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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
41 SOUTH HIGH STREET, SUITE 3500
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 614-719-5500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Shares, Without Par Value New York Stock Exchange
(28,513,006 Common Shares
outstanding at December 1, 1999)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the common shares held by non-affiliates of the
registrant at December 1, 1999 was $717,019,251.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT FOR REGISTRANT'S 2000 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD FEBRUARY 15, 2000, ARE INCORPORATED BY REFERENCE INTO
PART III HEREOF.
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PART I
ITEM 1. BUSINESS
GENERAL
The Scotts Company (with our subsidiaries, "we" or "Scotts"), is among the most
widely recognized marketers and manufacturers of products for lawns, gardens,
professional turf and horticulture. Our Turf Builder(R) (for consumer lawn
care), Miracle-Gro(R) (for consumer garden care), Osmocote(R) (for professional
horticulture) and Ortho(R) (for consumer herbicides and disease-control
products) brands command market shares more than double those of the next ranked
competitors, in the referenced consumer or professional subgroup. In addition,
pursuant to an agreement with Monsanto Company, we have exclusive international
agency and marketing rights to Monsanto's consumer Roundup(R) herbicide
products. In the United Kingdom, our brands include: Weedol(R) and Pathclear(R)
consumer herbicides; the Evergreen(R) lawn fertilizer line; the Levington(R)
line of lawn and garden products; and Miracle-Gro(R) plant fertilizer. Our
brands in continental Europe include KB(R) and Fertiligene(R) in France and
NexaLotte(R) and Celaflor(R) in Germany. Our long history of technical
innovation, reputation for quality and service and marketing tailored to the
needs of do-it-yourself consumers, and professionals, have enabled us to
maintain market share leadership in our markets while delivering consistent
sales growth.
Domestic operating subsidiaries include: Hyponex Corporation, Scotts-Sierra
Horticultural Products Company, Republic Tool & Manufacturing Corp., and Scotts
Miracle-Gro Products, Inc. International operating subsidiaries include: Scotts
Canada Ltd. (Canada), Scotts Asef BVBA (Belgium), Scotts Horticulture Ltd.
(Ireland), Scotts France SAS (France), Scotts Celaflor GmbH & Co. KG (Germany),
Celaflor HG (Austria), ASEF BV and Scotts Europe BV (Netherlands), and The
Scotts Company (UK) Ltd. and Phostrogen Limited (United Kingdom).
Do-it-yourself consumers, and professionals, purchase through different
distribution channels and have different information and product needs. To
address all of our customers' needs and the increasingly international nature of
our business, we now have six business groups comprised of Consumer Lawns,
Consumer Gardens, Consumer Growing Media and Consumer Ortho (together, the
"North American Consumer Business Group"), the Professional Business Group and
the International Business Group.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
During fiscal 1999, we operated in three principal business segments: (1) North
American Consumer Business Group, which includes products of the Consumer Lawns,
Consumer Gardens, Consumer Growing Media and Consumer Ortho groups, sold in the
United States and Canada; (2) Professional Business Group, including products of
the ProTurf(R) and Horticulture groups, sold in the United States and Canada;
and (3) International Business Group. The following chart shows, for fiscal
1999, each segment's contribution to consolidated sales and operating income
before general corporate expenses:
<TABLE>
<CAPTION>
Percent of Fiscal
Percent of Fiscal Year 1999
Year 1999 Operating Income
Consolidated Sales Before Corporate Expenses
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<S> <C> <C>
North American Consumer
Business Group 67% 75%
Professional Business Group 10% 8%
International Business Group 23% 17%
</TABLE>
Financial information on our segments for the three years ended September 30,
1999, is presented in Note 20 of the Notes to Consolidated Financial Statements,
which are included under Item 8 of this Form 10-K.
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NORTH AMERICAN CONSUMER BUSINESS GROUP
PRODUCTS
Scotts' consumer products include: lawn fertilizers, lawn fertilizer combination
products and lawn control products, garden tools, walk-behind and riding mowers,
grass seed, lawn spreaders and lawn and garden carts; garden and indoor plant
care products; potting soils and other growing media products; and pesticides
(including herbicides, insecticides and fungicides).
Consumer Lawns Products. Among Scotts' most important consumer products are lawn
fertilizers, such as Scotts Turf Builder(R), and lawn fertilizer combination
products, such as Scotts Turf Builder(R) with Plus 2(R) Weed Control and Scotts
Turf Builder(R) with Halts(R) Crabgrass Preventer. Typically, these are
patented, homogeneous, controlled-release products which provide complete
controlled feeding for consumers' lawns for up to two months without the risk of
damage to the lawn presented by less expensive controlled- and
non-controlled-release products. Some of Scotts' products are specially
formulated for geographical differences and some, such as Bonus(R) S (to control
weeds in Southern grasses), are distributed to limited areas. Lawn control
products prevent or control lawn problems and contain no fertilizer component.
These control products include Scotts(R) Halts(R) Crabgrass Preventer, Scotts(R)
Lawn Fungus Control, Scotts(R) Moss Control Granules, Scotts(R) Diazinon Lawn
Insect Control and GrubEx(R) Season Long Grub Control. Scotts also sells a line
of Miracle-Gro(R) lawn fertilizers, including Miracle-Gro(R) Lawn Fertilizer and
Miracle-Gro(R) Weed and Feed. Scotts' lawn fertilizers, combination products and
control products are sold in dry, granular form.
Scotts also sells numerous varieties and blends of high quality grass seed, many
of them proprietary, designed for different uses and geographies.
Because Scotts' granular lawn care products perform best when applied evenly and
accurately, Scotts sells a line of lawn spreaders specifically manufactured and
developed for use with its products. For fiscal 1999, this line included three
sizes each of SpeedyGreen(R) rotary spreaders and AccuGreen(R) drop spreaders,
and the HandyGreen(R) II hand-held rotary spreaders, all marketed under the
Scotts(R) brand name. Management estimates that for the period January through
September 1999, Scotts' share of the U.S. do-it-yourself consumer lawn
fertilizer and combination products, grass seed (includes PatchMaster(R)
products) and spreaders market was approximately 48%. Durables (which include
spreaders and lawn and garden carts) are manufactured by Republic Tool.
Scotts has a licensing agreement in place with Union Tools, Inc. under which
Union Tools, in return for the payment of royalties, is granted the right to
produce and market a line of garden tools bearing the Scotts(R) trademark.
Scotts also is a party to a licensing agreement with American Lawn Mower Company
under which American Lawn Mower, in return for the payment of royalties, is
granted the right to produce and market a line of push-type walk-behind lawn
mowers bearing the Scotts(R) trademark. Also, Scotts is a party to a licensing
agreement with Home Depot U.S.A., Inc. and Murray, Inc. under which, in return
for the payment of royalties, Home Depot markets a line of motorized,
walk-behind lawnmowers bearing the Scotts(R) trademark, with the mowers
currently manufactured by Murray. These mowers are sold exclusively through Home
Depot retail stores. In management's estimation, Scotts did not have a material
share of the markets for these products in fiscal 1999.
Scotts' wholly-owned subsidiary OMS Investments, Inc. is a party to a licensing
agreement with Home Depot and Deere & Company, under which, in return for the
payment of royalties to OMS, Home Depot markets a line of high quality,
riding/tractor lawnmowers bearing the Scotts(R) trademark, with the mowers
currently manufactured by Deere. These mowers are sold exclusively through Home
Depot retail stores in Canada and the United States.
The Consumer Lawns Business Group has used Scotts(R) and Miracle-Gro(R) consumer
brand recognition to market "Scotts LawnService(R)". In January 1995, Scotts
entered into a licensing agreement with a lawn care service company, Emerald
Green Lawn Service, which allows Emerald Green to use the Scotts(R) name and
logo in its marketing efforts.
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Emerald Green applies Scotts(R) products exclusively. Through October 1998,
Scotts increased its equity interest in Emerald Green from 28% to 84%, and
re-positioned the business in the premium lawn and garden services segment.
Scotts LawnService(R) provides applications of lawn and garden fertilizer and
control products, and tree/shrub care services. During fiscal 1999, Scotts
re-branded the business as Scotts LawnService(R) in some existing Emerald Green
markets and expanded to several new markets. The business ended fiscal 1999 with
Scotts LawnService(R) in 12 markets, and 22 franchised outlets marketed as
Emerald Green Lawn Service featuring Scotts(R) and Miracle-Gro(R) products. The
strategy in fiscal 1999 was to refine the operations model and measure the
equity transfer of the Scotts(R) brands into this premium segment. The fiscal
2000 strategy will be similar with moderate expansion of the business planned
through owned or franchised locations, while applying market knowledge to
optimize opportunities in this service industry.
Consumer Gardens Products. Scotts sells a complete line of water-soluble
fertilizers under the Miracle-Gro(R) brand name. These products are primarily
used for garden fertilizer application. Scotts also produces and sells a line of
boxed Scotts(R) plant foods, garden and landscape fertilizers, Osmocote(R)
controlled-release garden fertilizers, hose-end feeders and houseplant
fertilizer products.
The Consumer Gardens Business Group, through Scotts Miracle-Gro, markets and
distributes the country's leading line of water-soluble plant foods, by market
share. These products are designed to be dissolved in water, creating a dilute
nutrient solution which is poured over plants or sprayed through an applicator
and rapidly absorbed by their roots and leaves.
Miracle-Gro(R) All-Purpose Water-Soluble Plant Food is the leading product in
the Miracle-Gro(R) line, by market share. Other water-soluble plant foods in the
product line include Miracid(R) for acid loving plants, Miracle-Gro(R) for
Roses, Miracle-Gro(R) for Tomatoes, Miracle-Gro(R) for Lawns and Miracle-Gro(R)
Bloom Booster(R) for flowers. Scotts Miracle-Gro also sells a line of hose-end
applicators for water-soluble plant foods, through the Miracle-Gro(R) No-Clog
Garden and Lawn Feeder line, which allow consumers to apply water-soluble
fertilizers to large areas quickly and easily with no mixing or measuring
required. Scotts Miracle-Gro also markets a line of products for houseplant use
including Liquid Miracle-Gro(R), African Violet Food, Plant Food Spikes, Leaf
Shine and Orchid Food.
Management estimates that for the period January through September 1999, Scotts'
share of the garden fertilizer market was 60%, and its share of the indoor plant
foods market was approximately 32%.
Consumer Growing Media Products. The Consumer Growing Media Business Group,
through Hyponex, sells a complete line of growing media products for indoor and
outdoor uses under the Miracle-Gro(R), Scotts(R), Hyponex(R), Earthgro(R),
Peters Professional(R), 1881 Select(R) and other labels. These products include
retail potting soils, topsoil, humus, peat, manures, soil conditioners, barks
and mulches. Products are primarily regionally formulated to respond to varying
consumer expectations and to utilize the suitable but varying raw materials
available in different areas of the country.
Management estimates that for the period January through September 1999, it had
approximately a 32% market share of the consumer large-bag outdoor landscaping
products market, and approximately a 49% market share of the consumer potting
soils market.
Consumer Ortho(R) Products. The new Consumer Ortho Business Group markets weed
control, insect control and plant disease control products under the Ortho(R)
brand name. The Ortho(R) product line includes over 150 different items that
solve outdoor pest problems faced by consumers. Ortho(R) products are available
in aerosol, liquid ready-to-use, concentrated, granular and dust forms in a wide
variety of sizes and delivery systems. This Group acts as the exclusive agent to
market and manage Monsanto's consumer Roundup(R) brand of non-selective weed
control in the United States. Roundup(R) is sold in aerosol, liquid
ready-to-use, concentrated and super-concentrated forms and is the leading brand
of consumer non-selective weed control, by market share, in the United States,
Germany, France, Australia, Denmark, Sweden, Norway, Belgium, Austria and Japan.
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Ortho(R) weed control products are led by its Weed-B-Gon(R) herbicide - the
leading selective consumer herbicide brand in the United States, by market
share. In addition, this Group sells products in the brush control segment
(Brush-B-Gon(R)) and total vegetation control segment (Triox(R)) of the weed
control market. Total vegetation controls eliminate existing weeds and grasses
and prevent growth in a treated area for up to one year.
The Consumer Ortho Business Group markets insect control products for outdoor
and indoor use. Outdoor insect control products include general insect control
under the Ortho(R), Bug-B-Gon(R), Diazinon Ultra(TM), Diazinon Plus(R),
Dursban(TM) (owned by Dow Agrosciences), Malathion 50 Plus(R), Isotox(R) and
Orthene(R) brand names. Because consumer satisfaction depends on easy and
accurate application of these products, this Group also markets a line of
applicators under the Ortho(R), Lock 'n Spray(R), Spray-ette(R), Dial 'n
Spray(R), Whirlybird(R) and Pull 'n Spray(TM) brands.
The Ortho(R) outdoor line also includes specialty insect control products under
the Ortho(R), RosePride(R), Ortho-Klor(R), Ant-Stop(R) and Orthene(R) Fire Ant
control brands. Specialty outdoor products include a line of snail and slug
brands under the Bug-Geta(R) and Bug-Geta(R) Plus brand names. There is also a
line of indoor insect control products under the Ortho(R) Home Defense(TM),
Flea-B-Gon(R) and Ant-Stop(R) brand names.
Separately, the Ortho(R) product line includes items that control common
diseases on lawns, roses, ornamental and vegetable gardens, and sensitive trees
and shrubs. Several of these disease control products also control insects.
These products are sold under the Ortho(R), Orthenex(R), Funginex(R) (owned by
American Cyanamid Company) and Daconil 2787(TM) (owned by ISK Biosciences) brand
names. The Group also markets a limited line of fertilizers under the
Greensweep(R) and Up-Start(R) brands.
The Ortho(R) product line is typically formulated with proprietary active
ingredients sourced from the world's largest agricultural and specialty chemical
manufacturers. A number of the packaging systems used in the line are unique,
including the Lock 'n Spray(R) hose-end dispensing system.
Management estimates that for the period January through September 1999, brands
marketed by this Group had a combined share of the U.S. consumer lawn and garden
chemicals segment of approximately 36%.
MARKET
Scotts believes that it has achieved its leading position, by market share, in
the U.S. consumer do-it-yourself lawn care and garden markets, on the basis of
its strong marketing and advertising programs, its sophisticated technology, the
superior quality and value of its products and the service it provides its
customers. Scotts seeks to maintain and expand its market position by
emphasizing these qualities and taking advantage of the name and reputation of
its many strong brands such as Scotts(R), Miracle-Gro(R), Ortho(R) and
Hyponex(R).
Scotts is the leader, by market share, in the lawn, garden and growing media
sections of the growing lawn and garden market. U.S. population trends indicate
that the consumer segment age of 40 and older, who represent the largest group
of lawn and garden product users, will grow by 28% from 1996 to 2010, a growth
rate more than twice that of the total population.
Drawing upon its strong research and development capabilities, Scotts intends to
continue to develop and introduce new and innovative lawn and garden products.
Scotts believes that its ability to introduce successful new consumer products
has been an important element in Scotts' growth. New consumer products in recent
years include:
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Fiscal 1997
- - -----------
- - - Scotts(R) potting soils and a complete line of indoor soil amendments such
as vermiculite, perlite and charcoal in resealable stand-up bags
Fiscal 1998
- - -----------
- - - the No-Clog-4 in 1(R), which allows for sprinkler feeding of fertilizer for
gardens and lawns
- - - a new line of Miracle-Gro(R) potting soil mix and soil amendment products
- - - an expanded assortment of professional nursery quality potting soil mixes
for consumers under the Scotts Pro Gro(TM) and Miracle-Gro(R) brands
Fiscal 1999
- - -----------
- - - Miracle-Gro(R) Flower Seeding Mix, a pre-mixed combination of flower seed,
fertilizer and mulch
- - - Miracle-Gro(R) Bloom Booster(R), a fertilizer for flowers
- - - three varieties of Miracle-Gro(R) Tree and Shrub Fertilizer Spikes, a
fertilizer for outdoor trees and shrubs
- - - Scotts(R) Master Collection, a slow-release fertilizer for outdoor plant
use
In fiscal 2000, Scotts plans to introduce: the Pure Premium(TM) line of
Scotts(R) grass seed for consumer use; Miracle-Gro(R) Garden Weed Prevent(TM)
and Miracle-Gro(R) Garden Weed Prevent and Plant Food(TM), which contain a
pre-emergent herbicide for outdoor gardening; and Miracle-Gro(R) Garden Soils, a
premium line of outdoor planting soils.
Scotts also seeks to capitalize upon the competitive advantages stemming from
its leading market share positions, and ability to act as a nationwide supplier
of a full line of consumer lawn and garden products. Scotts believes that this
gives it an advantage in selling to retailers, who value the efficiency of
dealing with a limited number of suppliers with high-recognition consumer
brands.
During 1999, Scotts continued to strengthen its relationship with key retailers
by establishing business development teams at Home Depot, Lowe's, the U.S.
military, and hardware co-operatives. Teams at Wal*Mart and Kmart had previously
been established during fiscal 1998. The business development teams work closely
with these retailers, who represent over 75% of sales volume for the North
American Consumer Business Group. The teams assist in all areas of business
including category management, product mix, merchandising, shelving and pricing.
Additionally, Scotts is a recognized source of consumer data that assists
retailers in identifying retail trends, which can lead to increased store sales.
Also, Scotts has formed a North American sales management team for fiscal 2000,
to coordinate customer programs, customer service, and retailer education
programs, offered by the North American Consumer Business Group.
MARKETING, PROMOTION AND BUSINESS STRATEGY
Consumer Lawns products are sold by an approximate 100-person direct sales force
to headquarters of national, regional and local retail chains. This sales force,
most of whom have college degrees and prior sales experience, also recruits and
supervises approximately 335 seasonal part-time merchandisers and 65 part-time
year-round merchandisers in connection with Scotts' emphasis on in-store retail
merchandising of lawn and garden products, a strategy Scotts intends to continue
for fiscal 2000. Most retail sales of Scotts' lawn products occur on weekends
during the Spring and Fall. The Consumer Lawns Business Group also employs
distributors on a selective basis.
For fiscal 1999, Consumer Gardens products were sold to a network of hardware
and lawn and garden wholesale distributors, with sales made directly to some
retailers. Most retail sales of Consumer Gardens products occur on or near
weekends during Spring and early Summer. In addition, Miracle-Gro(R) products
are sold directly to some retailers. For fiscal 2000, the sales force for
Consumer Gardens and Ortho(R) products were combined, for sales to retail home
center stores.
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The Consumer Growing Media Business Group utilizes a 22-person direct sales
force to cover the headquarters of national and regional chains, local accounts
of significant size and distributors who sell to smaller accounts. The Consumer
Growing Media Business Group's sales force hires and directs a network of
outside merchandising service companies to provide seasonal in-store retail
merchandising and re-order support on a national basis. Most retail sales of
Consumer Growing Media landscape products occur on weekends during late Spring,
while value-added products sell year-round.
For fiscal 1999, Ortho(R) brands were sold to the headquarters of the largest 25
retail customers through a 32-person direct salesforce, who work with the
Consumer Ortho Business Group's largest customers to secure retail placement for
Ortho(R) brands as well as ongoing promotional and cooperative advertising
support. Prior to fiscal 2000, Ortho(R) and Roundup(R) products were distributed
under an exclusive distribution agreement with Central Garden & Pet Company.
Scotts assumed the agreement with Central Garden, as part of the Ortho
acquisition. After the Central Garden agreement expired in September 1999,
Scotts began distributing Ortho(R) and Roundup(R) products in a manner similar
to its other lawn and garden products. This system involves a combination of
distributors, of which the largest is Central Garden, as well as direct sales by
Scotts to some major retailers. The terms of the Central Garden agreement are
complex and involve transfers of large amounts of Ortho(R) and Roundup(R)
product inventory and the related accounts receivable and accounts payable.
Scotts, Monsanto and Central Garden have begun preliminary discussions
addressing issues related to the termination of the agreement and to the
resolution of items relating to Central Garden for purposes of determining the
normalized working capital of the Ortho business as of the closing date of the
Ortho acquisition on January 21, 1999. For a variety of reasons, including the
indemnification provisions contained in the Ortho purchase agreement, Scotts
does not believe that the final resolution of the items in dispute among Scotts,
Monsanto and Central Garden will have a material adverse effect on Scotts.
The Consumer Lawns Business Group continues to support independent retailers
with a special line of products, marketed under the Lawn Pro(R) name. These
products include the 4-Step program, introduced in 1984, which encourages
consumers to purchase four products at one time (fertilizer plus crabgrass
preventer, fertilizer plus weed control, fertilizer plus insect control and a
special fertilizer for Fall application). Scotts promotes the 4-Step program as
providing consumers with all their annual lawn care needs for, on average, less
than one-third of what a lawn care service would cost. Scotts believes the Lawn
Pro(R) program has helped Scotts to grow its business with independent retailers
while they face increasing competition from mass merchandisers and home
improvement centers. The Consumer Growing Media Business Group similarly markets
a special line of growing media products under the 1881 Select(R) label, to
independent retailers on a regional basis.
Scotts supports its sales efforts with extensive advertising and promotional
programs, in furtherance of a consumer "pull" marketing strategy. Because of the
importance of the Spring sales season in the marketing of consumer lawn, garden
and growing media products, Scotts focuses advertising and promotional efforts
on this period. Through advertising and other promotional efforts, Scotts
encourages consumers to make the bulk of their lawn, garden and growing media
purchases in the early months of Spring in order to moderate the risk to its
consumer sales which may result from bad weekend weather. The Consumer Lawns
Business Group utilizes radio and television advertising to build consumer
product usage in the Fall, a recommended time to plant grass seed and plants.
The Consumer Lawns Business Group also promotes a Turf Builder(R) annual program
for home centers and mass merchandisers. This program encourages consumers to
purchase their entire year's supply of Turf Builder(R) products in early Spring,
for application in the early Spring, late Spring, Summer and Fall. The Consumer
Growing Media Business Group uses print and television advertising on
Miracle-Gro(R) branded products, and a consumer rebate program for selected
Hyponex(R) products, to encourage early and multiple purchases in the Spring.
Ortho(R) and Roundup(R) branded products are marketed in a manner similar to
Scotts' other consumer brands. Advertising primarily airs on national and
regional television and radio programming with supplemental efforts in key
markets via spot TV and radio.
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Advertising and retail customer promotional efforts, including feature displays,
coincide with periods of high seasonal demand.
The percentage of North American Consumer Business Group sales to mass
merchandisers, warehouse-type clubs, home improvement centers and large buying
groups continues to increase as a percentage of sales. The top ten accounts
(which include two buying groups of independent retailers) represented 77% of
the North American Consumer Business Group sales in fiscal 1998 and 79% in
fiscal 1999.
An important part of Scotts' sales effort is its national toll-free Consumer
Helpline, on which its Consumer Service consultants answer questions about
Scotts' products and give general lawn and garden advice to consumers. With the
Ortho acquisition, the Consumer Services divisions at Scotts and Ortho were
integrated. Scotts' consultants responded to approximately 650,000 telephone and
written inquiries in fiscal 1999, which is consistent with the number of
inquiries in prior years.
Backing up Scotts' marketing effort is its well-known Scotts No-Quibble
Guarantee(TM), instituted in 1958, which promises consumers a full refund if for
any reason they are not satisfied with the results after using Scotts' lawn,
garden and growing media products. Refunds under this guarantee have
consistently amounted to less than 0.4% of net sales for the North American
Consumer Business Group on an annual basis.
Scotts has an Internet web site at www.scottscompany.com, which provides lawn
care and gardening information for consumers, and special sections for the
Professional Business Group's customers, along with corporate and investment
information. Do-it-yourself consumer topics include basic lawn care and
gardening tips, problem solving, frequently asked questions, houseplant care,
landscaping with trees and shrubs and product guides. An arrangement with the
National Gardening Association (NGA) provides access to a database of more than
5,000 gardening questions with answers by NGA's staff horticulturists. The site
also provides an e-mail link to Scotts' Consumer Helpline for answers to lawn
care questions. The Professional Turf section delivers information for turf
managers, by providing Scotts' complete professional product guide, a Technical
Representative/distributor locator and information aimed at turf maintenance
workers and golf course superintendents. The Professional Horticulture section
points nursery and greenhouse growers to their nearest distributor, delivers the
latest news from the Horticulture business of the Professional Business Group of
Scotts, and directs users to customer service. For the period January through
September 1999, the site received approximately 41.7 million "hits", 788,000
user sessions and 20,000 e-mails to Scotts' Consumer Helpline. This represents
increases of 232% for the number of "hits", 300% for the number of user
sessions, and 90% for the number of e-mails, over the same period in 1998.
The fiscal 2000 marketing strategies for the Consumer Lawns Business Group are
to continue the efforts begun in prior years to improve Scotts' relationship
with consumers and retail customers, including: carefully directed consumer
research, to increase understanding of its markets, sales trends and consumer
needs; increased media advertising, with continuation of television advertising
featuring real-life stories of people's experiences with Scotts(R) products, and
of weekend radio advertising emphasizing that "this weekend" is the best time to
apply selected Scotts products; simplification of the product line; addressing
"just-in-time" customer purchasing through continued use of the "never-out"
program by which Scotts builds pre-season inventory of select high-volume
products, which enhances Scotts' ability to timely and completely fill customer
orders; and use of retail merchandisers to enhance communications with consumers
at the point of sale.
The fiscal 2000 marketing strategies for the Consumer Gardens Business Group are
to continue: conducting consumer and market research to analyze consumer
attitudes and purchase decisions; implementation of packaging improvements;
cost-reduction and quality enhancement efforts throughout all product lines;
increased national network television advertising; and use of Scotts
Miracle-Gro's sales and distribution network for Scotts(R) garden products.
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The fiscal 2000 strategy for the Consumer Growing Media Business Group is to
expand its market share of the potting soil and specialty planting soil market,
while maintaining a network of low-cost production facilities for the more
commodity-oriented outdoor landscaping products such as topsoil, manures and
barks/mulches. Scotts expects to grow its share of the potting and planting soil
markets by: developing products and national marketing programs which utilize
its Miracle-Gro(R), Scotts(R), Hyponex(R), Peters Professional(R), Earthgro(R)
and 1881 Select(R) brand names on high-quality, higher margin growing media
products such as potting mixes, with innovative and consumer-preferred
packaging; gaining national distribution of Miracle-Gro(R) value-added potting
soils; marketing Earthgro(R)-labeled organic landscape products nationally; and
conducting consumer research to better understand market needs.
The fiscal 2000 strategy for the Consumer Ortho Business Group is to increase
the size of the markets in which it competes and to capture a share of this
growth greater than its market share, through: the effective use of media
advertising; improved product availability and consumer communication at retail
point-of-purchase; and product and packaging improvements to make the products
easier to apply with good results. Growth is expected by attracting new users to
the categories and by increasing the frequency of use among current users. For
fiscal 2000, Scotts established a separate business office in Canada to manage
and further develop the Green Cross(R) brand of pesticide products there, and to
integrate Scotts' lawns, gardens and growing media businesses with the Green
Cross(R) business acquired in the Ortho acquisition. This office will operate as
Scotts Canada Ltd.
COMPETITION
The consumer lawn and garden market is highly competitive. Consumers have a
choice of do-it-yourself lawn care or use of a lawn service. In the
do-it-yourself lawn care and consumer garden markets, Scotts' products compete
primarily against "control-label" products produced by various suppliers and
sold by such companies as Home Depot (Vigoro(R)), Lowe's (Sta-Green(R)),
Wal*Mart (Sam's American Choice(R)), and Kmart (KGro(R)). "Control-label"
products are those sold under a retailer-owned label or a supplier-owned label
which is sold exclusively at a retail chain. These products compete across the
entire range of Scotts' consumer product line. Some of Scotts' consumer products
compete against nationally distributed branded fertilizers, pesticides and
combination products marketed by such companies as Lebanon Chemical Corp.
(Greenview(R)), United Industries Corporation (Peters(R) water-soluble
fertilizers for the consumer market), Vigoro/Pursell Industries (Vigoro(R),
Sta-Green(R)), the Bayer/Pursell Industries joint venture (Advanced Garden(TM),
Advanced Lawn(TM)), Central Garden (Pennington(R) Seed), and Schultz Co.
(Schultz(R) garden fertilizers and potting soils). Competitors in Canada include
Nu Gro, So Green and IMC Vigoro.
Based on a study covering the period from 1991 to 1996, management estimates
that approximately 15% of all homeowners with lawns use a lawn service. The most
significant competitors for the consumer market which uses a lawn service are
lawn care service companies. Service Master, which owns the Tru Green Company,
ChemLawn(R) and Barefoot Grass(R) lawn care service businesses, operates
nationally and is significantly larger than Scotts.
Most competitors, with the exception of lawn care service companies, sell their
products at prices lower than those of Scotts. Scotts competes primarily on the
basis of its strong brand names, consumer advertising campaigns, quality, value,
service, convenience and technological innovation. Scotts' competitive position
is also supported by its national sales force and its unconditional guarantee.
There can be no assurance, however, that additional competition from new or
existing competitors will not erode Scotts' share of the consumer market or its
profit margins.
Scotts' Consumer Growing Media business faces primarily regional competitors who
are able to compete very effectively on the basis of price in the areas near
their plants where they can reach customers with a lower cost of freight. The
low cost of entry to establish a commodity organics bagging facility and the
ready availability of raw materials make it likely that the large-bag outdoor
market will remain price competitive and lower margin into the future. Customers
require short lead-times, with very high on-time and complete fill rates. These
demands, combined with the high
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cost of freight, require the Consumer Growing Media business to continually
evaluate production locations to reduce costs.
The Consumer Ortho Business Group operates in highly competitive markets against
a large number of national and regional brands as well as retailer-supported
private or "control" labels. Given the large number of distinct market segments
and product types coupled with limited shelf space, retailer customers often are
forced to limit listings in any one product to two or three manufacturers. This
typically means one to two national brands, a regional brand and/or a private
label offering. Ortho's principal national competitors include: United
Industries Corporation (Spectracide(R), Hot Shot(R)), the Bayer/Pursell
Industries joint venture (Advanced Garden(TM), Advanced Lawn(TM) pesticide
line), American Cyanamid Company (Amdro(R)) and Enforcer Products, Inc.
(Enforcer(R)). Regional competitors include: The Chas. H. Lilly Co.
(Lilly-Miller(R)), Green Light Company (Green Light(R)), Sunnyland, Bonide
Products, Inc. (Bonide(TM)) and Farnam Companies, Inc. (Security(R) and
Finale(TM)). Customers with significant private label programs include:
Wal*Mart, Kmart, Home Depot, Lowe's, Tru-Serv and Ace Hardware. The Consumer
Ortho Business Group currently does not provide private label products to any of
its customers.
Roundup(R) competitors include United Industries Corporation (Spectracide(R)),
Enforcer Products, Inc. (Enforcer(R)), Farnam Companies, Inc. (Security (R) and
Finale(TM)) and private label products.
BACKLOG
The majority of annual consumer product orders (other than Consumer Growing
Media products which are normally ordered in season on an "as needed" basis) are
received from retailers during the months of October through April and are
shipped during the months of January through April. As of November 26, 1999,
orders on hand for retailers (excluding orders for Consumer Growing Media
products) totaled approximately $67.1 million compared to approximately $53.6
million on the same date in fiscal 1998. All such orders are expected to be
filled in fiscal 2000.
PROFESSIONAL BUSINESS GROUP
MARKET
Scotts sells its professional products to golf courses, commercial nurseries and
greenhouses, schools and sportsfields, multi-family housing complexes, business
and industrial sites, lawn and landscape services and specialty crop growers.
The Professional Business Group's two core businesses are ProTurf(R), the
professionally managed turf market, and Horticulture, the nursery and greenhouse
markets. In fiscal 1999, the Professional Business Group served such
high-profile golf courses as Augusta National (Georgia), Cypress Point and
Pebble Beach (California), Desert Mountain (Arizona), Oakmont Country Club
(Pennsylvania), Colonial Country Club (Texas) and Medinah Country Club
(Illinois). Sports complexes such as Fenway Park, Camden Yards, Wrigley Field,
Yankee Stadium and the Rose Bowl are professional customers, as are major
commercial nursery/greenhouse operations such as Monrovia, Hines and Imperial.
Golf courses and highly visible turf areas accounted for approximately 46% of
Scotts' Professional Business Group sales in fiscal 1999. Management estimates,
based on an independent bi-annual market survey and other information available
to Scotts, that Scotts' share of its target North American golf course high
value turf fertilizer and control products market was approximately 20% in
fiscal 1999.
According to the National Golf Foundation, approximately 350 new golf courses
have been constructed annually during the last three years. In 1999, there were
over 700 new golf courses under construction, and a record 500 or more courses
are expected to be completed in 1999. Management believes that the increase in
the number of courses, the concentration of the growth in the West/South with a
longer growing/maintenance season, the increasing playing time requiring more
course maintenance and the trend toward more highly maintained courses should
contribute to sales growth in the golf course market.
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Horticulture sales accounted for approximately 54% of Scotts' Professional
Business Group sales in fiscal 1999. Scotts sold products to thousands of
nursery, greenhouse and specialty crop growers through a network of
approximately 75 horticultural distributors. Scotts estimates that its leading
market share of the North American horticultural market was approximately 26% in
fiscal 1999. The Horticulture Group conducts business through Scotts'
subsidiary, Scotts-Sierra.
Management believes the increasing acceptance of controlled-release fertilizers
in horticultural/agricultural applications due to performance advantages, labor
savings and water quality concerns should contribute to sales growth in the
horticulture market. However, competitive product technologies may also make
inroads into the horticultural and turf markets.
PRODUCTS
Scotts' professional products, marketed under such brand names as ProTurf(R),
Osmocote(R), Miracle-Gro(R), Metro-Mix(R) and Terra-Lite(R), include a broad
line of sophisticated controlled-release fertilizers, water-soluble fertilizers,
pesticide products (herbicides, insecticides, fungicides and growth regulators),
wetting agents, growing media products, grass seed and application devices. The
fertilizer lines utilize a range of proprietary controlled-release fertilizer
technologies, including Contec(R), Poly-S(R), Osmocote(R) and ScottKote(R), and
proprietary water-soluble fertilizer technologies, including Miracle-Gro
Excel(R). Scotts applies these technologies to meet a wide range of professional
customer needs, ranging from quick-release greenhouse fertilizers to
controlled-release fairway/greens fertilizers to extended-release nursery
fertilizers that last up to a year or more.
To secure uninterrupted supply and consistent costs of raw materials, the
Horticulture group has entered into alliances with suppliers. Scotts works
closely with basic pesticide manufacturers to secure access to, and if possible,
exclusive positions on, advanced control chemistry which can be formulated on
granular carriers, including fertilizers, or formulated as a liquid application.
In fiscal 1998, Scotts signed an agreement with AgrEvo USA Company for the
exclusive domestic distribution rights to various AgrEvo active ingredients for
the professional horticulture market. These active ingredients were used to
create Scotts(R) branded herbicides, fungicides and insecticides such as
Contrast(TM), Closure(TM) and Ovation(TM), three new products launched in 1999.
Scotts expects this product group to represent 10% to 25% of Horticulture sales
by fiscal 2002.
Application devices in the professional line include both rotary and drop action
spreaders. Over 20 proprietary grass seed varieties are also part of the
professional line. The professional Horticulture line also includes an
established line of soil-less mixes in which controlled-release and control
products, and water-soluble fertilizers and wetting agents, can be incorporated
or applied, respectively, to customize potting media for nurseries and
greenhouses.
BUSINESS STRATEGY
Scotts' Professional Business Group focuses its sales efforts on the middle and
high ends of the professional market and generally does not compete for sales of
commodity products. Demand for Scotts' professional products is primarily driven
by product quality, performance and technical support. Scotts seeks to meet
these needs with a range of sophisticated, specialized products.
A primary focus of the Professional Business Group's strategy is to provide
innovative high-value new products to its professional customers. For fiscal
1999, in the horticulture market, the Group introduced Osmocote(R) Pro, a
modification of Osmocote(R) timed-release fertilizer with IBDU fertilizer for
U.S. markets, which was a result of a marketing agreement reached with NuGro,
Inc. Scotts' fertilizer technology is expected to lead to further new
combination product introductions in fiscal 2000 and beyond.
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MARKETING AND PROMOTION
For fiscal 1999, the Professional Business Group's sales force consisted of
approximately 50 territory managers. Many territory managers are experienced
former golf course superintendents or nursery managers and most have degrees in
agronomy, horticulture or similar disciplines. Territory managers work closely
with golf course and sports field superintendents, turf and nursery managers,
and other landscape professionals. In addition to marketing Scotts' products,
Scotts' territory managers provide consultation, testing services and advice
regarding maintenance practices, including individualized comprehensive programs
incorporating various products for use at specified times throughout the year.
The Professional Business Group is served primarily through an extensive network
of distributors.
In December 1998, Scotts reorganized its Professional Business Group to
strengthen distribution and technical sales support, integrate brand management
across market segments and reduce annual operating expenses. The reorganization
reduced the ProTurf(R) division's personnel to approximately 40 employees. The
Group retained a consultative field sales force and field-based technical group
to provide distributors with product training, address questions from customers
and maintain involvement in university trial work. In fiscal 2000, Scotts will
increase its distribution network for ProTurf(R) products, adding to the four
independent distributors appointed last December: Turf Partners, Inc. in the
Midwest and Northeast, BWI Companies, Inc. in the Southwest and Southeast,
Wilbur Ellis Company in the Pacific Northwest and Western Farm Services, Inc. in
California. Alliances are expected to be formed with other distributors as
necessary.
To reach potential purchasers, Scotts uses trade advertising and direct mail and
sponsors seminars throughout the country. In addition, Scotts maintains a
special toll-free number for its professional customers. The professional
customer service department responded to over 50,000 telephone inquiries in
fiscal 1999.
COMPETITION
In the professional turf and horticulture markets, Scotts faces a broad range of
competition from numerous companies ranging in size from multi-national chemical
and fertilizer companies such as DowElanco Company, Uniroyal, BASF and
Chisso-Asahi, to smaller specialized companies such as Lesco, Inc. and Lebanon
Chemical Corp., to local fertilizer manufacturers and blenders. Portions of this
market are served by large agricultural fertilizer companies, while other
segments are served by specialized, research-oriented companies. In specific
areas of the country, particularly Florida, a number of companies have begun to
offer turf care services, including product application, to golf courses. In
addition, the higher margins available for sophisticated products to treat
high-value crops continue to attract large and small chemical producers and
formulators, some of which have larger financial resources and research
departments than Scotts. Also, the influence of mass merchandisers, with
significant buying power, has increased the cost consciousness of horticulture
growers. While Scotts believes that its reputation, turf and ornamental market
focus, expertise in product development and sales and distribution network
should enable it to continue to maintain and build its share of the professional
market, there can be no assurance that Scotts will be able to maintain market
share or margins against new or existing competitors.
BACKLOG
A large portion of professional product orders is received during the months of
August through November and is filled during the months of September through
November. As of November 26, 1999, orders on hand from professional customers
totaled approximately $5.8 million compared with $13.4 million on the same date
in 1998. All of these orders are expected to be filled in fiscal 2000.
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INTERNATIONAL BUSINESS GROUP
MARKET
The International Business Group regularly sells its products to both consumer
and professional users in over 40 countries. Management believes that growth
potential should exist in both markets. This Group also manages and markets
consumer Roundup(R) internationally. Scotts has established business entities in
the markets with significant potential, which include Australia, the United
Kingdom, the Benelux countries, Germany, France, Spain and Italy.
Consumer lawn and garden products are sold under Scotts' various trademarks,
including the Scotts(R) label, in Australia, the European Union, New Zealand and
South America. In addition, products bearing the Miracle-Gro(R) trademark are
marketed in the Caribbean, Australia, New Zealand, the Netherlands and the
United Kingdom. Scotts' Hyponex(R) line of products is present in Japan as a
result of a long-term agreement with Hyponex Japan Corporation, Ltd., an
unaffiliated entity.
Professional markets include both the horticulture and turf industries. The
International Business Group markets professional products in Africa, Australia,
the Caribbean, the European Union, Japan, Latin America, Mexico, the Middle
East, New Zealand, South America and Southeast Asia. Horticultural products
mainly carry the Scotts(R), Sierra(R), Peters(R) and Osmocote(R) labels. Turf
products primarily use the Scotts(R) trademark.
Consumer products are sold by an approximate 193-person sales force and
professional products are sold by an approximate 87-person sales force.
Scotts has leading market share positions in the United Kingdom in a number of
lawn and garden market categories. Its major consumer brands there include
Miracle-Gro(R) plant fertilizers, Weedol(R) and Pathclear(R) herbicides,
EverGreen(R) lawn fertilizer, Levington(R) growing media, and Bug Gun(R)
insecticides.
In October 1998, Scotts, through subsidiaries, acquired from various affiliates
of Rhone-Poulenc Agro: the shares of Rhone-Poulenc Jardin SAS; the shares of
Celaflor GmbH; the shares of Celaflor Handelsgesellschaft m.b.H.; and the home
and garden business of Rhone-Poulenc Agro S.A. in Belgium (collectively
"Rhone-Poulenc Jardin"), each in a privately-negotiated transaction. Scotts
conducts the Rhone-Poulenc Jardin business through Scotts France SAS, based in
Lyon, France.
Scotts France SAS is continental Europe's largest producer of consumer lawn and
garden products. It manufactures and sells a full line of consumer lawn and
garden pesticides, fertilizers and growing media in France, Germany, the Benelux
countries, Austria, Italy and Spain. Brands include KB(R) and Fertiligene(R) in
France, and Celaflor(R) and NexaLotte(R) in Germany.
Also in October 1998, Scotts acquired from an agency of the Irish government,
Bord na Mona, the Shamrock(TM) trademark, a brand used to market peat products
in the United Kingdom and Ireland. As part of the agreement, Scotts has an
option to supply the Shamrock(TM) brand of peat in continental European markets.
Scotts also acquired the rights to a ten-year horticultural peat supply
agreement with Bord na Mona as supplier, with a renewable ten-year term at
Scotts' option. Under the agreement, Bord na Mona will mix and package peat and
other growing media products for Scotts. It is expected that this acquisition
will secure Scotts' access to high quality peat resources for both the consumer
and professional markets in the United Kingdom and Ireland and will also enable
Scotts to enter the professional horticultural compost market in mainland Europe
in due course. Scotts manages this business through Scotts Horticulture Ltd., an
affiliated entity domiciled in Ireland.
In December 1998, Scotts completed its acquisition of Asef Holding B.V., a
privately-held consumer lawn and garden products company, with operations in the
Netherlands. As part of the transaction, Scotts also acquired related assets in
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Belgium. Asef sells fertilizers, growing media and pesticides under the Asef
brand and through private label programs with major retailers. In Holland, Asef
also markets the Bayer line of pesticides. Asef has approximately 40 employees.
Scotts operates this business through Scotts Asef BVBA in Belgium, and ASEF BV
in the Netherlands.
In fiscal 1999, in connection with efforts to successfully integrate these
acquisitions, Scotts divided management of its international operations into
four zones, as follows: Zone 1 (the consumer business in the United Kingdom and
Ireland); Zone 2 (the consumer business in France, Belgium and Holland); Zone 3
(the consumer business in Germany, Austria and Australia); and Zone 4 (the
professional business). For fiscal 1999, Scotts experienced strong sales growth
in its continental European and Benelux consumer business, with weaker results
in the United Kingdom, where Scotts is continuing to integrate and restructure
operations of recently-acquired entities.
BUSINESS STRATEGY
An increasing portion of Scotts' sales and earnings is derived from customers in
foreign countries. The headquarters office for the International Business Group
is located in Lyon, France. The Professional Group of the International Business
Group maintains a separate office in Waardenburg, Netherlands. Scotts' managers
travel abroad regularly to visit its facilities, distributors and customers.
Scotts' own employees manage its affairs in Europe, Australia, Malaysia, Mexico,
Brazil and the Caribbean. The International Business Group plans to further
develop its international business in both the consumer and professional
markets. Scotts believes that the technology, quality and value that are widely
associated with its domestic and acquired brands should be transferable to the
global marketplace.
Management believes the International Business Group is well positioned to
obtain an increased share of the international market. Scotts has a broad,
diversified product line made up of value-added fertilizers which can be
targeted to the market segments of consumer, turf, horticulture and high value
agricultural crops. Also, Scotts has the capability to sell worldwide through
its extensive distributor network. However, there can be no assurance that
Scotts can maintain market share or margins against new or existing competitors,
or that Scotts can obtain an increased share of the international market.
Any significant changes in international economic conditions, expropriations,
changes in taxation and regulation by U.S. and/or foreign governments could have
a substantial effect upon the international business of Scotts. Management
believes, however, that these risks are not unreasonable in view of the
opportunities for profit and growth available in foreign markets. Scotts'
international earnings and cash flows are subject to variations in currency
exchange rates, which derive from sales and purchases of Scotts' products made
in foreign currencies. For a discussion of how Scotts manages its foreign
currency rate exposure, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
COMPETITION
The International Business Group's consumer business faces strong competition in
the lawn and garden market, particularly in Australia and the European Union.
Competitors in Australia include Chisso-Asahi, Debco and Yates. Competitors in
the European Union include Bayer, BASF and various local companies. Scotts has
historically responded to competition with superior technology, excellent trade
relationships, competitive prices, broad distribution and strong advertising and
promotional programs.
The international professional market is very competitive, particularly in the
controlled-release and water-soluble fertilizer segments. Numerous U.S. and
European companies are pursuing these segments internationally, including
Pursell Industries, Lesco, BASF, Norsk Hydro, Haifa Chemicals Israel, Kemira and
private label companies. Historically, Scotts' response to competition in the
professional markets has been to adapt its technology to solve specific user
needs which are identified by developing close working relationships with key
users.
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MATTERS RELATING TO THE COMPANY GENERALLY
ROUNDUP MARKETING AGREEMENT
On September 30, 1998, Scotts entered into an agency and marketing agreement
with Monsanto Company and became Monsanto's exclusive agent for the marketing
and distribution of consumer Roundup(R) products in the consumer lawn and garden
market within the United States and other specified countries, including
Australia, Austria, Canada, France, Germany and the United Kingdom. In addition,
if Monsanto develops new products containing glyphosate, the active ingredient
in Roundup(R), or other non-selective herbicides, Scotts has specified rights to
market these products in the consumer lawn and garden market.
Under the marketing agreement, Scotts and Monsanto jointly develop global
consumer and trade marketing programs for Roundup(R). Scotts has assumed
responsibility for sales support, merchandising, distribution and logistics.
Monsanto continues to own the consumer Roundup business and provides significant
oversight of its brand. In addition, Monsanto continues to own and operate the
agricultural Roundup business. A Steering Committee comprised of two Scotts
designees and two Monsanto designees has ultimate oversight over the consumer
Roundup business. In the event of a deadlock, the president of Monsanto's
agricultural division is entitled to the tie-breaking vote.
COMMISSION STRUCTURE
Scotts is compensated under the marketing agreement based on the success of the
consumer Roundup business in the markets covered by the agreement. In addition
to recovering out-of-pocket costs on a fully burdened basis, Scotts receives a
graduated commission to the extent that the earnings before interest and taxes
of the consumer Roundup business in the included markets exceed specified
thresholds. To the extent that these earnings are less than the first commission
threshold set forth below, Scotts will not receive any commission. Net
commission is equal to the commission set forth in the following chart less the
contribution payment Scotts is required to make, as described below. The net
commission is the amount that Scotts actually recognizes on its income
statements.
The commission structure is as follows:
<TABLE>
<CAPTION>
IF EARNINGS ARE
BETWEEN THE FIRST
AND SECOND
COMMISSION IF EARNINGS ARE
THRESHOLDS THE GREATER THAN THE
COMMISSION EQUALS SECOND COMMISSION
THE FOLLOWING THRESHOLD THE
PERCENTAGE OF THE COMMISSION EQUALS THE
DIFFERENCE BETWEEN FOLLOWING AMOUNT PLUS
FIRST SECOND THE EARNINGS AND 50% OF THE AMOUNT OF
COMMISSION COMMISSION THE FIRST COMMISSION THE EARNINGS
YEAR THRESHOLD THRESHOLD THRESHOLD ABOVE $80 MILLION
---- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
1999-2000...... $30,000,000 $80,000,000 46% $23,000,000
2001........... $31,250,000 $80,000,000 44% $21,450,000
2002........... $32,531,250 $80,000,000 40% $18,987,500
2003........... $33,844,531 $80,000,000 40% $18,462,188
2004........... $35,190,645 $80,000,000 40% $17,923,742
2005........... $36,570,411 $80,000,000 40% $17,377,836
2006........... $37,984,471 $80,000,000 40% $16,806,212
2007........... $39,434,288 $80,000,000 40% $16,226,285
2008........... $40,920,145 $80,000,000 40% $15,631,942
2009+.......... $30,000,000 $80,000,000 40% $20,000,000
</TABLE>
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Earnings for purposes of the marketing agreement for the 1999 fiscal, or
program, year were increased by $15 million for purposes of calculating
Scotts' commission.
Under the agreement, Scotts is required to make an annual fixed contribution
payment to Monsanto. Nominally, this contribution payment will be $20 million
per fiscal year. However, Scotts was not required to make any contribution
payment in the 1999 fiscal year, and the contribution payments for 2000 and 2001
fiscal years will actually be $5 million and $15 million, rather than $20
million. Scotts and Monsanto have agreed to defer the difference between the $20
million nominal contribution payment and the actual contribution payment in the
first three fiscal/program years under the marketing agreement. Beginning with
the 2003 fiscal year and extending through Scotts' 2018 fiscal year, Scotts must
make a contribution payment of $25 million per fiscal year until Monsanto
recovers the $40 million deferred in the first three fiscal years plus interest
of 8% per year. In addition, during the 2003 through 2008 fiscal year period,
Scotts will apply 50% of the amount by which the net commission exceeds the
specified levels toward the reimbursement of the $40 million deferral.
Specifically, Scotts will apply toward the deferral 50% of the amount by which
Scotts' net commission exceeds the following levels:
<TABLE>
<CAPTION>
YEAR NET COMMISSION LEVEL
- - ---- --------------------
<S> <C>
2001..... $32,500,000
2002..... $28,100,000
2003..... $26,700,000
2004..... $30,500,000
2005..... $34,600,000
2006..... $38,900,000
2007..... $43,500,000
2008..... $49,000,000
</TABLE>
TERM
The marketing agreement has no definite term, except as it relates to European
Union countries. However, as set forth below, for a period of 20 years Scotts
may be entitled to receive a termination fee if Monsanto terminates the
marketing agreement upon a change of control of Monsanto or the sale of the
consumer Roundup business. With respect to the European Union countries, the
initial term of the marketing agreement extends through September 30, 2005.
After September 30, 2005, the parties may agree to renew the agreement with
respect to the European Union countries for three successive terms ending on
September 30, 2008, 2015 and 2018, respectively. However, if Monsanto does not
agree to any of the extension periods with respect to the European Union
countries, the first commission threshold set forth in the table outlining the
commission structure above, will become $0.
TERMINATION
Monsanto has the right to terminate the marketing agreement upon a specified
event of default by Scotts or upon a change of control of Monsanto or the sale
of the consumer Roundup business, so long as the termination after a change of
control of Monsanto or the sale of the Roundup business occurs later than
September 30, 2003. The events of default by Scotts that could give rise to
termination by Monsanto include:
- - - "Material Breach" which is not cured within 90 days after written notice
from Monsanto and which is not remediable by the payment of damages or by
specific performance;
- - - "Material Fraud" which was engaged in with the intent to deceive Monsanto
and which is not cured, if curable, within 90 days after written notice from
Monsanto;
- - - "Material Willful Misconduct" which is not cured, if curable, within 90
days after written notice from Monsanto;
- - - "Egregious Injury" to the Roundup(R) brand that is not cured, if curable,
within 90 days after notice from Monsanto, unless the egregious injury resulted
from the exercise by Monsanto of its tie-breaking right with respect to
deadlocked actions by the Steering Committee or was caused primarily by an act
or omission of Monsanto;
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<PAGE> 17
- - - Scotts' becoming insolvent;
- - - the acquisition of Scotts, by merger or asset purchase, or the acquisition
of more than 25% of Scotts' voting securities, without Monsanto's prior written
approval, by a competitor of Monsanto or by an entity that Monsanto reasonably
believes will materially detract from or diminish Scotts' ability to fulfill
Scotts' duties and obligations under the agreement; or
- - - the assignment by Scotts of all, or substantially all, of Scotts' rights or
obligations under the agreement.
In addition, Monsanto may terminate the marketing agreement within the North
America, U.K., France or "Rest of the World" regions for specified declines of
the consumer Roundup business. For purposes of determining Monsanto's rights
under the agreement, Scotts' performance is based on sales of Roundup(R) to the
ultimate consumers of the product, rather than on sales to retailers or
distributors. Scotts will measure sales to consumers by looking at point-of-sale
unit movement at selected, top-20 Roundup customers in the affected region.
More specifically, Monsanto may terminate the marketing agreement within one of
the regions if:
- - - sales to consumers decline cumulatively over a three fiscal year period
cumulative basis in the region; or
- - - sales to consumers decline by more than five percent in two consecutive
fiscal years within the region.
However, Monsanto may not exercise this termination right if Scotts can
demonstrate that the decline was caused by a severe decline of general economic
conditions or a severe decline in the lawn and garden market in the region
rather than by Scotts' failure to perform its duties under the agreement.
Monsanto would also not be able to terminate the agreement if the decline were
caused by Monsanto's exercise of its right to break ties with respect to
deadlocked decisions of the Steering Committee.
Scotts has rights similar to Monsanto's to terminate the agreement upon a
material breach, material fraud or material misconduct by Monsanto. In addition,
Scotts may terminate the marketing agreement upon Monsanto's sale of the
consumer Roundup business, although then Scotts would lose the termination fee
described below.
TERMINATION FEE
Except to the extent set forth below, if Monsanto terminates the marketing
agreement upon a change of control of Monsanto or the sale of the consumer
Roundup business, Scotts will be entitled to receive a significant termination
fee. Scotts will also be entitled to receive a termination fee if it terminates
the marketing agreement upon a material breach, material fraud or material
willful misconduct by Monsanto.
The termination fee will be calculated in accordance with the following
schedule:
<TABLE>
<CAPTION>
THE TERMINATION FEE
PAYABLE TO
IF TERMINATION OCCURS PRIOR TO SEPTEMBER 30, SCOTTS WILL BE EQUAL TO:
- - -------------------------------------------- -----------------------
<S> <C>
2003.................................................. $150,000,000 *
2004.................................................. $140,000,000
2005.................................................. $130,000,000
2006.................................................. $120,000,000
2007.................................................. $110,000,000
2008.................................................. $100,000,000
</TABLE>
- - -----------
* Neither Monsanto nor a successor to the consumer Roundup business may
terminate the marketing agreement prior to September 30, 2003 upon a change
of control or a sale of the consumer Roundup business. If Monsanto or a
successor were to do so
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despite such prohibition, the termination fee payable to Scotts would be
$185 million.
Between October 1, 2009 and September 30, 2018, if Monsanto terminates the
marketing agreement upon a sale of the consumer Roundup business or if a
successor terminates the agreement following a change of control of Monsanto,
the termination fee will be equal to the greater of (i) a percentage of the
portion of the purchase price of the consumer Roundup business in excess of a
specified amount and (ii) $16 million.
In addition, if Monsanto terminates the marketing agreement for any reason other
than egregious injury, material fraud or material willful misconduct by Scotts,
Monsanto will forfeit recovery of any unpaid portion of the $40 million deferral
of contribution payments described above.
SALE OF ROUNDUP
Monsanto has agreed to provide Scotts with notice of any proposed sale of the
consumer Roundup business, allow Scotts to participate in the sale process and
negotiate in good faith with Scotts with respect to a sale. If the sale is run
as an auction, Scotts will further be entitled to a 15-day exclusive negotiation
period following the submission of all bids to Monsanto. During this period,
Scotts may revise its original bid, but Scotts will not have the right to review
the terms of any other bids.
In the event that Scotts acquires the consumer Roundup business in such a sale,
it will receive credit against the purchase price in the amount of the
termination fee that would otherwise have been paid to Scotts upon termination
by Monsanto of the marketing agreement upon the sale.
If Monsanto decides to sell the consumer Roundup business to another party,
Scotts must let Monsanto know within 30 days after receipt of notice of the
purchaser whether Scotts intends to terminate the marketing agreement and
forfeit any right to a termination fee or whether Scotts will agree to perform
its obligations under the agreement on behalf of the purchaser, unless and until
the purchaser terminates Scotts and pays the applicable termination fee.
MARKETING FEE
Upon execution of the marketing agreement, Scotts paid Monsanto a fee of $32
million in consideration for the rights obtained under the marketing agreement
with respect to North America.
RESOLUTION OF ISSUES RELATED TO ORTHO ACQUISITION
On January 21, 1999, Scotts completed the acquisition of the Ortho business from
Monsanto for $300 million, subject to adjustment depending on the level of
normalized working capital as of the January 21 closing date. In accordance with
the terms of the acquisition agreement, as of that date, Scotts received an
estimate of normalized working capital of $125.9 million. This estimate resulted
in Scotts making a transfer to Monsanto of $39.9 million on the closing date in
addition to the $300 million purchase price. Following the closing, as provided
by the acquisition agreement, Scotts gave Monsanto its estimate of normalized
working capital, which was significantly lower than $125.9 million, while
Monsanto provided Scotts with its revised estimate that was significantly higher
than $125.9 million.
Scotts and Monsanto have resolved many of the items in dispute which comprise
each party's working capital estimate. Scotts is in the process of resolving the
remaining items in dispute through negotiation and/or arbitration, as
contemplated by the acquisition agreement. Scotts expects that all remaining
issues will be finally resolved during the 2000 fiscal year, but cannot
currently estimate the final normalized working capital amount. To the extent
that the amount differs from $125.9 million, Scotts will either make an
additional payment to or receive a payment from Monsanto that will adjust the
working capital assets on Scotts' opening balance sheet
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for the Ortho business. In either case, Scotts does not believe that the final
resolution of the items in dispute will have a material adverse effect on
Scotts.
PATENTS, TRADEMARKS AND LICENSES
The "Scotts(R)", "Miracle-Gro(R)", "Hyponex(R)" and "Ortho(R)" brand names and
logos, as well as a number of product trademarks, including "Turf Builder(R)",
"Lawn Pro(R)", "ProTurf(R)", "Osmocote(R)" and "Peters(R)", are federally and
internationally registered and are considered material to Scotts' business.
Scotts regularly monitors its trademark registrations, which are generally
effective for ten years, so that it can renew those nearing expiration. In 1989,
Scotts assigned rights to selected Hyponex trademarks to Hyponex Japan
Corporation, Ltd., an unaffiliated entity. In July 1995, Scotts-Sierra granted
an exclusive license to use the Peters trademark in the U.S. consumer market, to
Peters Acquisition Corporation, now owed by United Industries Corporation, for
the life of the mark.
As of September 30, 1999, Scotts held over 230 U.S. and international patents on
processes, compositions, grasses and application devices and has additional
patent applications pending. Patent protection generally extends 20 years from
the filing date, and many of Scotts' patents extend well into the next decade.
Scotts also holds exclusive and non-exclusive patent licenses from various
chemical suppliers permitting the use and sale of patented pesticides.
During fiscal 1999, Scotts secured several new U.S. patents. Scotts'
newly-formed biotechnology group within Scotts Research Center, was granted its
first patent, protecting a method for the genetic modification of grass plants,
and specifically, St. Augustinegrasses. In addition, Scotts was granted
separate U.S. patents for the Ortho "Lock 'n Spray(R)" applicator and a Kentucky
Bluegrass variety with high turf performance characteristics. Scotts also
secured seven international patents, one dealing with methylene-urea fertilizer
technology, and six covering various coated fertilizer technologies. Scotts'
methylene-urea technology was patented in Finland, and Poly-S technology was
patented in Norway and New Zealand. In addition, use patents were granted in
Australia, Indonesia and Africa, covering the use of controlled-release
fertilizers as an improved nutrient source for aquaculture. Finally, a new
(experimental) coated fertilizer technology was granted a patent in Mexico.
Scotts' methylene-urea product composition patent, which covers Scotts Turf
Builder(R), Scotts Turf Builder(R) with Plus 2(R) Weed Control and Scotts Turf
Builder(R) with Halts(R) Crabgrass Preventer, among other products, is deemed
material by Scotts and is due to expire in July 2001. Scotts believes that the
high entry costs of manufacturing needed to replicate this product and the value
of the Scotts(R) brand should lessen the likelihood of product duplication by
any competitor.
Glyphosate, the active ingredient in Roundup(R), is subject to a patent in the
United States that expires in September 2000. Scotts cannot predict the success
of Roundup(R) after glyphosate ceases to be patented. Substantial new
competition in the United States could adversely affect Scotts. 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 patent protection, 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 Scotts' financial results through the
calculations of the commission under the Roundup(R) marketing agreement.
RESEARCH AND DEVELOPMENT
Scotts has a long history of innovation dating from the 1928 introduction of
Turf Builder(R), through the development, design and construction of its newest
state of the art methylene-urea fertilizer production facility in Marysville,
Ohio. Commissioned in 1999, this facility will produce the new and improved Turf
Builder(R) with Micromax(R) micronutrients for fiscal 2000. Scotts' continued
commitment to innovation has produced a portfolio of over 230 patents worldwide,
covering most of its fertilizers and many of its grasses and application
devices.
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Scotts operates what it believes to be one of the premier research and
development organizations in the lawn and garden industry. Headquartered in the
Dwight G. Scott Research Center for North America in Marysville, Ohio ("Scotts
R&D"), Scotts R&D's mission is to develop and enhance easy to use lawn and
garden products for consumers. This is accomplished through a comprehensive and
consolidated view of innovation including Scotts R&D divisions such as: product
development (agronomic performance); process/formulation development (design of
manufacture); packaging and durables development (new structures, forms,
dispensing and application devices); and regulatory and environmental affairs
(product registration, industry and government relations). Scotts R&D's
consolidated effort harnesses the synergies between all Scotts technologies
resulting in optimization for the lawn and garden consumer, from seed to soil,
fertilizer to weed/pest control.
Scotts R&D operates six research field stations strategically located throughout
the United States in Ohio, Florida, Texas, California, New Jersey and Oregon,
covering 212 acres. These facilities allow for evaluation of regional product
requirements (different soil, climatic and pest pressure) and flexibility for
year-round testing. The facilities also provide regional technical support and
training for sales personnel.
Scotts R&D underwent significant change in fiscal 1999 with the relocation of
the durable goods/application device development group from Republic Tool's
Carlsbad, California facility and the beginning of the relocation of the Ortho
research and development group from San Ramon, California, which is scheduled to
be completed in fiscal 2000. Product development efforts were also reorganized
in 1999 for better alignment with the business group marketing departments.
Since 1992, Scotts' entire line of controlled-released fertilizers has been
reformulated or upgraded with new technology. These include: patented Poly-S(R),
ScottKote(R) and methylene-urea; and Osmocote(R) patterned release,
polymer-encapsulated technology. These technologies service the turfgrass,
garden, horticultural and specialty agricultural markets both domestically and
internationally. Process development efforts continue to focus on process
innovation, capacity increase, quality enhancement and cost reduction. The
fiscal 2000 year impact of this work is expected to result in improvements
ranging from Miracle-Gro(R) Tree Spikes (cost reduction and quality improvement)
to controlled-release fertilizer for professional horticultural container-grown
plants (improved performance, cost reduction and quality improvement).
In fiscal 1998, Scotts consumer lawn fertilizer packaging was converted to high
quality plastic that has since become the industry standard. Scotts R&D applied
learning gained in that conversion to subsequently convert the Professional
Business Group's fertilizer line in fiscal years 1999 and 2000. The Consumer
Ortho Business Group will convert packaging for granular control chemicals in
fiscal 2000. Also new in fiscal 2000 is the sliding reclosure feature on
Miracle-Gro(R) Potting Soil. Scotts R&D should benefit from the consolidation of
resources from the relocation to Marysville, of the Ortho research and
development functions. Continued efforts will include package/dispensing
innovation, consumer ease of use and reduction of consumer exposure. Examples in
fiscal 1999 include the successful introduction of Pull 'n Spray(TM) and Lock 'n
Spray(R) in the Roundup(R) and Ortho(R) product lines, both unique combined
packaging/application systems.
Scotts R&D maintains an aggressive active ingredient access and evaluation
program, critical to the introduction of new and improved products. Over 100 new
formulations are prepared and evaluated each year in over 1,000 tests. Combined
with Scotts' brands and market/sales position, this capability has allowed
Scotts to gain exclusive and semi-exclusive access to new active ingredients
from major chemical suppliers. Examples in consumer products are: bifenthrin
insecticide (FMC Corporation); halofenozide insecticide (RohMid LLC); and
pendimethalin herbicide (American Cyanamid Company). Examples in professional
products are: myclobutanil fungicide (Rohm & Haas Company); paclobutrazol turf
growth regulator (Zeneca Professional Products); etridiazole fungicide (C&K
Witco); and flutolanil fungicide, propamocarb fungicide, deltamethrin
insecticide, bendiocarb insecticide, clofentezine miticide and buprofezin
insecticide (AgrEvo Environmental Health).
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Since 1997, Scotts has maintained a dedicated turfgrass genetic engineering
laboratory in its existing Scotts R&D facility in Marysville, to develop
turfgrass varieties with improved characteristics such as resistance to disease,
insects and herbicides. In January 1998, Scotts acquired an 80.8% interest in
Sanford Scientific, Inc., a research company in the rapidly growing field of
genetic engineering of plants. Sanford Scientific has developed and licensed a
broad portfolio of genes and genetic process technology. It holds the exclusive
license to use biolistic ("gene gun") technology in the commercial development
of genetically transformed turf grasses, flowers and woody ornamental plants.
Biolistic technology involves the delivery of desirable genetic characteristics
by high-velocity injection into cells. The technology is widely used in medical
research and agricultural fields for applications ranging from immunization and
cancer treatment to creation of new agricultural crop varieties, including corn
and soybeans. The biolistic approach to genetic engineering of plants has
important advantages over other transformation technologies. For some plant
species, transformation using the gene gun is largely considered the only
commercially viable method of inserting new gene traits into plants. In
addition, Sanford Scientific has developed and licensed a broad portfolio of
genes and genetic process technology with commercial potential.
Gene gun technology augments Scotts' genetic improvement program by allowing
researchers to create desirable varieties of plants with value-added traits
beyond the capabilities of conventional plant breeding techniques. Targets of
Scotts' research effort include disease and insect resistance, herbicide
tolerance and other consumer-relevant traits, such as turfgrasses that require
less mowing and flowers with novel colors and fragrances. Scotts expects that it
will commercialize selected genetically transformed plants within a few years.
Scotts acquired its interest from Sanford Scientific founder and president Dr.
John Sanford, who retained a 19.2% interest and remains involved with Sanford
Scientific, as a member of Sanford Scientific's Board of Directors. He also
provides consulting services to Sanford Scientific, under an agreement that
continues through January 31, 2000. Dr. Sanford led the team of Cornell
University scientists who invented the gene gun technology in the 1980's, and he
continues as a leading expert in the field. Sanford Scientific operates an
advanced genetic research facility in upstate New York, and actively
collaborates with other leading genetic scientists.
Exclusive access to this technology is a key element in Scotts' program to
create value by combining Scotts' brands and Sanford Scientific's biolistic
transformation process with proven genes licensed from technology partners.
Consistent with this strategy, in August 1998, Scotts completed an agreement
with Rutgers University, the State University of New Jersey. Under this
agreement, Scotts will fund, through research support and future royalties, a
combined effort by Rutgers' plant biotechnology and turfgrass breeding programs
to develop improved transgenic bentgrass varieties. In return, Scotts will
receive exclusive rights to market all Rutgers' patented transgenic bentgrass
varieties developed through 2005, likely extending to 2015. Rutgers' development
program will utilize the biolistic process and other enabling technologies under
license to Sanford Scientific to insert and activate genes that are proprietary
to Rutgers University. Any superior bentgrass varieties that result from the
program are expected to be commercialized in the golf course market.
In December 1998, Scotts entered into an agreement with Monsanto to bring the
benefits of biotechnology to the multi-billion dollar turfgrass and ornamental
plants business. Under the terms of the agreement, Scotts and Monsanto agree to
share technologies, including Monsanto's extensive genetic library of plant
traits and Scotts' proprietary gene gun technology to produce improved
transgenic turfgrasses and ornamental plants. Scotts and Monsanto will work with
each other exclusively on a global basis to develop these biotechnology products
in the professional and consumer markets. Each company will bring its leading
brands, marketing skills and technological expertise to create new products. In
addition to sales by Scotts, the companies plan to license the new products to
other marketing partners in the turf and ornamental industry. The collaborative
alliance will focus on providing professional and consumer benefits such as
turfgrass that requires less mowing and water, ornamental plants that last
longer and produce larger and more plentiful blooms, and plants that will allow
for better weed control. Scotts has been working
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since 1997 on Roundup Ready(R) turfgrass, which is tolerant to Monsanto's
Roundup(R), under a research agreement with Monsanto. The current alliance
expands that relationship to cover new applications for Roundup Ready(R)
technology as well as other improvements to ornamental plants.
In addition to Scotts R&D for North America, the International Business Group
conducts research and development in Levington, the United Kingdom; Lyon,
France; Ingelheim, Germany; Heerlen, Netherlands; and Sydney, Australia. The
Levington site supports consumer and professional formulation and testing of
lawn and garden fertilizers, pesticides and growing media. The Lyon and
Ingelheim sites support consumer household insecticide formulation and testing,
as well as lawn and garden fertilizers, pesticides and growing media. The
Heerlen facility supports professional formulation, testing and process
development of turf and horticultural fertilizers, and testing of pesticide
products. The Sydney site supports consumer and professional testing and
technical service of fertilizer and pesticide products. The Scotts Company
(U.K.) Ltd. leases a research facility and trial station in the United Kingdom
for formulating plant protection products for the consumer and professional
markets.
Company research and development expenses were approximately $21.7 million (1.3%
of net sales) for fiscal 1999 including environmental and regulatory expenses.
This compares to $14.8 million (1.3% of net sales) and $10.0 million (1.1% of
net sales) for fiscal 1998 and 1997.
SEASONALITY
Scotts' business is highly seasonal with approximately 74% of sales occurring in
the second and third fiscal quarters combined for fiscal 1999, and 72% for
fiscal 1998. Please also see the discussion in "North American Consumer Business
Group--Backlog" and "Professional Business Group--Backlog."
The products marketed by the Consumer Ortho Business Group are highly seasonal.
However, they are not necessarily driven by the same weather variables as are
the other products of Scotts. For example, insect populations (and corresponding
control product sales) tend to thrive when wet springs yield to hot, humid
summers. In contrast, fertilizer sells best in drier springs.
OPERATIONS
PRODUCTION FACILITIES
The manufacturing plant for consumer and professional fertilizer products
marketed under the Scotts(R) label is located in Marysville, Ohio. Manufacturing
for these products is also conducted by approximately 40 contract manufacturers.
Demand for Turf Builder(R), Poly-S(R) and other products results in Scotts
expanding operations (generally from October through May) of its fertilizer
processing and packaging lines from five days per week, three-shift operations
to seven days, three-shift operations when necessary to prepare for the peak
demand periods. Scotts currently operates its three Turf Builder(R) lines seven
days per week, year round, and began engineering of a fourth Turf(R) Builder
production line, to meet capacity needs for those products. Scotts-Sierra
controlled-release fertilizers are produced in Charleston, South Carolina;
Milpitas, California; and Heerlen, Netherlands. Expansion at each facility
has been completed to permit the blending of products which utilize both Scotts
and Scotts-Sierra proprietary technology. Production schedules at
Scotts-Sierra's facilities vary to meet demand. Seed blending and packaging are
outsourced to various packaging companies located on the West Coast near seed
growers. Growing media products are processed and packaged in 27 locations
throughout the United States. Scotts operates two composting facilities where
yard waste (grass clippings, leaves, and twigs) is converted to raw materials
for Scotts' growing media products. Operations at these facilities have been
integrated with Scotts' 27 growing media facilities. Scotts also utilizes
approximately 30 contract production locations for growing media products.
Scotts' lawn spreaders and specialty hose sprayers are produced at the Republic
facility in Carlsbad, California. Republic Tool adjusts assembly capacity from
time to time, to meet demand. Both Hyponex's and Republic Tool's operations vary
production schedules to meet demand. The majority of
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Miracle-Gro(R) water-soluble fertilizers is contract-manufactured in three
facilities located in Ohio, Texas and Florida.
Granular and water-soluble fertilizers, liquid herbicides and pesticides and
growing media for the U.K. market, are produced in East Yorkshire (Howden,
Hatfield and Swinefleet) and Bramford (Suffolk), in the United Kingdom.
Bramford is the headquarters for U.K. operations and for the U.K. professional
business. The site houses a modern fertilizer granulation plant with automated
packing lines, liquid fertilizer production and bottling facilities. In
addition, there are facilities for formulating and bottling a wide range of
liquid plant protection products including herbicides, insecticides and
fungicides. Bramford produces a wide range of products for both the consumer and
professional businesses in Europe. These include the EverGreen(R) line of
consumer lawn products and Greenmaster(R) products for the professional turf
market. The Hatfield and Swinefleet factories contain modern facilities for the
screening and blending of peat, together with various additives to produce a
wide range of growing media. Peat to supply the facilities is harvested on both
sites and brought in from satellite sites in Northwest England and Scotland.
These facilities produce the Levington(R) brand of compost for both the consumer
and professional businesses. Peat from Ireland is imported to produce the
Shamrock(TM) range of growing media. Granular and water-soluble fertilizers and
pesticides are produced at Howden and growing media is produced at Swinefleet
and Hatfield.
At Hautmont, France, growing media and fertilizers for the consumer market are
blended and bagged, and at Bourth, France, pesticide products for the consumer
market are formulated, blended and packaged. Production schedules at Hautmont
vary from one shift to two shifts to meet demand, while Bourth maintains two
shifts year-round.
Liquid and granular ingredients made primarily for Ortho(R) and Roundup(R)
products are manufactured at Scotts' Fort Madison, Iowa facility and at several
contract facilities. The plants adjust to seasonal demands expanding from two
shifts five days a week to three shifts five days a week during peak season.
Resin used for producing Osmocote(R) controlled-release fertilizer in the United
States is manufactured by Sunpol Resins and Polymers, Inc. (formerly
Sierra-Sunpol Resins, Inc.). In March 1999, Scotts-Sierra sold its majority
stock interest in Sierra-Sunpol Resins, Inc., to the minority share owner and
facility manager, which operates as Sunpol Resins and Polymers, Inc. In
connection with the sale, Scotts entered into a five-year supply agreement for
resin for domestic operations.
Management believes that each of its facilities is well-maintained and suitable
for its purpose. However, due to the seasonal nature of Scotts' business,
Scotts' plants operate at maximum capacity during the peak production periods.
Therefore, an unplanned serious production interruption could have a substantial
adverse affect on Scotts' sales of the affected product lines.
CAPITAL EXPENDITURES
Capital expenditures totaled $66.7 million and $41.3 million for fiscal 1999 and
1998. Of the major expenditures for fiscal 1999, approximately $21.0 million was
spent on the implementation of the Enterprise Resource Planning information
services program, $11.0 million for completion of the third Turf Builder(R)
production line and associated packaging line additions, and over $2.0 million
for facility expansions required for integration of Ortho operations.
Engineering work has been initiated for the construction of a fourth Turf
Builder(R) line, which with additional blending and packaging expansions, is
expected to cost a total of $46.0 million for fiscal years 2000 and 2001. Thus,
Scotts estimates that capital spending will approximate $70.0 million for fiscal
2000, which will include additional production capacity for Osmocote(R) products
in Europe and expansion and automation of packaging capabilities in the Growing
Media and Ortho facilities. Capital spending will approximate $60.0 to $70.0
million for fiscal 2001 and thereafter for the foreseeable future.
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PURCHASING
The key ingredients in Scotts' fertilizer and control products are various
commodity and specialty chemicals including vermiculite, phosphates, urea,
potash, herbicides, insecticides and fungicides. Scotts obtains its raw
materials from various sources, which Scotts presently considers to be adequate.
No one source is considered to be essential to any of Scotts' North American
Consumer, Professional or International Business Groups, or to its business as a
whole. Scotts has never experienced a significant interruption of supply.
Raw materials for Scotts Miracle-Gro include phosphates, urea and potash. Scotts
considers its sources of supply for these materials to be adequate. All of the
products sold by Scotts Miracle-Gro in North America, are produced under
contract by independent fertilizer blending and packaging companies.
Scotts-Sierra purchases granular, homogeneous fertilizer substrates to be coated
and the resins for coating. These resins are primarily supplied domestically by
Sunpol Resins and Polymers, Inc.
Sphagnum peat, bark, peat, humus, vermiculite and manure constitute Hyponex's
most significant raw materials. At current production levels, Scotts estimates
Hyponex's peat reserves to be sufficient for its near-term needs in all
locations. Bark products are obtained from sawmills and other wood residue
producers and manure is obtained from a variety of sources, such as feed lots
and mushroom growers.
Raw materials for Republic Tool's operations include various engineered resins
and metals, all of which are available from a variety of vendors.
The Consumer Ortho Business Group's primary raw materials are pesticides similar
to those used by the agriculture industry. No single chemical is essential in
this market segment and all materials or suitable substitutes are expected to
remain readily available.
The International Business Group is comprised of Professional and Consumer
subgroups, which offer products that are very similar to those marketed by the
Professional and North American Consumer Business Groups. The raw materials are
therefore similar to those used by the Professional and North American Consumer
Business Groups. Scotts believes that its raw materials sources for the
International Business Group are sufficiently varied and anticipates no
significant raw material shortages. Both the North American and International
Consumer Businesses contract with essentially the same major chemical and
packaging companies, through short and long-term supply agreements, for the
supply of specialty chemicals, fertilizers and packaging materials. The North
American and International Professional Businesses contract with local major
producers, through short and long-term supply agreements, for the supply of
sphagnum peat, peat, humus and vermiculite, which constitute the most
significant raw materials for these businesses. Long-term supply arrangements
for peat, and owned peat reserves in the United Kingdom and Ireland, are
expected to be sufficient for the International Group's near-term needs, at
current production levels. Packaging materials are supplied by major packaging
companies, through short and long-term supply arrangements, which Scotts
considers adequate for its supply needs.
DISTRIBUTION
The primary distribution centers for Scotts(R) products are located near Scotts'
North American headquarters in central Ohio. Scotts' expansion of its Marysville
distribution facility was completed in December 1997. Scotts' products are
shipped by rail and truck. While the majority of truck shipments is made by
contract carriers, a portion is made by Scotts' own fleet of leased trucks.
Inventories are also maintained in contract field or public warehouses located
in major markets.
The products of Scotts Miracle-Gro are warehoused and shipped from three primary
contract packagers located throughout the United States. These contract
packagers ship Miracle-Gro(R) products via common carrier direct to customers,
lawn and garden distributors and to two contract distribution centers located in
Fresno, California and Jacksonville, Florida. Inventories of Scotts U.K.
products for the European
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market, which are produced at the East Yorkshire (Howden) and Bramford (Suffolk)
facilities, are distributed through a public warehouse in Daventry, the United
Kingdom. Professional products for the U.K. market are warehoused and shipped
from the Daventry and Chasetown, U.K. locations.
Most growing media products have low sales value per unit of weight, making
freight costs significant to profitability. Therefore, the Consumer Growing
Media Business Group has located all of its 27 plant/distribution locations near
large metropolitan areas in order to minimize shipping costs and to be near raw
material sources. The Group uses its own fleet of approximately 70 trucks as
well as contract haulers to transport its products from plant/distribution
points to retail customers. Large-bag outdoor landscaping products and much of
the indoor potting soil products are shipped directly to retail stores. A
portion of Scotts' indoor potting soil and additive products is shipped to
retailers' distribution centers for redistribution to their stores. In the
United Kingdom, growing media is packaged at Hatfield and Swinefleet and shipped
directly to customers in the United Kingdom. Growing media is also produced in
Hautmont, France and Didam, the Netherlands, and shipped directly to customers.
Scotts' Ortho(R) and Roundup(R) products are produced and shipped from two
primary manufacturing facilities, one owned by Scotts and located in Fort
Madison, Iowa and another at a contract packager located in Sullivan, Missouri.
These products are shipped via common carrier through a newly-created
distribution network of five contract distribution centers located in Fresno,
California; Jacksonville, Florida; Arlington, Texas; Parksburg, Pennsylvania;
and Wentzville, Missouri. These distribution centers ship directly to customers
and to various lawn and garden distributors across the United States.
Scotts-Sierra's products are produced at two fertilizer and two growing media
manufacturing facilities located in the United States and one fertilizer
manufacturing facility located in Heerlen, Netherlands. The majority of
shipments is via common carriers through distributors in the United States and a
network of public warehouses in Europe.
Republic Tool-produced, Scotts(R) branded spreaders are shipped via common
carrier to regional warehouses serving Scotts' retail network. A portion of
Republic Tool's spreader line and its private label lines is sold free-on-board
(FOB) Carlsbad with transportation arranged by the customer.
Fertilizers and pesticide products manufactured in Bourth, France are shipped to
customers via a central distribution center located in Blois, France.
SIGNIFICANT CUSTOMERS
Home Depot and Kmart Corporation represented approximately 17% and 9% of Scotts'
sales in fiscal 1999. Wal*Mart sales represented 7% of Scotts' fiscal 1999
sales. After allocating buying groups' sales to that retail customer, Wal*Mart
sales represented approximately 12% of Scotts' fiscal 1999 sales. All three
customers hold significant positions in the retail lawn and garden market. There
continues to be intense competition between and consolidation within the retail
outlets selling Scotts products. The loss of any of these customers or a
substantial decrease in the amount of their purchases could have a material
adverse effect on Scotts' business.
EMPLOYEES
Scotts' corporate culture is a blend of the history, heritage and culture of
Scotts and companies acquired over the past ten years. Scotts provides a
comprehensive benefits program to all full-time associates. As of September 30,
1999, Scotts employed approximately 2,900 full-time workers in the United States
(including all subsidiaries) and an additional 1,050 full-time employees located
outside the United States. As of September 30, 1999, full-time workers averaged
approximately eight years employment with Scotts or its predecessors. During
peak production periods, Scotts engages as many as 1,600 temporary workers in
the United States. In the United Kingdom, during peak periods, as many as 84
temporary workers are engaged and European operations engage an average of 53
temporary workers annually.
Scotts' U.S. employees are not members of a union, with the exception of 27 of
Scotts-Sierra's employees at its Milpitas facility, who are represented by the
International Chemical Workers Union Council/United Food and Commercial Workers
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Union. Approximately 100 of Scotts' full-time U.K. employees at the Bramford
(Suffolk), and East Yorkshire (Hatfield and Swinefleet) manufacturing sites
are members of the Transport and General Workers Union. A number of Scotts'
full-time employees at the headquarters office in Lyon, France are members
of the Confederation Generale des Cadres (CGC), Confederation Francaise
Democratique du Travail (CFDT) and Confederation Generale du Travail (CGT),
which number is confidential under French law. The average rate of union
membership among employees in France is approximately 15%. A number of union and
non-union full-time employees are members of work councils at three sites in
Bourth, Hautmont and Lyon, France, and a number of non-union employees are
members in Ingelheim, Germany. Work councils represent employees on labor and
employment matters and manage social benefits.
In connection with the Ortho acquisition, Scotts made offers of employment to
all but a very limited number of employees who worked primarily in the Ortho
business of Monsanto. While a majority of sales personnel accepted, most of the
corporate staff declined relocation. Through September 30, 1999, Scotts paid
severance, benefits and outplacement costs of $3.7 million for U.S. employees
based on Monsanto's severance policy, with an additional $1.6 million expected
to be paid during fiscal 2000. Scotts expects Monsanto to reimburse it for half
of the costs of such termination payments, up to a maximum of $5.0 million.
ENVIRONMENTAL AND REGULATORY CONSIDERATIONS
Local, state, federal and foreign laws and regulations relating to environmental
matters affect Scotts in several ways. In the United States, all products
containing pesticides must be registered with the United States Environmental
Protection Agency ("USEPA") (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 Scotts' business. The
severity of the effect would depend on which products were involved, whether
another product could be substituted and whether Scotts' competitors were
similarly affected. Scotts attempts to anticipate regulatory developments and
maintain registrations of, and access to, substitute chemicals, but there can be
no assurance that it will continue to be able to avoid or minimize these risks.
Fertilizer and growing media products (including manures) are also subject to
state and foreign labeling regulations. Grass seed is also subject to state,
federal and foreign labeling regulations.
The Food Quality Protection Act, enacted by the U.S. Congress in August 1996,
establishes a standard for food-use pesticides, which is that a reasonable
certainty of no harm will result from the cumulative effect of pesticide
exposures. Under this Act, the USEPA is evaluating the cumulative risks from
dietary and non-dietary exposures to pesticides. The pesticides in Scotts'
products, which are also used on foods, will be evaluated by the USEPA as part
of this non-dietary exposure risk assessment. It is possible that the USEPA may
decide that a pesticide Scotts uses in its products, would be limited or made
unavailable to Scotts. Scotts cannot predict the outcome or the severity of the
effect of the USEPA's evaluation. Management believes that Scotts should be able
to obtain substitute ingredients if selected pesticides are limited or made
unavailable, but there can be no assurance that it will be able to do so for all
products.
In addition, the use of certain pesticide and fertilizer products is regulated
by various local, state, federal and foreign environmental and public health
agencies. These regulations 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. Scotts believes it is operating in substantial compliance with, or
taking action aimed at ensuring compliance with, these laws and regulations.
Compliance with these regulations and the obtaining of registrations does not
assure, however, that Scotts' products will not cause injury to the environment
or to people under all circumstances. 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
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ultimate liability arising from these environmental matters, taking into
account established reserves, should not have a material adverse effect on
Scotts' financial position; however, there can be no assurance that the
resolution of these matters will not materially affect future quarterly or
annual operating results.
State and federal authorities generally require Hyponex to obtain permits
(sometimes on an annual basis) in order to harvest peat and to discharge storm
water run-off or water pumped from peat deposits. The state permits typically
specify the condition in which the property must be left after the peat is fully
harvested, with the residual use typically being natural wetland habitats
combined with open water areas. Hyponex is generally required by these permits
to limit its harvesting and to restore the property consistent with the intended
residual use. In some locations, Hyponex has been required to create water
retention ponds to control the sediment content of discharged water.
Regulations and environmental concerns exist surrounding peat extraction in the
United Kingdom. The Scotts Company (UK) Ltd. played a leading role in the
development and implementation of legislation concerning peat extraction, and
believes it complies with this legislation, regarding it as the minimum
standard.
Local, state, federal and foreign agencies regulate the disposal, handling and
storage of waste, air and water discharges from Scotts' facilities. During
fiscal 1999, Scotts had approximately $1.1 million in environmental capital
expenditures and $5.9 million in other environmental expenses, compared with
approximately $0.7 million in environmental capital expenditures and $3.1
million in other environmental expenses in fiscal 1998. Management anticipates
that environmental capital expenditures and other environmental expenses for
fiscal 2000 will not differ significantly from those incurred in fiscal 1999.
OHIO ENVIRONMENTAL PROTECTION AGENCY
Scotts has assessed and addressed environmental issues regarding the wastewater
treatment plants which had operated at the Marysville facility. Scotts
decommissioned the old wastewater treatment plants and has connected the
facility's wastewater system with the City of Marysville's municipal treatment
system. Additionally, Scotts has been assessing, under Ohio's 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, Scotts learned that the Ohio Environmental Protection Agency
was referring certain matters relating to environmental conditions at Scotts'
Marysville site, including the existing wastewater treatment plants and the
discontinued on-site waste disposal areas, to the Ohio Attorney General's
Office. Representatives from the Ohio EPA, the Ohio AG and Scotts continue to
meet to discuss these issues.
In June 1997, Scotts received formal notice of an enforcement action and draft
Findings and Orders from the Ohio EPA. The draft Findings and Orders elaborated
on the subject of the referral to the Ohio AG alleging: potential surface water
violations relating to possible historical sediment contamination possibly
impacting water quality; inadequate treatment capabilities of Scotts' 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, Scotts received a draft judicial consent order
from the Ohio AG which covered many of the same issues contained in the draft
Findings and Orders including RCRA corrective action. As a result of ongoing
discussions, Scotts received a revised draft of a judicial consent order from
the Ohio AG in late April 1999, which is the focus of current negotiations.
In accordance with Scotts' past efforts to enter into Ohio's VAP, Scotts
submitted to the Ohio EPA 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 Scotts' ongoing efforts to assess potential
environmental impacts of the discontinued on-site waste disposal areas as well
as potential remediation efforts. Under the statutes covering VAP, an eligible
participant in the program is not subject to State enforcement actions for those
environmental matters
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being addressed. On October 21, 1997, Scotts received a letter from the Director
of the Ohio EPA denying VAP eligibility based upon the timeliness of and
completeness of the submittal. Scotts has appealed the Director's action to the
Environmental Review Appeals Commission. No hearing date has been set and the
appeal remains pending.
Scotts is continuing to meet with the Ohio AG and the Ohio EPA 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 Scotts and the Ohio AG/Ohio EPA, several critical
issues remain the subject of ongoing discussions. Scotts believes that it has
viable defenses to the State's enforcement action, including that it had been
proceeding under VAP to address specified environmental issues, and will assert
those defenses in any such action.
Since receiving the notice of enforcement action in June 1997, management has
continually assessed the potential costs that may be incurred to satisfactorily
remediate the Marysville site and to pay any penalties sought by the State.
Because Scotts and the Ohio EPA have not agreed to the extent of any possible
contamination and an appropriate remediation plan, Scotts has developed and
initiated an action plan to remediate the site based on its own assessments and
consideration of specific actions which the Ohio EPA will likely require.
Because the extent of the ultimate remediation plan is uncertain, management is
unable to predict with certainty the costs that will be incurred to remediate
the site and to pay any penalties. As of September 30, 1999, management
estimates that the range of possible loss that could be incurred in connection
with this matter is $2 million to $10 million. Scotts has accrued for the amount
it considers to be the most probable within that range and believes the outcome
will not differ materially from the amount reserved. Many of the issues raised
by the State are already being investigated and addressed by Scotts 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. Scotts 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 Scotts 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, Scotts' 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 and 1999. Scotts believes agreement on the remediation plan
has essentially been reached. Before this suit can be fully resolved, however,
Scotts 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 Scotts' operations or its financial condition.
Furthermore, management believes Scotts 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, Scotts was identified by the Ohio EPA as a Potentially
Responsible Party ("PRP") with respect to a site in Union County, Ohio (the
"Hershberger site"), because Scotts allegedly arranged for the transportation,
treatment or disposal of waste that allegedly contained hazardous substances, at
the Hershberger site. Effective February 1998, Scotts and four other named PRPs
executed an Administrative Order on Consent with the Ohio EPA, by which the
named PRPs funded remedial action at the Hershberger site. Construction of the
leachate collection system and reconstruction of the landfill cap were completed
in August 1998. Scotts expects its future obligation will consist primarily of
its share of annual operating and maintenance expenses. Management does not
believe that its obligations under the Administrative Order will have a
material adverse effect on Scotts' results of operations or financial condition.
BRAMFORD
In the United Kingdom, major discharges of waste to air, water and land are
regulated by the Environment Agency. The Scotts (UK) Ltd. fertilizer facility in
Bramford
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(Suffolk), United Kingdom, is subject to environmental regulation by this
Agency. Two manufacturing processes at this facility require process
authorizations and previously required a waste management license (discharge to
a licensed waste disposal lagoon having ceased in July 1999). Scotts expects to
surrender the waste management license in consultation with the Environment
Agency. In connection with the renewal of an authorization, the Environment
Agency has identified the need for remediation of the lagoon, and the potential
for remediation of a former landfill at the site. Scotts intends to comply with
the reasonable remediation concerns of the Environment Agency. Scotts previously
installed an environmental enhancement to the facility to the satisfaction of
the Environment Agency and believes that it has adequately addressed the
environmental concerns of the Environment Agency regarding emissions to air and
groundwater. Scotts and the Environmental Agency have not agreed on a final plan
for remediating the lagoon and the landfill. 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 Scotts' results of operations or financial
condition.
YEAR 2000 READINESS
Please see the information contained under the caption "Year 2000 Readiness" in
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
ITEM 2. PROPERTIES
Scotts has fee or leasehold interests in approximately 60 facilities.
Scotts owns approximately 875 acres of land, with 719 acres at its Marysville,
Ohio headquarters for the North American Consumer Lawns, Growing Media, and
Ortho Business Groups, and the Professional Business Group and Operations
functions. Scotts leases space in downtown Columbus for its World Headquarters
office. Four research facilities in Apopka, Florida; Cleveland, Texas; Gervais,
Oregon; and Moorestown, New Jersey, comprise 129 acres. The Ortho production
facility encompasses 27 acres in Fort Madison, Iowa. Scotts leases warehouse
space throughout the United States and continental Europe as needed. Republic
Tool leases its 20-acre spreader facility in Carlsbad, California.
Scotts operates 27 growing media facilities located nationwide in 23 states.
Twenty-four are owned by Scotts and three are leased. Most facilities include
production lines, warehouses, offices and field processing areas.
As of December 1, 1999, Scotts had two-remaining compost facilities in
Connecticut. One site is located at a bagging facility in Lebanon, Connecticut
and the other is a stand-alone leased facility in Fairfield, Connecticut. During
fiscal 1999, Scotts closed its other composting sites in the United States that
collected yard and compost waste on behalf of municipalities.
Scotts owns two Scotts-Sierra manufacturing facilities in Fairfield, California
and Heerlen, Netherlands. It leases two Scotts-Sierra manufacturing facilities
in Milpitas, California and North Charleston, South Carolina.
Internationally, Scotts leases its: U.K. headquarters, located in Godalming
(Surrey); French headquarters, located in Lyon, France; German headquarters,
located in Ingleheim, Germany; and Professional Group headquarters, located in
Waardenburg, Netherlands.
Scotts owns manufacturing facilities in East Yorkshire (Howden, Hatfield and
Swinefleet) and Bramford (Suffolk) in the United Kingdom. Scotts also owns the
Hautmont plant in France, a blending and bagging facility for growing media and
fertilizers sold to the consumer market; and the Bourth plant, also in France, a
facility for formulating, blending and packaging pesticide products for the
consumer market. A sales and research and development facility is maintained at
the Ingleheim, Germany site. Scotts leases sales offices and operates an
organics bagging facility in Didam, the Netherlands. Sales offices are also
leased in Saint Niklaas, Belgium.
Scotts leases property for ten lawn care service centers in Georgia, Illinois,
Indiana, Maryland, Missouri and Ohio. Scotts also leases the land upon which
Sanford Scientific is located in Waterloo, New York.
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During fiscal 1999, Scotts leased the land upon which Scotts Miracle-Gro's
(operating as the North American Consumer Gardens Business Group) headquarters
was located in Port Washington, New York. For fiscal 2000, operations at this
location will transfer to the North American headquarters in Marysville, Ohio.
As a result of the Ortho acquisition, Scotts acquired a plant in Fort Madison,
Iowa and research stations in Moorestown, New Jersey, and Valley Center,
California. The relocation of personnel from the San Ramon sales office to
Marysville, Ohio was completed in September 1999, with the office space being
subleased until lease termination. Foreign operations acquired as a result of
the Ortho acquisition include a plant in Corwen, United Kingdom. Scotts also
operates sales offices in Beaverton, Oregon; Rolling Meadows, Illinois, and
Bentonville, Arkansas.
It is the opinion of Scotts' management that its facilities are adequate to
serve their intended purposes at this time and that its property leasing
arrangements are stable. Please also see the discussion of Scotts' production
facilities in "ITEM 1. BUSINESS--Operations Group--Production Facilities" above.
ITEM 3. LEGAL PROCEEDINGS
As noted in the discussion of "Environmental and Regulatory Considerations" in
"ITEM 1. BUSINESS", Scotts is involved in several pending environmental matters.
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 the final resolution of these matters will not materially affect
Scotts' future quarterly or annual operating results.
Pending material legal proceedings are as follows:
AGREVO ENVIRONMENTAL HEALTH, INC. (New York District Court)
On June 3, 1999, a Complaint was filed in the United States District Court for
the Southern District of New York, styled AgrEvo Environmental Health, Inc. v.
Scotts Company (sic), Scotts Miracle-Gro Products, Inc. and Monsanto Company, in
which AgrEvo seeks damages and injunctive relief for alleged antitrust
violations and breach of contract by Scotts and Scotts Miracle-Gro, and alleged
antitrust violations and tortious interference with contract by Monsanto. Scotts
purchased a consumer herbicide business from AgrEvo in May 1998. AgrEvo claims
in the suit that Scotts' subsequent agreement to become Monsanto's exclusive
sales and marketing agent for Monsanto's consumer Roundup(R) business, violated
the federal antitrust laws. AgrEvo contends that Monsanto attempted to or did
monopolize the market for non-selective herbicides and conspired with Scotts to
eliminate the herbicide Scotts previously purchased from AgrEvo, which competed
with Monsanto's Roundup(R), in order to achieve or maintain a monopoly position
in that market. AgrEvo also contends that Scotts' execution of various
agreements with Monsanto, including the Roundup(R) marketing agreement, as well
as Scotts' subsequent actions, violated the purchase agreements between AgrEvo
and Scotts.
AgrEvo is requesting unspecified damages as well as affirmative injunctive
relief, and is seeking to have the court invalidate the Roundup(R) marketing
agreement as violative of the federal antitrust laws. On September 20, 1999,
Scotts filed an answer denying liability and asserting counterclaims that it was
fraudulently induced to enter into the agreement for purchase of the consumer
herbicide business and the related agreements, and that AgrEvo breached the
representations and warranties contained in these agreements. On October 1,
1999, Scotts moved to dismiss the antitrust allegations against it on the ground
that the claims fail to state claims for which relief may be granted. On October
12, 1999, AgrEvo moved to dismiss Scotts' counterclaims. Scotts intends to
vigorously defend against this action. Under the indemnification provisions of
the Roundup(R) marketing agreement, Monsanto and Scotts each have requested that
the other indemnify against any losses arising from this lawsuit. Scotts
currently is unable to determine the potential impact of these proceedings on
its future results of operations and financial condition.
AGREVO ENVIRONMENTAL HEALTH, INC. (Delaware)
On June 29, 1999, a Complaint was filed in the Superior Court of the State of
Delaware in and for New Castle County, styled AgrEvo Environmental Health, Inc.
v. Scotts Miracle-Gro Products, Inc. and OMS Investments, Inc., in which AgrEvo
seeks damages for alleged breach of contract against Scotts Miracle-Gro and OMS.
AgrEvo alleges that, under the contracts described above by which the herbicide
business was purchased from AgrEvo in May 1998, Scotts Miracle-Gro and OMS have
failed to pay
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AgrEvo approximately $0.6 million. AgrEvo is requesting damages in this amount,
as well as pre and post-judgment interest and attorneys' fees and costs. Scotts
Miracle-Gro and OMS have moved to dismiss or stay this action on the ground that
the claims asserted must be brought in the previously-described action in the
Southern District of New York. Oral argument on this motion is set for late
December 1999. Scotts Miracle-Gro and OMS intend to vigorously defend the
asserted claims, whether they are ultimately litigated in state court in
Delaware or the federal court in New York.
RHONE-POULENC, S.A., RHONE-POULENC AGRO S.A. AND HOECHST, A.G.
On October 15, 1999, Scotts began arbitration proceedings before the
International Chamber of Commerce against Rhone-Poulenc S.A. and Rhone-Poulenc
Agro S.A. (collectively, "Rhone-Poulenc") under arbitration provisions contained
in contracts relating to the purchase by Scotts of Rhone-Poulenc's European lawn
and garden business, Rhone-Poulenc Jardin, in 1998. Scotts alleges that the
combination of Rhone-Poulenc and Hoechst Schering AgrEvo GmbH into a new entity,
Aventis S.A., will result in the violation of non-compete and other provisions
in the contracts mentioned above. In the arbitration proceedings, Scotts is
seeking injunctive relief as well as an award of damages.
On November 25, 1999, the Tribunal suggested that the parties discuss an escrow
arrangement to protect Scotts' interests during the pendency of the arbitration
and denied Scotts' request for additional interim relief. Pursuant to the
Tribunal's suggestion, the parties are presently negotiating a segregated Record
Agreement and Order.
Also on October 15, 1999, Scotts filed a Complaint styled The Scotts Company, et
al. v. Rhone-Poulenc, S.A., Rhone-Poulenc Agro S.A. and Hoechst, A.G. in the
Court of Common Pleas for Union County, Ohio, seeking injunctive relief
maintaining the status quo in aid of the arbitration proceedings as well as an
award of damages against Hoechst for Hoechst's tortious interference with
Scotts' contractual rights. On October 19, 1999, the defendants removed the
Union County action to the United States District Court for the Southern
District of Ohio. On December 8, 1999, Scotts requested that this action be
stayed pending the outcome of the arbitration proceedings.
Scotts is involved in other lawsuits and claims which arise in the normal course
of its business. In the opinion of management, these claims individually and in
the aggregate are not expected to result in a material adverse effect on Scotts'
financial position or operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
fourth quarter of the fiscal year covered by this Report.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of The Scotts Company, their positions and, as of
December 10, 1999, their ages and years with The Scotts Company (and its
predecessors) are set forth below.
<TABLE>
<CAPTION>
YEARS WITH
SCOTTS
(AND ITS
NAME AGE POSITION(S) HELD PREDECESSORS)
- - ---- --- ---------------- -------------
<S> <C> <C> <C>
Charles M. Berger 63 Chairman of the Board, President 3
and Chief Executive Officer
James Hagedorn 44 President, Scotts North America, 12
and a Director
Jean H. Mordo 54 Group Executive Vice President, 2
International
David D. Harrison 52 Executive Vice President and 4 months
Chief Financial Officer
Michael P. Kelty, Ph.D. 49 Executive Vice President, Technology 20
and Operations, Scotts North America
G. Robert Lucas 56 Executive Vice President, General 2
Counsel and Secretary
Laurens J.M. de Kort 48 Senior Vice President, 17
Zone 4, International
William A. Dittman 43 Senior Vice President, Consumer 7
Growing Media Business Group
Michel J. Farkouh 43 Senior Vice President, 1
Zone 3, International
John Kenlon 68 Senior Vice President, Consumer Gardens Group, 39
and a Director
Nick G. Kirkbride 40 Senior Vice President, 1
Zone 1, International
Hadia Lefavre 54 Senior Vice President, 9 months
Human Resources Worldwide
Joseph M. Petite 49 Senior Vice President, 11
Business Process Development
William R. Radon 40 Senior Vice President, 2
Information Technology
Christian Ringuet 48 Senior Vice President, 13
Zone 2, International
James L. Rogula 65 Senior Vice President, 4
Consumer Ortho Business Group
L. Robert Stohler 58 Senior Vice President, 4
Consumer Lawns Business Group
Scott C. Todd 38 Senior Vice President, Professional 18
Business Group
</TABLE>
Executive officers serve at the discretion of the Board of Directors and in the
case of: Mr. Berger, Mr. Hagedorn, Mr. Mordo, Mr. Harrison, Mr. Lucas, Mr. de
Kort, Mr. Kenlon, Mr. Kirkbride, Ms. Lefavre and Mr. Ringuet, pursuant to
employment agreements.
The business experience of each of the persons listed above during the past five
years is as follows:
Mr. Berger was elected Chairman of the Board, President and Chief Executive
Officer of Scotts in August 1996. Mr. Berger came to Scotts from H. J. Heinz
Company, where, from October 1994 to August 1996, he served as Chairman and
Chief Executive Officer of Heinz India Pvt. Ltd. (Bombay). During his 32-year
career at Heinz, he also held the positions of
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Chairman, President and Chief Executive Officer of Weight Watchers
International, a Heinz affiliate; Managing Director and Chief Executive Officer
of Heinz-Italy (Milan), the largest Heinz profit center in Europe; General
Manager, Marketing, for all Heinz U.S. grocery products; Marketing Director for
Heinz UK (London) and Director of Corporate Planning at Heinz World
Headquarters. He is also a former director of Stern's Miracle-Gro Products, Inc.
("Miracle-Gro Products"), now known as Scotts Miracle-Gro.
Mr. Hagedorn was named President, Scotts North America, in December 1998. He was
previously Executive Vice President, U.S. Business Groups, of Scotts, since
October 1996. From May 1995 to October 1996, he served as Senior Vice President,
Consumer Gardens Group, of Scotts. He served as Executive Vice President of
Scotts Miracle-Gro since May 1995, and Executive Vice President of Miracle-Gro
Products from 1989 until May 1995. Mr. Hagedorn is the son of Horace Hagedorn, a
director of Scotts.
Mr. Mordo was named Group Executive Vice President, International, of Scotts, in
May 1999. He was previously Executive Vice President and Chief Financial Officer
of Scotts since January 1997. From 1992 through December 1996, he served as
Senior Vice President and Chief Financial Officer of Pratt and Whitney Aircraft,
a division of United Technologies Corporation.
Mr. Harrison was named Executive Vice President and Chief Financial Officer of
Scotts in August 1999. From August 1996 to August 1999, he was Executive Vice
President and Chief Financial Officer for Coltec Industries, Inc., a diversified
manufacturer of industrial and aerospace products. From August 1994 to August
1996, he served as Executive Vice President and Chief Financial Officer of
Pentair, Inc., a diversified general industrial manufacturing company.
Dr. Kelty was named Executive Vice President, Technology and Operations, of
Scotts, in February 1999. He was previously Senior Vice President, Professional
Business Group, of Scotts, since July 1995. Dr. Kelty had been Senior Vice
President, Technology and Operations, of Scotts from March 1994 to July 1995.
Mr. Lucas was named Executive Vice President, General Counsel and Secretary of
Scotts in February 1999. He was previously Senior Vice President, General
Counsel and Secretary of Scotts, since May 1997. From 1990 until the time he
joined Scotts, Mr. Lucas was a partner with the law firm Vorys, Sater, Seymour
and Pease LLP ("VSSP"). From 1993 to the time he joined Scotts, he was the lead
outside counsel at VSSP representing Scotts. Mr. Lucas is a director of Bob
Evans Farms, Inc.
Mr. de Kort was named Senior Vice President, Zone 4, International, of Scotts,
in May 1999, having been Vice President, Scotts Europe, Middle East, Africa,
since July 1994. Mr. de Kort is employed by Scotts Europe B.V., a wholly-owned
subsidiary of Scotts.
Mr. Dittman was named Senior Vice President, Consumer Growing Media Business
Group, of Scotts, in April 1998. From December 1996 to April 1998, he was Senior
Vice President of Sales, Marketing and Advertising of the Consumer Gardens Group
of Scotts. From 1992 to December 1996, he was Vice President of Sales,
Miracle-Gro Products.
Mr. Farkouh was named Senior Vice President, Zone 3, International, of Scotts,
in May 1999, having joined Scotts France SAS in January 1999. From January 1997
to the time he joined Scotts, he was Vice President, Worldwide Lawn and Garden
Category Manager, of Monsanto. From 1991 to January 1997, he was General
Manager, Lawn and Garden Europe, of Monsanto.
Mr. Kenlon was named Senior Vice President, Consumer Gardens Group, of Scotts,
in May 1999, a change to make titles uniform within the Scotts' executive team.
He was previously President, Consumer Gardens Group, of Scotts from December
1996 until May 1999. He was previously Chief Operating Officer and President of
Scotts Miracle-Gro, since May 1995. Mr. Kenlon was the President of Miracle-Gro
Products from 1985 until May 1995. Mr. Kenlon began his association with the
Miracle-Gro companies in 1960. It is expected that Mr. Kenlon will resign from
his offices with Scotts, effective December 31, 1999, but he will remain a
member of the Board of Directors.
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Mr. Kirkbride was named Senior Vice President, Zone 1, International, of Scotts,
in May 1999, having joined The Scotts Company (UK) Ltd. in December 1998. From
January 1995 to the time he joined Scotts, he was Managing Director of The
Virgin Cola Company, a privately-held soft drink company.
Ms. Lefavre joined Scotts as Senior Vice President, Human Resources Worldwide,
in March 1999. From October 1995 to October 1998, she served as Senior Vice
President, Human Resources Worldwide, at Rhone-Poulenc Rorer Inc., a
pharmaceutical company, based in Pennsylvania. From April 1994 to October 1995,
she was Vice President, Executive Management, of Bull, a computer company based
in Paris, France. She served as Vice President of Human Resources and
Communications, Worldwide Manufacturing, of Bull, from April 1993 to April 1994.
Mr. Petite was named Senior Vice President, Business Process Development, of
Scotts, in February 1998. He served as Senior Vice President, Consumer Growing
Media Business Group, of Scotts from December 1996 to February 1998. From July
1996 to December 1996, he served as Vice President, Consumer Growing Media
Business Group, of Scotts. From November 1995 to July 1996, Mr. Petite served as
Vice President, Strategic Planning of Scotts. From 1989 to November 1995, he was
Vice President of Marketing, Consumer Business Group, of Scotts.
Mr. Radon joined Scotts in February 1998, as Senior Vice President, Information
Technology. From September 1995 to the time he joined Scotts, Mr. Radon was Vice
President, Chief Information Officer at Lamson & Sessions, a manufacturer and
distributor of plastic pipe, conduit and consumer electrical devices. From 1984
to September 1995, he was a management consultant at Ernst & Young.
Mr. Ringuet joined Scotts France SAS in October 1998 as Senior Vice President,
Zone 2, International. He was Managing Director of Rhone-Poulenc Jardin, from
March 1995 through September 1998. From 1986 to March 1995, he was Marketing and
Sales Manager of Rhone-Poulenc Jardin.
Mr. Rogula was named Senior Vice President, Consumer Ortho Business Group, of
Scotts, in October 1998. Prior thereto, he had been Senior Vice President,
Consumer Lawns Group, of Scotts since October 1996. He served as Senior Vice
President, Consumer Business Group, of Scotts from January 1995
to October 1996. From 1990 until the time he joined Scotts, he was President of
The American Candy Company, a producer of non-chocolate candies. He is also a
former director of Miracle-Gro Products.
Mr. Stohler was named Senior Vice President, Consumer Lawns Business Group, in
October 1998. Prior thereto, he had been Senior Vice President, International
Business Group, of Scotts since December 1996. From November 1995 to December
1996, he served as Vice President, International Business Group, of Scotts. From
January 1994 to October 1995, he was President of Rubbermaid Europe S.A., a
marketer of plastic housewares, toys, office supplies and janitorial and food
service products.
Mr. Todd was named Senior Vice President, Professional Business Group, of
Scotts, in February 1999. From November 1995 to January 1999, he was Vice
President, Horticulture, of Scotts. From 1992 to October 1995, he was General
Manager, Horticulture, of Scotts.
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<PAGE> 35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common shares of The Scotts Company trade on the New York Stock Exchange
under the symbol "SMG".
<TABLE>
<CAPTION>
SALES PRICES
------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1998
1st quarter $31 1/16 $26 1/4
2nd quarter 35 1/2 29 7/16
3rd quarter 38 32 1/2
4th quarter 41 3/8 26 3/8
FISCAL 1999
1st quarter $36 3/16 $26 5/8
2nd quarter 39 3/4 32 3/8
3rd quarter 47 5/8 38 1/2
4th quarter 46 3/8 34 5/8
</TABLE>
Scotts has not paid dividends on the common shares in the past and does not
presently plan to pay dividends on the common shares. It is presently
anticipated that earnings will be retained and reinvested to support the growth
of Scotts' business. The payment of any future dividends on common shares will
be determined by the Board of Directors of Scotts in light of conditions then
existing, including Scotts' earnings, financial condition and capital
requirements, restrictions in financing agreements, business conditions and
other factors.
As of December 1, 1999, Scotts estimates there were approximately 8,500
shareholders including holders of record and Scotts' estimate of beneficial
holders.
On April 27, 1999, John Kenlon converted 571 shares of Scotts' Class A
Convertible Preferred Stock into 30,051 common shares in accordance with the
terms of Section 6 of Article FOURTH of Scotts' Amended Articles of
Incorporation. On August 30, 1999, Hagedorn Partnership, L.P. converted 3,135
shares of Class A Convertible Preferred Stock into 164,995 common shares.
Effective October 1, 1999, John Kenlon, Hagedorn Partnership, L.P. and Horace
Hagedorn converted the remainder of their shares of Convertible Preferred Stock
into 10,068,104 common shares. In exchange for this early conversion, those
shareholders received an aggregate amount of approximately $6.4 million,
representing the amount of the dividends on the Convertible Preferred Stock that
would have otherwise been payable through May 2000.
The common shares issued upon conversion of the Convertible Preferred Stock were
issued in reliance upon the exemption from registration provided by Section
3(a)(9) of the Securities Act of 1933.
35
<PAGE> 36
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
(IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1999(4) 1998(3) 1997(2) 1996 1995(1)
- - -------------------------------------- ------- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales $1,648.3 $1,113.0 $899.3 $750.4 $731.1
Gross profit $ 659.2 $ 398.0 $325.7 $238.0 $232.3
Income from operations (5) $ 196.1 $ 94.1 $ 94.8 $ 26.3 $ 60.9
Income (loss) before extraordinary items $ 69.1 $ 37.0 $ 39.5 $ (2.5) $ 22.4
Income (loss) applicable to common
shareholders $ 53.5 $ 26.5 $ 29.7 $(12.3) $ 18.8
Depreciation and amortization $ 60.2 $ 37.8 $ 30.4 $ 29.3 $ 25.7
FINANCIAL POSITION:
Working capital (6) $ 274.8 $ 135.3 $146.5 $181.1 $227.0
Investments in property, plant and equipment $ 66.7 $ 41.3 $ 28.6 $ 18.2 $ 23.6
Property, plant and equipment, net $ 259.4 $ 197.0 $146.1 $139.5 $148.8
Total assets $1,769.6 $1,035.2 $787.6 $731.7 $809.0
Total debt $ 950.0 $ 372.5 $221.3 $225.3 $272.5
Total shareholders' equity $ 443.3 $ 403.9 $389.2 $364.3 $380.8
CASH FLOWS:
Cash flows from operating activities $ 78.2 $ 71.0 $121.1 $ 82.3 $ 4.5
Cash flows from investing activities $ (571.6) $ (192.1) $(72.5) $(17.4) $ (6.7)
Cash flows from financing activities $ 513.9 $ 118.4 $(46.2) $(61.1) $ (2.7)
RATIOS:
Operating margin 11.9% 8.5% 10.5% 3.5% 8.3%
Current ratio 1.7 1.6 2.1 2.6 2.8
Total debt to total book capitalization 68.2% 48.0% 36.2% 38.2% 41.7%
Return on average shareholders' equity 14.9% 9.2% 10.5% (0.7)% 8.2%
PER SHARE DATA:
Basic earnings (loss) per common share
before extraordinary items $ 3.25 $ 1.46 $ 1.60 $ (0.65) $ 1.01
Basic earnings (loss) per common share $ 2.93 $ 1.42 $ 1.60 $ (0.65) $ 0.99
Diluted earnings (loss) per common share
before extraordinary items $ 2.27 $ 1.22 $ 1.35 $ (0.65) $ 0.99
Diluted earnings (loss) per common share $ 2.08 $ 1.20 $ 1.35 $ (0.65) $ 0.99
Shareholders' equity $ 14.10 $ 12.82 $ 12.19 $ 11.44 $11.92
Price to diluted earnings per share,
end of period 16.6 25.5 19.4 nm 22.4
Stock price at year-end $ 34.63 $ 30.63 $ 26.25 $ 19.25 $22.13
Stock price range - High $ 47.63 $ 41.38 $ 30.56 $ 21.88 $23.88
Low $ 26.63 $ 26.25 $ 17.75 $ 16.13 $14.75
OTHER:
EBITDA (7) $ 256.3 $ 131.9 $125.2 $ 55.6 $ 86.6
EBITDA margin 15.5% 11.9% 13.9% 7.4% 11.8%
Interest coverage (EBITDA/interest expense) 3.2 4.1 5.0 2.2 3.5
Average common shares outstanding 18.3 18.7 18.6 18.8 18.7
Common shares used in diluted earnings
(loss) per common share calculation 30.5 30.3 29.3 18.8 22.6
Preferred stock dividends $ 9.7 $ 9.8 $ 9.8 $ 9.8 $ 3.6
</TABLE>
NOTE: Prior year presentations have been changed to conform to fiscal 1999
presentation; these changes did not impact net income.
(1) Includes Scotts Miracle-Gro Products, Inc. from May 1995.
(2) Includes Miracle Holdings Limited (nka The Scotts Company (UK) Ltd.)
from January 1997.
(3) Includes Levington Group Limited (nka The Scotts Company (UK) Ltd.)
from December 1997 and EarthGro, Inc. from February 1998.
(4) Includes Rhone-Poulenc Jardin (nka Scotts France SAS) from October
1998, Asef Holdings BV from December 1998 and the non-Roundup
("Ortho") business from January 1999.
(5) Operating income for fiscal 1998 and 1996 includes $20.4 million and
$17.7 million of restructuring and other charges, respectively.
36
<PAGE> 37
(6) Working capital is defined as total current assets less total current
liabilities.
(7) EBITDA is defined as income from operations, plus depreciation and
amortization. We believe that EBITDA provides additional information
for determining our ability to meet debt service requirements. EBITDA
does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally
accepted accounting principles, and EBITDA does not necessarily
indicate whether cash flow will be sufficient to meet cash
requirements.
nm Not meaningful
37
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Scotts 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. Our 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.
As a leading consumer branded lawn and garden company, we focus on our consumer
marketing efforts, including advertising and consumer research, to create demand
to pull product through the retail distribution channels. During fiscal 1999, we
spent $189.0 million on advertising and promotional activities, which is a
significant increase over fiscal 1998 spending levels. We have applied this
consumer marketing focus over the past several years, and we believe that Scotts
continues to receive a significant return on these increased marketing
expenditures. For example, sales in our Consumer Lawns business group increased
24.9% from fiscal 1998 to fiscal 1999, after having increased 12.9% from fiscal
1997 to fiscal 1998. We believe that this dramatic sales growth resulted
primarily from our increased consumer-oriented marketing efforts. We expect that
we will continue to focus our marketing efforts toward the consumer and to
increase consumer marketing expenditures in the future to drive market share and
sales growth.
Scotts' 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
pesticides. Periods of dry, hot weather can have the opposite effect on
fertilizer and pesticide sales. We believe that our recent acquisitions
diversify both our product line risk and geographic risk to weather conditions.
On September 30, 1998, Scotts entered into a long-term marketing agreement with
Monsanto for its consumer Roundup(R) herbicide products. Under the marketing
agreement, Scotts and Monsanto will jointly develop global consumer and
trade-marketing programs for Roundup(R) and Scotts has assumed responsibility
for sales support, merchandising, distribution, logistics and certain
administrative functions. In addition, in January 1999 Scotts purchased from
Monsanto the assets of its worldwide consumer lawn and garden businesses,
exclusive of the Roundup(R) business, for $300 million plus an amount for
normalized working capital. These transactions with Monsanto further our
strategic objective of significantly enhancing our position in the pesticides
segment of the consumer lawn and garden category. These businesses make up the
Ortho business group within the North American Consumer segment.
We believe that these transactions provide us with several strategic benefits
including immediate market penetration, geographic expansion, brand leveraging
opportunities and the achievement of substantial cost savings. With the Ortho
acquisition, we are currently a leader by market share in all five segments of
the consumer lawn and garden category: lawn fertilizer, garden fertilizer,
growing media, grass seeds and pesticides. We believe that we are now positioned
as the only national company with a complete offering of consumer products.
The addition of strong pesticide brands completes our product portfolio of
powerful branded consumer lawn and garden products that should provide Scotts
with brand leveraging opportunities for revenue growth. For example, our
strengthened market position should create category management opportunities to
enhance shelf positioning, consumer communication, trade incentives and trade
programs. In addition, significant synergies have been and should continue to be
realized from the combined businesses, including reductions in general and
administrative, sales, distribution, purchasing, research and development and
corporate overhead costs. We have redirected, and expect to continue to
redirect, a portion of these cost savings into increased consumer marketing
spending to support the Ortho(R) brand.
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<PAGE> 39
Over the past several years, we have made several other acquisitions to
strengthen our global market position in the lawn and garden category. In
October 1998, we purchased Rhone-Poulenc Jardin, a leading European lawn and
garden business, from Rhone-Poulenc for approximately $170 million. This
acquisition provides a significant addition to our existing European platform
and strengthens our foothold in the continental European consumer lawn and
garden market. Through this acquisition, we have established a strong presence
in France, Germany, Austria and the Benelux countries. This acquisition may also
mitigate, to a certain extent, our susceptibility to weather conditions by
expanding the regions in which we operate.
In December 1998, we acquired Asef Holdings B.V., a privately-held
Netherlands-based lawn and garden products company. In February 1998, we
acquired EarthGro, Inc., a Northeastern U.S. growing media producer. In December
1997, we acquired Levington Group Limited, a leading producer of consumer and
professional lawn fertilizer and growing media in the United Kingdom. In January
1997, we acquired the approximate two-thirds interest in Miracle Holdings
Limited which the Company did not already own. Miracle Holdings owns Miracle
Garden Care Limited, a manufacturer and distributor of lawn and garden products
in the United Kingdom. These acquisitions are consistent with our stated
objective of becoming the world's foremost branded lawn and garden company.
The following discussion and analysis of our consolidated results of operations
and financial position should be read in conjunction with our Consolidated
Financial Statements included elsewhere in this report. Dollars are in millions
except per share data.
RESULTS OF OPERATIONS
The following table sets forth the components of income and expense as a
percentage of sales for the three years ended September 30, 1999:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 60.0 64.2 63.8
----- ----- -----
Gross profit 40.0 35.8 36.2
Commission earned from agency agreement 1.8 - -
Advertising and promotion 11.5 9.4 9.3
Selling, general and administrative 17.1 15.2 14.6
Amortization of goodwill and other intangibles 1.5 1.2 1.1
Restructuring and other charges - 1.4 -
Other (income) expense, net (0.2) 0.1 0.6
----- ----- -----
Income from operations 11.9 8.5 10.5
Interest expense 4.8 2.9 2.8
----- ----- -----
Income before income taxes 7.1 5.6 7.7
Income taxes 2.9 2.2 3.3
----- ----- -----
Income before extraordinary items 4.2 3.4 4.4
Extraordinary loss on extinguishment of debt 0.4 0.1 -
----- ----- -----
Net income 3.8 3.3 4.4
Preferred stock dividends 0.6 0.9 1.1
----- ----- -----
Income applicable to common shareholders 3.2% 2.4% 3.3%
===== ===== =====
</TABLE>
39
<PAGE> 40
The following table sets forth sales by business segment for the three years
ended September 30, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
North American Consumer:
Lawns $ 461.0 $369.1 $309.6
Gardens 147.4 133.0 127.0
Growing Media 264.3 231.6 182.6
Ortho 224.3 - -
-------- -------- ------
Total 1,097.0 733.7 619.2
Professional 159.4 179.4 165.5
International 391.9 199.9 114.6
-------- -------- ------
Consolidated $1,648.3 $1,113.0 $899.3
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Sales for fiscal 1999 were $1.65 billion, an increase of 48.1% over fiscal 1998
sales of $1.1 billion. On a pro forma basis, assuming that the Ortho,
Rhone-Poulenc Jardin, Levington and EarthGro acquisitions had occurred on
October 1, 1997, pro forma sales for fiscal 1999 were $1.68 billion, an 11%
increase over fiscal 1998 pro forma sales of $1.5 billion. As discussed below,
the increase in sales on a pro forma basis was primarily driven by exceptional
growth in the Consumer Lawns business group and strong revenue growth within the
Consumer Gardens and Growing Media business groups.
North American Consumer segment sales were $1.1 billion in fiscal 1999, an
increase of nearly 50% over fiscal 1998 sales of $734 million and an increase of
16% over fiscal 1998 on a pro forma basis. Sales in the Consumer Lawns business
group within this segment were $461.0 million in fiscal 1999, a 25% increase
over fiscal 1998 sales of $369.1 million. The continued dramatic revenue growth
in the Consumer Lawns business group is being driven by increases in
consumer-oriented marketing efforts such as advertising, consumer research and
packaging improvements, which have increased category growth and market share.
Sales in the Consumer Gardens business group increased 11% to $147.4 million in
fiscal 1999 due to several successful new product introductions and the
extension of the advertising season for All-Purpose Miracle Gro(R). Sales in the
Growing Media business group increased 14% to $264.3 million, or 11% on a pro
forma basis. Significantly higher levels of advertising and promotional spending
drove this revenue growth which resulted in increased sales for value-added
potting soils in particular. Sales in the Ortho business group were $224.3
million in fiscal 1999 which is an increase of 10% on a pro forma basis.
Professional segment sales were $159.4 million in fiscal 1999, a decrease of 11%
from fiscal 1998. The Professional segment consists of two businesses: the
ProTurf(R) business which provides turf care products to golf courses, athletic
fields, and related facilities; and the Horticulture business which provides
plant care products to professional nurseries and growers. The decrease in
fiscal 1999 sales in this segment was reflected in the ProTurf(R) business,
which changed its distribution model earlier in the year, electing to market and
deliver products through distributors rather than directly to customers.
Short-term interruptions associated with this change and the discontinuance of
certain commodity products resulted in lower sales volumes in fiscal 1999.
International segment sales increased to $391.9 million in fiscal 1999 compared
to $199.9 million in fiscal 1998, primarily the result of the Rhone-Poulenc
Jardin and Asef acquisitions in fiscal 1999. The increase in sales on a pro
forma basis was 9% which was primarily due to revenue growth in the European
Professional and Rhone-Poulenc Jardin businesses, partially offset by sales
declines in the U.K. consumer business caused by supply chain interruptions
resulting from the integration of the recently acquired businesses. Excluding
the effects of foreign currency
40
<PAGE> 41
translation, pro forma sales in fiscal 1999 would have been 10% higher than
fiscal 1998.
Selling price changes did not have a material impact on Scotts' results of
operations for fiscal 1999.
Gross profit increased to $659.2 million in fiscal 1999 compared to $398.0
million in fiscal 1998. On a pro forma basis, gross profit in fiscal 1999 was
$671.1 million, or 40% of sales, compared to $569.2 million in fiscal 1998, or
38% of sales. The increase in gross profit as a percentage of sales was driven
by improved raw material costs and improved manufacturing efficiencies from
higher volumes in fiscal 1999. Fiscal 1998 gross profit also reflected the
following charges: restructuring and other charges of $2.9 million as discussed
below; start-up costs of $1.4 million associated with the upgrade of certain
domestic manufacturing facilities; demolition costs of $1.4 million associated
with the removal of certain old manufacturing facilities; unplanned production
outsourcing costs of $2.8 million; the loss of a composting contract of $1.0
million; and unfavorable inventory adjustments of $0.8 million.
The "commission earned from agency agreement" in fiscal 1999 of $30.3 million
was generated from our marketing agreement with Monsanto for exclusive
international marketing and agency rights to Monsanto's consumer Roundup(R)
herbicide products. The commission earned under the agreement is based on EBIT
(as defined by the agreement) generated annually, net of an annual fixed
contribution payment, by the global Roundup(R) business.
Advertising and promotion expenses for fiscal 1999 were $189.0 million, an
increase of $84.6 million over fiscal 1998 advertising and promotion expenses of
$104.4 million. The recently acquired Ortho and Rhone-Poulenc Jardin businesses
contributed $30.7 million and $20.5 million, respectively, to this increase. The
remaining increase reflects continued emphasis on building consumer demand
through consumer-oriented marketing efforts, and is highlighted by 28%, 26% and
64% increases in advertising and promotional spending in the Consumer Lawns,
Consumer Gardens and Consumer Growing Media businesses, respectively. As a
percentage of sales, advertising and promotion expenses increased to 11% in
fiscal 1999 from 9% in fiscal 1998.
Selling, general and administrative expenses were $281.2 million in fiscal 1999,
an increase of $111.3 million over fiscal 1998 selling, general and
administrative expenses of $169.9 million. The recently acquired Ortho and
Rhone-Poulenc Jardin businesses contributed $30.2 million and $37.3 million,
respectively, to this increase. The significant components of the remaining
$43.8 million increase in selling, general and administrative expenses are:
additional information systems expenses of $0.5 million for year 2000
remediation and $5.6 million for enterprise system implementation efforts;
increased bad debt expenses of $4.6 million, primarily resulting from the
bankruptcy of Hechinger; increased marketing, selling and administrative costs
within the Consumer Lawns, Consumer Gardens, and Consumer Growing Media
businesses of $8.7 million to support higher sales volumes; costs of $2.5
million associated with changes in distribution arrangements in France; costs to
integrate the Ortho business of $8.4 million; increased research and development
spending of $6.9 million, largely in support of the acquired Ortho business; and
increased legal and environmental charges of $2.7 million, primarily for costs
associated with the environmental matter at our Marysville site.
Amortization of goodwill and other intangibles increased to $25.4 million in
fiscal 1999 compared to $12.9 million in fiscal 1998 due to additional
intangibles resulting from the Ortho, Rhone-Poulenc Jardin and Asef
acquisitions.
Restructuring and other charges in fiscal 1999 were $1.4 million, which
represents severance costs associated with the change in distribution methods
within the ProTurf(R) business of the Professional segment. In connection with
this
41
<PAGE> 42
restructuring, approximately 60 in-house sales associates were terminated in
fiscal 1999. Approximately $1.1 million of severance payments have been made to
these former associates during fiscal 1999; the remaining $0.3 million is
expected to be paid in fiscal 2000. Restructuring and other charges in fiscal
1998 were $20.4 million, $15.4 million of which is identified separately within
operating expenses, $2.9 million of which is included in cost of sales and $2.1
million of which is included in selling, general and administrative expenses.
See "Fiscal 1998 Compared to Fiscal 1997" below for further discussion of these
restructuring and other charges.
Other income/expense for fiscal 1999 was income of $3.6 million compared to $1.3
million of expense for fiscal 1998. Other income in fiscal 1999 represents
royalties received under license agreements for the use of some of our
trademarks. Other expenses in fiscal 1998 represent losses on the sale of fixed
assets and foreign currency, partially offset by royalty income described above.
Legal and environmental provisions of $5.4 million and $2.7 million for fiscal
1999 and 1998, respectively, have been reclassified from other income/expense to
selling, general and administrative expenses.
Income from operations for fiscal 1999 was $196.1 million compared to $94.1
million for fiscal 1998, primarily due to operating income realized from the
Ortho and Rhone-Poulenc Jardin businesses and significant improvements in the
Consumer Lawns and Growing Media businesses, partially offset by increased
selling, general and administrative and amortization expenses described above.
Interest expense for fiscal 1999 was $79.1 million, an increase of $46.9 million
over fiscal 1998 interest expense of $32.2 million. The increase in interest
expense was due to increased borrowings to fund the Ortho, Rhone-Poulenc Jardin
and Asef acquisitions and higher working capital levels to support the growth of
the businesses.
Income tax expense for fiscal 1999 was $47.9 million compared to $24.9 million
in fiscal 1998. Our effective tax rate was 41.0% in fiscal 1999 compared to
40.3% in fiscal 1998. The increase in the effective tax rate was primarily due
to a reduction in foreign dividends remitted which provided excess foreign tax
credits in fiscal 1998.
As discussed below in "Liquidity and Capital Resources", in conjunction with the
Ortho acquisition, in January 1999 we completed an offering of $330 million of 8
5/8% Senior Subordinated Notes due 2009. The net proceeds from this offering,
together with borrowings under our bank facility, were used to fund the Ortho
acquisition and repurchase our outstanding $100 million 9 7/8% Senior
Subordinated Notes due August 2004. We recorded an extraordinary loss on the
extinguishment of the 9 7/8% notes of $9.3 million, including a call premium of
$7.2 million and the write-off of unamortized issuance costs and discounts of
$2.1 million.
We reported net income of $63.2 million for fiscal 1999, or $2.08 per share on a
diluted basis, compared to $36.3 million for fiscal 1998, or $1.20 per share on
a diluted basis. Excluding the impact of the extraordinary loss discussed above,
earnings per share for fiscal 1999 were $2.27 on a diluted basis. Excluding the
impact of restructuring and other charges taken in fiscal 1998 as well as an
extraordinary loss on early extinguishment of debt, earnings per share for
fiscal 1998 were $1.62 on a diluted basis. The significant increase in diluted
earnings per share reflects the tremendous revenue growth being experienced by
many of our consumer businesses, the commission earned under the Roundup(R)
marketing agreement and the accretion of the Ortho and Rhone-Poulenc Jardin
businesses to earnings.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales in fiscal 1998 were $1.1 billion, an increase of 23.8% over fiscal 1997
sales of $899.3 million. On a pro forma basis, assuming that the Levington and
EarthGro
42
<PAGE> 43
acquisitions had occurred on October 1, 1996, fiscal 1998 sales would have been
$1.1 billion, an increase of $100.1 million, or 9.7%, over fiscal 1997 pro forma
sales of $1.0 billion. The increase in these pro forma sales was driven
primarily by significant increases in sales in the Consumer Lawns business group
and the Professional segment as discussed below.
North American Consumer segment sales were $733.7 million in fiscal 1998, an
increase of $114.5 million, or 18.5%, over fiscal 1997 sales of $619.2 million.
Sales in the Consumer Lawns business group within this segment increased $59.5
million, or 19.2%, from fiscal 1997 to fiscal 1998, reflecting significant
volume growth year to year in our Turf Builder(R) line of products driven by
increased consumer-oriented marketing efforts. Sales in the Consumer Gardens and
Consumer Growing Media business groups increased $6.0 million, or 4.7%, and
$49.0 million, or 26.8%, respectively, from fiscal 1997 to fiscal 1998. The
increase in the Consumer Growing Media business group was primarily the result
of the EarthGro acquisition made earlier in fiscal 1998. The increase in sales
for the Consumer Gardens business group was driven primarily by strong volume,
particularly in the Osmocote(R) and Miracle-Gro(R) product lines, which we
believe was due to increased advertising. Increases were also due to the
introduction of certain new products. On a pro forma basis, including the
EarthGro acquisition, sales in the Consumer Growing Media business group
increased 4.4% from fiscal 1997 to fiscal 1998. More importantly, we made a
strategic decision to emphasize sales of higher margin, value-added products and
to deemphasize sales of lower margin landscape products. Selling price changes
did not have a material impact in the North American Consumer segment in fiscal
1998.
Professional segment sales were $179.4 million in fiscal 1998, an increase of
$13.9 million, or 8.4%, over fiscal 1997 sales of $165.5 million. This increase
in sales was primarily reflected in the ProTurf(R) business and resulted from
increased volumes as a result of emphasizing more technological support for
customers and new product introductions.
International segment sales were $199.9 million in fiscal 1998, an increase of
$85.3 million, or 74.4%, over fiscal 1997 sales of $114.6 million. After
considering the Levington acquisition, on a pro forma basis, sales in the
International segment increased 11.4% from fiscal 1997 to fiscal 1998, primarily
in the European professional business.
Gross profit increased to $398.0 million in fiscal 1998, an increase of 22.2%
over fiscal 1997 gross profit of $325.7 million. As a percentage of sales, gross
profit was 35.7% of sales for fiscal 1998, compared to 36.2% of sales for fiscal
1997. Fiscal 1998 gross profit reflects a charge of $2.9 million, or 0.3% of
fiscal 1998 sales, for restructuring and other charges as discussed below. Also
impacting fiscal 1998 gross margins were start-up costs of $1.1 million
associated with the upgrade of certain domestic manufacturing facilities,
demolition costs of $1.4 million associated with the removal of certain old
manufacturing facilities, unplanned production outsourcing costs of $2.7
million, the loss of a composting contract of $0.6 million and unfavorable
inventory adjustments of $0.8 million. The aggregate impact of these items,
approximately $8.0 million, was offset by favorable raw material pricing of
approximately $8.0 million.
Advertising and promotion expenses in fiscal 1998 were $104.4 million, an
increase of $20.5 million, or 24.4%, over fiscal 1997 advertising and promotion
expenses of $83.9 million. On a pro forma basis, including the Levington and
EarthGro acquisitions, advertising and promotion expenses increased 17.3% from
fiscal 1997 to fiscal 1998. This increase reflects continued emphasis on
building consumer demand through consumer-oriented marketing efforts, and is
highlighted by 18.5% and 58.9% increases in advertising and promotion expenses
in the Consumer Lawns business group and International segment (excluding the
Levington acquisition), respectively. As a percentage of sales, advertising and
promotion increased slightly to 9.4%, compared to 9.3% for the prior year.
Selling, general and administrative expenses in fiscal 1998 were $167.2 million,
an increase of $36.7 million, or 28.1%, over selling, general and administrative
expenses in fiscal 1997 of $130.5 million. As a percentage of sales, selling,
general and administrative expenses were 15.0% for fiscal 1998, compared to
14.5% for fiscal
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1997. On a pro forma basis, including the Levington and EarthGro acquisitions,
selling, general and administration expenses increased 13.1% from fiscal 1997 to
fiscal 1998. The increase in selling, general and administrative expenses was
due to several factors: the assumption of selling, marketing, research and
development and administrative functions related to acquired businesses;
information systems expenses of $1.9 million for Year 2000 compliance and $1.2
million for the enterprise system implementation efforts, as well as an increase
in information systems spending to support the new initiatives and additional
businesses; a $2.1 million charge for costs to integrate the acquired Levington
business as discussed below; and increased legal and environmental charges of
$1.6 million, primarily for additions to the reserve for environmental matters.
Amortization of goodwill and other intangibles increased to $12.9 million in
fiscal 1998, compared to $10.2 million in fiscal 1997, as a result of the
Levington and EarthGro acquisitions during the year.
Restructuring and other charges in fiscal 1998 were $20.4 million, $15.4 million
of which is identified separately within operating expenses, $2.9 million of
which is included in cost of sales and $2.1 million of which is included in
selling, general and administrative expenses. These charges were primarily
associated with three restructuring activities: (1) the consolidation of our two
U.K. operations into one lower-cost business; (2) the closure of nine composting
operations in the U.S. that collect yard and compost waste for certain
municipalities; and (3) the sale or closure of certain other U.S. plants or
businesses.
The charge for consolidation of our U.K. operations was $6.0 million and
consisted of:
- - - $0.9 million to write-off the remaining carrying value of certain property
and equipment. In connection with the integration of the Miracle Garden
Care and Levington businesses, management elected to move certain
production lines from a Miracle Garden Care facility in Howden to a
Levington facility in Bramford. As a result, certain production equipment
at the Howden facility will no longer be utilized. In addition, certain
computer hardware and software equipment previously used by the Miracle
Garden Care business would no longer be utilized as a result of electing to
use acquired information systems of the Levington business. We ceased
utilization of the production and computer equipment in the fourth quarter
of 1998. The assets written-off had nominal value and were scrapped or
abandoned.
- - - $2.1 million to write-off packaging materials rendered obsolete as a result
of new packaging design and to provide for costs incurred in 1998 to
relaunch products under a single branding strategy. The charges associated
with these actions were $0.8 million and $1.3 million, respectively.
- - - $1.4 million of severance costs associated with the termination of 25
employees made redundant by the integration of the two U.K. businesses. As
of September 30, 1998, six employees had been terminated. The remaining
employees were terminated in fiscal 1999. All severance costs accrued at
September 30, 1998 have been paid (except for an adjustment of $0.3 million
for over accrual).
- - - $0.6 million write-off of inventory rendered obsolete by the integration
activities and $0.8 million costs incurred in fiscal 1998 for other
integration-related costs.
The charge for closure of nine of our composting operations was $9.3 million and
consisted of:
- - - $4.5 million for costs to be incurred under contractual commitments for
which no future revenues will be realized. These costs are associated with
the final processing of remaining compost materials, as required, through
the end of the operating contract with the applicable municipality but
after the time which revenue-producing activities cease. Six of the
composting sites have operating contracts that ended in fiscal 1999 for
which $2.9 million was accrued; the
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operating contracts for the three remaining sites will expire in fiscal
2000 for which $1.6 million was accrued.
- - - $3.2 million to write-down to estimated fair value certain machinery and
equipment in accordance with SFAS No. 121 for assets held for use.
Depreciation continues to be recognized during the revenue-producing
periods. Fixed assets at facilities that have ceased operations have been
abandoned or scrapped.
- - - $1.1 million to write-off inventory which must be disposed of as a result
of closing the various composting sites. Such inventory must be removed
from the applicable sites and has only nominal value.
- - - $0.5 million for remaining lease obligations after revenue-producing
activities cease on certain machinery and equipment at the sites.
The composting facilities being closed as part of these restructuring
initiatives incurred losses of approximately $3.0 million and $2.0 million
during fiscal 1998 and fiscal 1997, respectively, which were included in our
consolidated results of operations for those years.
The charge for sale or closure of certain other U.S. plants or businesses was
$5.1 million and consisted of:
- - - $4.5 million to write-down to estimated net realizable value the assets
associated with our AgrEvo pesticides business acquired in fiscal 1998. We
elected to divest these assets in order to avoid potential trade conflicts
associated with our purchase of the Ortho business and the signing of the
marketing agreement for consumer Roundup(R) products. The AgrEvo business
incurred an operating loss of $0.8 million in 1998 and $0.5 million in 1999
before being sold in February 1999.
- - - $0.6 million to write-off and close a single growing media production
facility that was deemed to be redundant after the purchase of the EarthGro
business in February 1998. The closure of the facility was completed in
September 1998.
Other expenses for fiscal 1998 were $4.0 million, compared to $6.3 million in
fiscal 1997. The decrease was primarily due to a reduction in charges provided
for the disposal of assets and an increase in royalty income from licensing
arrangements for some of our brand names, partially offset by increased foreign
currency losses and legal and environmental provisions.
During fiscal 1997, we recorded charges of $6.0 million to write-down certain
long-lived assets to their estimated fair value. The components of these charges
were as follows:
- - - A charge of $2.2 million to write-down the carrying value of our peat
harvesting facility in Lafayette, New Jersey. Operations at this facility
were discontinued at the order of the Philadelphia District of the U.S.
Army Corps of Engineers in July 1990. While proceedings with the government
are on-going, we do not expect to resume operations at this site. The
charge reduced the carrying amount for this facility to its estimated fair
value based on appraisal.
- - - A charge of $1.6 million to write-off the carrying value of certain paper
packaging equipment that was rendered obsolete by management's decision to
convert to plastic packaging. The equipment was considered to have only
nominal value and has subsequently been abandoned or scrapped.
- - - A charge of $0.9 million to write-down the carrying value of our
water-soluble fertilizer plant in Allentown, Pennsylvania. In fiscal 1997,
management determined that the production capacity at this plant was
unnecessary after completing the merger with Miracle-Gro in fiscal 1995.
The Allentown facility was sold in July 1997.
- - - A charge of $0.7 million to write-off certain spreader molding equipment
that was considered obsolete. In fiscal 1997, management elected to upgrade
the production line at its spreader manufacturing facility in Carlsbad,
California. In connection with this change, certain production equipment
was unusable and was scrapped.
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- - - A charge of $0.6 million to write-off software costs that had been deferred
under an enterprise-wide applications systems implementation project. In
fiscal 1997, management elected to change the software platform that would
be used for this project. Costs that had been deferred while configuring
and installing the previous software were determined to have no future
benefit and were written-off.
Income from operations for fiscal 1998 was $94.1 million, compared to $94.8
million for fiscal 1997. Excluding the restructuring and other charges of $20.4
million discussed above, income from operations in fiscal 1998 was $114.5
million, or 10.3% of sales, which was just slightly below income from operations
as a percentage of sales for fiscal 1997 of 10.5%.
Interest expense for fiscal 1998 was $32.2 million, an increase of 27.8% over
fiscal 1997 interest expense of $25.2 million. The increase in interest expense
was due to increased borrowings to fund the Levington, EarthGro and Miracle
Garden acquisitions, partially offset by lower average debt levels excluding the
acquisition borrowings.
Income tax expense was $24.9 million for fiscal 1998, a 17.3% decrease from
income tax expense for fiscal 1997. Our effective tax rate decreased to 40.3% in
fiscal 1998 from 43.2% in fiscal 1997 as a result of favorable tax planning
strategies.
In February 1998, we secured a new revolving credit facility to replace our then
existing credit facility. Write-off of deferred financing costs associated with
the then existing credit facility resulted in an extraordinary loss, net of
income taxes, on the early extinguishment of debt of $0.7 million.
We reported net income of $36.3 million for fiscal 1998, or $1.20 per common
share on a diluted basis, compared to net income of $39.5 million for fiscal
1997, or $1.35 per common share on a diluted basis. Excluding the impact of the
restructuring and other charges and extraordinary loss discussed above, we
earned net income of $1.62 per share on a diluted basis, a 20% increase over
fiscal 1997. This increase reflects the impact of strong sales volumes during
fiscal 1998 as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $78.2 million, $71.0 million and
$121.1 million in fiscal 1999, 1998 and 1997, respectively. The decrease in cash
provided from operations for fiscal 1999 and fiscal 1998 compared to fiscal 1997
was primarily due to increased working capital levels in fiscal 1999 and fiscal
1998 to support increased sales revenues. The fiscal 1997 improvement compared
to fiscal 1996 was driven by higher earnings and improved working capital
management. The seasonal nature of our sales results in a significant increase
in working capital (primarily accounts receivable and inventory) during the
first half of the fiscal year, with the third quarter being a significant cash
collection period.
Cash used in investing activities was $571.6 million, $192.1 million and $72.5
million in fiscal 1999, 1998 and 1997, respectively. The increase in cash used
in investing activities in fiscal 1999 and fiscal 1998 was due to the cost of
businesses acquired during those years and increases in capital expenditures to
install our new enterprise-wide applications information system (see discussion
below) and to upgrade some of our manufacturing facilities to more
technologically advanced production capabilities. Our new credit facilities
restrict annual capital investments to $70.0 million.
Financing activities generated cash of $513.9 million and $118.4 million in
fiscal 1999 and 1998, respectively, and used cash of $46.2 million in fiscal
1997. Cash generated in fiscal 1999 was generally used to fund our acquisitions
during fiscal 1999, to repay our then existing credit facility and Senior
Subordinated Notes, and to fund increased working capital levels. Cash generated
in fiscal 1998 was generally provided by our credit facilities in order to
provide funds for the acquisitions during the year. The lower level of debt
repayment in fiscal 1997 reflects the usage of higher operating cash flows to
support the additional investment in Miracle Garden and higher net capital
investments.
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Total debt as of September 30, 1999 was $950.0 million compared to $372.5
million at September 30, 1998. The increase in debt year to year was primarily
due to borrowings to fund the Ortho, Rhone-Poulenc Jardin and Asef acquisitions
and higher working capital levels to support the growth of the business.
Shareholders' equity as of September 30, 1999 was $443.3 million, a $39.4
million increase compared to September 30, 1998. This increase was primarily
attributable to net income of $63.2 million, offset by convertible preferred
stock dividends of $9.7 million and net treasury stock purchases of $10.0
million.
The primary sources of our liquidity are funds generated by operations and
borrowings under our credit facilities. On December 4, 1998, we and most of our
subsidiaries entered into new credit facilities which provide for borrowings in
the aggregate principal amount of $1.025 billion and consist of term loan
facilities in the aggregate amount of $525 million and a revolving credit
facility in the amount of $500 million.
We funded the Rhone-Poulenc Jardin and Asef acquisitions with borrowings under
the new credit facilities. Proceeds from the private debt offering of the 8 5/8%
Senior Subordinated Notes and borrowings under the new credit facilities were
used to fund the Ortho acquisition and to repurchase our then outstanding 9 7/8%
Senior Subordinated Notes.
Capital expenditures were $66.7 million in fiscal 1999. We estimate that capital
expenditures will approximate $70 million in fiscal 2000 and 2001 and $60
million to $70 million for each of the next several years. Included in these
estimates are amounts to be spent on our information systems initiative in
fiscal 2000 and fiscal 2001.
In July 1998, our Board of Directors of authorized the repurchase of up to $100
million of our common shares on the open market or in privately negotiated
transactions on or prior to September 30, 2001. As of September 30, 1999,
494,195 common shares, or $16.7 million, have been repurchased under the new
repurchase program limit. The timing and amount of any purchases under the new
repurchase program will be at our discretion and will depend upon market
conditions and our operating performance and liquidity. Any repurchase will also
be subject to the covenants contained in our new credit facilities as well as
our 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. We anticipate that all repurchases will be made in the
open market or in privately negotiated transactions, and that Hagedorn
Partnership, L.P. will sell its pro rata share (41%) of such repurchased shares
in the open market.
Gains and losses on foreign currency transaction hedges are recognized in income
and offset the foreign exchange gains and losses on the underlying transactions.
Gains and losses on foreign currency firm commitment hedges are deferred and
included in the basis of the transactions underlying the commitments.
In our opinion, cash flows from operations and capital resources will be
sufficient to meet debt service and working capital needs during fiscal 2000 and
thereafter for the foreseeable future. However, we cannot ensure that our
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 new
credit facilities in amounts sufficient to pay indebtedness or fund other
liquidity needs. Actual results of operations will depend on numerous factors,
many of which are beyond our control. We cannot ensure that we will be able to
refinance any indebtedness, including the new credit facilities, on commercially
reasonable terms, or at all.
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ENVIRONMENTAL MATTERS
We are subject to local, state, federal and foreign environmental protection
laws and regulations with respect to our business operations and believe we are
operating in substantial compliance with, or taking action aimed at ensuring
compliance with, such laws and regulations. We are 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 our financial position; however, there can be no assurance
that the resolution of these matters will not materially affect our future
quarterly or annual operating results. Additional information on environmental
matters affecting us is provided in Note 15 to our Consolidated Financial
Statements and in this Annual Report on Form 10-K under "ITEM 1.
BUSINESS--Environmental and Regulatory Considerations" and "ITEM 3. LEGAL
PROCEEDINGS."
YEAR 2000 READINESS
GENERAL
We may be impacted by the inability of our 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 has assessed the extent and impact of this issue and has implemented
a readiness program to mitigate the possibility of business interruption or
other risks. The readiness program includes all of our operations. Management
believes that all significant business systems are compliant. Progress is being
made on a limited number of open items, primarily relating to contingency
planning, that will be completed before year-end.
We have 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 our 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
Scotts' Board of Directors regarding our progress toward Year 2000 readiness.
INFORMATION TECHNOLOGY SYSTEMS
Currently, computer operations at our Marysville, Ohio North American
headquarters support all U.S. business groups with the exception of the Republic
Tool (spreaders) manufacturing operations. Our foreign operations generally do
not electronically interface with the U.S. headquarters.
The North American headquarters mainframe operations consist primarily of
internally developed systems that have been remediated. Other domestic and
international operations utilize commercial packaged software which has been
upgraded or replaced. Remediation of North American headquarters mainframe
applications, which was our most complex and costly effort, was completed in
April 1999.
Personal computers are being made Year 2000 compliant by systematic upgrade
through lease renewals and as part of the implementation of a company-wide
enterprise resource planning project. Many other hardware/software upgrades have
been executed under ongoing maintenance and support agreements with vendors.
Testing of upgrades is being performed internally.
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In support of our long-range strategic plans, an enterprise-wide application
systems project is under way to link all business groups. This enterprise-wide
system is being implemented in stages starting in July 1999. The primary
software provider for the enterprise-wide system has represented that its
software is Year 2000 compliant. Our Year 2000 compliance efforts are
concentrated on the currently existing systems to ensure there is adequate
information systems support until implementation of the enterprise-wide system
is completed.
NON-INFORMATION TECHNOLOGY SYSTEMS
Non-information technology systems, consisting 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, have been assessed by each business group with advice from the
suppliers of these systems/services. Upgrades or replacements have been made as
necessary.
THIRD PARTY SUPPLIERS
We rely 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 our
operations. We continue to evaluate the status of suppliers' efforts
through confirmation and follow-up procedures, including selected site
assessments, to determine contingency planning where necessary.
STATE OF READINESS
Each business group has completed an internal inventory and assessment to
identify information technology and non-information technology 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.
The upgrade or replacement and testing of information technology systems at
other North American operations is substantially complete. Non-information
technology efforts were performed concurrently and replacement and testing are
substantially complete. Site visits have been conducted by the Program Office to
verify year-to-date progress against plans.
Year 2000 readiness plans are being executed within the International segment.
Upgrades of packaged software for the primary systems are complete. Site visits
have been conducted by the Program Office to verify year-to-date progress
against plans.
A confirmation process with respect to third party suppliers continues.
Additionally, site visits were conducted with critical suppliers as necessary,
to determine whether alternative sources are needed.
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COSTS
We have 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 enterprise-wide resource
planning project) is approximately $5.7 million. Of this amount, $4.8 million
has been incurred through September 30, 1999. These costs, with the exception of
relatively small capital expenditures, are being expensed as incurred and are
being funded through operating cash flows or from borrowings under our credit
facility. A summary of the cost components follows ($ in millions):
<TABLE>
<CAPTION>
FISCAL FISCAL
LOCATION 1999 2000 TOTAL
- - -------- ---- ---- -----
(ACTUAL) (ESTIMATE)
<S> <C> <C> <C>
Headquarters mainframe $3.0 $0.0 $3.0
Other U. S. operations 0.8 0.5 1.3
International operations 1.0 0.4 1.4
---- ---- ----
Total $4.8 $0.9 $5.7
==== ==== ====
</TABLE>
RISKS
Our principal business risks relating to completion of Year 2000 efforts are:
- Reliance on key business partners to not have disruption in
their ability to provide goods and services as a result of
Year 2000 issues.
- 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 our Year 2000 readiness is dependent upon key business partners also
being Year 2000 ready, there can be no guarantee that our efforts will prevent a
material adverse impact on our results of operations, financial condition and
cash flows. The possible consequences to us of our key business partners'
inability to provide goods and services as a result of Year 2000 issue include
temporary plant closings; delays in delivery of finished products; delays in
receipt of key raw materials, containers and packaging supplies; invoice and
collection errors; and inventory and supply obsolescence. We believe that our
readiness efforts with critical partners, which include confirmation, site
visits and contingency planning, should reduce the likelihood of such
disruptions.
We cannot identify all possible worst-case scenarios; however, the most
reasonable worst-case scenario would be the failure of utilities and/or
transportation systems that are critical to our operations and that could not
quickly be replaced by other suppliers or through internal resources. In these
situations, operations at the affected facility or facilities would be
interrupted with adverse effects on our financial results. We are developing
contingency plans; however, these plans do not contemplate extended disruptions
by third-party suppliers of products or services to Scotts.
CONTINGENCY PLANS
A formal contingency planning process continues. We will continue to assess
where alternative courses of action are needed as the information technology and
non-information technology readiness plans are executed. Plans are in place to
alleviate internal issues and minimize customer impact of the most likely and
critical potential risks. Due to the nature of contingency planning, assessment
and planning efforts will continue through the end of 1999.
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ONGOING PROCESS
Our 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
In July 1998, we announced a project designed to bring our information system
resources in line with our current strategic objectives. The project will
include the redesign of many key business processes in connection with the
installation of new software on a world-wide basis over the course of the next
several fiscal years. We anticipate that the North American businesses will be
operating under the new information systems by the end of fiscal 2000. Our
international businesses should be operational within the next two years
thereafter. We estimate that the project will cost $53.2 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.
EURO
A new currency called the "euro" has been introduced in certain Economic and
Monetary Union 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. We are still assessing
the impact the EMU formation and euro implementation will have on our internal
systems and the sale of our products. We expect to take appropriate actions
based on the results of this assessment. We have 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 our business,
operating results and financial condition.
MANAGEMENT'S OUTLOOK
Fiscal 1999 was a very significant year for Scotts, as we reported record sales
of $1.65 billion, achieved market share growth in every one of our major U. S.
categories, and established a number one market share position in most of the
significant lawn and garden categories across the world. The strategic
acquisitions during fiscal 1999, most notably the Ortho and Rhone-Poulenc Jardin
businesses, were critical in providing us with dominant market positions in the
pesticides category as well as continental European lawn and garden markets. The
year's performance reflected the successful continuation of our 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.
Looking forward to fiscal 2000, the timing of the Ortho acquisition in fiscal
1999 must be considered. Because the Ortho business was acquired in January
1999, fiscal 1999 earnings did not reflect the loss that is traditionally
incurred by the Ortho business during the October through December period, as
well as the amortization of goodwill and interest charges associated with the
acquisition. Management estimates that this one-time benefit was approximately
28 cents per share, which, when subtracted from fiscal 1999 reported earnings
per share, more accurately reflects Scotts' current year performance.
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Looking forward, we maintain the following broad tenets to our strategic plan:
(1) Promote and capitalize on the strengths of the Scotts(R),
Miracle-Gro(R), Hyponex(R) and Ortho(R) industry-leading
brands, as well as our portfolio of powerful brands in our
international markets. This involves a commitment to investors
and retail partners that we will support these brands through
advertising and promotion unequaled in the lawn and garden
consumables market. In the Professional categories, it
signifies a 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.
As part of our ongoing strategic plans, management has established challenging,
but realistic, financial goals, including:
(1) Sales growth of 6% to 8% in core businesses;
(2) An aggregate operating margin improvement of at least 2% over
the next four years; and
(3) Minimum compounded annual earnings per share growth of 15% to
20%.
FORWARD-LOOKING STATEMENTS
We have has made and will make "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 in our Annual Report, Form 10-K and in other contexts
relating to future growth and profitability targets and strategies designed to
increase total shareholder value. Forward-looking statements also include, but
are not limited to, information regarding our future economic and financial
condition, the plans and objectives of our management and our assumptions
regarding our performance and these plans and objectives.
The Private Securities Litigation Reform Act of 1995 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. We desire to take advantage of the
"safe harbor" provisions of the Act.
The forward-looking statements that we make in our Annual Report, in this Form
10-K and in other contexts represent challenging goals for our company, and the
achievement of these goals is subject to a variety of risks and assumptions and
numerous factors beyond our control. Important factors that could cause actual
results to differ materially from the forward-looking statements we make are set
forth below. All forward-looking statements attributable to us or persons
working on our behalf are expressly qualified in their entirety by the following
cautionary statements.
- ADVERSE WEATHER CONDITIONS COULD ADVERSELY IMPACT FINANCIAL
RESULTS.
Weather conditions in North America and Europe have a
significant impact on the timing of sales in the spring
selling season and overall annual sales. Periods of wet
weather can slow fertilizer sales, while periods of dry, hot
weather can decrease
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pesticide sales. In addition, an abnormally cold spring
throughout North America and/or Europe could adversely affect
both fertilizer and pesticides sales and therefore our
financial results.
- OUR HISTORICAL SEASONALITY COULD IMPAIR OUR
ABILITY TO MAKE INTEREST PAYMENTS ON INDEBTEDNESS.
Because our products are used primarily in the spring and
summer, our business is highly seasonal. For the past two
fiscal years, approximately 70% to 75% of our sales have
occurred in the second and third fiscal quarters combined. Our
working capital needs and our borrowings peak near the end of
our first fiscal quarter because we are generating fewer
revenues while incurring expenditures in preparation for the
spring selling season. If cash on hand is insufficient to
cover interest payments due on our indebtedness at a time when
we are unable to draw on our credit facilities, this
seasonality could adversely affect our ability to make
interest payments as required by our indebtedness. Adverse
weather conditions could heighten this risk.
- PUBLIC PERCEPTIONS THAT THE PRODUCTS WE PRODUCE AND MARKET ARE
NOT SAFE COULD ADVERSELY AFFECT US.
We manufacture and market a number of complex chemical
products, such as fertilizers, herbicides and pesticides,
bearing one of our brands. On occasion, customers allege that
some of these products fail to perform up to expectations or
cause damage or injury to individuals or property. Public
perception that our products are not safe, whether justified
or not, could impair our reputation, damage our brand names
and materially adversely affect our business.
- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR
OBLIGATIONS.
Our substantial indebtedness could:
- make it more difficult for us to satisfy our
obligations;
- increase our vulnerability to general adverse
economic and industry conditions;
- limit our ability to fund future working capital,
capital expenditures, research and development costs
and other general corporate requirements;
- require us to dedicate a substantial portion of cash
flow from operations to payments on our indebtedness,
which would reduce the cash flow available to fund
working capital, capital expenditures, research and
development efforts and other general corporate
requirements;
- limit our flexibility in planning for, or reacting
to, changes in our business and the industry in which
we operate;
- place us at a competitive disadvantage compared to
our competitors that have less debt; and
- limit our ability to borrow additional funds.
If we fail to comply with any of the financial or other
restrictive covenants of our indebtedness, our indebtedness
could become due and payable in full prior to its stated due
date. We cannot be sure that our lenders would waive a default
or that we could pay the indebtedness in full if it were
accelerated.
53
<PAGE> 54
- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT
AMOUNT OF CASH, WHICH WE MAY NOT BE ABLE TO GENERATE.
Our ability to make payments on and to refinance our
indebtedness and to fund planned capital expenditures and
research and development efforts will depend on our ability to
generate cash in the future. This, to some extent, is subject
to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. We
cannot assure that our business will generate sufficient cash
flow from operations or that currently anticipated cost
savings and operating improvements will be realized on
schedule or at all. We also cannot assure that future
borrowings will be available to us under our credit facility
in amounts sufficient to enable us to pay our indebtedness or
to fund other liquidity needs. We may need to refinance all or
a portion of our indebtedness, on or before maturity. We
cannot assure that we will be able to refinance any of our
indebtedness on commercially reasonable terms or at all.
- WE MIGHT NOT BE ABLE TO INTEGRATE OUR RECENT ACQUISITIONS INTO
OUR BUSINESS OPERATIONS SUCCESSFULLY.
We have made several substantial acquisitions in the past four
years. The acquisition of the Ortho business represents the
largest acquisition we have ever made. The success of any
completed acquisition depends, and the success of the Ortho
acquisition will depend, on our ability to effectively
integrate the acquired business. We believe that our recent
acquisitions provide us with significant cost saving
opportunities. However, if we are not able to successfully
integrate Ortho, Rhone-Poulenc Jardin or our other acquired
businesses, we will not be able to maximize such cost saving
opportunities. Rather, the failure to integrate these 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
our financial results.
- BECAUSE OF THE CONCENTRATION OF OUR SALES TO A SMALL NUMBER OF
RETAIL CUSTOMERS, THE LOSS OF ONE OR MORE OF OUR TOP CUSTOMERS
COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Our top 10 North American retail customers together accounted
for approximately 52% of our fiscal 1999 sales and 41% of our
outstanding accounts receivable as of September 30, 1999. Our
top three customers, Home Depot, Wal*Mart and Kmart
represented approximately 17%, 12% and 9% of our fiscal 1999
sales. These customers hold significant positions in the
retail lawn and garden market. The loss of, or reduction in
orders from, Home Depot, Wal*Mart, Kmart or any other
significant customer could have a material adverse effect on
our business and our financial results, as could customer
disputes regarding shipments, fees, merchandise condition or
related matters. Our inability to collect accounts receivable
from any of these customers could also have a material adverse
affect.
- IF MONSANTO WERE TO TERMINATE THE MARKETING AGREEMENT FOR
CONSUMER ROUNDUP(R) PRODUCTS, WE WOULD LOSE A SUBSTANTIAL
SOURCE OF FUTURE EARNINGS.
If we were to commit a serious default under the marketing
agreement with Monsanto for consumer Roundup(R) products,
Monsanto may have the right to terminate the agreement. If
Monsanto were to terminate the marketing agreement rightfully,
we would not be entitled to any termination fee, and we would
lose all, or a significant portion, of the significant source
of earnings we believe the marketing agreement provides.
Monsanto may also terminate the marketing agreement within a
given region, including North America, without paying us a
termination fee if sales to consumers in that region decline:
- Over a cumulative three year fiscal year period; or
- By more than 5% for each of two consecutive fiscal
years. Monsanto may not terminate the marketing
agreement, however, if we can demonstrate that the
sales decline was caused by a severe decline of
general economic conditions or a severe decline in
the lawn and garden market in the region rather than
by our failure to perform our duties under the
agreement.
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<PAGE> 55
- THE EXPIRATION OF PATENTS RELATING TO ROUNDUP(R) AND THE
SCOTTS TURF BUILDER(R) LINE OF PRODUCTS COULD SUBSTANTIALLY
INCREASE OUR COMPETITION IN THE UNITED STATES.
Glyphosate, the active ingredient in Roundup(R), is covered by
a patent in the United States that expires in September 2000.
Sales in the United States may decline as a result of
increased competition after the U.S. patent expires. Any
decline in sales would adversely affect our net commission
under the marketing agreement for consumer Roundup(R) products
and, therefore, our financial results. A sales decline could
also trigger Monsanto's regional termination right under the
marketing agreement.
Our methylene-urea product composition patent, which covers
Scotts Turf Builder(R), Scotts Turf Builder(R) with Plus 2(TM)
with Weed Control and Scotts Turf Builder(R) with Halts(R)
Crabgrass Preventer, is due to expire in July 2001 and could
also result in increased competition. Any decline in sales of
Turf Builder(R) products after the expiration of the
methylene-urea product composition patent could adversely
affect our financial results.
- THE INTERESTS OF THE FORMER MIRACLE-GRO SHAREHOLDERS COULD
CONFLICT WITH THOSE OF OUR OTHER SHAREHOLDERS.
The former shareholders of Stern's Miracle-Gro Products, Inc.,
through Hagedorn Partnership, L.P., beneficially own
approximately 42% of the outstanding common shares of Scotts
on a fully diluted basis. The former Miracle-Gro shareholders
have sufficient voting power to significantly control the
election of directors and the approval of other actions
requiring the approval of our shareholders. The interests of
the former Miracle-Gro shareholders could conflict with those
of our other shareholders.
- COMPLIANCE WITH ENVIRONMENTAL AND OTHER PUBLIC HEALTH
REGULATIONS COULD INCREASE OUR COST OF DOING BUSINESS.
Local, state, federal and foreign laws and regulations
relating to environmental matters affect us in several ways.
All products containing pesticides must be registered with the
United States Environmental Protection Agency and, in many
cases, similar state and/or foreign agencies before they can
be sold. The inability to obtain or the cancellation of any
registration could have an adverse effect on us. The severity
of the effect would depend on which products were involved,
whether another product could be substituted and whether
competitors were similarly affected. We attempt to anticipate
regulatory developments and maintain registrations of, and
access to, substitute chemicals. We may not always be able to
avoid or minimize these risks.
The Food Quality Protection Act, enacted by the U.S. Congress
in August 1996, establishes a standard for food-use
pesticides, which is that a reasonable certainty of no harm
will result from the cumulative effect of pesticide exposures.
Under this Act, the U.S. Environmental Protection Agency is
evaluating the cumulative risks from dietary and non-dietary
exposures to pesticides. The pesticides in our products, which
are also used on foods, will be evaluated by the U.S.
Environmental Protection Agency as part of this non-dietary
exposure risk assessment. It is possible that the U.S.
Environmental Protection Agency may decide that a pesticide we
use in our products, would be limited or made unavailable. We
cannot predict the outcome or the severity of the effect of
the U.S. Environmental Protection Agency's evaluation. We
believe that we should be able to obtain substitute
ingredients if selected pesticides are limited or made
unavailable, but there can be no assurance that we will be
able to do so for all products.
Regulations regarding the use of some pesticide and fertilizer
products may include requirements that only certified or
professional users apply the product or that the products be
used only in specified locations. Users may be required to
post notices on properties to which products have been or will
be applied and may be required to notify individuals in the
vicinity that products will be applied in the future. The use
of some ingredients has been banned. Even if we are able to
comply with all such regulations and obtain all necessary
registrations, we cannot assure that our products,
particularly pesticide products, will not cause injury to the
environment or to people under all circumstances. The costs of
compliance, remediation or products liability have adversely
affected operating results in the past and could materially
affect future quarterly or annual operating results.
The harvesting of peat for our growing media business has come
under increasing regulatory and environmental scrutiny. In the
United States, state regulations frequently require us to
limit our harvesting and to restore the property to its
intended use. In some locations we have been required to
create water retention ponds to control the sediment content
of discharged water. In the United Kingdom, our peat
extraction efforts are also the subject of legislation. Since
1990, we have been involved in litigation with the
Philadelphia District of the U.S. Army Corps of Engineers
involving our peat harvesting operations at Hyponex's
Lafayette, New Jersey facility. The Corps of Engineers is
seeking a permanent
55
<PAGE> 56
injunction against harvesting and civil penalties in an
unspecified amount.
In addition to the regulations already described, local,
state, federal, and foreign agencies regulate the disposal,
handling and storage of waste, air and water discharges
from our facilities. In June 1997, the Ohio Environmental
Protection Agency gave us formal notice of an enforcement
action concerning our old, decommissioned wastewater treatment
plants that had once operated at our Marysville facility. The
Ohio EPA action alleges surface water violations relating to
possible historical sediment contamination, inadequate
treatment capabilities at our existing and currently permitted
wastewater treatment plants and the need for corrective action
under the Resource Conservation Recovery Act. We are
continuing to meet with the Ohio EPA and the Ohio Attorney
General's office to negotiate an amicable resolution of these
issues. We are currently unable to predict the ultimate
outcome of this matter.
During fiscal 1999, we made approximately $1.1 million in
environmental capital expenditures and $5.9 million in other
environmental expenses, compared with approximately $0.7
million in environmental capital expenditures and $3.1 million
in other environmental expenses in fiscal 1998. Management
anticipates that environmental capital expenditures and other
environmental expenses for fiscal 2000 will not differ
significantly from those incurred in fiscal 1999. If we are
required to significantly increase our actual environmental
capital expenditures and other environmental expenses, it
could adversely affect our financial results.
- OUR FAILURE, OR THE FAILURE OF OUR SUPPLIERS OR CUSTOMERS, TO
ADDRESS INFORMATION TECHNOLOGY ISSUES RELATED TO THE YEAR 2000
COULD ADVERSELY AFFECT OUR OPERATIONS.
Like other business entities, we must address the inability of
our computer software applications and other business systems
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.
We rely 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 our suppliers
fail to address the year 2000 problem adequately, their
operations could be interrupted. This interruption, in turn,
could adversely affect our operations. In addition, the
failure of our retailer customers adequately to address the
year 2000 problem could adversely affect our financial
results.
- THE IMPLEMENTATION OF THE EURO CURRENCY IN SOME EUROPEAN
COUNTRIES BETWEEN 1999 AND 2002 COULD ADVERSELY AFFECT US.
In January 1999, the "euro" was introduced in some Economic
and Monetary Union countries and by 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 finalized all of
the rules and regulations with regard to the euro currency. We
are still assessing the impact the EMU formation and euro
implementation will have on our internal systems and the sale
of our products. We expect to take appropriate actions based
on the results of our assessment. However, we have 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 us or our operating
results and financial condition.
- OUR SIGNIFICANT INTERNATIONAL OPERATIONS MAKE US MORE
SUSCEPTIBLE TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND TO
THE COSTS OF INTERNATIONAL REGULATION.
We currently operate manufacturing, sales and service
facilities outside of North America, particularly in the
United Kingdom, Germany and France.
56
<PAGE> 57
Our international operations have increased with the acquisitions of
Levington, Miracle Garden, Ortho and Rhone-Poulenc Jardin and with the
marketing agreement for consumer Roundup(R) products. In fiscal 1999,
international sales accounted for approximately 24% of our total sales.
Accordingly, we are subject to risks associated with operations in
foreign countries, including:
- fluctuations in currency exchange rates;
- limitations on the conversion of foreign currencies into U.S.
dollars;
- limitations on the remittance of dividends and other payments
by foreign subsidiaries;
- additional costs of compliance with local regulations; and
- historically, higher rates of inflation than in the United
States.
The costs related to our international operations could adversely affect our
operations and financial results in the future.
57
<PAGE> 58
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of our ongoing business, we are exposed to certain market risks,
including fluctuations in interest rates, foreign currency exchange rates and
commodity prices. We use derivative financial and other instruments, where
appropriate, to manage these risks. We do not enter into transactions designed
to mitigate our market risks for trading or speculative purposes.
INTEREST RATE RISK
We have various debt instruments outstanding at September 30, 1999 that are
impacted by changes in interest rates. As a means of managing our interest rate
risk on these debt instruments, we have entered into the following interest rate
swap agreements to effectively convert certain variable rate debt obligations to
fixed rates:
- A 20 million British Pounds Sterling notional amount swap to
convert variable-rate debt obligations denominated in British
Pounds Sterling to a fixed rate. The exchange rate used to
convert British Pounds Sterling to U.S. dollars at September
30, 1999 was $1.65: 1 Pound Sterling.
- Four interest rate swaps with a total notional amount of
$105.0 million which are used to hedge certain variable-rate
obligations under our credit facility. The credit facility
requires that we enter into hedge agreements to the extent
necessary to provide that at least 50% of the aggregate
principal amount of the 8 5/8% Senior Subordinated Notes due
2009 and term loan facilities is subject to a fixed rate.
58
<PAGE> 59
The following table summarizes information about our derivative financial
instruments and debt instruments that are sensitive to changes in interest rates
as of September 30, 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 September 30, 1999. The information is presented in U.S. dollars
(in millions):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate debt $330.0 $330.0 $316.0
Average rate 8.625% 8.625%
Variable rate debt $ 26.2 $ 33.3 $ 44.3 $ 48.4 $48.4 $372.7 $573.3 $573.3
Average rate 6.77% 6.74% 6.71% 6.70% 6.70% 8.28% 7.73%
Interest rate derivatives:
Interest rate swap
on GBP LIBOR $ (0.4) $ (0.1) $ (0.1) $ (0.6) $ (0.5)
Average rate 7.62% 7.62% 7.62% 7.62%
Interest rate swaps
on USD LIBOR $ 0.9 $ 1.4 $ 1.1 $ 0.6 $ 0.2 $ 4.2 $ 3.3
Average rate 5.10% 5.10% 5.11% 5.16% 5.18% 5.11%
OTHER MARKET RISKS
</TABLE>
Our market risk associated with foreign currency rates is not considered to be
material. Through fiscal 1999, we had only minor amounts of transactions that
were denominated in foreign currencies. We are subject to market risk from
fluctuating market prices of certain raw materials, including urea and other
chemicals and paper and plastic products. Our objectives surrounding the
procurement of these materials are to ensure continuous supply and to minimize
costs. We seek to achieve these objectives through negotiation of contracts with
favorable terms directly with vendors. We do not enter into forward contracts or
other market instruments as a means of achieving our objectives or minimizing
our risk exposures on these materials.
59
<PAGE> 60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and other information required by this Item are
contained in the financial statements, footnotes thereto and schedules listed in
the Index to Consolidated Financial Statements and Financial Statement Schedules
on page 68 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
60
<PAGE> 61
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3), the information contained under the
captions "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY --Section 16(a)
Beneficial Ownership Reporting Compliance" and "PROPOSAL NO. 1 - ELECTION OF
DIRECTORS" in Scotts' definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held on February 15, 2000 to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934 (the "Proxy Statement"), is incorporated herein by
reference. The information regarding executive officers required by Item 401 of
Regulation S-K is included in Part I hereof under the caption "Executive
Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3), the information contained under the
captions "EXECUTIVE COMPENSATION" and "ELECTION OF DIRECTORS--Compensation of
Directors" in Scotts' Proxy Statement, is incorporated herein by reference.
Neither the report of the Compensation and Organization Committee of the
Registrant's Board of Directors on executive compensation nor the performance
graph included in Scotts' Proxy Statement shall be deemed to be incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3), the information contained under the
caption "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY" in Scotts' Proxy
Statement, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3), the information contained under the
captions "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY" and "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in Scotts' Proxy Statement, is
incorporated herein by reference.
61
<PAGE> 62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1 and 2. Financial Statements and Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a separate section of
this Annual Report on Form 10-K. Reference is made to "Index to Consolidated
Financial Statements and Financial Statement Schedules" on page 68 herein.
3. Exhibits:
Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a
list of such exhibits, see "Index to Exhibits" beginning at page E-1. The
following table provides certain information concerning executive compensation
plans and arrangements required to be filed as exhibits to this Annual Report on
Form 10-K.
EXECUTIVE COMPENSATORY PLANS AND ARRANGEMENTS
62
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
- - --- ----------- --------
<S> <C>
10(a) The O.M. Scott & Sons Company Excess Incorporated herein by
Benefit Plan, effective October 1, 1993 reference to the
Annual Report on Form
10-K for the fiscal
year ended September
30, 1993, of The Scotts
Company, a Delaware
corporation ("Scotts
Delaware") (File
No. 0-19768) [Exhibit 10(h)]
10(b) The Scotts Company 1992 Long Term Incorporated herein by
Incentive Plan reference to Scotts
Delaware's Registration
Statement on Form S-8
filed on March 26, 1993
(Registration No. 33-60056)
[Exhibit 4(f)]
10(c) The Scotts Company 1999 Executive and Management *
Incentive Plan
10(d) The Scotts Company 1996 Stock *
Option Plan (as amended through
December 8, 1999)
10(e) The Scotts Company Executive Incorporated herein by
Retirement Plan reference to the
Registrant's Annual
Report on Form 10-K for
the fiscal year ended
September 30, 1998
(File No. 1-11593)
[Exhibit 10(j)]
</TABLE>
63
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
- - --- ----------- --------
<S> <C>
10(f) Employment Agreement, dated as of Incorporated herein by
May 19, 1995, between the Registrant reference to the
and James Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1995
(File No. 1-11593)
[Exhibit 10(p)]
10(g) Consulting Agreement, dated July 9, 1997, Incorporated herein by
among Scotts Miracle-Gro Products, Inc., reference to the
the Registrant and Horace Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(1)]
10(h) Employment Agreement, dated as of May 19, Incorporated herein by
1995, among Stern's Miracle-Gro reference to the
Products, Inc. (nka Scotts Miracle-Gro Registrant's Annual
Products, Inc.), the Registrant and John Kenlon Report on Form 10-K
for the fiscal year
ended September 30,
1996 (File No. 1-11593)
[Exhibit 10(k)]
10(i) Employment Agreement, dated as of Incorporated herein by
August 7, 1998, between the Registrant reference to the
and Charles M. Berger, and three attached Registrant's Annual
Stock Option Agreements with the following Report on Form 10-K
effective dates: September 23, 1998; October 21, for the fiscal year
1998 and September 24, 1999 ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(n)]
10(j) Stock Option Agreement, dated as of Incorporated herein by
August 7, 1996, between the Registrant reference to the
and Charles M. Berger Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1996
(File No. 1-11593)
[Exhibit 10(m)]
10(k) Letter Agreement, dated December 23, 1996, Incorporated herein by
between the Registrant and Jean H. Mordo reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(p)]
10(l) Specimen form of Stock Option Agreement *
for Non-Qualified Stock Options
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
- - --- ----------- --------
<S> <C>
10(m) Letter Agreement, dated April 10, 1997, Incorporated herein by
between the Registrant and G. Robert Lucas reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(r)]
10(n) Letter Agreement, dated December 17, 1997, Incorporated herein by
between the Registrant and William R. Radon reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(s)]
10(o) Letter Agreement, dated March 30, 1998, Incorporated herein by
between the Registrant and William A. Dittman reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(t)]
10(p) Letter Agreement, dated March 16, 1999, *
between the Registrant and Hadia Lefavre
10(q) Letter Agreement, dated July 21, 1999, *
between the Registrant and David D. Harrison
10(r) Contract of Employment dated February 28, 1996, *
between Rhodic (assumed by Scotts France SAS)
and Christian Ringuet
10(s) Employment Agreement, dated August 17, 1995, *
between Scotts Europe B.V. and Laurens J.M. de Kort
10(t) Service Agreement, dated September 9, 1998, *
between Levington Horticulture Limited (nka The Scotts
Company (UK) Ltd.) and Nicholas Kirkbride
</TABLE>
65
<PAGE> 66
* Filed herewith.
(b) REPORTS ON FORM 8-K
The Registrant filed no Current Reports on Form 8-K during the last quarter of
the period covered by this Report.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate section of
this Annual Report on Form 10-K. See Item 14(a)(2) above.
66
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: December 22, 1999 By: /s/ CHARLES M. BERGER
Charles M. Berger, Chairman
of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- - ---------- ----- ----
<S> <C> <C>
/s/ JAMES B BEARD, PH.D. Director December 22, 1999
James B Beard, Ph.D.
/s/ CHARLES M. BERGER Chairman of the Board/President/ December 22, 1999
Charles M. Berger Chief Executive Officer
/s/ JOSEPH P. FLANNERY Director December 22, 1999
Joseph P. Flannery
/s/ HORACE HAGEDORN Vice Chairman/Director December 22, 1999
Horace Hagedorn
/s/ JAMES HAGEDORN President, Scotts North America/ December 22, 1999
James Hagedorn Director
/s/ ALBERT E. HARRIS Director December 22, 1999
Albert E. Harris
/s/ JOHN KENLON Director December 22, 1999
John Kenlon
/s/ KAREN GORDON MILLS Director December 22, 1999
Karen Gordon Mills
/s/ DAVID D. HARRISON Executive Vice President/Chief December 22, 1999
David D. Harrison Financial Officer/Principal
Accounting Officer
/s/ PATRICK J. NORTON Director December 22, 1999
Patrick J. Norton
/s/ JOHN M. SULLIVAN Director December 22, 1999
John M. Sullivan
/s/ L. JACK VAN FOSSEN Director December 22, 1999
L. Jack Van Fossen
/s/ JOHN WALKER, PH.D. Director December 22, 1999
John Walker, Ph.D.
</TABLE>
67
<PAGE> 68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
FORM 10-K
ANNUAL REPORT
<S> <C>
Consolidated Financial Statements of The Scotts Company and
Subsidiaries:
Report of Management
Report of Independent Accountants
Consolidated Statements of Operations for the years ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997
Consolidated Balance Sheets at September 30, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for
the years ended September 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Schedules Supporting the Consolidated Financial Statements:
Report of Independent Accountants on Financial Statement Schedules
Valuation and Qualifying Accounts for the years ended September 30,
1999, 1998 and 1997
</TABLE>
Schedules other than those listed above are omitted since they are not required
or are not applicable, or the required information is shown in the Consolidated
Financial Statements or Notes thereto.
68
<PAGE> 69
REPORT OF MANAGEMENT
Management of The Scotts Company is responsible for the preparation, integrity
and objectivity of the financial information presented in this Form 10-K. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances and,
accordingly, include some amounts that are based on management's best judgments
and estimates.
Management is responsible for maintaining a system of accounting and internal
controls which it believes is adequate to provide reasonable assurance that
assets are safeguarded against loss from unauthorized use or disposition and
that the financial records are reliable for preparing financial statements. The
selection and training of qualified personnel, the establishment and
communication of accounting and administrative policies and procedures, and a
program of internal audits are important objectives of these control systems.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants, selected by the Board of Directors. The independent
accountants conduct a review of internal accounting controls to the extent
required by generally accepted auditing standards and perform such tests and
related procedures as they deem necessary to arrive at an opinion on the
fairness of the financial statements in accordance with generally accepted
accounting principles.
The Board of Directors, through its Audit Committee consisting solely of
non-management directors, meets periodically with management, internal audit
personnel and the independent accountants to discuss internal accounting
controls and auditing and financial reporting matters. The Audit Committee
reviews with the independent accountants the scope and results of the audit
effort. Both internal audit personnel and the independent accountants have
access to the Audit Committee with or without the presence of management.
69
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Scotts Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and changes in shareholders'
equity present fairly, in all material respects, the financial position of The
Scotts Company at September 30, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
October 21, 1999
70
<PAGE> 71
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the fiscal years ended September 30, 1999,
1998 and 1997 (in millions except per share amounts) 1999 1998 1997
<S> <C> <C> <C>
Sales $1,648.3 $1,113.0 $ 899.3
Cost of sales 989.1 715.0 573.6
-------- -------- -------
Gross profit 659.2 398.0 325.7
Commission earned from agency agreement 30.3 -- --
Operating expenses:
Advertising and promotion 189.0 104.4 83.9
Selling, general and administrative 281.2 169.9 131.6
Amortization of goodwill and other intangibles 25.4 12.9 10.2
Restructuring and other charges 1.4 15.4 --
Other (income) expense, net (3.6) 1.3 5.2
-------- -------- -------
Income from operations 196.1 94.1 94.8
Interest expense 79.1 32.2 25.2
-------- -------- -------
Income before income taxes 117.0 61.9 69.6
Income taxes 47.9 24.9 30.1
-------- -------- -------
Income before extraordinary item 69.1 37.0 39.5
Extraordinary loss on early extinguishment
of debt, net of income tax benefit 5.9 0.7 --
-------- -------- -------
Net income 63.2 36.3 39.5
Preferred stock dividends 9.7 9.8 9.8
-------- -------- -------
Income applicable to common shareholders $ 53.5 $ 26.5 $ 29.7
Basic earnings per share:
Before extraordinary loss $ 3.25 $ 1.46 $ 1.60
Extraordinary loss, net of tax (0.32) (0.04) --
--------- -------- -------
$ 2.93 $ 1.42 $ 1.60
Diluted earnings per share:
Before extraordinary loss $ 2.27 $ 1.22 $ 1.35
Extraordinary loss, net of tax (0.19) (0.02) --
--------- -------- -------
$ 2.08 $ 1.20 $ 1.35
Common shares used in basic earnings
per share calculation 18.3 18.7 18.6
Common shares and potential common shares used
in diluted earnings per share calculation 30.5 30.3 29.3
</TABLE>
See Notes to Consolidated Financial Statements.
71
<PAGE> 72
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the fiscal years ended September 30, 1999,
1998 and 1997 (in millions) 1999 1998 1997
---- ---- ----
Cash Flows From Operating Activities
<S> <C> <C> <C>
Net income $ 63.2 $ 36.3 $ 39.5
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 29.0 21.6 16.6
Amortization 31.2 16.2 13.8
Extraordinary loss 5.9 0.7 -
Restructuring and other charges - 19.3 -
Loss on sale of fixed assets 1.8 2.3 5.6
Deferred income taxes 0.5 (2.4) (1.5)
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable 23.7 (8.6) 18.3
Inventories (21.6) (5.7) 17.3
Prepaid and other current assets (25.2) (2.1) 0.4
Accounts payable 10.7 8.8 1.1
Accrued taxes and liabilities (10.2) (14.4) 12.7
Other assets (35.9) 0.3 1.3
Other liabilities 1.7 2.3 (0.1)
Other, net 3.4 (3.6) (3.9)
------ ------ ------
Net cash provided by operating activities 78.2 71.0 121.1
------ ------ ------
Cash Flows From Investing Activities
Investment in property, plant and equipment (66.7) (41.3) (28.6)
Proceeds from sale of equipment 1.5 0.6 2.7
Investments in acquired businesses, net of
cash acquired (506.2) (151.4) (46.6)
Other, net (0.2) - -
------ ------ ------
Net cash used in investing activities (571.6) (192.1) (72.5)
------ ------ ------
Cash Flows From Financing Activities
Net borrowings under revolving and bank
lines of credit 65.3 140.0 (37.3)
Gross borrowings under term loans 525.0 - -
Gross repayments under term loans (3.0) - -
Repayment of outstanding balance on previous
credit facility (241.0) - -
Issuance of 8 5/8% senior subordinated notes 330.0 - -
Extinguishment of 9 7/8% senior subordinated notes (107.1) - -
Settlement of interest rate locks (12.9) - -
Financing and issuance fees (24.1) - -
Dividends on Class A Convertible Preferred Stock (12.1) (7.3) (9.8)
Repurchase of treasury shares (10.0) (15.3) -
Cash received from exercise of stock options 3.8 1.7 1.5
Other, net - (0.7) (0.6)
------ ------ ------
Net cash provided by (used in) financing
activities 513.9 118.4 (46.2)
------ ------ ------
Effect of exchange rate changes on cash (0.8) 0.3 -
------ ------ ------
Net increase (decrease) in cash 19.7 (2.4) 2.4
Cash and cash equivalents, beginning of period 10.6 13.0 10.6
------ ------ ------
Cash and cash equivalents, end of period $ 30.3 $ 10.6 $ 13.0
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
72
<PAGE> 73
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999 and 1998 (in millions) 1999 1998
---- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 30.3 $ 10.6
Accounts receivable, less allowance for uncollectible
accounts of $16.4 in 1999 and $6.3 in 1998 201.4 146.6
Inventories, net 313.2 177.7
Current deferred tax asset 29.3 20.8
Prepaid and other assets 67.5 11.5
-------- --------
Total current assets 641.7 367.2
Property, plant and equipment, net 259.4 197.0
Intangible assets, net 794.1 435.1
Other assets 74.4 35.9
-------- --------
Total assets $1,769.6 $1,035.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 56.4 $ 13.3
Accounts payable 133.5 77.8
Accrued liabilities 157.7 124.9
Accrued taxes 19.3 15.9
-------- --------
Total current liabilities 366.9 231.9
Long-term debt 893.6 359.2
Other liabilities 65.8 40.2
-------- --------
Total liabilities 1,326.3 631.3
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Class A Convertible Preferred Stock, no par value 173.9 177.3
Common shares, no par value per share, $.01 stated
value per share, 21.3 shares issued in 1999,
21.1 shares issued in 1998 0.2 0.2
Capital in excess of par value 213.9 208.9
Retained earnings 130.1 76.6
Treasury stock, 2.9 shares in 1999 and 2.8 shares in
1998, at cost (61.9) (55.9)
Accumulated other comprehensive income (12.9) (3.2)
-------- --------
Total shareholders' equity 443.3 403.9
-------- --------
Total liabilities and shareholders' equity $1,769.6 $1,035.2
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
73
<PAGE> 74
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
For the fiscal years ended CLASS A CONVERTIBLE CAPITAL IN
September 30, 1999, 1998 and PREFERRED STOCK COMMON SHARES EXCESS OF RETAINED TREASURY STOCK
1997 (in millions) SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 0.2 $177.3 21.1 $0.2 $207.6 $ 20.4 (2.5) $(43.4)
Net income 39.5
Foreign currency translation
Comprehensive income
Issuance of common shares
held in treasury 0.2 0.1 1.5
Preferred Stock dividends (9.8)
---- ------- ----- ----- ------- ------ ------ -------
Balance, September 30, 1997 0.2 $177.3 21.1 $0.2 $207.8 $ 50.1 (2.4) $(41.9)
Net income 36.3
Foreign currency translation
Minimum pension liability
Comprehensive income
Issuance of common shares
held in treasury 1.1 0.1 1.7
Purchase of common shares (0.5) (15.7)
Preferred Stock dividends (9.8)
---- ------- ----- ----- ------- ------ ------ -------
Balance, September 30, 1998 0.2 $177.3 21.1 $0.2 $208.9 $ 76.6 (2.8) $(55.9)
Net income 63.2
Foreign currency translation
Minimum pension liability
Comprehensive income
Issuance of common shares
held in treasury 1.6 0.2 4.0
Purchase of common shares (0.3) (10.0)
Preferred Stock dividends (9.7)
Conversion of Preferred Stock (3.4) 0.2 3.4
0.2 $173.9 21.3 $0.2 $213.9 $130.1 (2.9) $(61.9)
=== ====== ==== ==== ====== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
For the fiscal years ended MINIMUM PENSION FOREIGN
September 30, 1999, 1998 and LIABILITY CURRENCY
1997 (in millions) ADJUSTMENT TRANSLATION TOTAL
<S> <C> <C> <C>
Balance, September 30, 1996 $ 0.0 2.2 $364.3
Net income 39.5
Foreign currency translation (6.5) (6.5)
------
Comprehensive income 33.0
Issuance of common shares
held in treasury 1.7
Preferred Stock dividends (9.8)
----- ------ ------
Balance, September 30, 1997 $ 0.0 $(4.3) $389.2
------
Net income 36.3
Foreign currency translation 1.3 1.3
Minimum pension liability (0.2) (a) (0.2)
------
Comprehensive income 37.4
Issuance of common shares
held in treasury 2.8
Purchase of common shares (15.7)
Preferred Stock dividends (9.8)
----- ------ ------
Balance, September 30, 1998 $(0.2) $(3.0) $403.9
------
Net income 63.2
Foreign currency translation (5.7) (5.7)
Minimum pension liability (4.0) (a) (4.0)
------
Comprehensive income 53.5
Issuance of common shares
held in treasury 5.6
Purchase of common shares (10.0)
Preferred Stock dividends (9.7)
Conversion of Preferred Stock -
$(4.2) $(8.7) $443.3
===== ===== ======
</TABLE>
(a) Net of tax benefits of $2.9 million and $0.1 million for fiscal 1999 and
1998, respectively.
See Notes to Consolidated Financial Statements.
74
<PAGE> 75
Notes to Consolidated Financial Statements
NOTE 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 consolidated financial statements include the accounts of The Scotts Company
and its subsidiaries (collectively, the "Company"). All material intercompany
transactions have been eliminated.
REVENUE RECOGNITION
Revenue is recognized when products are shipped and when title and risk of loss
transfer to the customer. For certain large multi-location customers, products
may be shipped to third-party warehousing locations. Revenue is not recognized
until the customer places orders against that inventory and acknowledges in
writing ownership of the goods. Provisions for estimated returns and allowances
are recorded at the time of shipment.
RESEARCH AND DEVELOPMENT
All costs associated with research and development are charged to expense as
incurred. Expense for fiscal 1999, 1998 and 1997 was $21.7 million, $14.8
million and $10.0 million, respectively.
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. Advertising and
promotion costs (including allowances and rebates) incurred during the year are
expensed ratably to interim periods in relation to revenues. All advertising and
promotions costs, except for production costs, are expensed within the fiscal
year in which such costs are incurred. Production costs for advertising programs
are deferred until the period in which the advertising is first aired.
EARNINGS PER COMMON SHARE
Basic earnings per common share is based on the weighted-average number of
common shares outstanding each period. Diluted earnings per common share is
based on the weighted-average number of common shares and dilutive potential
common shares (stock options, convertible preferred stock and warrants)
outstanding each period.
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
75
<PAGE> 76
management's best knowledge of current events and actions which the Company
may undertake in the future, actual results ultimately may differ from the
estimates.
INVENTORIES
Inventories are principally stated at the lower of cost or market, determined by
the FIFO method; however, certain growing media inventories are accounted for by
the LIFO method. At September 30, 1999 and 1998, approximately 8% and 12% of
inventories, respectively, are valued at the lower of LIFO cost or market.
Inventories include the cost of raw materials, labor and manufacturing overhead.
The Company makes provisions for obsolete or slow-moving inventories as
necessary to properly reflect inventory value.
LONG-LIVED ASSETS
Property, plant and equipment, including significant improvements, are stated at
cost. Expenditures for maintenance and repairs are charged to operating expenses
as incurred. When properties are retired or otherwise disposed of, the cost of
the asset and the related accumulated depreciation are removed from the accounts
with the resulting gain or loss being reflected in results of operations.
Depletion of applicable land is computed on the units-of-production method.
Depreciation of other property, plant and equipment is provided on the
straight-line method and is based on the estimated useful economic lives of the
assets as follows:
<TABLE>
<S> <C>
Land improvements 10-25 years
Buildings 10-40 years
Machinery and equipment 3-15 years
Furniture and fixtures 6-10 years
Software 3-8 years
</TABLE>
Interest is capitalized on all significant capital projects. The Company
capitalized $1.8 million and $0.8 million of interest costs during fiscal 1999
and 1998, respectively.
Goodwill arising from business acquisitions is amortized over its useful life,
which is generally 40 years, on a straight-line basis. Intangible assets include
patents and trademarks which are valued at acquisition through independent
appraisals. Debt issuance costs are being amortized over the terms of the
various agreements. Patents and trademarks are being amortized on a
straight-line basis over periods varying from 7 to 40 years. Accumulated
amortization at September 30, 1999 and 1998 was $96.2 million and $71.7 million,
respectively.
Management assesses the recoverability of property and equipment, goodwill,
trademarks and other intangible assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable from its future undiscounted cash flows. If it is determined that an
impairment has occurred, an impairment loss is recognized for the amount by
which the carrying amount of the asset exceeds its estimated fair value.
INTERNAL USE SOFTWARE
In July of fiscal 1998, the Company announced an initiative designed to enhance
its information system resources. The project includes re-design of certain key
business processes and the installation of new software on a world-wide basis
over the next several years. SAP has been chosen as the primary software
provider for this project. The Company is accounting for the costs of the
project in accordance with Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". Accordingly, costs
other than reengineering are expensed or capitalized depending on whether they
are incurred in the preliminary project stage, application development stage, or
the post-implementation/operation stage. All reengineering costs are expensed as
incurred.
76
<PAGE> 77
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with original
maturities of three months or less to be cash equivalents.
FOREIGN EXCHANGE INSTRUMENTS
Gains and losses on foreign currency transaction hedges are recognized in income
and offset the foreign exchange gains and losses on the underlying transactions.
Gains and losses on foreign currency firm commitment hedges are deferred and
included in the basis of the transactions underlying the commitments.
All assets and liabilities in the balance sheets of foreign subsidiaries whose
functional currency is other than the U.S. dollar are translated into U.S.
dollar equivalents at year-end exchange rates. Translation gains and losses are
accumulated as a separate component of other comprehensive income and included
in shareholders' equity. Income and expense items are translated at average
monthly exchange rates. Foreign currency transaction gains and losses are
included in the determination of net income.
ENVIRONMENTAL COSTS
The Company recognizes environmental liabilities when conditions requiring
remediation are identified. The Company determines its liability on a site by
site basis and records a liability at the time when it is probable and can be
reasonably estimated. Expenditures which extend the life of the related property
or mitigate or prevent future environmental contamination are capitalized.
Environmental liabilities are not discounted or reduced for possible recoveries
from insurance carriers.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to fiscal 1999 classifications.
NOTE 2. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
INVENTORIES, NET:
Finished Goods $ 206.4 $ 121.0
Raw Materials 106.5 55.8
-------- --------
FIFO Cost 312.9 176.8
LIFO Reserve 0.3 0.9
-------- --------
Total $ 313.2 $ 177.7
======== ========
</TABLE>
Inventory balances are shown net of provisions for slow moving and obsolete
inventory of $30.5 million and $12.0 million as of September 30, 1999 and 1998,
respectively.
77
<PAGE> 78
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, NET:
Land and improvements $ 41.4 $ 41.1
Buildings 88.2 70.9
Machinery and equipment 213.7 169.7
Furniture and fixtures 19.8 17.0
Software 32.6 3.7
Construction in progress 26.3 28.8
Less: accumulated depreciation (162.6) (134.2)
--------- ---------
Total $ 259.4 $ 197.0
========= ==========
</TABLE>
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
INTANGIBLE ASSETS, NET:
Goodwill $ 508.6 $ 268.1
Trademarks 207.9 144.0
Other 77.6 23.0
--------- ---------
Total $ 794.1 $ 435.1
========= ==========
</TABLE>
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
ACCRUED LIABILITIES:
Payroll and other compensation accruals $ 42.5 $ 20.4
Advertising and promotional accruals 56.4 26.5
Other 58.8 78.0
--------- ---------
Total $ 157.7 $ 124.9
========= ==========
</TABLE>
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
OTHER NON-CURRENT LIABILITIES:
Accrued pension and postretirement liabilities $ 50.4 $ 26.0
Environmental reserves 11.5 6.2
Other 3.9 8.0
--------- ---------
Total $ 65.8 $ 40.2
========= ==========
</TABLE>
NOTE 3. AGENCY AGREEMENT
Effective September 30, 1998, the Company entered into an agreement with
Monsanto Company ("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 consumer
Roundup(R) business. The Company records its estimated commission based upon the
actual EBIT of the Roundup(R) business for the periods presented, net of annual
fixed contribution payments to Monsanto.
NOTE 4. RESTRUCTURING AND OTHER CHARGES
1999 Charges
During fiscal 1999, the Company recorded $1.4 million of restructuring charges
associated with management's decision to reorganize the North American
Professional Business Group to strengthen distribution and technical sales
support, integrate brand management across market segments and reduce annual
operating expenses. These charges represent costs to sever approximately 60
in-house sales associates that were terminated in fiscal 1999. Approximately
$1.1 million of severance payments were made to these former associates during
fiscal 1999; the remaining $0.3 million is expected to be paid in fiscal 2000.
78
<PAGE> 79
1998 Charges
During fiscal 1998, the Company recorded $20.4 million of restructuring and
other charges, $15.4 million of which is identified separately within operating
expenses, $2.9 million of which is included in cost of sales and $2.1 million of
which is included in selling, general and administrative expenses. These charges
were primarily associated with three restructuring activities: (1) the
consolidation of the Company's two U.K. operations into one lower-cost business;
(2) the closure of nine composting operations in the U.S. that collect yard and
compost waste for certain municipalities; and (3) the sale or closure of certain
other U.S. plants and businesses. Most of these restructuring efforts were
completed during fiscal 1999, except as noted otherwise below.
Consolidation of UK Operations
In connection with management's decision in the second quarter of fiscal 1998 to
consolidate the Company's two U.K. operations (Miracle Garden Care and
Levington, into The Scotts Company (UK) Ltd.), the Company recorded charges of
$6.0 million which consisted of:
1. $0.9 million to write-off the remaining carrying value of certain
property and equipment. In connection with the integration of the U.K.
businesses, management elected to move certain production lines from a
Miracle Garden care facility in Howden to the newly acquired Levington
facility in Bramford. As a result, certain production equipment at the
Howden facility will no longer be utilized. In addition, certain
computer hardware and software equipment previously used by the Miracle
Garden Care business will no longer be utilized as a result of electing
to use acquired information systems of the Levington business. The
Company ceased utilization of the production and computer equipment in
the fourth quarter of fiscal 1998. The assets written-off had nominal
value and were scrapped or abandoned.
2. $2.1 million to write-off packaging materials rendered obsolete as a
result of new packaging design and to provide for costs incurred in
1998 to relaunch products under a single, integrated branding strategy.
The charges associated with these actions were $0.8 million and $1.3
million, respectively.
3. $1.4 million of severance costs associated with the termination of 25
employees of the Company's Miracle Garden Care operation that were made
redundant by the integration of the two U.K. businesses. As of
September 30, 1998, six employees had been terminated. The remaining
employees were terminated in fiscal 1999. All severance costs accrued
at September 30, 1998 have been paid (except for an adjustment of $0.3
million for overaccrual).
4. $0.6 million to write-off inventory rendered obsolete by the
integration activities and $0.8 million for costs incurred in fiscal
1998 for other integration-related costs.
Closure of Compost Sites
In connection with management's decision in the fourth quarter of fiscal 1998 to
close nine composting sites, the Company recorded charges of $9.3 million which
consisted of:
1. $4.5 million for costs to be incurred under contractual commitments for
which no future revenues will be realized. These costs are associated
with the final processing of remaining compost materials, as required,
through the end of the operating contract with the applicable
municipality but after the time when revenue-producing activities
cease. Six of the composting sites have operating contracts that ended
in fiscal 1999 for which $2.9 million was accrued; the operating
contracts for the three remaining sites will expire in fiscal 2000 for
which $1.6 million was accrued.
79
<PAGE> 80
2. $3.2 million to write-down to estimated fair value certain machinery
and equipment in accordance with SFAS No. 121 for assets held for use.
Depreciation will continue to be recognized during revenue- producing
periods. Fixed assets at facilities that have ceased operations have
been abandoned or scrapped.
3. $1.1 million to write-off inventory which must be disposed of as a
result of closing the various composting sites. Such inventory must be
removed from the applicable sites and has only nominal value.
4. $0.5 million for remaining lease obligations after revenue-producing
activities cease on certain machinery and equipment at the sites.
The composting facilities being closed as part of these restructuring
initiatives recorded losses included in the Company's consolidated results of
operations of approximately $3.0 and $2.0 for the fiscal years ended September
30, 1998 and 1997, respectively.
Sale and Closure of Certain U.S. Plants and Businesses:
The charge for sale or closure of certain other U.S. plants or businesses was
$5.1 million and consisted of:
1. $4.5 million to write-down to net realizable value the assets
associated with the Company's AgrEvo pesticides business. The Company
elected to divest these assets in order to avoid potential trade
conflicts associated with the Company's purchase of the Ortho business
and the signing of the Roundup(R) marketing agreement. The AgrEvo
business incurred an operating loss of $0.8 million in fiscal 1998 and
$0.5 million in fiscal 1999 before being sold in February 1999.
2. $0.6 million to write-off and close a single Growing Media production
facility in New York that was deemed to be redundant after the purchase
of the EarthGro business in February 1998. The closure of this facility
was completed in September 1998.
The following is a rollforward of the Company's 1998 restructuring charges:
<TABLE>
<CAPTION>
Fiscal 1998 activity Fiscal 1999 activity
-------------------- --------------------
Type Classification Charge Payments Balance Payments Adjustments Balance
---- -------------- ------ -------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidation of UK operations
Property and equipment demolition Cash Restructuring $ 0.2 $ -- $ 0.2 $ (0.2) $ -- --
Product relaunch costs Cash SG&A 1.3 (0.4) 0.9 (0.9) -- --
Severance costs Cash Restructuring 1.4 (0.3) 1.1 (0.8) (0.3) --
Other integration costs Cash SG&A 0.8 (0.4) 0.4 (0.4) -- --
------
3.7
Property and equipment write-offs Non-cash Restructuring 0.9
Obsolete packaging write-offs Non-cash Cost of sales 0.8
Other inventory write-offs Non-cash Cost of sales 0.6
------
2.3
Closure of compost sites
Costs under contractual commitments Cash Restructuring 4.5 -- 4.5 (4.1) -- 0.4
Lease obligations Cash Restructuring 0.5 -- 0.5 -- -- 0.5
------
5.0
Property and equipment write-offs Non-cash Restructuring 3.2
Inventory write-offs Non-cash Cost of sales 1.1
------
4.3
Other businesses/plants
Sale of Agrevo business Non-cash Restructuring 4.5
Property and equipment write-offs Non-cash Restructuring 0.2
Inventory write-offs Non-cash Cost of sales 0.4
------
$ 5.1
</TABLE>
80
<PAGE> 81
During fiscal 1999, the restructuring reserve established to integrate the U.K.
businesses was reduced by $0.3 for overestimates of severance costs. The
reserves remaining at September 30, 1999 associated with the closure of certain
compost sites are expected to be paid in fiscal 2000.
NOTE 5. ACQUISITIONS
In January 1999, the Company acquired the assets of Monsanto'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. Based on the estimate
of working capital received from Monsanto, the Company made an additional
payment of $39.9 million at the closing date. The Company has subsequently
provided Monsanto with its estimate of working capital, which would result in a
substantial reduction in the total purchase price. Monsanto has subsequently
provided the Company with a revised assessment of working capital which would
increase the final purchase price. The Company and Monsanto have resolved many
of the items in dispute and are currently in negotiations to resolve the
remaining disputed items.
In October 1998, the Company acquired Rhone-Poulenc Jardin, continental Europe's
largest consumer lawn and garden products company. Management's initial estimate
of the purchase price for Rhone-Poulenc Jardin was $216 million, however
subsequent adjustments for reductions in acquired working capital have resulted
in a final purchase price of approximately $170 million.
In 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, including deal costs and
refinancing of certain assumed debt.
In 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 United Kingdom, for approximately $94.0 million,
including deal costs and refinancing of certain assumed debt.
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 Holdings BV, Scotts Lawn Service, Sanford Scientific, Inc. and certain
intangible assets acquired in Ireland.
Each of the above acquisitions was made in exchange for cash or notes due to
seller and 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. Intangible assets associated with the purchase of Rhone-Poulenc
Jardin, EarthGro and Levington were $137.3 million, $23.3 million and $62.8
million, respectively. Final determination of the purchase price of the Ortho
business, as well as the allocation of the purchase price to the net assets
acquired, is not complete as of September 30, 1999. The excess of the estimated
purchase price over the value of tangible assets acquired is currently recorded
as an intangible asset and is being amortized over a period of 35 years.
Intangible assets associated with the other acquisitions described above are
approximately $37.0 million on a combined basis.
81
<PAGE> 82
The following unaudited pro forma results of operations give effect to the
Ortho, Rhone-Poulenc Jardin, EarthGro and Levington acquisitions and the
Roundup(R) marketing agreement as if they had occurred on October 1, 1997.
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Net sales $ 1,681.3 $ 1,513.8
Income before extraordinary loss 60.7 46.4
Net income 54.8 45.7
Basic earnings per share:
Before extraordinary loss $ 2.79 $ 1.96
After extraordinary loss 2.47 1.92
Diluted earnings per share:
Before extraordinary loss $ 1.99 $ 1.53
After extraordinary loss 1.80 1.51
</TABLE>
The pro forma information provided does not purport to be indicative of actual
results of operations if the Ortho, Rhone-Poulenc Jardin, EarthGro and Levington
acquisitions and the Roundup(R) marketing agreement had occurred as of October
1, 1997 and is not intended to be indicative of future results or trends.
NOTE 6. RETIREMENT PLANS
In September 1997, in conjunction with the decision to offer a new defined
contribution retirement savings plan to domestic Company associates, management
decided to suspend benefits under its Scotts and Sierra defined benefit pension
plans. The suspension of benefits under the defined benefit plans was accounted
for as a curtailment under SFAS No. 88 ("Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits"). The gain resulting from the curtailment of the qualified plans, as
well as the curtailment of the non-qualified plan discussed below, was less than
$0.1 million.
The curtailed pension plans covered substantially all full-time U.S. associates
who had completed one year of eligible service and reached the age of 21. The
benefits under these plans are based on years of service and the associates'
average final compensation for the Scotts plan employees and for Sierra salaried
employees and on stated amounts for Sierra hourly employees. The Company's
funding policy, consistent with statutory requirements and tax considerations,
is based on actuarial computations using the Projected Unit Credit method.
The following table sets forth the changes in the projected benefit obligations
for the curtailed pension plans for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ 56.9 $ 49.9
Service cost -- --
Interest cost 4.2 3.6
Actuarial losses 1.2 6.2
Benefits paid (3.3) (2.8)
------- -------
Ending balance $ 59.0 $ 56.9
======= =======
</TABLE>
The following table sets forth the changes in the fair value of the net assets
of the curtailed pension plans for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ 58.0 $ 53.9
Actual return on plan assets 2.1 6.3
Employer contributions -- 0.6
Benefits paid (3.3) (2.8)
------- -------
Ending Balance $ 56.8 $ 58.0
======= =======
</TABLE>
82
<PAGE> 83
The following table sets forth the plans' funded status and the related amounts
recognized in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Actuarial present value of projected
benefit obligations:
Vested benefits $ (58.6) $ (49.3)
Nonvested benefits (0.4) (7.6)
----- -----
(59.0) (56.9)
Plan assets at fair value, primarily corporate bonds,
U.S. Government bonds and cash equivalents 56.8 58.0
------- -------
Plan assets (less) greater than projected benefit obligations (2.2) 1.1
Unrecognized losses 6.9 3.7
------- -------
Prepaid pension costs $ 4.7 $ 4.8
======= =======
Prepaid benefit costs $ -- $ 4.8
Accrued benefit liability (2.2) --
Accumulated other comprehensive income 6.9 --
------- -------
Prepaid pension costs $ 4.7 $ 4.8
======= =======
</TABLE>
Pension cost includes the following components:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Service cost $ -- $ -- $ 1.9
Interest cost 4.2 3.6 4.1
Expected return on plan assets (4.5) (3.7) (7.0)
Net amortization and deferral 0.4 -- 2.8
------ ------ ------
Net pension cost $ 0.1 $ (0.1) $ 1.8
====== ====== ======
</TABLE>
The weighted-average settlement rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% and 6.75% as of September
30, 1999 and 1998, respectively. Future compensation was assumed to increase 4%
annually for fiscal 1997. The expected long-term rate of return on plan assets
was 8.0% and 7.0% for fiscal 1999 and 1998, respectively.
The Company also sponsors the following pension plans associated with the
international businesses it has acquired: Scotts Europe BV, The Scotts Company
(UK) Ltd., Miracle Garden Care, Scotts France SAS, Scotts Celaflor GmbH
(Germany) and Scotts Celaflor HG (Austria). These plans generally cover all
associates of the respective businesses and retirement benefits are generally
based on years of service and compensation levels. The pension plans for Scotts
Europe BV, The Scotts Company UK and Miracle Garden Care are funded plans. The
remaining international pension plans are not funded by separately held plan
assets.
83
<PAGE> 84
The following table sets forth the changes in the projected benefit obligations
for the international plans on a combined basis for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ 61.7 $ 47.0
Service cost 2.8 2.9
Interest cost 3.6 3.2
Participant contributions 0.5 0.3
Actuarial (gains) losses 7.6 (0.2)
Benefits paid (3.0) (1.2)
------- ------
Ending balance $ 73.2 $ 52.0
======= ======
</TABLE>
The following table sets forth the changes in the fair value of the net assets
of the international plans on a combined basis for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ 49.1 $ 49.2
Return on plan assets 10.3 1.4
Employer contributions 2.7 1.2
Participant contributions 0.6 0.3
Benefits paid (2.8) (1.2)
------- ------
Ending balance $ 59.9 $ 50.9
======= ======
</TABLE>
The following table sets forth the funded status and net amount recognized in
the Consolidated Balance Sheets for the Company's international plans on a
combined basis at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Projected benefit obligations (73.2) (52.0)
Plan assets at fair value 59.9 50.9
------- -------
Projected benefit obligations
in excess of plan assets (13.3) (1.1)
Unrecognized items (0.5) (0.3)
------- -------
Accrued benefit costs $ (13.8) $ (1.4)
======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Plans with benefit obligations in excess of plan assets:
Aggregate projected benefit obligations $ 33.7 $ 20.0
Aggregate fair value of plan assets 20.0 17.4
Plans with plan assets in excess of benefit obligations:
Aggregate projected benefit obligations $ 39.5 $ 32.0
Aggregate fair value of plan assets 39.9 33.5
</TABLE>
Pension costs for the international plans on a combined basis consisted of the
following components for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Service cost $ 3.2 $ 2.8
Interest cost 3.6 3.1
Expected return on plan assets (3.7) 0.4
Net amortization 0.3 (3.2)
----- -----
Net pension cost $ 3.4 $ 3.1
===== =====
</TABLE>
84
<PAGE> 85
The range of actuarial assumptions used for the various international plans for
the years presented were:
<TABLE>
<S> <C>
Settlement rates 4.5% - 6.3%
Compensation increases 2.0% - 4.0%
Rates of return on plan assets 4.0% - 8.0%
</TABLE>
At September 30, 1997, the Company also curtailed its non-qualified supplemental
pension plan which provides for incremental pension payments from the Company so
that total pension payments equal amounts that would have been payable from the
Company's pension plans if it were not for limitations imposed by income tax
regulations.
The following table sets forth the changes in the projected benefit obligations
for the non-qualified plan for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ 1.8 $ 1.5
Service cost -- --
Interest cost 0.1 0.1
Actuarial losses 0.1 0.3
Benefits paid (0.1) (0.1)
------ ------
Ending balance $ 1.9 $ 1.8
====== ======
</TABLE>
The following table sets forth the funded status of the non-qualified plan at
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (1.8) $ (1.6)
Nonvested benefits (0.1) (0.2)
------ ------
Projected benefit obligations (1.9) (1.8)
Plan assets at fair value -- --
------ ------
Plan assets less than projected benefit obligations (1.9) (1.8)
Unrecognized losses 0.4 0.3
------ ------
Net pension liability $ (1.5) $ (1.5)
====== ======
Accrued benefit liability $ (1.9) $ (1.8)
Accumulated other comprehensive income 0.4 0.3
------ ------
Net pension liability $ (1.5) $ (1.5)
====== ======
</TABLE>
Pension expense for the plan was $0.2 million, $0.1 million and $0.2 million in
fiscal 1999, 1998 and 1997, respectively, consisting primarily of interest costs
on the projected benefit obligations.
The actuarial assumptions used for the non-qualified supplemental pension plan
were the same as those used for the curtailed qualified plans as described
above.
NOTE 7. ASSOCIATE BENEFITS
The Company provides comprehensive major medical benefits to certain of its
retired associates and their dependents. Substantially all of the Company's
domestic associates become eligible for these benefits if they retire at age 55
or older with more than ten years of service. The plan requires certain minimum
contributions from retired associates and includes provisions to limit the
overall cost increases the Company is required to cover. The Company funds its
portion of retiree medical benefits on a pay-as-you-go basis.
Prior to October 1, 1993, the Company effected several changes in plan
provisions, primarily related to current and ultimate levels of retiree and
dependent contributions. Retirees as of October 1, 1993 are entitled to benefits
existing prior to these plan changes. These plan changes resulted in a reduction
in unrecognized prior service cost, which is being amortized over future years.
85
<PAGE> 86
The following table sets forth the changes in the accumulated post retirement
benefit obligation for the retiree medical plan for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ 15.2 $ 13.6
Service cost 0.4 0.4
Interest cost 1.1 1.0
Contribution by participants 0.2 0.2
Actuarial loss 0.1 0.9
Benefits paid (1.2) (0.9)
------- -------
Ending balance $ 15.8 $ 15.2
======= =======
</TABLE>
The following table sets forth the changes in the fair value of the assets of
the retiree medical plan for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Beginning balance $ - $ -
Company contributions 0.9 0.7
Contributions by participants 0.3 0.2
Benefits paid (1.2) (0.9)
------- -------
$ - $ -
======= =======
</TABLE>
The following table sets forth the retiree medical plan status reconciled to the
amounts included in the Consolidated Balance Sheets, as of September 30, 1999
and 1998.
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 8.9 $ 7.3
Fully eligible active plan participants 0.5 0.4
Other active plan participants 6.4 7.4
------- -------
Total accumulated postretirement benefit obligation 15.8 15.1
Unrecognized prior service costs 5.0 5.0
Unrecognized net gains 5.6 5.9
------- -------
Accrued postretirement liability $ 26.4 $ 26.0
======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Service cost $ 0.4 $ 0.4 $ 0.3
Interest cost 1.1 1.0 1.1
Net amortization (1.0) (1.3) (1.2)
------ ------ ------
Net periodic postretirement benefit cost $ 0.5 $ 0.1 $ 0.2
====== ====== ======
</TABLE>
The discount rates used in determining the accumulated postretirement benefit
obligation were 7.5% and 6.75% in fiscal 1999 and 1998, respectively. For
measurement purposes, annual rates of increase in per capita cost of covered
retiree medical benefits assumed for fiscal 1999 and 1998 were 7.25% and 7.75%
respectively. The rate was assumed to decrease gradually to 5.5% through the
year 2003 and remain at that level thereafter. A 1% increase in the health care
cost trend rate assumptions would increase the accumulated postretirement
benefit obligation (APBO) as of September 30, 1999 and 1998 by $0.5 million and
$0.7 million, respectively. A 1% increase or decrease in the same rate would not
have a material effect on service or interest costs.
86
<PAGE> 87
Effective January 1, 1998, the Scotts, Hyponex and Sierra defined contribution
profit sharing and 401(k) plans were merged and the surviving plan was expanded
and amended to serve as the sole, active retirement savings plan for
substantially all U.S. employees. Full-time employees may participate in the
plan on the first day of the month after being hired. Temporary employees may
participate after working at least 1,000 hours in their first twelve months of
employment and after reaching the age of 21. The plan allows participants to
contribute up to 15% of their compensation in the form of pre-tax or post-tax
contributions. The Company provides a matching contribution equivalent to 100%
of participants' initial 3% contribution and 50% of the participants' remaining
contribution up to 5%. Participants are immediately vested in employee
contributions, the Company's matching contributions and the investment return on
those monies. The Company also provides a 2% automatic base contribution to
employees' accounts regardless of whether employees are active in the plan.
Participants become vested in the Company's 2% base contribution after three
years of service. The Company recorded charges of $8.4 million and $4.7 million
under the new plan in fiscal 1999 and 1998, respectively. Under the terminated
profit sharing and 401(k) plans, the Company recorded charges of $2.3 million in
fiscal 1997.
The Company is self-insured for certain health benefits up to $0.2 million per
occurrence per individual. The cost of such benefits is recognized as expense in
the period the claim is incurred. This cost was $11.0 million, $8.6 million and
$7.9 million in fiscal 1999, 1998 and 1997, respectively. The Company is
self-insured for State of Ohio workers compensation up to $0.5 million per
claim. Claims in excess of stated limits of liability and claims for workers
compensation outside of the State of Ohio are insured with commercial carriers.
NOTE 8. DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Revolving loans under credit facility $ 64.2 $ 253.5
Term loans under credit facility 509.0 --
Senior subordinated notes 318.0 99.5
Notes due to sellers 37.0 5.6
Foreign bank borrowings and term loans 17.6 9.0
Capital lease obligations and other 4.2 4.9
-------- --------
950.0 372.5
Less current portions 56.4 13.3
-------- --------
$ 893.6 $ 359.2
======== ========
</TABLE>
Maturities of short and long-term debt, including capital leases for the next
five fiscal years and thereafter are as follows:
<TABLE>
<CAPTION>
CAPITAL OTHER
(in millions) Leases Debt
- - ------------- ------ ----
<S> <C> <C>
2000 $ 1.5 $ 54.6
2001 1.2 44.5
2002 0.1 57.0
2003 - 58.1
2004 - 48.4
Thereafter - 702.7
------ ------
$ 2.8 $965.3
Less: amounts representing interest (0.2) (17.9)
------ ------
$ 2.6 $947.4
====== ======
</TABLE>
On December 4, 1998, Scotts 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 Company recorded a $0.4 million extraordinary loss, net of tax, in
connection with the retirement of the previous facility.
87
<PAGE> 88
In February 1998, the Company had entered into a credit facility to replace its
then existing credit facility, which resulted in an extraordinary loss of $0.7
million, net of tax, for the write-off of unamortized deferred financing costs.
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.
Interest rates and commitment fees pursuant to the new credit facility vary
according to the Company's leverage ratios and also within tranches. The
weighted-average interest rate on the Company's variable rate borrowings at
September 30, 1999 was 7.68%. 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 8 5/8% Senior Subordinated
Notes due 2009 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. The Company and
all of its domestic subsidiaries pledged substantially all of their personal,
real and intellectual property assets as collateral on the borrowings under the
credit facility. The Company and its subsidiaries also pledged the stock in
foreign subsidiaries that borrow under the credit facility.
Approximately $12.6 million of financing costs associated with the new credit
facility have been deferred as of September 30, 1999 and are being amortized
over a period of approximately 7 years.
In January 1999, the Company completed an offering of $330 million of 8 5/8%
Senior Subordinated Notes ("the Notes") due 2009. The net proceeds from the
offering, together with borrowings under the Company's credit facility, were
used to fund the Ortho acquisition and to repurchase approximately 97% of Scotts
$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 $9.3 million, including a call premium of $7.2
million and the write-off of unamortized issuance costs and discounts of $2.1
million. Approximately $11.4 million of issuance costs associated with the Notes
have been deferred as of September 30, 1999 and are being amortized over the
term of the Notes.
In August 1999, the Company repurchased the remaining $2.9 million of the 9 7/8%
Senior Subordinated Notes, resulting in an extraordinary loss, net of tax, of
$0.1 million.
The Company entered into two interest rate locks in fiscal 1998 to hedge its
anticipated interest rate exposure on the Notes offering. 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
as interest expense.
88
<PAGE> 89
In conjunction with the acquisitions of Rhone-Poulenc Jardin 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. The present
value of remaining note payments is $32.2 million and $4.8 million,
respectively. The Company is imputing interest on the non-interest bearing notes
using an interest rate prevalent for similar instruments at the time of
acquisition.
The foreign term loans of $6.0 million issued on December 12, 1997, have an
8-year term and bear interest at 1% below LIBOR. The loans are denominated in
Pounds Sterling and can be redeemed, on demand, by the note holder. The foreign
bank borrowings of $11.6 million at September 30, 1999 represent lines of credit
for foreign operations and are denominated in French Francs, Australian Dollars
and Dutch Gilders.
NOTE 9. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
STOCK
Class A Convertible Preferred Stock, no par value:
Authorized 0.2 shares 0.2 shares
Issued 0.2 shares 0.2 shares
Common shares, no par value
Authorized 50.0 shares 50.0 shares
Issued 21.3 shares 21.1 shares
</TABLE>
Class A Convertible Preferred Stock ("Preferred Shares") with a face amount of
$195.0 million was issued in conjunction with the 1995 Miracle-Gro merger
transactions. These Preferred Shares had a 5% dividend yield and were
convertible upon shareholder demand into common shares at any time and at
Scotts' option after May 2000 at $19.00 per common share. Additionally, warrants
to purchase 3.0 million common shares of Scotts were issued as part of the
purchase price. The warrants are exercisable upon shareholder demand for 1.0
million common shares at $21.00 per share, 1.0 million common shares at $25.00
per share and 1.0 million common shares at $29.00 per share. The exercise term
for the warrants expires September 2003. The fair value of the warrants at
issuance has been included in capital in excess of par value in the Company's
Consolidated Balance Sheets.
In October 1999, all of the then outstanding Preferred Shares were converted
into 10.1 million common shares. In exchange for the early conversion, Scotts
paid the holders of the Preferred Shares $6.4 million. The amount represents the
dividends on the Preferred Shares that otherwise would have been payable through
May 2000, the month during which the Preferred Shares could first be redeemed by
Scotts. In addition, Scotts agreed to accelerate the termination of many of the
standstill provisions in the Miracle-Gro merger agreement that would otherwise
have terminated in May 2000. These standstill provisions include the provisions
related to the Board of Directors and voting restrictions, as well as
restrictions on transfer. Therefore, the former shareholders of Stern's
Miracle-Gro Products, Inc., including Hagedorn Partnership, L.P., may vote their
common shares freely in the election of directors and generally on all matters
brought before Scotts' shareholders. Following the conversion and the
termination of the standstill provisions described above, the former
shareholders of Miracle-Gro own approximately 41% of Scotts' outstanding common
shares and have the ability to significantly control the election of directors
and approval of other actions requiring the approval of Scotts' shareholders. In
fiscal 1999, certain of the Preferred Shares were converted into 0.2 million
common shares at the holders' option.
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<PAGE> 90
Under The Scotts Company 1992 Long Term Incentive Plan (the "1992 Plan"), stock
options, stock appreciation rights and performance share awards were granted to
officers and other key employees of the Company. The 1992 Plan also provided for
the grant of stock options to non-employee directors of the Company. The maximum
number of common shares that may be issued upon the exercise of options granted
under the Plan is 1.7 million, plus the number of shares surrendered to exercise
options (other than director options) granted under the 1992 Plan, up to a
maximum of 1.0 million surrendered shares. Vesting periods under the 1992 Plan
vary and are determined by the Compensation and Organization Committee of the
Company's Board of Directors.
Under The Scotts Company 1996 Stock Option Plan (the "1996 Plan"), stock options
may be granted to officers, other key employees and non-employee directors of
the Company. The maximum number of common shares that may be issued under the
1996 Plan is 5.5 million. Vesting periods under the 1996 Plan vary and are
determined by the Compensation and Organization Committee of the Company's Board
of Directors.
Aggregate stock option activity consists of the following:
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997
NUMBER OF WTD. AVG. NUMBER OF WTD. AVG. NUMBER OF WTD. AVG.
(in millions) SHARES PRICE SHARES PRICE SHARES PRICE
- - ------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 3.8 $ 20.70 2.6 $ 18.35 1.6 $ 16.73
Options granted 1.4 35.70 1.4 29.43 1.1 20.18
Options exercised (0.2) 16.51 (0.1) 16.60 (0.1) 12.72
Options canceled (0.1) 30.94 (0.1) 29.63 0.0 19.27
----- --- ----
Ending balance 4.9 26.33 3.8 20.70 2.6 18.35
----- --- ----
Exercisable at September 30 1.9 19.77 1.8 18.17 1.5 17.30
</TABLE>
The following summarizes certain information pertaining to stock options
outstanding and exercisable at September 30, 1999:
<TABLE>
<CAPTION>
(in millions)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF NO. OF REMAINING EXERCISE NO. OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- - --------------- ------- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C>
$9.90 0.1 2.05 $ 9.90 0.1 $ 9.90
$15.00-$20.00 1.7 6.01 17.82 1.2 17.12
$20.00-$25.00 0.4 6.79 21.32 0.3 21.01
$25.00-$30.00 0.7 8.18 27.08 0.1 26.64
$30.00-$35.00 1.0 9.03 31.77 0.2 32.67
$35.00-$40.00 0.9 9.81 35.96 - -
$40.00-$46.38 0.1 9.85 42.11 - -
--- ------ --- ------
4.9 $26.33 1.9 $19.77
=== ====== === ======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which changes the measurement,
recognition and disclosure standards for stock-based compensation. The Company,
as allowable, has adopted SFAS No. 123 for disclosure purposes only.
The fair value of each option granted has been estimated on the grant date using
the Black-Scholes option-pricing model based on the following assumptions for
those granted in fiscal 1999, 1998 and 1997: (1) expected market-price
volatility of 24.44 %, 23.23% and 22.48%, respectively; (2) risk-free interest
rates of 6.0%, 4.3% and 6.6%, respectively; and (3) expected life of options of
6 years. The estimated weighted-average fair value per share of options granted
during fiscal 1999, 1998 and 1997 was $13.64, $9.28 and $8.00, respectively.
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<PAGE> 91
Had compensation expense been recognized for fiscal 1999, 1998 and 1997 in
accordance with provisions of SFAS No. 123, the Company would have recorded net
income and earnings per share as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
Net income used in per share calculation $ 55.3 $ 31.3 $ 37.3
Earnings per share:
Basic $ 2.50 $ 1.15 $ 1.48
Diluted $ 1.82 $ 1.03 $ 1.27
</TABLE>
The pro forma amounts shown above are not necessarily representative of the
impact on net income in future years as additional option grants may be made
each year.
In fiscal 1998, the Company sold 0.3 million put options which give the holder
the option to sell the Company's common shares to the Company at a strike price
of $35.32. The options could only be exercised on their expiration date in May
1999 and expired unused. The premium received on the sale of the put options was
considered additional paid-in capital. The put options did not impact the
Company's earnings per share calculation during fiscal 1999 since they would
have been anti-dilutive. The impact of the put options on the fiscal 1998
earnings per share calculation was less than $0.01 per share.
NOTE 10. EARNINGS PER COMMON SHARE
The following table presents information necessary to calculate basic and
diluted earnings per common share.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
<S> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net income before extraordinary loss $ 69.1 $ 37.0 $ 39.5
Net income 63.2 36.3 39.5
Class A Convertible Preferred Stock dividend (9.7) (9.8) (9.8)
-------- -------- --------
Income available to common shareholders 53.5 26.5 29.7
Weighted-average common shares outstanding during
the period 18.3 18.7 18.6
Basic earnings per common share
Before extraordinary item $ 3.25 $ 1.46 $ 1.60
After extraordinary item $ 2.93 $ 1.42 $ 1.60
DILUTED EARNINGS PER COMMON SHARE:
Net income used in diluted earnings per
common share calculation $ 63.2 $ 36.3 $ 39.5
Weighted-average common shares outstanding
during the period 18.3 18.7 18.6
Potential common shares:
Assuming conversion of Class A Convertible
Preferred Stock 10.2 10.3 10.3
Assuming exercise of options 1.0 0.7 0.3
Assuming exercise of warrants 1.0 0.6 0.1
-------- -------- --------
Weighted-average number of common shares
outstanding and dilutive potential common
shares 30.5 30.3 29.3
Diluted earnings per common share
Before extraordinary item $ 2.27 $ 1.22 $ 1.35
After extraordinary item $ 2.08 $ 1.20 $ 1.35
</TABLE>
Basic earnings per common share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period.
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<PAGE> 92
Diluted earnings per share is computed by dividing net income by the
weighted-average number of common shares and dilutive potential common shares
(stock options, Class A Convertible Preferred Stock and warrants) outstanding
during each period.
NOTE 11. INCOME TAXES
The provision for income taxes, net of tax benefits associated with the 1999 and
1998 extraordinary losses of $4.1 million and $0.5 million, respectively,
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ 34.5 $ 22.1 $ 21.6
State 4.4 3.9 3.4
Foreign 4.4 2.7 6.6
Deferred:
Federal 0.5 (4.0) (1.3)
State 0.0 (0.3) (0.2)
------- ------- -------
Income tax expense $ 43.8 $ 24.4 $ 30.1
======= ======= =======
</TABLE>
The domestic and foreign components of income before taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Domestic $100.0 $ 57.1 $ 58.7
Foreign 6.9 3.5 10.9
------ ------ ------
Income before taxes $106.9 $ 60.6 $ 69.6
====== ====== ======
</TABLE>
A reconciliation of the federal corporate income tax rate and the effective tax
rate on income before income taxes is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Effect of foreign operations (0.7) (1.6)
Goodwill amortization and other effects resulting
from purchase accounting 3.0 4.6 4.2
State taxes, net of federal benefit 2.6 3.8 3.0
Other 1.1 (1.5) 1.0
---- ---- ----
Effective income tax rate 41.0% 40.3% 43.2%
===== ==== ====
</TABLE>
The net current and non-current components of deferred income taxes recognized
in the Consolidated Balance Sheets at September 30 are:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
Net current asset $32.3 $20.8
Net non-current asset (liability) 11.3 (1.2)
---- -----
Net asset $43.6 $19.6
===== =====
</TABLE>
92
<PAGE> 93
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----
<S> <C> <C>
ASSETS
Inventories $ 6.1 $ 5.9
Accrued liabilities 35.5 11.7
Postretirement benefits 9.6 9.8
Foreign net operating losses 1.9 6.0
Other 14.1 12.6
------- -------
Gross deferred tax assets 67.2 46.0
Valuation allowance (1.1) (6.0)
------- -------
Net deferred tax assets 66.1 40.0
LIABILITIES
Property, plant and equipment (22.5) (20.4)
------- -------
Net asset $ 43.6 $ 19.6
======= =======
</TABLE>
Net operating loss carryforwards in foreign jurisdictions were $1.9 million and
$6.0 million at September 30, 1999 and 1998, respectively. The use of these
acquired carryforwards is subject to limitations imposed by the tax laws of each
applicable country.
As a result of tax planning strategies developed and implemented in fiscal 1999,
the Company realized $0.8 million of certain net operating losses during fiscal
1999. As a result of acquisitions and reorganizations during fiscal 1999, $4.1
million of foreign net operating losses are no longer available. These amounts
and the corresponding valuation allowance have been removed from the accounts.
The valuation allowance of $1.1 million at September 30, 1999 is to provide for
operating losses for which the benefits are not expected to be realized. The
foreign net operating losses of $1.9 million can be carried forward
indefinitely.
NOTE 12. FINANCIAL INSTRUMENTS
A description of the Company's financial instruments and the methods and
assumptions used to estimate their fair values are as follows:
LONG-TERM DEBT
At September 30, 1999, the Company had $330 million outstanding of 8 5/8% Senior
Subordinated Notes due 2009 that were issued through a private offering. The
fair value of these notes was estimated based on recent trading information.
Variable rate debt outstanding at September 30, 1999 consists of revolving
borrowings and term loans under the Company's credit facility and local bank
borrowings for certain of the Company's foreign operations. The carrying amounts
of these borrowings are considered to approximate their fair values.
At September 30, 1998, the Company had outstanding $100.0 million in principal
amount of 9 7/8% Senior Subordinated Notes due 2004. The fair value of these
notes was based on the quoted market prices for the same or similar issues.
Borrowings at September 30, 1998 under the credit facility were at variable
rates. The carrying amounts of these borrowings were considered to approximate
their fair values.
INTEREST RATE SWAP AGREEMENTS
At September 30, 1999, the Company had outstanding five interest rate swaps with
major financial institutions that effectively convert variable-rate debt to a
fixed rate. One swap has a notional amount of 20.0 million British Pounds
Sterling under a five-year term expiring in April 2002 whereby the Company pays
7.6% and receives three-month LIBOR. The remaining four swaps have notional
amounts between $20 million and $35 million ($105 million in total) with three,
four or five year terms commencing in January 1999. Under the terms of these
swaps, the Company pays rates ranging from 5.05% to 5.18% and receives
three-month LIBOR.
At September 30, 1998, the Company had outstanding the interest rate swap
agreement with a notional amount of 20.0 million British Pounds Sterling.
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<PAGE> 94
The Company enters into interest rate swap agreements as a means to hedge its
interest rate exposure on debt instruments. In addition, the Company's 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 loans is subject to a fixed rate. Since the
interest rate swaps have been designated as hedging instruments, their fair
values are not reflected in the Company's Consolidated Balance Sheets. Net
amounts to be received or paid under the swap agreements are reflected as
adjustments to interest expense. The fair value of the swap agreements was
determined based on the present value of the estimated future net cash flows
using implied rates in the applicable yield curve as of the valuation date.
INTEREST RATE LOCKS
In fiscal 1998, the Company entered into two contracts, each with notional
amounts of $100.0 million to lock the treasury rate component of the Company's
anticipated offering of debt securities in the first quarter of fiscal 1999. One
of the interest rate locks expired in October 1998 and was rolled over into a
new rate lock that expired in February 1999. The other rate lock expired in
February 1999.
The Company entered into the interest rate locks to hedge its interest rate
exposure on the offering of the 9 7/8% Senior Subordinated Notes. Since the
interest rate locks were designated as hedging instruments, their fair value was
not reflected in the Company's Consolidated Balance Sheets; net amounts to be
received or paid under the interest rate locks will be reflected as an
adjustment to the carrying amount of the future debt offering. The fair value of
the interest rate locks was estimated based on the difference between the
contracted interest rates and the yield on treasury notes at September 30, 1998.
The estimated fair values of the Company's financial instruments are as follows
for the fiscal years ended September 30:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
(in millions) AMOUNT VALUE AMOUNT VALUE
- - ------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $ 903.3 $ 889.3 $ 99.5 $ 106.8
Interest rate swap agreement -- 2.8 -- (1.5)
Interest rate locks -- -- -- (16.7)
</TABLE>
NOTE 13. OPERATING LEASES
The Company leases buildings, land and equipment under various noncancellable
lease agreements for periods of two to six years. The lease agreements generally
provide that the Company pay taxes, insurance and maintenance expenses related
to the leased assets. Certain lease agreements contain purchase options. At
September 30, 1999, future minimum lease payments were as follows:
<TABLE>
<CAPTION>
(in millions)
- - -------------
<S> <C>
2000 $18.6
2001 15.1
2002 8.9
2003 5.2
2004 2.9
Thereafter 2.8
-----
Total minimum lease payments $53.5
=====
</TABLE>
The Company also leases transportation and production equipment under various
one-year operating leases, which provide for the extension of the initial term
on a monthly or annual basis. Total rental expenses for operating leases were
$18.5 million, $13.5 million and $12.3 million for fiscal 1999, 1998 and 1997,
respectively. The total to be received from sublease rentals in place at
September 30, 1999 is $4.1 million.
94
<PAGE> 95
NOTE 14. COMMITMENTS
The Company has entered into the following purchase commitments:
SEED: The Company is obligated to make future purchases based on estimated
yields. At September 30, 1999, estimated annual seed purchase commitments were
as follows:
<TABLE>
<CAPTION>
(in millions)
- - -------------
<S> <C>
2000 18.7
2001 16.4
2002 4.8
2003 4.1
2004 1.3
</TABLE>
The Company made purchases of $13.2 million and $13.1 million under this
obligation in fiscal 1999 and 1998, respectively.
UREA: The Company is obligated to purchase 100,000 tons of urea annually. The
value to the Company based on current market prices of urea is approximately
$12.0 million. The purchase commitments expire December 31, 2001. The Company
purchased 172,000 tons and 104,000 tons under this obligation in fiscal 1999 and
1998, respectively.
GLUFOSINATE AMMONIUM: Under the terms of the agreement to acquire the AgrEvo
pesticides business, the Company is obligated to purchase glufosinate ammonium
valued at $12.6 million (approximately 315,000 pounds) through September 2001.
If the Company does not purchase product with a value of $12.6 million, the
Company is required to provide cash settlement in an amount equal to 50% of the
shortfall. In connection with the sale of this business in February 1999, the
purchaser agreed to purchase a minimum of 50,000 pounds of glufosinate ammonium
through September 2001. The Company has not purchased any glufosinate ammonium
under this commitment through September 30, 1999.
PEAT: The Company is obligated to purchase 470,000 cubic meters annually
(approximately $6.8 million based on average prices) for ten years. The
arrangement can be extended another ten years at the Company's option. If the
Company does not purchase required amounts, the Company will be required to
provide cash settlement equal to 50% of the quantity shortfall multiplied by the
average product price. The Company purchased 517,650 cubic meters of peat under
this contract in fiscal 1999.
NOTE 15. 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 matters are the more significant of the Company's
identified contingencies.
OHIO ENVIRONMENTAL PROTECTION AGENCY
The Company has assessed and addressed 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 was referring certain matters relating to environmental conditions at the
Company's
95
<PAGE> 96
Marysville site, including the existing wastewater treatment plants and the
discontinued on-site waste disposal areas, to the Ohio Attorney General's
Office. Representatives from the Ohio Environmental Protection Agency, the Ohio
Attorney General 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 from the Ohio Environmental Protection Agency. The
draft Findings and Orders elaborated on the subject of the referral to the Ohio
Attorney General 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
Ohio Attorney General which covered many of the same issues contained in the
draft Findings and Orders including RCRA corrective action. As a result of
on-going discussions, the Company received a revised draft of a judicial consent
order from the Ohio Attorney General in late April 1999, which is the focus of
the current negotiations.
In accordance with the Company's past efforts to enter into Ohio's VAP, the
Company submitted to the Ohio Environmental Protection Agency 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. Under 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 Ohio
Environmental Protection Agency denying VAP eligibility based upon the
timeliness of and completeness of the submittal. 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 Ohio Attorney General and the Ohio
Environmental Protection Agency 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 Ohio Attorney General/Ohio Environmental Protection Agency,
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 specified
environmental issues, and will assert those defenses in any such action.
Since receiving the notice of enforcement action in June 1997, management has
continually assessed the potential costs that may be incurred to satisfactorily
remediate the Marysville site and to pay any penalties sought by the State.
Because the Company and the Ohio Environmental Protection Agency have not agreed
as to the extent of any possible contamination and an appropriate remediation
plan, the Company has developed and initiated an action plan to remediate the
site based on its own assessments and consideration of specific actions which
the Ohio Environmental Protection Agency will likely require. Because the extent
of the ultimate remediation plan is uncertain, management is unable to predict
with certainty the costs that will be incurred to remediate the site and to pay
any penalties. As of September 30, 1999, management estimates that the range of
possible loss that could be incurred in connection with this matter is $2
million to $10 million. The Company has accrued for the amount it considers to
be the most probable within that range and believes the outcome will not differ
materially from the amount reserved. Many of the issues raised by the State are
already being investigated and addressed by the Company during the normal course
of conducting business.
96
<PAGE> 97
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 and 1999. 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. The Company has reserved for its estimate of
the probable loss to be incurred under this proceeding as of September 30, 1999.
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 Ohio Environmental
Protection Agency 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 with the Ohio Environmental Protection Agency, by which the
named PRPs funded remedial action at the Hershberger site. Construction of the
leachate collection system and reconstruction of the landfill cap was completed
in August 1998. The Company expects its future obligation will consist primarily
of its share of annual operating and maintenance expenses. Management does not
believe that its obligations under the Administrative Order will have a
material adverse effect on the Company's results of operations or financial
condition.
AGREVO ENVIRONMENTAL HEALTH, INC.
On June 3, 1999, AgrEvo Environmental Health, Inc. ("AgrEvo") filed a complaint
against the Company, a subsidiary of the Company and Monsanto seeking damages
and injunctive relief for alleged antitrust violations and breach of contract
by the Company and its subsidiary and antitrust violations and tortious
interference with contact by Monsanto. The Company purchased a consumer
herbicide business from AgrEvo in May 1998. AgrEvo claims in the suit that
the Company's subsequent agreement to become Monsanto's exclusive sales and
marketing agent for Monsanto's consumer Roundup(R) business violated the federal
antitrust laws. AgrEvo contends that Monsanto attempted to or did monopolize the
market for non-selective herbicides and conspired with the Company to eliminate
the herbicide the Company previously purchased from AgrEvo, which competed with
Monsanto's Roundup(R), in order to achieve or maintain a monopoly position in
that market. AgrEvo also contends that the Company's execution of various
agreements with Monsanto, including the Roundup(R) marketing agreement, as well
as the Company's subsequent actions, violated the purchase agreements between
AgrEvo and the Company.
97
<PAGE> 98
AgrEvo is requesting unspecified damages as well as affirmative injunctive
relief, and seeking to have the court invalidate the Roundup(R) marketing
agreement as violative of the federal antitrust laws. On September 20, 1999, the
Company filed an answer denying liability and asserting counterclaims that it
was fraudulently induced to enter into the agreement for purchase of the
consumer herbicide business and the related agreements, and that AgrEvo breached
the representations and warranties contained in these agreements. On October 1,
1999, the Company moved to dismiss the antitrust allegations against it on the
ground that the claims fail to state claims for which relief may be granted. On
October 12, 1999, AgreEvo moved to dismiss the Company's counterclaims. The
Company intends to vigorously defend against this action. Under the
indemnification provisions of the Roundup(R) marketing agreement, Monsanto and
the Company each have requested that the other indemnify against any losses
arising from this lawsuit. The Company currently is unable to determine the
potential impact of these proceedings on its future results of operations and
financial condition.
On June 29, 1999, AgrEvo also filed a complaint against two of the Company's
subsidiaries seeking damages for alleged breach of contract. AgrEvo alleges
that, under the contracts by which a subsidiary of the Company purchased a
herbicide business from AgrEvo in May 1998, two of the Company's subsidiaries
have failed to pay AgrEvo approximately $0.6 million. AgrEvo is requesting
damages in this amount, as well as pre and post-judgment interest and attorneys'
fees and costs. The Company's subsidiaries have moved to dismiss or stay this
action. The Company's subsidiaries intend to vigorously defend the asserted
claims.
BRAMFORD
In the United Kingdom, major discharges of waste to air, water and land are
regulated by the Environment Agency. The Scotts (UK) Ltd. fertilizer facility in
Bramford (Suffolk), United Kingdom, is subject to environmental regulation by
this Agency. Two manufacturing processes at this facility require process
authorizations and previously required a waste management license (discharge to
a licensed waste disposal lagoon having ceased in July 1999). The Company
expects to surrender the waste management license in consultation with the
Environment Agency. In connection with the renewal of an authorization, the
Environment Agency has identified the need for remediation of the lagoon, and
the potential for remediation of a former landfill at the site. The Company
intends to comply with the reasonable remediation concerns of the Environment
Agency. The Company previously installed an environmental enhancement to the
facility to the satisfaction of the Environment Agency and believes that it has
adequately addressed the environmental concerns of the Environment Agency
regarding emissions to air and groundwater. The Company and the Environment
Agency have not agreed on a final plan for remediating the lagoon and the
landfill. The Company has reserved for its estimate of the probable loss to be
incurred in connection with this matter as of September 30, 1999.
OTHER
The Company has determined that quantities of cement containing asbestos
material at certain manufacturing facilities in the United Kingdom should be
removed. The Company has reserved for the estimate of costs to be incurred for
this matter as of September 30, 1999.
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<PAGE> 99
NOTE 16. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade accounts receivable. The Company sells
its consumer products to a wide variety of retailers, including mass
merchandisers, home centers, independent hardware stores, nurseries, garden
outlets, warehouse clubs and local and regional chains. Professional products
are sold to golf courses, schools and sports fields, nurseries, lawn care
service companies and growers of specialty agriculture crops.
At September 30, 1999, 66% of the Company's accounts receivable was due from
customers in North America. Approximately two-thirds of these receivables were
generated from the Company's North American consumer business. The most
significant concentration of receivables within this segment was from home
centers, which accounted for 19% of the Company's receivables balance at
September 30, 1999. No other retail concentrations (e.g., mass merchandisers,
independent hardware stores, etc. in similar markets) accounted for more than
10% of the Company's accounts receivable balance at September 30, 1999.
The remaining one-third of North American accounts receivable was generated from
the Company's North American Professional business. Due to seasonality, the
Professional segment accounts for a share of the Company's receivable balance at
September 30, 1999 that is disproportionate to its share of total company sales
for the year. As a result of the changes in distribution methods made earlier in
fiscal 1999 for the Professional business, nearly all products are sold through
distributors. Accordingly, nearly all of the Professional business accounts
receivable at September 30, 1999 is due from distributors.
The 34% of accounts receivable generated outside of North America is due from
retailers, distributors, nurseries and growers. No concentrations of or
individual customers within this group account for more than 10% of the
Company's accounts receivable balance at September 30, 1999.
At September 30, 1998, the Company's concentrations of credit risk were similar
to those existing at September 30, 1999 except that the North American
professional business accounted for 47% of North American receivables at that
time.
The Company's two largest customers accounted for the following percentage of
net sales in each respective period:
<TABLE>
<CAPTION>
LARGEST 2ND LARGEST
CUSTOMER CUSTOMER
-------- --------
<S> <C> <C>
1999 17.4% 11.6%
1998 16.8% 10.6%
1997 16.1% 11.9%
</TABLE>
Sales to the Company's two largest customers are reported within the Company's
North American Consumer Segment. No other customers accounted for more than 10%
of fiscal 1999, 1998 or 1997 net sales.
NOTE 17. OTHER EXPENSE (INCOME)
Other expense (income) consisted of the following for the fiscal years ended
September 30:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
<S> <C> <C> <C>
Royalty income $(4.0) $(3.4) $(2.0)
Asset valuation and write-off charges 1.2 2.3 6.0
Foreign currency losses 0.1 2.5 -
Other, net (0.9) (0.1) 1.2
----- ----- -----
Total $(3.6) $ 1.3 $ 5.2
----- ===== =====
</TABLE>
99
<PAGE> 100
During fiscal 1997, the Company recorded charges of $6.0 million to write-down
certain long-lived assets to their estimated fair value. The components of these
charges were as follows:
- - - A charge of $2.2 million to write-down the carrying value of the Company's
peat harvesting facility in Lafayette, New Jersey. As disclosed in Note 15,
operations at this facility were discontinued at the order of the
Philadelphia District of the U.S. Army Corps of Engineers in July 1990.
While proceedings with the government are ongoing, the Company does not
expect to resume operations at this site. The charge reduced the carrying
amount for this facility to its estimated fair value based on appraisal.
- - - A charge of $1.6 million to write-off the carrying value of certain paper
packaging equipment that was rendered obsolete by management's decision to
convert to plastic packaging. The equipment was considered to have only
nominal value and has subsequently been abandoned or scrapped.
- - - A charge of $0.9 million to write-down the carrying value of the Company's
water soluble fertilizer plant in Allentown, Pennsylvania. In fiscal 1997,
management determined that the production capacity at this plant was
unnecessary after completing the merger transactions with Miracle-Gro in
fiscal 1995. The Allentown facility was sold in July 1997.
- - - A charge of $0.7 million to write-off certain spreader molding equipment
that was considered obsolete. In fiscal 1997, management elected to upgrade
the production line at its spreader manufacturing facility in Carlsbad,
California. In connection with this change, certain production equipment
was unusable and was scrapped.
- - - A charge of $0.6 million to write-off certain software costs that had been
deferred under an ERP implementation project. In fiscal 1997, management
elected to change the software platform that would be used for the
Company's ERP project. Software costs that had been deferred while
configuring and installing the previous software were determined to have no
future benefit and were written-off.
NOTE 18. NEW ACCOUNTING STANDARDS
In August 1998, the FASB issued SFAS No. 133, "Accounting For Derivative
Instruments and Hedging Activities." SFAS NO. 133 (as amended) is effective for
fiscal years beginning after June 15, 2000.
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 2001.
In December 1999, the Securities and Exchange Commission issued SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
This staff accounting bulletin summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company believes its annual accounting policies are
consistent with the staff's views. The Company will be required, however, to
conform its interim period revenue recognition policies for the commission under
the Roundup(R) marketing agreement to be consistent with the staff's views. The
impact of conforming the Company's interim period revenue recognition policies
for the commission under the Roundup(R) marketing agreement will require the
Company to defer the recognition of commission earned in interim periods but
will not impact the commission earned on an annual basis. The Company will adopt
the interim period revenue recognition policies no later than the first quarter
of the fiscal year ending December 31, 2001 as permitted by the staff accounting
bulletin.
NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- - ------------- ------- ------- -------
<S> <C> <C> <C>
Interest paid (net of amount capitalized) $ 63.6 $ 31.5 $ 24.2
Income taxes paid 50.3 38.6 20.5
Dividends declared not paid 2.5 --
Businesses acquired:
Fair value of assets acquired, net of cash 691.2 197.3 115.8
Liabilities assumed (149.3) (45.9) (69.2)
------- ------- -------
Net assets acquired 541.9 151.4 46.6
Cash paid 4.8 0.4 --
Notes issued to seller 35.7 -- --
Debt issued 501.4 151.0 46.6
</TABLE>
100
<PAGE> 101
NOTE 20. SEGMENT INFORMATION
The Company is divided into three reportable segments--North American Consumer,
Professional and International. The North American Consumer segment consists of
the Lawns, Gardens, Growing Media and Ortho business units.
The North American Consumer segment specializes in dry, granular slow-release
lawn fertilizers, lawn fertilizer combination and lawn control products, grass
seed, spreaders, water-soluble and controlled-release garden and indoor plant
foods, plant care products, and potting soils, barks, mulches and other growing
media products, and pesticides products. Products are marketed to mass
merchandisers, home improvement centers, large hardware chains, nurseries and
gardens centers.
The Professional segment is focused on a full line of turf and horticulture
products including controlled-release and water-soluble fertilizers and plant
protection products, grass seed, spreaders, custom application services and
growing media. Products are sold to golf courses, professional baseball,
football and soccer stadiums, lawn and landscape service companies, commercial
nurseries and greenhouses and specialty crop growers.
The International segment provides a broad range of controlled-release and
water-soluble fertilizers and related products, including ornamental
horticulture, turf and landscape, and consumer lawn and garden products which
are sold to all customer groups mentioned above.
101
<PAGE> 102
The following table presents segment financial information in accordance with
SFAS No. 131. "Disclosures about Segments of an Enterprise and Related
Information". Pursuant to that statement, the presentation of the segment
financial information is consistent with the basis used by management (i.e.,
certain costs not allocated to business segments for internal management
reporting purposes are not allocated for purposes of this presentation). Prior
periods have been restated to conform to this basis of presentation.
<TABLE>
<CAPTION>
N.A.
(in millions) CONSUMER PROFESSIONAL INTERNATIONAL CORPORATE TOTAL
<S> <C> <C> <C> <C> <C>
Sales:
1999 $1,097.0 $159.4 $391.9 $1,648.3
1998 733.7 179.4 199.9 1,113.0
1997 619.2 165.5 114.6 899.3
Operating Income (Loss):
1999 $ 234.6 $ 23.6 $ 53.0 $(115.1) $ 196.1
1998 126.5 23.5 30.0 $ (85.9) 94.1
1997 108.4 22.4 20.4 (56.4) 94.8
Operating Margin:
1999 21.4% 14.8% 13.5% nm 11.9%
1998 17.2 13.1 15.0 nm 8.5%
1997 17.5 13.5 17.8 nm 10.5
Depreciation and Amortization:
1999 $ 35.9 3.3 $ 15.1 5.9 $ 60.2
1998 24.1 2.7 7.7 3.3 37.8
1997 21.2 3.1 2.9 3.2 30.4
Capital Expenditures:
1999 $ 22.5 5.7 $ 10.6 $ 27.9 $ 66.7
1998 19.6 9.2 5.1 7.4 41.3
1997 16.5 5.5 2.0 4.6 28.6
Long-Lived Assets:
1999 649.0 98.5 322.7 57.7 1,127.9
1998 391.3 103.1 169.2 4.4 668.0
Total Assets:
1999 1,010.1 176.9 496.7 85.9 1,769.6
1998 581.8 182.6 246.0 24.8 1,035.2
nm Not meaningful.
</TABLE>
Operating income (loss) reported for the Company's three operating segments
represents earnings before amortization of intangible assets since this is the
measure of profitability used by management. Accordingly, Corporate operating
loss for the fiscal years ended September 30, 1999, 1998 and 1997 includes
amortization of certain intangible assets, corporate general and administrative
expenses, research and development expense, interest expense, income tax expense
and "other" income/expense not allocated to the business segments. Corporate
operating income for fiscal 1998 includes $20.4 million of restructuring and
other charges.
Long-lived assets and total assets reported for the Company's operating segments
include the intangible assets for the acquired businesses within those segments.
Depreciation and amortization for the segments includes the amortization of
these intangibles. Corporate assets primarily include deferred financing and
debt issuance costs, corporate fixed assets as well as deferred tax assets.
102
<PAGE> 103
NOTE 21. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
fiscal 1999 and 1998:
<TABLE>
<CAPTION>
(in millions except for share data) 1ST QTR 2ND QTR 3RD QTR 4TH QTR FULL YEAR
- - ----------------------------------- ------- ------- ------- ------- ---------
FISCAL 1999
<S> <C> <C> <C> <C> <C>
Net sales $ 184.4 $ 631.5 $ 586.2 $ 246.2 $ 1,648.3
Gross profit 64.7 268.9 236.4 89.2 659.2
Income (loss) before extraordinary
item (10.0) 54.7 41.6 (17.2) 69.1
Net income (loss) (10.4) 49.3 41.6 (17.3) 63.2
Basic earnings (loss)
per common share (0.70) 2.56 2.14 (1.07) 2.93
Shares used in basic
EPS calculation 18.3 18.3 18.3 18.3 18.3
Diluted earnings (loss)
per common share (0.70) 1.63 1.35 (1.08) 2.08
Shares used in diluted EPS
calculation 18.3 30.3 30.9 18.3 30.5
</TABLE>
<TABLE>
<CAPTION>
(in millions except for share data) 1ST QTR 2ND QTR 3RD QTR 4TH QTR FULL YEAR
- - ----------------------------------- --------- --------- --------- --------- ---------
FISCAL 1998
<S> <C> <C> <C> <C> <C>
Net sales $ 124.8 $ 430.1 $ 367.0 $ 191.1 $ 1,113.0
Gross profit 41.3 170.5 131.3 54.9 398.0
Income (loss) before extraordinary
item (5.5) 33.5 24.4 (15.4) 37.0
Net income (loss) (5.5) 32.8 24.4 (15.4) 36.3
Basic earnings (loss)
per common share (.42) 1.62 1.18 (.96) 1.42
Shares used in basic
EPS calculation 18.7 18.7 18.7 18.6 18.7
Diluted earnings (loss)
per common share (.42) 1.08 .80 (.96) 1.20
Shares used in diluted EPS
calculation 18.7 30.4 30.6 18.6 30.3
</TABLE>
NOTES:
Certain reclassifications have been made within interim periods.
The Company's business is highly seasonal with approximately 72% of sales
occurring in the second and third fiscal quarters combined.
103
<PAGE> 104
NOTE 22. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTORS
In January 1999, the Company issued $330 million of 8 5/8% Senior Subordinated
Notes due 2009 to qualified institutional buyers under the provisions of Rule
144A of the Securities Act of 1993. The Company intends to register these Notes
under the Securities Act.
The Notes are general obligations of the Company and are guaranteed by all of
the existing and future wholly-owned and significant domestic subsidiaries of
the Company. The following information presents consolidating Statements of
Operations, Statements of Cash Flows and Balance Sheets for the three years
ended September 30, 1999.
104
<PAGE> 105
Statement of Operations
For the fiscal year ended September 30, 1999 (in millions)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $1,242.5 $405.8 $1,648.3
Cost of sales 764.5 224.6 . 989.1
------- ------ ----- --------
Gross profit 478.0 181.2 659.2
29.8 0.5 30.3
Advertising and promotion 140.2 48.8 189.0
Selling, general and administration 193.1 88.1 281.2
Amortization or goodwill and other
intangibles 16.1 9.3 25.4
Restructuring and other changes 1.4 1.4
Equity income in non-guarantors (4.0) 4.0
Intracompany allocations (6.6) 6.6
Other income, net (2.9) (0.7) . (3.6)
------- ------ ----- --------
Income from operations 170.5 29.6 (4.0) 196.1
Interest expense 55.5 23.6 . 79.1
------- ------ ----- --------
Income before income taxes 115.0 6.0 (4.0) 117.0
Income taxes 45.9 2.0 . 47.9
------- ------ ----- --------
Income before extraordinary item 69.1 4.0 (4.0) 69.1
Extraordinary loss on early
extinguishment of debt, net
of income tax benefit 5.9 5.9
------- ------ ----- --------
Net income $ 63.2 $ 4.0 $(4.0) $ 63.2
======= ====== ===== ========
</TABLE>
105
<PAGE> 106
Statement of Cash Flows
For the fiscal year ended September 30, 1999 (in millions)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income $ 63.2 $ 4.0 $ (4.0) $ 63.2
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 22.5 6.5 29.0
Amortization 21.3 9.9 31.2
Equity income in non-guarantors (4.0) 4.0
Extraordinary loss 5.9 - 5.9
Restructuring and other charges
Loss on sale of fixed assets 1.7 0.1 1.8
Deferred income taxes 0.5 - 0.5
Changes in assets and liabilities, net of acquired
businesses:
Accounts receivable 23.7 - 23.7
Inventories (21.6) - (21.6)
Prepaid and other current assets (14.6) (10.6) (25.2)
Accounts payable 14.6 (3.9) 10.7
Accrued taxes and other
liabilities 15.2 (25.4) (10.2)
Other assets (34.7) (1.2) (35.9)
Other liabilities 6.3 (4.6) 1.7
Other, net (1.0) 4.4 . 3.4
------ ------ ---- ------
Net cash provided by operating
activities 99.0 (20.8) 0.0 78.2
------ ------ ---- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant
and equipment (56.0) (10.7) (66.7)
Proceeds from sale of equipment 1.5 0.0 1.5
Investments in non-guarantors (32.4) 32.4
Investments in acquired businesses,
net of cash acquired (350.1) (156.1) (506.2)
Other 0.5 (0.7) . (0.2)
------- ------- ---- --------
Net cash used in investing activities (436.5) (167.5) 32.4 (571.6)
------ ------ ---- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Gross borrowings under term loans 260.0 265.0 525.0
Gross repayments under term loans (1.0) (2.0) (3.0)
Net borrowings under revolving
and bank lines of credit 160.7 (95.4) 65.3
Repayment of outstanding balance on
old credit facility (241.0) 0.0 (241.0)
Issuance of 8 5/8% Senior
Subordinated Notes 330.0 0.0 330.0
Extinguishment of 9 7/8% Senior
Subordinated Notes (107.1) 0.0 (107.1)
Settlement of interest rate locks (12.9) 0.0 (12.9)
Financing and issuance fees (24.1) 0.0 (24.1)
Dividends on Class A Convertible
Preferred Stock (12.1) 0.0 (12.1)
Repurchase of treasury shares (10.0) 0.0 (10.0)
Cash received from exercise of
stock options 3.8 0.0 3.8
Investment from parent 0.0 32.4 (32.4)
------ ------ ---- ------
Net cash provided by financing activities 346.3 200.0 (32.4) 513.9
Effect of exchange rate changes on cash 0.0 0.8 0.0 (0.8)
------ ------ ---- ------
Net increase (decrease) in cash 8.8 10.9 0.0 19.7
Cash and cash equivalents,
beginning of period 2.8 7.8 0.0 10.6
------ ------ ---- ------
</TABLE>
106
<PAGE> 107
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cash and cash equivalents,
end of period $ 11.6 $ 18.7 $ . $ 30.3
======= ======= ==== ========
</TABLE>
107
<PAGE> 108
Balance Sheet
As of September 30, 1999 (in millions, except share information)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash $ 11.6 $ 18.7 $ 30.3
Accounts receivable, net 131.6 69.8 201.4
Inventories, net 244.0 69.2 313.2
Current deferred tax asset 28.6 0.7 29.3
Prepaid and other assets 47.3 20.2 . 67.5
------- ----- ------ -------
Total current assets 463.1 178.6 0.0 641.7
Property, plant and equipment, net 216.8 42.6 259.4
Intangible assets, net 498.8 295.3 794.1
Other assets 64.7 9.7 74.4
Investment in affiliates 101.1 (101.1)
Intracompany assets 5.3 . (5.3)
------- ----- ------ -------
Total assets 1,349.8 526.2 (106.4) 1,769.6
======= ===== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt 27.7 28.7 56.4
Accounts payable 94.9 38.6 133.5
Accrued liabilities 121.2 36.5 157.7
Accrued taxes 16.8 2.5 . 19.3
------- ----- ------ -------
Total current liabilities 260.6 106.3 0.0 366.9
Long-term debt 594.4 299.2 893.6
Other liabilities 42.8 23.0 65.8
Intracompany liabilities . 5.3 (5.3) 0.0
------- ----- ------ -------
Total liabilities 897.8 433.8 (5.3) 1,326.3
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred
Stock, no par value 173.9 - 173.9
Investment from parent 57.4 (57.4) 0.0
Common shares, no par value per share,
$.01 stated value per share 0.2 - 0.2
Capital in excess of par value 213.9 - 213.9
Retained earnings 130.1 43.7 (43.7) 130.1
Treasury stock, 2.8 shares at cost (61.9) - . (61.9)
Accumulated other comprehensive
income (4.2) (8.7) (12.9)
------- ----- ------ -------
Total shareholders' equity 452.0 92.4 (101.1) 443.3
------- ----- ------ -------
Total liabilities and shareholders'
equity $1,349.8 $526.2 $(106.4) $1,769.6
======= ===== ====== =======
</TABLE>
108
<PAGE> 109
Statement of Operations
For the fiscal year ended September 30, 1998 (in millions)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Sales $905.9 $207.1 $1,113.0
Cost of sales 598.1 116.9 . 715.0
------ ------ ----- --------
Gross profit 307.8 90.2 398.0
Advertising and promotion 83.3 21.1 104.4
Selling, general and administration 125.9 44.0 169.9
Amortization or goodwill and other
intangibles 8.9 4.0 12.9
Restructuring and other changes 12.9 2.5 15.4
Equity income in non-guarantors (3.5) 3.5
Intracompany allocations (1.3) 1.3
Other expenses, net 1.0 0.3 . 1.3
------ ------ ----- --------
Income from operations 80.6 17.0 (3.5) 94.1
Interest expense 21.1 11.1 . 32.2
------ ------ ----- --------
Income before income taxes 59.5 5.9 (3.5) 61.9
Income taxes 22.5 2.4 . 24.9
------ ------ ----- --------
Income before extraordinary item 37.0 3.5 (3.5) 37.0
Extraordinary loss on early
extinguishment of debt, net
of income tax benefit 0.7 0.7
------ ------ ----- --------
Net income $ 36.3 $ 3.5 $(3.5) $ 36.3
====== ====== ===== ========
</TABLE>
109
<PAGE> 110
Statement of Cash Flows
For the fiscal year ended September 30, 1998 (in millions)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 36.3 $ 3.5 $(3.5) $ 36.3
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 17.3 4.3 21.6
Amortization 11.8 4.4 16.2
Equity income in non-guarantors (3.5) 3.5
Extraordinary loss 0.7 0.0 0.7
Restructuring and other charges 14.4 4.9 19.3
Loss on sale of fixed assets 2.3 0.0 2.3
Deferred income taxes (2.4) 0.0 (2.4)
Changes in assets and liabilities,
net of acquired businesses:
Accounts receivable (10.5) 1.9 (8.6)
Inventories (5.2) (0.5) (5.7)
Prepaid and other current assets (2.2) 0.1 (2.1)
Accounts payable 9.7 (0.9) 8.8
Accrued taxes and other
liabilities (8.5) (5.9) (14.4)
Other, net 1.0 (2.0) . (1.0)
------ ----- --- ------
Net cash provided by operating
activities 61.2 9.8 0.0 71.0
------ ----- --- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant
and equipment (35.9) (5.4) (41.3)
Proceeds from sale of equipment 0.6 0.6
Investments in acquired businesses,
net of cash acquired (63.8) (87.6) (151.4)
Investments in non-guarantors (6.7) . 6.7 .
------ ----- --- ------
Net cash used in investing activities (105.8) (93.0) 6.7 (192.1)
------ ----- --- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under
revolving and bank lines of credit 67.6 72.4 140.0
Dividends on Class A Convertible
Preferred Stock (7.3) (7.3)
Repurchase of common shares (15.3) (15.3)
Investments from parent 6.7 (6.7)
Other, net 1.0 . . 1.0
------ ----- --- ------
Net cash provided by financing activities 46.0 79.1 (6.7) 118.4
Effect of exchange rate changes on cash . 0.3 . 0.3
------ ----- --- ------
Net increase (decrease) in cash 1.4 (3.8) (2.4)
Cash and cash equivalents,
beginning of period 1.4 11.6 . 13.0
------ ----- --- ------
Cash and cash equivalents,
end of period $ 2.8 $ 7.8 $ . $ 10.6
====== ====== ===== =======
</TABLE>
110
<PAGE> 111
Balance Sheet
As of September 30, 1998 (in millions, except share information)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 2.8 $ 7.8 $ 10.6
Accounts receivable, net 105.7 40.9 146.6
Inventories, net 147.9 29.8 177.7
Current deferred tax asset 20.8 20.8
Prepaid and other assets 10.1 1.4 . 11.5
----- ----- ----- -------
Total current assets 287.3 79.9 0.0 367.2
Property, plant and equipment, net 166.3 30.7 197.0
Intangible assets, net 285.1 150.0 435.1
Other assets 35.9 35.9
Investment in affiliates 75.1 (75.1) 0.0
Intracompany assets . 4.5 (4.5) 0.0
----- ----- ----- -------
Total assets 849.7 265.1 (79.6) 1,035.2
====== ====== ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt 10.5 2.8 13.3
Accounts payable 65.7 12.1 77.8
Accrued liabilities 95.2 29.7 124.9
Accrued taxes 12.6 3.3 . 15.9
----- ----- ----- -------
Total current liabilities 184.0 47.9 231.9
Long-term debt 214.0 145.2 359.2
Other liabilities 40.3 (0.1) 40.2
Intracompany liabilities 4.5 . (4.5) 0.0
----- ----- ----- -------
Total liabilities 442.8 193.0 (4.5) 631.3
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred
Stock, no par value 177.3 177.3
Investment from parent 35.0 (35.0) 0.0
Common shares, no par value per
share, $.01 stated value per
share, issued 21.1 shares in
1998 and 1997 0.2 0.2
Capital in excess of par value 208.9 208.9
Retained earnings 76.6 40.1 (40.1) 76.6
Treasury stock, 2.8 shares at cost (55.9) . . (55.9)
Accumulated other comprehensive
income (0.2) (3.0) (3.2)
----- ----- ----- -------
Total shareholders' equity 406.9 72.1 (75.1) 403.9
----- ----- ----- -------
Total liabilities and shareholders'
equity $849.7 $265.1 $(79.6) $1,035.2
====== ====== ====== ========
</TABLE>
111
<PAGE> 112
Statement of Operations
For the fiscal year ended September 30, 1997 (in millions)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Sales $784.7 $114.6 $899.3
Cost of sales 515.2 58.4 . 573.6
------ ----- ----- --------
Gross profit 269.5 56.2 325.7
Advertising and promotion 74.2 9.7 83.9
Selling, general and administration 105.0 26.6 131.6
Amortization or goodwill and other
Intangibles 8.8 1.4 10.2
Equity income in non-guarantors (7.6) 7.6
Intracompany allocations (0.3) 0.3
Other expenses (income), net 4.7 0.5 . 5.2
------ ----- ----- --------
Income from operations 84.7 17.7 (7.6) 94.8
Interest expense 20.8 4.4 . 25.2
------ ----- ----- --------
Income before income taxes 63.9 13.3 (7.6) 69.6
Income taxes 24.4 5.7 . 30.1
------ ----- ----- --------
Net income 39.5 7.6 (7.6) 39.5
</TABLE>
112
<PAGE> 113
Statement of Cash Flows
For the fiscal year ended September 30, 1997 (in millions)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 39.5 $ 7.6 $(7.6) $ 39.5
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 15.7 0.9 16.6
Amortization 12.4 1.4 13.8
Equity income in non-guarantors (7.6) 7.6 0.0
Loss (gain) on sale of fixed assets 5.6 0.0 5.6
Deferred income taxes (1.5) 0.0 (1.5)
Changes in assets and liabilities,
net of acquired businesses:
Accounts receivable 6.5 11.8 18.3
Inventories 10.0 7.3 17.3
Prepaid and other current assets 0.4 0.4
Accounts payable 5.1 (4.0) 1.1
Accrued taxes and other
liabilities 13.2 (0.5) 12.7
Other, net 1.1 (3.8) . (2.7)
----- ----- ---- -----
Net cash provided by operating
activities 100.0 21.1 . 121.1
----- ----- ---- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant
and equipment (27.2) (1.4) (28.6)
Proceeds from sale of equipment 2.6 0.1 2.7
Dividends from non-guarantors 8.9 (46.6) (8.9) (46.6)
Investments in non-guarantors (7.1) . 7.1 .
----- ----- ---- -----
Net cash used in investing activities (22.8) (47.9) (1.8) (72.5)
----- ----- ---- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under
revolving and bank lines of credit (71.9) 34.6 (37.3)
Dividends on Class A Convertible
Preferred Stock (9.8) (9.8)
Dividends to parent (8.9) 8.9 0.0
Investments from parent 7.1 (7.1) 0.0
Other, net 0.9 . . 0.9
------ ------ ----- -------
Net cash provided by (used in)
financing activities (80.8) 32.8 1.8 (46.2)
Effect of exchange rate changes on cash . 0.0 . 0.0
----- ----- ---- -----
Net increase (decrease) in cash (3.6) 6.0 2.4
Cash and cash equivalents,
beginning of period 5.0 5.6 . 10.6
----- ----- ---- -----
Cash and cash equivalents,
end of period $ 1.4 $ 11.6 $ . $ 13.0
====== ======= === =======
</TABLE>
113
<PAGE> 114
Balance Sheet
As of September 30, 1997 (in millions, except share information)
<TABLE>
<CAPTION>
PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 1.4 $ 11.6 $ 13.0
Accounts receivable, net 84.3 20.0 104.3
Inventories, net 128.6 17.5 146.1
Current deferred tax asset 19.0 19.0
Prepaid and other assets 2.4 1.0 . 3.4
----- ----- ----- -----
Total current assets 235.7 50.1 0.0 285.8
Property, plant and equipment, net 135.2 10.9 146.1
Intangible assets, net 274.7 77.5 352.2
Other assets 3.5 3.5
Investment in affiliates 51.0 (51.0) 0.0
Intracompany assets . 0.3 (0.3) 0.0
----- ----- ----- -----
Total assets 700.1 138.8 (51.3) 787.6
====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt 1.5 1.5
Accounts payable 49.6 4.5 54.1
Accrued liabilities 48.1 9.7 57.8
Accrued taxes 20.0 5.9 . 25.9
----- ----- ----- -----
Total current liabilities 119.2 20.1 0.0 139.3
Long-term debt 152.0 67.8 219.8
Other liabilities 35.1 4.2 39.3
Intracompany liabilities 0.3 . (0.3) .
----- ----- ----- -----
Total liabilities 306.6 92.1 (0.3) 398.4
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred
Stock, no par value 177.3 177.3
Investment from parent 15.2 (15.2)
Common shares, no par value per
share, $.01 stated value per
share, issued 21.1 shares in
1998 and 1997 0.2 0.2
Capital in excess of par value 207.8 207.8
Retained earnings 50.1 35.8 (35.8) 50.1
Treasury stock, 2.8 shares at cost (41.9) . . (41.9)
Accumulated other comprehensive
income (4.3) (4.3)
----- ----- ----- -----
Total shareholders' equity 393.5 46.7 (51.0) 389.2
----- ----- ----- -----
Total liabilities and shareholders'
equity $700.1 $138.8 $(51.3) $787.6
====== ====== ====== ======
</TABLE>
114
<PAGE> 115
Report of Independent Accountants on Financial Statement Schedules
To the Board of Directors and Shareholders of The Scotts Company
Our audits of the consolidated financial statements referred to in our report
dated October 21, 1999 appearing in Item 14(a)(1) of this Annual Report on Form
10-K, also included an audit of the financial statement schedules listed in Item
14 (a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Columbus, Ohio
October 21, 1999
115
<PAGE> 116
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED CREDITED BALANCE
BEGINNING RESERVES TO AND AT END
CLASSIFICATION OF PERIOD ACQUIRED EXPENSE WRITE-OFFS OF PERIOD
<S> <C> <C> <C> <C> <C>
Valuation and qualifying accounts deducted
from the assets to which they apply:
Inventory reserve $12.0 $19.0 $12.9 $(13.4) $30.5
Allowance for doubtful
accounts 6.3 3.4 11.1 (4.4) 16.4
</TABLE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED CREDITED BALANCE
BEGINNING RESERVES TO AND AT END
CLASSIFICATION OF PERIOD ACQUIRED EXPENSE WRITE-OFFS OF PERIOD
<S> <C> <C> <C> <C> <C>
Valuation and qualifying accounts deducted
from the assets to which they apply:
Inventory reserve $11.8 $0.5 $4.8 $(5.1) $12.0
Allowance for doubtful
Accounts 5.7 0.8 2.6 (2.8) 6.3
</TABLE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED CREDITED BALANCE
BEGINNING RESERVES TO AND AT END
CLASSIFICATION OF PERIOD ACQUIRED EXPENSE WRITE-OFFS OF PERIOD
<S> <C> <C> <C> <C> <C>
Valuation and qualifying accounts deducted
from the assets to which they apply:
Inventory reserve $8.7 $2.0 $8.5 $(7.4) $11.8
Allowance for doubtful
accounts 4.1 0.9 1.6 (0.9) 5.7
</TABLE>
116
<PAGE> 117
THE SCOTTS COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
2(a) Amended and Restated Agreement and Plan of Incorporated herein by
Merger, dated as of May 19, 1995, among Stern's reference to the
Miracle-Gro Products, Inc., Stern's Nurseries, Inc., Registrant's Current
Miracle-Gro Lawn Products, Inc., Report on Form 8-K dated
Miracle-Gro Products Limited, Hagedorn May 31, 1995
Partnership, L.P., the general partners of (File No. 0-19768)
Hagedorn Partnership , L.P., [Exhibit 2(b)]
Horace Hagedorn, Community Funds, Inc., and
John Kenlon, The Scotts Company (the
"Registrant"), and ZYX Corporation
2(b) First Amendment to Amended and Restated Incorporated herein
Agreement and Plan of Merger, made and entered by reference to the
into as of October 1, 1999, among The Scotts Registrant's Current
Company, Scotts Miracle-Gro Products, Inc. (as Report on Form 8-K
successor to ZYX Corporation and Stern's dated October 4, 1999
Miracle-Gro Products, Inc.), Miracle-Gro Lawn (File No. 1-11593)
Products, Inc., Miracle-Gro Products Limited, [Exhibit 2]
Hagedorn Partnership, L.P., Community Funds,
Inc., Horace Hagedorn and John Kenlon, and
James Hagedorn, Katherine Hagedorn Littlefield,
Paul Hagedorn, Peter Hagedorn, Robert Hagedorn
and Susan Hagedorn
2(c) Master Contract, dated September 30, 1998, by Incorporated herein by
and between Rhone-Poulenc Agro; the Registrant; reference to the
Scotts Celaflor GmbH & Co. K.G.; "David" Registrant's Current
Sechsundfunfzigste Beteiligungs und Report on Form 8-K dated
Verwaltungsgesellschaft GmbH; Rhone-Poulenc October 22, 1998 (File
Agro Europe GmbH; Scotts France Holdings No. 1-11593) [Exhibit 2]
S.A.R.L.; Scotts France S.A.R.L.; and
Scotts Belgium 2 B.V.B.A.
</TABLE>
117
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
2(d) Asset Purchase Agreement, dated as *
of November 11, 1998, between
Monsanto Company and the Registrant
(replaces and supersedes Exhibit
2(a) to the Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended April 3, 1999
(File No. 1-11593))**
3(a) Amended Articles of Incorporation of the Registrant Incorporated herein
as filed with the Ohio Secretary of State on by reference to the
September 20, 1994 Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1994
(File No. 0-19768)
[Exhibit 3(a)]
3(b) Certificate of Amendment by Shareholders Incorporated herein by
to the Articles of Incorporation of the reference to the
Registrant as filed with the Ohio Secretary Registrant's Quarterly
of State on May 4, 1995 Report on Form 10-Q
for the fiscal quarter ended
April 1, 1995 (File No.
0-19768) [Exhibit 4(b)]
3(c) Regulations of the Registrant (reflecting Incorporated herein by
amendments adopted by the shareholders of reference to the
the Registrant on April 6, 1995) Registrant's Quarterly
Report on Form 10-Q for
the fiscal quarter ended
April 1, 1995
(File No. 0-19768)
[Exhibit 4(c)]
</TABLE>
** Certain portions of this Exhibit 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.
118
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
4(a) Form of Series A Warrant Included in Exhibit 2(a)
above
4(b) Form of Series B Warrant Included in Exhibit 2(a)
above
4(c) Form of Series C Warrant Included in Exhibit 2(a)
above
4(d) Credit Agreement, dated as of December 4, 1998, Incorporated herein by
by and among the Registrant; OM Scott reference to the
International Investments Ltd., Miracle Registrant's Current
Garden Care Limited, Scotts Holdings Limited, Report on Form 8-K,
Hyponex Corporation, Scotts Miracle-Gro dated December 11, 1998
Products, Inc., Scotts-Sierra Horticultural (File No. 1-11593)
Products Company, Republic Tool & [Exhibit 4]
Manufacturing Corp., Scotts-Sierra
Investments, Inc., Scotts France
Holdings SARL, Scotts Holding GmbH,
Scotts Celaflor GmbH & Co. KG, Scotts
France SARL, Scotts Belgium 2 BVBA
and The Scotts Company (UK) Ltd. as
Subsidiary Borrowers; the lenders party
thereto; The Chase Manhattan Bank as
Administrative Agent; Salomon
Smith Barney, Inc. as Syndication
Agent; Credit Lyonnais Chicago
Branch and NBD Bank as Co-
Documentation Agents; and Chase
Securities Inc. as Lead Arranger
and as Book Manager
4(e) Waiver, dated as of January 19, 1999, to *
the Credit Agreement, dated as of
December 4, 1998, among the Registrant;
OM Scott International Investments Ltd.,
Miracle Garden Care Limited, Scotts
Holdings Limited, Hyponex Corporation,
Scotts Miracle-Gro Products, Inc.,
Scotts-Sierra Horticultural Products
Company, Republic Tool & Manufacturing
Corp., Scotts-Sierra Investments, Inc.,
Scotts France Holdings SARL, Scotts
Holding GmbH, Scotts Celaflor GmbH & Co.
KG, Scotts France SARL, Scotts Belgium 2
BVBA, The Scotts Company (UK) Ltd. and
other subsidiaries of the Registrant who
are also borrowers from time to time;
the lenders party thereto; The Chase
Manhattan Bank as Administrative Agent;
Salomon Smith Barney, Inc. as
Syndication Agent; Credit Lyonnais
Chicago Branch and NBD Bank as
Co-Documentation Agents; and Chase
Securities Inc., as Lead Arranger and
Book Manager
4(f) Amendment No. 1 and Consent dated as of *
October 13, 1999 to the Credit
Agreement, dated as of December 4, 1998,
as amended by the Waiver, dated as of
January 19, 1999, among the Registrant;
OM Scott International Investments
Ltd., Miracle Garden Care Limited,
Scotts Holdings Limited, Hyponex
Corporation, Scotts Miracle-Gro
Products, Inc., Scotts-Sierra
Horticultural Products Company, Republic
Tool & Manufacturing Corp.,
Scotts-Sierra Investments, Inc. Scotts
France Holdings SARL, Scotts Holding
GmbH, Scotts Belgium 2 BVBA, The Scotts
Company (UK) LTD., Scotts Canada Ltd.,
Scotts Europe B.V., ASEF B.V. and other
subsidiaries of the Registrant who are
also borrowers from time to time; the
lenders party thereto; The Chase
Manhattan Bank as Administrative Agent;
Salomon Smith Barney, Inc. as
Syndication Agent; Credit Lyonnais
Chicago and NBD Bank as Co-Documentation
Agents; and Chase Securities Inc. as
Lead Arranger and Book Manager
4(g) Indenture, dated as of January 21, 1999, Incorporated herein by
between The Scotts Company and reference to the
State Street Bank and Trust Company, Registrant's Registration
as Trustee Statement on Form S-4
filed on
April 21, 1999
(Registration No.
333-76739)
[Exhibit 4]
</TABLE>
119
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
10(a) The O.M. Scott & Sons Company Excess Incorporated herein by
Benefit Plan, effective October 1, 1993 reference to the
Annual Report on Form
10-K for the fiscal
year ended September
30, 1993, of The
Scotts Company, a
Delaware corporation
("Scotts Delaware")
(File No. 0-19768)
[Exhibit 10(h)]
</TABLE>
120
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
10(b) The Scotts Company 1992 Long Term Incorporated herein by
Incentive Plan reference to Scotts
Delaware's Registration
Statement on Form S-8
filed on March 26, 1993
(Registration
No. 33-60056)
[Exhibit 4(f)]
10(c) The Scotts Company 1999 Executive and Management *
Incentive Plan
10(d) The Scotts Company 1996 Stock *
Option Plan (as amended through
December 8, 1999)
10(e) The Scotts Company Executive Incorporated herein by
Retirement Plan reference to the
Registrant's Annual
Report on Form 10-K for
the fiscal year ended
September 30, 1998
(File No. 1-11593)
[Exhibit 10(j)]
10(f) Employment Agreement, dated as of Incorporated herein by
May 19, 1995, between the Registrant reference to the
and James Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1995
(File No. 1-11593)
[Exhibit 10(p)]
10(g) Consulting Agreement, dated July 9, 1997, Incorporated herein by
among Scotts Miracle-Gro Products, Inc., reference to the
the Registrant and Horace Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(1)]
10(h) Employment Agreement, dated as of May 19, Incorporated herein by
1995, among Stern's Miracle-Gro reference to the
Products, Inc. (nka Scotts Miracle-Gro Registrant's Annual
Products, Inc.), the Registrant and John Kenlon Report on Form 10-
K for the fiscal year
ended September 30,
1996 (File No.
1-11593) [Exhibit
10(k)]
</TABLE>
121
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
10(i) Employment Agreement, dated as of Incorporated herein by
August 7, 1998, between the Registrant reference to the
and Charles M. Berger, and three attached Registrant's Annual
Stock Option Agreements with the following Report on Form 10-K
effective dates: September 23, 1998; October 21, for the fiscal year
1998 and September 24, 1999 ended September 30, 1998
(File No. 1-11593),
[Exhibit 10(n)]
10(j) Stock Option Agreement, dated as of Incorporated herein by
August 7, 1996, between the Registrant reference to the
and Charles M. Berger Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1996
(File No. 1-11593)
[Exhibit 10(m)]
10(k) Letter Agreement, dated December 23, 1996, Incorporated herein by
between the Registrant and Jean H. Mordo reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(p)]
10(l) Specimen form of Stock Option Agreement *
for Non-Qualified Stock Options
10(m) Letter Agreement, dated April 10, 1997, Incorporated herein by
between the Registrant and G. Robert Lucas reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(r)]
10(n) Letter Agreement, dated December 17, 1997, Incorporated herein by
between the Registrant and William R. Radon reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(s)]
10(o) Letter Agreement, dated March 30, 1998, Incorporated herein by
between the Registrant and William A. Dittman reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(t)]
10(p) Letter Agreement, dated March 16, 1999, *
between the Registrant and Hadia Lefavre
</TABLE>
122
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
10(q) Letter Agreement, dated July 21, 1999, *
between the Registrant and David D. Harrison
10(r) Contract of Employment dated February 28, 1986, *
between Rhodic (assumed by Scotts France SAS)
and Christian Ringuet
10(s) Employment Agreement, dated August 1, 1995, *
between Scotts Europe B.V. and Laurens J.M. de Kort
10(t) Service Agreement, dated September 9, 1998, *
between Levington Horticulture Limited (nka The
Scotts Company (UK) Ltd.) and Nicholas Kirkbride
10(u) Exclusive Distributor Agreement--Horticulture, Incorporated herein by
effective as of June 22, 1998, between reference to the
the Registrant and AgrEvo USA Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No.1-11593)
[Exhibit 10(v)]
10(v) Amended and Restated Exclusive Agency *
and Marketing Agreement, dated as
of September 30, 1998, between
Monsanto Company and the Registrant
(replaces and supersedes Exhibit 2(b)
to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter
ended April 3, 1999 (File No. 1-11593))**
21 Subsidiaries of the Registrant *
23 Consent of Independent Accountants *
27 Financial Data Schedule *
</TABLE>
*Filed herewith.
** Certain portions of this Exhibit 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.
123
<PAGE> 1
Exhibit 2(d)
------------
* 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>
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<TABLE>
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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>
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<TABLE>
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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>
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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
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<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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"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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(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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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"),
4
<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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(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
6
<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
7
<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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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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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 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 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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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 SEC upon its request.
<PAGE> 1
Exhibit 4(e)
EXECUTION COPY
WAIVER, dated as of January 19, 1999 (this "Waiver"), to the
Credit Agreement, dated as of December 4, 1998 (the "Credit Agreement"; terms
defined in the Credit Agreement shall have such defined meanings when used
herein unless otherwise defined herein), among THE SCOTTS COMPANY, an Ohio
corporation (the "Borrower" or "Scotts"), OM Scott International Investments
Ltd., Miracle Garden Care Limited, Scotts Holdings Limited, Hyponex Corporation,
Scotts' Miracle-Gro Products, Inc., Scotts-Sierra Horticultural Products
Company, Republic Tool & Manufacturing Corp., Scotts-Sierra Investments, Inc.,
Scotts France Holdings SARL, Scotts Holding GmbH, Scotts Celaflor GmbH & Co. KG,
Scotts France SARL, Scotts Belgium 2 BVBA, The Scotts Company (UK) Ltd. and the
other subsidiaries of the Borrower who are also borrowers from time to time
hereunder (the "Subsidiary Borrowers"), the several banks and other financial
institutions from time to time parties to this Agreement (the "Lenders"), THE
CHASE MANHATTAN BANK, a New York banking corporation (together with its banking
affiliates, "Chase"), as agent for the Lenders hereunder (in such capacity, the
"Administrative Agent"), SALOMON SMITH BARNEY, INC., as syndication agent (the
"Syndication Agent"), CREDIT LYONNAIS CHICAGO BRANCH (together with its banking
affiliates, "Credit Lyonnais") and NBD BANK, as co-documentation agents (the
"Co-Documentation Agents"), and Chase Securities Inc., as lead arranger (the
"Lead Arranger") and as the book manager (the "Book Manager").
W I T N E S S E T H :
WHEREAS, the Borrower has notified the Administrative Agent
and the Lenders that the Borrower intends to issue up to $330 million of senior
unsecured subordinated notes (including the Senior Subordinated Notes, the
"Ortho Notes") as permitted under subsection 7.6(e) of the Credit Agreement, the
Net Cash Proceeds of which to be used to refinance the Existing Subordinated
Notes, to finance the Ortho Acquisition and to repay certain outstanding
Revolving Credit Loans;
WHEREAS, the Borrower has requested that the Required
Prepayment Lenders waive the requirement under subsection 2.12(c) of the Credit
Agreement that the portion of the Net Cash Proceeds of the Ortho Notes
attributable to clause (iii) of subsection 7.6(e) be applied on the date of
incurrence to prepay the Term Loans or reduce the Revolving Credit Commitments
in accordance with the terms of the Credit Agreement; and
WHEREAS, the Required Prepayment Lenders have agreed to waive
any such mandatory prepayment as a result of the issuance of the Ortho Notes but
only on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as follows:
<PAGE> 2
2
1. Compliance with Subsection 2.12(c) (Mandatory Prepayments).
Notwithstanding anything to the contrary in subsection 2.12(c) of the Credit
Agreement, the Required Prepayment Lenders hereby waive (a) any requirement
under the Credit Agreement for a mandatory prepayment of the Term Loans or
reduction of the Revolving Credit Commitments with up to $330 million of the Net
Cash Proceeds of the Ortho Notes provided that such Net Cash Proceeds will be
used solely to refinance the Existing Subordinated Notes, to finance the Ortho
Acquisition and to repay outstanding Revolving Credit Loans and for no other
purpose and (b) any Default or Event of Default that would otherwise occur under
the Credit Agreement or any other Loan Document as a result of such
noncompliance with any such mandatory Term Loan prepayment or Revolving Credit
Commitment reduction requirement.
2. Representations and Warranties. On and as of the date
hereof and after giving effect to this Waiver, each of the Borrower and each
applicable Subsidiary Borrower hereby confirms, reaffirms and restates the
representations and warranties set forth in Section 4 of the Credit Agreement
mutatis mutandis, and to the extent that such representations and warranties
expressly relate to a specific earlier date in which case each of the Borrower
and each applicable Subsidiary Borrower hereby confirms, reaffirms and restates
such representations and warranties as of such earlier date.
3. Conditions to Effectiveness. This Waiver shall become
effective as of the date hereof upon receipt by the Administrative Agent of
counterparts of this Waiver, duly executed and delivered by the Borrower, each
Subsidiary Borrower and the Required Prepayment Lenders.
4. Continuing Effect; No Other Amendments. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement are and shall remain in full force and effect. The waivers provided
for herein are limited to the specific subsections of the Credit Agreement
specified herein and shall not constitute an amendment or waiver of, or an
indication of any Lender's willingness to amend or waive, any other provisions
of the Credit Agreement or the same subsections for any other date or time
period (whether or not such other provisions or compliance with such subsections
for another date or time period are affected by the circumstances addressed in
this Waiver).
5. Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all its reasonable costs and expenses incurred in
connection with the preparation and delivery of this Waiver, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
6. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7. Counterparts. This Waiver may be executed by the parties
hereto in any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
<PAGE> 4
4
THE SCOTTS COMPANY
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
OM SCOTT INTERNATIONAL INVESTMENTS LTD.
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
MIRACLE GARDEN CARE LIMITED
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS HOLDINGS LIMITED
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
HYPONEX CORPORATION
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS' MIRACLE-GRO PRODUCTS, INC.
<PAGE> 5
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS-SIERRA HORTICULTURAL PRODUCTS COMPANY
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
REPUBLIC TOOL & MANUFACTURING CORP.
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS-SIERRA INVESTMENTS, INC.
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS FRANCE HOLDINGS SARL
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS FRANCE SARL
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
<PAGE> 6
Title: Vice President, Corporate Treasurer
SCOTTS HOLDING GMBH
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS CELAFLOR GMBH & CO. KG
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS BELGIUM 2 BVBA
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
THE SCOTTS COMPANY (UK) LTD.
By: /s/ Rebecca J. Bruening
---------------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
CITICORP USA INC.
Syndication Agent and as a Lender
By: /s/ Nicolas Erni
---------------------------------------------
<PAGE> 7
Name: Nicolas Erni
Title: Attorney in fact
CREDIT LYONNAIS CHICAGO BRANCH, as Co-Documentation
Agent and as a Lender
By: /s/ Mary Ann Klemm
---------------------------------------------
Name: Mary Ann Klemm
Title: Vice President
NBD BANK, as Co-Documentation Agent and as a Lender
By: /s/ Gary C. Wilson
---------------------------------------------
Name: Gary C. Wilson
Title: First Vice President
THE CHASE MANHATTAN BANK, as Administrative Agent
and as a Lender
By: /s/ Randolph E. Cates
--------------------------------------------
Name: Randolph E. Cates
Title: Vice President
ABN AMRO BANK N.V., Pittsburgh
By: /s/ Patrick M. Pastore /s/ Gregory D. Amonia
---------------------------------------------
Name: Patrick M. Pastore Gregory D. Amonia
Title: Vice President Group Vice President
AERIES FINANCE LTD.
By: /s/ Andrew Ian Wignall
---------------------------------------------
Name: Andrew Ian Wignall
<PAGE> 8
Title: Director
ALLIANCE INVESTMENT OPPORTUNITIES
By: /s/ Andrew Ian Wignall
---------------------------------------------
Name: Andrew Ian Wignall
Title: Director
ALLSTATE LIFE INSURANCE CO.
By:
---------------------------------------------
Name:
Title:
ARES LEVERAGED INVESTMENT FUND II
By: /s/ David A. Sachs
---------------------------------------------
Name: David A. Sachs
Title: Vice President
ATHENA CDO, LIMITED
By: Pacific Investment Management Company as its
investment advisor
By: PIMCO Management Inc., a general partner
By: /s/ Bradley W. Paulson
---------------------------------------------
Name: Bradley W. Paulson
Title: Vice President
BHF BANK AKTIENGESELLSCHAFT
By: /s/ John Sykes
---------------------------------------------
Name: John Sykes
<PAGE> 9
Title: Vice President
BALANCED HIGH YIELD FUND II
By: /s/ John Sykes
---------------------------------------------
Name: John Sykes
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ Gretchen Spoo
---------------------------------------------
Name: Gretchen Spoo
Title: Vice President
BANK OF HAWAII
By: /s/ Mark C. Joseph
---------------------------------------------
Name: Mark C. Joseph
Title:
THE BANK OF NEW YORK
By: /s/ Ray Joyner
---------------------------------------------
Name: Ray Joyner
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
---------------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
<PAGE> 10
By:
---------------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
---------------------------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President and
General Manager
BOEING CAPITAL CORPORATION
By:
---------------------------------------------
Name:
Title:
CIT GROUP/EQUIPMENT FINANCING, INC.
By:
---------------------------------------------
Name:
Title:
CAPTIVA II FINANCE LTD.
By:
---------------------------------------------
Name:
Title:
CAPTIVA III FINANCE LTD.
<PAGE> 11
By:
Name:
Title:
CARAVELLE INVESTMENT FUND, L.L.C.
By:
---------------------------------------------
Name:
Title:
CERES FINANCE LTD.
By: /s/ John H. Cullinane
---------------------------------------------
Name: John H.Cullinane
Title: Director
COMERICA BANK, Detroit
By: /s/ Anthony L. Davis
---------------------------------------------
Name: Anthony L. Davis
Title: Account Officer
CREDIT AGRICOLE INDOSUEZ, Chicago
By: /s/ W. Leroy Startz /s/ Katherine L. Abbott
----------------------------------------------------------
Name: W. Leroy Startz Katherine L. Abbott
Title: First Vice President First Vice President
CYPRESS TREE INVESTMENT PARTNERS
<PAGE> 12
By:
---------------------------------------------
Name:
Title:
CYPRESSTREE INSTITUTIONAL FUND, LLC
By:
---------------------------------------------
Name:
Title:
CYPRESSTREE INVESTMENT FUND, LLC
By:
---------------------------------------------
Name:
Title:
CYPRESSTREE SENIOR FLOATING RATE FUND
By:
---------------------------------------------
Name:
Title:
DELANO COMPANY
By: Pacific Investment Management Company as its
investment advisor
By: PIMCO Management Inc., a general partner
By: /s/ Bradley W. Paulson
---------------------------------------------
Name: Bradley W. Paulson
Title: Vice President
<PAGE> 13
DRESDNER BANK, AG
By: /s/ Ken Hamilton
---------------------------------------------
Name: Ken Hamilton
Title: First Vice President
/s/ Deborah Slusarczyk
---------------------------------------------
Name: Deborah Slusarczyk
Title: Vice President
ELC (Cayman) LTD.
First Union Corporation
By: /s/ illegible
---------------------------------------------
Name: Illegible
Title: Managing partner
ERSTE BANK
By:
---------------------------------------------
Name:
Title:
FIFTH THIRD BANK OF COLUMBUS
By: /s/ Mark Ransom
---------------------------------------------
Name: Mark Ransom
Title: Vice President
FLEET NATIONAL BANK
By:
---------------------------------------------
Name:
Title:
<PAGE> 14
FOOTHILL INCOME TRUST, L.P.
By:
---------------------------------------------
Name:
Title:
FRANKLIN FLOATING RATE TRUST
By:
---------------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By /s/ Janet K. Williams
---------------------------------------------
Name: Janet K. Williams
Title: Duly Authorized Signator
GOLDMAN SACHS CREDIT PARTNERS L.P.
By /s/ Stephen J. McGuinness
---------------------------------------------
Name: Stephen J. McGuinness
Title: Authorized Signatory
HARRIS TRUST AND SAVINGS BANK
By: /s/ Julie K. Hossack
---------------------------------------------
Name: Julie K. Hossack
Title: Vice President
HELLER FINANCIAL INC.
By: /s/ Linda W. Wolf
---------------------------------------------
Name: Linda W. Wolf
Title: Senior Vice President
<PAGE> 15
THE HUNTINGTON NATIONAL BANK
By: /s/ Julie Giancola
---------------------------------------------
Name: Julie Giancola
Title: Commercial Lending Officer
KZH APPALOOSA LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH BDC LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH CRESCENT-3 LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH ING-3 LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH RIVERSIDE LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE> 16
KZH WATERSIDE LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH CNC LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH CYPRESSTREE-1 LLC
By:
---------------------------------------------
Name:
Title:
KZH ING-2 LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE> 17
KZH SOLEIL-2 LLC
By: /s/ Virginia Conway
---------------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KEY BANK NATIONAL ASSOCIATION
By: /s/ Illegible
---------------------------------------------
Name: Illegible
Title: Senior Vice President
LEHMAN COMMERCIAL PAPER INC.
By:
---------------------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD.
By:
---------------------------------------------
Name:
Title:
ML CLO XII PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investments, Inc.,
as its investment manager
By: /s/ Robert L. Wilson
---------------------------------------------
Name: Robert L. Wilson
Title: Vice President
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investments, Inc.,
<PAGE> 18
as its investment manager
By: /s/ Robert L. Wilson
---------------------------------------------
Name: Robert L. Wilson
Title: Vice President
MSDW PRIME INCOME TRUST
By:
---------------------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: /s/George D. Pelose
---------------------------------------------
Name: George D. Pelose
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/George D. Pelose
---------------------------------------------
Name: George D. Pelose
Title: Authorized Signatory
METROPOLITAN LIFE INSURANCE CO.
By: Illegible
---------------------------------------------
Name: Illegible
Title: Director
MONUMENTAL LIFE INSURANCE COMPANY
By: /s/ Gregory W. Theobald
---------------------------------------------
Name: Gregory W. Theobald
<PAGE> 19
Title: Vice President & Assistant Secretary
NATIONAL CITY BANK
By: /s/ David B. Yates
---------------------------------------------
Name: David B. Yates
Title: Vice President
NATIONAL WESTMINSTER BANK, PLC
By:
---------------------------------------------
Name:
Title:
NORSE CBO, LTD.
By: /s/ Timothy S. Peterson
---------------------------------------------
Name: Timothy S. Peterson
Title: President
NORTH AMERICAN SENIOR FLOATING RATE FUND
By:
---------------------------------------------
Name:
Title:
ORIX USA CORPORATION
By: /s/ Illegible
---------------------------------------------
Name: Illegible
Title: Executive Vice President
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P.
its General Partner
By: Oak Hill Securities MGP, Inc.
<PAGE> 20
its General Partner
By /s/ Scott D. Krase
---------------------------------------------
Name: Scott D. Krase
Title: Vice President
OASIS COLLATERALIZED HIGH INCOME PORTFOLIOS-I, LTD.
By: /s/ Andrew Ian Wignall
---------------------------------------------
Name: Andrew Ian Wignall
Title: Director
OCTAGON LOAN TRUST
By: Octagon Credit Investors as Manager
By: /s/ Richard W. Stewart
---------------------------------------------
Name: Richard W. Stewart
Title: Managing Director
OSPREY INVESTMENTS PORTFOLIO
By: /s/ Hans L. Christensen
---------------------------------------------
Name: Hans L. Christensen
Title: Vice President
Oxford Strategic Income Fund
By: /s/ Andrew Ian Wignall
---------------------------------------------
Name: Andrew Ian Wignall
Title: Director
PACIFICA PARTNERS I, L.P.
By: /s/ Michael J. Bacevich
---------------------------------------------
Name: Michael J. Bacevichl
<PAGE> 21
Title: Senior Vice President
PARIBAS
By: /s/ Ann B. McAloon /s/ Brian F. Hewett
--------------------------------------------------
Name: Anne B. McAloon Brian F. Hewett
Title: Vice President Vice President
PINEHURST TRADING, INC.
By: /s/ Allen D. Shifflet
--------------------------------------------------
Name: Allen D. Shifflet
Title: President
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", New York Branch
By: /s/ W. Pieter C. Kodde /s/ M. Christina Debler
--------------------------------------------------
Name: W. Pieter C. Kodde M. Christina Debler
Title: Vice President Vice President
SANKATY HIGH YIELD ASSET PARTNERS
By:
--------------------------------------------------
Name:
Title:
SCOTIABANC, INC.
By:
---------------------------------------------
Name:
<PAGE> 22
Title:
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Stephen L. Leister
---------------------------------------------
Name: Stephen L. Leister
Title: Vice President
TORONTO DOMINION (New York), INC.
By: /s/ Jorge A. Garcia
---------------------------------------------
Name: Jorge A. Garcia
Title: Vice President
TORONTO DOMINION (TEXAS) INC.
By: /s/ Mark A. Baird
---------------------------------------------
Name: Mark A. Baird
Title: Vice President
THE TRAVELERS INSURANCE COMPANY
By: /s/ Allen R. Cantrell
---------------------------------------------
Name: Allen R. Cantrell
Title: Investment Officer
VAN KAMPEN CLO I, LIMITED
By: Van Kampen Management Inc.,
as Collateral Manager
<PAGE> 23
By: /s/ Jeffrey W. Maillet
---------------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE> 1
Exhibit 4(f)
AMENDMENT NO. 1 AND CONSENT
AMENDMENT NO. 1 AND CONSENT dated as of October 13, 1999 (this
"Amendment") to the Credit Agreement, dated as of December 4, 1998, as amended
by the Waiver, dated as of January 19, 1999 (the "Waiver") and as amended,
supplemented or modified from time to time (the "Credit Agreement") among THE
SCOTTS COMPANY, an Ohio corporation (the "Borrower" or "Scotts"), OM Scott
International Investments Ltd., Miracle Garden Care Limited, Scotts Holdings
Limited, Hyponex Corporation, Scotts' Miracle-Gro Products, Inc., Scotts-Sierra
Horticultural Products Company, Republic Tool & Manufacturing Corp.,
Scotts-Sierra Investments, Inc., Scotts France Holdings SARL, Scotts Holding
GmbH, Scotts Celaflor GmbH & Co. KG, Scotts France SARL, Scotts Belgium 2 BVBA,
The Scotts Company (UK) Ltd., Scotts Canada Ltd., Scotts Europe B.V., ASEF B.V.
and the other subsidiaries of the Borrower who are also borrowers from time to
time hereunder (the "Subsidiary Borrowers"), the several banks and other
financial institutions from time to time parties to this Agreement (the
"Lenders"), THE CHASE MANHATTAN BANK, a New York banking corporation (together
with its banking affiliates, "Chase"), as agent for the Lenders hereunder (in
such capacity, the "Administrative Agent"), SALOMON SMITH BARNEY, INC., as
syndication agent (the "Syndication Agent"), CREDIT LYONNAIS CHICAGO (together
with its banking affiliates, "Credit Lyonnais") and NBD BANK, as
co-documentation agents (the "Co-Documentation Agents"), and Chase Securities
Inc., as lead arranger (the "Lead Arranger") and as the book manager (the "Book
Manager").
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower wishes to amend the Credit Agreement in order to
increase the availability of Swing Line Loans and to provide Swing Line
availability in three alternate currencies as described below;
WHEREAS, the Borrower wishes to dissolve certain indirect subsidiaries;
WHEREAS, the Borrower wishes to amend the Credit Agreement as described
herein; and
WHEREAS, the Lenders and the Administrative Agent consent to the
proposed amendments under the following terms and conditions;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
I. Amendments
<PAGE> 2
1. Defined Terms. Unless otherwise noted, capitalized terms have the
meanings given to them in the Credit Agreement.
2. Amendment of Section 1.1 (Definitions). Section 1.1 is hereby
amended by
(a) deleting the definition of "Obligations" and substituting in
lieu thereof the following:
"Obligations" shall mean the unpaid principal of and interest
on (including, without limitation, interest accruing after the maturity
of the Loans and interest thereon accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower or any
Subsidiary Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes and all
other obligations and liabilities (including all obligations in respect
of overdrafts and related liabilities owed to any Lender or affiliate
of a Lender or the Administrative Agent arising from treasury,
depositary and cash management services or in connection with any
automated clearinghouse transfer of funds) of the Borrower or any
Subsidiary Borrower to the Administrative Agent or the Lenders, whether
direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter incurred, which may arise under, out of, or in
connection with, this Agreement, the Notes, the Guarantee and
Collateral Agreement, any Hedge Agreement entered into with a Lender or
an Affiliate thereof or any other document made, delivered or given in
connection herewith or therewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of counsel
to the Administrative Agent or any Lender) or otherwise.
(b) deleting the definition of "Swing Line Commitment" and
substituting in lieu thereof the following:
"'Swing Line Commitment' shall mean the obligation of the
Swing Line Lenders, at any date, to make a Swing Line Loan pursuant to
subsection 2.6(a) in the amount referred to therein."
(c) deleting the definition of "Swing Line Lenders" in its
entirety and substituting in lieu thereof the following:
"Swing Line Lenders" shall mean Chase, Credit Lyonnais Chicago
Branch, all Canadian Dollar Swing Line Lenders, all Dutch Guilder Swing
Line Lenders, all Belgian Franc Swing Line Lenders, all Sterling Swing
Line Lenders, and all Australian Dollar Swing Line Lenders.
(d) by adding the following definitions in their proper
alphabetical order:
"'Australian Dollar Swing Line Lenders' shall mean Bank One
and any other Eligible Australian Bank who makes Swing Line Loans
denominated in Australian Dollars; provided that, at no time shall more
than two Lenders have Swing Line Loans denominated in Australian
Dollars outstanding."
<PAGE> 3
4
"'Belgian Franc Swing Line Lenders' shall mean Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" and any
other Eligible Belgian Bank who makes Swing Line Loans denominated in
Belgian Francs; provided that at no time shall more than two Lenders
have Swing Line Loans denominated in Belgian Francs outstanding."
"'Canadian Dollar Swing Line Lenders' shall mean the Bank of
Montreal (subject to its having a Revolving Credit Commitment at least
equal to the Swing Line Loans it makes) and any other Eligible Canadian
Bank who makes Swing Line Loans denominated in Canadian Dollars;
provided that at no time shall more than two Lenders have Swing Line
Loans denominated in Canadian Dollars outstanding."
"'Dutch Guilder Swing Line Lenders' shall mean Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" and any
Eligible Dutch Bank who makes Swing Line Loans in Dutch Guilders;
provided that at no time shall more than two Lenders have Swing Line
Loans denominated in Dutch Guilders outstanding."
"Eligible Australian Bank" shall mean (a) a resident of
Australia which does not make Swing Line Loans or Revolving
Credit Loans as part of carrying on business outside of
Australia at or through a permanent establishment outside of
Australia; or (b) a non-resident of Australia which makes
Swing Line Loans or Revolving Credit Loans as part of carrying
on business in Australia at or through a permanent
establishment of the non-resident in Australia. In this
definition, words and expressions used shall have the meaning
ascribed to them for the purposes of S. 128B of the Australian
Income Tax Assessment Act 1936.
"Eligible Canadian Bank" shall mean those banks listed on
Schedule I or Schedule II to the Bank Act (Canada) and which agree to
make Swing Line Loans or Revolving Credit Loans hereunder.
"Eligible Dutch Bank" shall mean any Revolving Credit Lender.
"'Sterling Swing Line Lenders' shall mean Chase and all other
Eligible UK Banks who make Swing Line Loans denominated in Pounds
Sterling."
3. Amendment of Section 2.5 (Procedure for Revolving Credit Borrowing).
Section 2.5(a)(3) is hereby amended by deleting the reference to the term "two
Business Days" and substituting in lieu thereof the term "three Business Days."
4. Amendment of Section 2.6 (Swing Line Commitments). (A) Section 2.6
is hereby amended by deleting such section in its entirety and substituting in
lieu thereof the following:
<PAGE> 4
5
"2.6 Swing Line Commitments. (a) Subject to the terms and
conditions hereof, from time to time prior to the Revolving Credit
Termination Date and to the Borrower or any Subsidiary Borrower (i)
each of Chase and Credit Lyonnais severally (but not jointly) agrees to
make swing line loans in Dollars in an aggregate principal amount not
to exceed 50% of $55,000,000 at any one time outstanding, (ii) the
Sterling Swing Line Lenders agree to make swing line loans in Sterling
in an aggregate principal amount not to exceed the Optional Currency
Equivalent in Sterling of $55,000,000 at any one time outstanding,
(iii) the Canadian Dollar Swing Line Lenders agree to make swing line
loans in Canadian Dollars in an aggregate principal amount not to
exceed the Optional Currency Equivalent in Canadian Dollars of
$10,000,000 at any one time outstanding, (iv) the Dutch Guilder Swing
Line Lenders agree to make swing line loans in Dutch Guilders in an
aggregate principal amount not to exceed the Optional Currency
Equivalent in Dutch Guilders of $7,500,000 at any one time outstanding,
(v) the Belgian Franc Swing Line Lenders agree to make swing line loans
in Belgian Francs in an aggregate principal amount not to exceed the
Optional Currency Equivalent in Belgian Francs of $2,500,000 at any one
time outstanding, and (vi) the Australian Dollar Swing Line Lenders
agree to make swing line loans in Australian Dollars in an aggregate
principal amount not to exceed the Optional Currency Equivalent in
Australian Dollars of $5,000,000 at any one time outstanding (each of
the foregoing individually, a "Swing Line Loan"; collectively, the
"Swing Line Loans"); provided that, after giving effect to the making
of such Swing Line Loans, the Aggregate Revolving Extensions of Credit
will not exceed the Revolving Credit Commitments and the aggregate
principal amount of Swing Line Loans at any one time outstanding shall
not exceed $55,000,000 or the Optional Currency Equivalent thereof;
provided, further, that any Swing Line Loan made to a Subsidiary
Borrower which is a resident for taxation purposes in the United
Kingdom, Canada, the Netherlands; Belgium or Australia shall be repaid
within 364 days and shall be made by an Eligible UK Bank, Eligible
Canadian Bank, Eligible Dutch Bank, Eligible Belgian Bank or Eligible
Australian Bank, as the context requires. Amounts borrowed by the
Borrower or a Subsidiary Borrower under this subsection 2.6 may be
repaid and, during the Revolving Credit Commitment Period, reborrowed.
All Swing Line Loans in Dollars shall be made as ABR Loans, and Swing
Line Loans in Sterling, Canadian Dollars, Belgian Francs, Australian
Dollars, and Dutch Guilders shall be made on terms agreed upon by the
relevant Swing Line Lender and the Borrower or applicable Subsidiary
Borrower. The Borrower or applicable Subsidiary Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received
by the Administrative Agent, in the case of Swing Line Loans in Dollars
and Canadian Dollars, at or prior to 1:00 P.M., New York City time, and
in the case of Swing Line Loans in Sterling, Belgian Francs, and Dutch
Guilders at or prior to 1:00 P.M., London time, on the requested
Borrowing Date), specifying the amount of each requested Swing Line
Loan, which shall be greater than or equal to a minimum amount to be
agreed upon by the Borrower or applicable Subsidiary Borrower and the
relevant Swing Line Lender. The Borrower or applicable Subsidiary
Borrower shall give the Administrative Agent and the relevant Swing
Line Lender irrevocable notice (which notice must be received by the
Administrative Agent and the relevant Swing Line Lender, in the case of
Australian Dollars, at or prior to 1:00 P.M., Sydney time, on the
requested Borrowing Date), specifying the amount of each requested
Swing Line Loan, which shall be greater than or equal to a minimum
amount to be agreed
<PAGE> 5
6
upon by the Borrower or applicable Subsidiary Borrower and the relevant
Swing Line Lender. In giving irrevocable notice, the Borrower or the
applicable Subsidiary Borrower shall designate, at its option, one or
two Swing Line Lenders to make one or more Swing Line Loans in the
relevant currency. Upon such notice, the Administrative Agent shall
promptly notify each applicable Swing Line Lender thereof. Each Swing
Line Lender which has been designated by the Borrower or the applicable
Subsidiary Borrower in its irrevocable notice shall make the amount of
its pro rata share of each borrowing in the currency requested
available to the Borrower or applicable Subsidiary Borrower in the
manner directed by the Administrative Agent on the requested Borrowing
Date.
(b) The Swing Line Lenders or any of them at any time and in
their or its sole and absolute discretion, may, on behalf of the
Borrower or applicable Subsidiary Borrower (which hereby irrevocably
directs the Swing Line Lenders to act on its behalf), request each
Revolving Credit Lender that is an Eligible U.K. Bank, Eligible
Canadian Bank, Eligible Dutch Bank, Eligible Belgian Bank or Eligible
Australian Bank, with respect to Swing Line Loans made to Subsidiary
Borrowers which are resident for taxation purposes in the United
Kingdom, Canada, the Netherlands, Belgium or Australia, respectively,
or each Revolving Credit Lender, including each Swing Line Lender, with
respect to all other Swing Line Loans, to make a Revolving Credit Loan
in the currency of the Swing Line Loan(s) made by such Swing Line
Lender(s) an amount equal to such Lender's Revolving Percentage of the
amount of the Swing Line Loans (the "Refunded Swing Line Loans")
outstanding on the date such notice is given. Unless any of the events
described in paragraph (f) of Section 8 shall have occurred (in which
event the procedures of paragraph (c) of this subsection 2.6 shall
apply), each Revolving Credit Lender shall make the proceeds of its
Revolving Credit Loan available to the Administrative Agent for the
account of the Swing Line Lenders, at the office of the Administrative
Agent prior to 12:00 Noon (New York City time) in funds immediately
available on the Business Day next succeeding the date such notice is
given. The proceeds of such Revolving Credit Loans shall be immediately
applied to repay the Refunded Swing Line Loans.
(c) If, prior to the making of a Revolving Credit Loan
pursuant to paragraph (b) of subsection 2.6, one of the events
described in paragraph (f) of Section 8 shall have occurred, each
Revolving Credit Lender hereby agrees to and will, on the date such
Revolving Credit Loan was to have been made, purchase an undivided
participating interest in each Refunded Swing Line Loan in an amount
equal to its Revolving Percentage of such Refunded Swing Line Loan.
Each Revolving Credit Lender will immediately transfer to the
Administrative Agent for the account of the Swing Line Lenders, in
immediately available funds denominated in Dollars, the Dollar
Equivalent (if applicable) of the amount of its participations and,
upon its receipt of its pro rata share thereof, each Swing Line Lender
will deliver to such Revolving Credit Lender a Swing Line Loan
Participation Certificate dated the date of receipt of such funds and
in such amount. On such date, any Swing Line Loans not denominated in
Dollars shall, without any further action or notice being required, be
converted to and become denominated in Dollars in an amount equal to
the Dollar Equivalent of the amount thereof on such date.
<PAGE> 6
7
(d) Whenever, at any time after any Swing Line Lender has
received from any Revolving Credit Lender such Revolving Credit
Lender's participating interest in a Refunded Swing Line Loan and such
Swing Line Lender receives any payment on account thereof, such Swing
Line Lender will distribute to such Revolving Credit Lender through the
Administrative Agent its participating interest in such Dollar
Equivalent amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Revolving
Credit Lender's participating interest was outstanding and funded) in
funds denominated in Dollars; provided, however, that in the event that
such payment received by such Swing Line Lender is required to be
returned, such Revolving Credit Lender will return to such Swing Line
Lender through the Administrative Agent any portion thereof previously
distributed by such Swing Line Lender to it in like funds as such
payment is required to be returned by such Swing Line Lender.
II. Consent
1. Compliance with Section 7.3 (Limitation on Fundamental Changes).
Pursuant to Section 10.1 of the Credit Agreement, the Required Lenders consent
to the Borrower's dissolution of the following subsidiaries of EG Systems, Inc.
("EGS"), which is itself a direct, partially-owned subsidiary of Scotts: (a)
Crowley Lawn Service, Inc., (b) John M. Fogarty Enterprises, Inc. and (c) EG
Transport Inc. The Required Lenders also consent to the transfer of the existing
assets of these three subsidiaries to EGS in conjunction with the dissolution of
the subsidiaries. The Required Lenders hereby waive any Default or Event of
Default occurring solely in connection with the above-described transactions.
III. General Provisions
1. Representations and Warranties. On and as of the date hereof, and
after giving effect to this Amendment, each of the Borrower and each applicable
Subsidiary Borrower hereby confirms, reaffirms and restates the representations
and warranties set forth in Section 4 of the Credit Agreement mutatis mutandis,
and to the extent that such representations and warranties expressly relate to a
specific earlier date in which case each of the Borrower and each applicable
Subsidiary Borrower hereby confirms, reaffirms and restates such representations
and warranties as of such earlier date.
2. Conditions to Effectiveness. This Amendment shall become effective
as of the date hereof upon receipt by the Administrative Agent of counterparts
of this Amendment, duly executed and delivered by the Borrower, each Subsidiary
Borrower, each Subsidiary Borrower, the Administrative Agent and the Required
Lenders.
<PAGE> 7
8
3. Continuing Effect; No Other Amendments. Except as expressly amended
or waived hereby, all of the terms and provisions of the Credit Agreement are
and shall remain in full force and effect. The Amendments provided for herein
are limited to the specific subsections of the Credit Agreement specified herein
and shall not constitute an amendment or Amendment of, or an indication of any
Lender's willingness to amend or waive, any other provisions of the Credit
Agreement or the same subsections for any other date or time period (whether or
not such other provisions or compliance with such subsections for another date
or time period are affected by the circumstances addressed in this Amendment).
4. Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all its reasonable costs and expenses incurred in
connection with the preparation and delivery of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6. Counterparts. This Amendment may be executed by the parties hereto
in any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
<PAGE> 8
9
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
THE SCOTTS COMPANY
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
OM SCOTT INTERNATIONAL INVESTMENTS LTD.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
MIRACLE GARDEN CARE LIMITED
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS HOLDINGS LIMITED
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
HYPONEX CORPORATION
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
<PAGE> 9
SCOTTS' MIRACLE-GRO PRODUCTS, INC.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS-SIERRA HORTICULTURAL PRODUCTS COMPANY
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
REPUBLIC TOOL & MANUFACTURING CORP.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS-SIERRA INVESTMENTS, INC.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS FRANCE HOLDINGS SARL
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS FRANCE SARL
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
<PAGE> 10
Title: Vice President, Corporate Treasurer
SCOTTS HOLDING GMBH
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS CELAFLOR GMBH & CO. KG
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS BELGIUM 2 BVBA
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
THE SCOTTS COMPANY (UK) LTD.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS CANADA LTD.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS EUROPE, B.V.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
<PAGE> 11
ASEF, B.V.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SCOTTS AUSTRALIA PTY LTD.
By: /s/ Rebecca J. Bruening
---------------------------------------
Name: Rebecca J. Bruening
Title: Vice President, Corporate Treasurer
SALOMON SMITH BARNEY INC., as
Syndication Agent
By: /s/ William L. Hartmann
---------------------------------------
Name: William L. Hartmann
Title: Attorney-in-fact
CREDIT LYONNAIS CHICAGO BRANCH, as
Co-Documentation Agent and as a Lender
By: /s/ Mary Ann Klemm
---------------------------------------
Name: Mary Ann Klemm
Title: Vice President
BANK ONE, MICHIGAN, as successor to
NBD BANK, as Co-Documentation Agent and
as a Lender
By: /s/ Michael R. Zaksheske
---------------------------------------
Name: Michael R. Zaksheske
Title: Vice President
<PAGE> 12
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Randolph E. Cates
---------------------------------------
Name: Randolph E. Cates
Title: Vice President
ABN AMRO BANK N.V., Pittsburgh
By:
---------------------------------------
Name:
Title:
AERIES - II FINANCE LTD.
By:
---------------------------------------
Name:
Title:
ALLIANCE INVESTMENT OPPORTUNITIES
By:
---------------------------------------
Name:
Title:
ALLSTATE LIFE INSURANCE CO.
By:
---------------------------------------
Name:
Title:
<PAGE> 13
ARES LEVERAGED INVESTMENT FUND II, L.P.
By: /s/ David A. Sachs
---------------------------------------
Name: David A. Sachs
Title: Vice President
ATHENA CDO, LIMITED
By: Pacific Investment Management Company as
its investment advisor
By: PIMCO Management Inc., a general partner
By: /s/ Mohan V. Phansalkar
---------------------------------------
Name: Mohan V. Phansalkar
Title: Senior Vice President
BHF (USA) CAPITAL CORPORATION
By:
---------------------------------------
Name:
Title:
BHF BANK AKTIENGESELLSCHAFT
By:
---------------------------------------
Name:
Title:
BW CAPITAL MARKETS, INC.
By: /s/ Ken Waud and /s/ Thomas A. Lowe
---------------------------------------
Name: Ken Waud and Thomas A. Lowe
Title: Treasurer and Vice President
BALANCED HIGH YIELD FUND II LTD.
<PAGE> 14
By:
---------------------------------------
Name:
Title:
BANK AUSTRIA
By:
---------------------------------------
Name:
Title:
BANK OF AMERICA
By:
---------------------------------------
Name:
Title:
BANK OF HAWAII
By: /s/ Brenda K. Testerman
---------------------------------------
Name: Brenda K. Testerman
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Edward Dougherty
---------------------------------------
Name: Edward Dougherty III
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
---------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
<PAGE> 15
By:
---------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
---------------------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President &
General Manager
BANQUE WORMS CAPITAL CORPORATION
By: /s/ Michele M. Flemming
---------------------------------------
Name: Michele M. Flemming
Title: Vice President & General Counsel
BLACK DIAMOND CLO 1998-1 LTD.
By:
---------------------------------------
Name:
Title:
BOEING CAPITAL CORPORATION
By: /s/ David Nelson
---------------------------------------
Name: David Nelson
Title: Special Credits Officer
CIT GROUP/EQUIPMENT FINANCING, INC.
By:
---------------------------------------
Name:
Title:
<PAGE> 16
CAPTIVA III FINANCE LTD.
By: /s/ John H. Cullinane
---------------------------------------
Name: John H. Cullinane
Title: Director
CARAVELLE INVESTMENT FUND, L.L.C.
By:
---------------------------------------
Name:
Title:
CERES FINANCE, LTD.
By: /s/ John Cullinane
---------------------------------------
Name: John Cullinane
Title: Director
CITICORP USA, INC.
By: /s/ Nicolas T. Erni
---------------------------------------
Name: Nicolas T. Erni
Title: Attorney In Fact
COMERICA BANK, Detroit
By: /s/ Anthony L. Davis
---------------------------------------
Name: Anthony L. Davis
Title: Account Officer
CREDIT AGRICOLE INDOSUEZ, Chicago
By:/s/ Theodore D. Tice /s/ Katherine Abbott
---------------------------------------
Name: Theodore D. Tice and
Katherine Abbott
Title: Vice President and
First Vice President
<PAGE> 17
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc. its Managing Member
By: /s/ Jonathan D. Sharkey
---------------------------------------
Name: Jonathan D. Sharkey
Title: Principal
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc. its Managing Member
By: /s/ Jonathan D. Sharkey
---------------------------------------
Name: Jonathan D. Sharkey
Title: Principal
DELANO COMPANY
By: Pacific Investment Management
Company as its investment advisor
By: PIMCO Management Inc., a general partner
By: /s/ Mohan V. Phansalkar
---------------------------------------
Name: Mohan V. Phansalkar
Title: Senior Vice President
DRESDNER BANK, AG
By:
---------------------------------------
Name:
Title:
<PAGE> 18
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management
as Investment Advisor
By: /s/ Scott H. Page
---------------------------------------
Name: Scott H. Page
Title: Vice President
ERSTE BANK
By:
---------------------------------------
Name:
Title:
FIFTH THIRD BANK OF COLUMBUS
By: /s/ Mark Ransom
---------------------------------------
Name: Mark Ransom
Title: Vice President
FIRST UNION NATIONAL BANK N.C.
By: /s/ Andrew Payne
---------------------------------------
Name: Andrew Payne
Title: Vice President
FLEET NATIONAL BANK
By: /s/ G. Steven Kalin
---------------------------------------
Name: G. Steven Kalin
Title: Vice President
FOOTHILL INCOME TRUST, L.P.
By: /s/ Jeff Nikora
---------------------------------------
Name: Jeff Nikora
Title: Managing Member
<PAGE> 19
FRANKLIN FLOATING RATE TRUST
By: /s/ Chauncey Lufkin
---------------------------------------
Name: Chauncey Lufkin
Title: Vice President
FREEMONT INVESTMENT & LOAN
By:
---------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORP.
By:
---------------------------------------
Name:
Title:
HARRIS TRUST AND SAVINGS BANK
By: /s/ C. Scott Place
---------------------------------------
Name: C. Scott Place
Title: Vice President
HELLER FINANCIAL INC.
By: /s/ Linda W. Wolf
---------------------------------------
Name: Linda W. Wolf
Title: Senior Vice President
THE HUNTINGTON NATIONAL BANK
By: /s/ J. Stephen Bennett
---------------------------------------
Name: J. Stephen Bennett
Title: Vice President
<PAGE> 20
IKB DEUTSCHE INDUSTRIEBANK AG
LUXEMBOURG BRANCH
By: /s/ Maria Bissinger /s/ Ana Bohorquez
---------------------------------------
Name: Maria Bissinger and Ana Bohorquez
Title: Vice President and Manager
INDOSUEZ CAPITAL
By:
---------------------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING IIA, LTD.
By: /s/ Melissa Marano
---------------------------------------
Name: Melissa Marano
Title: Vice President
KZH APPALOOSA LLC
By:
---------------------------------------
Name:
Title:
KZH BDC LLC
By:
---------------------------------------
Name:
Title:
KZH CRESCENT 3 LLC
By: /s/ James J. Fevola
---------------------------------------
Name:
Title: Authorized agent
<PAGE> 21
KZH III LLC
By: /s/ James J. Fevola
---------------------------------------
Name: James J. Fevola
Title: Authorized agent
KZH ING-3 LLC
By: /s/ James J. Fevola
---------------------------------------
Name: James J. Fevola
Title: Authorized agent:
KZH PAMCO LLC
By: /s/ James J. Fevola
---------------------------------------
Name: James J. Fevola
Title: Authorized agent
KZH RIVERSIDE LLC
By: /s/ James J. Fevola
---------------------------------------
Name: James J. Fevola
Title: Authorized agent
KZH WATERSIDE LLC
By: /s/ James J. Fevola
---------------------------------------
Name: James J. Fevola
Title: Authorized agent
KZH CNC LLC
By: /s/ Peter Chin
---------------------------------------
Name: Peter Chin
Title: Authorized Agent
<PAGE> 22
KZH-CYPRESSTREE-1 LLC
By: /s/ James J. Fevola
---------------------------------------
Name: James J. Fevola
Title: Authorized Agent
KZH-ING-2 LLC
By: /s/ Peter Chin
---------------------------------------
Name: Peter Chin
Title: Authorized Agent
KZH-SOLEIL-2 LLC
By: /s/ Peter Chin
---------------------------------------
Name: Peter Chin
Title: Authorized Agent
KEY BANK NATIONAL ASSOCIATION
By: /s/ Brandon A. Lawlor
---------------------------------------
Name: Brandon A. Lawlor
Title: Vice President
LEHMAN COMMERCIAL PAPER INC.
By:
---------------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD.
By:
---------------------------------------
Name:
Title:
<PAGE> 23
ML CLO XII PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investments, Inc.,
as its investment manager
By: /s/ Jeffrey A. Bakalar
---------------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investments, Inc.,
as its investment manager
By: /s/ Jeffrey A. Bakalar
---------------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
MSDW PRIME INCOME TRUST
By:
---------------------------------------
Name:
Title:
MEESPIERSON N.V.
By: /s/ Peter Harraty /s/ W. Gibson
---------------------------------------
Name: Peter Harraty and W. Gibson
Title: Head of Acquisition Firm and
Manager
MERRILL LYNCH PRIME RATE PORTFOLIO
By:
---------------------------------------
Name:
Title:
<PAGE> 24
MERRILL LYNCH SENIOR FLOATING RATE FUND
By:
---------------------------------------
Name:
Title:
METROPOLITAN LIFE INSURANCE CO.
By:
---------------------------------------
Name:
Title:
MONUMENTAL LIFE INSURANCE COMPANY
By:
---------------------------------------
Name:
Title:
MOUNTAIN CLO TRUST
By:
---------------------------------------
Name:
Title:
MOUNTAIN CAPITAL CLO I, LTD.
By:
---------------------------------------
Name:
Title:
BANK ONE, MICHIGAN, as successor to
NBD BANK
By: /s/ Michael R. Zaksheske
---------------------------------------
Name: Michael R. Zaksheske
Title: Vice President
<PAGE> 25
NATIONAL CITY BANK
By: /s/ David B. Yates
---------------------------------------
Name: David B. Yates
Title: Vice President
NATIONAL WESTMINSTER BANK, PLC
By:
---------------------------------------
Name:
Title:
NORSE CBO, LTD.
By:
---------------------------------------
Name:
Title:
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By: /s/ Jonathan N. Sharkey
---------------------------------------
Name: Jonathan N. Sharkey
Title: Principal
ORIX USA CORPORATION
By: /s/ Hiroyuki Miyauchi
---------------------------------------
Name: Hiroyuki Miyauchi
Title: Executive Vice President
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P.
its General Partner
By: Oak Hill Securities MGP, Inc.
its General Partner
<PAGE> 26
By: /s/ Scott D. Krase
---------------------------------------
Name: Scott D. Krase
Title: Vice President
OASIS COLLATERALIZED HIGH INCOME
By:
---------------------------------------
Name:
Title:
OCTAGON LOAN TRUST
By:
---------------------------------------
Name:
Title:
OSPREY INVESTMENTS PORTFOLIO
By:
---------------------------------------
Name:
Title:
Oxford Strategic Income Fund
By: EATON VANCE MANAGEMENT
AS INVESTMENT ADVISOR
By: /s/ Scott H. Page
---------------------------------------
Name: Scott H. Page
Title: Vice President
PACIFICA PARTNERS I, L.P.
By: /s/ Tom Colwell
---------------------------------------
Name: Tom Colwell
Title: Vice President
<PAGE> 27
PARIBAS
By: /s/ Karen E. Coons /s/ Ann B. McAloon
---------------------------------------
Name: Karen E. Coons and Ann B. McAlon
Title: Vice President and Vice President
PINEHURST TRADING, INC.
By: /s/ Allen D. Shifflet
---------------------------------------
Name: Allen D. Shifflet
Title: President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", New York Branch
By: /s/ Michiel V.M. Van der Voort
---------------------------------------
Name: Michiel V.M. Van der Voort
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", Utrecht Branch
By: /s/ C. de Vries /s/ S.M.F. Klinkert
---------------------------------------
Name: C. de Vries & S.M.F. Klinkert
Title: Proxy category A/B and Proxy
Category B
SKM LIBERTYVIEW CBO I LTD.
By: /s/ Kenneth C. Kleger
---------------------------------------
Name: Kenneth C. Kleger
Title: Authorized Signatory
<PAGE> 28
SANKATY HIGH YIELD ASSET PARTNERS
By:
---------------------------------------
Name:
Title:
SCOTIABANC, INC.
By:
---------------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: /s/ Scott H. Page
---------------------------------------
Name: Scott H. Page
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Stephen L. Leister
---------------------------------------
Name: Stephen L. Leister
Title: Vice President
TORONTO DOMINION (TEXAS) INC.
By: /s/ Sonja R. Jordan
---------------------------------------
Name: Sonja R. Jordan
Title: Vice President
TRAVELERS INSURANCE COMPANY
By:
---------------------------------------
Name:
Title:
<PAGE> 29
VAN KAMPEN CLO I, LIMITED
By: Van Kampen Management Inc.,
as Collateral Manager
By: /s/ Darvin D. Pierce
Name: Darvin D. Pierce
Title: Vice President
ACKNOWLEDGEMENT AND CONSENT
---------------------------
In consideration of each Agent's and the Lenders' execution, delivery
and performance of the foregoing Amendment No. 1 and Consent (the "Amendment"),
each of the undersigned hereby (i) acknowledges the terms and provisions of the
Amendment and consents thereto and (ii) confirms and agrees that (x) the
Borrower and Domestic Subsidiary Guarantee and Collateral Agreement (the
"Guarantee and Collateral Agreement) is, and shall continue to be, in full force
and effect and is hereby ratified and confirmed in all respects and shall apply
to the Credit Agreement as amended by the Amendment and (y) the guarantees and
all of the Collateral (as defined in the Guarantee and Collateral Agreement) do,
and shall continue to, secure the payment of all of the Obligations (as defined
in the Guarantee and Collateral Agreement) pursuant to the terms of the
Guarantee and Collateral Agreement. Capitalized terms not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement referred
to in the Amendment to which this Acknowledgment and Consent is attached.
SCOTTS-SIERRA INVESTMENTS, INC.
SCOTTS PROFESSIONAL PRODUCTS CO.
SCOTTS PRODUCTS CO.
OMS INVESTMENTS, INC.
MIRACLE-GRO LAWN PRODUCTS, INC.
MIRACLE-GRO PRODUCTS LTD.
SCOTTS-SIERRA CROP PROTECTION
COMPANY
OLD FORT FINANCIAL CORP.
EARTHGRO, INC.
SANFORD SCIENTIFIC, INC.
EG SYSTEMS, INC.
SWISS FARMS PRODUCTS, INC.
<PAGE> 30
By:
----------------------------------
Title:
<PAGE> 1
Exhibit 10(c)
-------------
The Scotts Company 1999 Executive and
Management Incentive Plan
<PAGE> 2
[SCOTTS LOGO]
1999 SCOTTS EXECUTIVE AND MANAGEMENT
INCENTIVE PLAN
CORPORATE PARTICIPANTS
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 3
[SCOTTS LOGO]
1999 SCOTTS EXECUTIVE AND MANAGEMENT
INCENTIVE PLAN
BUSINESS GROUP PARTICIPANTS
EXECUTIVE LEVEL
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 4
[SCOTTS LOGO]
1999 SCOTTS EXECUTIVE AND MANAGEMENT
INCENTIVE PLAN
BUSINESS GROUP PARTICIPANTS
MANAGEMENT LEVEL
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 5
[SCOTTS LOGO]
1999 SCOTTS EXECUTIVE AND MANAGEMENT
INCENTIVE PLAN
OPERATIONS PARTICIPANTS
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 6
GENERAL PLAN PROVISIONS
OBJECTIVE: To provide a strong financial incentive that is consistent with and
supportive of business strategy and to encourage a team effort towards the
achievement of corporate goals.
TARGET AWARDS: Each participant will be assigned a 1999 "Bonus Target Percent of
Salary."
RESTRICTIONS: Participants must be actively employed in an eligible position for
at least 13 consecutive weeks during the plan year. Payouts will be prorated if
employment in an eligible position is for less than the entire plan year.
Participants must be employed on the last day of the fiscal year to be eligible
for a payout. Participants who terminate their employment during the plan year,
except in cases of retirement, will not be eligible for an incentive payment,
prorated or otherwise.
Plan eligibility and payout calculation will not be impacted for associates on
short term disability at any time during the plan year. However, if an associate
is on long term disability, the payout will be prorated to compensate only for
periods of active employment or short term disability.
The Plan confers no rights upon any associate to participate in the Plan or
remain in the employ of the Company. Neither the adoption of the Plan nor its
operation shall in any way affect the right of the associate or the Company to
terminate the employment relationship at any time.
The Company reserves the right to suspend the Plan, to withdraw the Plan, and to
make substantial alterations in Plan concept.
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 7
CORPORATE PARTICIPANTS
Note: Some participants may have a customized incentive plan design. Please
refer to your personalized communication for your plan specifics.
MEASUREMENTS:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
PARTICIPANTS CORPORATE MAJOR GOAL
EARNINGS ATTAINMENT
PER SHARE
("E.P.S.")
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Participants 80% 20%
- - ---------------------------------------------------------------------------------------------
</TABLE>
EARNED AWARDS:
CORPORATE EARNINGS PER SHARE: As reported in public financial statements.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
CORPORATE PERFORMANCE EARNINGS PER INCENTIVE PAYOUT
SHARE AWARD PERCENTAGE
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum 80% - $1.52 25%
- - ---------------------------------------------------------------------------------------------
Target 100% - $1.90 100%
- - ---------------------------------------------------------------------------------------------
Maximum 120% - $2.28 250%
- - ---------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results between "Minimum" and "Target": For each $.01 increase in E.P.S.
above the "Minimum", the award percentage increases by 1.97%.
For results between "Target" and "Maximum": For each $.01 increase in E.P.S.
above the "Target", the award percentage increases by 3.95%.
For results above the "Maximum": An incentive payout of 250% will be calculated.
MAJOR GOAL ATTAINMENT: Based on the performance and achievement of specific
quantifiable goals within the participant's area of responsibility, as
established and measured by the CEO and/or the participant's manager.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
PERSONAL PERFORMANCE GOAL ATTAINMENT INCENTIVE PAYOUT
LEVELS AWARD PERCENTAGE
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Did not achieve goals 0%
- - -------------------------------------------------------------------------------------------
Target Achieved goals on 100%
average
- - -------------------------------------------------------------------------------------------
Maximum Exceeded goals on 200%
average
- - -------------------------------------------------------------------------------------------
</TABLE>
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 8
Results between performance levels will be rewarded on a payout percentage
determined by the CEO and/or the participant's manager (with CEO approval).
SAMPLE CALCULATION:
Salary: $80,000
1999 Target Percentage: 20%
SAMPLE RESULTS:
Earnings Per Share: $2.00
Major Goal Attainment: Accomplished all major goals satisfactorily.
CALCULATION:
Determining the Corporate Earnings Per Share Award Percentage:
- - --------------------------------------------------------------
<TABLE>
<S> <C>
Corporate EPS = ((Actual EPS - Target EPS) x Incremental Payout Percentage) + 100%
Award % = (($2.00 - $1.90) x 3.95%) + 100%
= 139.5%
</TABLE>
Determining the Incentive Payout:
- - ---------------------------------
1999 Target x 80% x Corporate Earnings Per Share Award Percentage
20% x 80% x 139.5% = 22.32%
+
1999 Target x 20% x Major Goal Attainment Award Percentage
20% x 20% x 100% = 4.0%
=Award of 26.32% of pay
FINAL PAYOUT = $80,000 X 26.32% = $21,056
=======
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 9
BUSINESS GROUP PARTICIPANTS
EXECUTIVE LEVEL
(EXECUTIVES AND THEIR DIRECT REPORTS)
Note: Some participants may have a customized incentive plan design. Please
refer to your personalized communication for your plan specifics.
MEASUREMENTS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
PARTICIPANTS BUSINESS GROUP CORPORATE MAJOR GOAL
ADJUSTED EARNINGS ATTAINMENT
CONTRIBUTION PER SHARE
MARGIN ("E.P.S.")
("A.C.M.")
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Group 50% 30% 20%
Participant
- - ------------------------------------------------------------------------------------------
</TABLE>
EARNED AWARDS:
BUSINESS GROUP A.C.M.: Defined by the attached schedule.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
GROUP PERFORMANCE BUSINESS GROUP INCENTIVE PAYOUT
LEVELS A.C.M. AWARD PERCENTAGE
PERFORMANCE
PERCENTAGE
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum 80% 25%
- - ------------------------------------------------------------------------------------------
Target 100% 100%
- - ------------------------------------------------------------------------------------------
Maximum 120% 250%
- - ------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results between "Minimum" and "Target": For each 1.0% increase in
performance percentage above the "Minimum", the award percentage increases by
3.75%.
For results between "Target" and "Maximum": For each 1.0% increase in
performance percentage above the "Target", the award percentage increases by
7.5%.
For results above the "Maximum": An incentive payout of 250% will be calculated.
CORPORATE EARNINGS PER SHARE: As reported in public financial statements.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
CORPORATE PERFORMANCE EARNINGS PER INCENTIVE PAYOUT
SHARE AWARD PERCENTAGE
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum 80% - $1.52 25%
- - ---------------------------------------------------------------------------------------------
Target 100% - $1.90 100%
- - ---------------------------------------------------------------------------------------------
Maximum 120% - $2.28 250%
- - ---------------------------------------------------------------------------------------------
</TABLE>
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 10
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results between "Minimum" and "Target": For each $.01 increase in E.P.S.
above the "Minimum", the award percentage increases by 1.97%.
For results between "Target" and "Maximum": For each $.01 increase in E.P.S.
above the "Target", the award percentage increases by 3.95%.
For results above the "Maximum": An incentive payout of 250% will be calculated.
MAJOR GOAL ATTAINMENT: Based on the performance and achievement of specific
quantifiable goals within the participant's area of responsibility, as
established and measured by the CEO, President and/or the participant's manager.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
PERSONAL PERFORMANCE GOAL ATTAINMENT INCENTIVE PAYOUT
LEVELS AWARD PERCENTAGE
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Did not achieve goals 0%
- - -------------------------------------------------------------------------------------------
Target Achieved goals on 100%
average
- - -------------------------------------------------------------------------------------------
Maximum Exceeded goals on 200%
average
- - -------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be rewarded on a payout percentage
determined by the CEO and/or the participant's manager (with CEO approval).
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 11
SAMPLE CALCULATION:
Salary: $80,000
1999 Target Percentage: 20%
SAMPLE RESULTS:
Business Group A.C.M.:
Actual $21,000,000
Budget $20,000,000
Earnings Per Share: $2.00
Major Goal Attainment: Accomplished all major goals satisfactorily on average.
CALCULATION:
Determining the Business Group A.C.M. Award Percentage
- - ------------------------------------------------------
Business Group A.C.M. = $21,000,000 = 105%
-----------
Performance Percentage $20,000,000
Business Group A.C.M. = (Incremental Performance % above "target"x 7.5%) + 100%
Award Percentage = (5 x 7.5%) + 100%
= 137.5%
Determining the Corporate Earnings Per Share Award Percentage:
- - --------------------------------------------------------------
Corporate EPS = (Actual EPS - Target EPS) x Incremental Payout Percentage
Award Percentage = ($2.00 - $1.90) x 3.95%
= 139.5%
Determining the Incentive Payout:
- - ---------------------------------
1999 Target x 50% x Business Group A.C.M. Award Percentage
20% x 50% x 137.5% = 13.75%
+
1999 Target x 30% x Corporate Earnings Per Share Award Percentage
20% x 30% x 139.5% = 8.37%
+
1999 Target x 20% x Major Goal Attainment Award Percentage
20% x 20% x 100% = 4.0%
=Award of 26.12% of pay
FINAL PAYOUT = $80,000 X 26.12% = $20,896
=======
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 12
BUSINESS GROUP PARTICIPANTS
MANAGEMENT LEVEL
Note: Some participants may have a customized incentive plan design. Please
refer to your personalized communication for your plan specifics.
MEASUREMENTS:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
BUSINESS GROUP BUSINESS GROUP MAJOR GOAL
PARTICIPANT ADJUSTED ATTAINMENT
CONTRIBUTION
MARGIN ("A.C.M.")
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Business Group 80% 20%
Participant
- - -------------------------------------------------------------------------------------------
</TABLE>
EARNED AWARDS:
BUSINESS GROUP A.C.M.: Defined by the attached schedule.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
GROUP PERFORMANCE BUSINESS GROUP INCENTIVE PAYOUT
LEVELS A.C.M. AWARD PERCENTAGE
PERFORMANCE
PERCENTAGE
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum 80% 25%
- - ------------------------------------------------------------------------------------------
Target 100% 100%
- - ------------------------------------------------------------------------------------------
Maximum 120% 250%
- - ------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results between "Minimum" and "Target": For each 1.0% increase in
performance percentage above the "Minimum", the award percentage increases by
3.75%.
For results between "Target" and "Maximum": For each 1.0% increase in
performance percentage above the "Target", the award percentage increases by
7.5%.
For results above the "Maximum": An incentive payout of 250% will be calculated.
MAJOR GOAL ATTAINMENT: Based on the performance and achievement of specific
quantifiable goals within the participant's area of responsibility, as
established and measured by the CEO, President and/or the participant's manager.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
PERSONAL PERFORMANCE GOAL ATTAINMENT INCENTIVE PAYOUT
LEVELS AWARD PERCENTAGE
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Did not achieve goals 0%
- - -------------------------------------------------------------------------------------------
Target Achieved goals on 100%
average
- - -------------------------------------------------------------------------------------------
Maximum Exceeded goals on 200%
average
- - -------------------------------------------------------------------------------------------
</TABLE>
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 13
Results between performance levels will be rewarded on a payout percentage
determined by the CEO and/or the participant's manager (with CEO approval).
SAMPLE CALCULATION:
Salary: $80,000
1999 Target Percentage: 20%
SAMPLE RESULTS:
Business Group A.C.M.:
Actual $21,000,000
Budget $20,000,000
Major Goal Attainment: Accomplished all major goals satisfactorily on average.
CALCULATION:
Determining the Business Group A.C.M. Award Percentage
- - ------------------------------------------------------
Business Group A.C.M. = $21,000,000 = 105%
-----------
Performance Percentage $20,000,000
Business Group A.C.M. = (Incremental Performance % above "target" x 7.5%) + 100%
Award Percentage = (5 x 7.5%) + 100%
= 137.5%
Determining the Incentive Payout:
- - ---------------------------------
1999 Target x 80% x Business Group A.C.M. Award Percentage
20% x 80% x 137.5% = 22.0%
+
1999 Target x 20% x Major Goal Attainment Award Percentage
20% x 20% x 100% = 4.0%
=Award of 26.0% of pay
FINAL PAYOUT = $80,000 X 26.0% = $20,800
=======
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 14
OPERATIONS PARTICIPANTS
MEASUREMENTS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
BUSINESS MAJOR INDIVIDUAL BUSINESS CORPORATE MAJOR GOAL
GROUP AREA OF AREA OF GROUP(S) EARNINGS ATTAINMENT
RESPONSIBILITY RESPONSIBILITY ADJUSTED PER SHARE
("M.A.O.R") ("I.A.O.R.") CONTRIBUTION
MARGIN
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations Range: Range: Range: Range: 20%
0% - 60% 0% - 35% 0% - 20% 0% - 30%
- - ----------------------------------------------------------------------------------------------
</TABLE>
EARNED AWARDS
MAJOR AREA OF RESPONSIBILITY: Defined according to the participant.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
M.A.O.R. AREA OF RESPONSIBILITY INCENTIVE PAYOUT
PERFORMANCE MEASURE(S) AWARD PERCENTAGE
LEVELS
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Defined according to the 25%
M.A.O.R.
- - ---------------------------------------------------------------------------------------------
Target Budget 100%
- - ---------------------------------------------------------------------------------------------
Maximum Defined according to the 250%
M.A.O.R.
- - ---------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results above the "Maximum": An incentive payout of 250% will be calculated.
INDIVIDUAL AREA OF RESPONSIBILITY: Defined according to the participant.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
I.A.O.R. AREA OF RESPONSIBILITY INCENTIVE PAYOUT
PERFORMANCE MEASURE(S) AWARD PERCENTAGE
LEVELS
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Defined according to the 25%
I.A.O.R.
- - ---------------------------------------------------------------------------------------------
Target Budget 100%
- - ---------------------------------------------------------------------------------------------
Maximum Defined according to the 250%
I.A.O.R.
- - ---------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results above the "Maximum": An incentive payout of 250% will be calculated.
BUSINESS GROUP(S) A.C.M.: Defined by the attached schedule.
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 15
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
GROUP PERFORMANCE BUSINESS GROUP INCENTIVE PAYOUT
LEVELS A.C.M. AWARD PERCENTAGE
PERFORMANCE
PERCENTAGE
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum 80% 25%
- - ------------------------------------------------------------------------------------------
Target 100% 100%
- - ------------------------------------------------------------------------------------------
Maximum 120% 250%
- - ------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results between "Minimum" and "Target": For each 1.0% increase in
performance percentage above the "Minimum", the award percentage increases by
3.75%.
For results between "Target" and "Maximum": For each 1.0% increase in
performance percentage above the "Target", the award percentage increases by
7.5%.
For results above the "Maximum": An incentive payout of 250% will be calculated.
CORPORATE EARNINGS PER SHARE: As reported in public financial statements.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
CORPORATE PERFORMANCE EARNINGS PER INCENTIVE PAYOUT
SHARE AWARD PERCENTAGE
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum 80% - $1.52 25%
- - ---------------------------------------------------------------------------------------------
Target 100% - $1.90 100%
- - ---------------------------------------------------------------------------------------------
Maximum 120% - $2.28 250%
- - ---------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be incrementally calculated so
participants will receive a prorated payout (calculated on a straight-line
basis, rounded to the nearest percentile).
For results below the "Minimum": No incentive payout will be made.
For results between "Minimum" and "Target": For each $.01 increase in E.P.S.
above the "Minimum", the award percentage increases by 1.97%.
For results between "Target" and "Maximum": For each $.01 increase in E.P.S.
above the "Target", the award percentage increases by 3.95%.
For results above the "Maximum": An incentive payout of 250% will be calculated.
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 16
MAJOR GOAL ATTAINMENT: Based on the performance and achievement of specific
quantifiable goals within the participant's area of responsibility, as
established and measured by the CEO, President and/or the participant's manager.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
PERSONAL PERFORMANCE GOAL ATTAINMENT INCENTIVE PAYOUT
LEVELS
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum Did not achieve goals 0%
- - -------------------------------------------------------------------------------------------
Target Achieved goals on 100%
average
- - -------------------------------------------------------------------------------------------
Maximum Exceeded goals on 200%
average
- - -------------------------------------------------------------------------------------------
</TABLE>
Results between performance levels will be rewarded on a payout percentage
determined by the CEO and/or the participant's manager (with CEO approval).
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 17
SAMPLE CALCULATION:
Salary: $80,000
1999 Target Percentage: 20%
SAMPLE INCENTIVE MEASUREMENTS:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
BUSINESS MAJOR INDIVIDUAL BUSINESS CORPORATE MAJOR GOAL
GROUP AREA OF AREA OF GROUP(S) EARNINGS ATTAINMENT
RESPONSIBILITY RESPONSIBILITY A.C.M. PER SHARE
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sample 25% 0% 25% 30% 20%
- - -----------------------------------------------------------------------------------------------
</TABLE>
SAMPLE RESULTS:
Major Area of Responsibility: Achieved 100% of the budget M.A.O.R.
Business Group A.C.M.:
Actual $21,000,000
Budget $20,000,000
Corporate Earnings per Share: $2.00
Major Goal Attainment: Accomplished all major goals satisfactorily on average.
CALCULATION:
Determining the Business Group A.C.M. Award Percentage
- - ------------------------------------------------------
Business Group A.C.M. = $21,000,000 = 105%
-----------
Performance Percentage $20,000,000
Business Group A.C.M. = (Incremental Performance % above "target"x 7.5%) + 100%
Award Percentage = (5 x 7.5%) + 100%
= 137.5%
Determining the Corporate Earnings Per Share Award Percentage:
- - --------------------------------------------------------------
Corporate EPS = (Actual EPS - Target EPS) x Incremental Payout Percentage
Award Percentage = ($2.00 - $1.90) x 3.95%
= 139.5%
Determining the Incentive Payout:
- - ---------------------------------
1999 Target x 25% x Major Area of Responsibility Award Percentage
20% x 25% x 100% = 5.00%
+
1999 Target x 25% x Business Group A.C.M. Award Percentage
20% x 25% x 137.5% = 6.88%
+
1999 Target x 30% x Corporate Earnings Per Share Award Percentage
20% x 30% x 139.5% = 8.37%
+
1999 Target x 20% x Major Goal Attainment Award Percentage
20% x 20% x 100% = 4.00%
= Award of 24.25% of pay
FINAL PAYOUT = $80,000 X 24.25% = $19,400
10/26/1999 PROPRIETARY AND CONFIDENTIAL
<PAGE> 1
Exhibit 10(d)
The Scotts Company
1996 Stock Option Plan
(reflects amendments through
December 8, 1999)
<PAGE> 2
THE SCOTTS COMPANY
1996 STOCK OPTION PLAN
(REFLECTS AMENDMENTS THROUGH DECEMBER 8, 1999)
<PAGE> 3
THE SCOTTS COMPANY
1996 STOCK OPTION PLAN
(REFLECTS AMENDMENTS THROUGH DECEMBER 8, 1999)
SECTION l.
PURPOSE
The purpose of the Plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) encouraging and providing for the acquisition of an ownership interest in
the Company by Employees and Eligible Directors, and (b) enabling the Company to
attract and retain the services of an outstanding management team upon whose
judgment, interest, and special effort the successful conduct of its operations
is largely dependent.
SECTION 2.
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have
the respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Award" means any Option.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (i) the willful failure by a Participant to perform
substantially his duties as an Employee of the Company (other than due to
physical or mental illness) after reasonable notice to the Participant of such
failure, (ii) the Participant's engaging in serious misconduct that is injurious
to the Company or any Subsidiary, (iii) the Participant's having been convicted
of, or entered a plea of nolo contendere to, a crime that constitutes a felony
or (iv) the breach by the Participant of any written covenant or agreement with
the Company or any Subsidiary not to disclose any information pertaining to the
Company or any Subsidiary or not to compete or interfere with the Company or any
Subsidiary.
(e) "Change in Control" means the occurrence of any of the following
events:
(i) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the "Incumbent
Directors") cease for any reason other than due to death to constitute
at least a majority of the members of the Board, provided that any
director whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
members of the Board then still in office who were members of the Board
at the beginning of such twenty-four calendar month period, shall be
treated as an Incumbent Director; or
(ii) any "person," including a "group" (as such terms are used
in Sections 13(d) and 14(d)(2) of the Act, but excluding the Company,
any of its Subsidiaries, or any employee benefit plan of the Company or
of any of its Subsidiaries,) is or becomes the
-2-
<PAGE> 4
"beneficial owner" (as defined in Rule 13(d)(3) under the Act),
directly or indirectly, of securities of the Company representing more
than 49% of the combined voting power of the Company's then outstanding
securities; or
(iii) the shareholders of the Company shall approve a
definitive agreement (1) for the merger or other business combination
of the Company with or into another corporation, a majority of the
directors of which were not directors of the Company immediately prior
to the merger and in which the shareholders of the Company immediately
prior to the effective date of such merger own less than 50% of the
voting power in such corporation; or (2) for the sale or other
disposition of all or substantially all of the assets of the Company;
or
(iv) the purchase of Stock pursuant to any tender or exchange
offer made by any "person," including a "group" (as such terms are used
in Sections 13(d) and 14(d)(2) of the Act), other than the Company, any
of its Subsidiaries, or an employee benefit plan of the Company or of
any of its Subsidiaries, for more than 49% of the Stock of the Company.
(f) "Change in Control Price" means the highest price per share of
Stock offered in conjunction with any transaction resulting in a Change in
Control (as determined in good faith by the Committee if any part of the offered
price is payable other than in cash) or, in the case of a Change in Control
occurring solely by reason of a change in the composition of the Board, the
highest Fair Market Value of the Stock on any of the 30 trading days immediately
preceding the date on which a Change in Control occurs.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the Compensation and Organization Committee of
the Board which shall have the meaning ascribed to a "compensation committee" in
Section 1.162-27(c)(4) of the final regulations promulgated under Section 162(m)
of the Code and which shall consist of three or more members, each of whom shall
be (i) a person from time to time permitted by the rules promulgated under
Section 16 of the Act in order for grants of Awards to be exempt transactions
under said Section 16 and (ii) receiving remuneration in no other capacity than
as a director, except as permitted under Section 1.162-27(e)(3) of the final
regulations promulgated under Section 162(m) of the Code and the rulings
thereunder.
(i) "Company" means The Scotts Company, an Ohio corporation, and any
successor thereto.
(j) "Director Option" means a "nonstatutory stock option" ("NSO")
granted to each Eligible Director pursuant to Section 6.6 without any action by
the Board or the Committee.
(k) "Disability" means the inability of the Participant to perform his
duties for a period of at least six months due to a physical or medical
infirmity. Notwithstanding the foregoing, with respect to Incentive Stock
Options, the term "Disability" shall be defined as such term is defined in
Section 22(e)(3) of the Code.
(l) "Eligible Director" means, on any date, a person who is serving as
a member of the Board and who is not an Employee.
(m) "Employee" means any officer or other key executive and management
employee of the Company or of any of its Subsidiaries.
-3-
<PAGE> 5
(n) "Fair Market Value" means, on any date, the closing price of the
Stock as reported on the New York Stock Exchange (or on such other recognized
market or quotation system on which the trading prices of the Stock are traded
or quoted at the relevant time) on such date. In the event that there are no
Stock transactions reported on the New York Stock Exchange (or such other market
or system) on such date, Fair Market Value shall mean the closing price on the
immediately preceding date on which Stock transactions were so reported.
(o) "Option" means the right to purchase Stock at a stated price for a
specified period of time. For purposes of the Plan, an Option may be either (i)
an "Incentive Stock Option" (ISO) within the meaning of Section 422 of the Code
or (ii) a NSO which does not qualify for treatment as an "Incentive Stock
Option."
(p) "Participant" means any Employee designated by the Committee to
participate in the Plan.
(q) "Plan" means The Scotts Company 1996 Stock Option Plan, as in
effect from time to time.
(r) "Retirement" means termination of a Participant's employment on or
after the normal retirement date or, with the Committee's approval, on or after
any early retirement date established under any retirement plan maintained by
the Company or a Subsidiary in which the Participant participates.
(s) "Stock" means the Common Shares, without par value, of the Company.
(t) "Subsidiary" means any corporation or partnership in which the
Company owns, directly or indirectly, 50% or more of the total combined voting
power of all classes of stock of such corporation or of the capital interest or
profits interest of such partnership.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Except as otherwise provided in Section 6.6, the only persons eligible
to participate in the Plan shall be those Employees selected by the Committee as
Participants.
SECTION 4.
POWERS OF THE COMMITTEE
4.l Power to Grant. The Committee shall determine the Participants to
whom Awards shall be granted, the type or types of Awards to be granted and the
terms and conditions of any and all such Awards. The Committee may establish
different terms and conditions for different types of Awards, for different
Participants receiving the same type of Award and for the same Participant for
each Award such Participant may receive, whether or not granted at different
times.
-4-
<PAGE> 6
4.2 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to prescribe, amend, and rescind rules and regulations relating to
the Plan, to provide for conditions deemed necessary or advisable to protect the
interests of the Company, and to make all other determinations (including,
without limitation, whether a Participant has incurred a Disability) necessary
or advisable for the administration and interpretation of the Plan in order to
carry out its provisions and purposes. Determinations, interpretations, or other
actions made or taken by the Committee pursuant to the provisions of the Plan
shall be final, binding, and conclusive for all purposes and upon all persons.
SECTION 5.
STOCK SUBJECT TO PLAN
5.1 Number. Subject to the provisions of Section 5.3, the number of
shares of Stock subject to Awards under the Plan may not exceed 5,500,000 shares
of Stock. Subject to the provisions of Section 5.3, no Employee shall receive
Awards for more than 150,000 shares of Stock over any one-year period. For this
purpose, to the extent that any Award is cancelled (as described in Section
1.162-27(e)(2)(vi)(B) of the final regulations promulgated under Section 162(m)
of the Code), such cancelled Award shall continue to be counted against the
maximum number of shares of Stock for which Awards may be granted to an Employee
under the Plan. The shares of Stock to be delivered under the Plan may consist,
in whole or in part, of treasury Stock or authorized but unissued Stock, not
reserved for any other purpose.
5.2 Cancelled, Terminated, or Forfeited Awards. Except as provided in
Section 5.1, any shares of Stock subject to an Award which for any reason is
cancelled, terminated or otherwise settled without the issuance of any Stock
shall again be available for Awards under the Plan.
5.3 Adjustment in Capitalization. In the event of any Stock dividend or
Stock split, recapitalization (including, without limitation, the payment of an
extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to shareholders, exchange of shares, or other similar
corporate change, the aggregate number of shares of Stock available for Awards
under Section 5.1 or subject to outstanding Awards and the respective prices
and/or limitations applicable to outstanding Awards may be appropriately
adjusted by the Committee, whose determination shall be conclusive. If, pursuant
to the preceding sentence, an adjustment is made to the number of shares subject
to outstanding Options held by Participants a corresponding adjustment shall be
made to the number of shares subject to outstanding Director Options and if an
adjustment is made to the number of shares of Stock authorized for issuance
under the Plan, a corresponding adjustment shall be made to the number of shares
subject to each Director Option thereafter granted pursuant to Section 6.6.
SECTION 6.
OPTIONS
6.1 Grant of Options. Options may be granted to Participants at such
time or times as shall be determined by the Committee. Options granted under the
Plan may be of two types: (i) Incentive Stock Options and (ii) NSOs. The
Committee shall have complete discretion in
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<PAGE> 7
determining the number of Options, if any, to be granted to a Participant.
Without limiting the foregoing, the Committee may grant Options containing
provisions for the issuance to the Participant, upon exercise of such Option and
payment of the exercise price therefor with previously owned shares of Stock, of
an additional Option for the number of shares so delivered, having such other
terms and conditions not inconsistent with the Plan as the Committee shall
determine. Each Option shall be evidenced by an Option agreement that shall
specify the type of Option granted, the exercise price, the duration of the
Option, the number of shares of Stock to which the Option pertains, and such
other terms and conditions not inconsistent with the Plan as the Committee shall
determine.
6.2 Option Price. NSOs and Incentive Stock Options granted pursuant to
the Plan shall have an exercise price which is not less than the Fair Market
Value of the Stock on the date the Option is granted. To the extent that an
Incentive Stock Option is granted to a Participant who owns (actually or
constructively under the provisions of Section 424(d) of the Code) Stock
possessing more than 10% of the total combined voting power of all classes of
Stock of the Company or of any Subsidiary, such Incentive Stock Option shall
have an exercise price which is not less than 110% of the Fair Market Value on
the date the Option is granted.
6.3 Exercise of Options. Options awarded to a Participant under the
Plan shall be exercisable at such times and shall be subject to such
restrictions and conditions including the performance of a minimum period of
service, as the Committee may impose, either at or after the time of grant of
such Options; provided, however, that if the Committee does not specify another
exercise schedule at the time of grant, each Option shall become exercisable on
the third anniversary of the date of grant, subject to the Committee's right to
accelerate the exercisability of such Option in its discretion. Notwithstanding
the foregoing, no Option shall be exercisable for more than 10 years after the
date on which it is granted; provided, however, in the case of an Incentive
Stock Option granted to a Participant who owns (actually or constructively under
the provisions of Section 424(d) of the Code) Stock possessing more than 10% of
total combined voting power of all classes of Stock of the Company or any
Subsidiary, such Incentive Stock Option shall not be exercisable for more than 5
years after the date on which it is granted.
6.4 Payment. The Committee shall establish procedures governing the
exercise of Options, which shall require that written notice of exercise be
given and that the Option price be paid in full in cash or equivalents,
including by personal check, at the time of exercise or pursuant to any
arrangement that the Committee shall approve. The Committee may, in its
discretion, permit a Participant to make payment in Stock already owned by him,
valued at its Fair Market Value on the date of exercise, as partial or full
payment of the exercise price. As soon as practicable after receipt of a written
exercise notice and full payment of the exercise price, the Company shall
deliver to the Participant a certificate or certificates representing the
acquired shares of Stock.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan to
the contrary, no term of this Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of any Participant affected thereby, to
cause any Incentive Stock Option previously granted to fail to qualify for the
Federal income tax treatment afforded under Section 421 of the Code. Further,
the aggregate Fair Market Value (determined as of the time an Incentive Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Participant during any calendar year
(under all option plans of the Company and all Subsidiaries of the Company)
shall not exceed $100,000.
6.6 Director Options. Notwithstanding anything else contained herein to
the contrary, on the first business day following the date of each annual
meeting of shareholders during the
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<PAGE> 8
term of the Plan, each Eligible Director who is not a member of a Board
committee shall receive a Director Option to purchase 5,000 shares of Stock at
an exercise price per share equal to the Fair Market Value of the Stock on the
date of grant. An Eligible Director who is a member of one or more Board
committees, shall receive a grant of 5,500 shares. An Eligible Director who
chairs one or more Board committees shall receive a grant of 6,500 shares. Each
Director Option shall be exercisable six months after the date of grant and
shall remain exercisable until the earlier to occur of (i) the tenth anniversary
of the date of grant or (ii) the first anniversary of the date the Eligible
Director ceases to be a member of the Board, except that (a) if the Eligible
Director ceases to be a member of the Board after having been convicted of, or
pled guilty or nolo contendere to, a felony, his Director Options shall be
cancelled on the date he ceases to be a director, or (b) if the Eligible
Director ceases to be a member of the Board due to a Director Retirement, any
Director Options granted to such Director which are then outstanding (whether or
not exercisable prior to the date of such Director Retirement), may be exercised
at any time prior to the expiration of the term of the Director Options or
within five(5) years following the Director Retirement, whichever period is
shorter. For the purposes of this Section 6.6, "Director Retirement" means the
retirement of an Eligible Director from service on the Board after having served
at least 10 years as a member of the Board and attained the age of 55, unless
the Board specifies a shorter period of required service. An Eligible Director
may exercise a Director Option in the manner described in Section 6.3.
SECTION 7.
TERMINATION OF EMPLOYMENT
7.1 Termination of Employment Due to Retirement. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment terminates by reason of Retirement, any Options granted to such
Participant which are then outstanding (whether or not exercisable prior to the
date of such termination) may be exercised at any time prior to the expiration
of the term of the Options or within five (5) years (or such shorter period as
the Committee shall determine at the time of grant) following the Participant's
termination of employment, whichever period is shorter. Notwithstanding any
provision contained herein, with respect to any Incentive Stock Option, a
Participant who terminates his employment by reason of Retirement may exercise
such Incentive Stock Option at any time prior to the expiration of the term of
the Option or within three (3) months following the Participant's termination of
employment, whichever period is shorter.
7.2 Termination of Employment Due to Death or Disability. Unless
otherwise determined by the Committee at the time of grant, in the event a
Participant's employment terminates by reason of death or Disability, any
Options granted to such Participant which are then outstanding (whether or not
exercisable prior to the date of such termination) may be exercised by the
Participant or the Participant's designated beneficiary, and if none is named,
in accordance with Section 10.2, at any time prior to the expiration date of the
term of the Options or within five (5) years (or such shorter period as the
Committee shall determine at the time of grant) following the Participant's
termination of employment, whichever period is shorter. Notwithstanding any
provision contained herein, with respect to any Incentive Stock Option, a
Participant whose employment terminates by reason of death or Disability may
exercise (or his designated beneficiary may exercise, in the case of death) such
Incentive Stock Option at any time prior to the expiration of the term of the
Option or within one (1) year following the Participant's termination of
employment, whichever period is shorter.
7.3 Termination of Employment For Cause. Unless otherwise determined by
the Committee at the time of grant, in the event a Participant's employment is
terminated for Cause,
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<PAGE> 9
any Options granted to such Participant which are then outstanding (whether or
not exercisable prior to the date of such termination) shall be forfeited.
7.4 Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at or after the time of grant, in the event the
employment of the Participant shall terminate for any reason other than one
described in Section 7.1, 7.2 or 7.3, any Options granted to such Participant
which are exercisable at the date of the Participant's termination of
employment, or on such accelerated basis as the Committee may have determined in
its discretion, shall remain exercisable until the earlier to occur of (i) the
expiration of the term of such Options or (ii) the ninetieth day following the
Participant's termination of employment, whichever period is shorter.
7.5 Limitations on Exercisability Following Termination of Employment.
No Options shall be exercisable after termination of employment unless the
Participant shall have, during the time period in which the Options are
exercisable, (a) refrained from serving as an officer, director or employee of
any individual, partnership or corporation, or the owner of a business, or a
member of a partnership which conducts business in competition with the Company
or renders any service (including, without limitation, advertising agencies and
business consultants) to competitors with any portion of the business of the
Company, (b) been available, if so requested by the Company, at reasonable times
and upon a reasonable basis, to consult with, supply information to, and
otherwise cooperate with, the Company, and (c) refrained from engaging in a
deliberate action which has been determined by the Committee to cause
substantial harm to the interests of the Company. If any of these conditions is
not fulfilled, the Committee may require the Participant to forfeit all rights
to any Options which have not been exercised prior to the date of the breach of
the condition.
SECTION 8.
CHANGE IN CONTROL
8.l Accelerated Vesting and Payment. Subject to the provisions of
Section 8.2 below, in the event of a Change in Control, each Participant shall
be permitted, in his discretion, to surrender any Option (excluding any Director
Option) or portion thereof in exchange for a payment in cash of an amount equal
to the excess of the Change in Control Price over the exercise price of the
Option. Such right to surrender an Option in exchange for a payment in cash
shall remain in effect only during the fifteen-day period commencing with the
day following the date of a Change in Control. Thereafter, the Option shall only
be exercisable in accordance with the terms and conditions of the Stock Option
Agreement and the provisions of the Plan.
8.2 Alternative Awards. Notwithstanding Section 8.l, no cancellation or
cash settlement or other payment shall occur with respect to any Award or any
class of Awards if the Committee reasonably determines in good faith prior to
the occurrence of a Change in Control that such Award or Awards shall be honored
or assumed, or new rights substituted therefor (such honored, assumed or
substituted award hereinafter called an "Alternative Award"), by a Participant's
employer (or the parent or a subsidiary of such employer) immediately following
the Change in Control, provided that any such Alternative Award must:
(i) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days of the Change in Control;
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<PAGE> 10
(ii) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially equivalent to or better
than the rights, terms and conditions applicable under such Award, including,
but not limited to, an identical or better exercise or vesting schedule and
identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Award
(determined at the time of the Change in Control); and
(iv) have terms and conditions which provide that in the event that the
Participant's employment is involuntarily terminated or constructively
terminated, any conditions on a Participant's rights under, or any restrictions
on transfer or exercisability applicable to, each such Alternative Award shall
be waived or shall lapse, as the case may be.
For this purpose, a constructive termination shall mean a termination
by a Participant following a material reduction in the Participant's
compensation, a material reduction in the Participant's responsibilities or the
relocation of the Participant's principal place of employment to another
location, in each case without the Participant's written consent.
8.3 Director Options. Upon a Change in Control, each Director Option
granted to an Eligible Director shall be cancelled in exchange for a payment in
cash of an amount equal to the excess of the Change in Control Price over the
exercise price for such Director Option unless (i) the Stock remains traded on
an established securities market following the Change in Control and (ii) such
Eligible Director remains on the Board following the Change in Control.
8.4 Options Granted Within Six Months of the Change in Control. If any
Option (including a Director Option) granted within six months of the date on
which a Change in Control occurs (i) is held by a person subject to the
reporting requirements of Section 16(a) of the Act and (ii) is to be cashed out
pursuant to Section 8.1 or 8.3, such cash out shall not occur unless and until,
in the opinion of the Company's counsel, such cash out could occur without such
reporting person being potentially subject to liability under Section 16(b) of
the Act by reason of such cash out.
SECTION 9.
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board or the Committee may at any time terminate or suspend the
Plan, and from time to time may amend or modify the Plan; provided, however,
that no amendment may be made to Section 6.6 or any other provision of the Plan
relating to Director Options within six months of the last date on which any
such provision was amended. Any such amendment, termination or suspension may be
made without the approval of the shareholders of the Company except as such
shareholder approval may be required (a) to satisfy the requirements of Rule
16b-3 under the Act, or any successor rule or regulation, (b) to satisfy
applicable requirements of the Code or (c) to satisfy applicable requirements of
any securities exchange on which are listed any of the Company's equity
securities. No amendment of the Plan shall result in any Committee member's
losing his status as a "disinterested person" as defined in Rule 16b-3 under the
Act, or any successor rule or regulation, with respect to any employee benefit
plan of the Company or result in the Plan's losing its status as a plan
satisfying the requirements of said Rule 16b-3. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any Award therefore
granted under the Plan, without the consent of the Participant.
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<PAGE> 11
SECTION 10
MISCELLANEOUS PROVISIONS
10.1 Assignability. With the permission of the Committee, a Participant
or a specified group of Participants who has or have been granted a NSO under
the Plan, may transfer such Option to a revocable inter vivos trust as to which
the Participant is the settlor or may transfer such an Option to a "Permissible
Transferee." A Permissible Transferee shall be defined as any member of the
immediate family of the Participant, any trust, whether revocable or
irrevocable, solely for the benefit of members of the Participant's immediate
family, or any partnership or limited liability company whose only partners or
members are members of the Participant's immediate family. Any such transferee
of a NSO shall remain subject to all of the terms and conditions applicable to
such NSO and subject to the rules and regulations prescribed by the Committee. A
NSO may not be retransferred by a Permissible Transferee except by will or the
laws of descent and distribution and then only to another Permissible
Transferee. Other than as described above, an Award granted under the Plan may
not be transferred except by will or the laws of descent and distribution and,
during the lifetime of the Participant to whom granted, may be exercised only by
him, his guardian or legal representative.
10.2 Beneficiary Designation. Each Participant and each Eligible
Director under the Plan may from time to time name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid or by whom any right under the Plan is to
be exercised in case of his death. Each designation shall revoke all prior
designations by the same Participant or Eligible Director, shall be in a form
prescribed by the Committee, and shall be effective only when filed in writing
with the Committee. In the absence of any such designation, benefits remaining
unpaid at the Participant's death shall be paid to or exercised by his surviving
spouse, if any, or otherwise to or by his estate and Director Options
outstanding at the Eligible Director's death shall be exercised by his surviving
spouse, if any, or otherwise by his estate.
10.3 No Guarantee of Employment or Participation. Nothing in the Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary. No Employee shall have a right to be selected as a Participant, or,
having been so selected, to receive any future Awards. Nothing in the Plan shall
confer upon an Eligible Director a right to continue to serve on the Board or to
be nominated for reelection to the Board.
10.4 Tax Withholding. The Company shall have the power to withhold, or
require a Participant or Eligible Director to remit to the Company, an amount
sufficient to satisfy Federal, State, and local withholding tax requirements on
any Award under the Plan, and the Company may defer payment of cash or issuance
of Stock until such requirements are satisfied. The Committee may, in its
discretion, permit a Participant to elect, subject to such conditions as the
Committee shall impose, (i) to have shares of Stock otherwise issuable under the
Plan withheld by the Company or (ii) to deliver to the Company previously
acquired shares of Stock having a Fair Market Value sufficient to satisfy all or
part of the Participant's estimated total Federal, state, and local tax
obligation associated with the transaction.
10.5 Indemnification. Each person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be
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<PAGE> 12
made a party or in which he may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid by
him in settlement thereof, with the Company's approval, or paid by him in
satisfaction of any judgment in any such action, suit, or proceeding against
him, provided he shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive and
shall be independent of any other rights of indemnification to which such
persons may be entitled under the Company's Articles of Incorporation or Code of
Regulations, by contract, as a matter of law, or otherwise.
10.6 No Limitation on Compensation. Nothing in the Plan shall be
construed to limit the right of the Company to establish other plans or to pay
compensation to its Employees or directors, in cash or property, in a manner
which is not expressly authorized under the Plan.
10.7 International Employees. It is the Company's desire to provide the
same motivation to materially increase shareholder value and to enable the
Company to attract and retain the services of outstanding managers in the
international locations where the Company maintains facilities and employs
people. To this end, the Company will adopt incentives in its foreign locations
that provide as closely as possible the same motivational effect as Options
provide to domestic Participants. The Committee may grant Awards to employees
who are subject to the tax laws of nations other than the United States, which
Awards may have terms and conditions that differ from other Awards granted under
the Plan for the purposes of complying with foreign tax laws.
10.8 Requirements of Law. The granting of Awards and the issuance of
shares of Stock shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required. Notwithstanding the foregoing, no Stock shall be
issued under the Plan unless the Company is satisfied that such issuance will be
in compliance with applicable federal and state securities laws. Certificates
for Stock delivered under the Plan may be subject to such stock transfer orders
and other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed or traded, the Nasdaq
National Market or any applicable federal or state securities law. The Committee
may cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions.
10.9 Term of Plan. The Plan shall be effective upon its adoption by the
Committee, subject to approval by the Board and approval by the affirmative vote
of the holders of a majority of the shares of voting stock present in person or
represented by proxy at the 1996 Annual Meeting of Shareholders. The Plan shall
continue in effect, unless sooner terminated pursuant to Section 9, until the
tenth anniversary of the date on which it is adopted by the Board.
10.10 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Ohio.
10.11 No Impact On Benefits. Plan Awards are not compensation for
purposes of calculating an Employee's rights under any employee benefit plan.
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<PAGE> 1
Exhibit 10(l)
-------------
Specimen form of Stock Option Agreement for
Non-Qualified Stock Options
<PAGE> 2
STOCK OPTION AGREEMENT JOHN Q. PARTICIPANT
(Non-Qualified Stock Option)
----------------------------
THIS AGREEMENT is made to be effective as of April 5, 1999, by and
between The Scotts Company, an Ohio corporation (the "Company"), and JOHN Q.
PARTICIPANT (the "Optionee").
W I T N E S S E T H:
--------------------
WHEREAS, the Board of Directors of the Company adopted The Scotts
Company 1996 Stock Option Plan (the "1996 Plan") on February 12, 1996; and
WHEREAS, the shareholders of the Company approved the 1996 Plan at the
Annual Meeting of Shareholders of the Company held on April 9, 1996; and
WHEREAS, the shareholders of the Company amended the 1996 Plan at the
Annual Meeting of Shareholders of the Company held on March 12, 1997 to increase
the number of shares authorized thereunder to 3,000,000; and
WHEREAS, the shareholders of the Company amended the 1996 Plan at the
Annual Meeting of Shareholders on February 23, 1999 to increase the number of
shares of stock authorized thereunder to 5,500,000; and
WHEREAS, the 1996 Plan, as amended, is hereinafter sometimes referred
to as the "Plan"; and
WHEREAS, pursuant to the provisions of the Plan, the Board of Directors
of the Company has appointed a Compensation and Organization Committee (the
"Committee") to administer the Plan and the Committee has determined that an
option to acquire common shares, without par value (the "Common Shares"), of the
Company should be granted to the Optionee under the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the parties hereto
make the following agreements, intending to be legally bound thereby:
1. Grant of Option. The Company hereby grants to the Optionee an option
(the "Option") to purchase 2,000 Common Shares of the Company. The Option shall
be granted under the Plan. The Option is not intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Terms and Conditions of the Option.
(A) Option Price. The purchase price (the "Option Price") to
be paid by the Optionee to the Company upon the exercise of the Option shall be
$38.50 per share (being 100% of the Fair Market Value (as that term is defined
in the Plan) for the Common Shares of the Company on the date of grant of the
Option), subject to adjustment as provided in Section 3.
(B) Exercise of the Option. The Option may be exercised on or
after APRIL 5, 2002 with respect to 100% of the Common Shares subject to the
Option.
Subject to the other provisions of this Agreement and to the provisions
of the Plan, if the Option becomes exercisable as to certain Common Shares, it
shall remain exercisable as to those Common Shares until the date of expiration
of the term of the Option. The Committee may, but shall not be required to
(unless otherwise provided in this Agreement or in the Plan), accelerate the
schedule of the time or times when the Option may be exercised.
The grant of the Option shall not confer upon the Optionee any right to
continue in the employment of the Company nor limit in any way the right of the
Company to terminate the employment of the Optionee at any time in accordance
with law and the Company's governing corporate documents.
(C) Option Term. The Option shall in no event be exercisable
after the expiration of ten years from the above effective date.
(D) Method of Exercise. To the extent that any portion of this
Option is exercisable, that portion of such Option may be exercised in whole or
in part by delivering to Merrill Lynch a written notice of exercise, signed by
the Optionee or, in the event of the death of the Optionee, by such other person
as is entitled to exercise the Option. The notice of exercise shall state the
number of full Common Shares in respect of which the Option is being exercised.
Payment for all such Common Shares shall be made to the Company at the time the
Option is exercised. The Option Price may be paid in cash (including check, bank
draft or money order) in U.S. dollars, or with the consent of the Committee, by
the transfer by the Optionee to the Company of free and clear Common Shares
already owned by the Optionee having a Fair Market Value (as that term is
defined in the Plan) on the exercise date equal to the Option Price, or by a
combination of cash and Common Shares already owned by the Optionee equal in the
aggregate to the Option Price for the Common Shares being purchased. After
payment in full for the Common Shares to be purchased upon exercise of the
Option has been made, the Company shall take all such action as is necessary to
deliver appropriate share certificates evidencing the Common Shares purchased
upon the exercise of the Option to the Optionee as promptly thereafter as is
reasonably practicable.
(E) Satisfaction of Taxes and Tax Withholding Requirements.
The Company has the right to withhold, or to require the Optionee to remit to
the Company, an amount sufficient to satisfy any applicable federal, state or
local withholding tax requirements. The Committee may permit the Optionee to
elect (i) to have Common Shares otherwise issuable under the Plan withheld by
the Company or (ii) to deliver to the Company free and clear Common Shares
already owned by the Optionee having a Fair Market Value (as that term is
defined in the Plan) on the exercise date sufficient to pay all or part of the
Optionee's estimated total federal, state and local tax obligations.
3. Adjustments and Changes in the Common Shares. In the event of any
share dividend or share split, recapitalization (including, without limitation,
the payment of an extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to shareholders, exchange of shares, or other
similar corporate change, appropriate adjustments shall be made by the Committee
in the number of Common Shares and Option Price applicable to the Option to
reflect such change.
4. Change in Control Provisions. In the event of a Change in Control
(as defined in the Plan), the Option shall be canceled in exchange for the
payment to the Optionee of cash in an amount equal to the excess of the highest
price paid (or offered) for Common Shares of the Company during the preceding 30
day trading period over the exercise price for such Option. Notwithstanding the
foregoing, if the Committee determines that the Optionee will receive a new
award (or have the Option honored) in a manner which preserves its value and
eliminates the risk that the value of the Option will be forfeited due to
involuntary termination, no cash payment will be made as a result of a Change in
Control. If any cash payment with respect to the Option would result in the
Optionee's incurring potential liability under Section 16(b) of the Securities
Exchange Act of 1934, the cash payment will not occur unless and until such cash
payment can be made without subjecting the individual to such potential
liability.
<PAGE> 3
5. Nontransferability of the Option. With the permission of the
Committee, the Optionee or a specified group of Optionees, may transfer the
Option to a revocable inter vivos trust as to which the Optionee is the settlor
or to a Permissible Transferee (as that term is defined in the Plan). Any
transferee of the Option shall remain subject to all of the terms and conditions
applicable to the Option. The Option may not be retransferred by a Permissible
Transferee except by will or by the laws of descent and distribution and then
only to another Permissible Transferee. The Option may not otherwise be
transferred except by will or by the laws of descent and distribution and during
the lifetime of the Optionee, may be exercised only by the Optionee, his
guardian or legal representative.
6. Exercise After Termination of Employment.
(A) In the event of the termination of the Optionee's
employment by reason of retirement, Disability (as that term is defined in the
Plan), or death, the Option may thereafter be exercised in full for a period of
five years, subject to the stated term of the Option.
(B) In the event of Optionee's termination of employment for
Cause (as that term is defined in the Plan), the Option shall be forfeited.
(C) In the event of the Optionee's termination of employment
for any reason other than retirement, Disability, death, or for Cause, the
Option shall be exercisable, to the extent exercisable at the date of
termination of employment, for a period of 90 days, subject to the stated term
of the Option.
7. Limitations on Exercisablility Following Termination of Employment.
After termination of the Optionee's employment, the Option shall not be
exercisable unless the Optionee has, during the period of exercisablity of the
Option, (a) refrained from serving as an officer, director or employee of any
individual, partnership or corporation, or the owner of a business, or a member
of a partnership, which conducts business in competition with the Company or
renders any service (including, without limitation, advertising agencies and
business consultants) to competitors with any portion of the Company's business,
(b) been available, if so requested by the Company, at reasonable times and upon
a reasonable basis, to consult with, supply information to, or otherwise
cooperate with, the Company and (c) refrained from engaging in a deliberate
action which the Committee shall determine has caused substantial harm to the
interests of the Company. If any of the foregoing conditions is not satisfied,
the Committee may require the Optionee to forfeit the Option to the extent not
exercised prior to the breach of the condition.
8. Restrictions on Transfer of Common Shares. Anything contained in
this Agreement or elsewhere to the contrary notwithstanding:
(A) The Option shall not be exercisable for the purchase of
any Common Shares subject thereto except for:
(i) Common Shares subject thereto which at the time
of such exercise and purchase are registered under the Securities Act of 1933,
as amended (the "1933 Act");
(ii) Common Shares subject thereto which at the time
of such exercise and purchase are exempt or are the subject matter of an exempt
transaction or are registered by description, by coordination or by
qualification, or at such time are the subject matter of a transaction which has
been registered by description, all in accordance with Chapter 1707 of the Ohio
Revised Code, as amended; and
(iii) Common Shares subject thereto in respect of
which the laws of any state applicable to such exercise and purchase have been
satisfied.
(B) If any Common Shares subject to the Option are sold or
issued upon the exercise thereof to a person who (at the time of such exercise
or thereafter) is an affiliate of the Company for purposes of Rule 144
promulgated under the 1933 Act, then upon such sale and issuance:
(i) Such Common Shares shall not be transferable by
the holder thereof, and neither the Company nor its transfer agent or registrar,
if any, shall be required to register or otherwise to give effect to any
transfer thereof and may prevent any such transfer, unless the Company shall
have received an opinion from its counsel to the effect that any such transfer
would not violate the 1933 Act; and
(ii) The Company may cause each share certificate
evidencing such Common Shares to bear a legend reflecting the applicable
restrictions on the transfer thereof.
(C) Any share certificate evidencing Common Shares issued
pursuant to the exercise of an Option may bear such legends and statements as
the Company shall deem advisable to ensure compliance with applicable federal
and state laws and regulations.
(D) Nothing contained in this Agreement or elsewhere shall be
construed to require the Company to take any action whatsoever to make the
Option exercisable or to make transferable any Common Shares purchased and
issued upon the exercise of the Option.
9. Rights of the Optionee as a Shareholder. The Optionee shall have no
rights or privileges as a shareholder of the Company with respect to any Common
Shares of the Company covered by the Option until the date of issuance and
delivery of a certificate to the Optionee evidencing such Common Shares.
10. Plan as Controlling. All terms and conditions of the Plan
applicable to the Option which are not set forth in this Agreement shall be
deemed incorporated herein by reference. In the event that any term or condition
of this Agreement is inconsistent with the terms and conditions of the Plan, the
Plan shall be deemed controlling.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. Rights and Remedies Cumulative. All rights and remedies of the
Company and of the Optionee enumerated in this Agreement shall be cumulative
and, except as expressly provided otherwise in this Agreement, none shall
exclude any other rights or remedies allowed by law or in equity, and each of
said rights or remedies may be exercised and enforced concurrently.
13. Captions. The captions contained in this Agreement are included
only for convenience or reference and do not define, limit, explain or modify
this Agreement or its interpretation, construction or meaning and are in no way
to be construed as a part of this Agreement.
14. Severability. If any provision of this Agreement or the application
of any provision hereof to any person or any circumstance shall be determined to
be invalid or unenforceable, then such determination shall not affect any other
provision of this Agreement or the application of such provision to any other
person or circumstance, all of which other provisions shall remain in full force
and effect, and it is the intention of each party to this Agreement that if any
provision of this Agreement is susceptible of two or more constructions, one of
which would render the provision enforceable and the other or others of which
would render the provision unenforceable, then the provision shall have the
meaning which renders it enforceable.
<PAGE> 4
15. Number and Gender. When used in this Agreement, the number and
gender of each pronoun shall be construed to be such number and gender as the
context, circumstances or its antecedent may require.
16. Entire Agreement. This Agreement constitutes the entire Agreement
between the Company and the Optionee in respect of the subject matter of this
Agreement, and this Agreement supersedes all prior and contemporaneous
agreements between the parties hereto in connection with the subject matter of
this Agreement. No change, termination or attempted waiver of any of the
provisions of this Agreement shall be binding upon any party hereto unless
contained in a writing signed by the affected party.
17. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns (including successive, as well
as immediate, successors and assigns) of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, effective as of the date first written above.
COMPANY:
--------
The Scotts Company,
an Ohio corporation
By:
-----------------------------------------
G. Robert Lucas
Executive Vice President, General Counsel
OPTIONEE: John Q. Participant
--------------------------------------------
Signature of Optionee
123-45-6789
<PAGE> 1
Exhibit 10(p)
-------------
Letter Agreement, dated March 16, 1999, between the
Registrant and Hadia Lefavre
<PAGE> 2
March 16, 1999
Hadia LeFavre
2105 Pine Street
Philadelphia, PA 19103
Dear Hadia:
I am very pleased to confirm our offer of employment to you as Senior Vice
President, Human Resources of The Scotts Company reporting to me.
BASE SALARY AND EXECUTIVE INCENTIVE PLAN
- - ----------------------------------------
Your initial annual base is $250,000 with a target bonus under the Executive
Plan of 45% of salary. Since our fiscal year is October through September, your
fiscal 1999 bonus will be prorated based on the number of months you are
employed during the fiscal year. Your fiscal 1999 bonus will be guaranteed at a
minimum of $75,000. Your salary will be increased by 6% to $265,000 on October
1, 1999.
As discussed, after eighteen (18) months of employment, October 1, 2000, we will
review the possibility of changing your title to Executive Vice President.
STOCK OPTIONS
- - -------------
As a key member of the Executive Team, your initial grant of stock options is
60,000 which will be priced at the closing "asked" price on the day you
officially join the company. These stock options will vest 1/3 upon joining the
company, 1/3 after your first year and 1/3 after two years of employment. You
will receive a separate option agreement. In addition, you will receive a
minimum of 20,000 options at the time of the annual grant process which is
anticipated for the last quarter in the calendar year in both 1999 and 2000.
SIGN ON BONUS/RELOCATION
- - ------------------------
You will receive a sign on bonus of $125,000, which will be paid during your
first week of employment. The sign on bonus is based on your decision not to
sell your home in Philadelphia. If you purchase a home in Columbus, we will pay
normal closing costs and temporary living expenses according to policy.
CAR ALLOWANCE
- - -------------
Scotts provides Senior Vice Presidents with a car allowance of $10,000 per year.
In accordance with IRS regulations, the value of this car allowance will be
reflected in your W-2. It is our understanding that you may deduct that part of
this value which is for business purpose.
<PAGE> 3
Hadia LeFavre
Page 2
PERSONAL FINANCIAL PLANNING
- - ---------------------------
Personal financial planning services are provided through the AYCO Corporation.
The value of the confidential service is added to your W-2. Some or all of this
value may be deducted.
SEPARATION AGREEMENT
- - --------------------
If your employment is terminated by the Company without Cause, or as a result of
your death or Disability, or as a result of a Change of Control, the Company
shall pay you (I) your full base salary at the annual base rate in effect
immediately prior to the Date of Termination for a period of twenty-four (24)
months after the Date of Termination and (ii) incentive compensation for a
period of twenty-four (24) months after the Date of Termination equal to the
greater of your target percentage in effect at the Date of Termination or the
amount of your last actual bonus. If your employment is terminated during the
Company's 1999 fiscal year for any reason which would entitle you to receive the
payments provided for in the immediately preceding sentence, the amount of
incentive compensation which you shall be deemed to have earned for the purpose
of calculating the payments owed to you upon termination shall be the sum of
$56,250.
STARTING DATE
- - -------------
This letter assumes you will take up your new duties March 22, 1999.
BENEFITS PROGRAM
- - ----------------
You will be eligible for coverage under The Scotts Company Comprehensive Benefit
Program which will be available the first day of the month following your date
of employment. This coverage includes participation in our medical and dental
coverage, life insurance including dependent coverage, The Scotts Company
Retirement Savings Plan, Executive Retirement Plan, flexible spending account
program (medical and dependent), tuition reimbursement program, vacation, stock
purchase program and short term and long term disability benefits will be
available once the required waiting periods are met.
This offer is contingent upon a satisfactory completion of a drug screen
required by all Scotts associates.
* * *
Hadia, I take great pleasure in extending you this offer on behalf of The Scotts
Company. Your addition to the company will solidify our team effort to drive the
business forward. As a key player in our executive team, all of us at Scotts
will extend our resources in support of your effort. We truly look forward to
you joining the Scotts family.
Sincerely,
/s/ Charles M. Berger
- - ---------------------------
Charles M. Berger
Chairman, CEO and President
ACCEPTED:
/s/ Hadia LeFavre March 17, 1999
- - --------------------------- --------------
Hadia LeFavre Date
<PAGE> 1
Exhibit 10(q)
-------------
Letter Agreement, dated July 21, 1999, between the
Registrant and David D. Harrison
<PAGE> 2
Charles M. Berger
Chairman, President and
Chief Executive Officer
July 21, 1999
David D. Harrison
17424 Harbor Light Boulevard
Cornelius, North Carolina 28031
Dear David:
I am very pleased to confirm our offer of employment to you as Executive Vice
President and Chief Financial Officer of The Scotts Company reporting to me.
BASE SALARY AND EXECUTIVE INCENTIVE PLAN
- - ----------------------------------------
Your initial annual base is $315,000 with a target bonus under the Executive
Plan of 50% of salary. Since our fiscal year is October through September, if
you join us by Monday, August 16 you will be guaranteed at least $50,000 as your
1999 bonus, which will be calculated on a pro rata basis. If you join us by
September 1, you will be guaranteed at least $25,000 on the same basis.
STOCK OPTIONS
- - -------------
As a key member of the Executive Team, your initial grant of stock options is
100,000 which will be priced at the closing "asked" price on the day you
officially join the company. These stock options will cliff vest in 3 years.
SIGN ON BONUS/RELOCATION
- - ------------------------
You will receive a sign on bonus of $50,000, which will be paid during your
first week of employment. If you purchase a home in Columbus, we will pay the
normal costs of relocation according to the relocation policy of the company.
PERSONAL FINANCIAL PLANNING
- - ---------------------------
Personal financial planning services are provided through the AYCO Corporation.
The value of the confidential service is added to your W-2. Some or all of this
value may be deducted.
SEPARATION AGREEMENT
- - --------------------
If your employment is terminated by the Company without Cause, or as a result of
your death or Disability, or as a result of a Change of Control, the Company
shall pay you (i) your full base salary at the annual base rate in effect
immediately prior to the Date of Termination for a period of twenty-four (24)
months after the Date of Termination and (ii) incentive compensation for a
period of twenty-four (24) months after the Date of Termination equal to the
greater of your target percentage in effect at the Date of Termination or the
amount of your last actual bonus.
<PAGE> 3
David D. Harrison
Page 2
STARTING DATE
- - -------------
This letter assumes you will take up your new duties as soon as possible, and no
later than, September, 1999.
BENEFITS PROGRAM
- - ----------------
You will be eligible for coverage under The Scotts Company Comprehensive Benefit
Program, which will be available the first day of the month following your date
of employment. This coverage includes participation in our medical and dental
coverage, life insurance including dependent coverage, The Scotts Company
Retirement Savings Plan, Executive Retirement Plan which includes a supplemental
retirement program (SURP), flexible spending account program (medical and
dependent), tuition reimbursement program, vacation, stock purchase program and
short term and long term disability benefits will be available once the required
waiting periods are met. Additional details on the SURP are being compiled and
will be forwarded to you shortly.
This offer is contingent upon a satisfactory completion of a drug screen
required by all Scotts associates.
* * *
David, I take great pleasure in extending you this offer on behalf of The Scotts
Company. Your addition to the company will solidify our team effort to drive the
business forward. As a key player in our executive team, all of us at Scotts
will extend our resources in support of your effort. We truly look forward to
you joining the Scotts family.
Sincerely,
/s/ Charles M. Berger
- - ---------------------------
Chairman, President and CEO
ACCEPTED:
/s/ David D. Harrison 7/26/99
- - --------------------------- -------
David D. Harrison Date
<PAGE> 4
Charles M. Berger
Chairman, President and
Chief Executive Officer
July 21, 1999
David D. Harrison
17424 Harbor Light Boulevard
Cornelius, North Carolina 28031
Dear David:
This is to inform you that the company will provide you with a car allowance of
$12,000 per year. In accordance with IRS regulations, the value of this car
allowance will be reflected in your W-2. It is our understanding that you may
deduct that part of this value, which is for business purpose.
We have also agreed to pay up to $5,000 annually toward a club membership of
your choice, upon submission of related club expenses.
Sincerely,
Charles M. Berger
Chairman, President and CEO
ACCEPTED:
/s/ David D. Harrison
- - ---------------------------
David D. Harrison Date: 7/26/99
<PAGE> 1
Exhibit 10(r)
-------------
Contract of Employment dated February 28, 1986, between
Rhodic (assumed by Scotts France SAS) and Christian Ringuet
<PAGE> 2
COMPANY: RHODIC
- - --------
MR. CHRISTIAN RINGUET
CONTRACT OF EMPLOYMENT
FEBRUARY 1986
<PAGE> 3
RHODIC,
42, chemin du Moulin-Carron
69130 ECULLY
28th February 1986
Mr. Christian RINGUET,
"Le Verger",
TILCHATEL,
21110 IS S/ TILLE.
Dear Sir,
We would like to confirm your employment with RHODIC, 42, chemin du
Moulin-Carron, 69130
ECULLY
o with effect from: the 10th of March 1986
o subject to the conventional three month trial period
o in the position of: Marketing Director in the KB JARDIN Department
This contract is subject to the general terms of the "Engineers & Executives"
Codicil of the Convention Collective Nationale des Industries Chimiques
((National Collective Labor Agreement for Chemical Industries), and to the
specific terms hereinafter:
1. This contract of employment is concluded for an indefinite period of time.
However, should you still be in our employment when you reach the normal
retirement age applied in our company at that time, your career shall then
come to an end.
2. Your position in our company is subject to the terms hereinafter. These
terms shall continue to apply whatever changes may subsequently occur
concerning your departmental assignment:
a. You are sworn to professional secrecy not only during the continuance
of your employment with our Company but also, should the case arise,
following termination thereof, whatever the reason for termination may
be.
You also undertake not to work, even temporarily or in an advisory
capacity, for any company in competition with our Company throughout
the duration of your duties.
b. The department to which you are assigned may subsequently be altered,
should the interests of the Group so require.
<PAGE> 4
CONTRACT OF MR. CHRISTIAN RINGUET: CONTINUED
o You shall be attached to Group V, ENGINEERS & EXECUTIVES.
o Your coefficient is 550.
o Your professional branch is the Commercial Personnel branch.
3. Your monthly salary is set at of FRF 27,693 (twenty seven thousand six
hundred and ninety-three French Francs), whatever the number of hours
worked.
Moreover, you shall receive an annual bonus corresponding to one month's
salary (the "thirteenth month") , half of which shall be paid in June and
the other half in December.
4. In addition, you shall enjoy the fringe benefits which are customary in our
Company.
5. You shall be automatically affiliated to our insurance schemes: "Death -
Disability" and "Retirement".
You undertake to accept the deduction of the corresponding contributions
from your salary each month.
You are entitled, if you so wish, to join the RHONE-POULENC AGROCHIMIE
mutual insurance company as well as the CAISSE CHIRURGICALE MUTUALISTE DE
L'ISERE (CCMI). Contributions to the RP AGROCHIMIE mutual insurance company
shall be automatically deducted, however, should you not wish to join this
scheme, such contributions shall be reimbursed at your request.
For our records, please return the enclosed copy of this contract bearing:
o the hand-written note "Read and Approved", and
o the date and your signature.
Yours faithfully,
G. IVOL F. LORAS
Human Resources Director Managing director RHODIC
/s/ G. Ivol /s/ F. Loras
- - --------------------------- ---------------------------
<PAGE> 1
Exhibit 10(s)
-------------
Employment Agreement dated August 1, 1995, between
Scotts Europe B.V. and Laurens J.M. de Kort
<PAGE> 2
EMPLOYMENT AGREEMENT FOR MANAGING DIRECTOR
------------------------------------------
The undersigned:
The company with limited liability SCOTTS EUROPE B.V., whose registered
corporate office is located at Heerlen, The Netherlands, with respect to this
matter lawfully represented by Robert A. Stern Vice President, Human Resources,
having been given power of attorney by Scotts Sierra Horticultural Products
Company (Marysville, Ohio, USA), as its sole shareholder, hereinafter referred
to as "The Company"
and
LOUIS DE KORT, residing at Westeinde 56, 5141 AD Waalwyk, The Netherlands,
hereinafter referred to as "De Kort",
WHEREAS:
Effective 7th of September 1982. De Kort entered the employment of The Company
and effective July 1, 1994 he has been appointed as managing director (statutair
directeur) under the articles of associates of The Company. The parties hereto
wish to lay down the employment agreement between De Kort and The Company in
this written agreement.
HAVE AGREED AS FOLLOWS:
1. Function and term
-----------------
1.1. The Company hereby appoints De Kort and De Kort hereby accepts
the appointment and agrees to serve as managing director under
the articles of association of Scotts Europe B.V. with effect
from July 1, 1994. De Kort is entitled to use the title "Vice
President Europe, Middle East, Africa."
1.2. De Kort shall perform the duties and exercise the powers and
functions which from time to time may be assigned to him by The
Company. The tasks of De Kort shall, in particular, include but
not be limited to the management of the daily affairs of The
Company and its subsidiaries. In particular, De Kort shall have
all powers to that effect, it being understood that De Kort may
need the prior approval of the Supervisory Board of The Company
for the decisions and for transactions pursuant to article 10 of
the articles of association of The Company.
1.3. During his employment De Kort shall not, without written
permission of (the Supervisory Board of) The Company, have -
whether with or without remuneration - any jobs or positions,
outside the group of companies of which The Company forms a part
<PAGE> 3
Employment Agreement for Managing Director - L. de Kort
Page 2
1.4. The employment is entered into for an indefinite term, but shall
end in any event on the last day of the month in which De Kort
shall reach the age of 65. The employment may be terminated by
either party subject to observance of a notice period of 6
months.
2. Salary
------
2.1. By way of remuneration for his services under this employment
contract The Company will pay De Kort a base salary, payable in
12 equal monthly installments of NLG 220,000 per year. The salary
shall be subject to the usual deductions for tax and social
security contributions normally withheld by employers in The
Netherlands and the net amount is paid by way of transfer into a
bank account to be appointed by De Kort.
2.2. Yearly, the base-salary shall be reviewed for consideration for
increase. The consumer price-index as published by the Central
Bureau of Statistics will be considered in the augmentation of
salary.
2.3. Holiday Pay - The salary referred to under subclause I of this
article shall be deemed to be inclusive of statutory holiday pay
("vakantiegeld").
3. Performance Bonus/Incentive
---------------------------
3.1. De Kort is eligible for a performance bonus of 30% of his base
salary should The Company achieve its objective and should De
Kort successfully meet his individual goals. A copy of the
incentive plan is attached to this Agreement.
4. Pension
-------
4.1. De Kort will continue to participate in the collective pension
scheme of The Company and The Company will continue to pay the
premium as Agreed upon and is entitled to withhold a premium in
the amount of 5% of the basis on which the pension is calculated
from De Kort through monthly installments.
<PAGE> 4
Employment Agreement for Managing Director L. de Kort
Page 3
5. Expenses and Car
----------------
5.1. The Company shall reimburse De Kort such reasonable traveling,
hotel and other out of pocket expenses as shall from time to time
be properly incurred by him in the course of the employment upon
production by De Kort of all supporting vouchers and receipts.
5.2. To assist De Kort in performing his duties hereunder, The Company
shall provide him with a motor car in accordance with the current
company vehicle policy. All operating expenses of the car will be
borne by The Company.
6. Insurances
----------
6.1. The Company shall make a contribution of a maximum of 50% of the
premium related to a private medical insurance policy maintained
by De Kort.
6.2. The Company has covered the risk of incapacity by an insurance
covering 100% of the difference between the lost salary on one
side and the maximum daily allowance as per the Law on Incapacity
on the other side. The premium of this insurance will be for 40%
for the account of The Company and for 60% for De Kort's account.
6.3. In case of incapacity of De Kort The Company will pay a
supplementary allowance up to the level of the base salary under
article 2.1, with a maximum length of one year. In the event the
above incapacity shall be or appear to be caused by actionable
negligence of one or more third parties in respect of which
damages are or may be recoverable, De Kort shall not be entitled
to any salary payments during his incapacity. Instead, De Kort
shall receive advance payments up to the level as outlined in the
first paragraph of this article and De Kort shall immediately
assign his claim against such third party to The Company.
6.4. The Company will continue the payment for the life
insurance/accident insurance taken out on behalf of De Kort.
6.5. The Company will pay the insurance allowance (A.O.V.) above the
value of the incapacity as per Dutch law, as stated in the
insurance policy from Scotts Europe B.V.
This is according to the general labor condition of Scotts Europe
B.V.
<PAGE> 5
Employment Agreement for Managing Director - L. de Kort
Page 4
6.6. Scotts Europe will pay an additional premium not to exceed NLG
25,000 net premium cost/year as adjusted in subsequent years for
the official inflation rate as published by the Dutch government
to provide for pension and other insurance coverage in excess of
these coverages on base salary. In no case will coverage be
provided in excess of target (base salary and annual bonus)
income amounts.
7. Vacation
--------
7.1. In addition to the usual Dutch public holidays and normal days of
closure of The Company De Kort shall be entitled in each calendar
year to 30 working days holiday at full salary to be taken at
such reasonable time or times as may be agreed with (the
Supervisory Board of) The Company.
8. Secrecy
-------
8.1. During his employment as well as after termination thereof De
Kort shall maintain strict secrecy concerning everything that has
come to his knowledge in his capacity of managing director of The
Company and the companies and/or business associated with it. The
duty of secrecy includes all information obtained by De Kort in
his capacity of managing director of The Company from customers
or other relations of The Company and the companies and/or
businesses associated with The Company.
9. Termination
-----------
9.1. For the purpose of calculating termination compensation, Target
Income includes and is limited to the base salary in effect at
the time of notification of termination and the annual
performance bonus percentage of that base salary.
9.2. In case of termination of the employment before De Kort will have
reached pensionable age by or at the request of The company,
which is not entirely or mainly caused by acts or omissions of De
Kort, as for example in the case of dissolution of The Company,
merger, take over or reorganization resulting in a substantive
impact on the actual responsibility, authority and/or scope of
the work of De Kort, at the discretion of The Company, the
Company shall pay compensation to De Kort. This compensation is
equal to 2.5 times the Target Income in effect at the time that
De Kort is notified of his termination.
<PAGE> 6
Employment Agreement for Managing Director - L. de Kort
Page 5
9.3. In the event that the employment of De Kort is terminated by him
or at his own request based on a substantive impact on the actual
responsibility, authority and/or scope of the work of De Kort as
a result of merger, take over or reorganization of The Company,
The Company will pay De Kort a compensation of one year's Target
Income.
9.4. Upon termination of the employment for whatever reason De Kort
shall deliver to The Company all books, documents, papers,
material and other property related to the business of The
Company which may then be in his possession or under his control
and shall not at any time represent himself in any way connected
with the business of The Company and shall not at any time either
on his own account or for any other person, firm or company
endeavour to entice away from The Company or its subsidiaries any
employee of The Company or its subsidiaries.
10. Miscellaneous
-------------
10.1. The various provisions of this contract are severable and if any
court of competent jurisdiction hereof shall hold any provision
invalid or unenforceable then such invalidity or unenforceability
shall not affect the remaining provisions of this contract.
10.2. This contract shall be governed by the laws of The Netherlands
and the parties hereto submit themselves to the exclusive
jurisdiction of the Dutch courts.
10.3. Signed in duplicate at De Meern the 1st day of August 1995.
The Company The Employee
/s/ Robert A. Stern /s/ Louis De Kort
------------------- -----------------
<PAGE> 7
1995 SCOTTS EUROPE INCENTIVE
FOR
SENIOR MANAGEMENT
Base Period - October 1, 1994 to September 30, 1995
Incentive Payment (%)
30% of base salary, of which:
80% of incentive based on Scotts Europe performance
20% of incentive based on The Scotts Company performance
100% of Payment - based on 108% of 1994 EBIT* for Scotts Europe B.V.
<TABLE>
<CAPTION>
Target**
(100% = '94 EBIT + 8%) % Incentive Payment
- - ---------------------- -------------------
<S> <C>
0 0
79 0
80 60
90 80
100 100
110 120
120 140
125 150
126 151
130 155
140 165
</TABLE>
Will include currency translation gains/losses within the Scotts Europe
organization, but not related to U.S. Guilder translation.
EBIT will be stated in Dutch guilders and will not include unusual charges or
gains that are based on the following items, but not limited to:
o Unexpected/unforecasted cross charges from The Scotts Company
o Expenses/investments required by The Scotts Company which were unplanned.
*Will include currency translations gains/losses within the Scotts Europe
organization but not related to US-Guilder translation.
**Target which falls between the ranges above will be determined by
interpolation.
<PAGE> 1
Exhibit 10(t)
-------------
Service Agreement dated September 9, 1998, between Levington
Horticulture Limited (nka The Scotts Company (UK) Ltd.)and Nicholas Kirkbride
<PAGE> 2
SERVICE AGREEMENT
DATE 9 September 1998
PARTIES
1. LEVINGTON HORTICULTURE LIMITED whose registered office is at
Salisbury House, Weyside Park, Catteshall Lane, Godalming,
Surrey SU7 IXE ("the Company"); and
2. NICHOLAS KIRKBRIDE of Kelbrook House, 44 Whielden Street,
Amersham,
Bucks HP7 OHU ("the Executive")
1 COMMENCEMENT AND TERM
1.1 The Executive's employment pursuant to this Agreement shall
begin on 2 November 1998 or such later date as may reasonably
be agreed between the parties (the "Commencement Date"). The
Executive's period of continuous employment for statutory
purposes shall be the Commencement Date.
1.2 The employment of the Executive shall continue following the
Commencement Date (subject to the provisions of Clause 14)
unless and until terminated by either party giving to the
other not less than twelve months' notice in writing such
notice to be given at any time.
1.3 The Company may at its absolute discretion elect to terminate
the employment of the Executive with immediate effect by
paying to the Executive 12 months' salary (including benefits)
in lieu of notice. The Executive is required to mitigate his
loss where he is dismissed and any payment in lieu of notice
may be reduced to take account of mitigation and to take
account of the payment or of any part of the payment being
made earlier than the date of payment of the salary or
benefits to which he would otherwise be entitled under this
Agreement.
<PAGE> 3
2 OBLIGATIONS DURING EMPLOYMENT
2.1 The Executive shall during the continuance of his employment:-
2.1.1 serve the Company to the best of his ability in the capacity
of Managing Director of the UK consumer business or in such
other capacity (of similar status and responsibility) as the
Board may from time to time determine:
2.1.2 work towards the integration of the Company's UK consumer
business namely the Levington and Miracle subsidiaries of
Scotts' UK business;
2.1.3 to act as Managing Director. of the Company and the Group's UK
consumer business once integration has been completed;
2.1.4 faithfully and diligently perform such duties and exercise
such powers consistent with them as the Board (or anyone
authorized by the Board) may from time to time properly assign
to or confer upon him;
2.1.5 if and so long as the Board so directs perform and exercise
the said duties and powers on behalf of any Associated Company
and act as a director or other officer of any Associated
Company;
2.1.6 do all in his power to protect promote develop and extend the
business interests and reputation of the Group;
2.1.7 at all times and in all respects conform to and comply with
the lawful and reasonable directions of the Board;
2.1.8 promptly give to the Board (in writing if so requested) all
such information explanations and assistance as it may require
in connection with the business and affairs of the Company and
any Associated Company for which he is required to perform
duties; 2.1.9 unless prevented by sickness injury or other
incapacity or as otherwise agreed by the Board devote the
whole of his time attention and abilities during his hours of
<PAGE> 4
work (which shall be normal business hours and such additional
hours as may be necessary for the proper performance of his
duties) to the business and affairs of the Company and any
Associated Company for which he is required to perform duties;
and
2.1.10 work at the Company's offices at Salisbury House, Weyside
Park, Catteshall Lane, Godalming, Surrey or at such other
place of business of the Company or any Associated Company
within the United Kingdom which the Board may reasonably
require for the proper performance and exercise of his duties
and powers and the Executive may be required to travel on the
business of the Company and any Associated Company for which
he is required to perform duties.
3 FURTHER OBLIGATIONS OF THE EXECUTIVE
3.1 During the continuance of his employment the Executive shall
not without the prior written consent of the Board (such
Consent not to be unreasonably withheld or delayed) directly
or indirectly carry on or be engaged concerned or interested
in any other business trade or be interested as a holder or
beneficial owner solely for investment purposes of more than 5
per cent in aggregate of any class of shares debentures or
other securities in issue from time to time of any company
which are for the time being quoted or dealt in on any
recognised investment exchange (as defined by Section 207(1)
of the Financial Services Act 1986).
3.2 The Executive may, during the continuance of his employment
and with the prior written consent of the Company, hold
non-executive directorships in companies provided:
3.2.1 such companies do not directly or indirectly carry on any
business which competes or may compete with any business of a
kind carried on by the Company or any Associated Company
including in particular (but without limitation) the business
of the production, development and sale of garden and
professional horticultural products: and
3.2.2 such appointments do not or may not in the opinion of the
Board prejudice the performance by the Executive of his duties
pursuant to this Agreement. Any loss
<PAGE> 5
of Company time incurred as a result of the non-executive
directorships referred to above will be made up in full by the
Executive.
3.3 During the continuance of his employment the Executive:
3.3.1 shall not directly or indirectly procure accept or obtain for
his own benefit (or for the benefit of any other person) any
payment material rebate discount commission vouchers gift
entertainment or other benefit ("Gratuities") from any third
party in respect of any business transacted or proposed to be
transacted (whether or not by him) by or on behalf of the
Company or any Associated Company; and
3.3.2 shall observe the terms of any policy issued by the Company in
relation to Gratuities; and
3.3.3 shall immediately disclose and account to the Company for any
Gratuities received by him (or by any other person on his
behalf or at his instruction).
4 REMUNERATION
4.1 The Company shall pay to the Executive during the continuance
of his employment a salary (which shall accrue from day to
day) at the rate of (pound)138,000 per year inclusive of any
directors' fees payable to the Executive under the Articles of
Association of the Company or any Associated Company (and any
such fees as the Executive shall receive he shall pay to the
Company). The salary shall be payable by equal monthly
installments in arrears on or about the 30th day of each
calendar month. The salary shall be reviewed in each year of
the Executive's employment based on the Executive's
performance and the performance of the Company during the
relevant period. Salary reviews shall be conducted annually in
accordance with the Company's pay review policy from time to
time in force and any increase shall have effect from the
anniversary of the Commencement Date.
4.2 The Executive shall be granted options to acquire 25,000
common shares in the capital of The Scotts Company ("Shares')
on and subject to the Rules of The Scotts Company 1996 Stock
Option Plan (as amended from time to time) (the "Plan"). Such
options shall be granted to the Executive at the first meeting
of the
<PAGE> 6
Committee (as defined in the Plan) to be held following the
Commencement Date. The Executive shall, in addition, be given
the opportunity to participate in the Plan and to earn
additional stock options at the Company's discretion following
the Commencement Date.
4.3 Upon termination of his employment, the Executive shall have
no claim against the Company for loss arising out of
ineligibility to exercise any Share options granted to him
which have not vested at the date of termination or otherwise
in relation to the Plan and the rights of the Executive shall
be determined solely by the rules of such Plan in force at the
date of termination of his employment.
5 BONUS
The Executive shall be entitled to participate in such bonus
arrangements as the Board may specify from time to time. The
Company may, in its absolute discretion, award the Executive
an annual bonus of up to 30% of his salary as defined in
Clause 4.1 above, dependent upon the attainment by the
Executive of operational and financial targets, such targets
to be agreed between the Company and the Executive each year.
6 PENSION SCHEME
The Company shall during the Executive's employment under this
Agreement:
6.1 pay monthly contributions in respect of the Executive to a
personal pension scheme nominated by him at the rate of 13.5%
of his basic monthly salary under Clause 4.1 (subject to
applicable Inland Revenue limits); or
6.2 allow the Executive to become a member of the appropriate
Company pension scheme ("the Pension Scheme") subject to the
terms of its trust deed and rules in force from time to time,
provided that the Executive shall commence making
contributions to the Pension Scheme within 6 months of the
Commencement Date.
6.3 A contracting-out certificate will be in force at the
commencement of the employment of the Executive.
<PAGE> 7
7 INSURANCES
7.1 Subject to his complying with and satisfying any applicable
requirements of the relevant insurers the Company shall during
the continuance of his employment:
7.1.1 provide at the Company's expense for the Executive and his
spouse and children under the age of 21 years membership of
PPP or of such other private medical expenses insurance scheme
providing equivalent benefits as the Company may in its
absolute discretion from time to time decide;
7.1.2 provide at the Company's expense the Executive with accident
insurance cover which in the event of the Executive's
sustaining injuries in the course of his employment which
result in his permanent disablement or death shall pay to the
Executive or his chosen dependants (as the case may be) a lump
sum equal to 3 times the Executive's then annual rate of
salary;
7.1.3 provide the Executive with membership of the Company's
permanent health insurance scheme.
7.2 The Company shall at its absolute discretion be entitled to
cease to provide any or all of the insurances referred to in
subclauses 7.1.1 to 7.1.3 if the medical condition of the
Executive is or becomes such that the Company is unable to
secure any such insurance under the rules of any applicable
scheme or otherwise except at a rate or premium in excess of
250 per cent of the initial premium agreed for such Executive.
8 COMPANY CAR
8.1 Subject to Clause 8.2, the Company shall pay to the Executive
a car allowance of(pound)750 per month less tax and national
insurance.
8.1.1 The Company shall reimburse the Executive for private and
business fuel costs.
<PAGE> 8
8.1.2 The Executive shall be responsible for all other running costs
including the costs of servicing, taxing and insurance.
8.1.3 For all purposes connected with the calculation of any
severance or termination payment, the benefit of the car
allowance provided pursuant to Clause 8.1 shall not be taken
into account and it shall not form part of the Executive's
pensionable salary.
8.2 If the Executive completes more than 15,000 business miles in
any one year he shall have the option of being provided with a
company car of a lease value not in excess of (pound)750 per
month in replacement of the car allowance in Clause 8.1 above.
If the Executive wishes to exercise this option, he shall
notify the Company in writing not less than one month prior to
the date when he wishes the car to be provided.
8.3 The Executive shall at all times and in all respects conform
to and comply with any policy which may from time to time be
made by the Company in relation to cars provided by it for the
use of its employees.
<PAGE> 9
9. EXPENSES
9.1 The Company shall, subject to Clause 19.2. during the
continuance of his employment reimburse the Executive in
respect of:
9.1.1 all reasonable travelling accommodation entertainment and
other similar out-of-pocket expenses wholly exclusively and
necessarily incurred by him in or about the performance of his
duties;
9.1.2 the rental and unit charges attributable to the telephone at
his home to reflect business use; and
9.1.3 all reasonable household and removal expenses incurred by him
as a result of a move from his then current address
necessitated by the Company's requiring him to work
permanently at another location.
9.2 Except where specified to the contrary all expenses shall be
reimbursed on a monthly basis subject to the Executive
providing appropriate evidence (including receipts, invoices,
tickets and/or vouchers as may be appropriate) of the
expenditure in respect of which he claims reimbursement.
10 HOLIDAYS
10.1 The Executive shall (in addition to the usual public and bank
holidays) be entitled during the continuance of his employment
to 26 working days' paid holiday in each holiday year of the
Company. The Company's holiday year runs from 1 January to 31
December.
10.2 The Company may require the Executive to work on any public or
bank holiday but in such event the Executive shall be entitled
to take paid time off in lieu.
10.3 The Company reserves the right to nominate up to 5 days on
which holiday must be taken by the Executive.
<PAGE> 10
10.4 The Executive shall be entitled to carry forward up to 5 days
of his annual holiday entitlement from one holiday year to the
next. This entitlement will not, however, extend beyond a
period of any two consecutive years.
10.5 Upon the termination of his employment the Executive's
entitlement to accrued holiday pay shall be calculated on a
pro rata basis in respect of each completed month of service
in the holiday year in which his employment terminates and the
appropriate amount shall be paid to the Executive provided
that if the Executive shall have taken more days' holiday than
his accrued entitlement the Company is hereby authorised to
make an appropriate deduction from the Executive's final
salary payment.
11 INCAPACITY
11.1 Subject to his complying with the Company's procedures
relating to the notification and certification of periods of
absence from work the Executive shall continue to be paid his
salary (inclusive of any statutory sick pay or social security
benefits to which he may be entitled) during any periods of
absence from work due to sickness injury or other incapacity
in accordance with the Company's regulations.
11.2 If any incapacity of the Executive shall be caused by any
alleged action or wrong of a third party and the Executive
shall decide to claim damages in respect thereof, then the
Executive shall use all reasonable endeavours to recover
damages for loss of earnings over the period for which salary
has been or will be paid to him by the Company under Clause
11.1, and shall account to the Company for any such damages
recovered (in an amount not exceeding the actual salary paid
or payable to him by the Company under Clause 11.1 in respect
of the said period) less any costs borne by him in achieving
such recovery. The Executive shall keep the Company informed
of the commencement, progress and outcome of any such claim.
<PAGE> 11
12 INTELLECTUAL PROPERTY
12.1 Subject to the relevant provisions of the Patents Act 1977 the
Registered Designs Act 1949 and the Copyright Designs and
Patents Act 1988 if at any time in the course of his
employment the Executive makes or discovers or participates in
the making or discovery of any Intellectual Property relating
to or capable of being used in the business of the Company or
any Associated Company he shall immediately disclose full
details of such Intellectual Property to the Company and at
the request and expense of the Company he shall do all things
which may be necessary or desirable for obtaining appropriate
forms of protection for the Intellectual Property in such
parts of the world as may be specified by the Company and for
vesting all rights in the same in the Company or its nominee.
12.2 The Executive hereby irrevocably appoints the Company to be
his attorney in his name and on his behalf to sign execute or
do any instrument or thing and generally to use his name for
the purpose of giving to the Company or its nominee the full
benefit of the provisions of this Clause and in favour of any
third party a certificate in writing signed by any director or
the secretary of the Company that any instrument or act falls
within the authority conferred by this Clause shall be
conclusive evidence that such is the case.
12.3 The Executive hereby waives all of his moral rights (as
defined in the Copyright Designs and Patents Act 1988) in
respect of any acts of the Company or any acts of third
parties done with the Company's authority in relation to any
Intellectual Property which is the property of the Company by
virtue of Clause 12.1.
12.4 All rights and obligations under this Clause in respect of
Intellectual Property made or discovered by the Executive
during his employment shall continue in full force and effect
after the termination of his employment and shall be binding
upon the Executive's personal representatives.
13 CONFIDENTIALITY
13.1 The Executive shall not (other than in the proper performance
of his duties or with the prior written consent of the Board
or unless ordered by a court of competent
<PAGE> 12
jurisdiction) at any time either during the continuance of his
employment or after its termination disclose or communicate to
any person or use for his own benefit or the benefit of any
person other than the Company, any Associated Company or his
solicitor any confidential information which may come to his
knowledge in the course of his employment and the Executive
shall during the continuance of his employment use his best
endeavours to prevent the unauthorised publication or misuse
of any confidential information provided that such
restrictions shall cease to apply to any confidential
information which may enter the public domain other than
through the default of the Executive.
13.2 All notes and memoranda of any trade secret or confidential
information concerning the business of the Company and any
Associated Companies or any of its or their suppliers, agents,
distributors, customers or others which shall have been
acquired received or made by the Executive during the course
of his employment shall be the property of the Company and
shall be surrendered by the Executive to someone duly
authorised in that behalf at the termination of his employment
or at the request of the Board at any time during the course
of his employment.
13.3 For the avoidance of doubt and without prejudice to the
generality of Clauses 13.1 and 13.2 the following is a
non-exhaustive list of matters which in relation to the
Company and the Associated Companies are considered
confidential and must be treated as such by the Executive:-
13.3.1 any trade secrets of the Company or any Associated Company;
13.3.2 any information in respect of which the Company or any
Associated Company is bound by an obligation of confidence to
any third party, provided that the Executive is aware of the
obligation of confidence;
13.3.3 marketing strategies and plans;
13.3.4 customer lists and details of contacts with or requirements of
customers;
13.3.5 pricing strategies;
<PAGE> 13
13.3.6 discount rates and sales figures;
13.3.7 lists of suppliers and rates of charge;
13.3.8 information which has been supplied in confidence by clients,
customers or suppliers:
13.3.9 any invention technical data know-how or other manufacturing
or trade secrets of the Group and their clients/customers; and
13.3.10 any other information made available to the Executive which is
identified to the Executive as being of a confidential nature.
13.4 The Executive shall not without the prior written consent of
the Board either directly or indirectly publish any opinion
fact or material or deliver any lecture or address or
participate in the making of any film radio broadcast or
television transmission or communicate with any representative
of the media or any third party relating to the business or
affairs of the Group or to any of its or their officers
employees customers/clients suppliers distributors agents or
shareholders or to the development or exploitation of
Intellectual Property. For the purpose of this Clause 'media'
shall include television (terrestrial satellite and cable)
radio newspapers and other journalistic publications. This
Clause shall not preclude impromptu press comment in relation
to trade matters when appropriate.
14 TERMINATION OF EMPLOYMENT
14.1 The employment of the Executive may be terminated by the
Company forthwith without notice or (except in the case of
14.1.7) by payment in lieu of notice if the Executive:
14.1.1 is proven to have committed any serious or persistent breach
or non-observance of any of the material terms, conditions or
stipulations contained in this Agreement; or
<PAGE> 14
14.1.2 is proven guilty of any serious negligence or gross misconduct
in connection with or affecting the business or affairs of the
Company or any Associated Company for which he is required to
perform duties; or
14.1.3 is proven guilty of conduct which brings or is likely to bring
himself or the Company or any Associated Company into
disrepute; or
14.1.4 is convicted of an arrestable criminal offence (other than an
offence under road traffic legislation in the United Kingdom
or elsewhere for which a non-custodial penalty is imposed); or
14.1.5 is adjudged bankrupt or makes any arrangement or composition
with his creditors or has an interim order made against him
pursuant to Section 252 of the Insolvency Act 1986, or
14.1.6 is or becomes prohibited by law from being a director; or
14.1.7 is on the basis of an independent medical report supplied to
the Company following his having undergone a medical
examination unfit to perform his duties.
14.2 If the Executive shall have been absent from work due to
sickness injury or other incapacity for periods in excess of
six months in aggregate in any period of twelve consecutive
months the Company, notwithstanding the provisions of Clause
7.1.3, may terminate his employment by giving to him not less
than three months' notice in writing expiring at any time
provided that the Company shall withdraw such notice if during
its currency the Executive returns to full-time work and
provides the Company with a medical certificate stating that
he has fully recovered and that no recurrence of such
incapacity may reasonably be anticipated.
14.3 If either party gives notice to terminate this Agreement, the
Executive agrees that for the period of notice in Clause 1.3
above the Board may in its absolute discretion require the
Executive to perform only such duties as it may allocate to
him or not to perform any of his duties and may require him
not to have any contact with customers of the Company or any
Associated Company nor any
<PAGE> 15
contact (other than purely social contact) with such employees
of the Company and any Associated Company as the Board shall
determine and/or may exclude him from any premises of the
Company or of any Associated Company (without providing any
reason for doing so); and that such action on the part of the
Company shall not constitute a breach of this Agreement nor
shall the Executive have any claim against the Company in
respect of any such action Provided always that throughout
such period the Executive's salary and contractual benefits
shall not cease to be paid or provided (unless and until his
employment is terminated).
14.4 Upon the termination of his employment (for whatever reason
and howsoever arising) the Executive:
14.4.1 shall not take away conceal or destroy but shall immediately
deliver up to the Company all documents (which expression
shall include but without limitation notes memoranda
correspondence drawings sketches plans designs and any other
material upon which data or information is recorded or stored)
relating to the business or affairs of the Company or any
Associated Company or any of their clients/customers
shareholders employees officers suppliers distributors and
agents (and the Executive shall not be entitled to retain any
copies or reproductions of any such documents) together with
any other property belonging to the Company or any Associated
Company which may then be in his possession or under his
control:
14.4.2 shall at the request of the Board immediately resign without
claim for compensation from office as a director of the
Company and any Associated Company and from any other office
held by him in the Company or any Associated Company (but
without prejudice to any claim he may have for damages for
breach of this Agreement) and in the event of his failure to
do so the Company is hereby irrevocably authorised to appoint
some person in his name and on his behalf to sign and deliver
such resignations to the Board; and
14.4.3 shall not at any time thereafter make any untrue or misleading
oral or written statement concerning the business and affairs
of the Company or any Associated Company nor represent himself
or permit himself to be held out as being in any way connected
with or interested in the business of the Company or any
Associated Company (except as a former employee for the
purpose of
<PAGE> 16
communicating with prospective employers or complying with any
applicable statutory requirements); and
14.4.4 shall not at any time thereafter use the name "Levington",
"Murphy", "Scotts" or "Miracle-Gro" or any other product name,
brand, trade or business name used by the Group at the date of
termination of this Agreement or during the period of two
years preceding the date of termination of this Agreement or
any name capable of confusion therewith (whether by using such
names as part of a corporate name or otherwise), and
14.4.5 shall immediately repay all outstanding debts or loans due to
the Company or any Associated Company and the Company is
hereby authorised to deduct from any wages (as defined by
Section 27 of the Employment Rights Act 1996) of the Executive
a sum in repayment of all or any part of any such debts or
loans.
14.5 If the employment of the Executive is terminated by reason of
the liquidation of the Company for the purpose of
reconstruction or amalgamation or as part of any arrangement
for the amalgamation or reconstruction of the Company not
involving insolvency and the Executive is offered employment
with any concern or undertaking resulting from the
reconstruction or amalgamation on terms and conditions which
taken as a whole are not less favourable than the terms of
this Agreement then the Executive shall have no claim against
the Company in respect of such termination.
15 EXECUTIVE'S COVENANTS
15.1 The Executive acknowledges that during the course of his
employment with the Company he will receive and have access to
confidential information of the Group (including without
limitation those matters specified in Clause 13.3 of this
Agreement) and he will also receive and have access to
detailed client/customer lists and information relating to the
operations and business requirements of those
clients/customers and accordingly he is willing to enter into
the covenants described in Clause 15.2 in order to provide the
Group with what he considers to be reasonable protection for
those interests.
15.2 The Executive hereby Covenants with the Company that he will
not without the previous
<PAGE> 17
written consent of the Board either alone or jointly with or
on behalf of any person:
15.2.1 in the Restricted Territories for the period of twelve months
following the date of termination of this Agreement directly
or indirectly in competition with the Company or any
Associated Company deal with or engage in business with or be
in any way interested in or connected with any concern,
undertaking, firm or body corporate which engages in or
carries on within any part of the Restricted Territories any
business which competes with any business carried on by the
Company or any Associated Company at the date of termination
of this Agreement in which the Executive was involved during
the period of two years prior to the termination of this
Agreement including in particular the business of the
production, development and sale of the Restricted Products
Provided that (for the avoidance of doubt only) if any such
concern undertaking, firm or body corporate has a separately
distinguishable division that does not compete with the
business of the Company or any Associated Company as at the
date of termination of this Agreement the Executive may be
employed or engaged in such division with duties and carrying
out activities which do not compete and do not assist
competition with such business;
15.2.2 in the Restricted Territories for the period of twelve months
following the date of termination of this Agreement directly
or indirectly:
15.2.2.1 interfere with or, in competition with the
Company or any Associated Company, offer or
agree to provide Restricted Products or
solicit with a view to providing Restricted
Products or endeavour to entice away from
the Company or any Associated Company the
custom of any person, firm or body corporate
which. at any time during the period of two
years ending on the date of termination of
this Agreement, has been a customer or
client of, or in the habit of dealing with,
the Company or any Associated Company or
which, at any time during that period, was
to his knowledge negotiating with the
Company or any
<PAGE> 18
Associated Company in relation to the
provision of Restricted Products and with
whom the Executive has had dealings as part
of his employment by the Company;
15.2.2.2 interfere or seek to interfere with
contractual or other trade relations between
the Company or any Associated Company and
any of its or their respective suppliers in
existence or under negotiation at any time
during the period of two years ending on the
date of termination of this Agreement; or
15.2.2.3 solicit the services of or endeavour to
entice away from the Company or any
Associated Company any director, senior or
highly skilled employee or consultant of the
Company or any Associated Company known
personally to the Executive (whether or not
such person would commit any breach of his
contract of employment or engagement by
reason of leaving the service of such
company) or knowingly employ, assist in or
procure the employment by any other person,
firm or body corporate of any such person.
15.3 The Executive agrees that having regard to the facts and
matters above, the restrictions contained in Clause 15.2 are
reasonable and necessary for the protection of the legitimate
interests of the Company and that, having regard to those
facts and matters, those restrictions do not work harshly on
him. It is nevertheless agreed that, if any of those
restrictions shall, taken together or separately, be held to
be void or ineffective for any reason but would be held to be
valid and effective if part of its wording were deleted, that
restriction shall apply with such deletions as may be
necessary to make it valid and effective.
15.4 The Executive hereby agrees that he will at the cost of the
Company enter into a direct agreement or undertaking with any
Associated Company whereby he will accept restrictions and
provisions corresponding to the restrictions and provisions in
Clause 15.2
<PAGE> 19
above (or such of them as may be appropriate in the
circumstances) in relation to such activities and such area
and for such periods as such Associated Company may reasonably
require for the protection of its legitimate business
interests.
15.5 The restrictions contained in the sub-Clauses of Clause 15.2
shall be construed as separate and individual restrictions and
shall each be capable of being severed without prejudice to
the other restrictions or to the remaining provisions of this
Agreement.
15.6 The Executive hereby undertakes that during and after the
continuance of this Agreement he will immediately notify the
Company of any offer of employment or any other engagement or
arrangement made to the Executive by any third party or
parties which may give rise to a breach of one or more of the
covenants contained in Clause 15.2 ("a notifiable offer") and
further undertakes that on receipt of any notifiable offer he
will immediately inform the third party or parties responsible
for the notifiable offer of the existence of those covenants.
15.7 If the Company requires the Executive not to perform any of
his duties and/or excludes the Executive from the Company's
premises ("garden leave") as set out in Clause 14.3 above for
some or all of any period of notice, the period of the
post-termination restrictions set out in this Clause 15 shall
be reduced by the length of the garden leave served before the
date this Agreement terminates.
16 DISCIPLINARY AND GRIEVANCE PROCEDURES
16.1 For statutory purposes there is no formal disciplinary
procedure in relation to the Executive's employment. The
Executive shall be expected to maintain the highest standards
of integrity and behaviour.
16.2 If the Executive is not satisfied with any disciplinary
decision taken in relation to him he may apply in writing
within 14 days of that decision to the Chief Executive of the
Scotts Company whose decision shall be final.
16.3 If the Executive has any grievance in relation to his
employment he may raise it in
<PAGE> 20
writing with the Chief Executive of the Scotts Company whose
decision shall be final.
17 DIRECTORSHIP
17.1 The Executive shall not during his employment voluntarily
resign from his office as a director of the Company (except in
circumstances where to continue to hold office as a director
may as a matter of law result in the Executive incurring
personal liability under the Insolvency Act 1986) and he shall
not do or fail to do anything which causes or is likely to
cause him to be prohibited by law from continuing to act as a
director.
17.2 The removal of the Executive from the office of director of
the Company shall terminate the Executive's employment under
this Agreement and such termination shall, except where the
Company was entitled at the time of such removal to terminate
his employment pursuant to Clause 14.1, be without prejudice
to any claim which the Executive may have for damages for
breach of this Agreement.
18 NOTICES
18.1 Any notice to be given under this Agreement shall be given in
writing and shall be deemed to be sufficiently served by one
party on the other if it is delivered personally or is sent by
registered or recorded delivery pre-paid post (air mail if
overseas) addressed to either the Company's registered office
for the time being or the Executive's last known address as
the case may be.
18.2 Any notice sent by post shall be deemed (in the absence of
evidence of earlier receipt) to be received 2 days after
posting (6 days if sent air mail) and in proving the time such
notice was sent it shall be sufficient to show that the
envelope containing it was properly addressed stamped and
posted.
19 Miscellaneous
19.1 Any benefits provided by the Company to the Executive or his
family which are not expressly referred to in this Agreement
shall be regarded as ex gratia benefits
<PAGE> 21
provided at the entire discretion of the Company and shall not
form part of the Executive's contract of employment.
19.2 The Company shall be entitled with reasonable notice to the
Executive at any time during the Executive's employment to set
off and/or make deductions from the Executive's salary or from
any other sums properly due and owing to the Executive from
the Company or any Associated Company in respect of any
overpayment of any kind made to the Executive or in respect of
any debt or other sum due from him.
19.3 Any rules and regulations of the Company contained in any
handbook, procedure or policy documents shall be deemed to
form part of this Agreement.
20 DEFINITIONS AND INTERPRETATION
20.1 In this Agreement unless the context otherwise requires words
and phrases defined in Part XXVI of the Companies Act 1985
have the same meanings thereby attributed to them and the
following expressions have the following meanings:-
ASSOCIATED COMPANY: any company which is from time to time a
holding company of the Company, a subsidiary of the Company or
a subsidiary of a holding company of the Company. The words
"holding company" and "subsidiary" have the meanings given to
them by Section 736 Companies Act 1985 (as amended by the
Companies Act 1989);
THE BOARD: the Board of Directors for the time being of Scotts
Holdings Limited including any duly appointed committee
thereof;
GROUP: the Company and the Associated Companies,
INTELLECTUAL PROPERTY: patents, petty patents, registered and
unregistered trademarks, registered designs (in each case for
the full period thereof), applications for any of the
foregoing, inventions, confidential information (which shall
include for these purposes the matters listed in Clause 13.3).
know-how, business names, trade names, brand names, copyright
and rights in the nature of copyright, design rights
<PAGE> 22
and get-up, such rights as there may in any product
registrations or product licences and similar rights
subsisting in any country;
KNOW HOW: any know-how, industrial information and techniques
including, without limitation, drawings, specifications,
formulations, test and technical reports, operating and
testing manuals, instruction manuals, quality control
procedures, packaging procedures and tables of operating
conditions and procedures used in the Business at the date
hereof,
RESTRICTED PRODUCTS: horticultural fertilizers, horticultural
growing media, horticultural chemicals and grass seed;
RESTRICTED TERRITORIES: the United Kingdom, the Channel
Islands, the Isle of Man and the Republic of Ireland.
20.2 The headings in this Agreement are for convenience only and
shall not affect its construction or interpretation.
20.3 References in this Agreement to Clauses and paragraphs and the
First Schedule are references to Clauses and paragraphs and
the First Schedule (which is hereby specifically incorporated
in this Agreement) to this Agreement.
20.4 Any reference in this Agreement to a person shall where the
context permits include a reference to a body corporate and to
any unincorporated body of persons.
20.5 Any word in this Agreement which denotes the singular shall
where the context permits include the plural and vice versa
and any word in this Agreement which denotes to the masculine
gender shall where the context permits include the feminine
and/or the neuter genders and vice versa.
20.6 Any reference in this Agreement to a statutory provision shall
be deemed to include a reference to any statutory amendment
modification or re-enactment of it.
20.7 This Agreement contains the entire understanding between the
parties and supersedes all (if any) subsisting Agreements
arrangements and understandings.
<PAGE> 23
20.7 This agreement contains the entire understanding between the
parties and supersedes all (if any) subsisting Agreements
arrangements and understandings (written or oral) relating to
the employment of the Executive which such Agreements,
arrangements, and understandings shall be deemed to have been
terminated by mutual consent. The Executive acknowledges that
he has not entered into this Agreement in reliance on any
warranty representation or undertaking which is not contained
in or specifically incorporated in this Agreement.
20.8 The various Clauses and sub-Clauses of this Agreement are
severable and if any Clause or sub-Clause or identifiable part
thereof is held to be invalid or unenforceable by any court of
competent jurisdiction then such invalidity or
unenforceability shall not affect the validity or
enforceability of the remaining Clauses or sub-Clauses or
identifiable parts thereof in this Agreement.
20.9 This Agreement is governed by and shall be construed in
accordance with English law and the parties to this Agreement
hereby submit to the exclusive jurisdiction of the English
courts.
IN WITNESS whereof this Agreement has been executed 11/8/98 by the parties
hereto and is intended to be and is hereby delivered on the date first above
written.
Signed by )
LEVINGTON HORTICULTURE )
LIMITED )
/s/ L. Robert Stohler
---------------------
Director
/s/ David Higgins
---------------------
Director
<PAGE> 24
SIGNED by NICHOLAS )
KIRKBRIDE in the presence of: ) /s/ Nicholas Kirkbride
----------------------
Signature /s/ Amanda Hardwick
Name Mrs. A. Hardwick
Address F. Laverdene Avenue, Totley
Sheffield S17 4117
Occupation: Primary Teacher
<PAGE> 1
Exhibit 10(v)
----------------
* 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,
2
<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.
3
<PAGE> 10
"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.
4
<PAGE> 11
"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
5
<PAGE> 12
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.
6
<PAGE> 13
(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.
7
<PAGE> 14
"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 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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(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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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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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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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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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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<PAGE> 27
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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<PAGE> 28
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.
24
<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.
25
<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;
26
<PAGE> 33
(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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<PAGE> 34
(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;
28
<PAGE> 35
(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:
29
<PAGE> 36
(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.
30
<PAGE> 37
(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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<PAGE> 38
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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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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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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<PAGE> 50
(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 SEC, based upon a
request for confidential treatment filed with the SEC.
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<PAGE> 51
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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<PAGE> 52
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
47
<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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<PAGE> 55
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
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<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:
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<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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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
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<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.
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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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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]
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<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
57
<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
<PAGE> 65
EXHIBIT A
---------
CENTRAL AGREEMENTS
------------------
MASTER AGREEMENT
THIS AGREEMENT is made as of the 21st day of July, 1995 by and between The
Solaris Group, a Strategic Business Unit of Monsanto Company, a Delaware
corporation, with offices at 2527 Camino Ramon, San Ramon, California 94583
("Solaris"), and Central Garden and Pet Company, a Delaware corporation, with
offices at 3697 Mount Diablo Blvd., #310, Lafayette, CA 94549 ("Central").
Statement of Purpose
- - --------------------
Recognizing that Solaris is the preeminent supplier and marketer of
high quality products to the lawn and garden industry and that Central
is the preeminent provider of sales and logistic services for the lawn
and garden industry, Solaris and Central have determined to enter into
a strategic alliance which will more effectively align their respective
interests. The terms of that strategic alliance are set forth in this
Master Agreement. The fundamental goals which Solaris and Central are
seeking to achieve are as follows:
Statement of Goals
- - ------------------
1. To increase sales of Solaris products.
2. To provide the highest quality service to customers for
Solaris products.
3. To maximize the logistical efficiency of distributing
Solaris products.
4. To reduce costs of distributing Solaris products.
In order to achieve their mutual goals and more effectively align their
interests, Solaris and Central have agreed to utilize the following
approach:
Agreed Upon Means To Achieve Goals
- - ----------------------------------
1. Appointment of Central as the exclusive nationwide distributor
of Solaris products, with certain exceptions as provided in
the Exclusive Agency and Distributor Agreement.
2. Providing a sufficiently long term to assure relationship
stability and facilitate the achievement of goals.
3. Structuring Central's compensation to provide strong
incentives to achieve the stated goals.
<PAGE> 66
Solaris and Central hereby agree as follows:
1. Term. This Agreement shall commence on October 1, 1995 and run through
September 30, 1999 (the "Initial Term") unless sooner terminated as
provided in Section 8 herein. Following the Initial Term the Agreement
shall renew automatically for successive two-year periods (the "Renewal
Periods") unless either party hereto notifies the other party in
writing of its intention to terminate the Agreement no less than
fifteen (15) months prior to the expiration of the Initial Term or any
applicable Renewal Period.
2. Exclusive Agency and Distributor Agreement. In order to effectuate the
purpose of this Master Agreement and the goals set forth above, Solaris
is appointing Central as the exclusive provider, with certain
exceptions, of sales and/or logistic services for, and either wholesale
distributor or account servicing agent of, its current United States
lawn and garden products pursuant to an Exclusive Agency and
Distributor Agreement dated concurrently herewith.
3. Compensation. The compensation to be paid to Central for the services
to be performed by it under the terms of the Exclusive Agency and
Distributor Agreement shall be as set forth in the Compensation
Agreement being entered into concurrently herewith.
4. Implementation and Transition. In order to facilitate the
implementation of the transactions contemplated hereby, Solaris and
Central are concurrently entering into an Implementation and Transition
Agreement.
5. Oversight Committee. In order to enhance communication between Solaris
and Central and provide oversight to assure a successful transition and
that each organization's effectiveness is maximized, the parties shall
establish an oversight committee (the "Committee"). The
responsibilities and powers of the Committee are detailed in Exhibit A
to this Agreement. The Committee shall consist of not less than six
members, half of whom shall be designated by Solaris and half of whom
shall be designated by Central. The Committee shall meet monthly, or at
such other regular periodic intervals as the members of the Committee
may agree upon.
6. Warrants and Stock Purchase. Solaris and Central shall enter into
Warrant, Stock Purchase and related agreements as have been mutually
agreed upon.
7. Other Entities. Solaris acknowledges that in order to provide maximum
support for sales of Solaris Products, Central may elect to appoint one
or more other entities as a subdistributor or sales agent. In
accordance with the terms of the Transition and Implementation
Agreement, Central shall offer subdistributor agreements to as many of
Solaris' current distributors as represent 95% or more of Solaris'
current distributor sales volume with those distributors which Solaris
elects to terminate. Thereafter, after carefully considering the input
of Solaris, all decisions with respect to such other entities shall be
made unilaterally by Central in its sole and absolute discretion,
including, without limitation, any and all decisions with respect to
the appointment, termination, management or supervision of such other
entities. After the expiration, termination or cancellation of this
Agreement, or as otherwise provided in the Exclusive Agency and
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Distributor Agreement, Solaris shall be free to contract with, sell to,
engage or otherwise utilize in the sale of Solaris Products, any entity
used by Central as a subdistributor or sales agent during the term of
this Agreement.
8. Termination of Agreement. This Agreement may be terminated during the
Initial Term or any Renewal Period:
a. By written agreement of Solaris and Central.
b. By either party if it has terminated the Exclusive Agency and
Distributor Agreement in accordance with its terms.
9. Miscellaneous.
9.1 Status of Parties. Central and Solaris are independent
contractors retaining complete control over and complete
responsibility for their own operations and employees. Except
as expressly provided herein, this Agreement shall not be
construed to grant either party any right or authority to
assume or create any obligation on behalf of or in the name of
the other. Nothing in this Agreement shall be construed to
establish a franchise relationship or to make either party a
partner or joint venturer of the other party hereto.
9.2 Entire Agreement. This Agreement, together with the agreements
referred to herein and 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.
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 Central and
either Central or Solaris 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 Central's business.
9.3 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 Solaris or Central,
with respect to any default on breach or of any right or
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<PAGE> 68
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.
9.4 Assignment. This Agreement is personal to Central and Central
shall not assign any rights or delegate any duties that
Central 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 Solaris' prior written consent
except as specifically provided herein. Any sale, conveyance,
alienation, transfer or other change of interest in or title
or beneficial ownership of the voting stock so that William E.
Brown and his affiliates no longer hold more voting power than
any other shareholder (together with its affiliates) of
Central shall be construed as an assignment of Central's
rights hereunder.
9.5 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 register 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 Central, to: CENTRAL GARDEN & PET COMPANY
3697 Mt. Diablo Blvd., Suite 310
Lafayette, CA 94549
ATTN: Glenn Novotny
Telefax no.: (510) 283-4991
with a copy to: ORRICK, HERRINGTON & SUTCLIFFE
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
ATTN: John F. Seegal
Telefax no.: (415) 773-5759
If to Solaris, to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: President
Telefax no.: (510) 355-3530
with a copy to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: Company Counsel
Telefax no.: (510) 355-3530
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9.6 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.
9.7 Governing Law. THE VALIDITY, INTERPRETATION, EFFECT AND
PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED
HEREWITH SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
9.8 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.
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.
MONSANTO COMPANY, THROUGH
THE SOLARIS GROUP,
A STRATEGIC BUSINESS UNIT CENTRAL GARDEN & PET COMPANY
By: By:
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
5
<PAGE> 70
MASTER AGREEMENT
EXHIBIT A
OVERSIGHT COMMITTEE RESPONSIBILITY AND POWERS
1. Purpose and Responsibility. In order (i) to enhance communication
between Solaris and Central, (ii) to provide oversight to assure a
successful transition to and implementation of the Master Agreement,
the Implementation and Transition Agreement, the Exclusive Agency and
Distributor Agreement, the Compensation Agreement and any other
agreement between Solaris and Central (the "Agreements"), (iii) to
provide continuing review of the relationship between Solaris and
Central to assure that each organization's effectiveness is maximized
during the term of the Agreements, and (iv) to provide a mechanism for
identifying and resolving disputes arising under or in connection with
the Agreements, Solaris and Central have agreed to establish an
oversight committee (the "Committee"). To this end, the Committee will
have the responsibility for addressing issues in three categories: (i)
implementation and transition; (ii) continuing review; and (iii)
dispute resolution.
2. Organization and Meetings. The Committee shall consist of not less than
six members (the "Members"), half of whom shall be designated by
Solaris and half of whom shall be designated by Central. The Committee
shall meet monthly or at such other regular periodic intervals as may
be provided in the Agreements or as the Members may agree, at such
locations as the Members may select from time to time.
3. Special Representatives. In addition to the Members, Solaris and
Central may each designate one or more special representatives (the
"Special Representatives") with responsibility over various areas to
facilitate communication between meetings. Special Representatives do
not need to be Members. Special Representatives who are not Members may
attend portions of the Committee's meetings in order to offer expertise
on particular issues to be discussed by the Committee at any meeting.
4. Implementation and Transition. During the implementation and transition
period, the Committee will meet on a monthly basis to address
implementation and transition issues which may include, without
limitation:
a. Implementation of a business system plan, including (i)
overseeing the details of the implementation plan that the
parties will follow to put the new distribution system in
place, and (ii) refining the order-to-cash function and
dealing with issues that arise therefrom;
b. Reviewing the needs for long term strategic investments and
the basis for sharing of costs and cost savings as
contemplated by the compensation agreement;
c. Reviewing the needs for the skill base and training of the
Central sales force, determining a method to track performance
and providing appropriate incentives consistent with the
Agreements;
<PAGE> 71
d. Coordination of all appropriate communications;
e. Reviewing information system needs; and
f. Reviewing the appointment of sub-agents and sub-distributors.
5. Continuing Review. After the implementation and transition period, the
Committee will meet on a bi-monthly basis or such other intervals as
may be agreed by the Committee to discuss and review continuing issues
which may include, without limitation:
a. Review of budgeting and demand forecasting for marketing and
sales that impact cost and staffing levels;
b. Measuring performance for all logistics functions, identifying
problem areas and coming up with appropriate solutions;
c. Review and resolution of customer complaints which can not be
addressed at branch locations;
d. Quarterly review of Central costs;
e. Quarterly review of the levels of service which has been
established and Central's performance with respect thereto;
and
f. Renewal issues.
6. Dispute Resolution. Without limiting any party's rights under the
Agreements (including but not limited to the right to give a notice of
default, to limit the exclusivity of the Agreements and/or to terminate
all or any of the Agreements), disputes may be addressed by the
Committee at any regular meeting or any special meeting called by
Solaris or Central on reasonable notice. Financial disputes involving
the compensation of Central under the Compensation Agreement, such as
the calculation of any Costs, the preparation of any Cost to Serve
Schedule or the calculation of any other component of Central's
compensation thereunder are referred to as "Compensation Disputes."
Disputes may be resolved in the following manner:
a. Negotiation. If any dispute occurs, either party may give a
notice to the other party requesting that the Committee try in
good faith to negotiate a resolution of such dispute. Upon
receipt of such a notice by the other party, all Members shall
promptly commence and diligently pursue, for a period of not
longer than thirty (30) days (the "Negotiation Period"), good
faith negotiations to resolve such dispute.
b. Compensation Disputes: Submission to Independent Accounting
Firm. If any Compensation Dispute is not resolved during the
Negotiation Period, the Committee may submit the unresolved
Compensation Dispute to be settled by binding arbitration. A
nationally recognized independent accounting firm (e.g.,
Deloitte & Touche LLP) or other mutually agreeable third party
shall act as
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arbitrator to resolve such dispute. Within 60 days after a
Compensation Dispute is so submitted, the accounting firm
shall deliver to both parties a written decision on its
resolution of such dispute. If the Compensation Dispute
involves the calculation of a specific amount, the written
decision shall state such amount, the method of calculation
and the reasoning on which it is based.
i. The parties shall cooperate fully with such
accounting firm and take, or cause to be taken, all
reasonable action to facilitate the efforts of the
accounting firm in rendering its decision, including
but not limited to providing it with access to such
information and personnel as may be requested by such
accounting firm to resolve the dispute at the
earliest possible date (but in no event later than
within 60 days of its submission).
ii. The costs and/or fees of such accounting firm shall
be borne and paid equally by the parties.
iii. For purposes of resolving Compensation Disputes, (A)
such accounting firm shall be deemed to be an
arbitrator, (B) the parties agree to be bound by the
decision of such accounting firm and (C)
notwithstanding anything contained in the Agreements
to the contrary, any such dispute
resolution/arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1-16.
Judgment on the decision or award rendered by the
accounting firm may be entered in any court having
jurisdiction thereof.
3
<PAGE> 73
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT (the "Agreement") is made as of the 21st
day of July, 1995 by and between The Solaris Group, a Strategic Business Unit of
Monsanto Company, a Delaware corporation, with offices at 2527 Camino Ramon, San
Ramon, California 94583 ("Solaris"), and Central Garden and Pet Company, a
Delaware corporation, with offices at 3697 Mount Diablo Blvd., #310, Lafayette,
California 94549 ("Central").
RECITALS
--------
A. Solaris and Central have executed a Master Agreement, an
Implementation and Transition Agreement and an Exclusive Agency and Distributor
Agreement (the "Agency and Distributor Agreement") dated of even date herewith.
Capitalized, but undefined, terms used herein shall have the meaning ascribed to
them in the Agency and Distributor Agreement.
B. Pursuant to this Agreement and the Agency and Distributor Agreement,
Solaris shall compensate Central for its performance under the Agency and
Distributor Agreement.
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:
1. DEFINITIONS. As used herein, the following terms shall have the
meanings ascribed to them below:
"Additional Incentive Percentage" means, with respect to any specific
Tier Level, the applicable Additional Incentive Percentage set forth on schedule
lA.
<PAGE> 74
"Central Employee Sales Incentive Payment" equals $500,000.
"Cost to Serve Schedule" means, with respect to any specific Program
Year, a schedule in substantially the form of Schedule 2(a) and prepared in a
manner consistent with Section 2(a) and schedule 2(a) (e.g., Fixed Cost
allocations to Solaris shall be on a basis reflecting Solaris' reasonable share
of such costs, and not simply on sales volume, and all Costs shall be equal to
or below market rates for readily available comparable services), setting forth
for each Sales Channel at the service levels set forth in the applicable Service
Level Summary, among other things, (i) projected Gross Sales Revenue, (ii) Fixed
Cost to Serve Cap, (iii) Variable Cost to Serve Cap and (iv) Total Cost to Serve
Cap. Schedule 2(a) is the Cost to Serve Schedule for the 1996 Program Year,
subject to adjustment as provided therein and as provided in Section 2 (a).
"Costs" means Fixed Costs and Variable Costs.
"Earnings Payment Percentage" means, with respect to any specific Tier
Level, the applicable Earnings Payment Percentage set forth on Schedule 1A.
"Fixed Costs" means the following types of costs to the extent
associated with services to be provided by Central or any sub-agent with respect
to a Direct Account: (i) Selling, (ii) Sales Management, (iii) Other Selling,
(iv) Facility, (v) Regional Administration and (vi) Corporate Administration.
The foregoing shall include only those items of expense that have been
historically and consistently included in such categories by Central and new
items of expense that may be required in the ordinary course of business for
Central to perform under the Agency and Distributor Agreement. Determination of
said Costs shall be consistent with the methodology used to prepare Schedule
2(a)
2
<PAGE> 75
"Gross Sales Revenue" means, with respect to any identified time
period, purchaser or group of purchasers, Solaris' gross sales for Solaris
Products (or a single product, if so indicated) based on Solaris' invoice price
to Central (whether or not actually sold and invoiced to Central) (net of any
returns, rebates and discounts), adjusted for actual changes in Central's and
sub-distributors' inventories of Solaris Products as of September 30 of each
Program Year.
"Indexed" means, when a dollar amount contained in a provision of this
Agreement (or Schedule) is referred to as "(Indexed)," such dollar amount shall
be adjusted by the average of (i) the percentage increase or decrease in the
most recently published PPI Index as of the time such dollar amount is to be
determined, as compared to the most recently published PPI Index 12 months prior
to such date and (ii) the percentage increase or decrease in the most recently
published CPI Index as of the time such dollar amount is to be determined, as
compared to the most recently published CPI Index 12 months prior to such date.
"PPI Index" means the "Producer Price Index (PPI)" as published by the U.S.
Department of Commerce, Bureau of Economic Analysis. If the U.S. Department of
Commerce ceases to publish the PPI, the parties agree to meet and to reach
agreement upon another standard source for measuring inflation in the segment of
the United States economy covered by the PPI, such other source to be published
by the United States Government or a responsible periodical in lieu thereof.
"CPI Index" means the "Consumer Price Index (CPI) (U.S. -- All Products)" as
published by the U.S. Department of Commerce, Bureau of Economic Analysis. If
the U.S. Department of Commerce ceases to publish the CPI, the parties agree to
meet and to reach agreement upon another standard source for measuring inflation
in the segment of the United States economy covered by the CPI, such other
source to be published by the United States Government or a responsible
periodical in lieu thereof.
3
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"Roundup Threshold Level" means, with respect to the 1996 Program Year,
$142,000,000; thereafter, with respect to any specific Program Year, 1.07 times
the Roundup Threshold Level for the prior Program Year.
"Sales Channel" means the Direct Account or group of Direct Account
categories for the method of sales and distribution of Solaris Products as
identified on an applicable Cost to Serve Schedule.
"Tier Levels" means, with respect to any specific Program Year, any one
of the First Tier through the Twelfth Tier Level, as applicable, and determined
as set forth in Schedule lA.
"Variable Costs" means the following types of costs to the extent
associated with services to be provided by Central or any sub-agent (subject to
Section 2(c)) with respect to a Direct Account: (i) Merchandising, (ii) Freight
and (iii) Warehousing. The foregoing shall include only those items of expense
that have been historically and consistently included in such categories by
central and new items of expense that may be required in the ordinary course of
business for Central to perform under the Agency and Distributor Agreement.
Determination of said Costs shall be consistent with the methodology used to
prepare Schedule 2 (a).
2. ANNUAL COST BUDGETS.
(a) Modification of 1996 Program Year Cost to Serve Schedule. Schedule
2(a) is the Cost to Serve Schedule for the 1996 Program Year, subject to
adjustment as provided herein. If any Direct Account or Solaris requests a
modification in service level for the 1996 Program Year, Solaris may request
that Central provide Cost information for providing such modified service level.
Such Cost information shall be estimated and prepared in a manner consistent
with
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the Cost information contained in Schedule 2(a) (e.g., Fixed Cost allocations to
Solaris shall be on a basis reflecting Solaris' reasonable share of such costs,
and not simply on sales volume, and all Costs shall be equal to or below market
rates for readily available comparable services). Solaris and Central may
discuss and negotiate in good faith such Cost information and, if and when such
Cost information is agreed to by both parties, Central shall provide a revised
1996 Program Year Cost to Serve Schedule that reflects all agreed to changes to
Solaris for its approval. Upon such approval, such revised Cost to Serve
Schedule and a corresponding revised Service Level Summary shall become a part
of this Agreement and the Agency and Distributor Agreement, respectively, by
replacing and superseding any prior Cost to Serve Schedule or Service Level
Summary, as applicable. Notwithstanding anything contained herein to the
contrary, Solaris shall retain (and not pay to Central) 20% of the Cost of any
incremental services, unless, during the Program Year when such incremental
services are implemented, the Gross Sales Revenue from the Direct Account
receiving the incremental services, increases by an amount equal to or greater
than 2 times the Cost of such incremental services.
(b) Subsequent Program Years. On or before May 1 of each Program Year,
Solaris shall provide to Central a proposed Service Level Summary for the
immediately following Program Year. On or before May 15 of each Program Year,
Central shall provide to Solaris a proposed Cost to Serve Schedule, in
substantially the form of, and prepared in a manner consistent with, Schedule
2(a), for the proposed Service Level Summary for the immediately following
Program Year. On or before June 1 of each Program Year, Central and Solaris
shall agree to a Service Level Summary and a corresponding Cost to Serve
Schedule for the immediately following Program Year. If, after any such Summary
or Schedule is agreed to by Central and Solaris, any Direct Account requests a
modification in service levels for the
5
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applicable Program Year, Solaris and Central may modify the applicable Service
Level Summary and Cost to Serve Schedule in the same manner as provided in
Section 2(a).
(c) Sub-agent Costs. Central shall use its best efforts to require all
sub-agents to provide information on their actual Costs for providing services
to Direct Accounts, with audit rights substantially similar to those provided
herein between Central and Solaris. If any such sub-agent will not provide such
Cost information to Central, Central shall use its best efforts to have such
sub-agent provide such Cost information directly to Solaris or its independent
accounting firm, with audit rights substantially similar to those provided
herein with respect to Central. If any such sub-agent will not provide such Cost
information directly to Solaris or its independent accounting firm, then, when
this Agreement refers to the "actual" Costs of such sub-agent, such reference
shall be deemed to apply to the budgeted Costs of such sub-agent as contained in
any applicable Cost to Serve Schedule.
(d) Budget Dispute Resolution. If Central and Solaris fail to agree to
any Cost to Serve Schedule or change thereto as provided in this Section 2 and
the dispute relates to a service previously provided by Central to any Direct
Account, then the Costs for such service shall equal the lesser of (i) the last
agreed to Cost for such service (Indexed) or (ii) the last actual Cost for such
service (Indexed). If the dispute relates to a service not previously provided
by Central to any Direct Account, such dispute shall be submitted to the
Oversight Committee for resolution by good faith negotiation or submission to an
independent accounting firm or other mutually acceptable third party for
determination.
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3. COMPENSATION RELATED TO DIRECT ACCOUNTS.
(a) Central and Sub-agent Costs. Prior to the beginning of the 1996
Program Year, Costs shall be borne by the parties as provided in the Transition
and Implementation Agreement; thereafter, Costs shall be borne as provided
therein and herein. For each Program Year, Solaris shall reimburse Central for
its or its sub-agent's (subject to Section 2(c)) actual Costs (not to exceed
budgeted Costs) in accordance with this Section 3.
(i) If total actual Gross Sales Revenue from all sources in any
Program Year is equal to or below the maximum amount for the First Tier Level
for such Program Year, Solaris shall pay Central, with respect to each Sales
Channel, the lesser of: (i) Central's and its sub-agent's (subject to Section
2(c)) actual Costs for such Sales Channel for such Program Year or (ii) an
amount equal to such Sales Channel's projected Gross Sales Revenue (i.e., the
point at which all Fixed Costs are paid) for such Program Year multiplied by
such Sales Channel's Total Cost to Serve Cap for such Program Year. Any amounts
paid to Central hereunder for Costs of a sub-agent shall be paid to such
subagent by Central, unless otherwise agreed to by Solaris.
(ii) If total actual Gross Sales Revenue from all sources in any
Program Year is above the maximum amount for the First Tier Level for such
Program Year, Solaris shall pay Central, with respect to each Sales Channel, the
lesser of: (i) Central's and its sub-agent's (subject to Section 2(c)) actual
Costs for such Sales Channel for such Program Year or (ii) an amount equal to
the sum of (A) such Sales Channel's projected Gross Sales Revenue (i.e., the
point at which all Fixed Costs are paid) for such Program Year multiplied by
such Sales Channel's Total Cost to Serve Cap for such Program Year plus (B) the
difference between such Sales Channel's actual Gross Sales Revenue and its
projected Gross Sales Revenue for such
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Program Year multiplied by such Sales Channel's Variable Cost to Serve Cap for
such Program Year. Any amounts paid to Central hereunder for Costs of a
sub-agent shall be paid to such sub-agent by Central, unless otherwise agreed to
by Solaris.
(b) First Tier through Twelfth Tier Central Earnings Payments. For each
Program Year, Solaris shall pay Central an amount, equal to (i) the actual Gross
Sales Revenue from Direct Accounts serviced by Central for such Program Year
multiplied by (ii) the Earnings Payment Percentage applicable to the lowest Tier
Level in which total actual Gross Sales Revenue from all sources falls.
(c) Sub-agent Earnings Payments. For each Program Year, Solaris shall
pay Central an amount equal to 2% of the actual Gross Sales Revenue from Direct
Accounts serviced by sub-agents for such Program Year. Central shall pay each
sub-agent its proportionate share (based on sales volume) of such payment from
Solaris.
(d) Additional Central Profit Incentive. For each Program Year, if the
total actual Gross Sales Revenue from all sources exceeds the First Tier Level
for such Program Year, then Solaris shall pay Central an amount equal to (i) (A)
the actual Gross Sales Revenue from Direct Accounts serviced by Central or any
sub-agent for such Program Year less (B) the projected Gross Sales Revenue from
Direct Accounts serviced by Central or any sub-agent (i.e., the point at which
all Fixed Costs are paid) for such Program Year, multiplied by (ii) the
Additional Incentive Percentage.
(e) Central Employee Sales Incentives. For each Program Year, if total
actual Roundup Gross Sales Revenue from all sources exceeds the Roundup
Threshold Level for such Program Year, then (i) if and when total actual Gross
Sales Revenue from all sources exceeds
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115% of the maximum amount for the First Tier Level for such Program Year,
Solaris shall pay Central an amount equal to the Central Employee Sales
Incentive Payment and (ii) if and when total actual Gross Sales Revenue from all
sources exceeds 120% of the maximum amount for the First Tier Level for such
Program Year, Solaris shall pay Central a second and additional amount equal to
the Central Employee Sales Incentive Payment. All of any such Central Employee
Sales Incentive Payment paid under clause (i) above shall be distributed
(subject to any withholding required by law) by Central to its sales personnel.
At least 50% of any such Central Employee Sales Incentive Payment paid under
clause (ii) above shall be distributed (subject to any withholding required by
law) by Central to its employees.
4. PAYMENT. The compensation set forth in this Agreement shall be paid in
accordance with this Section 4.
(a) Monthly Payments. On or before the 15th day of each month, Central
shall deliver to Solaris an invoice for (i) its budgeted Fixed Costs and
Variable Costs, both by Sales Channel, for the immediately following month and
(ii) its Tier Earnings Payment and sub-agent earnings payment, both by Sales
Channel, for the immediately preceding month. The Fixed Cost amount shall be
1/12th of the budgeted total annual Fixed Cost amount for such Sales Channel
reflected in the applicable Cost to Serve Schedule. The Variable Cost amounts
shall be calculated by Sales Channel, with each such amount equal to the
immediately following month's projected Gross Sales Revenue by Sales Channel
multiplied by the applicable Variable Cost to Serve Cap, adjusted for any
overpayment or underpayment of Variable Costs in previous months (i.e., the
difference between the prior months actual and projected Gross Sales Revenue by
Sales Channel multiplied by the applicable Variable Cost to Serve Cap). The Tier
Earnings payment amount shall equal the immediately preceding month's actual
Gross Sales Revenue from Direct
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Accounts serviced by Central for such month multiplied by the lowest applicable
Tier Earnings Payment Percentage. The sub-agent earnings payment amount shall
equal 2% of the immediately preceding month's actual Gross Sales Revenue from
Direct Accounts serviced by such sub-agents for such month. Solaris shall pay
proper invoices within 15 days of receipt.
(b) Final Tier Earnings Payment; Additional Central Profit Incentive;
Central Employee Sales Incentives. Within 5 days after the completion of an
annual reconciliation of payments for a Program Year as provided in Section
4(c), Solaris shall pay to Central (i) the difference, if any, between the total
Tier Earnings Payment due for such Program Year less any monthly Tier Earnings
payments paid during such Program Year, (ii) any Additional Central Profit
Incentive payment and (iii) any Central Employee Sales Incentive payments due
for such Program Year, net of any adjustments based on such reconciliation.
(c) Annual Reconciliation of Payments; Cost to Serve Savings. Within 30
days after the end of each Program Year, Central shall provide Solaris with (i)
its (and its sub-agent's, subject to Section 2(c)) total actual Costs for such
Program Year by Sales Channel and (ii) its (and its sub-agent's and
sub-distributor's) inventory levels for Solaris Products at the end of such
Program Year. If Central's (and its sub-agent's, subject to Section 2(c)) total
actual Costs for a Sales Channel for such Program Year are less than the total
of the monthly Fixed Cost and Variable Cost payments made to Central (or such
sub-agent) during such Program Year, then the difference shall be payable by
Central to Solaris. Any amount payable to Solaris may be paid in cash (within 10
days after it is due) or by offset to any amount due to Central by Solaris. For
purposes of the following, actual Fixed Costs shall be stated and compared in
absolute dollar amounts and actual Variable Costs shall be stated and compared
as a percentage of sales, applied to the current Program Year's Gross Sales
Revenue from Direct Accounts. The
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1996 Program Year actual Fixed Costs shall be appropriately adjusted to reflect
incremental sales people in stores during the current Program Year that were not
served during the 1996 Program Year.
(i) For the 1996 Program Year, if the actual Costs for the 1996 Program
Year are less than the budgeted Costs on the Cost to Serve Schedule incurred to
provide the same services during the 1996 Program Year, then during the 1997
Program Year, Solaris shall pay Central, in equal monthly installments, a total
amount equal to one-third of such difference.
(ii) For the 1997, 1998 and 1999 Program Years, if the actual Costs to
serve the Direct Accounts for any such Program Year are less than the 1996
Program Year actual Costs to serve the Direct Accounts, then during the next
Program Year, Solaris shall pay Central, in equal monthly installments, a total
amount equal to one-third of such difference.
(d) Payment Dispute Resolution. If Solaris and Central disagree with
respect to the amount of any payment required to made hereunder, then the
dispute shall be submitted to the Oversight Committee for resolution by
negotiation or submission to an independent accounting firm for determination.
5. COMPENSATION RELATED TO DISTRIBUTOR ACCOUNTS. Central shall keep any
profit on sales of Solaris Products by Central to Distributor Accounts, and
sub-distributors shall keep any profit on sales of Solaris Products by them to
Distributor Accounts. Solaris shall provide "netback" (marketing incentive
programs) amounts on the sale of Solaris Products to Distributor Accounts in a
manner that is substantially similar to Solaris' practice prior to the date of
this Agreement. Netback amounts for sub-distributors may be paid by Solaris
directly to the sub-distributor or to Central with Central required to pay such
amount to the sub-distributors.
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6. SUPPLY LOGISTIC AND SAFETY STOCK WAREHOUSING SAVINGS. Solaris and
Central agree that the costs for supply logistics and safety stock warehousing
are not included in any Cost to Serve Schedule. During the term of, and in
connection with, the implementation and Transition Agreement, the parties may
modify the logistic plan causing a reduction in manufacturing demand that
changes product flow. Solaris shall pay the actual costs for such logistics and
warehousing. For purposes of the following, (A) fixed costs for supply logistics
and safety stock warehousing shall include safety stock warehouse and management
costs, (B) such fixed costs shall be stated and compared in absolute dollar
amounts, and (C) variable costs for supply logistics and safety stock
warehousing shall be stated and compared as a percentage of sales, applied to
the current Program Year's Gross Sales Revenue.
(i) For the 1996 Program Year, if the actual costs for supply
logistics and safety stock warehousing for the 1996 Program Year are less than
the actual costs incurred for the same services during the 1995 Program Year
(which was prior to this Agreement), then during the 1997 Program Year, Solaris
shall pay Central, in equal monthly installments, a total amount equal to
one-third of such difference. For purposes of the foregoing, actual costs for
the 1995 Program Year shall be appropriately adjusted by Solaris to reflect
unusual items during the 1995 Program Year and cost items that were transferred
to or included in the Cost to Serve Schedule for the 1996 Program Year.
(ii) For the 1997, 1998 and 1999 Program Years, if the actual
costs for supply logistics and safety stock warehousing for any such Program
Year are less than the 1996 Program Year actual costs for supply logistics and
safety stock warehousing, then during the next Program Year, Solaris shall pay
Central, in equal monthly installments, a total amount equal to one-third of
such difference.
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An illustrative example of the calculation of supply logistic and safety stock
warehousing savings is contained in Schedule 6.
7. STRATEGIC INVESTMENT PROPOSALS AND BUDGET. At any time, either
Central or Solaris may propose that the other party, or both parties jointly,
make a strategic investment in connection with the subject matter of the Agency
and Distributor Agreement. Such proposal shall include a detailed budget for
such Investment, with any cost-sharing recommendations. Each party, in its sole
discretion, may decide whether to participate in any such strategic investment.
8. AUDIT RIGHTS. Solaris, through its independent auditors, shall have
access to and the right to inspect and audit the books and records of Central at
reasonable times and upon reasonable notice. Central, through its independent
auditors, shall have access to and the right to inspect and audit the books and
records of Solaris at reasonable times and upon reasonable notice to verify
amounts owed to Central hereunder. If an auditor is used by Solaris, the auditor
will only verify the actual costs incurred and whether the portion that the
parties had agreed should be allocated to Solaris was in fact allocated. The
auditor would not question the allocation methodology; it would only determine
if the "mathematics" had been properly applied to actual costs. If, as the
result of any such audit, either party reasonably believes that the aggregate
amounts paid to Central were incorrect, then the parties will attempt in good
faith to resolve the disagreement through the Oversight Committee, taking into
account the results of the audit and any other pertinent data. If the Oversight
Committee is unable to resolve the disagreement within 30 days, then the
disagreement shall be submitted to an independent accounting firm (other than
the firm which performed the audit) or other mutually acceptable third party for
determination, and any amounts determined to be owed shall be immediately due
and payable.
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9. TERM. The term of this Agreement shall be the same as the term of the
Agency and Distributor Agreement.
10. MISCELLANEOUS.
(a) 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, generally accepted
accounting principles consistently applied (GAAP) and the party's past
accounting practice 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.
(b) Status of Parties. Central and Solaris are independent contractors
retaining complete control over and complete responsibility for their own
operations and employees. Except as expressly provided herein, this Agreement
shall not be construed to grant either party any right or authority to assume or
create any obligation on behalf of or in the name of the other. Nothing in this
Agreement shall be construed to establish a franchise relationship or to make
either party a partner or joint venturer of the other party hereto.
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(c) Entire Agreement. This Agreement, together with the agreements
referred to herein and 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. 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 Central and either Central or Solaris 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 Central's business.
(d) 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 Solaris or Central, with respect to any default on 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.
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(e) Assignment. This Agreement is personal to Central and Central shall
not assign any rights or delegate any duties that Central 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 Solaris' prior written consent except as specifically
provided herein. Any sale, conveyance, alienation, transfer or other change of
interest in or title or beneficial ownership of the voting stock of Central so
that William E. Brown and his affiliates no longer hold more voting power than
any other shareholder (together with its affiliates) of Central shall be
construed as an assignment of Central's rights hereunder.
(f) 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 register 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 Central, to: CENTRAL GARDEN & PET COMPANY
3697 Mt. Diablo Blvd., Suite 310
Lafayette, CA 94549
ATTN: Glenn Novotny
Telefax no.: (510) 283-4991
with a copy to: ORRICK, HERRINGTON & SUTCLIFFE
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
ATTN: John F. Seegal
Telefax no.: (415) 773-5759
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If to Solaris, to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: President
Telefax no.: (510) 355-3530
with a copy to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: Company Counsel
Telefax no.: (510) 355-3530
(g) 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.
(h) Governing Law. THE VALIDITY, INTERPRETATION, EFFECT AND PERFORMANCE
OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(i) 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 next]
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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 written.
MONSANTO COMPANY, THROUGH
THE SOLARIS GROUP, A
STRATEGIC BUSINESS UNIT
By:
-------------------------
Name:
-----------------------
Title:
----------------------
CENTRAL GARDEN & PET COMPANY
By:
-------------------------
Name:
-----------------------
Title:
----------------------
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IMPLEMENTATION AND TRANSITION AGREEMENT
THIS IMPLEMENTATION AND TRANSITION AGREEMENT is made effective as of
the 21st day of July, 1995 by and between The Solaris Group, a Strategic
Business Unit of Monsanto Company, a Delaware corporation, with offices at 2527
Camino Ramon, San Ramon, California 94583 ("Solaris") and Central Garden & Pet
Company, a Delaware corporation, with offices at 3697 Mount Diablo Blvd. #310,
Lafayette, California 94549 ("Central").
WHEREAS, Solaris and Central are entering into a Master Agreement, and
an Exclusive Agency and Distributor Agreement concurrently herewith and wish to
enter into this Agreement to facilitate the implementation of said agreements
(capitalized terms used, but not defined, herein shall have the meaning ascribed
to them in the Master Agreement or the Exclusive Agency and Distributor
Agreement);
The parties hereby agree as follows:
1. Distributors and Subdistributors. Solaris has unilaterally
determined to fundamentally change its distribution system for the Solaris
Products and, with certain limited exceptions, terminate all of its existing
distributors. Central shall then offer reasonable subdistributor contracts with
a minimum term of one year to as many of such distributors as in the aggregate
represent 95% or more of Solaris' current distributor sales volume with such
distributors as Solaris elects to terminate. The subdistributor contracts shall
include the following provisions: (a) a release of Solaris from all claims which
the subdistributor has arising out of the termination of its distributor
agreement with Solaris; (b) a covenant from the subdistributor to pay Solaris
all sums due and owed to Solaris for products purchased and an automatic
termination of the subdistributor contract if all said sums have not been paid
by September 30, 1995; and (C) such other terms as Central may deem to be
appropriate in its discretion.
If certain of Solaris' distributors do not elect to enter into
subdistribution contracts with Central, then Central shall assist Solaris in the
return of inventory of Solaris Products ("Returned Goods") and shall be
reimbursed for its reasonable costs in providing such assistance. Central shall
receive Returned Goods into its warehouses and assist Solaris in the preparation
of appropriate credit memos for Returned Goods. Central shall purchase Returned
Goods from Solaris upon Central's receipt into its warehouses and shall pay
Solaris for Returned Goods pursuant to Solaris' payment terms for Central in
effect at the time of Central's receipt of Returned Goods.
2. Oversight Committee. An oversight committee shall be formed for the
purpose of enhancing communication and providing oversight to assure a
successful transition and implementation of the various agreements (the
"Committee"). The responsibilities and powers of the Committee and its function
with respect to this Agreement are as specified in an exhibit to the Master
Agreement.
3. Warehouses. Solaris shall bear the costs associated with the
termination of any of its current warehouse agreements. In order to minimize
said costs, Central shall try to use any of said facilities as it determines in
its sole discretion may fit as part of Central's future warehouse
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system. Central shall bear the costs associated with upgrading its current
warehouses in order to perform the services contemplated under these agreements
and to maintain compliance with Solaris' policies on warehouse facilities.
Central shall also bear the costs of relocating any of its present warehouses as
it determines in its discretion to be necessary for the proper performance of
its functions under these agreements. The parties agree that it is necessary to
establish a safety stock warehouse, and that the purpose and function of the
safety stock warehouse are as set forth in Exhibit A hereto. The costs thereof
shall be paid directly by Solaris or reimbursed by Solaris to Central as part of
the regular compensation of costs under the Compensation Agreement.
4. Information Systems. The parties acknowledge that continual
improvement of Central's business process and supporting information systems is
required in order to maintain competitive service levels. The parties shall
equally share the costs of retaining a mutually agreeable consultant to develop
a business process and supporting information systems plan subject to a maximum
expense level of $300,000 which engagement shall occur no later than August 31,
1995. The parties shall try to maximize the use of each other's technology. The
parties agree to fund business process and supporting information systems
improvement up to a maximum total cost for both parties together of $700,000.
Solaris shall share equally in the cost of said improvements which is
incremental to those improvements currently planned by Central (which are
identified in Exhibit B hereto). During and after expiration, termination, or
cancellation of the Master Agreement, each party shall be entitled to use any
information systems which are developed during the term of the Master Agreement.
5. Employees. Each party shall bear the costs associated with
relocating any of its employees in connection with the performance under the
agreements. Incident to the transactions contemplated by the Master Agreement,
Solaris may terminate certain of its employees and has asked Central to consider
hiring such terminated employees. All hiring decisions shall be in the sole
discretion of Central. In the event that Central hires any of such former
Solaris employees, it shall treat such employees as new hires and shall have no
responsibility whatsoever for any benefits of any kind which may have accrued to
such persons prior to their hiring by Central; provided, to the extent such
benefits are provided, Central agrees (i) to waive the recognition of any
pre-existing condition limitations under its medical and disability plans to the
extent reasonably possible under Central's existing insurance plans, (ii) to
recognize all deductions and co-payments paid to date in the calendar year 1995
against the limits of Central's medical policies, (iii) to recognize prior
service at Solaris/Chevron for purposes of (A) determining vacation eligibility
and (B) vesting for any employer match to a savings plan or 401K plan and
participation in any disability plan. Central shall have no liability whatsoever
with respect to any Solaris employees which it determines not to hire.
6. Business Processes. The initial responsibilities of the parties with
respect to the business processes, including the Order-to-Cash cycle, will be
determined as soon as practicable and appropriate modifications will be made to
the Cost to Serve Schedule to the Compensation Agreement. The parties realize
that these responsibilities may likely change when the Information Systems
integration and improvement project has been completed. The Committee will
discuss appropriate modifications, if any, at that time.
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7. Communications. The parties agree that proper communication of the
new relationship created by the Master Agreement and related documents is key to
the success of this implementation plan and shall agree upon an appropriate
Communication Plan.
8. Miscellaneous.
8.1 Status of Parties. Central and Solaris are independent
contractors retaining complete control over and complete
responsibility for their own operations and employees. Except as
expressly provided herein, this Agreement shall not be construed to
grant either party any right or authority to assume or create any
obligation on behalf of or in the name of the other. Nothing in this
Agreement shall be construed to establish a franchise relationship
or to make either party a partner or joint venturer of the other
party hereto.
8.2 Entire Agreement. This Agreement, together with any agreements
referred to herein and the 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. 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 Central and either Central or Solaris 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 Central's business.
8.3 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
Solaris or Central, with respect to any default on 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.
8.4 Assignment. This Agreement is personal to Central and Central
shall not assign any rights or delegate any duties that Central 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,
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without Solaris' prior written consent except as specifically
provided herein. Any sale, conveyance, alienation, transfer or other
change of interest in or title or beneficial ownership of the voting
stock so that William E. Brown and his affiliates no longer hold
more voting power than any other shareholder (together with its
affiliates) of Central, shall be construed as an assignment of
Central's rights hereunder.
8.5 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 register 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 Central, to: CENTRAL GARDEN & PET COMPANY
3697 Mt. Diablo Blvd., Suite 310
Lafayette, CA 94549
ATTN: Glenn Novotny
Telefax no.: (510) 283-4991
with a copy to: ORRICK, HERRINGTON & SUTCLIFFE
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
ATTN: John F. Seegal
Telefax no.: (415) 773-5759
If to Solaris, to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: President
Telefax no.: (510) 355-3530
with a copy to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: Company Counsel
Telefax no.: (510) 355-3530
8.6 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.
8.7 Governing Law. THE VALIDITY, INTERPRETATION, EFFECT AND
PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED
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HEREWITH SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA.
8.8 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year see forth below.
CENTRAL GARDEN & PET COMPANY MONSANTO COMPANY, through
The Solaris Group,
a Strategic Business Unit
By By
-------------------------- -------------------------
Title Title
----------------------- ----------------------
5
<PAGE> 96
EXHIBIT "A"
-----------
"Safety Stock Warehouse"
1. The purpose of the Safety Stock Warehouse is to balance an optimum
service level with minimum cost.
2. The management of inventory and logistics activities of the Safety
Stock Warehouse will be based upon the overall lowest cost with highest
quality service within the network.
3. Typically, "A" items will ship directly from manufacturing to CG&P
locations via full truckloads, some "B" and most "C" items will be
replenished from the Safety Stock Warehouse.
4. Short term, the Safety Stock Warehouse will allow for an orderly
transition by providing space to house inventory made excess by
efficiencies of the overall agreement.
5. The Safety Stock Warehouse will serve as back-up inventory location for
rapid replenishment to local store-door delivery distribution centers
(CG&P locations).
6. The Safety Stock Warehouse will provide a single location for the
consolidation and assembly of special display packs as well as a single
location for recouping recalled products.
7. The Safety Stock Warehouse will provide an overflow location to help
balance manufacturing schedules.
<PAGE> 97
EXHIBIT "B"
-----------
Improvements Currently Planned by Central
CPU presently on site
- - ---------------------
Seattle AS400 model F20
Dallas AS400 model advanced 310
Lafayette AS400 model D45
Phoenix AS400 model E10
Lafayette National Sales Database - AS400 advanced 300
Application Software
- - --------------------
Butler Curless Associates distribution applications consisting of:
1. General Ledger
2. Accounts Payable
3. Invoicing
4. Accounts Receivables
5. Inventory
6. Purchasing
7. Order Processing
8. EDT
9. MSI
10. Sales Analysis
11. Receiving
12. Commissions
Status of Implementation
- - ------------------------
All regions currently using General Ledger and Accounts Payable Phoenix
using total BCA applications.
Dallas regions (19 branch locations) currently converting to BCA.
Expect all branches to be in BCA by end of January 1996.
Lafayette and Seattle to be converted to BCA by November 1996.
<PAGE> 98
DE AGREEMENT - JULY 21, 1995
- - ----------------------------
Notwithstanding anything contained in any of the Agreements being entered into
concurrently herewith (the "Other Agreements") Solaris shall reimburse Central
for variable warehousing and freight charges in connection with shipments to
sub-distributors. Central agrees to use its reasonable efforts to minimize such
costs. The foregoing assumes that Central is not otherwise being reimbursed for
such costs pursuant to the Other Agreements.
CENTRAL GARDEN & PET COMPANY
By:
-------------------------
Name:
-----------------------
Title:
----------------------
THE SOLARIS GROUP,
A STRATEGIC BUSINESS UNIT OF
MONSANTO COMPANY
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 99
EXCLUSIVE AGENCY AND
DISTRIBUTOR AGREEMENT
by and between
THE SOLARIS GROUP
and
CENTRAL GARDEN & PET COMPANY
July 21, 1995
<PAGE> 100
<TABLE>
TABLE OF CONTENTS
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<S> <C> <C>
ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION.........................................................1
1.1 Definitions...................................................................................1
1.2 Rules of Construction and Interpretation......................................................2
(a) Section References...................................................................2
(b) Construction.........................................................................2
(c) Headings.............................................................................2
(d) No Interpretation against Author.....................................................2
(e) Conflicts with related Documents.....................................................3
ARTICLE II AGENCY, SUB-AGENTS AND DIRECT ACCOUNTS........................................................3
2.1 Appointment of Central as Agent...............................................................3
2.2 Central's Obligations as Service Agent........................................................3
(a) Services to be Performed by Central..................................................3
(1) Sales........................................................................3
(2) Merchandising and In-Facility Services.......................................3
(3) Warehousing, Freight and Delivery............................................3
(4) Order-to-Cash and General Administration.....................................4
(5) Returns of Solaris Products by Direct Accounts...............................4
(6) Modification of Services and Service Levels..................................4
(b) Performance Indicators and Other Providers...........................................5
2.3 Solaris' Rights with Respect to Direct Accounts...............................................5
(a) Pricing..............................................................................5
(b) Solaris Sales Activities.............................................................5
(c) Central Sales Activities.............................................................5
(d) Order-to-Cash........................................................................5
(e) Orders Received by Solaris...........................................................5
(f) Inventory for Direct Account Sales...................................................5
(1) Purchases; Credit to Central.................................................6
(2) Consignment..................................................................6
2.4 Appointment of Sub-Agents.....................................................................6
2.5 Changing Direct Account and Excluded Account Lists............................................6
2.6 Continued Payment of Fixed Costs..............................................................6
ARTICLE III EXCLUSIVE DISTRIBUTORSHIP AND SUB-DISTRIBUTORS................................................7
3.1 Appointment of Central as Distributor.........................................................7
3.2 Obligations of Central as Distributor.........................................................7
(a) Inventory for Distributor Account Sales..............................................7
(b) Distributor Account Prices and Order-filling.........................................7
(c) Information on Solaris Products......................................................7
(d) Promotion of Solaris Products........................................................7
(e) Personnel............................................................................8
(f) Advertising and Promotional Programs.................................................8
</TABLE>
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<TABLE>
<S> <C> <C>
(g) Retail Training Sessions.............................................................8
(h) Merchandising and Display Techniques.................................................8
3.3 Solaris' Obligations and Rights in Distributor Relationship...................................8
(a) Supply of Solaris Products...........................................................8
(b) Sales Promotion by Solaris...........................................................8
(c) Cost of Printed Material.............................................................9
3.4 Cooperation in Distributor Relationship.......................................................9
(a) Products Lists and Sales Efforts.....................................................9
(b) Sales Goals and Performance..........................................................9
3.5 Sales of Solaris Products to Central.........................................................10
(a) Purchase Orders.....................................................................10
(b) Price...............................................................................10
(c) Charges and Taxes...................................................................10
(d) Invoices............................................................................10
(e) Shipment and Title..................................................................10
(f) Return Credit.......................................................................11
3.6 Credit.......................................................................................11
(a) Financial Data......................................................................11
(b) Security............................................................................11
(c) Payment and Late Charge.............................................................11
(d) Finance Charge......................................................................12
(e) Tender and Governing Law............................................................12
(f) Change in Financial Condition.......................................................12
(g) Survival............................................................................12
3.7 Appointment of Sub-Distributors..............................................................12
ARTICLE IV REPORTS AND ADDITIONAL OBLIGATIONS OF CENTRAL................................................13
4.1 Central's Systems and Reporting Obligations..................................................13
(a) EDI.................................................................................13
(b) Weekly Reports......................................................................13
(c) Monthly Reports.....................................................................13
(d) Quarterly Reports...................................................................13
(e) Other Reports.......................................................................13
(f) Form off Reports....................................................................14
4.2 Personal Efforts of Officers, etc; Employee Incentives.......................................14
4.3 Central's Agency Responsibilities............................................................14
4.4 Insurance....................................................................................14
4.5 Liens........................................................................................15
4.6 Compliance with Laws.........................................................................15
4.7 Promoting Safe Use Practices.................................................................15
4.8 Relabelling: Restriction on Sale............................................................15
4.9 Solaris Inspection Rights....................................................................15
4.10 Recalls......................................................................................15
4.11 Central Representation.......................................................................16
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE V TERM, TERMINATION AND FORCE MAJEURE..........................................................16
5.1 Initial Term and Renewals....................................................................16
5.2 Termination of Agreement by Solaris..........................................................16
(a) Non-renewal.........................................................................16
(b) Breach..............................................................................16
(c) Special Termination Events..........................................................18
5.3 Termination of Agreement by Central..........................................................18
(a) Non-renewal.........................................................................18
(b) Breach..............................................................................18
5.4 Effect of Notice of Termination and Termination..............................................19
(a) Remedies Cumulative.................................................................19
(b) Nonexclusive Status.................................................................19
(c) Prior Obligations and Shipments.....................................................19
(d) Purchase of Inventory...............................................................19
(e) Representations and Materials.......................................................20
(f) Orders after Termination............................................................20
(g) No Liability........................................................................20
(h) Nonsolicitation of Employees........................................................20
5.5 Force Majeure................................................................................20
(a) Allocation of Solaris Products......................................................21
(b) Performance More Expensive..........................................................21
(c) Foreseeable Events..................................................................21
(d) Payments............................................................................21
(e) Alternative Sources.................................................................21
(f) Costs...............................................................................21
ARTICLE VI CONFIDENTIALITY, NONCOMPETITION, INDUSTRIAL PROPERTY, CONFLICTS OF INTEREST AND
RECORDS......................................................................................21
6.1 Confidentiality..............................................................................21
6.2 Noncompetition...............................................................................22
6.3 Industrial Property..........................................................................23
6.4 Conflicts of Interest........................................................................24
6.5 Records Retention............................................................................24
ARTICLE VII LIMITATION OF LIABILITY, REMEDIES, WARRANTIES AND INDEMNIFICATION............................24
7.1 Limitation of Liability......................................................................24
7.2 Exclusive Remedy.............................................................................24
7.3 Solaris Warranties...........................................................................25
7.4 Indemnification and Claims Procedure.........................................................25
(a) Indemnification.....................................................................25
(b) Claims Procedure....................................................................25
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VIII MISCELLANEOUS................................................................................25
8.1 Status of Parties............................................................................25
8.2 Solaris Obligations..........................................................................26
8.3 Entire Agreement.............................................................................26
8.4 Modification and Waiver......................................................................26
8.5 Assignment...................................................................................26
8.6 Notices......................................................................................26
8.7 Severability.................................................................................27
8.8 Equal Opportunity............................................................................27
8.9 Governing Law................................................................................28
8.10 Counterparts.................................................................................28
</TABLE>
iv
<PAGE> 104
EXCLUSIVE AGENCY AND
DISTRIBUTOR AGREEMENT
THIS EXCLUSIVE AGENCY AND DISTRIBUTOR AGREEMENT (the "Agreement") is
entered into as of July 21, 1995 by and between The Solaris Group, a strategic
business unit of Monsanto Company, with offices at 2527 Camino Ramon, Suite 200,
San Ramon, CA 94583 ("Solaris"), and Central Garden & Pet Company, with offices
at 3697 Mt. Diablo Blvd., #310, Lafayette, CA 94549 ("Central"). Capitalized,
but undefined, terms used herein have the meaning ascribed to them in Article I.
RECITALS
--------
A. Solaris desires that Central provide certain services with respect
to Solaris' Direct Accounts, and Central desires to provide such services, all
on the terms set forth in this Agreement.
B. Solaris desires that Central serve as Solaris' exclusive distributor
of Solaris Products to Distributor Accounts, and Central desires to so serve,
all on the terms set forth in this Agreement.
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:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
1.1 Definitions. As used herein, the following terms shall have the
meanings ascribed to them below:
"Compensation Agreement" means the Compensation Agreement between the
parties hereto and dated at even date herewith.
"Direct Accounts" means those customer accounts listed on Schedule 1.1A
hereto, as the same may be amended by Solaris in its sole discretion from time
to time, as provided in Section 2.5.
"Distributor Accounts" means all customer accounts, except Direct
Accounts and Excluded Accounts.
"EDI" means electronic data interchange.
"Excluded Accounts" means those sales of books to the customers listed
on Schedule 1.1B, as such list of customers may be amended by Solaris in its
sole discretion from time to time, as provided in Section 2.5.
<PAGE> 105
"Implementation and Transition Agreement" means the Implementation and
Transition Agreement between the parties hereto and dated at even date herewith.
"Master Agreement" means the Master Agreement between the parties
hereto and dated at even date herewith.
"Oversight Committee" means the "Committee" as defined in the Master
Agreement.
"Program Year" means the period of time beginning on October 1 of a
specific calendar year and ending on September 30 of the immediately following
calendar year. Any specific Program Year shall be referred to by the calendar
year during which such specific Program Year ends. For example, the first
Program Year during the term of this Agreement is the 1996 Program Year (i.e.,
commencing October 1, 1995 and ending September 30, 1996).
"Service Level Summary" means, with respect to any specific Program
Year, a list of the services and service levels (e.g., in-store service, order
fill rates, order-to-fulfillment cycle time, inventory levels, merchandising and
product flow) by account to be performed by Central for each Direct Account
during such Program Year. Schedule 1.1C is the Service Level Summary for the
1996 Program Year.
"Solaris Products" means all products included in Solaris' United
States product line as of the date of this Agreement, together with any new or
replacement products that Solaris decides, in its sole discretion, to make
subject to this Agreement by written notice thereof to Central; provided,
Solaris may in its sole discretion at any time and from time to time,
discontinue to offer to sell to the public any products.
"United States" means the United States of America, excluding any
territories thereof (such as Puerto Rico and the American Virgin Islands).
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
draftsmen of this Agreement.
2
<PAGE> 106
(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 II
AGENCY, SUB-AGENTS AND DIRECT ACCOUNTS
2.1 Appointment of Central as Agent. Subject to the terms and
conditions hereof, Solaris hereby appoints and agrees to use Central, and
Central agrees to serve, as Solaris' exclusive agent to provide certain services
in connection with Solaris' sales of Solaris Products to Direct Accounts in the
United States. Except as otherwise provided in this Agreement, Solaris shall
exclusively use Central for the performance of all of the services contemplated
by this Agreement.
2.2 Central's Obligations as Service Agent.
(a) Services to be Performed by Central. The services to be
performed by Central in connection with Solaris' sales of Solaris Products to
Direct Accounts in the United States shall be as specified herein, in Schedule
2.2(a), in the applicable Service Level Summary (Schedule 1.1C is the Service
Level Summary for the 1996 Program Year) and as reasonably specified from time
to time by Solaris. Such services generally include the following types of
services: sales; merchandising; warehousing, freight and delivery; and
invoicing, collection, reconciliation and other services.
(1) SALES. Central shall perform such selling, sales
management and other related services as are set forth on Schedule 2.2(a) for
Direct Accounts in accordance with the current Service Level Summary.
(2) MERCHANDISING AND IN-FACILITY SERVICES. Central shall
perform such in-store merchandising, store set-up and other related services as
are set forth on Schedule 2.2(a) for the Direct Accounts in accordance with the
current Service Level Summary.
(3) WAREHOUSING, FREIGHT AND DELIVERY. Subject to the terms of
the Implementation and Transition Agreement, Central shall provide warehouse
services for all Solaris Products from the time such products are manufactured.
All warehouse services shall be at cost. Unless prevented by Solaris' failure to
supply inventory, Central agrees to maintain adequate inventory levels of
Solaris Products at each warehouse (either inventory purchased by Central or
held on consignment, as specified by Solaris in accordance with Section 2.3(f))
in sufficient quantities to satisfy the applicable Service Level Summary. On a
monthly basis, the Oversight Committee shall conduct reviews of anticipated
demands of Direct Accounts for Solaris Products covered by this Agreement in
order to facilitate the maintenance of appropriate inventory levels by Central.
The party from whose facility (e.g., manufacturing facility, safety stock
warehouse or warehouse) Solaris Products are being shipped shall arrange for and
pay all freight and shipping for Solaris Products from such facility. Central
will fill orders for Direct
3
<PAGE> 107
Accounts (i) by shipping direct to the Direct Accounts from Central's warehouses
or (ii) by arranging for plant direct shipments to the Direct Accounts. Such
shipments will be as specified by Direct Accounts; provided, if no such
specification is made, then by such means as Central deems appropriate, subject
to approval by Solaris which approval shall not be unreasonably withheld. Upon
request by Solaris, Central shall provide proof of delivery of each order to
Solaris within 48 hours of Central's shipment of such order (shipment shall be
within one working day of receipt of an order, except when the order arrives
after the scheduled order cut-off time for that account, in no case later than
48 hours, unless a longer period is requested by the person placing the order).
If Central cannot ship an order as requested by either Solaris or the Direct
Account, Central will notify Solaris by phone and confirm by facsimile as soon
as is reasonably possible. In making deliveries to Direct Accounts, Central
shall confine all credit deliveries, both as to time and money limits, within
the authority given to Central by Solaris in writing. The risk of credit default
on deliveries to Direct Accounts is the sole responsibility of Solaris.
(4) ORDER-TO-CASH AND GENERAL ADMINISTRATION. Central shall
perform such order taking, order processing, invoicing, collection,
reconciliation, general administration and other related services as are set
forth on Schedule 2.2(a) for Direct Accounts in accordance with the current
Service Level Summary. Central will provide all order processing functions as
may be reasonably requested by Solaris. Central shall receive or accept orders
for the sale of Solaris Products to Direct Accounts only for Solaris' benefit.
Central will use EDI in connection with the foregoing when requested by a Direct
Account or Solaris. Central shall have responsibility for all claims and
adjustments for Solaris Products which are damaged during shipment to the Direct
Account or for shortages of Solaris products in any shipment to a Direct Account
for which Central does not have proof of delivery. Solaris, in its sole
discretion, shall determine the prices at which Solaris Products are sold to
Direct Accounts. Central shall send invoices to Direct Accounts on behalf of
Solaris for orders filled pursuant to this Agreement. All such invoices shall
show Solaris as the seller of the Solaris Products, and shall direct payment of
the invoice to be made to a Solaris lock-box bank account (designated by Solaris
from time to time) .
(5) RETURNS OF SOLARIS PRODUCTS BY DIRECT ACCOUNTS. Under
procedures established by Solaris, Central shall handle requests by a Direct
Account that Solaris Products, previously shipped, should be returned to Solaris
for credit, either because such Solaris Products are defective or for some other
reason. No such request which would involve credit from Solaris in excess of
$500 shall be honored by Central without Solaris' prior consent. Central shall
receive any such returned Solaris Products into its warehouses and assist
Solaris in the preparation of appropriate credit memos. Central shall purchase
or hold for consignment such Solaris Products as instructed by Solaris in
accordance with Section 2.3(f).
(6) MODIFICATION OF SERVICES AND SERVICE LEVELS. Schedule
2.2(a) may be amended from time to time by the mutual agreement of the parties.
If Central fails to agree to a change to Schedule 2.2(a) that adds one or more
services, then, notwithstanding anything contained herein to the contrary,
Solaris shall have the right to either perform such additional service(s) itself
or through a third party. The parties have agreed to a Service Level Summary for
the 1996 Program Year. Service Level Summaries for subsequent Program Years
shall be developed in connection with the budget process set forth in the
Compensation
4
<PAGE> 108
Agreement. Any Service Level Summary may be modified by Solaris in its sole
discretion at any time and from time to time. If a Service Level Summary is so
modified, an appropriate adjustment will be made to Central's compensation in
accordance with the terms and provisions of the Compensation Agreement.
(b) Performance Indicators and Other Providers. Schedule 2.2(b)
contains certain standards and indicators applicable to Central's performance
under this Article II. Notwithstanding anything contained herein to the
contrary, Solaris reserves the right to use other service providers, if Central
fails to meet such standards and indicators within a period of 14 days after
notice thereof.
2.3 Solaris' Rights with Respect to Direct Accounts.
(a) Pricing. Solaris, in its sole discretion, shall set the pricing
of Solaris Products for Direct Accounts.
(b) Solaris Sales Activities. In addition to (or in lieu of)
services provided by Central, Solaris may conduct any sales activities with
respect to the Direct Accounts. Subject to the foregoing, Schedule 2.3(b) sets
forth certain responsibilities of Solaris and Central with respect to sales
activities to be conducted for a few specific Direct Accounts. Such schedule may
be amended by mutual agreement during a Program Year, unless based on the
request of a Direct Account in which case it may be amended by Solaris at any
time. Solaris may amend such Schedule in its discretion in connection with the
budgeting process in the Compensation Agreement. Central shall handle order
processing and billing of Solaris Products for the Direct Accounts as requested
by Solaris.
(c) Central Sales Activities. Solaris shall have the right to guide
and influence Central's sales activities with respect to the Direct Accounts. In
connection therewith, Solaris shall have the right to: (i) set sales call
frequency and merchandising frequency, (ii) manage communication with the Direct
Accounts, (iii) specify sell-in merchandise events, (iv) develop planograms and
(v) establish store level SKU stocking lists. Further, Solaris may designate one
or more Solaris employees to act as a Solaris area manager whose authority will
include the items described on Schedule 2.3(c).
(d) Order-to-Cash. Solaris shall have the right to manage, monitor
and implement changes to the order-to-cash cycle.
(e) Orders Received by Solaris. Upon Solaris' receipt of an order
from a Direct Account, Solaris will instruct Central to fill the order from
either (i) Central's inventory of Solaris Products or (ii) Solaris Products held
by Central on consignment from Solaris. Solaris will advise Central of all
relevant information pertaining to the sale, including credit terms, so as to
allow Central to make timely delivery of the Solaris Products to the Direct
Account and to provide such other information concerning the sale which Central
may reasonably require in order to discharge its obligations under this
Agreement.
(f) Inventory for Direct Account Sales. As requested by Solaris,
Central will (i) purchase Solaris Products from Solaris and hold them as
inventory to fill orders from Direct
5
<PAGE> 109
Accounts or (ii) keep Solaris Products on consignment from Solaris to fill
orders from Direct Accounts.
(1) PURCHASES; CREDIT TO CENTRAL. Purchases of Solaris
Products by Central to fill orders from Direct Accounts shall be in accordance
with the terms and conditions of sale offered by Solaris under Article III.
Central shall be credited by Solaris for the particular Solaris Products
delivered to the Direct Account based on the price charged to Central upon
redelivery of such Solaris Products to Solaris for sale to such Direct Account.
Such credit shall be applied by Central against any outstanding invoice of
Central, or, if none, Solaris shall reimburse Central in cash. Central must
supply detail to the Solaris Accounts Receivable Department along with payment
detail of regularly scheduled payments showing how such credits are to be
applied. Title to such Solaris Products shall transfer to Solaris at the time
they are delivered to the Direct Account and Solaris shall be the seller of all
such Solaris Products to the Direct Account.
(2) CONSIGNMENT. Solaris Products held by Central on
consignment from Solaris shall be kept in Central's warehouses, segregated from
all other items and clearly identified as the property of Solaris.
2.4 Appointment of Sub-Agents. Central shall have the right to delegate
part of its obligations under this Article II to sub-agents; provided, Central
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. To the extent
this Agreement creates any obligations on Central (such as to provide
information to Solaris), such obligations shall apply with respect to any
sub-agent. In connection with the foregoing, any reports or other information to
be given to Solaris shall be given by Central and shall include any information
applicable to sub-agents. After conversations with the Oversight Committee,
Solaris shall have the right to approve the appointment or termination of any
sub-agent and the terms of any sub-agency agreement (including any change or
amendment thereto). After conversations with the Oversight Committee, Solaris
reserves the right to require Central to delegate part of its obligations under
this Article II to one or more sub-agents specified by Solaris.
2.5 Changing Direct Account and Excluded Account Lists. After
conversations with the Oversight Committee, with 30 days prior notice during the
1996 Program Year (90 days thereafter) and in its sole discretion, Solaris may
change Schedule 1.1A or Schedule 1.1B by adding or deleting accounts as Direct
Accounts or Excluded Accounts, including converting Distributor Accounts to
Direct Accounts. If necessary, the parties shall appropriately amend the
applicable Service Level Summary and Cost to Service Schedule set forth in the
Compensation Agreement to reflect any such change.
2.6 Continued Payment of Fixed Costs. If, for any reason other than
Central's performance or non-performance, Solaris (i) requires the appointment
of a sub-agent under Section 2.4 or (ii) increases its sales activities, with
respect to any Direct Account listed on Schedule 2.6, Solaris shall continue to
pay Central its Fixed Costs (as defined in the Compensation Agreement)
associated therewith for a period of 10 months thereafter, notwithstanding that
services previously to be provided by Central hereunder are provided by Solaris
or a sub-agent during such time.
6
<PAGE> 110
ARTICLE III
EXCLUSIVE DISTRIBUTORSHIP
AND SUB-DISTRIBUTORS
3.1 Appointment of Central as Distributor. Subject to the terms and
conditions hereof, Solaris hereby appoints Central the exclusive wholesale
distributor of the Solaris Products to serve and develop trade for Solaris
Products with Distributor Accounts in the United States. Notwithstanding the
foregoing, Solaris reserves to itself the right to sell Solaris Products, in
accordance with the other terms and provisions of this Agreement, to any (i)
Direct Account or (ii) Excluded Account.
3.2 Obligations of Central as Distributor.
(a) Inventory for Distributor Account Sales. Central shall purchase
and maintain a balanced inventory of Solaris Products sufficient to meet the
demand of Distributor Accounts for Solaris Products and to fill promptly the
day-to-day requests by such Distributor Accounts for Solaris Products. Solaris
may set minimum and maximum inventory levels for the first quarter of any
Program Year. Upon the deletion or discontinuance of any Solaris Products,
Central shall use its best efforts to sell its remaining inventories of such
Solaris Products; provided, if such Solaris Products are not so sold, Solaris
shall repurchase Central's remaining inventories of such deleted or discontinued
product within eight months after such deletion or discontinuance or, at
Solaris' option, provide to Central adequate markdown money to allow Central to
sell the remaining inventories without incurring an economic loss.
(b) Distributor Account Prices and Order-filling. From time to
time, Solaris may make suggestions with respect to prices and discounts made
available by Central to Distributor Accounts and Solaris may furnish such
suggestions to Central in the form of a suggested price or discount schedule.
Central's resale prices to such Distributor Accounts, however, are for Central
and Central alone to determine. Central shall process and fill promptly all
orders for Solaris Products placed with Central, including those written by
Solaris' representatives for Central; provided, however, that the credit terms
and pricing for all such orders shall be determined solely by Central.
(c) Information on Solaris Products. Central shall provide
Distributor Accounts with detailed information, as supplied by Solaris,
concerning the characteristics, uses and availability of Solaris Products.
(d) Promotion of Solaris Products. Continuously throughout the term
of this Agreement, Central shall actively and aggressively promote the sale of
Solaris Products to all its current Distributor Accounts and shall exert all
reasonable efforts to promote the sale of Solaris Products to additional
Distributor Accounts. Central shall exert its greatest sales efforts during the
peak selling months. Central shall promote the sale of Solaris Products more
aggressively than any other product or product line that Central sells and shall
conduct the operation of Central's business in such a manner as to promote
goodwill, and particularly customer goodwill, toward Solaris and Solaris
Products.
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(e) Personnel. Central shall employ a sufficient number of sales
personnel, merchandising representatives or other employees who are familiar
with Solaris Products and make such personnel available for a reasonable amount
of sales and product training by Solaris. All expenses incurred by Solaris for
training programs, including training materials, shall be borne directly by
Solaris or reimbursed as provided in Article V. Central shall fully support
Solaris' training meetings and programs and shall mandate attendance by
appropriate Central representatives and other employees.
(f) Advertising and Promotional Programs. Central shall provide
Distributor Accounts with detailed information concerning Solaris' advertising
and promotional programs, and Central shall actively and aggressively recommend
that its Distributor Accounts use such programs to the fullest extent possible.
Central agrees to assist in the administration of Solaris' advertising and
promotional programs and shall distribute promptly to Distributor Accounts such
advertising and promotional materials supplied by Solaris as Solaris may from
time to time reasonably request.
(g) Retail Training Sessions. Central shall conduct retail training
sessions and sales functions for Distributor Accounts.
(h) Merchandising and Display Techniques. Central shall provide
Distributor Accounts with full information concerning Solaris' merchandising and
display techniques adopted by Solaris from time to time, including,
specifically, Solaris' block display and merchandising programs. Central shall
use, fully support and recommend that Distributor Accounts use and fully support
all such merchandising and display techniques.
3.3 Solaris' Obligations and Rights in Distributor Relationship.
(a) Supply of Solaris Products. Pursuant to this Agreement, Central
is providing warehouse services for Solaris Products. Solaris shall make
available to Central, and shall offer for sale from time to time, Solaris
Products of such types and in such quantities as are available.
(b) Sales Promotion by Solaris.
(1) Solaris, to the extent it believes reasonable, shall
promote, with Central's cooperation, the sales and consumer acceptance of
Solaris Products by:
(i) Advertising in local and national media;
(ii) Providing suitable training of Central's
representatives or employees in the areas of product knowledge, product
stewardship, sales training, display techniques, promotion and advertising;
(iii) Providing Central and Distributor Accounts with
technical and product information, manuals, promotional bulletins, presentation
kits and other sales aid materials;
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(iv) Developing timely promotions of certain Solaris
Products for use with sub-distributors, Distributor Accounts and consumers and
assisting Distributor Accounts in the development of promotional and advertising
programs for use at such account's retail outlets;
(v) Participating actively in sales meetings with Central
and Distributor Accounts; provided, however, that Solaris shall have no
obligation to participate in meetings, except trade association meetings or
exhibits, where competitors of Solaris are present; and
(vi) Handling product complaints with the intent of
achieving consumer satisfaction.
(2) Solaris shall set guidelines and parameters for, and
Central shall have full and complete responsibility for the administration of,
cooperative advertising programs for retailers. Such administration shall
include planning of the program, placement of the advertising, payment and other
general administration.
(3) For Solaris Products with which Solaris offers a written
warranty within the meaning of the Magnuson-Moss Warranty Act, Solaris shall
honor those warranties in accordance with their terms.
(c) Cost of Printed Material. Printed materials made available to
Central, such as product catalogues, shall be provided by Solaris to Central in
reasonable quantities at Solaris' expense. Advertising and promotional efforts
that Central elects to undertake on its own shall be at Central's expense.
3.4 Cooperation in Distributor Relationship.
(a) Products Lists and Sales Efforts. Management of Central and
management of Solaris shall cooperate with each other so as to facilitate the
objectives set forth in this Agreement and the Master Agreement. Without
limiting the generality of the foregoing, Central and Solaris shall work closely
together in (i) developing a list of basic Solaris Products for and recommending
such list of products to all major Distributor Accounts and (ii) coordinating
the sales and merchandising efforts of Central and the merchandising and
promotional efforts of Solaris so that conflicts are minimized and the maximum
joint effort is exerted in support of Solaris' merchandising and promotional
programs. Such coordination by Central and Solaris shall take place throughout
each Program Year and particularly before and during the presentation of
Solaris' programs to Distributor Accounts.
(b) Sales Goals and Performance. Management of Central and
management of Solaris shall participate in (i) the setting of annual sales goals
for Central's sales of Solaris products to Distributor Accounts, including goals
for particular Distributor Accounts, (ii) conduct a business review at the close
of each Program Year to consider ways for improving Central's performance and
(iii) if appropriate under all the circumstances, establish sales goals for the
following Program Years. If Central's sales of Solaris Products do not achieve
the mutually determined sales goals for a particular Program Year, management of
Solaris and management of Central shall review Central's performance. Central
understands that attaining
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sales goals does not constitute an assurance that Solaris will elect to renew
this Agreement; Central's attainment of or failure to attain any agreed sales
goal in any Program Year hereunder shall in no way limit or modify either
party's right to terminate this Agreement as provided herein.
3.5 Sales of Solaris Products to Central.
(a) Purchase Orders. All orders by Central are accepted subject to
the availability of Solaris Products on the requested delivery dates. Solaris
may defer or withhold shipments of Solaris Products if and while Central is in
default of any of its obligations hereunder and particularly (but without
limitation) its obligations to pay to Solaris when due any sums owed by Central
to Solaris. In addition to any other remedy available to Solaris, quantities
ordered but not taken in the month Solaris agrees to deliver may, at Solaris'
option, be cancelled. Solaris shall not be bound to tender delivery of any
quantities for which Central has not given shipping instructions. If Central has
received a notice of non-renewal of this Agreement, Solaris shall have the
right, during the time remaining under this Agreement, to limit the supply of
Solaris Products made available to Central to the historical volume of purchases
normally made by Central during the relevant month or months.
(b) Price. Solaris shall sell Solaris Products to Central at prices
determined by Solaris in its sole discretion; provided, the price for any
specific Solaris Product shall not be higher, after considering any netback
payments, than the normal (i.e., excluding any special or limited time price
discounts or concessions to meet competitive issues) price charged to any Direct
Accounts for similar quantities of such Solaris Product at the time an order is
accepted by Solaris. Solaris reserves the right to change its prices (to Central
and Direct Accounts) at any time on orders which have not been accepted.
(c) Charges and Taxes. Solaris' invoice price to Central shall
include all taxes, duties and other charges imposed by governmental authorities
based on the production of Solaris Products or their ownership or transportation
to the place and time of sale. Solaris' invoice price shall not include any
taxes, duties or other charges imposed by governmental authorities based on the
purchase, transportation, use, ownership or resale of the Solaris Products sold
hereunder (such as license fees and privilege, occupational, sales, use, excise
or property taxes) or on the net income, gross income, gross receipts or capital
of Central; in addition to the invoice price, Central shall pay, when due, any
such charge, either directly to the governmental authority or to Solaris if the
charge is payable or collectible by Solaris.
(d) Invoices. Solaris shall invoice Central for each order within a
reasonable time after shipment and shall provide Central with a sufficient
number of copies of the invoices. Solaris shall also submit a monthly statement
to Central. Central shall abide by the terms of sale as stipulated on any
invoice.
(e) Shipment and Title. Pursuant to this Agreement, Central is
providing warehouse services for Solaris Products. Central shall be responsible
for all freight costs for Solaris Products to the extent set forth in Section
2.2(a)(3). Title to the Solaris Products for resale to Distributor Accounts
shall pass upon delivery by Solaris to the carrier, and Solaris shall not be
responsible for damages to Solaris Products or shortages that occur in transit
after passage
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of title. At Central's request, Solaris shall aid Central in filing claims with
carriers for damaged Solaris Products, but Solaris shall not be responsible for
the collection thereof.
(f) Return Credit. Except as otherwise expressly provided in this
Agreement, there will be no returns of saleable Solaris Products. Credit shall
be given for Solaris Products if Solaris determines they did not conform to
Solaris' product labels or were defectively packaged on delivery to carrier for
shipment and in such other cases as may be approved by Solaris. Any credit owing
by Solaris to Central shall be redeemed, at Central's election, by Solaris check
or by shipment of other Solaris Products.
3.6 Credit. Central has applied or hereby applies to Solaris for a line
of credit. In the sole discretion of Solaris, Central and sub-distributors
appointed pursuant to Section 3.7 may have access to credit from a Solaris
affiliated finance company on such terms as may be specified by such finance
company.
(a) Financial Data. Central shall supply Solaris such financial
data as Solaris may reasonably request to establish or continue a line of credit
for Central.
(b) Security. Subject to the provisions of any existing
intercreditor agreement to which Solaris is currently a party (as the same may
hereafter be amended, modified or terminated) and except as may otherwise be
agreed to by Solaris which agreement will not be unreasonably withheld in the
case of similar arrangements with existing or future institutional lenders,
Solaris shall have a first priority security interest in Central's inventory of
Solaris Products. Additionally, Solaris may condition its extension of credit on
provision of such other security interests, guarantees and other forms of
security as Solaris may determine to be appropriate. Central shall execute such
financing statements, security agreements and other documents as Solaris and
Central mutually agree to create, perfect and continue in effect such forms of
security.
During the 1996 Program Year, the security interests provided by
Central to Solaris shall be consistent with the security interests provided to
Solaris for the 1995 Program Year in the intercreditor agreement between Solaris
and Central's institutional lender and letters of understanding used by the
parties. Solaris and Central shall work in good faith to develop a security and
credit arrangement for future program years under which Central's credit
availability from its institutional lender would be comparable, with respect to
Solaris Products, to its credit availability during the 1995 Program Year
(assuming that Central's credit worthiness remains reasonably comparable to its
credit worthiness in November 1994).
(c) Payment and Late Charge. Central shall pay its account in
accordance with the terms of sale for the particular Solaris Products purchased
from time to time from Solaris. Payment terms in the 1996 Solaris Program Year
shall be no less favorable than payment terms to Central effective for the 1995
Program Year. Central acknowledges the importance of payment within the terms
specified when credit is extended and agrees that Central shall pay a late
payment charge on any past due balance(s). The acceptance of any payment by
Solaris after the due date shall not waive any of Solaris' rights under this
Agreement nor affect any obligation of Central hereunder.
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(d) Finance Charge. A finance charge shall accrue on past due
balances at the rate of PRIME PLUS THREE PERCENT PER ANNUM ON THE UNPAID
PRINCIPAL BALANCE or the maximum rate allowed by the laws of the State of
California if less than said PRIME PLUS THREE PERCENT. The finance charge shall
be payable by Central on demand at Solaris' offices in San Ramon, California, or
at such other location(s) in the State of California specified by Solaris. Any
payments made by Central pursuant to this Agreement shall first be applied to
any accrued finance charge. "Prime" means that rate of interest stated in the
money rates section of the Midwest Edition of The Wall Street Journal on the
last business day of a calendar month; provided, however, if The Wall Street
Journal states a range of interest rates for the day, the prime rate for
purposes of this Section shall be the numerical average of the prime rates
stated in such issue of The Wall Street Journal. Such prime rate shall change to
reflect any fluctuation in the prime rate more than plus or minus one quarter of
one percent (0.25%) from the prime rate then in effect. Any change in the prime
rate shall become effective three days following the day on which such change in
the prime rate is published in the Midwest Edition of The Wall Street Journal.
(e) Tender and Governing Law. Payment for Solaris products and any
finance charge assessed thereon shall occur when received by Solaris at Solaris'
offices in San Ramon, California or at such other location(s) in the State of
California specified by Solaris. THE LAWS OF CALIFORNIA SHALL APPLY TO SUCH
PAYMENT AND ANY FINANCE CHARGE ASSESSED.
(f) Change in Financial Condition. Should Central's financial
strength become unsatisfactory to Solaris in its reasonable judgment, cash
payment or security satisfactory to Solaris may be required by Solaris for
future deliveries and for the Solaris Products theretofore delivered.
(g) Survival. This Section 3.6 shall survive any termination,
cancellation or expiration of this Agreement.
3.7 Appointment of Sub-Distributors. Subject to the terms of the Master
Agreement and the Implementation and Transition Agreement, Central shall have
the right to delegate part of its obligations under this Article III to, and
appoint, sub-distributors; provided, (i) Central shall remain primarily liable
for all of its obligations hereunder and shall be primarily liable for any act
or omission of any such sub-distributor and (ii) the term of any sub-distributor
agreement shall be for at least 1 Program Year. To the extent this Agreement
creates any obligations on Central (such as to provide information to Solaris),
such obligations shall apply with respect to any subdistributor. In connection
with the foregoing, any reports or other information to be given to Solaris
shall be given by Central and shall include any information applicable to
sub-distributors. Solaris shall have the right to provide input with respect to
the appointment or termination of any sub-distributor and the terms of any
sub-distribution agreement (including any change or amendment thereto). Central
may create retailer, sub-distributor and consumer promotion programs, subject to
input by Solaris prior to communication. Solaris may provide incentives for
sub-distributors and may pay such incentives by either (i) paying such
incentives to Central and requiring Central to pass them through to
sub-distributors or (ii) making such payments directly to sub-distributors. If
any Distributor Account does not want Central (or a specific sub-distributor) to
act as its distributor and Solaris does not want to convert such
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Distributor Account into a Direct Account, then Central shall appoint a
subdistributor (or another sub-distributor, as applicable) for such Distributor
Account. If Central fails to so appoint a subdistributor, then, notwithstanding
anything contained in this Agreement to the contrary, Solaris may after
consultation with the Oversight Committee (i) designate a sub-distributor as a
Direct Account or (ii) appoint a distributor with respect to such Distributor
Account.
ARTICLE IV
REPORTS AND ADDITIONAL OBLIGATIONS OF CENTRAL
4.1 Central's Systems and Reporting Obligations. Central shall
establish and maintain such systems and procedures as may be reasonably
requested by Solaris in connection with Central's performance under this
Agreement. For example, Central and Solaris shall work together to establish
electronic mail capabilities between themselves. In addition, Central shall
provide the essential data to Solaris as defined in the systems implementation
plan (as referred to in the Implementation and Transition Agreement) that
enables Solaris to report financial results in a timely and accurate fashion and
in accordance with generally accepted accounting principles.
(a) EDI. Solaris and Central will exchange a broad range of
operating data on a periodic basis. This Section and Schedule 4.1(a) provide how
the specific data will be exchanged. The method of exchange will be by both file
transfer and EDI protocol. File transfer will be the preferred form of exchange
whenever possible, but EDI will be required at times (e.g., standard business
documents such as invoices). When file transfer is used, Solaris and Central
will need to determine the detailed content and format of each file. Schedule
4.1(a) provides a summary of the data files to be exchanged.
(b) Weekly Reports. On the first business day of each week, Central
shall provide to Solaris update reports, with respect to Direct Accounts and
Distributor Accounts (unless otherwise indicated by Solaris), for the prior
week, showing: (i) shipments by retailer and by SKU (stock keeping unit), (ii)
inventory levels by SKU, (iii) collection activities by retailer and (iv) agency
fill rate (Solaris Products ordered by Direct Accounts and shipped by Central by
line item, unit and dollar amount).
(c) Monthly Reports. On the first business day of each calendar
month, Central shall provide Solaris with the type of data contained in the
weekly reports for such Direct Accounts and Distributor Accounts as Solaris may
specify with respect to (i) the prior calendar month and (ii) the current
year-to-date.
(d) Quarterly Reports. Central shall supply to Solaris, on a
quarterly basis and on a form provided by Solaris, a summary of purchases of
Solaris Products, in total cases or units, made by each national, regional and
local Distributor Account designated by Solaris.
(e) Other Reports. In addition, Central shall provide Solaris with
such other reports as may be reasonably requested within a period not to exceed
thirty (30) days from such request.
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(f) Form of Reports. All reports shall be in formats reasonably
specified by Solaris.
4.2 Personal Efforts of Officers, etc; Employee Incentives. Recognizes
that, as Solaris' exclusive agent for Direct Accounts and exclusive distributor
for Distributor Accounts, Central is to give top priority to the sale and
promotion of Solaris Products and to promote the sale of Solaris Products more
aggressively than any other product or product line that Central sells,
Central's officers and other management shall devote their personal efforts to
the distribution of Solaris Products covered by this Agreement. Further, all
compensation of Central's personnel shall be consistent with the foregoing and
the intent of this Agreement; specifically, Central shall ensure that its
personnel are compensated in a manner to encourage them to promote the sale of
Solaris Products more aggressively than any other product or product line that
Central sells, and the percentage of their variable compensation relating to
Solaris Products shall equal or exceed the percentage of Central's Fixed Costs
paid by Solaris under the Compensation Agreement.
4.3 Central's Agency Responsibilities. While this Agreement is in
effect, Central shall not:
(a) make or offer to make sales of any of the Solaris
Products covered hereby as a seller or principal to
the Direct Accounts;
(b) except as may be required by the federal securities
laws or other applicable laws, disclose to others the
terms of this Agreement, the specific Solaris
Products being sold by Solaris to any Direct Account
and the prices, discounts and terms of sale that
Solaris offers its Direct Accounts on the Solaris
Products covered hereby; or
(c) act as a selling agent to those accounts as to which
Central is performing selling agent functions for
Solaris Products or, with respect to any other
accounts except as required by written agreements
executed prior to the date hereof, for any other
supplier of products of the type covered by this
Agreement. (As used herein, a selling agent means an
agent that is actively engaged in promoting and
soliciting sales for a supplier's products; the term
does not include an agent who only warehouses and
delivers a supplier's products to customers.)
4.4 Insurance. Central, shall, at Central's own expense during the term
of this Agreement, maintain full insurance under any Workmen's Compensation Laws
covering all persons employed by and working for Central in connection with the
performance of this Agreement and, upon request, shall furnish Solaris with
satisfactory evidence of the maintenance of said insurance. Central accepts
exclusive liability for all contributions and 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 all persons employed by and
working for Central in connection with the performance of this Agreement.
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4.5 Liens. Subject to the provisions of any existing intercreditor
agreement to which Solaris is currently a party (as the same may be amended,
modified or terminated) and except as may otherwise be agreed to by Solaris
which agreement will not be unreasonably withheld in the case of similar
arrangements with existing or future institutional lenders, Central agrees not
to allow any liens or encumbrances of any nature to attach to the Solaris
Products purchased by Central from Solaris for the purposes outlined in this
Agreement other than Solaris' security interest therein to receive payment
therefor and any liens under Central's credit agreement with Central's principal
lender. At Solaris' request, Central shall execute such financing statements,
security agreement and other documents as Solaris may request to create, perfect
and continue in effect its security interests hereunder. On an attachment of a
lien or encumbrance by any other party, Solaris may, but shall not be obligated,
to cause such liens or encumbrances to be released or discharged on behalf of
Central and Central shall reimburse Solaris for costs incurred in connection
therewith, including the cost of reasonable attorneys' fees and related costs.
4.6 Compliance with Laws. Central shall conduct all operations which
relate to this Agreement in full compliance with all applicable laws, ordinances
and regulations of all governmental authorities, including but not limited to
the regulations of the U.S. Environmental Protection Agency.
4.7 Promoting Safe Use Practices. Solaris Products may be or become
hazardous unless used in strict accordance with Solaris' product labels. Central
shall inform and familiarize its employees, agents, customers, contractors
(including warehousemen and transporters) and others who may handle or use
Solaris Products of the potential hazards pertaining thereto (including
accidental breakage or fire), and shall stress the safe use and application of
Solaris Products in strict accordance with Solaris' product labels. In addition,
Central shall provide HM126F training to its personnel as required by the United
States Department of Transportation. Central shall have the responsibility to
dispose of waste materials in accordance with all applicable laws and
regulations.
4.8 Relabelling; Restriction on Sale. Central shall not relabel any
Solaris Product. Central shall not sell or offer for sale any Solaris Product
that has been diluted, contaminated, adulterated or substituted or for which the
indicated measure or any other information on the label is false, misleading or
inadequate within the knowledge of Central.
4.9 Solaris Inspection Rights. From time to time, as Solaris may
reasonably request, Central shall permit representatives of Solaris to inspect
Central's inventories of Solaris Products and Solaris Products held by Central
on consignment from Solaris. Among the reasons for inspecting Solaris Products
are (i) making arrangements for replacing Solaris products when product
formulations have changed, (ii) making sure that necessary precautions have been
taken to prevent product deterioration and to assure safety, (iii) checking
Solaris Products that Solaris may wish to repurchase, (iv) insuring that any
environmental requirements or concerns have been satisfied, and (v) insuring
that Central is meeting its obligations under this Agreement.
4.10 Recalls. Central shall cooperate with Solaris, and promptly take
such actions as may be requested by Solaris, with respect to any defective
product including any "stop-sales" or recalls for Solaris Products.
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4.11 Central Representation. Central represents, warrants and covenants
to Solaris that it is not, and will not be, a party to any agreement that would
be in conflict with this Agreement and the requirement that Central promote the
sale of Solaris Products more aggressively than any other product or product
line that Central sells.
ARTICLE V
TERM, TERMINATION AND FORCE MAJEURE
5.1 Initial Term and Renewals. The initial term of this Agreement shall
commence as of October 1, 1995 and continue through September 30, 1999 unless
and until sooner cancelled or terminated as provided herein. Following the
initial term of this Agreement, this Agreement shall renew automatically for
successive two (2) year periods, unless and until sooner cancelled or terminated
as provided herein. Nothing contained herein shall be deemed to create any
express or implied obligation on either party to renew this Agreement or enter
into another agreement at the expiration, termination or cancellation of this
Agreement. To the extent provided in this Article VI, each party, in its sole
discretion, shall have the right to determine, for any reason whatsoever, not to
renew this Agreement.
5.2 Termination of Agreement by Solaris.
(a) Non-renewal. Solaris may terminate this Agreement without cause
at the end of the initial term or at the end of any renewal period by giving at
least 15 months (27 months, if Solaris has given an "exclusivity" notice under
Section 6.2) prior written notice thereof to Central.
(b) Breach. In addition to its other rights under this Agreement,
Solaris may, by one or more written notices to Central, (i) terminate this
Agreement effective as of any date selected by Solaris that is prior to the
earliest date on which this Agreement can be terminated by non-renewal, (ii)
make this Agreement nonexclusive (by service, Direct Account, territory or
otherwise) with respect to the services to be provided by Central for Direct
Accounts and/or (iii) make this Agreement nonexclusive (by Solaris Product,
Distributor Account, territory or otherwise) with respect to the rights of
Central as a distributor of Solaris Products:
(1) if Central materially breaches any material provision of
this Agreement which breach can be cured and (i) if such breach occurs any time
during the months from December through May, inclusive, Central fails to cure
such breach within 30 days following written notice by Solaris to Central of
such breach, (ii) if such breach occurs any time during the months of June
through November, inclusive, Central fails to cure such breach within 90 days
following written notice by Solaris to Central of such breach or (iii) if such
breach cannot reasonably be cured within such specified time periods, Central
during such period fails to take all reasonable steps which can be taken to cure
such breach and thereafter fails to proceed diligently to cure such breach as
soon as may be reasonably practicable;
(2) if Central materially breaches any material provision of
this Agreement which cannot be cured;
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(3) if Central materially breaches any material provision of
this Agreement after notice of two previous material breaches or defaults of any
kind has been given hereunder, regardless of whether Central has cured such
previous breaches;
(4) if, for any Program Year, there is a 10% or greater
decrease in Gross Sales Revenue compared to the prior Program Year, excluding
any decrease to the extent caused by Solaris' inability to supply Solaris
Products or the failure of Solaris to achieve adequate key account listings
reasonably comparable to those assumed in the preparation of the Tier Levels in
the Compensation Agreement.
(5) if, for any Program Year, the percentage change in Gross
Sales Revenue compared to the prior Program Year is more than 5% below the
percentage growth in the industry during the current calendar year (for purposes
of this subsection, the percentage growth in the industry shall be deemed to be
the percentage change in the aggregate lawn and garden chemical sales as
reported by the Greenridge & Associates, Inc. Annual Market Study and published
in the Nursery Retailer magazine or such other mutually agreed to industry
publication; the parties will attempt to obtain this data as soon as possible
during the fourth calendar quarter of each year), excluding any failure to
achieve such growth to the extent caused by Solaris' inability to supply Solaris
Products or the failure of Solaris to achieve adequate key account listings
reasonably comparable to those assumed in the preparation of the Tier Levels in
the Compensation Agreement.
(6) if any of the principal executive officers of Central is
convicted of a serious crime or takes any action which, in the reasonable
opinion of Solaris, materially and adversely affects the business reputation of
Central or Solaris;
(7) if Central has stopped or interrupted its payments, a
bankruptcy petition is filed by Central, a bankruptcy petition is filed against
Central and is not dismissed within thirty (30) days, Central enters into an
assignment, composition or other arrangement with or on behalf of its creditors
or Central has consented to the appointment of a receiver or liquidator of
itself or its assets.
(8) if Central attempts to assign all, or substantially all,
of its rights or to delegate all, or substantially all, of its obligations
hereunder;
(9) if a force majeure event is reasonably expected to have a
material adverse effect on Central's performance hereunder for more than 120
days; or
(10) if Central sells, leases, assigns or otherwise transfers
all or substantially all of its assets or business; or if there is a change in
control of Central (for purposes of this Section, "change in control" shall be
deemed to mean any sale, conveyance, alienation, transfer or other change of
interest in or title or beneficial ownership of the voting stock of Central so
that William E. Brown and his affiliates no longer hold more voting power than
any other shareholder (together with its affiliates) of Central).
Without limiting the generality of the foregoing, each of the following shall be
deemed to be a material breach of this Agreement by Central:
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(A) Central's failure to maintain a fill rate of at least
98%, as measured in sales to retailer dollars, in six consecutive calendar weeks
in any quarter hereunder with respect to those salable items available from
Solaris or in stock (with at least a 30 day system-wide supply, including safety
stock, throughout the period to draw from) at any of Central's facilities;
(B) Central's operating at a fill rate of 95% or less, as
measured in sales to retailer dollars, for any two week period during the term
hereof with respect to those salable items available from Solaris or in stock
(with at least a 30 day system-wide supply, including safety stock, throughout
the period to draw from) at any of Central's facilities; and
(C) Central, rather than actively and aggressively
promoting the demand for and sale of Solaris Products, repeatedly (i) is
soliciting Central's customers to switch or substitute products from any other
product line for one or more Solaris Products, (ii) makes statements that tend
to disparage Solaris Products or place them in an unfavorable light, (iii) is
selling one or more Solaris Products as a "door opener", "loss leader" or "deal
sweetener" for the primary purpose of promoting the sale of other products
handled by Central or (iv) is distributing a product that is manufactured in
whole or in part by Central, by an affiliate of Central or by an entity in which
Central holds a financial interest if such manufacturing or financial interest
creates a conflict of interest that materially and adversely affects the
fulfillment by Central of its obligations to Solaris under this Agreement. (As
used in (iv), the terms "Central" and "affiliate of Central" include the
officers, directors or other management of Central or of any affiliate of
Central.)
(c) Special Termination Events. Solaris may, with at least 15
months (27 months, if Solaris has given an "exclusivity" notice under Section
6.2) prior written notice to Central, terminate this Agreement effective as of
the end of any Program Year:
(1) if all or substantially all of the assets or business of
Solaris are sold, assigned or otherwise transferred by Monsanto Company to an
unaffiliated third party, or
(2) if Solaris acquires a related consumer package good
company in an acquisition in which the purchase price is $500 million or
greater.
If such notice is given, until the termination of this Agreement, Solaris shall
continue to pay Central its Fixed Costs (as defined in the Compensation
Agreement), notwithstanding that services previously to be provided by Central
hereunder may be provided by other sources during such time.
5.3 Termination of Agreement by Central.
(a) Non-renewal. Central may terminate this Agreement without cause
at the end of the initial term or at the end of any renewal period by giving at
least 15 months (27 months, if Solaris has given an "exclusivity" notice under
Section 6.2) prior written notice thereof to Solaris.
(b) Breach. Central may terminate this Agreement by written notice
thereof to Solaris, if Solaris materially breaches any material provision of
this Agreement and (i) Solaris
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fails to cure, or to take all reasonable steps to cure, such breach within 30
days if such breach occurs any time during the months from December through May,
inclusive (or within 90 days, if such breach occurs any time during the months
from June through November, inclusive) of Solaris' receipt of written notice
thereof from Central or (ii) such breach cannot be cured in any amount of time.
5.4 Effect of Notice of Termination and Termination.
(a) Remedies Cumulative. If this Agreement is terminated by either
party for cause, the parties shall be entitled to exercise all remedies
available to them under this Agreement at law and in equity, except to the
extent the liability of the parties has been limited pursuant to the provisions
of this Agreement.
(b) Nonexclusive Status. Notwithstanding anything contained in this
Agreement to the contrary, during and after any period when Solaris has given
notice of termination in accordance with Section 5.2, (i) Solaris may make this
Agreement nonexclusive (by service, Direct Account, territory or otherwise) with
respect to the services to be provided by Central for Direct Accounts; (ii)
Solaris may make this Agreement nonexclusive (by Solaris Product, Distributor
Account, territory or otherwise) with respect to the rights of Central as a
distributor of Solaris Products; (iii) Solaris shall have access to all
information held by Central with respect to the subject matter of this
Agreement, (iv) Solaris shall have access to, and the right to negotiate and
contract with and hire, any employee (except to the extent restricted under
Section 5.4(h)), agent, sub-agent or sub-distributor of Central and (v) Central
shall cooperate with Solaris to establish an alternative distribution system for
the Solaris Products.
(c) Prior Obligations and Shipments. Termination shall not affect
obligations of Solaris or of Central which have arisen prior to the effective
date of termination. if Solaris notifies Central of its intention to terminate
this Agreement in accordance with Section 5.2, the quantity of each of the
Solaris Products shipped in any remaining contract month may be limited, at
Solaris' option, to the amount of such Solaris Product purchased by Central in
the corresponding month of the previous calendar year plus fifteen percent
(15%).
(d) Purchase of Inventory. Upon the expiration or earlier
termination of this Agreement, Solaris shall have the option, exercisable by
written notice to Central within fifteen (15) days after this Agreement has
expired by its terms or written notice of termination has been received, to
purchase from Central all salable stocks of Solaris Products listed in current
Solaris Products price lists which are in full case lots and which were
originally purchased by Central from Solaris. If such option is exercised, such
purchases by Solaris shall be at Central's cost (net of any discounts,
incentives, etc.) and Central shall pay any freight costs in shipping such
Solaris Products to Solaris. Central shall establish its cost by producing
copies of invoices or other records regularly maintained in the course of
Central's business. Upon request by Solaris, during any 15-day option period,
Central shall withdraw its entire stock of Solaris Products from sale. If such
option is not exercised by Solaris, then Central shall have the option,
exercisable by written notice to Solaris within 45 days after this Agreement has
expired by its terms or been terminated pursuant to the provisions of this
Article to sell to Solaris all salable stocks of products listed in current
Solaris product price list which are in full case lots and which were
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originally purchased and paid for by Central from Solaris at Central's cost,
established the manner set forth above.
(e) Representations and Materials. Upon termination of this
Agreement for any reason, Central shall not continue to represent itself as
authorized to deal in Solaris Products, and shall remove, so far as practical,
any printed material relating to such products from its salesmen's manuals and
shall discontinue the use of any display material on or about the Central's
premises containing any reference to Solaris Products.
(f) Orders after Termination. If Solaris continues to accept orders
from Central for Solaris Products covered hereby after the expiration of the
term of this Agreement, such sales shall be upon all the terms and conditions
hereof, provided that such sales shall not be construed to evidence a renewal of
this Agreement by operation of law or otherwise but shall imply only an
agreement from day-to-day which Solaris may terminate without cause at any time
upon giving Central written notice of such termination.
(g) No Liability. Neither party, by reason of the expiration,
cancellation, termination or non-renewal of this Agreement, shall be liable to
the other party for compensation, reimbursement or damages because of the loss
of anticipated sales or prospective profits or because of expenditures,
investments, leases, property improvements or other matters related to the
business or goodwill of the parties. In no event shall either party hereto be
liable for special or consequential damages arising under this Agreement or the
cancellation, expiration, non-renewal or termination thereof.
(h) Nonsolicitation of Employees. Solaris and Central each agrees
that during the term of this Agreement and for a period of two years after
termination, expiration, cancellation or non-renewal of this Agreement, it will
not nor will it permit any entity or other person under its control to solicit
for employment any person then employed by the other party to this Agreement,
except any person who was employed by the soliciting party prior to the date
hereof.
5.5 Force Majeure. Neither party shall be in breach of its obligations
hereunder to the extent that performance is prevented, delayed or (in the sole
but reasonable judgment of the party concerned) made substantially more
expensive as a result of any of the following contingencies:
(i) any cause beyond the reasonable control of the party
concerned;
(ii) labor disturbance, whether involving the employees of the
party concerned or otherwise, and regardless whether the disturbance could be
settled by acceding to the demands of a labor group;
(iii) compliance with a request or order of a person
purporting to act on behalf of any government or governmental department or
agency (including, but not limited to, EPA, OSHA, CALOSHA, etc.); or
(iv) shortage in raw material, transportation, manufacturing
capacity, etc., or the product itself from Solaris' then contemplated source of
supply thereof not demonstrated by Central to be due to Solaris' lack of
diligence.
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(a) Allocation of Solaris Products. Whenever performance is
prevented or delayed by such a contingency, Solaris may reduce deliveries in a
manner which fairly apportions the consequences of the contingency among all
competing customers purchasing Solaris Products.
(b) Performance More Expensive. Whenever performance is made
substantially more expensive by such a contingency, Solaris shall have the
option either to reduce or stop deliveries from one or more facilities and
apportion as provided above or to continue deliveries and increase prices in a
manner which fairly apportions the increased cost of operating under such a
contingency among all competing customers purchasing Solaris Products.
(c) Foreseeable Events. Performance will be excused as provided
herein even though the occurrence of the contingency in question may have been
foreseeable or be foreseeable at the time of contracting or subsequently become
foreseeable.
(d) Payments. Nothing in this Section shall excuse Central from its
obligations to make payments when due.
(e) Alternative Sources. Notwithstanding anything contained herein
to the contrary, if a force majeure event is expected to affect Central's
performance hereunder for a period of time between 14 and 120 days, then Solaris
shall have the right, during such time and for a reasonable amount of time
thereafter, to use alternate sources to perform Central's obligations hereunder.
In connection therewith Solaris shall have the right (i) to make this Agreement
nonexclusive (by service, Direct Account, territory or otherwise) with respect
to the services to be provided by Central for Direct Accounts and (ii) to make
this Agreement nonexclusive (by Solaris Product, Distributor Account, territory
or otherwise) with respect to the rights of Central as a distributor of Solaris
Products.
(f) Costs. In no event shall Solaris be responsible to pay or
reimburse Central for any costs (i) associated with a force majeure event
affecting Central's performance hereunder or (ii) incurred by Central during
such time as Solaris is using alternate sources as provided in Section 5.5(e)
for the types of services provided by such alternate sources.
ARTICLE VI
CONFIDENTIALITY, NONCOMPETITION,
INDUSTRIAL PROPERTY, CONFLICTS OF INTEREST AND RECORDS
6.1 Confidentiality. Except as necessary for its performance under this
Agreement and except as may be required by the federal securities laws or other
applicable laws, neither party shall at any time or in any manner, either
directly or indirectly, and shall not 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 6.1, "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
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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; provided,
Central's "confidential information" hereunder shall be limited to any
proprietary information, other than that of Solaris, possessed by Central prior
to the date of this Agreement and to its costs, selling prices to Distributor
Accounts and the terms of any agreements between Central and manufacturers other
than Solaris or any and all other information not principally related to the
manufacture, sale or distribution of Solaris Product. All other confidential
information relating to the subject matter of this Agreement shall be the
confidential information of Solaris. "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 or (iii) 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.
6.2 Noncompetition. Without Solaris' prior written consent, Central
shall not (i) make material additions to a vendor's lawn and garden chemical
line, (ii) add new vendors to its lawn and garden chemical business or (iii)
acquire or materially expand a lawn and garden chemical product line or a lawn
and garden chemical manufacturing business or participate in a private label
program. Central shall not solicit Direct Accounts or Excluded Accounts for the
sale of Solaris Products, except in accordance with this Agreement. By written
notice given at any time at least 90 days before the beginning of the third
Program Year under this Agreement, Solaris may require Central to sell Solaris
products as Central's exclusive lawn and garden chemical product line. Upon
receipt of any such notice, Central shall immediately take all necessary action
to eliminate any other lawn and garden chemical products from its business
within 90 days or as soon as permissible under the terms of any written
agreements in existence as of the date hereof. Agreements for other lawn and
garden chemical products that Central enters into or renews after the date
hereof shall permit termination by Central with 90 days or less notice. If such
notice is given and Central complies with this Section 6.2, the initial term of
this Agreement shall be automatically extended to the first September 30 that is
at least 4 years from the date of such notice.
Notwithstanding anything else herein contained, none of the
restrictions on Central set forth in this Section 6.2 shall have any further
force or effect after Solaris has given Central notice of non-renewal or
termination pursuant to Section 5.2 hereof.
Notwithstanding anything else herein contained, Solaris may only give
Central the exclusivity notice referred to in this Section 6.2 ("the Exclusivity
Notice") if the Gross Sales Revenue from that portion of the Direct Account
stores serviced by Central exceeded the Threshold Amount (defined as 67% of the
Gross Sales Revenue from Direct Accounts) in the program year preceding the
giving of the Exclusivity Notice and is reasonably expected by Solaris to exceed
the Threshold Amount in the program year in which such Notice is given. For
purposes of this Section 6.2, the term "serviced by Central" shall mean those
stores in which (1) no sub-agent is used and (2) in which any in-store service
required is provided by Central, except for the Home Depot (where it is agreed
that Solaris will provide the in-store service). If
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the Gross Sales Revenue from Direct Accounts serviced by Central falls below the
Threshold Amount in the program year in which the Exclusivity Notice is given or
in any subsequent program year, then Central shall have no further obligation to
honor the prior Exclusivity Notice (or any future Exclusivity Notice) and the
non-renewal notice period shall revert to 15 months.
6.3 Industrial Property. Central acknowledges the validity of the
trademarks which designate and identify the Solaris Products. Central further
acknowledges that Solaris is the exclusive owner of the trademarks, trade names,
packages and designs used in the sale of the Solaris Products (hereinafter
referred to as "Industrial Property").
(a) Central agrees that, to the extent it uses Industrial Property,
such Property shall be used in its standard form and style as it appears upon
Solaris Products or as instructed in writing by Solaris. No other letter(s),
word(s), design(s), 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 Property, and Central further agrees not to
combine or associate any of such Industrial Property with any other Industrial
Property. The generic or common name of the Solaris Product must always follow
the Solaris Product trademark.
(b) In all advertisements, sales and promotional or other printed
matter in which any Industrial Property appears, Central shall identify itself
by full name and address and state its relationship to Solaris. In all such
material, the Solaris Product trademark shall be identified as a trademark owned
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".
(c) On its letterheads, business cards, invoices, statements, etc.,
Central may identify itself as a distributor for the Industrial Property.
(d) Central agrees that it will never use any Industrial Property
or any simulation of such Industrial Property as part of Central's corporate or
other trading name or designation of any kind.
(e) Upon expiration or in the event of any termination of this
Agreement, Central shall promptly discontinue every use of the Industrial
Property and any language stating or suggesting that Central is a distributor
for Solaris Products. All advertising and promotional materials which use
Industrial Property shall be destroyed.
(f) Central shall not use or facilitate the use of promotional
materials which disparage Solaris Products or Industrial Property. If Central
should become aware of any suspected counterfeiting of Solaris Products or
Industrial Property, Central shall promptly notify The Solaris Group of such
suspected counterfeiting. Central shall cooperate in any investigation or legal
proceedings that Solaris deems desirable to protect its rights in the Industrial
Property. Central shall not promote the sale of products using trademarks,
packages or designs which are in Solaris' opinion deceptively similar to
Industrial Property.
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6.4 Conflicts of Interest. Conflicts of interest relating to this
Agreement are strictly prohibited. Except as otherwise expressly provided
herein, neither Central nor any director, employee or agent of Central or its
subcontractors or vendors shall give to or receive from any director, employee
or agent of Solaris any gift, entertainment or other favor of significant value,
or any commission, fee or rebate. Likewise, neither Central nor any director,
employee or agent of Central or its subcontractors or vendors shall, without
prior written notification thereof to Solaris, enter into any business
relationship with any director, employee, or agent of Solaris or any affiliate
unless such person is acting for and on behalf of Solaris. Central shall
promptly notify Solaris of any violation of this Section 6.4 and any
consideration received as a result of such violation shall be paid over or
credited to Solaris. Additionally, in the event of any material violation of
this Section 6.4, including any material violation occurring prior to the date
of this Agreement, resulting directly or indirectly in Solaris' consent to enter
into this Agreement, Solaris may, at Solaris' sole option, terminate this
Agreement at any time and, notwithstanding any other provision of this
Agreement, pay Central only for that work performed prior to the date of
termination. Any representative(s) authorized by Solaris may audit any and all
records of Central and its subcontractors and vendors for the purpose of
determining whether there has been compliance with this Section 6.4.
6.5 Records Retention. Central and Solaris shall each maintain true and
complete records in connection with this Agreement and shall retain all such
records for at least 24 months following the termination or expiration of this
Agreement. This obligation shall survive the termination or expiration of this
Agreement.
ARTICLE VII
LIMITATION OF LIABILITY, REMEDIES,
WARRANTIES AND INDEMNIFICATION
7.1 Limitation of Liability. Nothing contained in this Agreement shall
be deemed to create any express or implied obligation on either party to renew
or extend this Agreement or, if Central is continued or renewed as the servicing
agent for Solaris Products for Direct Accounts, to create any right to continue
such relationship on the same terms and conditions contained in this Agreement.
Each party, in its sole discretion, shall have the right to determine, for any
reason whatsoever, not to renew, continue or extend this Agreement or to
continue the relationship on the terms and conditions contained in this
Agreement. Neither party, by reason of the expiration, cancellation, termination
or non-renewal of this Agreement, shall be liable to the other for any
compensation, indemnification, reimbursement or damages arising out of the loss
of anticipated sales or prospective profits hereunder or investments, leases,
property improvements or any other, expenditures related to the business or
goodwill of the parties made in connection herewith.
7.2 Exclusive Remedy. EACH PARTY'S EXCLUSIVE REMEDY SHALL BE FOR
DAMAGES, AND EACH PARTY'S TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES
ARISING OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT,
NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED
$5,000,000, EXCEPT FOR PAYMENT
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OBLIGATIONS FOR SERVICES PREVIOUSLY RENDERED BY CENTRAL OR FOR SOLARIS PRODUCTS
PURCHASED BY CENTRAL; PROVIDED THAT THE FOREGOING DOES NOT LIMIT A PARTY'S
OBLIGATIONS TO IDENTIFY THE OTHER PARTY FOR THIRD-PARTY CLAIMS. IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE
DAMAGES RESULTING FROM ANY SUCH CAUSES. TRANSPORTATION CHARGES FOR THE RETURN OF
SOLARIS PRODUCT(S) SHALL NOT BE PAID UNLESS AUTHORIZED IN ADVANCE BY SOLARIS.
7.3 Solaris Warranties. Solaris warrants to Central that the Solaris
Products shall conform to the applicable Solaris Product label. EXCEPT AS STATED
ON SUCH LABEL OR CONTAINED IN THIS AGREEMENT, SOLARIS MAKES NO WARRANTY OR
REPRESENTATION WITH RESPECT TO THE SOLARIS PRODUCTS OR ANY OTHER MATTERS COVERED
BY THIS AGREEMENT, EXPRESS OR IMPLIED (INCLUDING MERCHANTABILITY AND FITNESS FOR
ANY PARTICULAR PURPOSE). Central is not authorized and shall not hold itself out
as authorized to make on behalf of Solaris any oral or written warranty or
representation regarding Solaris Products other than what is stated on the
applicable Solaris Product label or in other written material furnished to
Central by Solaris.
7.4 Indemnification and Claims Procedure.
(a) Indemnification. Subject to Sections 7.1 and 7.2, 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 attorneys' fees), damage, injury, liability and claims thereof
for injury to or death of a person and for loss of or damage to property,
including employees and property of the indemnified party, to the extent
resulting directly or indirectly from the indemnifying party's 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.
(b) Claims Procedure. The party requesting indemnification shall
promptly notify the other party in writing of any claim or action made against
the notifying party for which indemnification is claimed by the notifying party.
The indemnifying party shall have the right to conduct the defense of any such
claim and to settle or compromise the same. The foregoing rights of indemnity
shall survive termination of this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Status of Parties. Central and Solaris are independent contractors
retaining complete control over and complete responsibility for their own
operations and employees. Except as expressly provided herein, this Agreement
shall not be construed to grant either party any right or authority to assume or
create any obligation on behalf of or in the name of the other.
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Nothing in this Agreement shall be construed to establish a franchise
relationship or to make either party a partner or joint venturer of the other
party hereto.
8.2 Solaris Obligations. All permits, licenses and registrations needed
for the sale of Solaris Products to Direct Accounts shall be obtained by
Solaris. Solaris shall assume the cost of all federal and state registration
fees related to the sale of Solaris Products. After Solaris Products have been
reacquired by Solaris from Central, all insurance and any tax liability with
respect to such Solaris Products shall be borne by Solaris.
8.3 Entire Agreement. This Agreement, together with the Compensation
Agreement, the Master Agreement and the Implementation and Transition Agreement
and the 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. 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 Central and either Central or Solaris 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 Central's business.
8.4 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 Solaris or Central, with respect to any default on 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.
8.5 Assignment. This Agreement is personal to Central and Central shall
not assign any rights or delegate any duties that Central 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 Solaris' prior written consent except as specifically
provided herein. Any sale, conveyance, alienation, transfer or other change of
interest in or title or beneficial ownership of the voting stock of Central so
that William E. Brown and his affiliates no longer hold more voting power than
any other shareholder (together with its affiliates) of Central shall be
construed as an assignment of Central's rights hereunder.
8.6 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
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confirmation of receipt, on the next business day if sent by overnight courier
or on the earlier of actual receipt as shown on the register 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 Central, to: CENTRAL GARDEN & PET COMPANY
3697 Mt. Diablo Blvd., Suite 310
Lafayette, CA 94549
Attn: Glenn Novotny
Telefax no.: (510) 283-4991
with a copy to: ORRICK, HERRINGTON & SUTCLIFFE
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
Attn: John F. Seegal
Telefax no.: (415) 773-5759
If to Solaris, to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: President
Telefax no.: (510) 355-3530
with a copy to: The Solaris Group
2527 Camino Ramon, Suite 200
San Ramon, CA 94583
Attn: Company Counsel
Telefax no.: (510) 355-3530
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).
8.7 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.
8.8 Equal Opportunity. To the extent applicable to this Agreement,
Central shall comply with the following clauses contained in the Code of Federal
Regulations and incorporated herein by reference: 48 C.F.R. ss.52.203-6
(Subcontractor Sales to Government); 48 C.F.R. ss.52.219-8, 52.219-9
(Utilization of Small and Small Disadvantaged Business Concerns); 48 C.F.R.
ss.52.219-13 (Utilization of Women-Owned Business Concerns); 48 C.F.R.
ss.52.222-26 (Equal Opportunity); 48 C.F.R. ss.52.222-35 (Disabled and Vietnam
Era Veterans); 48 C.F.R. ss.52.222-36 (Handicapped Workers); 48 C.F.R.
ss.52.223-2 (Clean Air and Water); and 48 C.F.R. ss.52.223-3 (Hazardous Material
Identification and Material Safety Data). Unless
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previously provided, if the value of this Agreement exceeds $10,000, Central
shall provide a Certificate of Nonsegregated Facilities to Solaris. Furthermore,
Central shall comply with the Immigration Reform and Control Act of 1986 and all
rules and regulations issued thereunder. Central 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 198S, and Central shall defend,
indemnify and hold Solaris harmless from any and all liability incurred by or
sought to be imposed on Solaris as a result of Central's failure to comply with
the certification, agreement and covenant made by Central in this Section.
8.9 Governing Law. THE VALIDITY, INTERPRETATION, EFFECT AND PERFORMANCE
OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
8.10 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 next]
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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 SOLARIS GROUP, A STRATEGIC
BUSINESS UNIT OF MONSANTO COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
CENTRAL GARDEN & PET COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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EXHIBIT B
---------
TERMINATION NOTICE REGARDING CENTRAL AGREEMENTS
-----------------------------------------------
[Monsanto Company Letterhead]
June 28, 1998
Glenn W. Novotny
President & Chief Operating Officer
Central Garden & Pet Company
3697 Mt. Diablo Blvd.
Lafayette, CA 94549
VIA FACSIMILE WITH COPY VIA U.S. MAIL
Dear Glenn:
As provided for in Article V of the Exclusive Agency and Distributor Agreement
(as well as the corresponding clauses of the ancillary and related agreements
between us), this letter will serve as Monsanto's notice of non-renewal.
Accordingly, these agreements shall terminate as of the end of the initial term,
September 30, 1999.
Regards,
Jim R. Neal
V.P. & General Manager
cc: William E. Brown
Chairman & Chief Executive Officer
John Seegal
Orrick, Herrington
Jack Silhavy
Monsanto
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EXHIBIT C
---------
LETTER AGREEMENT REGARDING PLASTID TRANSFORMATION TECHNOLOGY
------------------------------------------------------------
AND ASSOCIATED GENES
--------------------
September 28, 1998
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
RE: PEHR LICENSE
Gentlemen:
This letter will confirm the agreement reached between Monsanto Company
("Monsanto") and The Scotts Company ("Scotts") (together, the "Parties")
regarding the licensing process currently underway as relates to technology
known as "Plastid Expression of Herbicide Resistance (the "Technology").
Sanford Scientific, Inc. ("SSI") and the Feed My Sheep Foundation ("FMS"), the
co-owners of the Technology, are currently engaged in an offering whereby the
successful bidder will exclusively license the Technology on a worldwide basis
(the "Offering"). Scotts agrees, and will cause SSI and FMS to also agree, to
grant to Monsanto an exclusive negotiation period of seven days (the "Quiet
Period") in connection with the Offering, under the following terms and
conditions:
1. The Parties shall have executed the Roundup Agency Agreement by
September 30, 1998;
2. The Parties shall have executed a definitive Ortho Assets Purchase
Agreement by October 31, 1998;
3. Monsanto shall have submitted a substantial bid for the Technology by
November 6, 1998;
4. If the above three conditions are met, the Quiet Period will occur
November 7 through November 13, 1998, during which time SSI and FMS
will negotiate only with Monsanto for the Technology;
5. If Monsanto fails to meet the above three conditions or fails to reach
agreement with SSI and FMS during the Quiet Period, SSI and FMS will
hold a second round of negotiations with interested parties, and
Monsanto may participate in such second round on equal footing with
other participants.
31
<PAGE> 135
Monsanto Company
September 28, 1998
Page 2
If you are in agreement with the terms of this Letter, please indicate your
acceptance below. Thank you.
Sincerely,
The Scotts Company
By:
-------------------------
Title:
----------------------
Date:
-----------------------
ACCEPTED AND AGREED:
Monsanto Company
By:
-------------------------
Title:
----------------------
Date:
-----------------------
32
<PAGE> 136
EXHIBIT D
---------
PERMITTED PRODUCTS
------------------
United States
- - -------------
Groundclear Triox glyphosate & arsenal
Brush-B-Gon triclopyr
Groundclear Super Edger glyphosate & oxyflourfen
United Kingdom
- - --------------
Weedatak glyphosate & diuron
France
- - ------
Herbatak glyphosate & diuron
33
<PAGE> 137
SCHEDULE 1.1(a)
Included Markets
----------------
U.S.
Belgium
Denmark
Norway
Sweden
EIRE
France
Germany
Netherlands
Canada
Australia
Puerto Rico
U.K.
Austria
Finland
Luxemburg
<PAGE> 138
SCHEDULE 1.1(b)
Roundup Products
----------------
<TABLE>
<CAPTION>
Formulation Size
----------- ----
<S> <C> <C>
United States and Puerto Rico
- - -----------------------------
Roundup RTU 2% or less 2 gal or less
Roundup Concentrate 18% 1 gal or less
Roundup Tough Weed 27% 1 gal or less
Roundup Super Conc. 41% 1 gal or less
Roundup Aerosol 2% or less 2 gal or less
Roundup Edger 2% or less 2 gal or less
Kleeraway RTU 1% or less 1 gal or less
Kleeraway Conc. 7.5% or less 1/2 gal or less
Grower's Choice
Pennington Pride 1% or less RTU 1 gal or less RTU
Green Charm Knock Out 7.5% or less Conc. 1/2 gal or less Conc.
Bullseye
Belgium
- - -------
Roundup Alphee 7.2 g/l 3 1 or less
Roundup 60 60 g/l 500 ml or less
Roundup 120 120 g/l 500 ml or less
Roundup Ultra 360 g/l 500 ml or less
Howdown 120 g/l 500 ml or less
Quickclaim 120 g/l 500 ml or less
Denmark
- - -------
Roundup Spray 7.2 g/l 3 1 or less
Roundup Gdn Plus 120 g/l 1 1 or less
Norway
- - ------
Roundup Spray 7.2 g/l 3 l or less
Roundup Garden 120 g/l 250 ml or less
Sweden
- - ------
Roundup Spray 7.2 g/l 3 l or less
Roundup Garden 120 g/l 1 l or less
</TABLE>
<PAGE> 139
<TABLE>
<S> <C> <C>
EIRE
- - ----
Roundup RTU 7.2 g/l 3 1 or less
Roundup GC 120 g/l 500 ml or less
France
- - ------
Roundup Alphee 7.2 g/l 3 l or less
Roundup Pro 2 360 g/l 1 l or less
Roundup 3 p 170 g/l 1 l or less
Roundup GT 400 g/l .91, 451
Goliath 360 g/l 500 ml or less
Goliath CJ 120 g/l 1 l or less
Herbivorax 90 90 g/l 1 l or less
Kommando 100 g/l 1 l or less
Germany
- - -------
Roundup Alphee 7.2 g/l 1 l or less
Roundup L B Plus 360 g/l 125 ml or less
Roundup Ultra Gran 420 g/l 15.5g
Netherlands
- - -----------
Roundup RTU 7.2 g/l 1 l or less
Roundup H&T 360 g/l 125 ml
Canada
- - ------
Roundup RTU 2% or less 4 l or less
Roundup Concentrate 18% 1 l or less
Roundup Super Conc. 41% 1 l or less
Australia
- - ---------
Roundup RTU 7.2 g/l 3 l or less
Roundup 360 g/l 1 l or less
United Kingdom
- - --------------
Roundup RTU 7.2 g/l 3 l or less
Roundup Brushkiller 120 g/l 1 l or less
Roundup Brushkiller RTU 7.2 g/l 1 l or less
Roundup GC Biactive 120 g/l 1 l or less
Roundup Ultra 3000 360 g/l 1 l or less
B&Q Complete Weed Killer RTU 7.2 g/l 3 l or less
</TABLE>
<PAGE> 140
<TABLE>
<S> <C> <C>
B&Q Complete Weed Killer 45.2 g/l 1 l or less
Austria
- - -------
Roundup LB Plus 360 g/l 125 ml or less
Finland
- - -------
Roundup Spray 7.2 g/l 3 l or less
Roundup Bio 120 g/l 1 l or less
</TABLE>
<PAGE> 141
SCHEDULE 2.2(a)
Annual Business Plan Template
-----------------------------
1) Mission Statement and Explanation: Answers questions: What business are
we in? Why does the business exist?
2) Category Definition/Growth Trend: Also need to address related
categories and their potential interaction with the target category
a) Assessment of growth potential
b) Competitor evaluation/assessment of threat
3) Business Review: Summary of a process that will occur in each preceding
January
a) Critical learning from prior year
b) Key Implications from learning: Arranged by key functional
area
4) Brand Positioning:
a) Consumer Target: Demographics, Psychographics, use
Segmentation
b) Key feature(s), Attribute(s) and Benefits delivered (for brand
and sub-brands)
c) Brand Character/Imagery: Describe the personification of the
brand/sub-brands
i) This section should also specifically address the
degree to which the proposed positioning is
consistent with the Brand's historical image
5) Key Business Goals
a) Financial: Historical trend and three year projections of
Equivalent Case Volume, Net Sales, EBIT and ACM
b) Competitive:
i) Market Share Goal and trend
ii) Advertising Share of Voice Goal and trend
c) Consumer: Critical behavioral and attitudinal measures that
describe the development of the Brand which could include:
i) Penetration
ii) Unaided awareness
iii) Annual usage
iv) Seasonal usage
d) Customer:
i) % ACV Distribution by Channel
ii) Fill Rates by Top 10 customers (with detailed
definition of what constitutes an on-time shipment)
iii) Display achievement
iv) Other measurable customer satisfaction measures
6) Major Strategies to achieve Key Goals (some examples include...)
a) Product Line: What products/drive groups/lines to focus on
b) Significant new product launches
c) Private Label at a Key Account(s)
d) Marketing Support focus: Example would be a shift from
advertising to promotion
e) New Consumer Uses: Extended use campaign, new forms
f) Geographic focus including a new regional/market emphasis.
CDI/BDI analysis
g) Seasonal focus including new emphasis if relevant. Weekly
seasonality by region and drive group/item.
h) Channel/Customer including new/alternative channels if
relevant
i) Operational strategies to address quality, capacity, cost
position, service, technology application, etc., including
fill rates, inventory levels and turns
j) Acquisition/divestiture strategies to improve market position
<PAGE> 142
7) Functional Operating Plans: This is a lengthy section that lays out a
detailed annual operating plan for each functional area in the business
(including rationale where appropriate) and that pays particular
attention to changes in that plan from the prior year's plans and
results. Each section will contain a detailed budget with direct and
assigned expenses shown.
a) General Management: Description of Business Unit Management
team and planned costs
i) Performance standards for all employees
ii) Description of employee performance incentives and
link to performance standards
b) Marketing:
i) Organization Plan
ii) Spending allocation: Total spending by marketing
support category including working and non-working
media, consumer promotion, public relations, market
research, etc.
iii) Advertising: Preliminary media plan including
spending trends, creative strategy and discussion of
any planned/contemplated changes to that strategy.
iv) Consumer Promotion: Promotion objectives, key plan
elements and payout calculations
v) POP Plan: Focus on Key changes versus prior year plan
vi) Pricing: To include trends and competitive benchmarks
vii) Packaging - graphic and physical: Changes planned
along with specific costs, implementation timing and
risk factors
viii) Market Research plan: List all studies, cost estimate
and rationale for each, including tracking
ix) Public Relations
x) Test plans (applies to all of above)
c) Sales:
i) Organization Plan
ii) Top 5 Account Plans
(1) Program changes anticipated
(2) Planned Net Sales trends by drive group/item
(with historical trend)
(3) Profitability analysis
(4) Category Management plans
iii) Five year sales goals
iv) Private Label/control brand opportunities
v) Headquarter Sales Presentation plan with a focus on
what the key messages are and discussion of any
unique methods of communication to customers
vi) Retail Merchandising Support including planned
in-house, distributor and contracted merchandising
services. Focus on in-store merchandising and display
techniques as well as pre-season store set plans
(1) Share of shelf
(2) Share of off-shelf
vii) Other selling services plans as appropriate
viii) Product Knowledge Plan including principle target(s)
and vehicles
d) Operations:
i) Organization Plan
ii) Key Manufacturing initiatives such as: Cost savings,
capacity planning, make/buy analyses, etc.
iii) Distribution/Warehousing Plan
iv) Inventory plan by month (versus prior year) that
balances the need for high fill rates with a product
utilization of working capital. Targets to be
included in plan.
<PAGE> 143
v) Purchasing: Including Key supplier relationship
development
vi) Quality: Measurement and delivery against objectives
from balanced scorecard
vii) Capital Plan with capital expenditure detail
e) Research & Development:
i) Organization/Staffing Plan
ii) Priority projects and innovation pipeline - new
product portfolio review
iii) Innovation launch timeline
iv) Product specifications and planned changes
v) Pioneering Research
f) Customer Service:
i) Organization Plan
ii) Special Programs such as telemarketing
iii) Discussion of and key changes to order taking, order
processing invoicing, collection, reconciliation (to
original P0 and program) procedures
g) Consumer Service:
i) Organization plan including a discussion of
outsourced versus in-house services
ii) Call volume and measurement of answering efficiency
and effectiveness
iii) Plan for communicating to marketing and operations
any significant consumer complaints
8) Detailed Financials - Prior Year, Current Year, Future Year
a) Income Statement (annual and monthly), cash flow and balance
sheet
b) Net Sales and margins by key drive group/item, and including
product mix analysis
c) Selling and Marketing Expenses by key line item
d) Assignment of Shared Services: This section will discuss the
agreed upon allocation methodology for shared services to
their respective Business Unit statements and highlights any
proposed changes to that methodology
e) Anticipated changes form prior year
f) Financial Metrics
i) Invoice accuracy
ii) Days Sales Outstanding (DSO)
iii) Obsolete inventory charge
iv) Bad debt allowance
v) Netbacks, MAT and COGS detail prior, current and next
year
9) Approved amendments: This section will show any amendments approved by
senior management (or the Steering Committee)
a) Includes spending at levels above those established in the
annual business plan.
<PAGE> 144
SCHEDULE 2.2(a)(ii)
TRANSITION SERVICES
The parties agree that it is unnecessary to describe in detail the
transition services called for by this Schedule 2.2(a)(ii); rather, the parties
agree that these services shall be provided in good faith based on the past
practices of the Solaris business unit of Monsanto.
<PAGE> 145
SCHEDULE 3.1(a)
ACCOUNTING AND CASH FLOW PROCEDURES OUTSIDE THE UNITED STATES
-------------------------------------------------------------
I. EUROPE
The following terms shall govern operations of the Roundup L&G Business in
Europe in place of Sections 3.1 through 3.3 of the Agreement. The remainder of
the terms of Article 3 of the Agreement shall apply to the operations for the
European Roundup L&G Business.
SECTION 3.1. BOOKKEEPING AND FINANCIAL REPORTING.
(a) Bookkeeping. Monsanto shall 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 Monsanto's
accounting policies (including the currency exchange methodology used 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 Section 3.3 hereof. At all
times, Monsanto shall make available via computer and/or original documentation,
to the Agent's employees designated by the Agent, access to the Roundup Records
as appropriate on a need-to-know basis, and such access shall include, but not
be limited to, daily sales updates.
(b) Financial Reporting. Monsanto shall provide to the Agent
financial reports for the Roundup L&G Business based on Monsanto's current
practice and timing.
(c) Audit. The Agent shall have the right to periodically audit or
have an independent accountant audit, on the Agent's behalf, all the Roundup
Records. The audit shall be at the cost of the Agent unless any material error
has been committed by Monsanto, in which case Monsanto shall bear the cost of
the audit. Upon exercise of its right of audit, and discovery of any disputed
item, the Agent shall provide written notice of dispute to Monsanto. The parties
shall resolve such dispute in the manner set forth in Section 3.4 hereof.
SECTION 3.2. ORDERING, INVOKING AND CASH FLOW CYCLE.
(a) Ordering and Invoicing. Monsanto shall perform all order
taking, order processing and invoicing for the Roundup Products. Orders filled
for Roundup Products shall be invoiced on invoices, or an EDI version thereof,
which shall 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, based on Monsanto's past practices for such products.
(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 Monsanto's designated bank account.
<PAGE> 146
(c) Roundup Bank Accounts. Monsanto shall establish or use
existing bank accounts (the "Roundup Europe Bank Accounts") to serve as the bank
accounts for the Roundup L&G Business in Europe (i) for the receipt of Customer
remittances as described in Section 3 22(b), 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.
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 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 in Section 3.4) 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 Europe 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 Monsanto
for payment out of the Roundup Europe Bank Account or (ii) as Allocated Expenses
which shall be submitted by either party to Monsanto for reimbursement out of
the Roundup Europe 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 properly supported and submitted
in writing no more than three (3) days after the end of each month to Monsanto.
(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").
<PAGE> 147
II. CANADA
The following terms shall govern operations of the Roundup L&G Business in
Canada in place of Sections 3.1 through 3.3 of the Agreement. The remainder of
the terms of Article 3 of the Agreement shall apply to Canadian Roundup L&G
Business operations.
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 effect; (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 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.
<PAGE> 148
(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 Roundup Canada Bank Account (defined below).
(c) Roundup Bank Accounts. Monsanto shall establish or use
existing bank accounts (the "Roundup Canada Bank Accounts") to serve as the bank
accounts for the Roundup L&G Business (i) for the receipt of Customer
remittances as described in Section 3.2(b), 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 Canada Bank Accounts on
Monsanto's behalf as it relates to the Roundup L&G Business in Canada, 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 or such other employee of
Monsanto as is designated by a member of the Global Support Team.
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 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 in Section 3.4) 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 Canada 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 Canada 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 Canada Bank Account. Payment of any
direct expenses incurred by either party on behalf off the Roundup L&G Business
shall be made as they become due in accordance with the applicable commercial
terms agreed upon with each vendor.
<PAGE> 149
Allocated Expenses shall be paid on the fifteenth (15th) day of each
month provided such allocated Expenses shall be properly supported and 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 Canada 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").
III. AUSTRALIA
The following terms shall govern operations of the Roundup L&G Business in
Australia in place of Sections 3.1 through 3.3 of the Agreement. The remainder
of the terms of Article 3 of the Agreement shall apply to Australian Roundup L&G
Business operations.
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 effect; (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 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.
<PAGE> 150
SECTION 3.2. ORDERING, INVOKING 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) Receipts. At the end of each month, the Agent shall remit to
the account designated by Monsanto for such purposes, the actual amount of the
Customers' remittances for the Roundup Products paid over the past month.
Customer payment deductions that do not initially, clearly apply to Roundup
Products shall not be withheld by the Agent from the 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. Scotts shall establish or use existing
bank accounts (the "Roundup Australia Bank Accounts") to serve as the bank
accounts for the Roundup L&G Business (i) for the receipt of Customer
remittances as described in Section 3.2(b), 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. The Agent shall 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). Monsanto may perform its own reconciliation
of the Roundup Australia 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.
<PAGE> 151
(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 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 Section 3.4 hereof. Upon determination by
such Independent Accountant (as defined in Section 3.4) that notice of dispute
to the other party and the parties shall resolve such dispute in the manner set
forth in 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 Australia 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 Australia 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 Australia 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 properly supported and submitted
in writing no more than three (3) days after the end of each month to the
Agent's nominee in charge of the Roundup Australia 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").
<PAGE> 152
SCHEDULE 3.2 (d)
CASH FLOW CHART
---------------
<PAGE> 153
Schedule 3.2 (d) U.S.
[FLOW CHART DEPICTING TREATMENT OF CASH FLOWS IN
CONNECTION WITH ROUNDUP(R) BUSINESS UNIT DOMESTICALLY]
<PAGE> 154
Schedule 3.2 (d) Europe before 10/1/99 Europe
[FLOW CHART DEPICTING TREATMENT OF CASH FLOWS IN CONNECTION WITH
ROUNDUP(R) BUSINESS UNIT IN EUROPE BEFORE 10/1/99]
<PAGE> 155
Schedule 3.2 (d) Europe after 10/1/99 Europe
[FLOW CHART DEPICTING TREATMENT OF CASH FLOWS IN CONNECTION WITH
ROUNDUP(R) BUSINESS UNIT IN EUROPE AFTER 10/1/99]
<PAGE> 156
<TABLE>
Schedule 3.2 (d) Cash Flow -- U.K. Only
<CAPTION>
DESCRIPTION ACCTING ENTRI
- - ------------------------------------------------------------------------------------------------- ------------------------
<S> <C>
MONSANTO PLC RECEIPT
- direct payments to bank
- cheques received and banked / cheque register created
- RIP credited cr to 11125839
Roundup / Non Roundup invoices cleared from SAP according customer remittance
advice / Deductions entered in accordance with attached agreement
This allocation debits Mplc / Phostrogen RIP. dr to 11125839
Phostrogen related cash placed in holding account cr to ????
Cash paid on the 20th of the month following receipt dr to ????
NON ROUNDUP RECEIPTS
- direct payments to bank
- cheques received and banked / cheque register created
- RIP credited cr to 11125839
Roundup / Non Roundup invoices cleared from SAP according to customer remittance
advice / Deductions entered in accordance with attached agreement
This allocation debits Mplc / Phostrogen RIP. dr to 11125839
PHOSTROGEN LIMITED RECEIPT
Cheques received payable to Phostrogen Limited forwarded to Corwen immediately
and no accounting entries made
Cheque banked into Phostrogen bank account by Corwen
Customer accounts cleared in Corwen and deductions booked in accordance with agreement
</TABLE>
<PAGE> 157
Schedule 3.2 (d) Canada
[FLOW CHART DEPICTING TREATMENT OF CASH FLOWS IN
CONNECTION WITH ROUNDUP(R) BUSINESS UNIT IN CANADA]
<PAGE> 158
Schedule 3.2 (d) Australia
<TABLE>
MONSANTO Example C3
ROUNDUP AUSTRALIA
DATE
CASH FLOW STATEMENT
<CAPTION>
Month YTD
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)/Income
Depreciation
Amortization
Extraordinary loss
(Gain)/Loss on sale of property
Changes in working capital:
Accounts receivable
Inventories
Prepaids
Accounts payable
Accrued liabilities
Other, net
--------- ---------
Net cash provided by / (used in) operations
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures
Proceeds on Sale of Property
Acquisitions
Other
Net cash provided by / (used in) investing activities
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings - operations funding
Borrowings - acquisitions
Dividends paid
Other
Net cash provided by / (used in) financing activities
--------- ---------
Net increase (decrease) in cash
--------- ---------
Cash, beginning of period
--------- ---------
Cash, end of period
0 0
========= =========
</TABLE>
<PAGE> 159
SCHEDULE 3.3 (c)
INCOME STATEMENT DEFINITIONS AND ALLOCATION METHODS
---------------------------------------------------
*
- - ----------------------
*Confidential provision omitted and filed separately with the SEC, based upon a
request for confidential treatment filed with the SEC.
<PAGE> 160
SCHEDULE 3.8
CURRENT SALES OF 2.5 GALLON SKU INTO THE LAWN & GARDEN CHANNELS
---------------------------------------------------------------
*
- - ----------------------
*Confidential provision omitted and filed separately with the SEC, based upon a
request for confidential treatment filed with the SEC.
<PAGE> 161
SCHEDULE 4.1(a)
MANAGEMENT STRUCTURE
--------------------
<PAGE> 162
Schedule 4.1 (a)
ROUNDUP(R) MANAGEMENT STRUCTURE
MTC COMMON CORPORATE INTERESTS OMS
-----------------------------------------
o Achieve Volume and Profit at or above Plan
o Continue to strengthen the Roundup(R) Brand
o Have a management structure which leverages the strengths of both
companies while working together in a constructive and harmonious way
MTC ISSUES
- - ----------
o Retain ability to manage the business should the Roundup partnership fail
o Retain control over key business decisions
o Provide global stewardship of the Roundup equity
OMS ISSUES
- - ----------
o Responsible for management of the business within the framework of approved
business plans
o Need clear reporting relationships to business unit heads for all Roundup
assigned personnel within the BU's including seconded employees
o Need clear definition of roles and responsibilities for all Roundup assigned
personnel
<PAGE> 163
ROUNDUP(R) MANAGEMENT STRUCTURE
STEERING COMMITTEE: "THE BOARD OF DIRECTORS"
o 2 from MTC, 2 from OMS
o Disputes decided by President of Monsanto Ag
GLOBAL SUPPORT TEAM (GST): "GLOBAL COORDINATION, COMMUNICATION AND STEWARDSHIP
OF ROUNDUP L&G BUSINESS"
o 3 members, all from MTC
BUSINESS UNITS (RU'S): "COUNTRY/REGION LINE MANAGEMENT"
o Business Unit Head, Marketing, Sales, Finance, Operations and Other functional
areas (including seconded MTC employees)
<PAGE> 164
[FLOW CHART DEPICTING BASIC
MANAGEMENT STRUCTURE FOR ROUNDUP(R)]
<PAGE> 165
[FLOW CHART DEPICTING DETAILED
MANAGEMENT STRUCTURE FOR ROUNDUP(R)]
<PAGE> 166
DECISION MAKING PROCESS - EXAMPLES
----------------------------------
o Advertising Creative Development
o Negative reaction to advertising
o Key Account Planning
o Key Account price exception
<PAGE> 167
EXAMPLE #1: ADVERTISING TV CREATIVE DEVELOPMENT
<TABLE>
<CAPTION>
Action Step Responsibility Approval/Dispute Resolution
<S> <C> <C>
Overall Brand Strategy developed as part of Business Plan BU Brand Team BU Mgmt
Business Plan presentation to BU Mgmt & GRST BU Brand Team GRST + BU Mgmt
Annual Business Plan preliminary approval RU Mgmt & GRST Steering Committee
Annual Business Plan - final approval Steering Committee
Brand Positioning statement developed BU Brand Team
Brand Positioning approved BU Mgmt & Global Rup Team GRST
Advertising campaign Creative Direction to Agency BU Brand Team BU Mgmt
Campaign concepts developed by Ad Agency BU Mgmt & GRST GRST
Advertising direction approval BU Brand Team BU Mgmt
Narrow campaign concepts to 2 BU Mgmt
Concept testing with consumers BU Brand Team BU Mgmt
TV story board developed BU Brand Team BU Mgmt
Final TV storyboard approved - including copy BU Mgmt & GRST GRST
TV production (talent, TV shoot, etc.) BU Brand Team BU Mgmt
Rough cuts reviewed BU Mgmt & GRST
Final TV spot approved BU Mgmt & GRST GRST
</TABLE>
<PAGE> 168
EXAMPLE #2: NEGATIVE REACTION TO TV ADVERTISING
<TABLE>
<CAPTION>
Action Step Responsibility Approval/Dispute Resolution
<S> <C> <C>
Consumers call hot-line, write MTC, contact TV station
and lodge complaints
Notification given to brand team & management 1-800 Hot-line no choice
Notification given to GRST BU Mgmt no choice
Decision to notify Steering Committee BUMgmt&GRST either can decide
Assessment by brand team of issue, magnitude BU Brand Team
Recommendation on action/inaction BU Mgmt & GRST GRST
Implement action/changes BU Brand Team
</TABLE>
<PAGE> 169
EXAMPLE #3: HOME DEPOT MDF PLANNING FOR PROSPECTIVE SEASON
<TABLE>
<CAPTION>
Action Step Responsibility Approval/Dispute Resolution
<S> <C> <C>
Overall Brand Strategy developed as part of Business Plan BU Brand Team BU Mgmt
Business Plan presentation to BU Mgmt & GRST BU Brand Team GRST/BU Msmt
Annual Business Plan preliminary approval BU Mgmt & GRST Steering Committee
Annual Business Plan - final approval Steering Committee
Key Account Strategies developed BU Key Accounts Team BU Mgmt
Home Depot approach & specific MDF plan developed Depot Account Team BUMgmt&GRST
Preliminary planning session with Home Depot Depot Account Team
Finalization session with Home Depot at Hardware Show BU Mgmt & Depot Account Team GRST
Regional marketing meetings with Depot Regional Merchants Depot Account Team
Implementation of plan Depot Account Team
</TABLE>
NOTE: KEY ACCOUNTS TEAMS INCLUDE REPRESENTATION FROM 2 MTC EMPLOYEES
<PAGE> 170
EXAMPLE #4: HOME DEPOT DEMANDS INCREMENTAL ROUNDUP PRICE REDUCTION IN-SEASON
<TABLE>
<CAPTION>
Action Step Responsibility Approval/Dispute Resolution
<S> <C> <C>
Buyer contacts BU Home Depot Account rep/team
Account rep determines request is above plan & approval level Account Team no choice
Rep contacts Sales management & BUp seconded Acct Rep Account Team
BU Account Team develops recommendation in concert with MTC Rup key accounts rep Account Team
...recommendation is within overall Annual Plan BU Mgmt
...recommendation is outside Annual Plan GRST/BU Mgmt Steering Committee
Implementation of price change/no change Account Team BU Mgmt
</TABLE>
<PAGE> 171
SCHEDULE 4.2 (a)
STEERING COMMITTEE
------------------
For the Agent:
Charles Berger
Jim Hagedorn
For Monsanto:
Arnold W. Donald
Jim Neal
<PAGE> 172
SCHEDULE 4.3
ASSIGNED EMPLOYEES
------------------
Dawn Albery, Finance
Kevin Cannon, Roundup America Brand Director
Dave Chambers, Key Accounts, U.S.
Sarah Dutton, Admin. Europe
Ralph Dymes, Key Accounts, Europe
Richard Garnett, Registration, Europe
Phil Jones, Marketing, Europe
Virginie Liardet, Brand Manager, Europe
Peter Medendorp, Key Accounts, U.S.
Open, Roundup Brand Director, Asia
Open, Key Accounts, France
Mark Pyper, Roundup Brand Director, Europe
Lynette Ross, Admin., U.S.
Daina Schmidt, Brand Manager, U.S.
Debbie Tracy, Admin., U.S.
Dennis Ward, Registration, U.S.
<PAGE> 173
SCHEDULE 4.3 (b)
ASSIGNED EMPLOYEE FUNCTIONS
---------------------------
- - - Deliver Monsanto budgeted and LRP levels of financial performance for
the business including:
o gross and net sales net income
o net income
o CODB
o COGS
o MAT
o Capital Employed
o Cash Flow
- - - Participate in development of strategic business plans including the
annual business plan and long range strategic plans.
- - - Provide Roundup brand stewardship and oversight to protect and build
the value of the brand in all markets and for all products.
- - - Participate in all brand advertising and creative development efforts
and promotions to ensure executions that are aligned with financial
objectives and brand stewardship interests.
- - - Ensure measurement of key consumer brand metrics to monitor the health
and growth of the brand.
- - - Monitor AG, industrial and L&G market activities and pricing moves on
Roundup to ensure maximum profitability for the overall Roundup
franchise.
- - - Direct all brand innovation efforts consistent with business plan
objectives and financial targets.
- - - Provide sales leadership and focus for Roundup. Facilitate achievement
of account goals through joint/Scotts sales people and distribution.
- - - Maintain key account relationships to secure leverage and support for
Roundup.
- - - Leverage trade marketing and category management initiatives to secure
Roundup's lead position in the weed control market.
- - - Provide global priority and focus to the Scotts business units for
Roundup interests.
- - - Maintain critical leverage across the business management process to
ensure development and growth of Monsanto's Roundup L&G business
interests.
- - - Maintain involvement in analysis of competitive activity and play an
integral role in addressing competitive pressures and future threats.
- - - Coordinate SKU forecasts for production/deployment and financial
purposes.
- - - Provide regulatory interface with MTC to ensure proper regulatory
support for products.
<PAGE> 174
THE SCOTTS COMPANY
ORTHO BUSINESS GROUP
BRAND MANAGER MAJOR RESPONSIBILITIES
FEBRUARY 1999
As the primary champion of a Brand, the Brand Manager's overarching
responsibility is to optimize its short and long term volume and profit
performance. Brand Managers have the authority and responsibility to interact
with and manager every function in the Corporation to the extent they are
required to deliver against this overarching goal. The Brand Manager's major
responsibilities include:
o Develop and manage business plans to exceed Brand annual plan volume and
profit goals
- Recommend Brand annual plans
- Perform ongoing review of Brand business to confirm appropriateness of
selected strategy and plans. Recommend and alter as appropriate to
deliver against Company volume and profit commitments
- Develop overall Brand marketing plans including advertising, strategy,
advertising creative, media, public relations, consumer promotion,
trade promotion, and merchandising
- Recommend and manage market research studies that can result in higher
sales through improved consumer and customer understanding
- Identify and implement cost savings opportunities that improve
profitability without sacrificing Brand performance
o Manage major Brand product development projects
- Identify and evaluate opportunities and formulate plans to address them
- Inspire all functions involved in projects to outstanding levels of
performance
- Recommend, conduct and analyze appropriate research to guide the
process
o Ensure all managed marketing plans are executed with excellence through
Sales and all other functional groups
- Inspire Sales through development and presentation of compelling
selling tools
- Communicate with Sales continually to ensure plan success
- Work to ensure smooth transition of improved products or packages to
distribution channels
o Train subordinates to allow them to achieve their full potential as
business managers
- Develop and implement training plans, continuous feedback and formal
evaluation
- Foster an environment that supports high performance, job and Company
commitment and fun
- Manage and administer subordinate compensation consistent with Company
policy
o Make contributions to Brand, Department and Company to improve overall
performance
- Contribute to the recruiting process as appropriate
- Mentor high potential employees
- Develop and present marketing training programs as appropriate
- Recommend and implement new processes or systems to smooth work process
<PAGE> 175
THE SCOTTS COMPANY
ORTHO BUSINESS GROUP
DIRECTOR OF MARKETING MAJOR RESPONSIBILITIES
FEBRUARY 1999
A Director of Marketing at Scotts is the primary champion of a major brand or
brands for the Company. In this role, the Director of Marketing is responsible
for the short and long-term volume and profit performance of these brands and,
in particular, for the health of the categories they compete in. The Directory
of Marketing's major responsibilities include the following:
o Develop annual business plans for managed Brands to surpass budgeted
volume and profit goals
- Business Review
- Product Line Review
- Annual Business Plan
o Manage the strategic planning process to ensure the long-term health of
the Brands
- SWOT Analysis
- Identification of key success factors
- Long Term Strategic Plan
o Aggressively manage the growth of relevant category (ies) and ensure that
Brands take a disproportionate share of that growth.
- Ensure that category (ies) grow at a rate in excess of base population
growth
- Recommend category business building initiatives and test or expand
them aggressively as appropriate
o Ensure all Brands business plans are executed with excellence through
Sales and other functional groups
- Work closely with Sales Management to ensure strategic alignment
- Collaborate with appropriate Innovation Team members to manage
executional consistency to base Brands plans
o Train subordinates to allow them to achieve their full potential as
business managers
- Develop and execute training plans, continuous feedback and formal
evaluation
- Create an atmosphere that fosters high performance, job and Company
commitment and fun on the job
- Manage and administer subordinate compensation consistent with
Corporate policies
o Make contributions to Department and Company to improve overall
performance
- Develop and present relevant training programs for Marketing
and other functions
- Create and refine Business processes to ensure excellent execution of
plans
<PAGE> 176
SCHEDULE 4.4 (a)
GLOBAL SUPPORT TEAM
-------------------
Jim Neal, Leader
Danna McKay, Transition
Dawn Albery, Finance
<PAGE> 1
Exhibit 21
----------
Subsidiaries of the Registrant
<PAGE> 2
Exhibit 21
----------
SUBSIDIARIES OF REGISTRANT
*EG Systems, Inc., dba Scotts Lawn Service, an Indiana corporation
Hyponex Corporation, a Delaware corporation
EarthGro, Inc., a Connecticut corporation
OMS Investments, Inc., a Delaware corporation
Old Fort Financial Corp., a Delaware corporation
Republic Tool & Manufacturing Corp., a Delaware corporation
*Sanford Scientific, Inc., a New York corporation
Scotts Miracle-Gro Products, Inc., a New York corporation
Miracle-Gro Lawn Products, Inc., a New York corporation
Miracle-Gro Products Ltd., a New York corporation
Scotts Products Co., an Ohio corporation
Scotts Professional Products Co., an Ohio corporation
Scotts-Sierra Horticultural Products Company, a California corporation
Scotts-Sierra Crop Protection Company, a California corporation
Scotts-Sierra Investments, Inc., a Delaware corporation
ASEF Holding BV (Netherlands)
ASEF BV (Netherlands
Scotts Asef BVBA (Belgium)
Scotts Australia Pty Ltd. (Australia)
Scotts Canada Ltd. (Canada)
Scotts de Mexico SA de CV (Mexico)
Scotts France Holdings SARL (France)
Scotts France SARL (France)
**Scotts France SAS (France)
Scotts Holding GmbH (Germany)
Scotts Celaflor HG (Austria)
Scotts Celaflor GmbH & Co. KG (Germany)
Scotts Holdings Limited (United Kingdom)
Levington Group Ltd. (United Kingdom)
Levington Trustees LTD (United Kingdom)
Murphy Home and Garden Ltd. (United Kingdom)
The Scotts Company (UK) LTD (United Kingdom)
The Scotts Company (Manufacturing) Ltd.
(United Kingdom)
O M Scott International Investments LTD (United Kingdom)
Levington Horticulture LTD (United Kingdom)
Miracle Holdings LTD (United Kingdom)
Miracle Garden Care Limited (United
Kingdom)
<PAGE> 3
O. M. Scott & Sons LTD (United Kingdom)
Phostrogen Limited (United Kingdom)
Scotts Europe B.V. (Netherlands)
Scotts Belgium BVBA (Belgium)
Scotts Deutschland GmbH (Germany)
Scotts OM Espana S.A. (Spain)
Scotts Italia SRL (Italy)
Scotts Horticulture Ltd. (Ireland)
The Scotts Co. Kenya Limited (Kenya)
Scotts Poland Sp.z.o.o. (Poland)
Scotts Switzerland SARL (Switzerland)
Swiss Farms Products, Inc., a Delaware corporation
------------------
*Not wholly-owned
**Scotts France SARL owns remaining .1% of Scotts France SAS
<PAGE> 1
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-47073, 33-60056, 333-00021, 333-06061,
333-27561, 333-72715, and 333-76697) and the Registration Statement on Form S-4
(File No. 333-76739) of The Scotts Company of our reports dated October 21, 1999
relating to the financial statements and financial statement schedules, which
appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
December 22, 1999
<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 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> SEP-30-1998
<PERIOD-END> SEP-30-1999
<CASH> 30,300,000
<SECURITIES> 0
<RECEIVABLES> 217,800,000
<ALLOWANCES> (16,400,000)
<INVENTORY> 313,200,000
<CURRENT-ASSETS> 641,700,000
<PP&E> 422,000,000
<DEPRECIATION> (162,600,000)
<TOTAL-ASSETS> 1,769,600,000
<CURRENT-LIABILITIES> 366,900,000
<BONDS> 0
0
173,900,000
<COMMON> 200,000
<OTHER-SE> 269,200,000
<TOTAL-LIABILITY-AND-EQUITY> 1,769,600,000
<SALES> 1,648,300,000
<TOTAL-REVENUES> 1,678,600,000
<CGS> 989,100,000
<TOTAL-COSTS> 1,486,100,000
<OTHER-EXPENSES> (3,600,000)
<LOSS-PROVISION> 3,600,000
<INTEREST-EXPENSE> 79,100,000
<INCOME-PRETAX> 117,100,000
<INCOME-TAX> 47,900,000
<INCOME-CONTINUING> 69,100,000
<DISCONTINUED> 0
<EXTRAORDINARY> 5,900,000
<CHANGES> 0
<NET-INCOME> 63,200,000
<EPS-BASIC> 2.93
<EPS-DILUTED> 2.08
</TABLE>
