of laws rules)
and, to the extent applicable, the federal statutory, regulatory and decisional
law of the United States.
(b) Any suit, action or proceeding against any party hereto with
respect to the subject matter of this Agreement, or any judgment entered by any
court in respect thereof, must be brought or entered in the United States
District Court for the District of Delaware, and each such party hereby
irrevocably submits to the jurisdiction of such court for the purpose of any
such suit, action, proceeding or judgment. If such court does not have
jurisdiction over the subject matter of such proceeding or, if such jurisdiction
is not available, then such action or proceeding against any party hereto shall
be brought or entered in the Court of Chancery of the State of Delaware, County
of New Castle, and each party hereby irrevocably submits to the jurisdiction of
such court for the purpose of any such suit, action, proceeding or judgment.
Each party hereto hereby irrevocably waives any objection which either of them
may now or hereafter
55
<PAGE> 62
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement brought as provided in this subsection, and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. To the
extent each party hereto has or hereafter may acquire any immunity from
jurisdiction of any court or from legal process with respect to itself or its
property, each party hereto hereby irrevocably waives such immunity with respect
to its obligations under this subsection. Except as otherwise provided herein,
the parties hereto agree that exclusive jurisdiction of all disputes, suits,
actions or proceedings between the parties hereto with respect to the subject
matter of this Agreement lies in the United States District Court for Delaware,
or the Court of Chancery of the State of Delaware, County of new Castle, as
hereinabove provided. The Agent hereby irrevocably appoints CT Corporation,
having an address at 1209 Orange Street, Wilmington, Delaware 19801 and Monsanto
hereby irrevocably appoints CT Corporation, having an address at 1209 Orange
Street, Wilmington, Delaware 19801, as its agent to receive on behalf of each
such party and its respective properties, service of copies of any summons and
complaint and any other pleadings which may be served in any such action or
proceedings. Service by mailing (by certified mail, return receipt requested) or
delivering a copy of such process to a party in care of its agent for service of
process as aforesaid shall be deemed good and sufficient service thereof, and
each party hereby irrevocably authorizes and directs its respective agent for
service of process to accept such service on its behalf.
SECTION 11.13. PUBLIC ANNOUNCEMENTS. No public announcement may be made
by any person with regard to the transactions contemplated by this Agreement
without the prior consent of the Agent and Monsanto, provided that either party
may make such disclosure if advised by counsel that it is required to do so by
applicable law or regulation of any governmental agency or stock exchange upon
which securities of such party are registered. The Agent and Monsanto will
discuss any public announcements or disclosures concerning the transactions
contemplated by this Agreement with the other parties prior to making such
announcements or disclosures.
SECTION 11.14. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall be constitute one and the same agreement.
[signature page to follow]
56
<PAGE> 63
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above mentioned.
THE MONSANTO COMPANY
By: /s/ ARNOLD W. DONALD
------------------------
Name: Arnold W. Donald
Title: Senior Vice-President
THE SCOTTS COMPANY
By: /s/ JAMES HAGEDORN
----------------------------
Name: James Hagedorn
Title: Executive Vice President,
U.S. Business Groups
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<PAGE> 64
LIST OF EXHIBITS TO AMENDED AND RESTATED EXCLUSIVE AGENCY
---------------------------------------------------------
AND MARKETING AGREEMENT
-----------------------
Dated as of September 30, 1998
Between Monsanto Company and The Scotts Company
Exhibit A: Central Agreements
Exhibit B: Termination Notice Regarding Central Agreements
Exhibit C: Letter Agreement Regarding Plastid Transformation
Technology and Associated Genes
Exhibit D: Permitted Products
LIST OF SCHEDULES
- -----------------
Schedule 1.1(a): Included Markets
Schedule 1.1(b): Roundup Products
Schedule 2.2(a)(ii): Transition Services (to be provided)
Schedule 2.2(a): Annual Business Plan Format
Schedule 3.1: Services Outside North America (to be provided)
Schedule 3.2(d): Cash Flow Chart
Schedule 3.3(c): Income Statement Definitions and Allocation Methods
Schedule 3.8: Current Sales of 2.5 Gallon SKU into the Lawn & Garden
Channels
Schedule 4.1(a): Management Structure
Schedule 4.2(a): Steering Committee
Schedule 4.3(b): Assigned Employees
Schedule 4.4(a): Global Support Team
The Schedules, Exhibits and Channels to the Amended and Restated Exclusive
Agency and Marketing Agreement have not been filed. Titles to the omitted
Schedules, Exhibits and Channels appear above. The Registrant hereby agrees to
furnish supplementally a copy of any omitted Schedule or Exhibit to the
Securities and Exchange Commission upon its request.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THE
SCOTTS COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM 10Q FOR
THE QUARTER ENDED APRIL 3, 1999.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<EXCHANGE-RATE> 1
<CASH> 18,900,000
<SECURITIES> 0
<RECEIVABLES> 602,700,000
<ALLOWANCES> (13,100,000)
<INVENTORY> 334,600,000
<CURRENT-ASSETS> 1,018,000,000
<PP&E> 391,100,000
<DEPRECIATION> (150,300,000)
<TOTAL-ASSETS> 2,116,200,000
<CURRENT-LIABILITIES> 612,900,000
<BONDS> 0
0
177,300,000
<COMMON> 200,000
<OTHER-SE> 254,200,000
<TOTAL-LIABILITY-AND-EQUITY> 2,116,200,000
<SALES> 631,500,000
<TOTAL-REVENUES> 644,100,000
<CGS> 362,600,000
<TOTAL-COSTS> 526,400,000
<OTHER-EXPENSES> 400,000
<LOSS-PROVISION> 4,300,000
<INTEREST-EXPENSE> 24,600,000
<INCOME-PRETAX> 92,700,000
<INCOME-TAX> 38,000,000
<INCOME-CONTINUING> 54,700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 5,400,000
<CHANGES> 0
<NET-INCOME> 49,300,000
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 1.63
</TABLE>
