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PROSPECTUS Filed pursuant to Rule 424(b)(3)
Registration No. 333-76739
[THE SCOTTS COMPANY LOGO]
$330,000,000
THE SCOTTS COMPANY
OFFER TO EXCHANGE ITS
8.625% SENIOR SUBORDINATED NOTES
DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933,
FOR AN EQUAL PRINCIPAL AMOUNT OF ITS
8.625% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE NOT BEEN REGISTERED
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DIFFERENCES IN TERMS OF THE NOTES: The new notes and the original notes are identical, except
that the original notes contained transfer restrictions
and registration rights that the new notes do not contain.
PROCEDURE FOR EXCHANGING NOTES: To exchange your notes, you must complete the accompanying
letter of transmittal and mail it and your original notes
to our exchange agent, as described in the letter of
transmittal.
DEADLINE: Unless we extend the exchange offer, it will expire at
5:00 p.m., New York City time, on January 19, 2001.
WITHDRAWAL RIGHTS: Notes delivered for exchange may be withdrawn at any time
prior to 5:00 p.m., New York City time, on January 19,
2001.
MARKET FOR THE NOTES: The notes are expected to trade in the Private Offerings,
Resales, and Trading through Automatic Linkages Market.
EXPENSES: We will pay all expenses of the exchange offer.
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INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
9.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
December 12, 2000
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. SCOTTS IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Ratio of Earnings to Fixed Charges.......................... 15
Use of Proceeds............................................. 15
Capitalization.............................................. 16
Selected Consolidated Financial Data........................ 17
The Exchange Offer.......................................... 18
Description of Notes........................................ 27
United States Federal Tax Considerations.................... 50
Legal Matters............................................... 50
Independent Auditors........................................ 50
Where You Can Find More Information......................... 50
Disclosure Regarding Forward-Looking Statements............. 51
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PROSPECTUS SUMMARY
ABOUT OUR COMPANY
We are among the most widely recognized marketers and manufacturers of
products for lawns, gardens, professional turf and horticulture. We believe that
our market leadership is driven by our leading brands, consumer-focused
marketing, product performance and extensive relationships with major national
retailers. Our portfolio of consumer brands that we believe hold a top one or
two leading U.S. market share position in their market includes the following:
- SCOTTS(R)
- MIRACLE-GRO(R)
- ORTHO(R)
- ROUNDUP(R), which is a registered trademark of Monsanto Company. We
market and distribute consumer Roundup(R) products for Monsanto.
- HYPONEX(R)
Our portfolio of European Union brands includes the following:
- MIRACLE-GRO(R), WEEDOL(R), LEVINGTON(R), KB(R), FERTILIGENE(R),
CELAFLOR(R) AND NEXA-LOTTE(R)
THE ISSUANCE OF THE ORIGINAL NOTES
The original notes were issued and sold on January 21, 1999, in a
transaction not registered under the Securities Act in reliance upon an
exemption from registration. The initial purchaser of the original notes was
Salomon Smith Barney Inc. Salomon Smith Barney subsequently resold the original
notes under Rule 144A and Regulation S under the Securities Act. In connection
with the issuance of the original notes, we entered into a registration rights
agreement with Salomon Smith Barney which provides the holders of the notes with
registration and exchange rights. The exchange offer is intended to satisfy our
obligations under the registration rights agreement.
The original notes are represented by two, permanent global notes which are
registered in the name of a nominee of The Depositary Trust Company.
Participants in the DTC system who have accounts with DTC hold interests in the
global notes in book-entry form. Accordingly, ownership of beneficial interests
in the original notes is limited to DTC participants or persons who hold their
interests through DTC participants.
THE EXCHANGE OFFER
THE EXCHANGE OFFER......... We are offering to exchange up to $330 million in
principal amount of notes which have been
registered under the Securities Act for a like
principal amount of original notes which were
issued without registration.
EXPIRATION DATE............ This exchange offer will expire at 5:00 p.m., New
York City time, on January 19, 2001. If we choose
to extend the exchange offer, the expiration date
will be the latest date and time to which it is
extended.
PROCEDURES FOR EXCHANGING
NOTES...................... If you want to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal and deliver it, together with the
original notes and any other required
documentation, to the exchange agent before the
expiration date. THE LETTER OF TRANSMITTAL INCLUDES
DETAILED INSTRUCTIONS FOR ITS COMPLETION, EXECUTION
AND DELIVERY WHICH MUST BE FOLLOWED METICULOUSLY.
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SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If your original notes are registered in the name
of a broker, dealer, commercial bank, trust company
or other nominee and you wish to exchange your
notes, you should contact the registered holder
promptly and instruct it to exchange the notes on
your behalf.
GUARANTEED DELIVERY
PROCEDURES................. If you cannot deliver the original notes, the
letter of transmittal or any other documents
required by the letter of transmittal to the
exchange agent prior to the expiration date, and
you cannot comply with the procedures for
book-entry transfer, you must follow the guaranteed
delivery procedures. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Notes delivered for exchange may be withdrawn at
any time prior to 5:00 p.m., New York City time, on
the expiration date.
ACCEPTANCE OF ORIGINAL
NOTES AND DELIVERY OF NEW
NOTES.................... We will accept for exchange any original notes that
are properly delivered prior to 5:00 p.m., New York
City time, on the expiration date. We will deliver
new notes promptly following the expiration date.
CONSEQUENCES OF FAILURE TO
EXCHANGE................. If you are eligible to participate in the exchange
offer but do not exchange your original notes, you
will not have any exchange rights following the
closing of this exchange offer. Your original notes
will remain restricted securities and may be resold
only:
- to Scotts;
- to a qualified institutional buyer under Rule
144A or Rule 144 under the Securities Act;
- in an offshore transaction under Rule 903 or Rule
904 of Regulation S under the Securities Act;
- to an institutional accredited investor;
- in a transaction otherwise exempt from
registration under the Securities Act; or
- pursuant to an effective registration statement
under the Securities Act.
RESALE OF THE NOTES........ Based on interpretations by the staff of the
Commission in no-action letters to third parties,
we believe that the notes to be issued in exchange
for original notes may be offered for resale and
may be resold or otherwise transferred without
restriction, except as follows:
- a broker-dealer who purchased original notes
directly from Scotts for resale under Rule 144A
or another exemption under the Securities Act
must comply with the registration and prospectus
delivery provisions of the Securities Act; and
- a person that is an "affiliate" of Scotts within
the meaning of Rule 405 under the Securities Act,
must sell under Rule 144 or another exemption
under the Securities Act.
If a broker-dealer or affiliate transfers notes in
violation of the prospectus delivery provisions of
the Securities Act or without an
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exemption from registration, it may incur liability
under the Securities Act. We do not indemnify
holders of notes against liability under the
Securities Act.
Each broker-dealer that is issued notes in the
exchange offer for its own account in exchange for
notes which were acquired by the broker-dealer as a
result of market-making or other trading
activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of the
notes issued in the exchange offer. We have agreed
that a broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of the
notes issued to it in the exchange offer.
All resales of notes must be made in compliance
with applicable state securities or "blue sky"
laws. We assume no responsibility for your
compliance with these requirements. We are not
making the exchange offer to, and will not accept
surrenders for exchange from, holders of original
notes in any jurisdiction in which the exchange
offer or the acceptance of the exchange offer would
not be in compliance with the applicable securities
or "blue sky" laws.
We will require that each holder who wants to
participate in the exchange offer represent to
Scotts in the letter of transmittal that the holder
is acquiring the notes to be issued in the exchange
offer in the ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the notes to be issued in the
exchange offer. If a holder inaccurately makes
these representations and transfers notes in
violation of the prospectus delivery provisions of
the Securities Act and without an exemption from
registration, the holder may incur liability under
the Securities Act. Scotts does not assume or
indemnify holders of notes issued in the exchange
offer against liability under the Securities Act,
although, if the representations are true, Scotts
does not believe that any liability should exist.
If you are unable to participate in the exchange
offer because of applicable law, the Commission's
policies or your status as an affiliate of Scotts
or as a broker-dealer who acquired notes directly
from us or one of our affiliates, we have agreed to
file another registration statement with the
Commission. This second registration statement
would cover periodic resales of the original,
unregistered notes by the holders who are unable to
participate in the exchange offer.
CONDITIONS OF THE EXCHANGE
OFFER.................... If we determine that applicable federal law or the
Commission's staff interpretations do not permit
the exchange offer, we may terminate the exchange
offer.
The exchange offer is not conditioned upon the
tender of any minimum principal amount of original
notes.
To accept the exchange offer, you must represent to
us in writing that you are acquiring the notes
being issued in the ordinary course of business and
that you are not participating in, and have no
arrangement or understanding with any person to
participate in, the distribution of the notes.
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FEDERAL INCOME TAX
CONSEQUENCES............. The exchange of notes will generally not be a
taxable event for U.S. federal income tax purposes.
EXCHANGE AGENT............. State Street Bank and Trust Company
NOTES ISSUED IN EXCHANGE OFFER
The terms of the notes to be issued in the exchange offer will be
substantially identical to those of the original notes except that they will be
registered under the Securities Act and will not bear legends restricting
transfer. The registration rights agreement will not apply to the new notes. The
new notes will evidence the same debt as the original notes and both series of
notes will be entitled to the benefits of the indenture and treated as a single
class of debt securities.
TOTAL AMOUNT OF NOTES
OFFERED.................. $330 million in principal amount of 8.625% Senior
Subordinated Notes due 2009 registered under the
Securities Act.
MATURITY................... January 15, 2009.
INTEREST................... Annual fixed rate -- 8.625%. Payment frequency
-- every six months on January 15 and July 15.
First payment -- July 15, 1999.
SUBSIDIARY GUARANTORS...... Each subsidiary guarantor is a wholly owned
domestic subsidiary of Scotts. Scotts' foreign
subsidiaries are not subsidiary guarantors of the
notes. If Scotts cannot make payments on the notes
when they are due, the subsidiary guarantors must
make them instead.
RANKING.................... The notes and the subsidiary guarantees are
unsecured senior subordinated debts. They rank
behind all of Scotts' and its subsidiary
guarantors' current and future indebtedness, except
trade payables and indebtedness that expressly
provides that it is not senior to the notes and the
subsidiary guarantees.
As of April 1, 2000, the notes and the subsidiary
guarantees were subordinated to $830.9 million of
senior debt. In addition, the subsidiary guarantees
will be effectively subordinated to any current
operating liabilities of the non-guarantor
subsidiaries, because the creditors of any
non-guarantor subsidiary will be entitled to the
assets of that subsidiary in payment for the
current operating liabilities before the assets can
be used to repay any indebtedness of Scotts. As of
April 1, 2000, the non-guarantor subsidiaries had
current operating liabilities of $162.5 million.
OPTIONAL REDEMPTION........ On or after January 15, 2004, Scotts may redeem
some or all of the notes at any time at the
redemption prices listed in the "Description of
Notes" section under the heading "Optional
Redemption."
Before January 15, 2002, Scotts may redeem up to
35% of the notes with the proceeds of one or more
public equity offerings of Scotts' common shares at
the price listed in the "Description of Notes"
section under the heading "Optional Redemption."
MANDATORY OFFER TO
REPURCHASE............... If Scotts sells a significant amount of assets or
experiences specific kinds of changes of control,
it must offer to repurchase the notes at the prices
listed in the "Description of Notes" section under
the heading "Redemption at the Option of Holders."
BASIC COVENANTS OF
INDENTURE................ Scotts will issue the notes under an indenture with
State Street Bank and Trust Company, as trustee.
The indenture restricts Scotts' ability and the
ability of its subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
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- make investments;
- use assets as security in other transactions; and
- sell a significant amount of assets or merge with
or into other companies.
For more details, see the "Description of Notes"
section under the heading "Covenants."
RISK FACTORS............... See "Risk Factors" beginning on page 9 for a
discussion of factors that you should carefully
consider. In particular, we note the following
risks:
- Our substantial indebtedness could adversely
affect our financial health and prevent us from
fulfilling our obligations under the notes.
- Your right to receive payments on the notes is
junior to our existing indebtedness and,
possibly, all of our future borrowings.
- We might not be able to integrate our recent
acquisitions into our business operations
successfully.
- 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.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN MILLIONS)
We have derived the historical financial data included in the following
summary financial data from our audited and unaudited consolidated financial
statements which are incorporated by reference. You should read the following
information in conjunction with our consolidated financial statements and the
related notes and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all of which we are
incorporating in this prospectus.
We have restated our financial statements as of and for the nine months
ended July 1, 2000. In connection with the Agency Agreement with Monsanto
Company (now Pharmacia Corporation) for consumer Roundup products we were
required to pay a marketing fee of $32 million. The earnings originally reported
for the nine months ended July 1, 2000 reflected amortization of the marketing
fee over a period of 20 years. However, we believe that it is unlikely that this
agreement will continue beyond ten years. Accordingly, the financial statements
as of and for the nine months ended July 1, 2000 have been restated to correct
for the error in the amortization period and now reflect amortization of the
marketing fee over a period of ten years. A more detailed discussion of the
restatement and the Roundup agreement is presented in Notes 2 and 3 to our
fiscal 2000 Quarterly Reports on Form 10-Q/A.
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NINE MONTHS ENDED
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YEAR ENDED SEPTEMBER 30, JULY 1,
---------------------------- JULY 3, 2000
1997 1998 1999 1999 (RESTATED)
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OPERATING DATA:
Sales.................................................. $899.3 $1,113.0 $1,648.3 $1,402.2 $1,510.6
Cost of sales.......................................... 573.6 715.0 989.1 832.1 881.4
------ -------- -------- -------- --------
Gross profit........................................... 325.7 398.0 659.2 570.1 629.2
Gross commission earned from agency agreement.......... -- -- 28.7 27.5 26.1
Contribution expenses under agency agreement........... -- -- -- 1.2 7.7
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Net commission earned from agency agreement............ -- -- 28.7 26.3 18.4
Advertising and promotion.............................. 83.9 104.4 189.0 166.6 186.8
Selling, general & administrative...................... 131.6 169.9 281.2 209.6 229.8
Amortization of goodwill and other intangibles......... 10.2 12.9 23.8 17.3 19.4
Restructuring and other charges........................ -- 15.4 1.4 1.4 --
Other expense (income), net............................ 5.2 1.3 (3.6) (3.8) (0.8)
------ -------- -------- -------- --------
Income from operations................................. 94.8 94.1 196.1 205.3 212.4
Interest expense....................................... 25.2 32.2 79.1 59.0 74.4
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Income before income taxes............................. 69.6 61.9 117.0 146.3 138.0
Income taxes........................................... 30.1 24.9 47.9 60.0 52.6
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Income before extraordinary item....................... 39.5 37.0 69.1 86.3 85.4
Extraordinary loss on early extinguishment of debt, net
of income tax benefit................................ -- 0.7 5.9 5.8 --
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Net income............................................. 39.5 36.3 63.2 80.5 85.4
Preferred stock dividends.............................. 9.8 9.8 9.7 7.3 6.4
------ -------- -------- -------- --------
Income applicable to common shareholders............... $ 29.7 $ 26.5 $ 53.5 $ 73.2 $ 79.0
====== ======== ======== ======== ========
PER SHARE DATA:
Basic earnings per common share before extraordinary
items................................................ $ 1.60 $ 1.46 $ 3.25 $ 4.32 $ 2.83
Basic earnings per common share........................ $ 1.60 $ 1.42 $ 2.93 $ 4.00 $ 2.83
Diluted earnings per common share before extraordinary
items................................................ $ 1.35 $ 1.22 $ 2.27 $ 2.83 $ 2.66
Diluted earnings per common share...................... $ 1.35 $ 1.20 $ 2.08 $ 2.64 $ 2.66
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AS OF JULY 1, 2000
(RESTATED)
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BALANCE SHEET DATA:
Working capital............................................. $ 290.0
Total assets................................................ 1,895.1
Total debt.................................................. 886.2
Total shareholders' equity.................................. 494.6
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RISK FACTORS
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
The following table shows our outstanding indebtedness as of July 1, 2000
(dollars in millions):
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AT JULY 1, 2000
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(RESTATED)
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Total debt.................................................. $ 886.2
Shareholders' equity........................................ 494.6
Debt to equity ratio........................................ 1.79:1
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This substantial amount of indebtedness could have important consequences
to you. For example, it could:
- make it more difficult for us to satisfy our obligations under the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
- require us to dedicate a substantial portion of our cash 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, the 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 indebtness in full if it were
accelerated.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture do not fully prohibit us from doing so. Our credit
facility permits additional borrowings of up to $1.025 billion. All of those
borrowings would be senior to the notes and the subsidiary guarantees. If new
debt is added to our current debt levels, the related risks that we now face
could intensify.
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,
including the notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to some extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations or that currently anticipated cost savings and operating
improvements will be realized on schedule or at all. We also cannot assure you
that future borrowings will be available to us under our credit facility in
amounts sufficient to enable us to pay our indebtedness, including the notes, or
to fund our other liquidity needs. We may need to refinance all or a portion of
our indebtedness, including the notes, on or before maturity. We cannot assure
you that we will be able to refinance any of our indebtedness on commercially
reasonable terms or at all.
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YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND, POSSIBLY, ALL OF OUR FUTURE BORROWINGS.
The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness and all of our and their future
borrowings, except:
- trade payables; and
- any future indebtedness that expressly provides that it ranks equal with,
or is subordinated in right of payment to, the notes and the subsidiary
guarantees.
As a result, upon any distribution to our creditors or the creditors of the
subsidiary guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding, the holders of senior debt will be entitled to be paid in full in
cash before any payment may be made on the notes or the subsidiary guarantees.
In addition, all payments on the notes and the subsidiary guarantees will
be blocked in the event of a payment default on senior debt and may be blocked
for up to 179 of 360 consecutive days in the event of uncured non-payment
defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to Scotts or the subsidiary guarantors, holders of the notes
will participate with trade creditors and all other holders of subordinated
indebtedness in the assets remaining after we have paid all of the senior debt.
Because the indenture requires that amounts otherwise payable to holders of the
notes in a bankruptcy or similar proceeding be paid to holders of senior debt
holders of the notes may receive less, ratably, than holders of trade payables
in any bankruptcy or similar proceeding. In any of these cases, we and the
subsidiary guarantors may not have sufficient funds to pay all of our creditors
and holders of notes may receive less, ratably, than the holders of senior debt.
As of July 1, 2000, the notes and the subsidiary guarantees were
subordinated to $510.0 million of senior debt, and approximately $460.8 million
was available for borrowing as additional senior debt under our credit facility.
We will be permitted to borrow substantial additional indebtedness, including
senior debt, in the future under the terms of the indenture. In addition, the
notes and the subsidiary guarantees will be effectively subordinated to the
current operating liabilities, including trade payables, of all of our
subsidiaries that are not subsidiary guarantors. See note 22 to our consolidated
financial statements, which are incorporated by reference in this prospectus.
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 integrate effectively 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 these 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, The 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
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shipments, fees, merchandise condition or related matters. Our inability to
collect accounts receivable from any of these customers could also have a
material adverse effect.
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 end
user consumers, as opposed to retailers or distributors, in that region decline:
- over a cumulative three 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 in 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.
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 which 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. For fiscal 1999, our commission
under the Roundup marketing agreement constituted approximately 26% of our
income before income taxes.
Our methylene-urea product composition patent, which covers Scotts Turf
Builder(R), Scotts Turf Builder(R) 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. For fiscal
1999, sales of products utilizing our methylene-urea product composition patent
accounted for approximately 18% of our total sales.
THE INTERESTS OF THE FORMER MIRACLE-GRO SHAREHOLDERS COULD CONFLICT WITH THOSE
OF OUR OTHER SHAREHOLDERS OR THE HOLDERS OF THE NOTES.
The former shareholders of Stern's Miracle-Gro Products, Inc., through the
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 or the holders
of the notes.
OUR HISTORICAL SEASONALITY COULD IMPAIR OUR ABILITY TO MAKE INTEREST PAYMENTS ON
THE NOTES.
Because our products are used primarily in the spring and summer, our
business is highly seasonal. For the past two fiscal years, approximately 70% to
75% of our sales have occurred in the combined second and third fiscal quarters.
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 and
revenues are insufficient to cover payments due on the notes at a time
11
<PAGE> 12
when we are unable to draw on our credit facility, it could adversely affect our
ability to make interest payments as required by the notes. Adverse weather
conditions could heighten this risk.
ADVERSE WEATHER CONDITIONS COULD ADVERSELY IMPACT OUR FINANCIAL RESULTS.
Weather conditions in North America and Europe have a significant impact on
the timing of sales in the spring selling season and overall annual sales.
Periods of wet weather can slow fertilizer sales, while periods of dry, hot
weather can decrease pesticide sales. In addition, an abnormally cold spring
throughout North America and/or Europe could adversely affect both fertilizer
and pesticides sales and, therefore, our financial results.
PUBLIC PERCEPTIONS THAT THE PRODUCTS WE PRODUCE AND MARKET ARE NOT SAFE COULD
SIGNIFICANTLY REDUCE OUR SALES.
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 by reducing
our sales.
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 U.S. Environmental Protection Agency and,
in many cases, with 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
our competitors were similarly affected. We attempt to anticipate regulatory
developments and maintain registrations of, and access to, substitute chemicals.
We may not always be able to avoid or minimize these risks.
The Food Quality Protection Act, enacted by the U.S. Congress in August
1996, establishes a standard for food-use pesticides, which is that a reasonable
certainty of no harm will result from the cumulative effect of pesticide
exposures. Under this act, the U.S. 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 severity of the
effect of the U.S. Environmental Protection Agency's evaluation.
Regulations regarding the use of some pesticide and fertilizer products may
include requirements that only certified or professional users may apply the
products 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 applicable regulations and obtain all
necessary registrations, we cannot be sure that our products, particularly
pesticide products, will not cause injury to the environment or to people under
all circumstances. The costs of compliance, remediation or products liability
have adversely affected our operating results in the past and could materially
affect our future quarterly or annual operating results.
The harvesting of peat for our organics 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 residual 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 July 1990, we have been involved in litigation with the Philadelphia
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<PAGE> 13
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 injunction against harvesting and civil penalties in an
unspecified amount. While we are unable to predict the outcome of the
negotiations on this matter, we have accrued for our estimate of the probable
loss. If the ultimate settlement of this proceeding differs significantly from
the amount we have accrued, it could materially impact our results of
operations, financial position or cash flows.
In addition to the regulations already described, local, state, federal and
foreign agencies regulate the disposal, handling and storage of waste and 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 potential 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. While we are currently unable to predict the ultimate outcome of this
matter, as of September 30, 1999, we estimate that the range of possible loss
that could be incurred in connection with this matter is $2 million to $10
million.
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. We anticipate 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 capital expenditures and other
environmental expenses, it could adversely affect our financial results.
OUR SIGNIFICANT INTERNATIONAL OPERATIONS MAKE US MORE SUSCEPTIBLE TO
FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND TO THE COSTS OF INTERNATIONAL
REGULATION.
We currently operate manufacturing, sales and service facilities outside of
North America, particularly in the United Kingdom, Germany and France. Our
international operations have increased with the acquisitions of Levington,
Miracle Garden, 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 exposed 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.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED IF ANY
OF OUR NON-GUARANTOR SUBSIDIARIES DECLARES BANKRUPTCY, LIQUIDATES OR
REORGANIZES.
Some but not all of our subsidiaries will guarantee the notes. In the event
of a bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for distribution to us. The
non-guarantor subsidiaries generated approximately 24.6% of our consolidated
revenues in the year ended September 30, 1999 and held approximately 29.7% of
our consolidated assets as of September 30, 1999.
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<PAGE> 14
WE COULD EXPERIENCE DIFFICULTIES WITH OUR IMPLEMENTATION OF SAP SOFTWARE FOR
ENTERPRISE RESOURCE PLANNING THAT COULD ADVERSELY AFFECT OUR OPERATIONS.
Our implementation of SAP software for enterprise resource planning is in
progress and is currently being utilized to provide information to three of our
business groups. While the implementation has not created business interruption
to this point, there can be no assurance that we will not experience
difficulties in the remainder of the implementation process over the next
several years.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of specific kinds of change of control events, we will
be required to offer to repurchase all outstanding notes. It is possible that we
will not have sufficient funds at the time of the change of control to make the
required repurchase of notes or that restrictions in our credit facility will
not allow repurchases. In addition, important corporate events, including
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a "Change of Control" under the indenture. Therefore, if an
event occurs that does not constitute a "Change of Control," we will not be
required to make a repurchase offer, and you may be required to continue to hold
your notes despite the event. See "Description of Notes -- Repurchase at the
Option of Holders."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE NOTES AND THE GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED
FROM SCOTTS OR THE SUBSIDIARY GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the notes and the subsidiary guarantees could be
voided. Alternatively, claims in respect of the notes or the subsidiary
guarantees could be subordinated to all other debts of Scotts or any subsidiary
guarantor. Either of these events could occur if Scotts or the subsidiary
guarantor, at the time it incurred the indebtedness evidenced by the notes or
its subsidiary guarantee received less than reasonably equivalent value or fair
consideration for the incurrence of the indebtedness, and:
- was insolvent or rendered insolvent by reason of the incurrence of the
indebtedness; or
- was engaged in a business or transaction for which Scotts' or the
subsidiary guarantor's remaining assets constituted unreasonably small
capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as they mature.
In addition, any payment by Scotts or any subsidiary guarantor under the
notes or a subsidiary guarantee could be voided and required to be returned to
Scotts or the subsidiary guarantor, or to a fund for the benefit of the
creditors of Scotts or the subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, Scotts or a subsidiary
guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair salable value of all of its assets; or
- if the present fair salable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
The notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. We understand that Salomon
Smith Barney is currently making a market in the original notes. However, they
may cease their market-making at any time. In addition, the liquidity of the
trading
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<PAGE> 15
market in the notes, and the market price quoted for the notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you cannot be sure that an
active trading market will develop for the notes.
RECENT DEVELOPMENTS
SALE OF NORTH AMERICAN PROFESSIONAL TURF BUSINESS
On May 31, 2000, Scotts sold its North American Professional Turf business
to The Andersons, Inc. and The Nu-Gro Corporation. The transaction resulted in a
gain of approximately $4.6 million in fiscal 2000.
In connection with the transaction, Scotts will retain the professional
horticulture and the turf seed segments of its North American Professional
Business Group. In addition to their ongoing value, these segments are
strategically important to Scotts' efforts to create and market value-added
seeds and plants through biotechnology.
Under the Professional Turf sales agreement, The Andersons acquired the
rights in the U.S. only to the Pro-Turf(R), Contec(TM), AccuPro(TM) and other
professional turf brands and their associated distribution network and product
inventories. Nu-Gro acquired the same brands and their associated distribution
network and inventories in Canada. The Scotts(R) brand name is not part of this
transaction, other than for certain transitional uses.
The transaction also includes a supply agreement under which Scotts will
use its proprietary manufacturing processes to produce a value-added
professional turf products for The Andersons and Nu-Gro for the U.S. and Canada,
respectively.
RECALL OF ORTHO AND ROUNDUP(R) PULL 'N SPRAY PRODUCTS
In the spring of fiscal 2000, we became aware of consumer complaints
relating to the dispensing system for two pesticide products, one of which is
marketed through the agency agreement with Monsanto. Scotts has brought the
situation to the attention of the appropriate governmental regulatory agencies
and its retail partners and initiated the following courses of action:
- relabeling products currently in inventory and at retailers to enhance
instructions on the proper use of the dispensing system;
- making adjustments to the dispensing system for those products; and
- implementing voluntary return programs.
In connection with these courses of action, we have and will continue to incur a
variety of costs, including costs associated with product returns, costs to
recondition and rework existing and returned product, and write-offs of unusable
materials. Through September 30, 2000, the Company had incurred $1.8 million
associated with this effort related to Ortho Pull 'N Spray products. In
addition, costs associated with the voluntary recall effort for Roundup products
were approximately $5.8 million during fiscal 2000. Because we do not have an
ownership interest in the Roundup business, these costs were not reflected in
our financial statements for that period. Rather, since our commission earned
under the agreement is based on the earnings of the Roundup business, the
commission we earned under the Roundup(R) agency agreement was reduced by
approximately $2.9 million in fiscal 2000 for these costs.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
each of the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------ NINE MONTHS ENDED
1995 1996 1997 1998 1999 JULY 1, 2000
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..... 2.2x 1.0x 3.3x 2.6x 2.3x 2.7x
</TABLE>
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<PAGE> 16
USE OF PROCEEDS
We will not receive any proceeds from the issuance of these notes. The
gross proceeds from the offering of the original notes, together with borrowings
under our credit facility of approximately $100 million, were used:
- to fund the payment of $300.0 million to Monsanto for the Ortho
acquisition, excluding the amount of any normalized working capital
adjustment;
- to repurchase our then outstanding 9 7/8% Senior Subordinated Notes Due
2004 for $108.7 million, including tender premium and accrued interest;
and
- to pay fees and expenses of approximately $21 million in connection with
our recent acquisitions and the offering of the original notes.
CAPITALIZATION
The following table sets forth the capitalization of Scotts at July 1,
2000.
<TABLE>
<CAPTION>
AS OF
JULY 1, 2000
------------
(IN MILLIONS)
(RESTATED)
<S> <C>
Debt (including current portion):
Credit facility:
Revolving credit facility.............................. $ 38.4
Term loans............................................. 471.6
8.625% senior subordinated notes.......................... 318.9
Other debt................................................ 57.3
--------
Total debt........................................... 886.2
Shareholders' equity........................................ 494.6
--------
Total capitalization................................. $1,380.8
========
</TABLE>
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<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the historical financial data included in the following
summary financial data from our audited consolidated financial statements which
we are incorporating in this prospectus. You should read the following
information in conjunction with our consolidated financial statements and the
associated notes, and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all of which are
incorporated by reference in this prospectus.
We have restated our financial statements as of and for the nine months
ended July 1, 2000. In connection with the Agency Agreement with Monsanto
Company (now Pharmacia Corporation) for consumer Roundup products we were
required to pay a marketing fee of $32 million. The earnings originally reported
for the nine months ended July 1, 2000 reflected amortization of the marketing
fee over a period of 20 years. However, we believe that it is unlikely that this
agreement will continue beyond ten years. Accordingly, the financial statements
as of and for the nine months ended July 1, 2000 have been restated to correct
for the error in the amortization period and now reflect amortization of the
marketing fee over a period of ten years. A more detailed discussion of the
restatement and the Roundup agreement is presented in Notes 2 and 3 to our
fiscal 2000 Quarterly Reports on Form 10-Q/A.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
YEAR ENDED SEPTEMBER 30, JULY 1,
---------------------------------------------- JULY 3, 2000
1995 1996 1997 1998 1999 1999 (RESTATED)
------ ------ ------ -------- -------- -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales............................... $731.1 $750.4 $899.3 $1,113.0 $1,648.3 $1,402.2 $1,510.6
Cost of sales....................... 498.8 512.4 573.6 715.0 989.1 832.1 881.4
------ ------ ------ -------- -------- -------- --------
Gross profit...................... 232.3 238.0 325.7 398.0 659.2 570.1 629.2
Gross commission earned from agency
agreement......................... -- -- -- -- 28.7 27.5 26.1
Contribution expenses under agency
agreement......................... -- -- -- -- -- 1.2 7.7
------ ------ ------ -------- -------- -------- --------
Net commission earned from agency
agreement......................... -- -- -- -- 28.7 26.3 18.4
Advertising and promotion........... 64.5 69.2 83.9 104.4 189.0 166.6 186.8
Selling, general and
administrative.................... 105.3 116.6 131.6 169.9 281.2 209.6 229.8
Amortization of goodwill and other
intangibles....................... 6.0 8.8 10.2 12.9 23.8 17.3 19.4
Restructuring and other charges..... -- 17.7 -- 15.4 1.4 1.4 --
Other expense (income), net......... (4.4) (0.6) 5.2 1.3 (3.6) (3.8) (0.8)
------ ------ ------ -------- -------- -------- --------
Income from operations.............. 60.9 26.3 94.8 94.1 196.1 205.3 212.4
Interest expense.................... 24.6 25.0 25.2 32.2 79.1 59.0 74.4
------ ------ ------ -------- -------- -------- --------
Income before income taxes.......... 36.3 1.3 69.6 61.9 117.0 146.3 138.0
Income taxes........................ 13.9 3.8 30.1 24.9 47.9 60.0 52.6
------ ------ ------ -------- -------- -------- --------
Net income (loss) before
extraordinary
item.............................. 22.4 (2.5) 39.5 37.0 69.1 86.3 85.4
Extraordinary loss on early
extinguishment to debt, net....... -- -- -- 0.7 5.9 5.8 --
------ ------ ------ -------- -------- -------- --------
Net income (loss)................... $ 18.8 $ (2.5) $ 39.5 $ 36.3 $ 63.2 80.5 85.4
Preferred stock dividends........... $ 3.6 $ 9.8 $ 9.8 $ 9.8 $ 9.7 7.3 6.4
------ ------ ------ -------- -------- -------- --------
Income (loss) applicable to common
shareholders...................... $ 18.8 $(12.3) $ 29.7 $ 26.5 $ 53.5 $ 73.2 $ 79.0
====== ====== ====== ======== ======== ======== ========
PER SHARE DATA:
Basic earnings (loss) per common
share before extraordinary
items............................. $ 1.01 $(0.65) $ 1.60 $ 1.46 $ 3.25 $ 4.32 $ 2.83
Basic earnings (loss) per common
share............................. 1.01 (0.65) 1.60 1.42 2.93 $ 4.00 $ 2.83
Diluted earnings (loss) per common
share before extraordinary
items............................. 0.99 (0.65) 1.35 1.22 2.27 $ 2.83 $ 2.66
Diluted earnings (loss) per common
share............................. 0.99 (0.65) 1.35 1.20 2.08 $ 2.64 $ 2.66
BALANCE SHEET DATA (END OF PERIOD):
Working capital..................... $227.0 $181.1 $146.5 $ 135.3 $ 274.8 $ 301.8 $ 290.0
Total assets........................ 809.0 731.7 787.6 1,035.2 1,769.6 1,771.8 1,895.1
Total debt.......................... 272.5 225.3 221.3 372.5 950.0 896.8 886.2
Shareholders' equity................ 380.8 364.3 389.2 403.9 443.3 465.9 494.6
</TABLE>
---------------
NOTE: Prior year presentations have been changed to conform to fiscal 1999
presentation; these changes did not impact net income.
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<PAGE> 18
THE EXCHANGE OFFER
GENERAL
We are offering the holders of original notes the opportunity to exchange
their original notes for new notes.
We will use reasonable efforts to complete the exchange offer within 30
business days after the date on which the registration statement of which this
prospectus is a part is declared effective by the Commission.
RESTRICTIONS ON TRANSFER OF THE ORIGINAL NOTES
The original notes may be offered, sold or otherwise transferred only in
$500,000 minimums and only:
- to Scotts;
- under a registration statement which has been declared effective under
the Securities Act;
- for so long as they are eligible for resale under Rule 144A, to a
person the owner reasonably believes is a qualified institutional
buyer purchasing for its own account or for the account of another
qualified institutional buyer to whom notice is given that the
transfer is being made in reliance to Rule 144A;
- to a purchaser that is able to represent, and represents in writing,
that:
- it is an "accredited investor" within the meaning of subparagraph
(1), (2), (3) or (7) of paragraph (a) of Rule 501 under the
Securities Act,
- it is acquiring the notes for its own account or for the account of
another accredited investor, and
- it is acquiring the notes for investment purposes and not for
distribution in violation of the Securities Act;
- in an offshore transaction under Rule 903 or Rule 904 of Regulation S
under the Securities Act; or
- under to any other available exemption from the registration
requirements of the Securities Act.
Prior to any offer, sale or other transfer of original notes to an
accredited investor or pursuant to any other available exemption, the issuer and
the trustee under the indenture may require the delivery of an opinion of
counsel, certifications and/or other information satisfactory to each of them.
We may be required to file a second registration statement, known as a
shelf registration statement, with the Commission to cover periodic resales of
original notes in the following circumstances:
- if we are not permitted to complete the exchange offer because it is
not permitted by applicable law or Commission policy; or
- if any holder of original notes notifies us before the 20th business
day after the consummation of the exchange offer, that:
- due to a change in law or policy, the holder is not entitled to
participate in the exchange offer;
- due to a change in law or policy, the holder may not resell the
notes acquired by it in the exchange offer to the public without
delivering a prospectus and this prospectus is not appropriate or
available for a resale by the holder; or
- the holder is a broker-dealer and owns original notes acquired
directly from us or one of our affiliates.
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<PAGE> 19
If we are required to file a shelf registration statement, we will do so
within 30 days after the filing obligation arises. We will use our reasonable
best efforts to cause the shelf registration statement to be declared effective
by the Commission within 90 days after the filing obligation arises. We also
will use our reasonable best efforts to keep any shelf registration statement
continuously effective, supplemented and amended until the earlier of:
- January 21, 2001, or
- the date all notes covered by the shelf registration statement have been
sold.
TRANSFERABILITY OF NOTES RECEIVED IN THE EXCHANGE OFFER; PLAN OF DISTRIBUTION
Each holder who wishes to receive notes in the exchange offer will be
required to make the following representations:
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of Scotts;
- notes received by the holder in the exchange offer are being acquired in
the ordinary course of its business, for its own account, for investment
and not for distribution;
- the holder has no arrangement or understanding with any person to
participate in the distribution of the notes;
- if the holder is not a broker-dealer, it is not engaged, and does not
intend to engage, in the distribution of the notes;
- if the holder is a broker-dealer:
- the original notes are held by it as a nominee, or
- the original notes were acquired by it for its own account as a
result of market-making activities or other trading activities
and it will deliver a copy of this prospectus in connection with
any resale.
Based on no-action letters issued by the staff of the Commission to third
parties, if the holder can make these representations, we believe the notes
acquired in exchange for the original notes will be freely transferable, except
notes acquired by:
- broker-dealers that purchased original notes directly from Scotts to
resell under Rule 144A or any other available exemption under the
Securities Act, and
- "affiliates" of Scotts within the meaning of Rule 405 under the
Securities Act unless they comply with the registration and prospectus
delivery requirements of the Securities Act.
In the event our belief is inaccurate, holders of notes issued in the
exchange offer who transfer the notes in violation of the prospectus delivery
provisions of the Securities Act and without an exemption from registration may
incur liability under the Securities Act. We do not assume or indemnify holders
against liability under the Securities Act.
Affiliates of Scotts and broker-dealers that purchased original notes
directly from Scotts in the original offering must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the notes, unless the sale or transfer is made under an
exemption from these requirements.
The Commission has taken the position that this prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer to
fulfill its prospectus delivery requirements in connection with resales of notes
received in exchange for original notes acquired by the broker-dealer for its
own account as a result of market-making activities or other trading activities.
Therefore, we have agreed that during the period required by the Securities Act,
we will provide broker-dealers copies of this prospectus. However, the
Commission has recently proposed that its interpretations referred to above be
repealed. We
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<PAGE> 20
cannot predict whether the Commission will act on this proposal prior to the
completion of this exchange offer. If those interpretations are repealed prior
to completion of this exchange offer, these broker-dealers will not be able to
receive exchange notes in the exchange offer. Rather, as described above, we and
the guarantor subsidiaries will be required to register the original notes on a
new registration statement in connection with resales by holders of the notes.
A broker-dealer that delivers a prospectus to purchasers in connection with
resales will be subject to the civil liability provisions of the Securities Act.
In addition, it will be bound by the provisions of the registration rights
agreement, including the indemnification rights and obligations. Although a
broker-dealer may be an "underwriter" within the meaning of the Securities Act,
the letter of transmittal states that a broker-dealer will not be deemed to be
admitting it is an "underwriter" by its execution of the letter and its delivery
of a prospectus.
All resales must be made in compliance with applicable state securities or
"blue sky" laws. Compliance may require that:
- the notes issued in the exchange offer be registered or qualified in a
particular state,
- resales be made by or through a licensed broker-dealer, and/or
- the holder make representations in addition to those listed above as
required by applicable state law.
We assume no responsibility with regard to compliance with these
requirements.
CONSEQUENCES OF FAILURE TO EXCHANGE
Original notes which are not exchanged in the exchange offer and are not
included in a resale prospectus may be offered and sold only as described above
under "-- Restrictions on Transfer of the Original Notes." These restrictions
will continue until:
- the later of:
- January 21, 2001, or
- the second anniversary of the last date that Scotts or one of its
affiliates owned the note;
- the date on which an original note has been effectively registered under
the Securities Act and disposed of in accordance with a shelf
registration statement; or
- the date on which an original note is distributed to the public pursuant
to Rule 144 under the Securities Act.
We may seek to acquire untendered original notes, to the extent permitted
by applicable law, in open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. We have no present plans to acquire any
original notes that are not tendered in the exchange offer or to file a
registration statement to permit resales of any untendered original notes.
TERMS OF THE EXCHANGE OFFER
On the terms and conditions in this prospectus and in the letter of
transmittal, we will accept any and all original notes validly tendered and not
withdrawn prior to the expiration date. We will issue $1,000 principal amount of
notes in exchange for each $1,000 principal amount of original notes accepted in
the exchange offer. Holders may tender some or all of their original notes.
Original notes may be tendered only in integral multiples of $1,000 principal
amount.
The form and terms of the notes to be issued in the exchange offer are the
same as the form and terms of the original notes, except that:
- the notes to be issued in the exchange offer have been registered under
the Securities Act and, therefore, will not bear legends restricting
their transfer; and
20
<PAGE> 21
- the holders of notes issued in the exchange offer will not be entitled to
rights under the registration rights agreement, except under very limited
circumstances.
The notes to be issued in the exchange offer will evidence the same debt as
the original notes which they replace and will be issued under, and be entitled
to the benefits of, the same indenture.
Solely for reasons of administration, Scotts has fixed the close of
business on December 12, 2000, as the record date for the exchange offer for
purposes of determining the persons to whom this prospectus and the letter of
transmittal will be mailed initially. Only a registered holder of original
notes, or the holder's legal representative or attorney-in-fact, as reflected on
the records of the trustee under the indenture may participate in the exchange
offer. There will be no fixed record date for determining registered holders of
the original notes entitled to participate in the exchange offer.
Holders of the original notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Ohio or under the indenture because
of the exchange offer. Scotts intends to comply with the applicable requirements
of the Exchange Act and the rules and regulations of the Commission in
conducting the exchange offer.
Scotts will be deemed to have accepted validly tendered original notes
when, as and if it has given oral or written notice of acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
of the original notes for purposes of receiving notes in the exchange offer.
If any tendered original notes are not accepted for exchange, certificates
for any unaccepted original notes will be returned without expense to the
tendering holder as promptly as practicable after the expiration date.
Holders who tender original notes in the exchange offer will not be
required to pay brokerage commissions or fees or, except as described in the
letter of transmittal, transfer taxes. We will pay all charges and expenses,
other than applicable taxes, in connection with the exchange offer. See "-- Fees
and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The exchange offer will expire at, and the expiration date will be, 5:00
p.m., New York City time on January 19, 2001. We may extend the exchange offer,
in which case the expiration date will be the latest date and time to which it
is extended.
In order to extend the exchange offer, we must notify the exchange agent
and make a public announcement of the extension prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
We reserve the right, in our sole discretion:
- to delay accepting any original notes,
- to extend the exchange offer,
- to terminate the exchange offer if the condition described
under "-- Condition of the Exchange Offer" has not been satisfied, or
- to amend the terms of the exchange offer in any manner.
We must give oral or written notice of any delay, extension or termination
to the exchange agent. Any delay, extension, termination or amendment will be
followed as promptly as practicable by a public announcement. We do not have an
obligation to publish, advertise or otherwise communicate a delay, extension,
termination or amendment, other than by making a timely release to the Dow Jones
News Service. If, however, we determine that any amendment constitutes a
material change, we will promptly file a post-effective amendment with the
Commission and distribute a prospectus to the registered holders of the original
notes describing the amendment. If the exchange offer is scheduled to expire
during the five to ten business
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day period following a material amendment, it will be extended for a period of
five to ten business days, as required by law, depending on the significance of
the amendment and the manner of disclosure to the registered holders.
PROCEDURES FOR TENDERING
Only a registered holder may tender original notes in the exchange offer.
To tender in the exchange offer, the holder must:
- complete, sign and date the letter of transmittal;
- have the signatures guaranteed if required by the letter of transmittal;
- mail or otherwise deliver the letter of transmittal to the exchange
agent; and
- either:
- deliver certificates for the original notes to the exchange agent
with the letter of transmittal;
- deliver to the exchange agent a timely confirmation of a book-entry
transfer of the original notes into the exchange agent's account at
The Depository Trust Company, as described below; or
- comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and all other
required documents must be received by the exchange agent at the address set
forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder will constitute an agreement between the holder and
us on the terms and conditions in this prospectus and the letter of transmittal.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER DOCUMENTS TO BE DELIVERED TO THE EXCHANGE AGENT IS AT THE ELECTION
AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE APPLICABLE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO
SCOTTS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's behalf, the owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
original notes, either make appropriate arrangements to register ownership of
the original notes in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless the original notes tendered with
the letter of transmittal are tendered:
- by a registered holder who has not completed the box on the letter of
transmittal entitled "Special Delivery Instructions," or
- for the account of an eligible institution.
An eligible institution is any participant in a recognized signature
guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act.
If a letter of transmittal is signed by a person other than the registered
holder of any original notes listed on the letter of transmittal, the notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder, with signature guaranteed by an eligible institution.
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If a letter of transmittal or any original notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, the
signatories should indicate their status when signing. In addition, evidence of
their authority to sign satisfactory to Scotts must be submitted with the letter
of transmittal.
All questions as to the validity, form, eligibility, time of receipt,
acceptance and withdrawal of tendered original notes will be determined by us in
our sole discretion. Our determination will be final and binding. We reserve the
absolute right to reject any and all original notes not properly tendered or any
original notes the acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular original notes. Unless waived, any defects
or irregularities in connection with tenders of original notes must be cured
within the time set by us. Although we intend to notify holders of defects or
irregularities in their tenders, neither we, the exchange agent nor any other
person will incur any liability for failing to give notice. Tenders of original
notes will not be deemed to have been made until all defects or irregularities
have been cured or waived.
Any original notes received by the exchange agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned to the tendering holder. If original notes are submitted
in a principal amount greater than the principal amount of original notes being
tendered by the tendering holder, the unaccepted or non-exchanged original notes
will be returned to the tendering holders. In the case of original notes
tendered by book-entry transfer into the exchange agent's account at DTC as
described below, unaccepted or non-exchanged original notes will be credited to
an account maintained with DTC. Unless otherwise provided in the letter of
transmittal, returns will be made as soon as practicable following the
applicable expiration date.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account at The Depository Trust
Company for purposes of the exchange offer. Any financial institution that is a
participant in DTC's system may make book-entry delivery of original notes by
causing DTC to transfer the original notes into the exchange agent's account
with DTC. Although original notes may be delivered by book-entry transfer at
DTC, you must also:
- deliver the letter of transmittal, with any required signature guarantees
and any other documents, to the exchange agent at the address set forth
below under "-- Exchange Agent" on or prior to the expiration date, or
- comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender original notes but your notes are not immediately
available, or you cannot deliver the notes, the letter of transmittal or any
other required documents to the exchange agent prior to the applicable
expiration date, you may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the eligible institution delivers a
properly completed and duly executed notice of guaranteed delivery to the
exchange agent:
- setting forth the name and address of the holder, the principal
amount of the original notes being tendered and the certificate
number(s) of the original notes;
- stating that the tender is being made by means of the notice of
guaranteed delivery; and
- guaranteeing that, within five business days after the applicable
expiration date, the letter of transmittal, certificate(s)
representing the original notes or a book-entry confirmation and any
other documents required by the letter of transmittal will be
delivered to the exchange agent; and
- the properly completed and executed letter of transmittal, certificate(s)
representing all tendered original notes in proper form for transfer or a
book-entry confirmation and all other documents
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required by the letter of transmittal are received by the exchange agent
within five business days after the applicable expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time prior to the expiration date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the exchange agent at its address prior to the expiration
date. Any notice of withdrawal must:
- specify the name of the person who deposited the original notes to be
withdrawn;
- identify the original notes to be withdrawn, including the certificate
number(s) and aggregate principal amount; and
- be signed by the holder in the same manner as the original signature on
the applicable letter of transmittal, including any required signature
guarantees.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notices of withdrawal in our sole discretion. Our
determination will be final and binding on all parties.
Any original notes that are withdrawn will be deemed not to have been
validly tendered. No notes will be issued in the exchange offer unless the
original notes that were withdrawn are retendered. Properly withdrawn original
notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the expiration date.
Any original notes which have been validly withdrawn will be returned to
the holder, unless otherwise provided in the letter of transmittal, without cost
to the holder:
- as soon as possible following the expiration date or,
- if requested in the notice of withdrawal, promptly after receipt of the
notice of withdrawal.
CONDITION OF THE EXCHANGE OFFER
The exchange offer is subject to the condition that neither the offer nor
any exchange by a holder violates any applicable law or interpretation of the
staff of the Commission. If a change in Commission policy raises a substantial
question as to whether the exchange offer is permitted by applicable federal
law, we will seek a no-action letter or other decision from the Commission
allowing us to consummate the exchange offer.
If we determine that the exchange offer is not permitted by applicable
federal law, we may:
- terminate the exchange offer and return any original notes that have
been tendered;
- extend the exchange offer and retain all original notes tendered prior
to the new expiration date that are not withdrawn; or
- waive our right to terminate the exchange offer and accept all
properly tendered original notes that have not been withdrawn.
If we determine our waiver of our right to terminate constitutes a material
change in the exchange offer, we will promptly file a post-effective amendment
with the Commission and distribute a prospectus supplement to the registered
holders of the original notes. If the exchange offer is scheduled to expire
during the five to ten business day period following the waiver, we will extend
it for a period of five to ten business days depending on the significance of
the waiver and the manner of disclosure to the registered holders.
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EXCHANGE AGENT
State Street Bank and Trust Company has been appointed the exchange agent
for the exchange offer. Questions, requests for assistance and requests for
additional copies of this prospectus, the letter of transmittal or other
documents should be directed to the exchange agent addressed as follows:
DELIVER TO:
By Registered or Certified Mail:
State Street Bank and Trust Company
Corporate Trust Division
Attn: Meaghan Haight
P.O. Box 778
Boston, MA 02102-0078
Reference: The Scotts Company
By Hand or Overnight Delivery:
State Street Bank and Trust Company
Corporate Trust Division
Corporate Trust Window, Fifth Floor
Attn: Meaghan Haight
Avenue de Lafayette
Boston, MA 02111-1724
Reference: The Scotts Company
By Facsimile:
(Eligible Institutions Only)
(617) 662-1452
Reference: The Scotts Company
For Information or
Confirmation by Telephone:
Meaghan Haight
(617) 662-1603
Delivery to any other address or facsimile number will not constitute a
valid delivery.
FEES AND EXPENSES
We will pay the expenses of soliciting tenders. The principal solicitation
is being made by mail. Additional solicitation may be made by telegraph,
telephone or in person by officers and regular employees of Scotts and its
affiliates.
We have not retained any dealer-manager in connection with the exchange
offer. No payments will be made to brokers, dealers or others soliciting
acceptance of the exchange offer.
We will pay reasonable and customary fees to the exchange agent for its
service and will reimburse its reasonable out-of-pocket expenses.
We will pay all cash expenses incurred in connection with the exchange
offer, which we estimate will be $250,000. Expenses will include fees and
expenses of the exchange agent and the trustee under the indenture, accounting
and legal fees and printing costs. We will also pay transfer taxes, if any,
applicable to the exchange of the original notes in the exchange offer.
If a transfer tax is imposed on the registered holder or any other person
for any reason other than the exchange of the original notes in the exchange
offer, the tendering holder must pay the transfer tax. The amount of this
transfer tax will be billed directly to the tendering holder unless the holder
submits with the letter of transmittal either:
- satisfactory evidence of payment of the transfer tax, or
- evidence of an exemption from the transfer tax.
ACCOUNTING TREATMENT
The carrying values of the original notes are not expected to be materially
different from the fair value of the notes issued in the exchange offer;
accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the exchange offer will be amortized over the term of the notes
issued in the exchange offer.
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DESCRIPTION OF SENIOR CREDIT FACILITY
The following description is a summary of material provisions of Scotts'
amended and restated senior credit facility. It does not restate the credit
facility in its entirety. We urge you to read the credit facility agreement
because it, and not this description, define the terms of our other material
outstanding indebtedness. Copies of the amended and restated senior credit
facility are available as set forth under "Where You Can Find More Information."
On December 5, 2000, Scotts and most of our subsidiaries entered into an
amended and restated credit facility, which is senior to the notes. This senior
credit facility establishes aggregate financing for Scotts and the subsidiaries
that are parties of up to $1.1 billion. The credit financing under the senior
credit facility is provided by a lending syndicate group consisting of
approximately 100 lenders worldwide, with The Chase Manhattan Bank serving as
Administrative Agent.
AMOUNT OF ADDITIONAL CREDIT AVAILABLE
The senior credit facility provides for aggregate total senior secured
credit financing in the principal amount of up to $1.1 billion, consisting of
term loan facilities in the aggregate amount of $525 million, and a revolving
credit facility in the amount of $575 million. As of August 26, 2000, there were
$458.9 million of term loans outstanding and $32.9 million outstanding under the
revolving credit facility.
SPECIFIC CREDIT FACILITIES
The term loan portion of the senior credit facility consists of two
tranches. The Tranche A term loans consist of an aggregate approximate principal
amount equal to $265 million, which is divided into three sub-tranches of French
Francs, German Deutschemarks and British Pounds Sterling. The Tranche A term
loans are to be repaid in quarterly principal installments over a 6 1/2 year
period. The Tranche B term loans consist of an aggregate principal amount equal
to $260 million, which is to be repaid in nominal quarterly installments for the
first 5 1/2 years and in substantial quarterly installments in the final year.
The $575 million revolving credit portion of the senior facility is
available on a revolving basis for a term of 6 1/2 years. A portion of the
revolving credit facility not to exceed $100 million is available for the
issuance of letters of credit. In addition, a portion of the revolving credit
facility not to exceed $225 million is available for borrowing in optional
currencies, including German Deutschemarks, British Pound Sterling, French
Francs, Belgian Francs, Italian Lira and other foreign currencies. However, no
more than $120 million of this $225 million may be outstanding in foreign
currencies other than British Pounds Sterling.
Scotts is required to reduce the outstanding principal amount of all
revolving credit loans to no more than $150 million for at least 30 consecutive
days during each calendar year.
PREPAYMENTS
Scotts may prepay the term loans at any time, subject to the applicable
prepayment fees. However, optional prepayments of the term loans may not be
reborrowed.
Scotts is required to make mandatory prepayments out of the net proceeds of
any sale or issuance of equity, the incurrence of additional senior indebtedness
and any sale or other disposition of more than a de minimis amount of assets. In
addition Scotts is required to make mandatory prepayments out of a portion of
excess cash flow.
INTEREST
Interest rates for the revolving credit facility and the term loans vary
depending upon Scotts' leverage ratio and on the interest rate option selected
by Scotts. As of August 26, 2000, the weighted average interest rate for the
senior credit facility was 8.94%.
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GUARANTIES
Scotts has guaranteed the performance of its subsidiaries under the senior
credit facility. Additionally, most of Scotts domestic direct and indirect
subsidiaries and some of Scotts direct foreign subsidiaries have guaranteed
Scotts' performance under the senior credit facility.
COLLATERAL
Scotts and all of its domestic subsidiaries pledged substantially all of
their personal property assets to secure the indebtedness and obligations under
the senior credit facility. Additionally, Scotts and its domestic subsidiaries
pledged any real property assets having a value in excess of $500,000, as well
as substantially all of their intellectual property assets. Scotts and its
direct and indirect subsidiaries also pledged primarily all of the stock which
they owned in their own subsidiaries, unless the pledge was limited by the laws
of a foreign country or would have resulted in adverse tax consequences to
Scotts.
COVENANTS
The senior credit facility contains standard negative covenants, including
covenants which impose limitations on the ability of Scotts to, among other
things:
- place liens on property, or incur contingent obligations;
- sell all or substantially all of their assets; or
- make any fundamental changes, investments, loans, advances or
acquisitions in excess of $100 million.
The senior credit facility also contains financial covenants consisting of
the maintenance of:
- a specified leverage ratio of less than 4.75 to 1 decreasing to 4.25 to 1
on December 30, 2000 and decreasing periodically thereafter to 2.00 to 1
from December 31, 2004 on;
- a specified consolidated net worth equal on the last day of each fiscal
quarter, excluding the first fiscal quarter, to at least $340 million
plus 50% of cumulative consolidated net income from December 31, 1998;
and
- an interest coverage ratio of at least 2.25 to 1 increasing to 2.50 to 1
on December 31, 2000 and increasing periodically thereafter to 4.00 to 1
from December 30, 2004 on.
DESCRIPTION OF NOTES
You can find the definitions of capitalized terms used in this description
in quotation marks under the subheading "Definitions."
Scott issued the original notes, and will issue the notes to be delivered
in the exchange offer, under the indenture dated as of January 21, 1999 among
itself, the subsidiary guarantors and State Street Bank and Trust Company, as
trustee. The terms of the notes include those stated in the indenture and those
made part of the indenture by reference to the Trust Indenture Act.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of these notes. Copies of the indenture and the
registration rights agreement are available as set forth below under "Where You
Can Find More Information."
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GENERAL
The Notes
Both the original notes and the notes issued in the exchange offer evidence
the same debt and will be entitled to the benefits of the indenture. They will
be treated as a single class of debt securities. The terms of the notes issued
in the exchange offer will be the same as the original notes, except that:
- the exchange notes will be registered under the Securities Act and,
therefore, will not bear legends restricting transfer; and
- the exchange notes will not be entitled to the benefits of the
registration rights agreement.
Holders of original notes who do not exchange their original notes in the
exchange offer will vote together with holders of the exchange notes for all
relevant purposes under the indenture.
All of the notes:
- are general obligations of Scotts;
- are subordinated in right of payment to all our existing and future
senior debt; and
- are senior in right of payment to any future junior subordinated
indebtedness we may incur.
The Guarantees
These notes will be guaranteed by all of our existing and future wholly
owned domestic subsidiaries, except any that are designated as unrestricted.
As of the date of this prospectus, the following subsidiaries are
guarantors of the notes:
Scotts' Miracle-Gro Products, Inc.
Miracle-Gro Lawn Products, Inc.
Miracle-Gro Products Ltd.
OMS Investments, Inc.
Old Fort Financial Corp.
Hyponex Corporation
EarthGro, Inc.
Scotts Products Co.
Scotts Professional Products Co.
Republic Tool & Manufacturing Corp.
Scotts-Sierra Horticultural Products Company
Scotts-Sierra Crop Protection Company
Scotts-Sierra Investments, Inc.
Swiss Farms Products, Inc.
These subsidiaries that are guaranteeing the notes constitute our primary
domestic subsidiaries. The assets of the Ortho business that we acquired from
Monsanto are held by Scotts and by some of the guarantor subsidiaries, as well
as by some of our foreign subsidiaries. There is not a separate subsidiary for
the Ortho assets. None of our foreign subsidiaries is a guarantor of the notes,
and none is required to be under the indenture.
We have not designated any of our domestic, wholly-owned subsidiaries as
unrestricted, but we are permitted to do so under the indenture. Unrestricted
subsidiaries are not subject to many of the restrictive covenants in the
indenture and are ignored for purposes of calculating some of the relevant
financial ratios in the covenants. If we designate any subsidiaries as
unrestricted, they will cease to guarantee the notes. We have no present
intention to do so.
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The guarantees:
- are general obligations of each guarantor;
- are subordinated in right of payment to all existing and future senior
debt of each guarantor; and
- are senior in right of payment to any future junior subordinated
indebtedness of each guarantor.
Not all of our restricted subsidiaries guarantee the notes. In particular,
our foreign subsidiaries are not guarantors. In the event of a bankruptcy,
liquidation or reorganization of any of these non-guarantor subsidiaries, these
non-guarantor subsidiaries will pay the holders of their debt and their trade
creditors before they will be able to distribute any of their assets to us. The
non-guarantor subsidiaries generated approximately 24.6% of our consolidated
revenues for the year ended September 30, 1999 and held approximately 29.7% of
our consolidated assets as of September 30, 1999. See note 22 to our
consolidated financial statements that we have are incorporated in this
prospectus for more detail about the division of our consolidated revenues and
assets between our guarantor and non-guarantor subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The indenture provides that we may issue notes with a maximum aggregate
principal amount of up to $400 million, of which $330 million is represented by
the notes. The notes are issued only in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on January 15, 2009.
Interest on the notes accrues at the rate of 8.625% per annum and is
payable semi-annually in arrears on January 15 and July 15, commencing on July
15, 1999. We will make each interest payment to the holders of record of the
notes on the immediately preceding January 1 and July 1.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given us wire transfer instructions, we will make all
principal, premium and interest and liquidated damages, if any, payments on the
notes owned by the holder in accordance with those instructions. All other
payments on these notes will be made at the office or agency of the paying agent
and registrar within the City and State of New York unless we elect to make
interest payments by check mailed to the holders at their address set forth in
the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee is currently the paying agent and registrar. We may change the
paying agent or registrar without prior notice to the holders of the notes.
Scotts or any of our subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder to furnish appropriate
endorsements and transfer documents, and we may require a holder to pay any
taxes and fees required by law or permitted by the indenture.
The registered holder of a note will be treated as the owner of it for all
purposes.
SUBSIDIARY GUARANTEES
The subsidiary guarantors jointly and severally guarantee our obligations
under the notes. Each subsidiary guarantee is subordinated to the prior payment
in full of all senior debt of that subsidiary guarantor. The obligations of each
subsidiary guarantor under its subsidiary guarantee are limited as necessary to
prevent that subsidiary guarantee from being a fraudulent conveyance under
applicable law.
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A subsidiary guarantor may not sell or otherwise dispose of all or
substantially all of its assets, or consolidate with or merge with or into
another person unless:
- immediately after giving effect to that transaction, no default or event
of default exists under the indenture; and
- either:
- the person acquiring the property in the sale or disposition or the
person formed by or surviving the consolidation or merger assumes all
the obligations of that subsidiary guarantor under its subsidiary
guarantee; or
- the net proceeds of the sale or other disposition are applied as
dictated by the indenture.
The subsidiary guarantee of a subsidiary guarantor will be released:
- in connection with any sale or other disposition of all or substantially
all of the assets of that subsidiary guarantor, including by way of
merger or consolidation, so long as we apply the net proceeds of that
sale or other disposition as dictated by the indenture; or
- in connection with any sale of all of the capital stock of a subsidiary
guarantor, so long as we apply the net proceeds of that sale as dictated
by the indenture; or
- if we designate any restricted subsidiary that is a subsidiary guarantor
as an unrestricted subsidiary.
The indenture, however, does not prevent one subsidiary guarantor from
selling or otherwise disposing of all or substantially all of its assets to, or
consolidating with or merging into, Scotts or another subsidiary guarantor.
SUBORDINATION
The payment of principal, premium, interest and liquidated damages, if any,
on the notes will be subordinated to the prior payment in full of all our senior
debt.
The holders of senior debt will be entitled to receive payment in full of
all obligations due in respect of their senior debt before the holders of notes
will be entitled to receive any payment on the notes in the event of any
distribution to our creditors in any of the following circumstances:
- a liquidation or dissolution of Scotts;
- a bankruptcy, reorganization, insolvency, receivership or similar
proceeding;
- an assignment for the benefit of our creditors; or
- any marshaling of our assets and liabilities.
We also may not make any payment on the notes if:
- a payment default occurs and is continuing beyond any applicable grace
period under:
- our credit facility, or
- other senior debt of greater than $10 million that we designate; or
- any other default occurs and is continuing under our credit facility or
the designated senior debt described above that permits the holders of
the indebtedness to accelerate its maturity and the trustee receives a
notice of the default under the indenture.
These events are known as payment blockages.
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Payments on the notes will be resumed:
- in the case of a payment default, as soon as the default is cured or
waived; and
- in case of a nonpayment default, on the earlier of the date on which the
nonpayment default is cured or waived or 179 days after the date on which
the applicable notice of a payment blockage is received, unless the
maturity of the indebtedness leading to the payment blockage has been
accelerated.
No new notice of a payment blockage may be delivered unless and until:
- 360 days have elapsed since the effectiveness of the immediately prior
notice of a payment blockage; and
- all scheduled payments of principal, premium and interest and liquidated
damages, if any, on the notes that have come due have been paid in full
in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any notice of a payment blockage to the trustee may be the basis for
a subsequent notice of a payment blockage unless the default leading to the
notice shall have been cured or waived for a period of not less than 180 days.
Scotts must promptly notify holders of our senior debt if payment of the
notes is accelerated because of an event of default under the indenture.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of Scotts, holders of these notes
may recover less ratably than creditors who are holders of our senior debt.
OPTIONAL REDEMPTION
During the first 36 months after January 21, 1999, we may on any one or
more occasions redeem up to 35% of the aggregate principal amount of notes
originally issued under the indenture at a redemption price of 108.625% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the redemption date, with the net cash proceeds of one or
more public equity offerings, so long as:
- at least 65% of the notes remain outstanding immediately after the
occurrence of the redemption, excluding any notes held by us; and
- the redemption occurs within 90 days of the date of the closing of the
public equity offering.
Otherwise, the notes will not be redeemable prior to January 15, 2004.
After January 15, 2004, we may redeem all or a part of these notes by
giving at least 30 but no more than 60 days' notice. The redemption price will
be equal to the percentage of principal amount shown in the following table plus
accrued and unpaid interest and liquidated damages, if any, to the applicable
redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
From January 15, 2004 through January 14, 2005.............. 104.313%
From January 15, 2005 through January 14, 2006.............. 102.875%
From January 15, 2006 through January 14, 2007.............. 101.438%
From January 15, 2007 and thereafter........................ 100.00%
</TABLE>
MANDATORY REDEMPTION
The indenture does not provide for mandatory redemption or sinking fund
payments.
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a "Change of Control" occurs, each holder of notes will have the right
to require us to repurchase all or any part, in multiples of $1,000, of that
holder's notes at an offer price in cash equal to 101% of the aggregate
principal amount of notes repurchased plus accrued and unpaid interest and
liquidated damages, if any, to the date of purchase. Within 30 days following
any "Change of Control," we will mail a notice to each holder describing the
transaction or transactions that constitute the "Change of Control" and offering
to repurchase notes on the date specified in the notice. We will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
"Change of Control."
In connection with any offer upon a "Change in Control," we will, to the
extent lawful:
- accept for payment all notes or portions thereof properly tendered;
- deposit with the paying agent an amount equal to the required payment in
respect of all notes or portions thereof so tendered; and
- deliver or cause to be delivered to the trustee the notes so accepted
together with the applicable officers certificate.
The paying agent will promptly mail to each holder of notes tendered the
applicable payment for the notes tendered. The trustee also will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a "Change of Control," we
must either repay all outstanding senior debt or obtain the requisite consents,
if any, under all agreements governing outstanding senior debt to permit the
repurchase of notes required by this covenant. We will publicly announce the
results of the offer to repurchase on or as soon as practicable after the
payment date.
The provisions described above that require us to make an offer to
repurchase following a "Change of Control" will be applicable regardless of
whether or not any other provisions of the indenture are applicable. The
indenture does not contain any other provisions that permit the holders of the
notes to require us to repurchase or redeem the notes in the event of a
takeover, recapitalization or similar transaction.
Our outstanding senior debt currently prohibits us from purchasing any
notes under any circumstances, and also contains separate change of control
events that would constitute a default under the agreements governing the senior
debt. Any future credit agreements or other agreements relating to senior debt
may contain similar restrictions and provisions. In the event a "Change of
Control" occurs at a time when we are prohibited from purchasing notes, we could
seek the consent of our senior lenders to the purchase of notes or could attempt
to refinance the borrowings that contain the prohibition. If we do not obtain a
consent or repay the borrowings that contain the prohibitions, we will be unable
to complete the repurchase of the tendered notes, which would constitute an
event of default under the indenture and would, in turn, likely constitute a
default under our senior debt. In these circumstances, the subordination
provisions in the indenture would likely restrict payments to the holders of
notes.
We will not be required to make a repurchase offer upon a "Change of
Control" if a third party makes the repurchase offer in the manner, at the times
and otherwise in compliance with the requirements set forth in the indenture and
purchases all notes validly tendered and not withdrawn under the repurchase
offer.
The definition of "Change of Control" includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of Scotts and its subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to
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require Scotts to repurchase notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Scotts and
its subsidiaries taken as a whole to another person or group may be uncertain.
ASSET SALES
Scotts will not, and will not permit any of its restricted subsidiaries to,
consummate an "Asset Sale" unless:
- Scotts or the subsidiary receives consideration at the time of the "Asset
Sale" at least equal to the fair market value of the assets or equity
interests issued or sold or otherwise disposed of, as determined in good
faith by Scotts' Board of Directors; and
- either:
- Scotts or the subsidiary issues equity interests as consideration
or transfers assets in a tax-deferred exchange; or
- at least 75% of the consideration received by Scotts or the
subsidiary is in the form of cash or cash equivalents, including
assumed liabilities that are subordinate to the notes.
Within 360 days after the receipt of any net proceeds from an "Asset Sale,"
we may apply the net proceeds:
- to repay senior debt, and to make a corresponding commitment reduction if
the senior debt is revolving;
- to acquire a related business;
- to make a capital expenditure; and/or
- to acquire other long-term assets that are used or useful to our
businesses.
Any net proceeds from "Asset Sales" that are not applied or invested as
provided above will constitute excess proceeds. When the aggregate amount of
excess proceeds exceeds $10.0 million, we are required to make an offer to
repurchase as much of the notes and any similarly situated indebtedness as we
can out of the excess proceeds. The offer price in this type of repurchase offer
will be equal to 100% of the principal amount plus accrued and unpaid interest
and liquidated damages, if any, to the date of purchase, and will be payable in
cash. If the amount of the excess proceeds exceeds the purchase price of the
notes and similarly situated indebtedness, we may use the remaining excess
proceeds for any purpose not otherwise prohibited by the indenture. If the
aggregate principal amount of notes and other similarly situated indebtedness
tendered exceeds the amount of excess proceeds, the trustee will select the
notes and other indebtedness to be purchased on a pro rata basis. Upon
completion of each asset sale repurchase offer, the amount of excess proceeds
shall be reset at zero.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
- if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
- if the notes are not listed, on a pro rata basis, by lot or by another
method that the trustee deems fair and appropriate.
Notices of redemption will be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
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If any note is to be redeemed in part only, the notice of redemption that
relates to that note should state the portion of the principal amount to be
redeemed. A new note in principal amount equal to the unredeemed portion will be
issued in the name of the holder upon cancellation of the original note. Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on notes or portions of them
called for redemption.
OTHER COVENANTS
Restricted Payments
Generally, we have agreed that we will not, and will not permit any of our
restricted subsidiaries to, directly or indirectly:
- declare or pay any dividend or make any other similar payment or
distribution to our stockholders, other than stock dividends or
distributions;
- purchase, redeem or otherwise acquire or retire for value any capital
stock held by persons other than Scotts or a restricted subsidiary;
- pay down, purchase, redeem, defease or otherwise acquire or retire for
value any indebtedness that is subordinated to the notes or the
subsidiary guarantees, except a payment of interest or principal at the
stated maturity of the subordinated indebtedness; or
- make any restricted investment.
The indenture refers to all of these payments or expenditures as restricted
payments. We may make a restricted payment if, upon giving effect to the
restricted payment, the following conditions are met:
- there are no existing defaults or events of default under the indenture
and the restricted payment would not trigger one; and
- assuming the restricted payment had actually been made at the beginning
of the applicable four-quarter period, we still could have incurred at
least $1.00 of additional indebtedness under the fixed charge coverage
ratio test described below under the caption " -- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
- the restricted payment, together with the aggregate amount of all other
restricted payments not otherwise permitted by the indenture, is less
than the sum of:
- 50% of our "Consolidated Net Income" for the period from January
3, 1999 to the end of our most recently ended fiscal quarter for
which internal financial statements are available at the time of
the restricted payment. If "Consolidated Net Income" for this
period is a deficit, 100% of the deficit will be added instead;
plus
- 100% of the aggregate net cash proceeds from most contributions
to capital or sales of capital stock that occur after January 21,
1999; plus
- cash received upon the liquidation of restricted investments
valued at the lesser of the cash received and the initial amount
of the restricted investment; plus
- $25 million.
In addition, as long as there are no existing defaults under the indenture
and none would be caused by a restricted payment we may also make the following
restricted payments:
- the payment of any dividend within 60 days after the date of declaration,
if at the date of declaration the payment would have complied with the
provisions of the indenture;
- the redemption, repurchase, retirement, defeasance or other acquisition
of our 9 7/8% Senior Subordinated Notes due 2004 or of any of the notes;
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- the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated indebtedness or capital stock in exchange for, or out
of the net cash proceeds of the substantially concurrent sale of, capital
stock, provided that the amount of the net cash proceeds that are
utilized for any redemption, repurchase, retirement, defeasance or other
acquisition will not also count toward the calculation of the sum in the
preceding paragraph;
- the redemption, repurchase, retirement, defeasance or other acquisition
of subordinated indebtedness or short-lived or mandatorily redeemable
capital stock with the net cash proceeds from an incurrence of permitted
refinancing indebtedness;
- the payment of any dividend to holders of our Class A Convertible
Preferred Stock; and
- the repurchase, redemption or other acquisition or retirement for value
of up to $5.0 million in any 12 month period of any capital stock held by
members of management under a subscription agreement or stock option
agreement.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We have agreed that we will not and will not permit any of our restricted
subsidiaries to, directly or indirectly, incur or otherwise become liable for
any indebtedness or issue any short-lived or mandatorily redeemable capital
stock, unless the following condition has been met. The condition is that at the
time of issuance or incurrence the "Fixed Charge Coverage Ratio" for the most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date of incurrence or issuance would
have been at least 2.0 to 1.0. For purposes of calculating the ratio we will
assume that the additional indebtedness had been incurred or the capital stock
had been issued at the beginning of the applicable four-quarter period.
Whether or not we can meet the "Fixed Charge Coverage Ratio" the following
incurrences are permitted:
- the incurrence of indebtedness and letters of credit under our credit
facility in an aggregate principal amount not to exceed $1.125 billion,
less any repayments or commitment reductions as a result of asset sales
under the covenant described above under the caption "Repurchase at the
Option of Holders -- Asset Sales";
- our existing indebtedness as of January 21, 1999;
- the incurrence of indebtedness under the indenture;
- the incurrence of indebtedness for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property, plant or equipment used in our business, or in a sale and
leaseback transaction, in an aggregate principal amount not to exceed
$20.0 million at any time outstanding;
- the incurrence of permitted refinancing indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace,
indebtedness, other than intercompany indebtedness, that is either
existing indebtedness or that was permitted to be incurred by the
indenture;
- the incurrence of intercompany indebtedness between or among Scotts and
any of its restricted subsidiaries, as long as the following conditions
have been met:
- any indebtedness that is held by a restricted subsidiary that is
not a guarantor must be expressly subordinated to the prior
payment in full in cash of all obligations under the notes and
- if the intercompany indebtedness is transferred subsequently to a
person other than Scotts or a restricted subsidiary, it will be
deemed to constitute a new incurrence of indebtedness that must
comply with the terms of the indenture;
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- the incurrence by Scotts or any of its restricted subsidiaries of hedging
obligations that are incurred for the purpose of fixing or hedging
interest rate risk on any floating rate indebtedness that is permitted by
the terms of the indenture or exchange rate risk or raw materials price
risk;
- the guarantee of indebtedness by Scotts or a restricted subsidiary that
was otherwise permitted to be incurred;
- the 195,000 shares of Class A Convertible Preferred Stock outstanding as
of the date of the indenture, all of which have since been converted into
common shares;
- the incurrence by our foreign subsidiaries of up to $60.0 million of
indebtedness at any one time;
- the incurrence of indebtedness by borrowing against our accounts
receivables or equipment in qualified securitization transactions; and
- the incurrence by Scotts or any of its restricted subsidiaries of up to
$40.0 million additional indebtedness at any one time.
NO SENIOR SUBORDINATED DEBT
We have agreed that we will not incur or otherwise become liable for any
indebtedness that is subordinate or junior in right of payment to any senior
debt and senior in right of payment to the notes. Similarly, none of our
subsidiary guarantors will incur or otherwise become liable for any indebtedness
that is subordinate or junior in right of payment to any senior debt of the
subsidiary guarantor and senior in right of payment to its subsidiary guarantee.
LIENS
We have agreed that we will not directly or indirectly:
- assign or convey any right to receive income on any of our assets or
- incur or allow to exist any lien of any kind securing indebtedness or
trade payables on any of our assets or on any income or profits from the
assets except "Permitted Liens,"
unless the notes and the guarantees, as applicable, are either
- secured by a lien on the property, assets, income or profits that is
senior in priority to the lien securing the other subordinated
obligations or
- secured by a lien on the property, assets, income or profits to the same
extent as the lien securing the other obligations, if the obligations are
pari passu in right of payment with the notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
We have agreed that we will not directly or indirectly impair the ability
of any restricted subsidiary to:
- pay dividends or make any other distributions to us or any of our
restricted subsidiaries, or pay any indebtedness owed to us or any of our
restricted subsidiaries;
- make loans or advances to us or any of our restricted subsidiaries; or
- transfer any of its properties or assets to us or any of our restricted
subsidiaries.
Restrictions in the following will not be affected by this covenant:
- indebtedness existing on January 21, 1999 or any refinancings of that
existing indebtedness as long as the terms of the refinancing are no more
restrictive than these restrictions;
- the indenture, the notes and the guarantees;
- applicable law;
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- any existing indebtedness or capital stock of an acquired entity that was
not incurred in connection with the acquisition as long as the
indebtedness itself could be incurred under the indenture;
- customary non-assignment provisions in leases, licenses, contracts and
other agreements entered into in the ordinary course of business and
consistent with past practices;
- purchase money obligations for property acquired in the ordinary course
of business that impose normal restrictions on the property acquired;
- any agreement for the sale or other disposition of a restricted
subsidiary that restricts distributions by the restricted subsidiary
pending its sale;
- refinanced indebtedness as long as the restrictions governing the
refinanced indebtedness are no more restrictive;
- provisions relating to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business;
- customary provisions under indebtedness of any foreign subsidiary
permitted to be incurred under the indenture;
- restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business; and
- restrictions created in connection with a qualified securitization
transaction.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
We have agreed that we will not directly or indirectly: (1) consolidate or
merge with or into another entity (whether or not we are the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of our properties or assets to another entity; unless:
- either we are the surviving corporation or the surviving or acquiring
entity is a U.S. corporation;
- the surviving or acquiring entity assumes all of our obligations under
the notes, the indenture and the registration rights agreement in
agreements reasonably satisfactory to the trustee;
- immediately after the transaction no default or event of default exists;
and
- except in the case of a merger entered into solely for the purpose of
reincorporating Scotts or any restricted subsidiary in another
jurisdiction, Scotts or the surviving or acquiring entity would have been
able to incur at least $1.00 of additional indebtedness under the terms
of the indenture after assuming that the transaction and any related
financings had previously occurred.
In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions, to any
other entity. This "Merger, Consolidation, or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among Scotts and any of our wholly-owned restricted subsidiaries.
TRANSACTIONS WITH AFFILIATES
We have agreed that neither we nor any of our restricted subsidiaries will
make any payment to, or enter into purchase or sale agreements or loans with,
any of our affiliates, unless:
- the transaction with the affiliate is on no less favorable terms than
those that we would have with an unrelated person; and
- we deliver to the trustee, either:
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- if the transaction is larger than $3.0 million, a certified resolution
of the Board of Directors stating that the transaction complies with
this covenant and that it has been approved by a majority of the
disinterested members of the Board of Directors; or
- if the transaction is larger than $10.0 million, a certified
resolution and fairness opinion from an accounting, appraisal or
investment banking firm of national standing.
The following items are not subject to these restrictions:
- employment, consulting or similar agreements entered into in the ordinary
course of business or any payment of directors' and officers' insurance
premiums;
- transactions between or among Scotts and the restricted subsidiaries;
- payment of reasonable directors fees to non-affiliate directors;
- dividends on or any repurchases of any shares of any series or class of
our equity securities;
- restricted payments that are permitted by the provisions of the
indenture;
- any merger between or among Scotts or any of its restricted subsidiaries
solely for the purpose of reincorporating in another jurisdiction for tax
purposes; and
- transactions in connection with qualified securitization transactions or
an industrial revenue bond financing.
ADDITIONAL SUBSIDIARY GUARANTEES
We have agreed that any newly acquired or created wholly owned domestic
restricted subsidiary or any new significant, non-wholly owned domestic
restricted subsidiary will promptly become a subsidiary guarantor and will
deliver appropriate documentation to the trustee.
SALE AND LEASEBACK TRANSACTIONS
We have agreed that neither we nor any of our restricted subsidiaries will
enter into any sale and leaseback transaction, unless:
- we could have incurred indebtedness in an amount equal to the
"Attributable Debt" relating to the sale and leaseback transaction under
the indenture and could have incurred a lien to secure the indebtedness
under the indenture;
- the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value of the property that is the subject
of the sale and leaseback transaction; and
- the transfer of assets in the sale and leaseback transaction is permitted
by, and we apply the proceeds of the transaction in compliance with, the
terms of the indenture.
PAYMENTS FOR CONSENT
We have agreed that we will not directly or indirectly pay any holder of
notes for any consent, waiver or amendment of any of the terms or provisions of
the indenture or the notes unless the consideration is paid to all holders of
the notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to the consent, waiver or agreement.
REPORTS
Whether or not required by the Commission, as long as any notes are
outstanding, we will furnish to you, within the time periods specified in the
Commission's rules and regulations:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K; and
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- all current reports that would be required to be filed with the
Commission on Form 8-K.
In addition, whether or not required by the Commission, we will file a copy
of all of the information and reports referred to above with the Commission for
public availability within the time periods specified in the Commission's rules
and regulations and make the information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an event of default:
- if we fail to pay interest on the notes or liquidated damages within 30
days of the due date for any reason;
- if we fail to make a payment of the principal of or premium, if any, on
the notes when due for any reason;
- if we fail to comply with the provisions described under the captions
"Repurchase at the Option of Holders -- Change of Control," "Repurchase
at the Option of Holders -- Asset Sales," "Certain Covenants --
Restricted Payments" or "Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock" for 30 days after notice of the failure;
- if we fail to comply with any of the other agreements in the indenture
for 60 days after notice of the failure;
- if we default under any one or more mortgage, indenture or other debt
instrument of more than $10.0 million, if that default:
- is caused by a failure to pay principal of or premium, if any, or
interest on the indebtedness prior to the expiration of the grace
period provided in the indebtedness; or
- results in the acceleration of the indebtedness prior to its
express maturity;
- if we fail to pay final judgments aggregating in excess of $10.0 million
within 60 days, unless the judgments are discharged or stayed within that
period;
- if the guarantees of one or more significant subsidiaries or
non-significant subsidiaries that collectively would be significant to us
are found by a court to be unenforceable or invalid or if any subsidiary
guarantor that is a significant subsidiary or any group of subsidiary
guarantors that collectively would be significant denies or disaffirms
its obligations under its subsidiary guarantee; and
- if we or any of our significant subsidiaries goes bankrupt or becomes
insolvent.
In the case of an event of default arising from the bankruptcy or
insolvency of Scotts, any significant subsidiary or any group of subsidiaries
that collectively are significant, all outstanding notes will become due and
payable immediately without further action or notice. If any other event of
default occurs and is continuing, the trustee or the holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Generally, holders of a majority in principal amount
of the then outstanding notes may direct the trustee in its exercise of any
trust or power. The trustee may withhold from holders of the notes notice of any
continuing default or event of default, except a default or event of default
relating to the payment of principal or interest, if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding may on behalf of the holders of all of the notes waive any existing
default or event of default and its consequences under the indenture except a
continuing default or event of default in the payment of interest on or the
principal of the notes.
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In the case of any event of default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Scotts with the
intention of avoiding payment of the premium that Scotts would have had to pay
if we then had elected to redeem the notes under the optional redemption
provisions of the indenture, an equivalent premium will also become immediately
due and payable to the extent permitted by law upon the acceleration of the
notes. If an event of default occurs prior to January 15, 2004, by reason of any
willful action or inaction taken or not taken by or on behalf of Scotts with the
intention of avoiding the prohibition on redemption of the notes prior to
January 15, 2004, then the premium specified in the indenture will also become
immediately due and payable to the extent permitted by law upon the acceleration
of the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any default or event of
default, we are required to deliver to the trustee a statement specifying the
default or event of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Scotts or
any subsidiary guarantor shall have any liability for any obligations under the
notes, the indenture, the subsidiary guarantees, the registration rights
agreement agreements or for any claim based on obligations or their creation.
Each holder of notes by accepting a note waives and releases all of this
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may at any time elect to have all of our obligations discharged under
the notes and the subsidiary guarantees except for:
- the rights of holders of outstanding notes to receive payments of the
principal of, premium, if any, and interest and liquidated damages, if
any, on the notes when the payments are due from the trust referred to
below;
- our obligations concerning issuing temporary notes, registration of
notes, mutilated, destroyed, lost or stolen notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
- the rights, powers, trusts, duties and immunities of the trustee, and our
related obligations; and
- the legal defeasance provisions of the indenture.
In addition, we may at any time elect to have our obligations released
under the more onerous covenants that are described in the indenture. Thereafter
any omission to comply with those covenants will not constitute a default or
event of default.
In order to exercise either type of defeasance described above:
- we must irrevocably deposit with the trustee sufficient cash or
non-callable government securities to pay all amounts owing on the
outstanding notes through the stated maturity or on the applicable
redemption date. We will specify to the trustee whether the notes are
being defeased to maturity or to a particular redemption date;
- if we want to completely defease the notes, we must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that there has been an Internal Revenue Service ruling or a
change in the applicable federal income tax law to the effect that the
holders of the outstanding notes will not recognize income, gain or loss
for federal income tax purposes as a result of the complete defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if the
complete defeasance had not occurred;
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- if we merely want to defease the onerous covenants, we must deliver to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of the
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if the covenant defeasance had not occurred;
- no default or event of default shall have occurred and be continuing
either on the date of the deposit or, in the case of bankruptcy or
insolvency events, at any time in the period ending on the 91st day after
the date of deposit;
- the defeasance will not result in a breach or violation of, or constitute
a default under, any material agreement or instrument other than the
indenture to which we or any of our subsidiaries is a party;
- we must deliver to the trustee an opinion of counsel that after the 91st
day following the deposit, the trust funds will not be subject to the
effect of any bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
- we must deliver to the trustee an officers' certificate stating that the
deposit was not made with the intent of preferring the holders of notes
over our other creditors or with the intent of defeating, hindering,
delaying or defrauding our creditors; and
- we must deliver to the trustee an officers' certificate and an opinion of
counsel stating that we have complied with all conditions precedent
relating to the defeasance.
AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each holder affected, an amendment or waiver may
not:
- reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
- reduce the principal of or change the maturity date of any note or alter
the redemption provisions other than provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders";
- reduce the rate of or change the time for payment of interest on any
note;
- waive a default or event of default in the payment of principal, premium,
or interest, except a rescission of acceleration of the notes by the
holders of at least a majority in aggregate principal amount of the notes
and a waiver of the payment default that resulted from such acceleration;
- make any note payable in money other than U.S. dollars;
- make any change in the provisions of the indenture relating to waivers of
past defaults or the rights of holders of notes to receive payments of
principal, premium, if any, or interest;
- waive a redemption payment other than a payment required by one of the
covenants described above under the caption "Repurchase at the Option of
Holders"; or
- make any change in the preceding amendment and waiver provisions, except
as set forth below.
In addition, any amendment or waiver relating to subordination that
adversely affects the rights of the holders of the notes will require the
consent of the holders of at least 75% in aggregate principal amount of notes
then outstanding.
In any event, without the consent of any holder of notes, Scotts and the
trustee may amend or supplement the indenture or the notes:
- to cure any ambiguity, defect or inconsistency;
- to provide for uncertificated notes in addition to or in place of
certificated notes;
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- to provide for the assumption of our obligations to holders of notes in
the case of a merger or consolidation or sale of all or substantially all
of our assets;
- to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal
rights under the indenture of any holder;
- to add a guarantor; and
- to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Scotts or any subsidiary guarantor,
the indenture limits the trustee's right to obtain payment of claims or to
realize on property received for a claim as security. The trustee will be
permitted to engage in other transactions. However, if it acquires any
conflicting interest it must eliminate the conflict within 90 days, apply to the
Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
limited exceptions. The indenture provides that if an event of default occurs
and is continuing, the trustee will be required to use the degree of care of a
prudent man in the conduct of his own affairs. Except to comply with these
provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of notes,
unless the holder offers to the trustee security and indemnity satisfactory to
it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the notes were, and will be, issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof.
The notes are and will continue to be represented by two permanent notes in
registered, global form without interest coupons. The global notes are
registered in the name of The Depository Trust Company in New York, New York, or
its nominee, for credit to an account of a direct or indirect participant in DTC
as described below.
Generally, the global notes may be transferred, in whole and not in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the global notes may not be exchanged for notes in
certificated form except in the limited circumstances described below. See
" -- Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the global
notes will not be entitled to receive physical delivery of certificated notes.
In addition, transfers of beneficial interests in the global notes will be
subject to the rules and procedures of DTC and its direct or indirect
participants, including, if applicable, those of Euroclear and Cedel, which may
change from time to time.
Initially, the trustee will act as paying agent and registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of these settlement
systems and are subject to changes by them from time to time. Scotts takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised us that it is a limited-purpose trust company created to
hold securities for its participating organizations and to facilitate the
clearance and settlement of transactions in those securities
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between participating organizations through electronic book-entry changes in
accounts of its participating organizations. The participating organizations
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participating
organization, either directly or indirectly. Persons who are not participating
organizations may beneficially own securities held by or on behalf of DTC only
through the participating organizations, either directly or indirectly. The
ownership interests and transfers of ownership interests in each security held
by or on behalf of DTC are recorded on the records of the participating
organization.
DTC has also advised us that its procedures require that ownership of
interests in the global notes will be shown on records maintained by DTC for the
participating organizations or by the participating organizations for other
owners of beneficial interest in the global notes. Transfers of ownership will
be reflected in a similar manner.
All interests in a global note may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also be
subject to the procedures and requirements of those systems. The laws of some
states require that persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a global note to these individuals will be limited to that extent.
Because DTC can act only on behalf of direct participating organizations, which
in turn act on behalf of indirect participating organizations, the ability of a
person having beneficial interests in a global note to pledge those interests to
persons or entities that do not participate in the DTC system may be affected by
the lack of a physical certificate evidencing their interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" OF THE NOTES UNDER THE INDENTURE FOR ANY PURPOSE.
Payments of principal, premium, if any, liquidated damages, if any, and
interest for a global note registered in the name of DTC or its nominee, will be
payable to DTC in its capacity as the registered holder under the indenture.
Under the indenture, Scotts and the trustee will treat the persons in whose
names the notes are registered as the owners for the purpose of receiving these
payments and for any and all other purposes. Consequently, neither Scotts, the
trustee nor any agent of Scotts or the trustee has or will have any
responsibility or liability for:
- any aspect of DTC's records or any participating organization's or
indirect participating organization's records relating to or payments
made on account of beneficial ownership interest in the global notes, or
for maintaining, supervising or reviewing any of DTC's records or any
participating organization's records relating to the beneficial ownership
interests in the global notes; or
- any other matter relating to the actions and practices of DTC or any of
its direct or indirect participating organization.
DTC has advised Scotts that its current practice upon receipt of any
payment is to credit the accounts of the relevant participating organizations
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interest in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on the payment date.
Payments by the participating organizations and the indirect participating
organizations to the beneficial owners of notes will be governed by standing
instructions and customary practices and will be the responsibility of the
participating organizations and will not be the responsibility of DTC, the
trustee or Scotts. Neither Scotts nor the trustee will be liable for any delay
by DTC or any of its participating organizations in identifying the beneficial
owners of the notes. Scotts and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the global notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System. Secondary market trading
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activity in these interests will settle in immediately available funds, subject
in all cases to the rules and procedures of DTC and its participating
organizations. See " --Same Day Settlement and Payment."
Transfers between participating organizations in DTC will be effected in
accordance with DTC's procedures, and will be settled in same day funds.
Transfers between participants in Euroclear and Cedel will be effected in the
ordinary way in accordance with their rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participating organizations in DTC, on
the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel. However, any cross-market transactions will require delivery of
instructions to Euroclear or Cedel by the counterparty in that system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of that system. Euroclear or Cedel will, if the transaction
meets its settlement requirements, deliver instructions to its depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participating organizations
to whose account DTC has credited the interests in the global notes and only for
the portion of the aggregate principal amount of the notes as to which a
participating organization has given direction. However, if there is an event of
default under the notes, DTC reserves the right to exchange the global notes for
notes in certificated form, and to distribute the certificated notes to its
participating organizations.
Although DTC, Euroclear and Cedel have agreed to these procedures to
facilitate transfers of interests in the global notes among participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform these procedures, and these procedures may be discontinued at any time.
Neither Scotts nor the trustee nor any of their agents will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
participants or indirect participants under the rules and procedures governing
their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if:
- DTC:
- notifies us that it is unwilling or unable to continue as
depositary for the global notes and we are unable to appoint a
successor depositary; or
- has ceased to be a clearing agency registered under the Exchange
Act;
- Scotts notifies the trustee in writing that it elects to cause the
issuance of the certificated notes; or
- there shall have occurred and be continuing a default or event of
default.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in a global
note will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary and may bear a restrictive legend if
Scotts determines a legend is required to comply with applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interests in any global note unless the transferor first delivers to the trustee
a written certificate to the effect that the transfer will comply with the
appropriate transfer restrictions applicable to the notes.
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SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments on the global notes be made by wire
transfer of immediately available funds to the accounts specified by the holder
of the global notes. For certificated notes, Scotts will make all payments by
wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. The notes represented by the global notes are
expected to be eligible to trade in the PORTAL market and to trade in DTC's
Same-Day Funds Settlement System. Any permitted secondary market trading
activity in the notes will be required by DTC to be settled in immediately
available funds. Scotts expects that secondary trading in any certificated notes
will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
immediately following the settlement date of DTC. DTC has advised Scotts that
cash received in Euroclear or Cedel as a result of sales of interests in a
global note by or through a Euroclear or Cedel participant to a participant in
DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the offering of the original notes, Scotts, the
subsidiary guarantors and Salomon Smith Barney entered into the registration
rights agreement. In the registration rights agreement, we agreed to file with
the Commission the registration statement of which this prospectus is a part.
Upon the effectiveness of this registration statement, holders of original notes
who are able to make the representations required by the registration rights
agreement will have the opportunity to receive new registered notes.
If some of the holders are unable to participate in the exchange offer
because of applicable law or the Commission's policies or because of their
status as an affiliate of Scotts or as a broker-dealer who acquired notes
directly from us or one or our affiliates, we are required to file another
registration statement with the Commission. This second registration statement
would cover periodic resales of the original unregistered notes by the holders
who are unable to participate in the exchange offer.
The registration rights agreement requires that we use our reasonable best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission.
The registration rights agreement also requires that:
- we file this registration statement with the Commission on or prior to
April 21, 1999, which we did;
- we use our reasonable best efforts to have this registration statement
declared effective by the Commission on or prior to October 18, 1999,
which we did not do;
- we commence the exchange offer and use our reasonable best efforts to
complete the exchange offer within 30 business days after the Commission
declares this registration statement effective; and
- if we are required to file the registration statement covering resales by
holders who cannot participate in the exchange offer, we will use our
reasonable best efforts to file that registration statement on or prior
to 30 days after the filing obligation arises and to cause that
registration statement to be declared effective by the Commission within
90 days after the obligation arises.
The registration rights agreement further provides that we must pay
liquidated damages in the form of additional interest to each holder of original
notes if:
- we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for filing;
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- any of the registration statements is not declared effective by the
Commission on or prior to the date specified for effectiveness;
- we fail to consummate the exchange offer within 30 business days of
December 12, 2000, the date on which the registration statement of which
this prospectus is a part was declared effective; or
- one of the registration statements is declared effective but ceases to be
effective or usable in connection with resales of original notes during
the periods specified in the registration rights agreement.
The amount of liquidated damages will be $.05 per week per $1,000 principal
amount of notes held by each holder for the first 90-day period immediately
following the event requiring payment of liquidated damages. Liquidated damages
will increase by $.05 per week per $1,000 principal amount of notes for each
subsequent 90-day period until all defaults under the registration rights
agreement have been cured, up to a maximum amount of liquidated damages $.50 per
week per $1,000 principal amount of notes. All accrued liquidated damages will
be paid to DTC or another holder of a global note by wire transfer of
immediately available funds or by federal funds check and to holders of
certificated notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no accounts have been specified.
Following the cure of all defaults under the registration rights agreement, the
accrual of liquidated damages will cease.
Because we were unable to have the registration statement of which this
prospectus is a part declared effective by October 18, 1999, we began accruing
liquidated damages as of October 19, 1999. As of December 12, 2000 the total
amount of liquidated damages was approximately $2.8 million, all of which has
been or will be paid out in accordance with the terms of the indenture. The
liquidated damages stopped accruing on December 12, 2000, the effective date of
the registration statement of which this prospectus is a part.
DEFINITIONS
Set forth below are defined terms used in the indenture that we have used
in this description of the indenture. The indenture includes many more
definitions that you should review but that are not used in this description.
"Asset Sale" means:
- the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business consistent with past practices; and
- the issuance of equity interests by any of our restricted subsidiaries
or the sale of equity interests in any of our subsidiaries.
Despite this definition, the following do not constitute "Asset Sales":
- any single transaction or series of related transactions that involves
assets having a fair market value of less than $2.5 million or results
in net proceeds of less than $2.5 million;
- most transfers of assets within the group consisting of Scotts and its
restricted subsidiaries;
- an issuance of equity interests by a restricted subsidiary to Scotts
Company or to a another restricted subsidiary as long as it is wholly
owned by Scotts;
- the sale, transfer or discount of any receivables to lenders under any
of our credit facilities or to special purpose entities formed to
borrow from lenders under credit facilities against the receivables;
- a sale of assets by Scotts or any of its restricted subsidiaries prior
to September 30, 2002 for fair market value and as long as the
aggregate fair market value of all assets sold in any fiscal year does
not exceed an amount equal to:
- $25,000,000 for fiscal 1999, and
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- for each fiscal year ended September 30, 2000, 2001 and 2002, the
sum of $25,000,000 plus the difference between $25,000,000 and
the aggregate consideration received by the Scotts and its
restricted subsidiaries for all sales of assets during the
previous fiscal year;
- a restricted payment that is permitted by the covenant described above
under the caption " -- Restricted Payments"; and
- a disposition of inventory in the ordinary course of business or a
disposition of obsolete equipment or equipment that is no longer
useful and that is disposed of in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in the
sale and leaseback transaction. This present value will be calculated using a
discount rate equal to the rate of interest implicit in the transaction,
determined in accordance with GAAP.
"Capital Lease Obligation" means, at the time of determination, the amount
of the liability for a capital lease that would at that time be required to be
capitalized on a balance sheet in accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
- the sale, lease, transfer, conveyance or other disposition other than
by way of merger or consolidation of all or substantially all of the
assets of Scotts and its restricted subsidiaries taken as a whole to
any person or entity other than the Hagedorn Partnership, L.P., or any
of its partners or affiliates;
- the adoption of a plan relating to the liquidation or dissolution of
Scotts;
- the consummation of any transaction the result of which is that any
person or entity other than the Hagedorn Partnership, L.P., or any of
its partners or affiliates acquires beneficial ownership of more than
30% of the voting stock of Scotts, measured by voting power rather
than number of shares;
- the first day on which a majority of the members of the Board of
Directors of Scotts are not "Continuing Directors"; or
- the consolidation or merger of Scotts with or into any entity, or the
consolidation or merger of any entity with or into the Scotts, in
which any of the outstanding voting stock of Scotts is converted into
or exchanged for cash, securities or other property, except where the
Scotts shareholder would continue to control a majority of the
outstanding shares of voting stock of the surviving or transferee
entity.
"Consolidated Cash Flow" is similar to EBITDA before extraordinary items.
Specifically, it means, as applied to Scotts, the "Consolidated Net Income" of
Scotts for the applicable period plus:
- any extraordinary gain or loss and any net gain or loss realized in
connection with an "Asset Sale" or any other asset sale involving more
than $2.5 million, if these gains or losses were excluded in computing
"Consolidated Net Income"; plus
- provision for income taxes for Scotts and its restricted subsidiaries
for the applicable period to the extent that this provision for taxes
was deducted in computing "Consolidated Net Income"; plus
- consolidated net interest expense of Scotts and its restricted
subsidiaries for the applicable period, whether paid or accrued and
whether or not capitalized to the extent deducted in computing
"Consolidated Net Income"; plus
- depreciation, amortization other non-cash expense and restructuring
charges recorded in Scotts' fourth fiscal quarter of fiscal 1998 in an
amount not to exceed $20.4 million in the aggregate for the applicable
period to the extent that this depreciation, amortization and other
non-cash
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expenses were deducted in computing "Consolidated Net Income".
Amortization includes amortization of goodwill and other intangibles
but excludes amortization of prepaid cash expenses that were paid in a
prior period. Non-cash expenses includes any non-cash expense to the
extent that it represents an accrual of or reserve for cash expenses
in any future period or amortization of a prepaid cash expense that
was paid in a prior period; minus
- non-cash items increasing "Consolidated Net Income" for the applicable
period, other than items that were accrued in the ordinary course of
business on a consolidated basis and determined in accordance with
GAAP.
In calculating "Consolidated Cash Flow," the provision for income taxes of,
and the depreciation and amortization and other non-cash charges of, a
restricted subsidiary of Scotts will be added to "Consolidated Net Income" to
compute "Consolidated Cash Flow" only to the extent that a corresponding amount
would be permitted at the date of determination to be dividended to Scotts by
the restricted subsidiary pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that subsidiary or its stockholders,
other than restrictions in effect as of January 21, 1999 and other than
restrictions that are created or exist in compliance with the covenant under the
caption "Dividends and Other Payment Restrictions Affecting Subsidiaries".
"Consolidated Net Income" means, as to Scotts, the aggregate of the "Net
Income" of Scotts and its restricted subsidiaries on a consolidated basis
determined in accordance with GAAP, with the following exceptions:
- the "Net Income," but not loss of any entity that is not a restricted
subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to Scotts or one of its restricted
subsidiaries;
- the "Net Income" of any restricted subsidiary will be excluded to the
extent that the restricted subsidiary could not dividend or distribute
its "Net Income" to Scotts under applicable law, its agreements or the
indenture;
- the "Net Income" of any entity acquired in a pooling of interests
transaction for any period prior to the date of the acquisition shall
be excluded;
- the "Net Income" but not loss of any unrestricted subsidiary will be
excluded, whether or not distributed to the Scotts;
- restructuring charges and write-offs recorded prior to January 21,
2000, in an aggregate amount of $12.5 million or less will be
excluded; and
- the cumulative effect of a change in accounting principles will be
excluded.
"Continuing Directors" means any member of the Board of Directors of Scotts
who:
- was a member of the Board of Directors on January 21, 1999; or
- was nominated for election or elected to the Board of Directors with
the approval of a majority of the "Continuing Directors" who were
members of the Board at the time of the nomination or election.
"Fixed Charges" means, as applied to Scotts, the sum, without duplication,
of:
- the consolidated net interest expense of Scotts and its restricted
subsidiaries for the applicable period including amortization of
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with "Capital Lease Obligations," imputed
interest on "Attributable Debt," commissions, discounts and other fees
and charges incurred on letter of credit or bankers' acceptance
financings, and net payments on hedging obligations, but excluding
amortization of debt issuance costs and other non-cash amortization;
plus
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- the consolidated interest of Scotts and its restricted subsidiaries
that was capitalized during the applicable period; plus
- any interest expense on indebtedness of another entity that is
guaranteed by Scotts or one of its restricted subsidiaries or secured
by a lien on assets of Scotts or one of its restricted subsidiaries;
plus
- the product of:
- all dividend payments, whether or not in cash, on any series of
preferred stock of Scotts or any of its restricted subsidiaries,
other than dividend payments on payable solely in non-redeemable
capital stock of Scotts or to Scotts or a restricted subsidiary,
times
- a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of Scotts, expressed as a decimal, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio," as applied to Scotts, means, the ratio of
"Consolidated Cash Flow" to "Fixed Charges" for the applicable period. In the
event that Scotts or any of its restricted subsidiaries incurs, assumes,
guarantees or redeems any indebtedness other than revolving credit borrowings or
issues or redeems preferred stock during the applicable period, then the "Fixed
Charge Coverage Ratio" shall be calculated, based on the assumption that the
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the "Fixed Charge Coverage Ratio":
- acquisitions by Scotts or any of its restricted subsidiaries and any
related financing transactions that occurs during the applicable
period will be assumed to have occurred on the first day of the
four-quarter reference period;
- the "Consolidated Cash Flow" attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the date triggering calculation of the "Fixed
Charge Coverage Ratio" will be excluded; and
- the "Fixed Charges" attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the date triggering calculation of the "Fixed
Charge Coverage Ratio" will be excluded, but only to the extent that
the obligations giving rise to the "Fixed Charges" will not be
obligations of Scotts or any of its restricted subsidiaries following
that date.
"Net Income", as applied to Scotts, means the net income or loss of Scotts
and its restricted subsidiaries, determined in accordance with GAAP and before
any reduction for preferred stock dividends. However, "Net Income" excludes the
following items:
- any gain or loss, together with any related provision for taxes,
realized in connection with:
- any "Asset Sale" or any other asset sale involving more than $2.5
million, other than sales of inventory in the ordinary course of
business; or
- the disposition of any securities by Scotts or any of its
restricted subsidiaries or the extinguishment of any indebtedness
of Scotts or any of its restricted subsidiaries; and
- any extraordinary gain or loss, together with any related provision
for taxes; and
- any non-cash expenses attributable to grants or exercises of employee
stock options.
"Permitted Liens" means:
- liens securing senior debt that was permitted by the terms of the
indenture to be incurred;
- liens in favor of Scotts or the subsidiary guarantors;
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- pre-existing liens on property of acquired entities, as long as the
liens were not entered into in contemplation of the acquisition;
- liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
- liens to secure indebtedness, including "Capital Lease Obligations"
permitted by the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with
the indebtedness;
- liens existing on January 21, 1999;
- liens on assets of subsidiary guarantors to secure senior debt of that
subsidiary guarantor that was permitted by the indenture to be
incurred;
- liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
as long as an adequate reserve has been established under GAAP;
- liens incurred in the ordinary course of business on obligations of
$5.0 million or less at any one time outstanding; and
- liens on assets of unrestricted subsidiaries that secure non-recourse
debt of unrestricted subsidiaries.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of U.S. federal income tax
consequences of the exchange offer. This discussion is based on the current
provisions of the Internal Revenue Code of 1986, applicable Treasury
regulations, judicial authority and administrative rulings and practice. This
discussion is generally limited to the tax consequences to holders that hold
notes as capital assets within the meaning of Section 1221 of the Code. There
can be no assurance that the Internal Revenue Service will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify these statements and conditions. Any changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Some holders, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States, may be subject
to special rules not discussed below.
For U.S. federal income tax purposes, the exchange of original notes for
new, registered notes in the exchange offer should not be treated as a taxable
transaction. As a result, there should be no federal income tax consequences to
holders exchanging original notes for new, registered notes in the exchange
offer. A holder should have the same adjusted basis and holding period in a new,
registered note as it had in an original note immediately prior to the exchange.
LEGAL MATTERS
Legal matters relating to the exchange offer are being passed upon for
Scotts by Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio, our outside
counsel.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited consolidated financial statements of The Scotts Company and its
Subsidiaries as of September 30, 1998 and 1999 and for the years ended September
30, 1997, 1998 and 1999 incorporated by reference in this prospectus have been
audited by PricewaterhouseCoopers LLP, independent certified public accountants,
as indicated in their report with respect thereto and incorporated by reference
herein.
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WHERE YOU CAN FIND MORE INFORMATION
Scotts is required to comply with the reporting requirements of the
Exchange Act and must file annual, quarterly and other reports with the
Commission. Scotts is also subject to the proxy solicitation requirements of the
Exchange Act and, accordingly, will furnish audited financial statements to our
shareholders in connection with our annual meetings of shareholders.
Scotts has filed with the Commission a registration statement under the
Securities Act covering the notes to be issued in the exchange offer. As
permitted by the Commission's rules, this prospectus omits information included
in the registration statement. For further information pertaining to the notes,
we refer you to the registration statement, including its exhibits. We are also
incorporating the following documents into this prospectus by reference:
- our amended current reports on Form 8-K/A dated October 7, 1998 and
January 21, 1999;
- our amended Quarterly Reports on Form 10-Q/A for the three month periods
ending January 1, 2000 and April 1 and July 1, 2000;
- our amended Annual Report on Form 10-K/A for the fiscal year ended
September 30, 1999;
- our proxy statement for our 2000 annual meeting of shareholders, as filed
with the Commission on January 14, 2000; and
- all other documents that we file under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act prior to the consummation of the exchange offer.
Any statements made in this prospectus concerning the contents of any
contract, agreement or other document constitute summaries of the material terms
thereof are not necessarily complete summaries of all of the terms. If we have
filed a contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved. You may read and copy any of the information we
file with the Commission at the Commission's public reference rooms at Room
1024, 450 Fifth Street, N.W., Washington, D.C., at 7 World Trade Center, 13th.
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You can also obtain copies of filed
documents by mail from the public reference section of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Please
call the Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Filed documents are also available to the public on the
Commission's web site at http://www.sec.gov.
Copies of documents incorporated in this prospectus by reference may be
obtained upon request without charge by the contacting us at the following
address: The Scotts Company, World Headquarters, 41 South High Street, Suite
3500, Columbus, Ohio 43215, Attention: Treasurer.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act including, in particular, the statements about our
plans, strategies and prospects under the headings "Prospectus Summary,"
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements are reasonable, we can give no assurance that our
plans, intentions or expectations will be achieved. Important factors that could
cause actual results to differ materially from the forward looking statements we
make in this prospectus are set forth above under the caption "Risk Factors" and
incorporated by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Forward-Looking Statements" in our Annual
Report on Form 10-K for the fiscal year ended September 30, 1999.
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$330,000,000
THE SCOTTS COMPANY
8.625% SENIOR SUBORDINATED NOTES DUE 2009
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
[THE SCOTTS COMPANY LOGO]
PROSPECTUS
December 12, 2000
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