<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1997.
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
U.S. Home & Garden Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 2879 77-0262908
(State or other jurisdiction of (Primary standard industrial (IRS employer
incorporation or organization) classification number) identification number)
</TABLE>
655 Montgomery Street
San Francisco, CA 94111
(415) 616-8111
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------
Robert Kassel, President
U.S. Home & Garden Inc.
655 Montgomery Street
San Francisco, CA 94111
(415) 616-8111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
Robert J. Mittman, Esq. Kenneth R. Lamb, Esq.
Tenzer Greenblatt LLP Gibson, Dunn & Crutcher LLP
405 Lexington Avenue One Montgomery Street
New York, New York 10174 Telesis Tower
Telephone No. (212) 885-5000 San Francisco, California 94104
Telecopier No. (212) 885-5001 Telephone No. (415) 393-8200
Telecopier No. (415) 986-5309
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
===============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Maximum Aggregate
Title of Each Class of Amount to be Offering Price Offering Amount of
Securities to be Registered Registered Per Share(1) Price(1) Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share ........................ 6,900,000 (2) $4.75 $32,775,000 $9,932
- -------------------------------------------------------------------------------------------------------
Total Registration Fee ......................................................... $9,932
=======================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 900,000 additional shares of Common Stock pursuant to an
over-allotment option.
---------------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 22, 1997
6,000,000 Shares
U.S. HOME & GARDEN INC.
Common Stock
---------------------
Of the 6,000,000 shares of common stock, par value $.001 per share (the
"Common Stock"), of U.S. Home & Garden Inc. (the "Company") offered hereby,
5,000,000 shares are being sold by the Company and 1,000,000 shares are being
sold by certain stockholders of the Company (the "Selling Stockholders"). See
"Principal and Selling Stockholders." The Company will not receive any proceeds
from the sale of the Common Stock offered by the Selling Stockholders. The
Common Stock is traded on The Nasdaq SmallCap Market under the symbol "USHG."
On October 20, 1997, the last reported sale price of the Common Stock as
reported on the Nasdaq SmallCap Market was $4.84375 per share. See "Price Range
of Common Stock."
---------------------
See "Risk Factors" beginning on Page 9 for a discussion of certain information
that should be considered by prospective purchasers of the Common Stock offered
hereby.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================
Underwriting Proceeds to Proceeds to the
Price to Discounts and the Selling
the Public Commissions(1) Company(2) Stockholders
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ...... $ $ $ $
- ------------------------------------------------------------------------------------
Total(3) ...... $ $ $ $
====================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters by the Company and the Selling Stockholders and other
matters.
(2) Before deducting expenses of the offering, payable by the Company,
estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 900,000 shares of Common Stock at the Price to the Public less
Underwriting Discounts and Commissions, solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ , and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are being offered hereby by the Underwriters
named herein, subject to prior sale, when, as and if issued by the Company and
delivered to and accepted by the Underwriters and subject to certain prior
conditions, including the right of the Underwriters to reject any order in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York at the offices of EVEREN Clearing
Corporation or through the facilities of The Depository Trust Company on or
about , 1997.
EVEREN Securities, Inc. JOSEPHTHAL LYON & ROSS
INCORPORATED
The date of this Prospectus is , 1997
<PAGE>
[Photos to be provided]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this Prospectus in its
entirety. Except as otherwise indicated, all per share data and information in
this Prospectus relating to the number of shares of Common Stock outstanding
assumes no exercise of the Underwriters' over-allotment option to purchase an
additional 900,000 shares of Common Stock from the Company. See "Underwriting."
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Prospectus contains statements that are forward-looking, such as statements
relating to plans for future activities. Such forward-looking information
involves important risks and uncertainties that could significantly affect
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to, those
relating to the Company's growth strategy, customer concentration, outstanding
indebtedness, dependence on weather conditions, seasonality, expansion and
other activities of competitors, changes in federal or state environmental laws
and the administration of such laws, protection of trademarks and other
proprietary rights and the general condition of the economy and its effect on
the securities markets. See "Risk Factors."
The Company
U.S. Home & Garden Inc. (the "Company") is a leading manufacturer and
marketer of a broad range of consumer lawn and garden products. The Company's
products include weed preventive landscape fabrics, fertilizer spikes,
decorative landscape edging, shade cloth and root feeders, which are sold under
recognized brand names such as WeedBlock(R), Jobe's(R), Emerald Edge(R), Shade
Fabric(TM) and Ross(R). The Company believes that it has significant market
share and brand-name recognition in several of its primary product categories.
The Company markets its products through most large national home improvement
and mass merchant retailers ("Retail Accounts"), including Home Depot, Lowe's,
Kmart, Builder's Square, Wal-Mart and Home Base.
The Company has experienced significant growth in recent years. Net sales,
income from operations and net income grew at average compound annual rates of
63%, 77% and 42%, respectively, during the period from the fiscal year ended
June 30, 1995 through the fiscal year ended June 30, 1997. The Company achieved
record results from operations for the fiscal year ended June 30, 1997, with
net sales, income from operations and net income increasing to $52.0 million,
$10.7 million and $3.2 million, respectively, from $27.0 million, $3.7 million
and $2.5 million for the fiscal year ended June 30, 1996. The Company believes
that its success has been primarily attributable to the expansion of its
product lines through the acquisition of complementary lawn and garden
businesses, the quality of its products, its focus on providing Retail Accounts
with a single source of lawn and garden products, the efficiency and
reliability of its inventory tracking and order fulfillment systems and its
distinctive advertising and in-store displays.
Lawn and Garden Industry
Historically, the lawn and garden industry was comprised of relatively
small regional manufacturers and distributors whose products were sold to
consumers primarily through local nurseries and garden centers. As the industry
has grown, national home improvement and mass merchant retailers have replaced
many of these local garden centers as the primary retail source for lawn and
garden products. In an effort to improve operating margins and reduce the
number of vendors needed to source high volume lawn and garden products, the
preference among home improvement and mass merchant retailers has shifted to
single source suppliers such as the Company that offer broad product lines of
consumer brand-name merchandise and provide the product support necessary to
stimulate consumer demand and ensure timely and cost effective order
fulfillment. Smaller regional suppliers generally lack the capital and other
resources necessary to offer the variety and number of product lines, the
product support and the inventory stocking and tracking capabilities required
by home improvement and mass merchant retailers.
3
<PAGE>
Regional manufacturers, distributors and marketers are now largely
fragmented and the Company believes that many of them are attractive
acquisition candidates for larger suppliers and distributors in the lawn and
garden industry. The Company has historically been successful in locating,
acquiring and integrating certain of these manufacturers and distributors into
its business and intends to continue its acquisition program as a principal
component of its growth strategy.
According to the 1996-1997 National Gardening Survey, 1996 retail sales of
lawn and garden products were approximately $22 billion and 64% of the
approximately 101 million households in the United States participated in some
form of gardening activity during 1996. In addition, sales growth in the lawn
and garden industry is being driven in part by the aging of the "baby boomer"
consumer segment. According to the National Gardening Survey, persons 50 years
of age and older spent an average of $400 per household on lawn and garden
activities in 1996.
Business Strategy
The Company's business objective is to be a leading single source supplier
of lawn and garden products to Retail Accounts and its strategy includes: (i)
marketing low-cost, high-margin products that stimulate impulse buying by
consumers; (ii) supplying Retail Accounts with a broad range of brand-name
products within each of its product catergories; (iii) utilizing distinctive
packaging and point-of-purchase product displays, new product introductions and
other merchandising techniques to stimulate consumer demand; (iv) generating
brand-name recognition of its products through national marketing and
advertising programs; and (v) promoting Retail Account satisfaction by
providing them with timely and cost efficient order fulfillment services.
Growth Strategy
The Company attributes its historical growth and success to its ability to
capitalize on the consolidation of the lawn and garden industry by locating,
acquiring and effectively integrating acquisition targets and its ability to
act as an efficient single source supplier of a broad range of quality
products. The Company intends to continue this growth strategy, which consists
of the following principal components:
o Pursue Additional Strategic Acquisitions. The Company plans to continue its
primary strategy of acquiring complementary lawn and garden companies and
product lines. The Company has consummated five (5) such acquisitions since
1992. By consolidating companies with complementary product lines, the
Company believes it can capitalize on its existing channels of distribution
and gain market share by increasing sales to its Retail Accounts.
o Increase Brand Awareness. The Company intends to enhance existing
consumer brand awareness by expanding its advertising and marketing
efforts with an emphasis on its Jobe's fertilizer spikes, a
nationally-recognized brand name. The Company believes that the
modernization of its Jobe's packaging, together with a national television
advertising campaign targeted at the "baby boomer" consumer segment, will
allow it to further capitalize on its brand name recognition.
o Utilize Existing Infrastructure. The Company's management and
administrative infrastructure has been designed to accommodate the
integration of additional products when suitable lawn and garden companies
and product lines are identified and acquired. The Company believes that
its ability to efficiently integrate new businesses and product lines into
its existing infrastructure will result in significant savings in the
areas of management, distribution, marketing and customer service. The
Company also believes that its infrastructure, including its on-line
inventory tracking and order fulfillment capabilities, allows it to be an
effective and efficient source of lawn and garden products for Retail
Accounts.
o Focus on High-Volume Retailers. National high-volume retailers such as the
Company's Retail Accounts are gaining an increasing share of the lawn and
garden
4
<PAGE>
retail market. By focusing on the emergence of high-volume retailers and
their needs, including providing broad product lines, order fulfillment
capabilities and marketing and merchandising programs, the Company
believes that it will increase its market share and enhance its position
as a leading single source supplier of lawn and garden products.
Recent Acquisitions
Since August 1992, the Company has consummated the following five (5)
acquisitions of lawn and garden companies or product lines for a total of over
$56 million in consideration:
o Golden West Chemical Distributors, Inc. A manufacturer of humic
acid-based products designed to improve crop yield, which was acquired in
August 1992 for aggregate consideration of approximately $2.2 million.
o Easy Gardener, Inc. A manufacturer of multiple fabric landscaping
products including WeedBlock, which was acquired in September 1994 for
aggregate consideration of approximately $23.5 million.
o Emerald Products LLC. A manufacturer of decorative landscape edging,
which was acquired in August 1995 for aggregate consideration of $935,000.
o Weatherly Consumer Products Group, Inc. A manufacturer of fertilizer
spikes and other lawn and garden products, which was acquired in August
1996 for aggregate consideration of approximately $25.9 million.
o Plasti-Chain Product Line of Plastic Molded Concepts, Inc. A line of
plastic chain links and decorative edgings, which was acquired in May 1997
for approximately $4.3 million.
The Company was organized under the laws of the State of California in
August 1990 under the name Natural Earth Technologies, Inc. In January 1992,
the Company reincorporated under the laws of the State of Delaware and, in July
1995, changed its name to U.S. Home & Garden Inc. The Company's lawn and garden
operations are conducted through its subsidiary Easy Gardener, Inc. ("Easy
Gardener") and Easy Gardener's subsidiary, Weatherly Consumer Products Group,
Inc. ("Weatherly"), and the Company's agricultural operations are conducted
through its subsidiary Golden West Agri-Products, Inc. ("Golden West"). Unless
the context otherwise requires, references in this Prospectus to "the Company"
mean U.S. Home & Garden Inc., its subsidiaries Easy Gardener and Golden West
and the subsidiaries of Easy Gardener. The Company's executive offices are
located at 655 Montgomery Street, San Francisco, California 94111, and its
telephone number is (415) 616-8111.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered:
By the Company ..................... 5,000,000 shares
By the Selling Stockholders ...... 1,000,000 shares
Total ........................... 6,000,000 shares
Common Stock to be
outstanding after the
offering(1) ........................ 20,354,656 shares
Use of Proceeds ..................... The Company intends to use the net proceeds
of this offering to repurchase certain unit
purchase options for approximately $4.5 million
and the balance for working capital and general
corporate purposes, which may include
possible future acquisitions. See "Use of Proceeds."
Nasdaq SmallCap Symbol ............... USHG
Risk Factors ........................ The Common Stock offered hereby involves
certain risks. See "Risk Factors."
</TABLE>
- ------------
(1) Based on shares of Common Stock outstanding as of October 20, 1997. Does not
include (i) an aggregate of approximately 2,730,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options under the
Company's 1991, 1995, 1997 and Non-Employee Director Stock Option Plans
(the "Stock Option Plans"); (ii) an aggregate of approximately 1,070,000
shares of Common Stock which may be issued upon exercise of options
available for future grant under the Stock Option Plans; and (iii)
approximately 7,800,000 shares issuable upon exercise of options granted
outside of the Stock Option Plans and certain outstanding warrants,
exclusive of any additional shares that may be issuable as a result of the
anti-dilution provisions of such options and warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management -- Stock Option Plans," "Certain Transactions" and Note 9 to
Notes to Consolidated Financial Statements.
6
<PAGE>
Summary Financial Data
(in thousands, except percentage and per share data)
The summary financial data set forth below are derived from the Company's
audited financial statements. Such information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the audited consolidated financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended June 30,
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1993 1994 1995 1996 1997
----------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales .............................. $ 2,910 $ 3,063 $19,692 $27,031 $ 52,046
Gross profit ........................... 1,402 1,608 10,541 14,361 28,397
Selling, general and administrative
expenses(1) ........................... 1,826 6,786 7,152 10,612 17,745
------- -------- -------- -------- -----------
Income (loss) from operations ......... (424) (5,178) 3,389 3,749 10,652
Other income (expense) .................. (45) (41) (1,776) (1,940) (3,262)
Income (loss) before extraordinary
expense .............................. (469) (5,219) 1,575 2,524 4,190
Extraordinary gain (expense), net ...... 389 -- -- -- (1,007)
Net income (loss) ..................... $ (80) $ (5,219) $ 1,575 $ 2,524 $ 3,183
======= ======== ======== ======== ===========
Income (loss) per share before
extraordinary expense ............... $ (0.22) $ (1.31) $ 0.19 $ 0.25 $ 0.26(2)
Net income (loss) per share ............ $ (0.04) $ (1.31) $ 0.19 $ 0.25 $ 0.20(2)
======= ======== ======== ======== ===========
Weighted average number of
common and common equivalent
shares outstanding .................. 2,178 3,980 8,376 10,206 17,908(2)
======= ======== ======== ======== ===========
Company Operating Data(3):
Net sales growth ..................... -- -- -- 37.3% 92.5%
Gross profit growth .................. -- -- -- 36.2 97.7
Income from operations growth ......... -- -- -- 10.6 184.1
Gross margin ........................... -- -- 53.5% 53.1 54.6
Operating margin ........................ -- -- 17.2 13.9 20.5
Net income margin ..................... -- -- 8.0 9.3 6.1
</TABLE>
At June 30, 1997
---------------------------
Actual As Adjusted(4)
--------- ---------------
Balance Sheet Data:
Working capital ............ $ 2,292 $20,158
Intangible assets, net ...... 44,364 44,364
Total assets ............... 68,475 86,341
Short-term debt ............ 8,990 8,990
Long-term debt ............... 17,570 17,570
Stockholders' equity ......... 31,926 49,792
- ------------
(1) Includes goodwill amortization expense of $91,000, $105,000, $475,000,
$585,000 and $1.3 million for the fiscal years ended June 30, 1993, 1994,
1995, 1996 and 1997, respectively.
(2) Net income per share for fiscal 1997 is calculated using the modified
treasury stock method and includes 13,695,000 weighted average common
shares outstanding and 4,213,000 common shares issuable from the exercise
of outstanding options and warrants for fiscal 1997. The calculation
assumes that all outstanding options and warrants have been exercised and
the proceeds from such exercises
7
<PAGE>
have been used to purchase 20% of the shares outstanding and the balance
used to retire outstanding indebtedness. The retirement of the outstanding
indebtedness and related reduction in interest expense is assumed to
increase net income by $450,000 to $3.6 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 14 to Notes to Consolidated Financial Statements.
(3) Certain comparative Company Operating Data for the fiscal years ended June
30, 1993, 1994 and 1995 have been omitted due to the lack of relevant
comparison after the Company's acquisition of Easy Gardener, Inc. in
September 1994.
(4) As adjusted to give effect to the sale by the Company of 5,000,000 shares
of Common Stock offered by it hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
8
<PAGE>
RISK FACTORS
Each prospective investor should carefully consider, in addition to the
other information contained in this Prospectus, the following information in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
Risks Associated with Growth Strategy
The acquisition of complementary lawn and garden companies and product
lines continues to be a principal component of the Company's growth strategy.
The Company's ability to successfully implement its strategy will depend upon a
number of factors including, among other things, the Company's ability to
identify attractive acquisition candidates, to consummate such acquisitions on
terms favorable to the Company, to obtain financing to consummate such
acquisitions on economically acceptable terms, to retain, hire and train
professional management and sales personnel at each such acquired business and
to promptly and profitably integrate the acquired operations into the Company's
operations. Acquiring additional businesses may also require the consent of the
Company's lenders. No assurance can be given that such consent will be obtained.
Any such acquisitions are likely to involve incurring additional debt or the
issuance of one or more classes or series of the Company's equity securities,
which could have a dilutive effect on the then outstanding Common Stock of the
Company. The Company currently has no agreements, commitments, understandings or
arrangements with respect to any acquisition. There can be no assurance that The
Company will continue to be able to manage its expanding operations
successfully, implement its acquisition strategy or that any acquired operations
will be profitable or will be successfully integrated into the Company or that
any such future acquisitions will not otherwise materially and adversely affect
the Company. See "Business -- Recent Acquisitions."
As a result of five prior acquisitions, the Company is required to
amortize the excess of costs over net assets acquired (an aggregate of
approximately $44.4 million) over a period of up to 30 years. Although such
amortization does not have an effect on the Company's available capital, it
will be treated as an operating expense that will reduce the Company's reported
earnings. Future acquisitions could result in substantial additional
amortization charges to the Company from the accumulation of goodwill and other
intangible assets, which would reduce future earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General" and Consolidated Financial Statements.
Customer Concentration; Consolidating Customer Base
The Company's customers include home improvement centers, mass
merchandisers, hardware stores, nurseries and garden centers and other retail
channels throughout the United States. The Company's three largest customers
for fiscal 1997, Home Depot, Lowe's and Kmart, accounted for approximately 26%,
10% and 7%, respectively, of its net sales during such year. During fiscal
1996, Home Depot, Lowe's, Kmart and Builder's Square and Lowe's accounted for
27%, 9%, 7% and 5%, respectively, of the Company's net sales. During fiscal
1995, sales to Home Depot, Kmart, Builders Square and Lowe's accounted for
approximately 27%, 9%, 7% and 6%, respectively, of the Company's net sales. The
Company's ten largest customers as a group accounted for 71%, 69% and 65% of
its net sales during fiscal 1995, 1996 and 1997, respectively. Sales to such
customers are not governed by any contractual arrangement and are made pursuant
to standard purchase orders. While the Company believes that relations with its
largest customers are good, the loss of any of these customers could have a
material adverse effect on the Company.
The Company does not have long-term purchase agreements or other
contractual assurances as to future sales to these or any other Retail
Accounts. The loss of, or significant reduction in sales to, such Retail
Accounts could have a material adverse effect on the Company. Moreover, retail
distribution channels in the lawn and garden industry have been consolidating
in recent years, as home improvement and mass merchant retailers have replaced
local nurseries and garden centers as the dominant source for lawn and garden
products. To the extent such consolidation continues to occur, the Company's
sales and profitability may be increasingly sensitive to a significant
deterioration in the financial condition of, or other adverse developments in
its relationships with, one
9
<PAGE>
or more Retail Accounts. In addition, from time to time, the Company has
experienced credit losses due to customers seeking protection under bankruptcy
or similar laws. Although such credit losses have not had a material adverse
effect on the Company to date, there can be no assurance that future credit
losses will not have a material adverse effect on the Company. See "Business --
Customers."
Significant Outstanding Indebtedness
At September 30, 1997, the Company had an aggregate of $24.6 million of
indebtedness outstanding through Easy Gardener under various financing
arrangements with certain financial institutions (the "Lenders") pursuant to a
credit agreement (the "Credit Agreement"). As part of the Credit Agreement, the
Lenders provided Easy Gardener with a $13.0 million revolving credit facility
to finance its working capital requirements and an additional $3.0 million line
of credit under which, subject to certain eligibility requirements, it may
borrow amounts during the months of February through May of each fiscal year to
finance Easy Gardener's working capital needs during its "peak" selling season.
Any such amounts borrowed under this last line must be repaid by May 31 of the
year in which borrowed. There were no amounts outstanding under the revolving
credit facility or line of credit at September 30, 1997.
The Credit Agreement contains financial covenants which require Easy
Gardener to comply with certain financial ratios, including interest coverage
ratios (i.e., the ratio of earnings before interest, taxes, depreciation and
amortization ("EBITDA") to interest expense for Easy Gardener) and debt service
coverage ratio (i.e., the ratio of cash flow and scheduled principal payments
under the credit facilities to such scheduled payments). In addition, Easy
Gardener is required to maintain a minimum net worth equal to $24.0 million in
fiscal 1998, and, for each year thereafter during the term of the Credit
Agreement, a sum equal to 75% of Easy Gardener's net income for any particular
year plus the minimum net worth of Easy Gardener for the immediately preceding
year. Easy Gardener, in the past, has on two occasions not been in compliance
with either covenants relating to minimum EBITDA and/or covenants relating to
restrictions on corporate loans and advances. Although Easy Gardner received
waivers of the application of such covenants in the past, there can be no
assurance that the Lenders will waive any future covenant violations. The
Credit Agreement also limits or prohibits the Company, subject to certain
exceptions, from, among other things, incurring additional indebtedness, liens,
guaranties and certain capital and operating lease obligations, selling assets
(other than in the ordinary course of business), paying dividends, merging or
consolidating with another corporation, changing the Company's business and
making certain investments, loans or advancements, including to affiliates.
Easy Gardener's obligation to pay the principal of, interest on, premium, if
any, and all other amounts payable under such indebtedness is secured by
substantially all of the assets of Easy Gardener and its subsidiaries and the
irrevocable guaranties of the Company and Easy Gardener's subsidiaries. If the
Company were obligated to repay all or a significant portion of its
indebtedness, there can be no assurance that the Company would have sufficient
cash to do so or that the Company could successfully refinance such
indebtedness. In addition, a significant portion of the Company's cash flow
from operations is used to make payments under the Credit Agreement from time
to time. If an event of default occurs under the credit facilities, the Lenders
would be entitled to exercise the remedies available to a secured lender under
applicable law, including foreclosure on the assets of Easy Gardener, which
comprise substantially all of the assets of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Dependence on Weather Conditions
Weather is a significant factor in determining market demand for the
Company's products and is inherently unpredictable. Inclement weather during
the spring gardening season, particularly poor weekend weather, tends to
depress consumer purchases of do-it-yourself lawn and garden care products.
During protracted periods of inclement weather, sales of lawn and garden
products are likely to be severely diminished. In addition, lack of snow or
rain during the winter may adversely affect spring growing conditions and also
lower sales of lawn and garden products. Any of the foregoing may have a
material adverse effect on the Company. Without limiting the generality of the
foregoing, protracted or particularly severe weather conditions may adversely
impact the Company's ability to comply with its obligations to its Lenders
under its financing arrangements. See "-- Significant Outstanding
Indebtedness."
10
<PAGE>
Competition
The consumer lawn and garden care industry is highly competitive and
somewhat fragmented. The Company competes with a combination of national and
regional companies ranging from large agri-chemical companies to garden catalog
businesses and companies specializing in the manufacture of lawn and garden
care products. Several of such companies, such as Solaris Group, a division of
Monsanto Company, and the Scotts Miracle Gro Company have captured a
significant, and in certain cases controlling, share of such markets. Many of
the Company's competitors have achieved significant national, regional and
local brand name and product recognition and engage in frequent and extensive
advertising and promotional programs, both generally and in response to efforts
by new competitors entering the market or existing competitors introducing new
products. Many of these companies have substantially greater financial,
technical, marketing and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully or that
reacting to competitive pressures will not materially adversely affect the
Company. See "Business -- Competition."
Dependence on Third-Party Manufacturing and Supply Arrangements
The Company purchases all of the material for its primary lawn and garden
product, WeedBlock, from Tredegar Industries, Inc. ("Tredegar") pursuant to a
supply arrangement that can be terminated by Tredegar at any time. The Company
purchases its basic materials for its other lawn and garden products from a
variety of suppliers. Although the Company has purchased all of its landscape
fabric supply from Tredegar for in excess of 10 years and believes that its
relationship with Tredegar is good, Tredegar is free to terminate its
relationship with the Company at any time and accordingly could market its
fabrics to other companies, including competitors of the Company. There can be
no assurance that the production capacity of Tredegar or the Company's other
suppliers, manufacturers and processors will be sufficient to satisfy the
Company's requirements or that alternate suppliers, manufacturers and
processors will be available on commercially reasonable terms, or at all. The
unavailability of certain materials, the unavailability of manufacturing and
processing sources or delays either in manufacturing or in locating new
manufacturing and processing sources could adversely affect the Company's
ability to deliver its products on a timely and competitive basis. In addition,
because the Company recognizes a significant percentage of its annual sales
during a few months of the year, any delay in the delivery or the
unavailability of its products during such months could materially adversely
affect the Company. See "Business -- Conversion, Manufacturing and Supply," and
"-- Seasonality."
Seasonality
The Company's sales are highly seasonal due to the nature of the lawn and
garden business, which parallels the annual growing season. The Company's sales
and shipping are concentrated in the period from late December through May when
customers purchase supplies for spring planting and Retail Accounts increase
their inventory of lawn and garden products. To support this sales peak, the
Company must anticipate demand and increase inventories of finished goods
throughout the fall and winter. Accordingly, the Company's levels of raw
materials and finished goods inventories tend to be at their highest, relative
to sales, during the Company's first and second fiscal quarters. These factors
increase variations in the Company's quarterly results of operations and
potentially expose the Company to greater adverse effects of changes in
economic conditions and industry trends. Moreover, actual demand for the
Company's products may vary substantially from the anticipated demand, leaving
the Company with either excess inventory or insufficient inventory to satisfy
customer orders. Sales typically decline by early to mid-summer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations and Seasonality," "Business --
Seasonality" and "-- Inventory and Distribution."
Dependence on a Limited Number of Product Lines
Approximately 44% and 24% of the Company's sales for fiscal 1997 were
derived from sales of landscape fabric and fertilizer spikes. In fiscal 1995
and 1996, landscape fabric represented 71% and 69% of the Company's net sales,
respectively. Any adverse developments with respect to either of these product
lines, whether arising from actions by existing or new competitors, the
inability of the Company to obtain adequate supplies of landscape fabrics or
the raw materials necessary to manufacture fertilizers, or otherwise, could
have a material
11
<PAGE>
adverse effect on the Company. The Company has also developed a new marketing
campaign for the Jobe's line of products, which has required, and will require,
the allocation of significant capital and other resources by the Company. No
assurance can be given that such campaign will be successful, in which case the
expenditures made to date and in the future in connection with the campaign may
not generate sufficient sales to be profitable or profitable at the same level
as has been achieved historically in connection with the Jobe's line of
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Products" and "-- Sales and Marketing."
Retail Industry; General Economic Conditions
The Company sells its products through retailers, including home
improvement centers, mass merchandisers, hardware stores, nurseries and other
retail channels. Retail sales depend, in part, on general economic conditions.
A significant decline in such conditions could have a negative impact on sales
by retailers of products sold by the Company and consequently could have a
material adverse effect on the Company. Retail environments which are poor or
perceived to be poor, whether due to economic or other conditions, may lead
manufacturers and marketers, including the Company, to increase their
discounting and promotional activities. Such activities could have a material
adverse effect on the Company's profit margins and, consequently, its results
of operations. The Company may also not be able to fully offset the impact of
inflation through price increases in an unfavorable retail market.
Government Regulation
The Company is subject to many laws and governmental regulations and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Fertilizer and Pesticide Regulation. Products marketed, or which may be
marketed, by the Company as fertilizers or pesticides are subject to an
extensive and frequently evolving statutory and regulatory framework, at both
the Federal and state levels.
The distribution and sale of pesticides is subject to regulation by the
U.S. Environmental Protection Agency ("EPA") pursuant to the Federal
Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as well as regulation by
many states in a manner similar to FIFRA. Under FIFRA and similar state laws,
all pesticides must be registered with the EPA and the state and must be
approved for their intended use. FIFRA and state regulations also impose other
stringent requirements on marketing of such products. Moreover, many states also
impose similar requirements upon products marketed for use as fertilizing
materials, which are not typically regulated under FIFRA. Failure to comply with
the requirements of FIFRA and state laws that regulate marketing and
distribution of pesticides and fertilizers could result in the imposition of
sanctions, including, but not limited to, suspension or restriction of product
distribution, civil penalties and/or criminal sanctions.
The Company markets certain animal repellent and pesticide products that
are subject to FIFRA and to similar state regulations. The Company also markets
certain fertilizer products that are subject to regulation in some states. The
Company believes that it is in material compliance with FIFRA and applicable
state regulations regarding its material business operations. However, there
can be no assurance that the Company will be able to comply with future
regulations in every jurisdiction in which the Company's material business
operations are conducted without substantial cost or interruption of
operations. Moreover, there can be no assurance that future products marketed
by the Company will not also be subject to FIFRA or to state regulations. If
future costs of compliance with regulations governing pesticides or fertilizers
increase or exceed the Company's budgets for such items, the Company's business
could be adversely affected. If any of the Company's products are distributed
and/or marketed in violation of any of these regulations, the Company could be
subject to a recall of, or a sales limitation placed on, one or more of its
products, or civil or criminal sanctions, any of which could have a material
adverse effect upon the Company's business.
Environmental Regulation. The Company's manufacturing operations are
subject to various evolving federal, state and local laws and regulations
relating to the protection of the environment, which laws govern, among other
things, emissions to air, discharges to ground, surface water and groundwater,
and the generation, handling, storage, transportation, treatment and disposal
of a variety of hazardous and non-hazardous substances
12
<PAGE>
and wastes. Federal and state environmental laws and regulations often require
manufacturers to obtain permits for these emissions and discharges. Failure to
comply with environmental laws or to obtain, or comply with, the necessary
state and federal permits can subject the manufacturer to substantial civil and
criminal penalties. Easy Gardener and Weatherly each operate one manufacturing
facility. Although the Company believes that all of its facilities are in
substantial compliance with all applicable material environmental laws, it is
currently investigating whether it needs two permits for its Waco, Texas
facility. Although the Company believes that it will not be subject to
penalties for failure to obtain a permit if one is needed, there can be no
assurance that penalties will not be assessed. Furthermore, it is possible that
there are material environmental liabilities of which the Company is unaware.
If the costs of compliance with the various existing or future environmental
laws and regulations, including any penalties which may be assessed for failure
to obtain necessary permits, exceed the Company's budgets for such items, the
Company's business could be adversely affected.
Potential Environmental Cleanup Liability. The Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
and many similar state statutes, impose joint and several liability for
environmental damages and cleanup costs on past or current owners and operators
of facilities at which hazardous substances have been discharged, as well as on
persons who generate, transport or arrange for disposal of hazardous substances
at a particular site. In addition, the opertor of a facility may be subject to
claims by third parties for personal injury, property damage or other costs
resulting from contamination present at or emanating from property on which its
facility is located. Easy Gardener and Weatherly each operate a manufacturing
facility. Moreover, the Company or its predecessors have owned or operated other
manufacturing facilities in the past and may have liability for remediation of
such facilities in the future, to the extent any is required. In this regard,
Weatherly previously owned a facility that was the subject of certain soil
remediation activities. Although this facility was sold by Weatherly prior to
the Company's acquisition of Weatherly, there can be no assurance that the
Company will not be liable for any previously existing environmental
contamination at the facility. Moreover, although the purchaser of the facility
indemnified Weatherly for any environmental contamination liability and the
sellers of Weatherly, in turn, indemnified the Company from such liability,
there can be no assurance that, if required, the indemnifying parties will be
able to fulfill their respective obligations to indemnify the Company.
Furthermore, certain business operations of the Company's subsidiaries also
involve shipping hazaradous waste off-site for disposal. As a result, the
Company could be subject to liability under these statutes. The Company could
also incur liability under CERCLA or similar state statutes for any damage
caused as a result of the release of hazardous substances owned by the Company
but processed and manufactured by others on the Company's behalf. As a result,
there can be no assurance that the manufacture of the products sold by the
Company will not subject the Company to liability pursuant to CERCLA or a
similar state statute. Furthermore, there can be no assurance that Easy Gardener
or Weatherly will not be subject to liability relating to manufacturing
facilities owned and/or operated by them currently or in the past.
Other Regulations. The Company is also subject to various other federal,
state and local regulatory requirements such as worker health and safety,
transportation, and advertising requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants. See "Business --
Government Regulation."
Product Liability
The Company, as a manufacturer of lawn and garden care and pesticide
products, may be exposed to significant product liability claims by consumers.
Although the Company has obtained product liability insurance coverage for U.S.
Home & Garden and Golden West in the aggregate amount of $3.0 million, and for
Easy Gardener and Weatherly in the aggregate amount of $2.0 million (with all
policies limited to $1.0 million per occurrence), and has obtained two umbrella
policies in the amounts of $5.0 million and $15.0 million, respectively, there
can be no assurance that such insurance will provide coverage for any claim
against the Company or will be sufficient to cover all possible liabilities.
Although the Company has not incurred any product liability claims to date, in
the event a successful suit is brought against the Company, unavailibility or
insufficiency of insurance coverage could have a material adverse effect on the
Company. Moreover, any adverse publicity arising from claims made against the
Company, even if such claims were not successful, could adversely affect the
reputation and sales of the Company's products.
Uncertainty of Protection of Trademarks and Proprietary Rights
The Company believes that its ability to successfully implement its growth
strategy is partially dependent on its ability to use its trademarks, in
particular, Easy Gardener, Jobe's and WeedBlock. In addition, except for
13
<PAGE>
patents covering two lawn edge products currently sold by the Company and
certain products obtained as a result of the acquisition of Weatherly, none of
the Company's products is covered by patents. There can be no assurance that
the Company will apply for any additional trademark or patent protection
relating to its products or that its current trademarks and patents will be
enforceable or adequately protect the Company from infringement of its
proprietary rights. Although the Company believes that the products sold by it
do not infringe upon the patents or violate the proprietary rights of others,
it is possible that such infringement or violation has occurred or may occur.
In the event that products sold by the Company are deemed to infringe upon the
patents or proprietary rights of others, the Company could be required to
modify its products or obtain a license for the manufacture and sale of such
products. There can be no assurance that, in such an event, the Company would
be able to do so in a timely manner, upon acceptable terms and conditions, or
at all, and the failure to do any of the foregoing could have a material
adverse effect upon the Company. Moreover, there can be no assurance that the
Company will have the financial or other resources necessary to enforce or
defend a patent infringement or proprietary rights violation action. In
addition, if the Company's products or proposed products are deemed to infringe
upon the patents or proprietary rights of others, the Company could, under
certain circumstances, become liable for damages, which could also have a
material adverse effect on the Company. See "Business -- Trademarks,
Proprietary Information and Patents."
In response to a claim for trademark infringement filed on July 30, 1997
by Easy Gardener against Dalen Products, Inc. ("Dalen") in the United States
District Court for the Western District of Texas, Waco Division, Dalen filed a
counterclaim against Easy Gardener and a third party complaint against the
Company. Dalen alleges, among other things, that the Company and Easy Gardener
monopolized or attempted to monopolize the market for landscape fabrics; that
the Company and Easy Gardener tortiously interfered with Dalen's contractual
and prospective contractual relationships; and that Easy Gardener infringed a
Dalen trademark, deceptively advertised the thickness of one of its products,
and misrepresented the porosity of a Dalen product. Dalen's counterclaim and
third party complaint seek an award of unspecified damages and the entry of
unspecified injunctive relief. See "Business -- Legal Proceeding."
Dependence on Management
The success of the Company will be largely dependent on the personal
efforts of Robert Kassel, its Chairman of the Board, Chief Executive Officer
and President, Richard Raleigh, its Chief Operating Officer, and Richard
Grandy, the President of Easy Gardener, all of whom devote their full time to
the affairs of the Company. Although the Company has entered into employment
agreements with Mr. Kassel and Mr. Raleigh which expire on March 31, 1998,
subject to certain automatic extension provisions, and an employment agreement
with Mr. Grandy that expires in August 1998, and has obtained "key man" life
insurance in the amount of $2.0 million on the life of Mr. Kassel and $1.0
million on the lives of each of Messrs. Raleigh and Grandy, the loss of the
services of either Mr. Kassel, Mr. Raleigh or Mr. Grandy could have a material
adverse effect on the Company. In addition, the employment agreements provide
that Messrs. Kassel and Raleigh will receive a significant severance payment
from the Company upon a change in control of the Company or the occurrence of
certain other events as described therein. The success of the Company may also
be dependent, in part, upon its ability to hire and retain additional qualified
sales and marketing personnel. There can be no assurance that the Company will
be able to hire or retain such necessary personnel. See "Management."
No Dividends
To date, the Company has not declared or paid any dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. In addition, certain agreements between Easy Gardener and
the Lenders restrict the Company from paying cash dividends on the Common Stock
without the Lenders' consent. See "Dividend Policy."
Authorization of Preferred Stock; Anti-Takeover Provisions
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with
14
<PAGE>
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. There can be no assurance that the Company
will not issue shares of preferred stock in the future. In addition, certain
provisions of Delaware law applicable to the Company could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. See
"Description of Securities -- Preferred Stock" and "-- Delaware Anti-Takeover
Law."
Common Stock Eligible for Future Sale; Registration Rights; Outstanding Options
Approximately 3,100,000 of the 20,354,656 shares of Common Stock
outstanding upon the consummation of this offering are "restricted securities,"
as that term is defined under Rule 144 promulgated under the Act. These shares
are currently eligible for sale under Rule 144. In addition, a significant
number of shares of the Common Stock issuable upon exercise of outstanding
options and warrants may be sold under currently effective registration
statements and holders of certain other options and warrants to acquire a
significant number of additional shares of Common Stock have certain
registration rights with respect to such shares. Although an aggregate of
372,650 shares to be held by officers, directors and certain stockholders of the
Company upon consummation of this offering may not be sold or otherwise
transferred for a period of 180 days following the date of this Prospectus
without the prior written consent of EVEREN Securities, Inc., no prediction can
be made as to the effect, if any, that sales or the possibility of sales of
Common Stock or shares of Common Stock issuable upon exercise of outstanding
options or warrants to purchase approximately 10,530,000 additional shares of
Common Stock or the availability of such securities for sale will have on the
market prices of the Common Stock prevailing from time to time. Nevertheless,
the possibility that substantial amounts of securities may be sold in the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities. See "Underwriting."
Broad Discretion in Application of Proceeds
All of the estimated net proceeds from this offering have been allocated
for working capital and general corporate purposes. Accordingly, the Company
will have broad discretion as to the application of such proceeds, including
possibly using a portion of such proceeds to make acquisitions. See "Use of
Proceeds."
15
<PAGE>
USE OF PROCEEDS
Based on assumed offering price of $5.00 per share, the net proceeds to the
Company from the sale of the shares of Common Stock offered by it hereby are
estimated to be approximately $22.4 million (approximately $26.6 million if the
Underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discounts and offering expenses payable by the Company.
The Company expects to use the net proceeds to repurchase, subject to entering
into agreements with the holders thereof, certain unit purchase options for
approximately $4.5 million and the balance for working capital and general
corporate purposes, which may include possible future acquisitions. The Company
will not receive any of the proceeds from the sale of the shares of Common Stock
offered by the Selling Stockholders.
The Company may use a portion of the proceeds allocated to working capital
to acquire businesses or products which the Company believes will enhance its
business. While the Company actively seeks and evaluates possible acquisition
opportunities, the Company currently has no agreements, commitments,
understandings or arrangements with respect to any acquisition.
Proceeds not immediately required for the purposes set forth above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other investment grade
interest-bearing investments.
DIVIDEND POLICY
To date, the Company has not declared or paid any dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. The payment of dividends, if any, in the future is within
the discretion of the Board of Directors and will depend upon the Company's
earnings, if any, its capital requirements and financial condition and other
relevant factors. The payment of cash dividends is restricted under the terms
of the Credit Agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997 and as adjusted to give effect to the sale of the shares of
Common Stock offered by it hereby and the application of the estimated net
proceeds therefrom. The following table should be read in conjunction with the
audited consolidated financial statements of the Company, including the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1997
------------------------------
Actual As Adjusted
---------- -----------------
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents ................................................... $ 2,083 $ 19,949
========= ===========
Short-term debt ............................................................ $ 8,990 $ 8,990
========= ===========
Notes payable, less current portion .......................................... $ 17,570 $ 17,570
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued or
outstanding ............................................................... -- --
Common Stock, $.001 par value 30,000,000 shares authorized; 14,073,000
shares issued and outstanding, actual; 19,073,000 shares issued and
outstanding, as adjusted(1) ............................................... 14 19
Additional paid-in capital ................................................ 30,783 53,178
Retained earnings ......................................................... 1,129 (3,405)(2)
--------- -----------
Total stockholders' equity ................................................ 31,926 49,792
--------- -----------
Total capitalization ................................................... $ 49,496 $ 67,362
========= ===========
</TABLE>
(1) Does not include (i) an aggregate of approximately 2,730,000 shares of
Common Stock reserved for issuance upon exercise of outstanding options
under the Stock Option Plans; (ii) an aggregate of approximately 1,070,000
shares of Common Stock which may be issued upon exercise of options
available for future grant under the Stock Option Plans; and (iii)
approximately 7,800,000 shares issuable upon exercise of options granted
outside of the Stock Option Plans and certain outstanding warrants,
exclusive of any shares that may be issuable as a result of the
anti-dilution provisions of such options and warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management -- Stock Options Plans," "Certain Transactions" and Note 9 to
Notes to Consolidated Financial Statements.
(2) Retained earnings will decrease on an as adjusted basis by the excess of the
offering price over the assumed exercise price of the unit purchase options
being repurchased hereby for an aggregate of approximately $4.5 million.
17
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded in the over-the-counter market and
been quoted on the Nasdaq SmallCap Market since March 26, 1992. The Nasdaq
SmallCap Market symbol for the Company's Common Stock is "USHG". The following
table sets forth, for the periods indicated, the high and low bid quotations
for the Common Stock as reported by Nasdaq SmallCap Market. These amounts
represent quotations between dealers (not actual transactions) and do not
include retail markups, markdowns or commissions.
High Low
---------- ----------
For the Fiscal Year Ended June 30, 1996
First Quarter ................................. $ 3.50 $ 2.75
Second Quarter ................................. 3.1875 2.375
Third Quarter ................................. 3.00 2.125
Fourth Quarter ................................. 3.625 2.625
For the Fiscal Year Ended June 30, 1997
First Quarter ................................. $ 3.313 $ 2.313
Second Quarter ................................. 2.813 2.00
Third Quarter ................................. 2.813 2.063
Fourth Quarter ................................. 3.438 2.063
For the Fiscal Year Ending June 30, 1998
First Quarter ................................. $ 5.0625 $ 2.9375
Second Quarter (through October 20, 1997) ..... 5.0625 4.6875
On October 20 1997, the last sale price of the Company's Common Stock as
quoted on the Nasdaq SmallCap Market was $4.84375. As of October 20, 1997, the
number of stockholders of record of the Company's Common Stock was 186. The
Company believes that there are in excess of 500 beneficial owners of its
Common Stock whose shares are held in "street name".
18
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except percentage and per share data)
The following selected financial data at and for the years ended June 30,
1993, 1994, 1995, 1996 and 1997 have been derived from the Company's audited
consolidated financial statements. Such information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company,
including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
Statement of Income Data: ----------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $ 2,910 $ 3,063 $19,692 $27,031 $ 52,046
Cost of sales .................................... 1,508 1,455 9,151 12,670 23,649
------- -------- -------- -------- -----------
Gross profit .................................... 1,402 1,608 10,541 14,361 28,397
Selling, general and administrative expenses(1) 1,826 6,786 7,152 10,612 17,745
------- -------- -------- -------- -----------
Income (loss) from operations .................. (424) (5,178) 3,389 3,749 10,652
Other income (expense) ........................... (45) (41) (1,776) (1,940) (3,262)
Income taxes (expense) benefit .................. -- -- (38) 715 (3,200)
------- -------- -------- -------- -----------
Income (loss) before extraordinary expense ...... (469) (5,219) 1,575 2,524 4,190
Extraordinary gain (expense), net ............... 389 -- -- -- (1,007)
------- -------- -------- -------- -----------
Net income (loss) .............................. $ (80) $ (5,219) $ 1,575 $ 2,524 $ 3,183
======= ======== ======== ======== ===========
Income (loss) per share before extraordinary
expense ....................................... $ (0.22) $ (1.31) $ 0.19 $ 0.25 $ 0.26(2)
Net income (loss) per share ..................... $ (0.04) $ (1.31) $ 0.19 $ 0.25 $ 0.20(2)
======= ======== ======== ======== ===========
Weighted average number of common and
common equivalent shares outstanding ............ 2,178 3,980 8,376 10,206 17,908(2)
======= ======== ======== ======== ===========
Company Operating Data(3):
Net sales growth .............................. -- -- -- 37.3% 92.5%
Gross profit growth ........................... -- -- -- 36.2 97.7
Income from operations growth .................. -- -- -- 10.6 184.1
Gross margin .................................... -- -- 53.5% 53.1 54.6
Operating margin ................................. -- -- 17.2 13.9 20.5
Net income margin .............................. -- -- 8.0 9.3 6.1
</TABLE>
<TABLE>
<CAPTION>
At
June 30,
At June 30, 1997
---------------------------------------------------------- ------------
As
1993 1994 1995 1996 1997 Adjusted(4)
Balance Sheet Data: -------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) ...... $ 607 $ (347) $ 3,326 $ 5,328 $ 2,292 $20,158
Intangible assets, net ............ 2,858 2,046 16,692 17,167 44,364 44,364
Total assets ..................... 5,977 5,654 28,140 33,584 68,475 86,341
Short-term debt .................. 1,134 594 2,200 3,650 8,990 8,990
Long-term debt ..................... 0 0 8,000 6,238 17,570 17,570
Stockholders' equity ............... 3,827 3,150 15,339 19,370 31,926 49,792
</TABLE>
- ------------
(1) Includes goodwill amortization expense of $91,000, $105,000, $475,000,
$585,000 and $1.3 million for the fiscal years ended June 30, 1993, 1994,
1995, 1996 and 1997, respectively.
(2) Net income per share for fiscal 1997 is calculated using the modified
treasury stock method and includes 13,695,000 weighted average common
shares outstanding and 4,213,000 common shares issuable from the exercise
of outstanding options and warrants for fiscal 1997. The calculation
assumes that all outstanding options and warrants have been exercised and
the proceeds from such exercises have been used to purchase 20% of the
shares outstanding and the balance used to retire outstanding
indebtedness. The retirement of the outstanding indebtedness and related
reduction in interest expense is assumed to increase net income by
$450,000 to $3.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Note 14 to Notes to
Consolidated Financial Statements.
19
<PAGE>
(3) Certain comparative Company Operations Data for the fiscal years ended June
30, 1993, 1994 and 1995 have been omitted due to the lack of relevant
comparison after the Company's acquisition of Easy Gardener, Inc. in
September 1994.
(4) As adjusted to give effect to the sale by the Company of 5,000,000 shares
of Common Stock offered hereby and the application of the estimated net
proceeds therefrom.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company manufactures and markets a broad range of brand-name consumer
lawn and garden products through its wholly-owned subsidiaries, Easy Gardener
and Golden West, and through Easy Gardener's wholly-owned subsidiary, Weatherly.
Since 1992, the Company has consummated five acquisitions of complementary lawn
and garden companies and product lines for an aggregate consideration of over
$56 million in cash, notes and equity securities. As a result of such
acquisitions, the Company recognized a significant amount of goodwill which, in
the aggregate, was approximately $44.4 million at June 30, 1997. The Company is
currently amortizing such goodwill using the straight-line method over various
time periods ranging from 20 to 30 years and amortization expenses for the
fiscal year ended June 30, 1997 were $1.3 million or $0.07 per share. See
Consolidated Financial Statements.
The Company's results of operations for the fiscal year ended June 30,
1997 were significantly affected by the acquisition of Weatherly in August
1996. In connection with the acquisition of Weatherly, the Company's
outstanding notes payable were refinanced and replaced with a new credit
facility (the "Refinancing"). As a result of the Refinancing, the Company was
required to record an extraordinary expense of $1.0 million, net of tax
benefits, for the fiscal year ended June 30, 1997, which expense consisted of
the write-off of deferred finance costs at June 30, 1996 plus prepayment
penalties. Such extraordinary expense reduced the Company's net income per
share for fiscal 1997 by $0.06, from $0.26 to $0.20. See Notes 13 and 14 to
Notes to Consolidated Financial Statements.
The Company experienced net sales growth of 37% from fiscal 1995 to fiscal
1996 and 93% from fiscal 1996 to fiscal 1997. The Company believes that this
growth in net sales was primarily attributable to expansion of its product
lines through the acquisition of complementary lawn and garden businesses and
product lines. Net sales were also positively affected by an increase in sales
of pre-existing product lines. Assuming each of the Company's acquisitions had
been completed prior to the beginning of fiscal 1996, the growth in net sales
from fiscal 1996 to fiscal 1997 would have been 15%.
The Company was required to calculate its net income per share in fiscal
1997 utilizing the modified treasury stock method pursuant to Accounting
Principles Bulletin ("APB") No. 15, "Earnings Per Share." Under the modified
treasury stock method, net income per share is calculated assuming that all
outstanding options and warrants have been exercised. Proceeds generated from
the assumed exercise of these options and warrants are first used to repurchase
(at an average stock price) common stock, not to exceed 20% of the issued and
outstanding shares of common stock. Excess proceeds from the assumed exercise
of the options and warrants not used to repurchase 20% of the outstanding
common stock is then assumed to retire outstanding loans. Net income is assumed
to increase by the reduction in interest expense, net of the Company's
effective income tax rate of approximately 44%, associated with the
indebtedness that has been assumed to have been retired. For the fiscal 1997
net income per share calculation, the Company's weighted average common shares
outstanding has been increased from 13,695,000 to 17,908,000 and net income
increased by $450,000 from approximately $3.2 million to $3.6 million as a
result of applying the modified treasury stock method. The modified treasury
stock method was not applicable for fiscal 1995 and 1996 because it was
anti-dilutive.
Effective for periods ending after December 15, 1997, generally accepted
accounting principles will require all reporting companies to calculate
earnings per share in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share." Prior periods will be required
to be restated. The Company will be required to report basic earnings per share
(giving no dilutive effect to derivative securities) and diluted earnings per
share (reflecting the dilutive effect of all derivative securities). Under the
SFAS No. 128 dilutive earnings per share calculation, all derivative securities
with exercise prices below the market price will be assumed exercised. All
proceeds from the exercise of such derivative securities will be assumed to be
used to repurchase common stock (at an average stock price). Under SFAS No.
128, the modified treasury stock method will no longer utilized. The following
table compares fiscal 1995, 1996 and 1997 net income per share for the Company
before extraordinary expense under SFAS No. 128 compared to historical earnings
per share previously reported.
21
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Income per common share before extraordinary item as previously
reported under APB No. 15 .................................... $ 0.19 $ 0.25 $0.26
Income per common share before extraordinary item as calculated
under SFAS No. 128:
Basic ...................................................... 0.19 0.25 0.31
Dilutive ................................................... 0.18 0.22 0.28
</TABLE>
In April 1996, the Company entered into an agreement to exchange certain
unsold assets held for sale for certain trade credits issued by a third party
to be applied against future purchases of products and services from such third
party (primarily the purchase of operating assets and advertising time). These
trade credits are listed as an asset on the balance sheet of the Company. The
agreement requires the Company to pay a portion of the purchase price of the
products and services received, ranging from 45% to 90% of the total purchase
price, and apply the trade credits to the balance. All trade credits will
expire to the extent not used in April 1999 and are required to be recognized
as an expense to the Company as used, with any balance remaining in April 1999
being expensed at that time. The maximum that the Company is entitled to
receive in credits and cash is $1.6 million, of which the Company had received
approximately $50,000 in cash and had expensed approximately $300,000 in
credits as of September 30, 1997. See Note 2 of Notes to Consolidated Financial
Statements. No assurance can be given that the Company will use all or any
portion of such trade credits or that, to the extent that the Company uses the
trade credits, such trade credits will be used in a manner likely to generate
additional sales of the Company's products. See "Business -- Sales and
Marketing."
Results of Operations
The following table sets forth, for the periods indicated, certain
selected financial data as a percentage of net sales:
<TABLE>
<CAPTION>
Percentages of Net Sales
-----------------------------------
Year Ended June 30,
-----------------------------------
1995 1996 1997
-------- ----------- ----------
<S> <C> <C> <C>
Net sales ................................. 100.0% 100.0% 100.0%
Cost of sales ........................... 46.5 46.9 45.4
------ ------- ------
Gross profit .............................. 53.5 53.1 54.6
Selling and shipping expenses ............ 22.2 23.2 21.6
General and administrative expenses ...... 14.1 16.1 12.5
------ ------- ------
Income from operations ..................... 17.2 13.9 20.5
Interest expense ........................... 9.2 7.4 6.4
Income tax (expense) benefit ............... (0.2) 2.7 (6.2)
Extraordinary expense, net ............... -- -- 1.9
Net income .............................. 8.0% 9.3% 6.1%
====== ======= ======
</TABLE>
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Net sales. Net sales increased by $25.0 million, or 93%, to $52.0 million
in fiscal 1997 from $27.0 million in fiscal 1996. The increase in net sales was
primarily a result of the August 1996 acquisition of Weatherly and increased
sales of the Company's landscape fabrics and landscape edging products.
Gross profit. Gross profit increased by $14.0 million, or 98%, to $28.4
million in fiscal 1997 from $14.4 million in fiscal 1996. This increase was due
primarily to the Weatherly acquisition. Gross profit as a percentage of net
sales increased to 54.6% in fiscal 1997 from 53.1% in fiscal 1996. The increase
in gross profit as a percentage of net sales was primarily attributable to the
sales of higher-margin products acquired in the Weatherly acquisition.
Selling and shipping expenses. Selling and shipping expenses increased
$4.9 million, or 78%, to $11.2 million in fiscal 1997 from $6.3 million in
fiscal 1996. This increase was primarily the result of an increase in the
amount of products shipped, which was a consequence of the acquisition of
Weatherly and an increase in sales of pre-existing product lines, particularly
landscape fabrics and landscape edging products. Selling and shipping expenses
as a percentage of net sales decreased from 23.2% in fiscal 1996 to 21.6% in
fiscal 1997. This decrease was primarily due to the consolidation of the
Company's customer services at the Waco, Texas office and the elimination of
the majority of the Weatherly sales positions in connection with the
integration of the acquisition.
22
<PAGE>
General and administrative expenses. General and administrative expenses
increased $2.1 million, or 50%, to $6.5 million in fiscal 1997 from $4.4
million in fiscal 1996. This increase was primarily the result of the
acquisition of Weatherly. As a percentage of net sales, general and
administrative expenses decreased from 16.1% in fiscal 1996 to 12.5% in fiscal
1997. This improvement is primarily due to the closing of the Weatherly
administrative offices in February 1997 and the integration of certain
administrative functions into the Company's existing infrastructure.
Income from operations. Income from operations increased by $6.9 million,
or 184%, to $10.7 million in fiscal 1997 from $3.8 million in fiscal 1996. The
growth in income from operations in actual dollars was primarily due to the
increase in net sales and gross profit as a result of the Weatherly
acquisition. As a percentage of net sales, income from operations increased to
20.5% in fiscal 1997 from 13.9% in fiscal 1996. This increase was due to the
decreases in selling and shipping and general and administrative expenses as a
percentage of net sales.
Interest expense. Interest expense increased by $1.3 million, or 65%, to
$3.3 million in fiscal 1997, from $2.0 million in fiscal 1996. The increase in
interest expense is primarily related to the interest associated with the
increase in both term and working capital debt and expenses associated with the
Weatherly acquisition, partially offset by a decrease in the Company's
effective borrowing rate.
Income taxes. In fiscal 1996, the Company reported a tax benefit of
$715,000 which was a result of the recognition of a deferred tax asset relating
to available net operating loss carryforwards. In fiscal 1997, the Company
incurred a tax expense of $3.2 million, excluding the benefit associated with
the extraordinary expense, reflecting the Company's profitability and
exhaustion of the majority of net operating loss carryforwards.
Extraordinary expense, net. In connection with the acquisition of
Weatherly, the Company completed the Refinancing. As a result of the
Refinancing, the Company was required to record an extraordinary expense of
$1.0 million net of tax benefits for fiscal 1997, which expense consisted of
deferred finance costs at June 30, 1996 net of accumulated amortization, plus
prepayment penalties.
Net income. Net income increased $659,000, or 26%, to $3.2 million in
fiscal 1997 from $2.5 million in fiscal 1996. This increase was attributable to
the successful integration into Easy Gardener of the Weatherly organization in
fiscal 1997, partially offset by the $1.0 million extraordinary expense, net of
tax benefits, incurred due to the Refinancing.
Net income per common share decreased $0.05 to $0.20 in fiscal 1997 from
$0.25 in fiscal 1996. The decrease was partially attributable to an
extraordinary expense of approximately $1.0 million net of tax benefits, or
$0.06 per common share in fiscal 1997. Additionally, during fiscal 1997 the
Company incurred a tax expense of approximately $3.2 million, or $0.18 per
common share, compared to a tax benefit of approximately $700,000, or $0.07 per
share during fiscal 1996 resulting from the recognition of a deferred tax asset
relating to available net loss carryforwards. The decrease in net income per
common share was also adversely affected by the requirement that the Company
use the modified treasury stock method to calculate earnings per share in
fiscal 1997. The effect of using the modified treasury stock method in 1997 was
to reduce net income per common share by $0.05. If the modified treasury stock
method had not been used in fiscal 1997, income per common share before income
taxes and extraordinary expense would have been at $0.54 for fiscal 1997
compared to $0.18 in fiscal 1996.
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net sales. Net sales increased by $7.3 million, or 37%, to $27.0 million
in fiscal 1996 from $19.7 million in fiscal 1995. A majority of the increase in
net sales resulted from the introduction of new landscape edging and shade
cloth products. In addition, the Company believes that its sales were
positively affected by continued penetration in existing markets, expansion
into new markets and a more widespread recognition of the Easy Gardener brand
and products. The increase in net sales also resulted from the inclusion of 12
months of net sales of Easy Gardener products in the fiscal 1996 period
compared to 10 months in the prior fiscal year.
Gross profit. Gross profit increased by $3.8 million, or 36%, to $14.4
million in fiscal 1996 from $10.5 million in fiscal 1995, primarily due to the
increase in net sales, partially offset by the inclusion of 12 months
23
<PAGE>
of Easy Gardener's cost of goods sold in fiscal 1996 compared to 10 months in
fiscal 1995. Gross profit as a percentage of net sales decreased from 53.5% in
fiscal 1995 to 53.1% in fiscal 1996. The decrease was due to a change in the
product mix sold and to higher costs, during fiscal 1996, of resin and
corrugated cardboard, which are the principal materials used in the
manufacturing and packaging of WeedBlock.
Selling and shipping expenses. Selling and shipping expenses increased by
$1.9 million, or 43%, to $6.3 million in fiscal 1996 from $4.4 million in
fiscal 1995. The increase was primarily the result of the increase in the
amount of product shipped and the inclusion of 12 months of Easy Gardener's
selling and shipping expenses in fiscal 1996 compared to 10 months in fiscal
1995. As a percentage of net sales, selling and shipping expenses increased to
23.2% in fiscal 1996 compared to 22.2% in fiscal 1995. This increase was
primarily due to introductory advertising on new products.
General and administrative expenses. General and administrative expenses
increased by $1.6 million, or 57%, to $4.4 million in fiscal 1996 from $2.8
million in fiscal 1995. General and administrative expenses as a percentage of
net sales increased to 16.1% in fiscal 1996 from 14.1% in fiscal 1995. The
increase in general and administrative expenses during fiscal 1996 was
primarily a result of the inclusion of 12 months of Easy Gardener's general and
administrative expenses in fiscal 1996 compared to 10 months in fiscal 1995.
The increase in general and administrative expenses was also due to additional
amortization and depreciation expense, and additional related overhead
expenses, associated with the overall increase in the size of the Company.
Income from operations. Income from operations increased by approximately
$400,000, or 12%, to $3.8 million in fiscal 1996 from $3.4 million in fiscal
1995. As a percentage of net sales, income from operations decreased to 13.9%
in fiscal 1996 from 17.2% in fiscal 1995. The decrease in income from
operations as a percentage of net sales was primarily the result of a slight
decrease in gross profit as a percentage of net sales, combined with more
significant increases in selling and shipping and general and administrative
expenses as a percentage of net sales.
Interest expense. Interest expense increased by $200,000, or 11%, to $2.0
million during fiscal 1996 from $1.8 million during fiscal 1995 primarily as a
result of the inclusion in fiscal 1996 of 12 months of interest on Easy
Gardener's outstanding indebtedness which was incurred in connection with the
purchase of the assets of Easy Gardener, Inc. in September 1994 when compared
to the inclusion of such interest for only 10 months in fiscal 1995. This
increase was partially offset by the February 1995 conversion of $2.0 million
of convertible notes into Common Stock and the repayment of $1.6 million on
other notes payable. The convertible notes and other notes payable were
incurred in connection with the purchase of the assets of Easy Gardener, Inc.
in September 1994.
Income taxes. During fiscal 1996, the Company recorded a $715,000 tax
benefit compared to a $38,000 tax expense during the fiscal 1995 primarily due
to the Company's recognition of a deferred tax asset associated with Federal
net operating loss carryforwards. See "-- Liquidity and Capital Resources."
Net income. Net income in fiscal 1996 was $2.5 million or $0.25 per share
based on 10,206,000 weighted average common and common equivalent shares
outstanding compared to net earnings of $1.6 million or $0.19 per share in
fiscal 1995 based on 8,376,000 common and common equivalent shares outstanding.
Such increase was primarily the result of the increase in net sales.
Quarterly Results of Operations and Seasonality
The Company's sales are seasonal due to the nature of the lawn and garden
business, in parallel with the annual growing season. The Company's sales and
shipping are most active from late December through May when home lawn and
garden customers are purchasing supplies for spring planting and retail stores
are increasing their inventory of lawn and garden products. Sales typically
decline by early to mid-summer.
Sales of the Company's agricultural products, which were not material for
fiscal 1997, are also seasonal. Most shipments occur during the agricultural
cultivation period from March through October.
24
<PAGE>
Set forth below is certain unaudited quarterly financial information:
<TABLE>
<CAPTION>
Quarter Ended
September 30, December 31, March 31, June 30,
1995 1995 1996 1996
--------------- -------------- ----------- ----------
(in thousands, except percentages and per share data)
<S> <C> <C> <C> <C>
Net sales ........................... $ 3,265 $ 2,715 $ 10,760 $ 10,291
Cost of sales ........................ 1,555 1,290 5,156 4,670
----------- ----------- --------- --------
Gross profit ........................ 1,710 1,425 5,604 5,621
Selling, general and administrative
expenses ........................... 2,211 2,394 2,753 3,252
----------- ----------- --------- --------
Income (loss) from operations ......... (501) (969) 2,851 2,369
Investment income ..................... 24 10 19 16
Interest expense ..................... (458) (473) (541) (538)
----------- ----------- --------- --------
Income (loss) before income taxes ... (935) (1,432) 2,329 1,847
Income tax benefit (expense) ......... 100 80 138 397
Extraordinary expense, net ............
----------- ----------- --------- --------
Net income (loss) ..................... $ (835) $ (1,352) $ 2,467 $ 2,244
=========== =========== ========= ========
Net income (loss) per share (1) ...... $ (0.08) $ (0.13) $ 0.16 $ 0.14
=========== =========== ========= ========
Weighted average common and common
equivalent shares outstanding (1) ... 9,944 10,200 19,002 19,721
=========== =========== ========= ========
Net sales ........................... 100% 100% 100% 100%
Cost of sales ........................ 47.6 47.5 47.9 45.4
----------- ----------- --------- --------
Gross profit ........................ 52.4 52.5 52.1 54.6
Selling, general and administrative 67.7 88.2 25.6 31.6
----------- ----------- --------- --------
Income (loss) from operations ......... (15.3) (35.7) 26.5 23.0
Investment income ..................... .7 .4 .2 .2
Interest expense ..................... (14.0) (17.4) (5.0) (5.3)
----------- ----------- --------- --------
Income (loss) before income taxes ... (28.6) (52.7) 21.7 17.9
Income tax benefit (expense) ......... 3.1 3.0 1.3 3.9
Extraordinary expense, net ............ 0 0 0 0
----------- ----------- --------- --------
Net income (loss) ..................... (25.5%) (49.7%) 23.0% 21.8%
=========== =========== ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30,
1996 1996 1997 1997
--------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 5,523 $ 7,416 $ 20,559 $ 18,549
Cost of sales ........................ 2,607 3,217 9,025 8,800
----------- --------- --------- ---------
Gross profit ........................ 2,916 4,199 11,534 9,749
Selling, general and administrative
expenses ........................... 3,264 4,048 5,539 4,894
----------- --------- --------- ---------
Income (loss) from operations ......... (348) 151 5,995 4,855 .
Investment income ..................... 26 17 16 17
Interest expense ..................... (563) (813) (993) (970)
----------- --------- --------- ---------
Income (loss) before income taxes ... (885) (645) 5,018 3,902
Income tax benefit (expense) ......... 280 195 (2,075) (1,600)
Extraordinary expense, net ............ (1,007)
----------- --------- --------- ---------
Net income (loss) ..................... $ (1,612) $ (450) $ 2,943 $ 2,302
=========== ========= ========= =========
Net income (loss) per share (1) ...... $ (0.12) $ (0.03) $ 0.14 $ 0.11
=========== ========= ========= =========
Weighted average common and common
equivalent shares outstanding (1) ... 12,915 13,917 22,696 22,191
=========== ========= ========= =========
Net sales ........................... 100% 100% 100% 100%
Cost of sales ........................ 47.2 43.4 43.9 47.4
----------- --------- --------- ---------
Gross profit ........................ 52.8 56.6 56.1 52.6
Selling, general and administrative 59.1 54.6 26.9 26.4
----------- --------- --------- ---------
Income (loss) from operations ......... (6.3) 2.0 29.2 26.2
Investment income ..................... .5 .2 .1 .1
Interest expense ..................... (10.2) (11.0) (4.8) (5.3)
----------- --------- --------- ---------
Income (loss) before income taxes ... (16.0) (8.8) 24.5 21.0
Income tax benefit (expense) ......... 5.1 2.6 (10.1) (8.6)
Extraordinary expense, net ............ (18.2) 0 0 0
----------- --------- --------- ---------
Net income (loss) ..................... (29.1%) (6.2%) 14.3% 12.4%
=========== ========= ========= =========
</TABLE>
- ------------
(1) Pursuant to APB No. 15, net income per share was calculated using the
modified treasury stock method except for quarters reporting a net loss.
Such quarters only reflect issued and outstanding shares of Common Stock
in the weighted average shares outstanding. To calculate net income per
share, net income must be increased by $418,000, $509,000, $236,000 and
$213,000 for the quarters ended March 31 and June 30, 1996 and 1997,
respectively.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through
cash generated by operations, net proceeds from the Company's private and
public sales of securities and borrowings from lending institutions.
At June 30, 1997, the Company had consolidated cash and short-term
investments totalling $2.1 million and working capital of $2.6 million. At June
30, 1996, the Company had consolidated cash and short-term investments
totalling $680,000 and working capital of $5.3 million. This decrease in
working capital was due primarily to the increase in notes payable relating to
the Weatherly acquisition.
Net cash provided by operating activities for fiscal 1997 was $10.6
million, consisting primarily of net income plus depreciation and amortization
and an extraordinary expense resulting from the Refinancing, an increase in
accounts payable and a decrease in deferred taxes, offset in part by an
increase in accounts receivables. Net cash used in investing activities for
fiscal 1997 was $29.6 million, consisting primarily of cash used for the
acquisition of Weatherly.
Net cash provided by financing activities for fiscal 1997 was $20.5
million, consisting primarily of the additional proceeds from the notes payable
used in connection with the purchase of Weatherly, and the exercise of warrants
to purchase Common Stock, the proceeds of which were used primarily for the
purchase of Weatherly.
25
<PAGE>
At June 30, 1997, the Company had consolidated term debt of $26.6 million
which includes debt incurred pursuant to the Refinancing and consists of three
outstanding term loans of $20.5 million, $2.25 million and $3.8 million. At
September 30, 1997, the Company had $24.6 of term debt outstanding.
In connection with the acquisition of Weatherly, Easy Gardener entered
into the Credit Agreement with the Lenders. Pursuant to the Credit Agreement,
the lenders have provided the Company with the following revolving credit and
term loan facilities:
(a) Revolving Credit Facility: The maximum amount available for borrowing
under the revolving credit facility (the "Revolving Credit Facility") facility
from time to time is equal to the lesser of $13 million and a borrowing base
determined by reference to specified percentages of Easy Gardener's
consolidated accounts receivable and inventory deemed to be "eligible" by the
Lenders. As of June 30, 1997, based on this formula, $7.4 million was available
for borrowing and no amount was outstanding. In April 1997, the Revolving
Credit Facility was amended to provide the Company with an additional $3.0
million in available borrowing during the months of February, March, April and
May of each fiscal year. Any additional borrowing must be paid by May 31 of the
year in which borrowed. This additional increase is for the working capital
needs during the peak season months and has the same "eligibility" requirements
as the original amount.
Revolving credit loans bear interest at an annual rate chosen by Easy
Gardener based on the prime rate of one of the lenders or the London Inter-Bank
Offered Rate ("LIBOR") plus an applicable marginal rate. Under certain
circumstances, outstanding prime rate loans may be converted to LIBOR rate
loans at the Company's option. At June 30, 1997, the effective annual rate for
outstanding borrowings under the Revolving Credit Facility was 9.75%. The
Revolving Credit Facility expires on June 30, 2002 (the "Expiration Date") and
all outstanding revolving credit loans are then due. In addition, for a 10-day
period in August of each year, all outstanding revolving credit loans must be
paid and no revolving credit loans may be borrowed. Revolving credit loans may
be prepaid at any time. However, if Easy Gardener elects to terminate the
Revolving Credit Facility prior to the Expiration Date, the outstanding balance
must be prepaid together with a premium of from 1% to 2% of the "Average Yearly
Loan Balance" (as defined in the Credit Agreement) under the Revolving Credit
Facility.
(b) Term Loan Facility: Pursuant to this facility, Easy Gardener obtained
three term loans (the "Term Loans"), one in the principal amount of $23 million
("Term Loan I"), $20.5 million of which was outstanding at June 30, 1997, one
in the principal amount of $2.25 million ("Term Loan II"), all of which was
outstanding at June 30, 1997, and one in the principal amount of $3.8 million
("Term Loan III"), all of which was outstanding at June 30, 1997. Term Loan I
and Term Loan II mature on the Expiration Date. Term Loan III expires in
November 1997. Term Loans I and II are payable in quarterly installments of
principal, commencing as to Term Loan I in September 1996 and as to Term Loan
II in September 1998. Term Loan III is payable in full upon its expiration.
Term Loan I bears interest, at the election of Easy Gardener, at the adjusted
prime rate or LIBOR rate described above, and Easy Gardener may from time to
time, subject to certain restrictions, convert Term Loan I from a prime rate
loan to a LIBOR rate loan. At June 30, 1997, the effective annual rate of
interest for Term Loan I was 9.75%. Term Loan II bears interest at a floating
rate equal to the prime rate of one of the lenders plus 6%. At June 30, 1997,
the effective annual rate of interest for Term Loan II was 14.5%. The annual
rate of interest for Term Loan III is 12% and interest is payable monthly in
arrears. Interest on Term Loans I and II is payable monthly in arrears on prime
rate loans and at the end of the interest period for a LIBOR rate loan if the
interest period is three months or less or on the last day of each three-month
interval during the interest period if it is longer than three months. If Easy
Gardener elects to pay Term Loan I in full at any time prior to the Expiration
Date, Easy Gardener is also obligated to pay a premium of from 1% to 2% of the
amount prepaid. Term Loan I is subject to certain mandatory prepayments of
principal from "excess cash flow" (as defined in the Credit Agreement) of Easy
Gardener and certain net proceeds of asset sales, condemnation awards and
insurance recoveries. Mandatory prepayment of principal of Term Loan I on
account of "excess cash flow", if any, will be due in October of the following
fiscal year. No mandatory prepayment is due in October 1997.
Easy Gardener's obligation to pay the principal of, interest on, premium,
if any, and all other amounts payable on account of the Revolving Credit
Facility and the Term Loans is secured by substantially all of the assets of
Easy Gardener and its subsidiaries and the irrevocable guaranties of the
Company and Easy Gardener's subsidiaries. Upon the occurrence of an event of
default specified in the Credit Agreement, the maturity of the outstanding
principal amounts of the Revolving Credit Facility and the Term Loans may be
accelerated by the lenders who may also foreclose on the secured assets of Easy
Gardener and its subsidiaries.
26
<PAGE>
Under the Credit Agreement (a) Easy Gardener is required, among other
things, to comply with certain limitations on incurring additional
indebtedness, liens, guaranties, capital and operating lease expenses in excess
of a specified amount per year, and sales of assets and payment of dividends
and (b) Easy Gardener and the Company must comply with certain limitations on
merger, liquidations, changes in business, investments, loans and advances, or
certain acquisition of subsidiaries. In addition, Easy Gardener must comply
with certain minimum interest coverage, debt service and fixed charge rates,
not permit its Net Worth (as defined in the Credit Agreement) to be less than
certain amounts and generate certain minimum amounts of income before interest
expenses, taxes, depreciation and amortization. A violation of any of these
covenants constitutes an event of default under the Credit Agreement.
The Company believes that its operations will generate sufficient cash
flow to service the debt incurred in connection with its prior acquisitions.
However, if such cash flow is not sufficient to service such debt, the Company
will be required to seek additional financing which may not be available on
commercially acceptable terms or at all.
As of June 30, 1997, the Company had a net deferred tax asset of $448,000,
the majority of which relates to the tax benefit associated with the
accumulated net operating losses of approximately $1.0 million for Federal
income tax purposes which expire in 2011. For California income tax purposes,
the Company accumulated net operating losses of approximately $2.2 million
which expire at various times through 2001. Based upon the estimated taxable
income to be apportioned to California over the next few fiscal years and
considering the expiration date of the net operating loss carryovers, the
Company has established a valuation reserve relating to the majority of the
estimated $165,000 benefit associated with the California net operating loss
carryovers.
In January 1997, the Company borrowed $550,000 in the aggregate from
certain lenders. The loans were used to satisfy short term working capital
requirements. In July 1997, the Company repaid $200,000 of the loans and the
$350,000 balance was converted into 154,000 shares of Common Stock.
In May 1997, the Company purchased from Plastic Molded Concepts, Inc.
certain assets relating to its Plasti-Chain Line of products for approximately
$4.3 million. The purchase price was paid through the use of the Revolving
Credit Facility and Term Loan III. The additional term debt is payable in
November 1997.
In connection with the Company's acquisition of Weatherly, the former
stockholders of Weatherly entered into an agreement to indemnify the Company
against tax liabilities relating to periods prior to the acquisition. If any
such tax liabilities arise the Company would be required to make the payments to
the appropriate tax authority and, in turn, seek reimbursement from the
Weatherly stockholders under their indemnification agreement. The Internal
Revenue Service ("IRS") is currently examining certain Weatherly tax returns
covering periods prior to the acquisition. There can be no assurance that if the
Company is required to make payments to the IRS or any other tax authority it
will be able to recover such amounts from the former Weatherly stockholders. The
Company believes that any payment it may be required to make will not have a
material adverse effect on its financial condition.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board ("FASB") issued
a Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 requires the calculation and presentation of
basic earnings per share (giving no dilutive effect to derivative securities)
and dilutive earnings per share (reflecting the dilutive effect of all
derivative securities). Accordingly, the Company plans to adopt SFAS No. 128 in
its December 31, 1997 interim financial statements.
Inflation
Inflation has historically not had a material effect on the Company's
operations.
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BUSINESS
General
The Company is a leading manufacturer and marketer of a broad range of
consumer lawn and garden products. The Company's products include weed
preventive landscape fabrics, fertilizer spikes, decorative landscape edging,
shade cloth and root feeders, which are sold under recognized brand names such
as WeedBlock(R), Jobe's(R), Emerald Edge(R), Shade Fabric(TM) and Ross(R). The
Company believes that it has significant market share and brand-name
recognition in several of its primary product categories. The Company markets
its products through most large national home improvement and mass merchant
retailers ("Retail Accounts"), including Home Depot, Lowe's, Kmart, Builder's
Square, Wal-Mart and Home Base.
The Company has experienced significant growth in recent years and
believes that its success has been primarily attributable to the expansion of
its product lines through the acquisition of complementary lawn and garden
businesses, the quality of its products, its focus on providing Retail Accounts
with a single source of lawn and garden products, the efficiency and
reliability of its inventory tracking and order fulfillment systems and its
distinctive advertising and store displays.
Lawn and Garden Industry
Historically, the lawn and garden industry was comprised of relatively
small regional manufacturers and distributors whose products were sold to
consumers primarily through local nurseries and garden centers. As the industry
has grown, national home improvement and mass merchant retailers have replaced
many of these local garden centers as the primary retail source for lawn and
garden products. In an effort to improve operating margins and reduce the
number of vendors needed to source high volume lawn and garden products, the
preference among home improvement and mass merchant retailers has shifted
towards single source suppliers that offer broad product lines of consumer
brand-name merchandise and the product support necessary to stimulate consumer
demand and ensure timely and cost effective order fulfillment. Smaller regional
suppliers generally lack the capital and other resources necessary to offer the
variety and number of product lines, the product support and the inventory
stocking and tracking capabilities required by home improvement and mass
merchant retailers.
Regional manufacturers, distributors and marketers are now largely
fragmented and the Company believes that many of them are attractive
acquisition candidates for larger, single source suppliers and distributors in
the lawn and garden industry. The Company has historically been successful in
locating, acquiring and integrating certain of these manufacturers and
distributors into its business and intends to continue its acquisition program
as a principal component of its growth strategy.
According to the 1996-1997 National Gardening Survey, 1996 retail sales of
lawn and garden products were approximately $22 billion, and 64% of the
approximately 101 million households in the United States participated in some
form of gardening activity during 1996. In addition, sales growth in the lawn
and garden industry is being driven in part by the aging of the "baby boomer"
consumer segment. According to the National Gardening Survey, persons 50 years
of age and older spent an average of $400 per household on lawn and garden
activities in 1996.
Business Strategy
The Company's business objective is to be a leading single source supplier
to Retail Accounts and its strategy includes the following key components:
o Market Low-Cost, High-Margin Products. The Company focuses on
manufacturing and marketing low-cost, high-margin products, such as
landscape fabric, fertilizer spikes, landscape edging, shade cloth and
root feeders, with suggested retail prices generally ranging from $2 to
$30. The Company believes that such point-of-purchase products stimulate
impulse buying by consumers and provide high margins with relatively low
price sensitivity.
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o Supply a Wide Variety of Products. The Company supplies Retail Accounts
with several product lines, such as landscape fabric, fertilizer spikes,
landscape edging, shade cloth and root feeders. Within such product
categories the Company offers a broad range of products. For example, the
Company's landscape fabrics are available in both woven and non-woven
fabrics of varying grades of thickness. Similarly, the Company's
fertilizer, plant food and insecticide spikes are designed for a wide
variety of indoor and outdoor plants, including mutiple types of trees,
flowers, vegetable plants and shrubs.
o Capitalize on Point-of-Purchase Displays. The Company utilizes
distinctive packaging and point-of-purchase product displays, new product
introductions and other merchandising techniques to stimulate consumer
purchases. The Company's sales representatives periodically visit
individual Retail Accounts to assist them in achieving innovative and
optimal use of the Company's product displays through prominent product
placement and inventory management.
o Utilize Marketing and Advertising Programs. The Company uses national and
regional marketing and advertising programs to generate consumer
brand-name recognition of its product lines. The Company retains agencies
that market and advertise its products through television programs,
newspaper inserts and weekly circulars.
o Promote Retail Account Satisfaction. The Company promotes Retail Account
satisfaction by providing timely and efficient order fulfillment services.
The Company maintains a sophisticated retail data information system which
enables it to provide timely order fulfillment so that Retail Accounts are
not required to maintain a large inventory of the Company's products.
Growth Strategy
The Company attributes its historical growth and success to its ability to
capitalize on the consolidation of the lawn and garden industry by locating,
acquiring and effectively integrating acquisition targets and its ability to
act as an efficient single source supplier of a broad range of quality
products. The Company intends to continue this growth strategy, which consists
of the following principal components:
o Pursue Additional Strategic Acquisitions. The Company plans to continue its
primary strategy of acquiring complementary lawn and garden companies and
product lines. The Company has consummated five (5) such acquisitions since
1992. By consolidating companies with complementary product lines, the
Company believes it can capitalize on its existing channels of distribution
and gain market share by increasing sales to its Retail Accounts.
o Increase Brand Awareness. The Company intends to enhance existing
consumer brand awareness by expanding its advertising and marketing
efforts with an emphasis on its Jobe's fertilizer spikes, a
nationally-recognized brand name. The Company believes that the
modernization of its Jobe's packaging, together with a national television
advertising campaign targeted at the "baby boomer" consumer segment, will
allow it to further capitalize on its brand-name recognition.
o Utilize Existing Infrastructure. The Company's management and
administration infrastructure has been designed to accommodate the
integration of additional products when suitable lawn and garden companies
and product lines are identified and acquired. The Company believes that
its ability to efficiently integrate new businesses and product lines into
its existing infrastructure will result in significant savings in the
areas of management, distribution, marketing and customer service. The
Company also believes that its infrastructure, including its on-line
inventory tracking and order fulfillment capabilities, allows it to be an
effective and efficient source of lawn and garden products for Retail
Accounts.
o Focus on High-Volume Retailers. National high-volume retailers such as the
Company's Retail Accounts are gaining an increasing share of the lawn and
garden retail market. By focusing on the emergence of high-volume retailers
and their needs, including providing broad product lines, order fulfillment
capabilities and marketing and merchandising programs, the Company believes
that it will increase its market share and enhance its position as a
leading single source supplier of lawn and garden products.
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Recent Acquisitions
Since August 1992, the Company has consummated the following five (5)
acquisitions of lawn and garden companies or product lines for a total of over
$56 million in consideration:
o Golden West Chemical Distributors, Inc. A manufacturer of humic
acid-based products designed to improve crop yield, which was acquired in
August 1992 for approximately $1.1 million in cash and $1.1 million of
promissory notes.
o Easy Gardener, Inc. A manufacturer of multiple fabric landscaping
products including WeedBlock(R), which was acquired in September 1994 for
approximately $21.3 million consisting of $8.8 million in cash, a $10.5
million promissory note and two convertible notes each in the principal
amount of $1.0 million. Approximately $2.2 million of additional purchase
price was contingent on Easy Gardener meeting certain income requirements.
A total of $700,000 of the additional amount has been paid to date and, of
the remaining $1.5 million, $500,000 is payable in fiscal 1998 and $1
million is payable in fiscal 1999.
o Emerald Products LLC. A manufacturer of decorative landscape edging,
which was acquired in August 1995 for $835,000 in cash and a $100,000
promissory note.
o Weatherly Consumer Products Group, Inc. A manufacturer of fertilizer
spikes and other lawn and garden products, which was acquired in August
1996 for 1,000,000 shares of Common Stock valued at $3.0 million and
approximately $22.9 million in cash.
o Plasti-Chain Product Line of Plastic Molded Concepts, Inc. A line of
plastic chain links and decorative edgings, which was acquired from
Plastic Molded Concepts, Inc. in May 1997 for approximately $4.3 million
in cash.
Products
Landscape Fabric. The Company markets different types of landscape fabric
in varying thicknesses and strengths under the trade names WeedBlock,
WeedBlock 6(TM), MicroPore(R), Pro WeedBlock(TM) and WeedShield(TM). Landscape
fabrics allow water, nutrients and oxygen to filter through to soil but prevent
weed growth by blocking sunlight to prevent seeds from germinating. The
Company's primary landscape fabrics are made from non-woven fabrics which are
generally manufactured with extruded polymers, pressed or vacuum formed into
thin sheets having the feel and texture of light plastics. For the fiscal years
ended June 30, 1995, 1996 and 1997, sales of landscape fabrics represented 71%,
69% and 44%, respectively, of the Company's net sales.
Fertilizer, Plant Food and Insecticide Spikes. Fertilizer and plant food
spikes deliver plant nutrients directly to the root of the plant, as an
alternative method of maintaining plant health to surface-delivered liquid or
solid fertilizers. Some of the Company's fertilizer spikes have the added
feature of containing an insecticide for the control of unwanted insects. The
Company markets a variety of indoor and outdoor specialty fertilizer and plant
food spikes primarily under the Jobe's tradename, one of the most recognized
brands in the consumer lawn and garden industry. For the fiscal year ended June
30, 1997, sales of fertilizer, plant food and insecticide spikes represented
approximately 24% of the Company's net sales.
Landscape Edging. The Company markets a variety of resin-based decorative
landscape edgings under trade names including Emerald Edge and Terra Cotta
Tiles. The Company's decorative edgings are used by consumers to enclose or
define the perimeter of planting areas with a variety of designs which include
stone, log, terra cotta tiles and picket fences. The Company recently acquired
the Plasti-Chain line of products, which include additional styles of
decorative landscape edgings.
Shade Cloth. The Company markets shade cloth fabrics in a variety of sizes
and colors. Shade cloth is utilized generally in conjunction with some type of
outdoor structure such as a patio veranda, and provides
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shade, privacy and/or protection from wind for people, plants and pets. The
Company markets shade cloth fabrics as an exclusive United States retail
distributor of a shade cloth manufacturer pursuant to an agreement that expires
on September 30, 1998 (unless renewed at the option of the Company for an
additional two-year period).
Fertilizers and Root Feeders. The Company markets fertilizers under the
Ross trade name. The Ross fertilizer, when applied through a Ross root feeder,
a long steel irrigation tube with a hose connector that is inserted deep into
the ground, provides the homeowner with a means of deep feeding and irrigating
trees and shrubs. The Ross root feeder may also be used without fertilizer as a
deep watering device.
Other Products. In addition to landscape fabrics, fertilizer, plant food
and insecticide spikes, landscape edging, shade cloth and root feeders, the
Company also sells complementary lawn and garden products for the home
gardener. The products include a line of animal repellents that are formulated
to deter dogs, cats, deer and rabbits from destroying garden and landscape
environs, a variety of protective plant and tree covers, bird and animal mesh
blocks, protective garden and tree netting to prevent animal damage, synthetic
mulch and fabric pegs.
Agricultural Products. The Company, through Golden West, manufactures and
distributes certain humic acid-based agricultural products for use on farms and
orchards. Golden West generally sells its products to agricultural
distributors, which in turn market Golden West's products to farms and
orchards. The principal agricultural products manufactured and/or distributed
by the Company are: Energizer(R), a formulation of humic acids which, when
applied in conjunction with liquid fertilizers, permits crops to absorb a
greater amount of the nutrients in the fertilizer; Penox(R), a surfactant, or
penetrating wetting agent, that contains humic acid which, when applied in
conjunction with herbicides, defoliants and other agricultural products,
increases their effectiveness and Powergizer(R), a foliar nutrient, or plant
food, containing humic acid which promotes growth and vigor in many types of
crops. Sales of the Company's agricultural products accounted for less than 2%
of the Company's net sales in fiscal 1997.
Conversion, Manufacturing and Supply
Lawn and Garden Products
Except for the materials for WeedBlock, which are obtained from a single
source, the basic materials for the Company's lawn and garden products are
purchased from a variety of suppliers. All of such materials are converted,
packaged and shipped by the Company from either its Waco, Texas facility or its
Paris, Kentucky facility.
The Company purchases all of the landscape fabric used to manufacture
WeedBlock from Tredegar. The Company purchases large rolls of various types of
landscape fabric for shipment to its Waco, Texas facility where it sizes, cuts
and packages the fabric for consumer sale. Although the Company has purchased
all of its supply from Tredegar for over 10 years and believes that its
relationship with Tredegar is good, Tredegar is free to terminate its
relationship with the Company at any time and accordingly could market its
fabrics to other companies, including competitors of the Company. Nevertheless,
the Company owns the registered trademark "WeedBlock(R)" and, to the extent that
it establishes alternative supply arrangements, its rights to market products
under the WeedBlock brand name would continue without restriction.
The Company manufactures and packages its Jobe's fertilizer spikes at its
Paris, Kentucky facility. The raw materials that comprise the Company's indoor
fertilizer spikes are mixed with a binding agent and then passed through an
extrusion process which feeds a continuous strand of fertilizer through a
heat-drying system. The strand is then cut into ready to use fertilizer spikes
which are then machine counted and packaged as shelf-ready product. The
Company's outdoor fertilizer spikes are manufactured in a similar manner except
rather than passing through an extrusion process, the outdoor spikes are
processed through molds which shape the spikes into their final form. The
outdoor spikes are packaged in either a foil pouch, bag or box.
The specifications for the Company's landscape edging, shade cloth and
root feeder products and packaging are designed by the Company and independent
design consultants. The products are then manufactured and packaged by third
party manufacturers according to the Company's specifications.
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Agricultural Products
The Company does not own or lease any manufacturing facilities for its
agricultural products. Substantially all of the Company's humic acid-based
agricultural products, including Energizer, Penox and Powergizer, are processed
by Western Farm Services, Inc. ("Western Farm") pursuant to purchase orders
placed by the Company from time to time in the ordinary course of business. The
Company, through Western Farm, also has an open purchase order arrangement with
an entity which supplies it with leonardite ore, a source of humic acid used in
its agricultural products.
Customers
The Company's customers include home improvement centers, mass
merchandisers, hardware stores, nurseries and garden centers and other retail
channels throughout the United States. The Company's three largest customers
for fiscal 1997, Home Depot, Lowes and Kmart, accounted for approximately 26%,
10% and 7%, respectively, of its net sales during such year. During fiscal
1996, Home Depot, Lowe's, Kmart and Builder's Square accounted for 27%, 9%, 7%
and 5%, respectively, of the Company's net sales. During fiscal 1995, sales to
Home Depot, Kmart, Builder's Square and Lowe's accounted for approximately 27%,
9%, 7% and 6%, respectively, of the Company's net sales. The Company's ten
largest customers as a group accounted for 74% and 65% of its net sales during
fiscal 1996 and 1997, respectively. Sales to such customers are not governed by
any contractual arrangement and are made pursuant to standard purchase orders.
While the Company believes that relations with its largest customers are good,
the loss of any of these customers could have an adverse effect upon the
results of operations of the Company.
The Company's sales are concentrated in the United States, with
international sales (primarily Europe and Canada) accounting for less than 2%
of the Company's net sales for fiscal 1996 and fiscal 1997. The Company is
currently attempting to develop relationships with distributors outside of the
United States.
Sales and Marketing
The Company's sales efforts are coordinated by its national sales manager,
whose duties include overseeing key accounts and directing the activities of
the Company's six regional sales managers. Because of the service-oriented
nature of the Company's business, the national and regional sales managers
devote a substantial amount of their time to servicing and maintaining
relationships with the Company's largest customers in addition to managing the
overall sales operations. The Company also utilizes the services of over 25
non-exclusive independent sales organizations, on a commission basis, who are
responsible primarily for sales to customers not serviced regularly by the
regional sales managers. Sales of the Company's agricultural products are
coordinated primarily by two full-time employees who are compensated on a
salary plus commission basis.
The Company's marketing activities are coordinated by its marketing
manager. The marketing manager designs and develops the Company's distinctive
packaging and point-of-sale displays and oversees, among other things, the
Company's advertising campaigns, which are created and placed by advertising
and public relations firms.
The Company expects that its lawn and garden products will continue to be
marketed by retailers primarily through the use of special displays and
in-store consumer promotions in Retail Accounts, hardware stores, nurseries and
garden centers. In addition, the Company believes that a substantial portion of
lawn and garden sales are impulse driven and not overly price sensitive.
Therefore, the Company seeks to increase consumer awareness, understanding and
brand identification of its products through its distinctive packaging and
point-of-sale displays. Retail Accounts and the Company's other customers
receive the Company's products in packaging that is easily displayed. The
retail product packaging is informative to the end-user and incorporates
attention-getting, eye-pleasing color schemes. The Company also tailors its
displays to the evolving needs of retailers. Because many home improvement and
mass merchant retailers maintain outdoor sales areas for their lawn and garden
products, the Company utilizes waterproof displays for many of its products. In
addition, the Company meets the specific needs of many of its larger customers
by tailoring the size of its displays to the dimensions requested by such
customers. The Company's independent sales representatives periodically visit
individual retail outlets to replenish product, rearrange displays and
otherwise assist Retail Accounts in achieving innovative and optimal use of the
Company's distinctive store displays.
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In order to anticipate and react quickly to changing consumer preferences,
the Company also engages in market research. During fiscal 1997 the Company
conducted consumer market research and a regional media advertising campaign of
its Jobe's spikes product line to determine the effectiveness of such
advertising in increasing product line sales. Based on the positive data
derived from such research, the Company intends to focus its advertising and
promotional campaign on the Jobe's brand name, as well as on the Easy Gardener
and Emerald Edge brand names.
Prior to the Company's acquisition of Weatherly, brand recognition of
Jobe's product line was not heavily promoted. In order to enhance the consumer
recognition of the Jobe's name, the Company intends to:
o Modernize Packaging. The Company intends to make the packaging of the
Jobe's products more attention getting, eye-pleasing and informative and
instructional as to product purpose and use in order to increase impulse
purchasing.
o Assist Retail Accounts. The Company will continue its current process of
assisting Retail Accounts in their inventory purchasing, in-store product
placement and the implementation of innovative and optimal use of the
distinctive displays for Jobe's products.
o Advertise Nationally. The Company intends to commence a national
television advertising campaign designed to target the "baby boomer"
consumer segment, which represents the largest lawn and garden consumer
segment. The campaign, which will be created by the Company's advertising
agency, will appear primarily on programming on national cable channels
with favorable "baby boomer" viewing demographics, such as CNN or CNBC.
The Company will also continue to engage in co-operative advertising with
its Retail Accounts primarily through national and regional weekly print
advertising circulars during the primary lawn and garden season.
The Company anticipates spending approximately $4.0 million, including
anticipated use of a portion of existing trade credits, in the fiscal year
ending June 30, 1998 on a combination of media development, print, radio and
television advertising, co-operative advertising (advertising done in
conjunction with retailers), and attendance at trade shows and public relations
to promote awareness, understanding and brand identification of its lawn and
garden products.
The Company intends to utilize a substantial portion of its marketing
budget for the fiscal year ending June 30, 1998 on the enhancement of
brand-name recognition of the Jobe's product line. There can be no assurance
that any attempt to increase such recognition will be successful or have any
favorable effect on the Company's net sales.
Information Systems
The Company maintains a sophisticated retail data information system which
enables it to track orders and provide timely and efficient order fulfillment
to its Retail Accounts and other customers. Internally, the Company's
information systems track orders and deliveries and provide exception reports
if product is not delivered on time. The systems "push" the necessary
information to the proper personnel, allowing the Company to react quickly to
information. The Company's purchase order process can be paperless, with most
Retail Accounts placing their orders through an electronic data interchange
with the Company.
Seasonality
The Company sales are seasonal due to the nature of the lawn and garden
business, in parallel with the annual growing season. The Company's sales and
shipping are most active from late December through May when home lawn and
garden customers are purchasing supplies for spring planting and retail stores
are increasing their inventory of lawn and garden products. Sales typically
decline by early to mid-summer.
Sales of the Company's agricultural products are also seasonal. Most
shipments occur during the agricultural cultivation period from March through
October.
Inventory and Distribution
In order to meet product demand, the Company keeps relatively large
amounts of product inventory on hand, particularly from December to May, the
months of highest demand. Despite maintaining these relatively
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high levels of inventory, historically the Company has experienced minimal
inventory obsolescence. There can be no assurance that inventory obsolescence
will not be higher in the future. Retail Accounts generally require delivery
within five business days. Orders are generally processed within 48 hours and
shipped by common carrier.
Competition
The consumer lawn and garden care industry is highly competitive and
somewhat fragmented. The Company competes with a combination of national and
regional companies ranging from large petrochemical companies to garden catalog
businesses and companies specializing in the manufacture of lawn and garden
care products. Several of such companies, such as Solaris Group, a division of
Monsanto Company, and the Scotts Miracle Gro Company have captured a
significant, and in certain cases controlling, share of such markets. Many of
the Company's competitors have achieved significant national, regional and
local brand name and product recognition and engage in frequent and extensive
advertising and promotional programs, both generally and in response to efforts
by new competitors entering the market or existing competitors introducing new
products. Many of these companies have substantially greater financial,
technical, marketing and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully or that
reacting to competitive pressures will not materially adversely affect the
Company.
Large, dominant manufacturers, which manufacture and sell lawn and garden
products, such as the Solaris Group and other lawn and garden care companies
have, in the past, manufactured and marketed landscape fabrics. Currently, few
of such competitors compete with the Company in this industry. Nevertheless,
well capitalized companies and smaller regional firms may develop and market
landscape fabrics and compete with the Company for customers who purchase such
products.
Among the Company's competitors in the lawn and garden market for the
Jobe's line of fertilizer and insecticide spikes are large agri-chemical
companies such as Solaris Group and Scotts Miracle-Gro Products, Inc.
Competition for the Company's agricultural products consist of other
manufacturers of products that are humic acid based but that utilize formulas
that are different from Golden West's. These competitors include American
Colloid Company, Monterey Chemical Corporation and Custom Chemicide Inc. The
Company competes with a variety of regional lawn and garden manufacturers in
the markets for landscape edging, shade cloth and root feeders.
Government Regulation
The Company is subject to many laws and governmental regulations and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Fertilizer and Pesticide Regulation. Products marketed, or which may be
marketed, by the Company as fertilizers or pesticides are subject to an
extensive and frequently evolving statutory and regulatory framework, at both
the Federal and state levels.
The distribution and sale of pesticides is subject to regulation by the
U.S. Environmental Protection Agency ("EPA") pursuant to the Federal
Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as well as regulation by
many states in a manner similar to FIFRA. Under FIFRA and similar state laws,
all pesticides must be registered with the EPA and state and must be approved
for their intended use. FIFRA and state regulations also impose other stringent
requirements on the marketing of such products. Moreover, many states also
impose similar requirements upon products marketed for use as fertilizing
materials, which are not typically regulated under FIFRA. Failure to comply
with the requirements of FIFRA and state laws that regulate marketing and
distribution of pesticides and fertilizers could result in the imposition of
sanctions, including, but not limited to, suspension or restriction of product
distribution, civil penalties or criminal sanctions.
The Company markets certain animal repellent and pesticide products that
are subject to FIFRA and to similar state regulations. The Company also markets
certain fertilizer products that are subject to regulation in some states. The
Company believes that it is in material compliance with FIFRA and applicable
state regulations regarding its material business operations. However, there
can be no assurance that the Company will be able to comply with future
regulations in every jurisdiction in which the Company's material business
operations are conducted without substantial cost or interruption of
operations. Moreover, there can be no assurance that future
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products marketed by the Company will not also be subject to FIFRA or to state
regulations. If future costs of compliance with regulations governing
pesticides or fertilizers increase or exceed the Company's budgets for such
items, the Company's business could be adversely affected. If any of the
Company's products are distributed and/or marketed in violation of any of these
regulations, the Company could be subject to a recall of, or a sales limitation
placed on, one or more of its products, or civil or criminal sanctions, any of
which could have a material adverse effect upon the Company's business.
Environmental Regulation. The Company's manufacturing operations are
subject to various evolving federal, state and local laws and regulations
relating to the protection of the environment, which laws govern, among other
things, emissions to air, discharges to ground, surface water and groundwater,
and the generation, handling, storage, transportation, treatment and disposal of
a variety of hazardous and non-hazardous substances and wastes. Federal and
state environmental laws and regulations often require manufacturers to obtain
permits for these emissions and discharges. Failure to comply with environmental
laws or to obtain, or comply with, the necessary state and federal permits can
subject the manufacturer to substantial civil and criminal penalties. Easy
Gardener and Weatherly each operates one manufacturing facility. Although the
Company believes that all of its facilities are in substantial compliance with
all applicable material environmental laws, it is currently investigating
whether it needs two permits for its Waco, Texas facility. Although the Company
believes that it will not be subject to penalties for failure to obtain a permit
if one is needed, there can be no assurance that penalties will not be assessed.
Furthermore, it is possible that there are material environmental liabilities of
which the Company is unaware. If the costs of compliance with the various
existing or future environmental laws and regulations, including any penalties
which may be assessed for failure to obtain necessary permits, exceed the
Company's budgets for such items, the Company's business could be adversely
affected.
Potential Environmental Cleanup Liability. The Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
and many similar state statutes, impose joint and several liability for
environmental damages and cleanup costs on past or current owners and operators
of facilities at which hazardous substances have been discharged, as well as on
persons who generate, transport or arrange for disposal of hazardous substances
at a particular site. In addition, the operator of a facility may be subject to
claims by third parties for personal injury, property damage or other costs
resulting from contamination present at or emanating from property on which its
facility is located. Easy Gardener and Weatherly each operates a manufacturing
facility. Moreover, the Company or its predecessors have owned or operated other
manufacturing facilities in the past and may have liability for remediation of
such facilities in the future, to the extent any is required. In this regard,
Weatherly previously owned a facility that was the subject of certain soil
remediation activities. Although this facility was sold by Weatherly prior to
the Company's acquisition of Weatherly, there can be no assurance that the
Company will not be liable for any previously existing environmental
contamination at the facility. Moreover, although the purchaser of the facility
indemnified Weatherly for any environmental contamination liability and the
sellers of Weatherly, in turn, indemnified the Company from such liability,
there can be no assurance that, if required, the indemnifying parties will be
able to fulfill their respective obligations to indemnify the Company.
Furthermore, certain business operations of the Company's subsidiaries also
involve shipping hazardous waste off-site for disposal. As a result, the Company
could be subject to liability under these statutes. The Company could also incur
liability under CERCLA or similar state statutes for any damage caused as a
result of the release of hazardous substances owned by the Company but processed
and manufactured by others on the Company's behalf. As a result, there can be no
assurance that the manufacture of the products sold by the Company will not
subject the Company to liability pursuant to CERCLA or a similar state statute.
Furthermore, there can be no assurance that Easy Gardener or Weatherly will not
be subject to liability relating to manufacturing facilities owned and/or
operated by them currently or in the past.
Other Regulations. The Company is also subject to various other federal,
state and local regulatory requirements such as worker health and safety,
transportation, and advertising requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants.
Trademarks, Proprietary Information and Patents
The Company believes that product recognition is an important competitive
factor in the lawn and garden care products industry. Accordingly, in
connection with its marketing activities of its lawn and garden care products,
the Company promotes, and intends to promote, certain tradenames and trademarks
which are believed to have value to the Company.
35
<PAGE>
In connection with its acquisition of the assets of Easy Gardener Inc. in
September 1994, the Company acquired certain trademarks used by Easy Gardener
Inc. in connection with its business including, but not limited to, the
trademarks WeedBlock, Easy Gardener(R), WeedShield, MicroPore and Birdblock(R).
In connection with its acquisition of Weatherly, the Company acquired certain
patents, as well as certain trademarks used in connection with Weatherly's
business including, but not limited to, Jobe's, Ross, Green Again(R),
Gro-Stakes(R), Tree Gard(R) and XP-20(R). The Company also acquired certain
patents and trademarks when it acquired the assets of Emerald Products LLC and
acquired trademarks with certain assets of Plastic Molded Concepts, Inc. There
can be no assurance that the Company will apply for any additional trademark or
patent protections relating to its products or that its current trademarks and
patents will be enforceable or adequately protect the Company from infringement
of its proprietary rights.
Although the Company believes that the products sold by it do not infringe
upon the patents or violate the proprietary rights of others, it is possible
that such infringement or violation has or may occur. In the event that
products sold by the Company are deemed to infringe upon the patents or
proprietary rights of others, the Company could be required to pay damages and
modify its products or obtain a license for the manufacture or sale of such
products. There can be no assurance that, in such an event, the Company would
be able to do so in a timely manner, upon acceptable terms and conditions or at
all, and the failure to do any of the foregoing could have a material adverse
effect upon the Company.
Legal Proceeding
In response to a claim for trademark infringement filed July 30, 1997 by
Easy Gardener against Dalen Products, Inc. ("Dalen") in the United States
District Court for the Western District of Texas, Waco Division, Dalen filed a
counterclaim against Easy Gardener and a third party complaint against the
Company. Dalen alleges, among other things, that the Company and Easy Gardener
monopolized or attempted to monopolize the market for landscape fabrics; that
the Company and Easy Gardener tortiously interfered with Dalen's contractual
and prospective contractual relationships; and that Easy Gardener infringed
upon a Dalen trademark, deceptively advertised the thickness of one of its
products, and misrepresented the porosity of a Dalen product. Dalen's
counterclaim and third party complaint seek an award of unspecified damages and
the entry of unspecified injunctive relief.
Employees
As of August 31, 1997, the Company had 123 full-time employees. Of such
employees, three are executive officers of the Company, 17 were engaged in
administration and finance, 14 were engaged in sales and marketing, 16 were
engaged in warehouse, shipping and receiving, and 73 were engaged in
production. An additional 17 part-time employees were engaged in production.
None of the Company's employees is covered by collective bargaining agreements.
The Company believes that it has a good relationship with its employees.
Properties
The Company's executive offices are currently located in San Francisco,
California, in approximately 2,440 square feet of office space for which the
Company pays $4,227 per month in rent, which amount includes the costs of
utilities and janitorial services. In March 1998, the Company will be
relocating to a 3,000 square foot space in the same building with a monthly
rent of $10,275. The Company believes that its office space, which it rents
pursuant to a lease expiring in February 2001, is adequate for the Company's
planned future operations.
Easy Gardener leases approximately 200,000 square feet of office and
warehouse space in Waco, Texas for which the Company pays $17,918 per month in
rent pursuant to a one year lease agreement that is renewable annually through
November 30, 2000. Easy Gardener's facilities contain landscape fabric
converters, packaging equipment and warehouse and shipping facilities.
Weatherly leases approximately 72,000 square feet of manufacturing and
warehouse space in Paris, Kentucky for $10,000 per month pursuant to a lease
that expires on June 30, 1998. If the Company is unable to extend such lease it
believes that it will be able to lease a replacement facility on commercially
reasonable terms. The Company also leases an additional 53,000 feet of
warehouse space in Paris, Kentucky for $5,417 per month in rent pursuant to a
lease that expires on May 6, 1998.
Golden West's offices are located in Merced, California in approximately
900 square feet of space it leases for $1,150 per month base rent, with rent
increases at a rate of 4% a year. The lease expires in June 1999 subject to the
Company's option to renew the lease for an additional three year period.
36
<PAGE>
MANAGEMENT
Directors, Executive Officers and Certain Key Employees
The current directors, executive officers and certain key employees of the
Company are as follows:
<TABLE>
<CAPTION>
Directors and Executive Officers Age Position
- -------------------------------- ----- ------------------------------------------------------------------
<S> <C> <C>
Robert Kassel(1) ......... 57 Chairman of the Board, Chief Executive Officer, President and
Treasurer
Richard Raleigh(2) ...... 47 Chief Operating Officer and Director
Maureen Kassel ............ 50 Vice President of Public Relations and Advertising, Secretary and
Director
Jon Schulberg(1)(2) ...... 39 Director
Fred Heiden(1)(2) ......... 56 Director
</TABLE>
<TABLE>
<CAPTION>
Certain Key Employees
- --------------------------
<S> <C> <C>
Richard M. Grandy ...... 51 President, Easy Gardener
Lynda Gustafson ......... 33 Vice President of Finance
Sheila Jones ............ 42 Vice President of Operations, Easy Gardener
Paul Logue ............ 41 National Sales Manager, Easy Gardener
</TABLE>
- ------------
(1) Member, Compensation Committee
(2) Member, Audit Committee
Directors and Executive Officers:
Robert Kassel co-founded the Company and has been Chairman of the Board,
Chief Executive Officer, President and Treasurer of the Company since October
1990. From 1985 to August 1991, he was a consultant to Comtel Communications,
Inc. ("Comtel"), a company specializing in the installation and operation of
telephone systems in hotels. From 1985 to 1990, Mr. Kassel was also a real
estate developer in Long Island, New York and Santa Barbara, California. From
1965 to 1985, he was a practicing attorney in New York City, specializing in
corporate and securities law.
Richard Raleigh has been a Director of the Company since March 1993, Chief
Operating Officer of the Company since June 1992 and served as the Company's
Executive Vice President-Operations from December 1991 to June 1992. Prior to
joining the Company, Mr. Raleigh was a free-lance marketing consultant to the
lawn and garden industry from January 1991 to December 1991. From April 1988 to
January 1991, he was Director of Marketing, Lawn and Garden of Monsanto
Agricultural Co. From December 1986 to April 1988, he was Vice President of
Sales and Marketing of The Andersons, a company engaged in the sale of consumer
and professional lawn and garden products. From November 1978 to December 1986,
he held a variety of positions at The Andersons, including Operations Manager
and New Products Development Manager.
Maureen Kassel, the wife of Robert Kassel, co-founded the Company and has
been Vice President of Public Relations and Advertising and a director of the
Company since November 1990 and Secretary of the Company since February 1992.
For the last ten years, she has assisted in the general administration and
operation of real estate and other businesses. Ms. Kassel is Chairman of the
Board of Comtel.
Jon Schulberg, a director of the Company since March 1993, has been
employed as President of Schulberg MediaWorks, a company engaged in the
independent production of television programs and television advertising since
January 1992. From January 1989 to January 1992, he was a producer for
Guthy-Renker Corporation, a television production company. From September 1987
to January 1989, he was Director of Development for Eric Jones Productions.
Fred Heiden, a director of the Company since March 1993, has been a
private investor since November 1989. From April 1984 to November 1989, Mr.
Heiden was President and principal owner of Bonair Construction, a
Florida-based home improvement construction company.
Certain Key Employees:
Richard M. Grandy has been President of Easy Gardener since July 1997 and
served as its Vice President from the date of the Company's acquisition of Easy
Gardener, Inc. in September 1994 until July 1997. Mr.
37
<PAGE>
Grandy co-founded Easy Gardener, Inc. in 1983 after serving as Marketing
Director at International Spike, Inc. from 1977 through 1983. From 1968 through
1977, Mr. Grandy was a sales representative of lawn and garden products for the
Ortho Division of Chevron Chemical Co.
Lynda Gustafson has been Vice President of Finance of the Company since
September 1997 and served as Controller of the Company from November 1993 to
September 1997. From September 1990 through October 1993, Ms. Gustafson was a
supervisor of the Business Consulting Department of the certified public
accounting firm of Hood & Strong. From September 1988 to August 1990, she held
the positions of Staff Accountant and Senior Accountant at the certified public
accounting firm of Schwartz, McGuire & Co.
Sheila Jones has been Vice President of Easy Gardener since July 1997 and
has also served as its General Manager from September 1994. Prior to the
acquisition of Easy Gardener, Inc. by the Company, Ms. Jones was employed by
Easy Gardener, Inc. from its inception in September 1983 to September 1994,
where she advanced to the positions of Vice President and General Manager. From
April 1977 to September 1983, she was employed by International Spike, Inc.,
where she held various project management positions.
Paul Logue has been National Sales Manager of Easy Gardener since its
acquisition by the Company in September 1994. Prior to joining the Company, Mr.
Logue was employed by Easy Gardener, Inc. from September 1989 to September
1994, where he advanced from the position of Northeastern Regional Sales
Manager to National Sales Manager. From March 1988 to September 1989, he was
Regional Sales Manager for Hoffman Brand Fertilizers.
Executive Compensation
The following table discloses the compensation awarded by the Company, for
the three fiscal years ended June 30, 1995, 1996 and 1997, to Mr. Robert
Kassel, its Chief Executive Officer, and Mr. Richard J. Raleigh, its Chief
Operating Officer (together, the "Named Executives"). During the fiscal year
ended June 30, 1997, no other executive officer of the Company received a
salary that exceeded $100,000 during such fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------------------------------------
Long Term All Other
Name and Principal Position Year Salary($) Bonus($) Compensation Compensation ($)(1)
- ------------------------------------------ ------ ----------- ---------- ----------------- --------------------
Securities
Underlying
Options(#)
-----------------
<S> <C> <C> <C> <C> <C>
Robert Kassel, Chairman, Chief Executive 1997 350,000 250,000 1,200,000(2) 5,995
Officer, President and Treasurer 1996 250,000 100,000 200,000(3) --
1995 150,000 100,000 687,653(4) --
Richard Raleigh, Chief Operating Officer 1997 195,000 111,275 500,000(2) 8,390
1996 150,000 10,000 100,000(3) --
1995 120,000 10,000 50,000(4) --
</TABLE>
- ------------
(1) Represents Company contributions to the Named Executives' 401(k) accounts.
(2) Includes options to purchase 200,000 shares previously granted to Mr.
Kassel and options to purchase 100,000 shares previously granted to Mr.
Raleigh whose exercise prices were repriced to reflect a reduction in the
market price of the Common Stock at the time of repricing. Does not
include options to purchase 50,000 shares previously granted to Mr.
Raleigh the expiration date of which was extended during fiscal 1997.
(3) Includes five-year options to purchase 200,000 shares granted to Mr. Kassel
and five-year options to purchase 100,000 shares granted to Mr. Raleigh in
June 1995 under the Company's 1995 Stock Option Plan, which grants were
subject to stockholder approval of the plan obtained in February 1996.
(4) Does not include the options referenced in footnote (3) above.
38
<PAGE>
The following table discloses information concerning stock options granted
in the year ended June 30, 1997 to the Named Executives.
Option Grants in Fiscal Year Ended June 30, 1997
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------
Potential
Realizable Value at
Number of Assumed
Securities Percent of Total Annual Rates of
Underlying Options Granted to Exercise Stock Price
Options Granted Employees in Fiscal Price Expiration Appreciation for
Name (#)(1) Year(%) ($/Sh) Date Option Term ($)(2)
- ----------------- ----------------- --------------------- ---------- ------------ -------------------
5% 10%
--------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert Kassel 350,000 19.8 2.06 7/24/01 199,199 440,177
450,000 25.5 2.06 8/30/01 256,113 565,943
200,000 11.3 2.06 12/24/01 113,828 251,530
200,000 11.3 2.06 6/01/00 113,828 251,530
Richard Raleigh 125,000 7.0 2.06 7/24/01 71,142 157,706
175,000 9.5 2.06 8/30/01 99,599 220,089
100,000 5.7 2.06 12/24/01 56,914 125,765
100,000 5.7 2.06 6/01/00 56,914 125,765
</TABLE>
- ------------
(1) All of such options were exercisable in full from the date of grant.
(2) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the options immediately prior to their
expiration, assuming the Company's Common Stock appreciates at the
compounded rates specified over the term of the options. These numbers do
not take into account provisions of options providing for termination of
the option following termination of employment or nontransferability of
the options and do not make any provision for taxes associated with
exercise. Because actual gains will depend upon, among other things,
future performance of the Common Stock, there can be no assurance that the
amounts reflected in this table will be achieved.
The following table sets forth information concerning the number of
options owned by the Named Executives and the value of any in-the-money
unexercised stock options as of June 30, 1997. No options were exercised by the
Named Executives during fiscal 1997:
Aggregated Option Exercises
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
June 30, 1997 June 30, 1997(1)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Robert Kassel ......... 2,067,653 -0- $3,214,598 $-0-
Richard Raleigh ...... 637,500 -0- $ 887,938 $-0-
</TABLE>
- ------------
(1) Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year-end
market value of the Common Stock. An option is "in-the-money" if the fiscal
year-end fair market value of the Common Stock exceeds the option exercise
price. The last sale price (the fair market value) of the Common Stock on
June 30, 1997 was $3.375 per share.
<PAGE>
Employment Agreements
The Company has entered into employment agreements with Messrs. Kassel and
Raleigh, each dated as of April 1, 1996. Mr. Kassel currently serves as Chief
Executive Officer and President pursuant to the employment agreement for a term
expiring on March 31, 1998, subject to certain renewal provisions. His current
annual salary is $350,000, and is subject to such bonuses and increases as are
approved at the discretion of the Board of Directors. Mr. Raleigh currently
serves as Chief Operating Officer pursuant to the employment agreement for a
term expiring on March 31, 1998, subject to certain renewal provisions. His
current annual salary is $195,000, and is subject to such bonuses and increases
as are approved at the discretion of the Board of Directors. Each
39
<PAGE>
of the employment agreements requires that substantially all of the employee's
business time be devoted to the Company and that the employee not compete, or
engage in a business competitive with, the Company's current and/or anticipated
business for the term of the agreement and for two years thereafter (although
they each may own not more than 5% of the securities of any publicly traded
competitive company). Each of Mr. Kassel and Mr. Raleigh is, in addition to
salary, entitled to certain fringe benefits, including the use of an automobile
and payment of related expenses.
Mr. Kassel's employment agreement also provides that if his employment is
terminated under certain circumstances, including termination of Mr. Kassel
upon a change of control of the Company (as defined in the agreement), a
failure by the Company to comply with its obligations under the agreement, the
failure of the Company to obtain the assumption of the agreement by any
successor corporation, or a change in Mr. Kassel's duties and obligations from
those contemplated by the agreement, and termination by the Company of Mr.
Kassel's employment other than for disability or cause (as defined in the
agreement), he will be entitled to receive severance pay equal to the greater
of (i) $350,000 ($3.5 million in the event of a change of control), or (ii) the
total compensation earned by Mr. Kassel from the Company during the one-year
period (multiplied by ten in the event of a change of control) prior to the
date of his termination.
Mr. Raleigh's employment agreement also provides that if his employment is
terminated under certain circumstances, including termination of Mr. Raleigh
upon a change of control of the Company (as defined in the agreement), a
failure by the Company to comply with its obligations under the agreement, the
failure of the Company to obtain the assumption of the agreement by any
successor corporation, or a change in Mr. Raleigh's duties and obligations from
those contemplated by the agreement, and termination by the Company of Mr.
Raleigh's employment other than for disability or cause (as defined in the
agreement) he will be entitled to receive severance pay equal to the greater of
(i) $162,500 ($812,500 in the event of a change of control), or (ii) the total
compensation earned by Mr. Raleigh from the Company during the one-year period
(multiplied by five in the event of a change of control) prior to the date of
his termination.
Easy Gardener has entered into an employment agreement with Mr. Grandy
dated as of September 1, 1994, which expires on August 31, 1998. Mr. Grandy
currently serves as President of Easy Gardener. His current annual salary is
$200,000. Mr. Grandy's employment agreement requires him to devote
substantially all of his business time to Easy Gardener, and in the event Mr.
Grandy's employment agreement is terminated by Easy Gardener without cause (as
defined in the agreement) or if Mr. Grandy resigns with Good Reason (as defined
in the agreement), Mr. Grandy will be entitled to receive his base salary
through the expiration date.
Committees of the Board of Directors
The Company recently established an Audit Committee comprised of Messrs.
Raleigh, Schulberg and Heiden. The Audit Committee will, among other things,
make recommendations to the Board of Directors with respect to the engagement
of the Company's independent certified public accountants and the review of the
scope and effect of the audit engagement. The Company recently established a
Compensation Committee comprised of Messrs. Kassel, Schulberg and Heiden. The
Compensation Committee will, among other things, make recommendations to the
Board of Directors with respect to the compensation of the executive officers
of the Company. The Company maintains a Stock Option Committee comprised of
Messrs. Schulberg and Heiden, which determines the persons to whom options
should be granted under the Company's 1995 and 1997 Stock Option Plans and the
number and other terms of options to be granted to each person under such
plans.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Company did not have a Compensation Committee of its Board of
Directors during fiscal 1997. Decisions as to compensation during fiscal 1997
were made by the Company's Board of Directors. Messrs. Kassel and Raleigh, in
their capacity as directors, each participated in the Board of Directors
deliberations concerning compensation of executive officers for fiscal 1997.
During fiscal 1997, none of the executive officers of the Company served on the
Board of Directors or the compensation committee of any other entity, any of
whose officers served on the Board of Directors of the Company.
40
<PAGE>
Stock Option Plans
In September 1991, the Company adopted a stock option plan (the "1991
Plan") pursuant to which 700,000 shares of Common Stock have been reserved for
issuance upon the exercise of options designated as either (i) options intended
to constitute incentive stock options ("ISOs") under the Internal Revenue Code
of 1986, as amended (the "Code") or (ii) non-qualified options ("NQO's"). ISOs
may be granted under the Option Plan to employees and officers of the Company.
NQO's may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company.
The purpose of the 1991 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and give them a greater personal
interest in the success of the Company. The 1991 Plan is administered by the
Board of Directors. The Board, within the limitations of the 1991 Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, the time, manner and form of payment upon
exercise of an option, and whether restrictions such as repurchase rights in
the Company are to be imposed on shares subject to options.
ISOs granted under the 1991 Plan may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any related
corporation) may not exceed $100,000. NQO's granted under the 1991 Plan may not
be granted at a price less than the fair market value of the Common Stock on
the date of grant. Options granted under the Option Plan will expire not more
than ten years from the date of grant (five years in the case of ISOs granted
to persons holding 10% or more of the voting stock of the Company). Options to
acquire an aggregate of 662,000 shares are currently outstanding under the 1991
Plan.
The Company has adopted a Non-Employee Director Stock Option Plan (the
"Director Plan"). Only non-employee directors of the Company are eligible to
receive grants under the Director Plan. The Director Plan provides that
eligible directors automatically receive a grant of options to purchase 5,000
shares of Common stock at fair market value upon first becoming a director and,
thereafter, an annual grant, in January of each year, of 5,000 options at fair
market value. Options to purchase an aggregate of up to 100,000 shares of
Common Stock are authorized for the automatic grants under the Director Plan.
Options to acquire an aggregate of 20,000 shares has been granted to date under
the Director Plan.
The Company has also adopted a 1995 Stock Option Plan ("1995 Plan") which
provides for grants of options to purchase up to 1,500,000 shares of Common
Stock. The Board of Directors or the Stock Option Committee (the "Committee"),
as the case may be, will have discretion to determine the number of shares
subject to each NQO (subject to the number of shares available for grant under
the 1995 Plan and other limitations on grant set forth in the 1995 Plan), the
exercise price thereof (provided such price is not less than the par value of
the underlying shares of Common Stock), the term thereof (but not in excess of
10 years from the date of grant, subject to earlier termination in certain
circumstances), and the manner in which the option becomes exercisable
(amounts, intervals and other conditions). Directors who are employees of the
Company will be eligible to be granted ISOs or NQOs under such plan. The Board
or Committee, as the case may be, also has discretion to determine the number
of shares subject to each ISO, the exercise price and other terms and
conditions thereof, but their discretion as to the exercise price, the term of
each ISO and the number of ISOs that may vest may be in any year is limited by
the same Code provisions applicable to ISOs granted under the 1991 Plan.
Options to acquire an aggregate of 1,483,000 shares are currently outstanding
under the 1995 Plan.
The Company has adopted a 1997 Stock Option Plan ("1997 Plan") which
provides for grants of options to purchase up to 1,500,000 shares of Common
Stock. The Board of Directors or the Committee, as the case may be, will have
discretion to determine the number of shares subject to each NQO (subject to
the number of shares available for grant under the 1997 Plan and other
limitations on grant set forth in the 1997 Plan), the exercise price thereof
(provided such price is not less than the par value of the underlying shares of
Common Stock), the term thereof (but not in excess of 10 years from the date of
grant, subject to earlier termination in certain circumstances), and the manner
in which the option becomes exercisable (amounts, intervals and other
41
<PAGE>
conditions). Directors who are employees of the Company (but not members of the
Committee of the 1997 Plan) will be eligible to be granted ISOs or NQOs under
such plan. The Board or Committee, as the case may be, also has discretion to
determine the number of shares subject to each ISO, the exercise price and
other terms and conditions thereof, but their discretion as to the exercise
price, the term of each ISO and the number of ISOs that may vest may be in any
year is limited by the same Code provisions applicable to ISOs granted under
the 1991 Plan. Options to acquire an aggregate of 565,000 shares are currently
outstanding under the 1997 Plan.
To date, no options have been exercised under the Option Plan, the
Director Plan, the 1995 Plan or the 1997 Plan.
The Company from time to time has also granted non-plan options to certain
officers, employees and consultants of the Company.
Director Compensation
During fiscal 1997, each of the Company's two non-employee directors,
Messrs. Schulberg and Heiden, received $5,000 for serving as directors of the
Company.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information at September 25, 1997, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, (iii) each Named Executive and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
Shares
to be
Name and Address Shares Beneficially Owned Sold in Shares Beneficially Owned
of Beneficial Owner(1) Prior to Offerings(2) Offering After Offerings(2)
- ------------------------------------ ------------------------------------- ------------------ ------------------------------
Number Percent Number Percent
------------------------ ----------- -------------------- --------
<S> <C> <C> <C> <C> <C>
Maureen Kassel ..................... 910,650(3) 5.8 230,000 680,650 3.3%
Robert Kassel ..................... 4,712,095(4)(5) 26.7 230,000(14) 4,022,095(14) 17.8
Richard Raleigh .................. 711,154(6) 4.6 80,000 631,154 3.0
Fred Heiden ..................... 7,500(7) * -- 7,500 *
Jon Schulberg ..................... 7,500(8) * -- 7,500 *
Joseph Owens II .................. 1,064,396(9) 6.9 230,000 834,396 4.1
Richard Grandy .................. 1,064,396(9) 6.9 230,000 834,396 4.1
Alan Stahler ..................... 899,368(10) 5.6 -- 899,368 4.2
Lynda Gustafson .................. 37,640(11) * 17,640 20,000 *
Paul Logue ........................ 33,625(12) * 20,625 13,000 *
Sheila Jones ..................... 31,925(13) * 20,625 11,300 *
Herbert Berman ..................... 37,500 * 12,500 25,000 *
Nathaniel Berman .................. 25,000 * 25,000 -- --
Tiger Group, Inc. .................. 25,000 * 25,000 -- --
Debra Berman ..................... 12,500 * 12,500 -- --
All executive officers and directors
as a group (five persons) ...... 5,763,249(4)(5) 30.9 770,000(14) 4,993,249(14) 21.1
(6)(7)
(8)(9)
</TABLE>
- ------------
*less than 1%
(1) Unless otherwise noted, the address of the beneficial owner is c/o the
Company, and the Company believes that all persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from September 25, 1997 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from September 25, 1997 have been exercised.
(3) The address for Ms. Kassel is c/o the Company. Includes presently
exercisable options and warrants issued to Ms. Kassel to purchase an
aggregate of 325,000 shares of the Company's Common Stock.
(4) The address for Mr. Kassel is c/o the Company. Of such shares, (i) 585,650
are owned of record by Maureen Kassel; however, because Ms. Kassel has
appointed her husband as her proxy and attorney-in-fact to vote all
585,650 of the shares owned of record by her, Robert Kassel may also be
deemed to have beneficial ownership of such shares; (ii) an aggregate of
914,396 shares are owned of record by each of Messrs. Joseph Owens and
Richard Grandy, who have each entered into a voting trust agreement (the
"Voting Agreement") providing Mr. Kassel with the right to vote the shares
until September 1, 2001.
(5) Includes 2,297,653 shares of Common Stock issuable upon exercise of
options and warrants.
(6) Includes 694,154 shares of Common Stock issuable upon exercise of options
and warrants. Gives effect to the exercise by Mr. Raleigh, on a "cashless"
basis, immediately prior to the consummation of this offering of warrants
to purchase 95,166 shares of Common Stock into 63,000 shares of Common
Stock.
(7) Includes 7,500 shares of Common Stock issuable upon exercise of options.
(8) Includes 7,500 shares of Common Stock issuable upon exercise of options.
(9) Includes 125,000 shares of Common Stock issuable to each of Messrs. Grandy
and Owens upon exercise of options. The address of Mr. Owens is 8
Hillendale, Waco, Texas 76710.
(10) The address for Mr. Stahler is 44 Wall Street, New York, New York 10005.
Includes shares issuable upon the exercise of (i) options to purchase an
aggregate of 89,441 shares of Common Stock underlying a five-year Unit
Purchase Option granted on August 12, 1993 ("1993 Unit Purchase Option")
and (ii) options to purchase up to 785,094 shares underlying a five-year
Unit Purchase Option granted on August 29, 1994 ("1994 Unit Purchase
Option"). Also includes options to purchase an aggregate of 24,833 shares
underlying additional 1993 Unit Purchase Options granted to D.H. Blair &
Co., Inc. Mr. Stahler is the Vice-Chairman and he and his wife are
stockholders of D.H. Blair and Co., Inc. The information with respect to
Mr. Stahler is derived from his Schedule 13D filed with the Securities and
Exchange Commission. Does not give effect to the redemption of any unit
purchase options upon the consummation of this offering.
(11) Includes 20,000 shares of Common Stock issuable upon exercise of options.
Gives effect to the exercise by Ms. Gustafson, on a "cashless" basis,
immediately prior to the consummation of this offering of warrants to
purchase 30,000 shares of Common Stock into 17,640 shares of Common Stock.
(12) Includes 10,000 shares of Common Stock issuable upon exercise of options.
Gives effect to the exercise by Mr. Logue, on a "cashless" basis,
immediately prior to the consummation of this offering of warrants to
purchase 37,500 shares of Common Stock into 20,625 shares of Common Stock.
(13) Includes 10,000 shares of Common Stock issuable upon exercise of options.
Give effect to the exercise by Mr. Jones, on a "cashless" basis,
immediately prior to the consummation of this offering of warrants to
purchase 37,500 shares of Common Stock into 20,625 shares of Common Stock.
(14) Reflects the sale in this offering by Maureen Kassel of 230,000 shares of
Common Stock which may also be deemed to be beneficially owned by Mr.
Kassel. Shares to be Sold in Offering do not reflect the sale in this
offering by each of Messrs. Owens and Grandy of 230,000 shares of Common
Stock which were subject to the Voting Agreement.
43
<PAGE>
CERTAIN TRANSACTIONS
To obtain a portion of the financing for the Company's acquisition of Easy
Gardener, Inc., Mr. Kassel provided for the benefit of the lender $500,000 cash
collateral and a personal guarantee of $333,000. In consideration of providing
such collateral and guarantee, the Company granted Mr. Kassel options to
purchase an aggregate of 526,300 shares of Common Stock for an aggregate
exercise price of approximately $822,000.
In connection with certain acquisitions, during fiscal 1997, the Company
granted five year non-plan options to Messrs. Kassel and Raleigh to purchase an
aggregate of 650,000 and 275,000 shares of Common Stock, respectively, at an
exercise price of $2.0625 per share. Pursuant to an agreement with the
Underwriters, the Company has agreed not to issue any options, warrants or any
other securities convertible into Common Stock (except under the Director Plan)
to any person during fiscal 1998 or fiscal 1999, other than options, warrants or
any other securities convertible into up to an aggregate of 750,000 shares of
Common Stock during fiscal 1999. See "Underwriting."
From time to time Messrs. Kassel and Raleigh have borrowed monies from the
Company. During fiscal 1997, the highest amounts owed to the Company by Messrs.
Kassel and Raleigh were $607,472 and $225,294, respectively, and at September
26, 1997, the balance of such indebtedness was $556,452 and $235,653,
respectively. The loans bear interest at 7% per annum and mature on July 1,
2002. Company loans to all officers of the Company are restricted to a maximum
of $850,000 by the terms of the Credit Agreement. The Company's Board of
Directors has adopted a policy pursuant to which any loan between the Company
and one or more of its officers or directors, or any third party in which one
or more of its officers or directors has a material interest, must be approved
by a majority of the disinterested members of the Audit Committee or the Board
of Directors.
The Company has reached an agreement in principle to repurchase from Alan
Stahler, a principal stockholder of the Company, all of his unit purchase
options. See "Use of Proceeds" and "Principal and Selling Stockholders."
44
<PAGE>
DESCRIPTION OF COMPANY'S SECURITIES
General
The Company is authorized to issue 30,000,000 shares of Common Stock, par
value $0.001 per share, and 1,000,000 shares of preferred stock, par value
$0.001 per share. As of October 20, 1997, there were 15,354,656 shares of Common
Stock outstanding and held of record by 186 holders, and no shares of preferred
stock are outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors in its discretion
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably the assets of the Company, if any, legally available
for distribution to them after payment of debts and liabilities of the Company
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock have no
conversion, preemptive or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All of
the outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will be, when issued upon payment of the consideration set forth
in this Prospectus, fully paid and non-assessable.
Preferred Stock
The Company is authorized to issue preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company.
Delaware Anti-Takeover Law
The Company is subject to certain anti-takeover provisions under Section
203 of the Delaware General Corporation Law. In general, under Section 203, a
Delaware corporation may not engage in any business combination with any
"interested stockholder" (a person that owns, directly or indirectly, 15% or
more of the outstanding voting stock of a corporation or is an affiliate of a
corporation and was the owner of 15% or more of the outstanding voting stock),
for a period of three years following the date such stockholder became an
interested stockholder, unless (i) prior to such date the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, or (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. The restrictions imposed by
Section 203 will not apply to a corporation if the corporation's initial
certificate of incorporation contains a provision expressly electing not to be
governed by this section or the corporation by action of its stockholders
holding a majority of outstanding stock adopts an amendment to its certificate
of incorporation or by-laws expressly electing not to be governed by Section
203.
The Company has not elected out of Section 203, and therefore, the
restrictions imposed by Section 203 will apply to the Company. Such provision
could have the effect of discouraging, delaying or preventing a takeover of the
Company, which could otherwise be in the best interest of the Company's
stockholders, and have an adverse effect on the market price for the Company's
Common Stock.
45
<PAGE>
Limitation of Liability and Indemnification Matters
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, fines, amounts paid in settlement and expenses (including
attorneys' fees) actually and reasonably incurred as the result of an action,
suit or proceeding in which they may be involved by reason of having been a
director or officer of the Company. In its Certificate of Incorporation, the
Company has included a provision that limits the personal liability of its
directors to the Company or its stockholders for monetary damages arising from
a breach of their fiduciary duties as directors. This provision limits a
director's liability except where such director (i) breaches his duty of
loyalty to the Company or its stockholders, (ii) fails to act in good faith or
engages in intentional misconduct or a knowing violation of laws, (iii)
authorizes payment of an unlawful dividend or stock purchase or redemption as
provided in Section 174 of the DGCL or (iv) obtains an improper personal
benefit. This provision does not prevent the Company or its stockholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence.
The Company's Certificate of Incorporation, as amended, also includes
provisions to the effect that (subject to certain exceptions) the Company
shall, to the maximum extent permitted from time to time under the law of the
State of Delaware, indemnify, and upon request shall reimburse expenses to, any
director or officer to the extent that such indemnification and reimbursement
of expenses is permitted under such law, as it may from time to time be in
effect. In addition, the Amended and Restated Bylaws of the Company require the
Company to indemnify, to the fullest extent permitted by law, any director,
officer, employee or agent of the Company. At present, the DGCL provides that,
in order to be entitled to indemnification, an individual must have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the Company's best interests and, with respect to a criminal action
or proceeding, had no reasonable cause to believe that his or her conduct was
unlawful.
Transfer Agent and Warrant Agent
The transfer and registrar agent for the Common Stock is North American
Transfer Company, Freeport, New York.
46
<PAGE>
UNDERWRITING
Subject to the terms and certain conditions of the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom EVEREN Securities, Inc. and Josephthal Lyon & Ross
Incorporated are acting as representatives (the "Representatives"), have
severally agreed to purchase an aggregate of 6,000,000 shares of Common Stock
from the Company and the Selling Stockholders. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
Underwriter Number of Shares
----------- -----------------
EVEREN Securities, Inc.
Josephthal Lyon & Ross Incorporated
---------
Total 6,000,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters who are parties thereunder are subject to certain conditions. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all of such shares of Common Stock (other than the
shares of Common Stock covered by the over-allotment option described below)
must be so purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not to exceed $ per share. The Underwriters
may allow, and such dealers may reallow, discounts not to exceed $ per
share to certain other dealers. After the initial public offering of the shares
of Common Stock, the public offering price and the other selling terms may be
changed by the Representatives.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 900,000 additional shares of Common Stock at the price to the
public set forth on the cover page of this Prospectus, less underwriting
discounts and commissions, solely to cover over-allotments, if any. Such option
may be exercised at any time until 30 days after the date of this Prospectus.
To the extent that the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Act,
or to contribute to payments that the Underwriters may be required to make in
respect thereof.
The public offering price for the Common Stock set forth on the cover page
of this Prospectus was determined by negotiations among the Company and the
Representatives. The factors considered in determining the public offering
price include the information set forth in this Prospectus and otherwise
available to the Representatives, the trading history of the Common Stock on
the Nasdaq SmallCap Market, the history of and prospects for the industry in
which the Company competes, the ability of the Company's management, the past
and present operations of the Company, the historical results of the operations
of the Company, the prospects for future earnings of the Company, the general
condition of the securities market at the time of this offering and the recent
market prices of securities of generally comparable companies. Prior to this
offering, trading in the Company's Common Stock has been limited. There can be
no assurance as to the liquidity of any market that may develop for the Common
Stock or the ability of holders to sell their Common Stock, nor can there be
any assurance that the price at which holders are able to sell their Common
Stock will not be lower than the price at which the Common Stock is sold to the
public by the Underwriters.
The directors, executive officers and certain key employees of the Company
have agreed with the Underwriters not to (other than in connection with this
offering or in connection with certain transfers of Common
47
<PAGE>
Stock to entities organized for the exclusive benefit of family members of such
persons, which entities shall have first expressly agreed in writing to be
bound by the terms of such agreement), directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock,
or enter into any swap or other agreement to do any of the foregoing, for a
period of 180 days after the date of this Prospectus without the written consent
of EVEREN Securities, Inc. The other Selling Stockholders have also agreed to
such restrictions. These "lock-up" restrictions do not apply to the estate of
any person described above in the event such person dies during the 180-day
"lock-up" period and do not prohibit any person from exercising options (but
would prohibit the sale during the restricted period of any shares of Common
Stock purchased upon exercise of such options).
The Company has also agreed with the Underwriters not to (other than in
connection with this offering), directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise issue any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for Common Stock, enter into any
swap or other agreement to do any of the foregoing, or file any registration
statement relating to any of the foregoing on behalf of itself or any other
person, for a period of 180 days after the date of this Prospectus, without the
written consent of EVEREN Securities, Inc. The restrictions set forth in the
immediately preceeding sentence are not applicable to: (i) grants of options
pursuant to the Director Plan, as in effect on the date hereof; (ii) the filing
of any registration statement on Form S-8 relating to shares of Common Stock
issuable upon exercise of options outstanding on the date hereof and described
as such herein under the Company's Stock Option Plans; (iii) the filing of any
registration statement on Form S-3 relating to the potential sale of 100,000
shares of Common Stock issuable upon exercise of options and warrants granted
outside of the Company's Stock Option Plans that expire during the 180-day
"lock-up" period; and (iv) the issuance of shares of Common Stock or options,
warrants or rights to purchase shares of Common Stock solely in connection with
the acquisition by the Company of lawn and garden companies or product lines;
provided however, that no registration statement on Form S-4 or any other
registration statement relating to such issuance may be filed during such
180-day period without the written consent of EVEREN Securities, Inc., which
consent may not be unreasonably withheld.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with the Securities Exchange Act of 1934 pursuant to which such persons may bid
for or purchase Common Stock for the purpose of stabilizing its market price.
The Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with this offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such shares of Common
Stock or may exercise the Underwriters' over-allotment option referred to
above. In addition, the Representatives, on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby they may reclaim from an Underwriter (or dealer participating in the
offering), for the account of the other Underwriters, the selling concession
with respect to Common Stock that is distributed in this offering but
subsequently purchased for the account of the Underwriters in the open market.
In connection with the offering, certain Underwriters, selling group members
and their respective affiliates who are qualified registered market makers on
the Nasdaq SmallCap Market may engage in passing market making transactions in
the Common Stock on the Nasdaq SmallCap Market in accordance with Rule 103 of
Regulation M during a specified period before commencement of offers or sales
of the Common Stock. The passive market making transactions must comply with
applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the
highest independent bid for such security. However, if all independent bids are
lowered below the passive market maker's bid, the passive market maker's bid
must be lowered when certain purchase limits are exceeded. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if undertaken, may be discontinued at any time.
48
<PAGE>
Josephthal Lyon & Ross Incorporated has performed investment banking and
advisory services for the Company since April 1997 for which it received
certain cash payments and warrants to purchase 100,000 shares of Common Stock
at $2.25 per share.
The Company has granted EVEREN Securities, Inc. and Josephthal Lyon & Ross
Incorporated certain rights of first refusal to underwrite or place any public
or private offering of equity or debt securities of the Company for a period of
12 months following the consummation of the offering.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company and the Selling Stockholders by Tenzer Greenblatt LLP, New York,
New York. Certain legal matters relating to the offering will be passed upon
for the Underwriters by Gibson, Dunn & Crutcher LLP. A partner of Tenzer
Greenblatt LLP is the beneficial owner of shares of Common Stock and options
and warrants to purchase shares of Common Stock. Certain other partners of
Tenzer Greenblatt LLP also own shares of Common Stock and/or options to
purchase Common Stock.
EXPERTS
The financial statements and schedule included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by the Company can be inspected without charge, at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C., 20549, as well as the regional offices of the Commission located at
Northwest Atrium, 500 West Madison Street, Chicago, Illinois, 60601-2511 and 7
World Trade Center, New York, New York 10048 and may be copied at prescribed
rates. The Commission also maintains a site on the World Wide Web that contains
reports, proxy and information statements and other information regarding the
Company. The address for such site is: http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-1 under the Act (together with all amendments and exhibits thereto, the
"Registration Statement") with respect to the securities offered hereby. This
Prospectus, filed as part of such Registration Statement, does not contain all
of the information set forth in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete
and are qualified in their entirety by reference to each such contract,
agreement or other document which is filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected without charge at the
Commission's principal office, in Washington, D.C. 20549, at the Commission's
Regional Offices described above, and copies of such materials can be obtained
from the Commission's Public Reference Section at prescribed rates.
49
<PAGE>
Index to Financial Statements
U.S. Home & Garden Inc. and Subsidiaries
<TABLE>
<CAPTION>
Page
---------------
<S> <C>
Report of Independent Certified Public Accountants .................................... F-2
Consolidated Financial Statements
Consolidated balance sheets as of June 30, 1996 and 1997 ........................... F-3
Consolidated statements of income for the years ended June 30, 1995, 1996 and 1997 F-4
Consolidated statements of stockholders' equity for the years ended June 30, 1995,
1996 and 1997 ..................................................................... F-5
Consolidated statements of cash flows for the years ended June 30, 1995, 1996 and
1997 .............................................................................. F-6
Summary of Accounting Policy ......................................................... F-7 - F-9
Notes to Consolidated Financial Statements .......................................... F-10 - F-22
Consolidated Financial Statement Schedule
Weatherly Consumer Products Group, Inc. and Subsidiaries
Report of Independent Public Accountants ............................................. F-23
Consolidated Financial Statements
Consolidated statements of operations for the year ended September 30, 1995 and the
period October 1, 1995 through August 9, 1996 .................................... F-24
Consolidated statements of stockholders' equity for the year ended September 30,
1995 and the period October 1, 1995 through August 9, 1996 ........................ F-25
Consolidated statements of cash flows for the year ended September 30, 1995 and the
period October 1, 1995 through August 9, 1996 .................................... F-26
Notes to Financial Statements ...................................................... F-27-F-31
Proforma Condensed Consolidated Financial Statements
Proforma condensed consolidated financial statements - background .................. F-32
Proforma condensed consolidated statement of operations for the year ended June 30,
1997 .............................................................................. F-33
Notes to proforma condensed consolidated financial statements ........................ F-34
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
U.S. Home & Garden Inc.
and Subsidiaries
San Francisco, California
We have audited the accompanying consolidated balance sheets of U.S. Home &
Garden Inc. and Subsidiaries as of June 30, 1996 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and schedule. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Home & Garden
Inc. and Subsidiaries at June 30, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
San Francisco, California
August 1, 1997, except for Note 15 which
is as of September 15, 1997
F-2
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
------------------------------
1996 1997
-------------- -------------
<S> <C> <C>
Assets (Notes 1 and 6)
Current
Cash and cash equivalents ............................................. $ 680,000 $ 2,083,000
Accounts receivable, less allowance for doubtful accounts and sales
returns of $155,000 and $314,000 .................................... 7,109,000 11,542,000
Inventories (Note 3) ................................................ 3,392,000 5,254,000
Prepaid expenses and other current assets ........................... 462,000 419,000
Deferred tax asset (Note 10) .......................................... 1,333,000 448,000
------------ -------------
Total current assets ............................................. 12,976,000 19,746,000
Furniture, fixtures and equipment, net (Note 4) ........................ 1,216,000 2,315,000
Intangible assets (Note 1)
Excess of cost over net assets acquired (Note 5) ..................... 15,784,000 41,834,000
Deferred financing costs, net of accumulated amortization of $467,000
and $302,000 ......................................................... 1,005,000 1,621,000
Product rights, patents and trademarks, net of accumulated amortization
of $56,000 and $75,000 ................................................ 198,000 180,000
Non-compete agreement, net of accumulated amortization of $22,000 . -- 478,000
Package design, net of accumulated amortization of $56,000 and
$110,000 ............................................................ 180,000 251,000
Trade credits (Note 2) ................................................... 1,295,000 1,149,000
Officer receivables (Note 7) ............................................. 617,000 694,000
Other assets ............................................................ 313,000 207,000
------------ -------------
$ 33,584,000 $ 68,475,000
============ =============
Liabilities and Stockholders' Equity (Note 1)
Current
Line of credit (Notes 1, 6 and 13) .................................... $ 1,288,000 $ --
Current maturities of notes payable (Notes 1, 6 and 13) ............... 2,362,000 8,990,000
Accounts payable ...................................................... 1,285,000 1,774,000
Accrued expenses ...................................................... 901,000 3,983,000
Accrued co-op advertising ............................................. 185,000 1,098,000
Accrued commissions ................................................... 546,000 859,000
Accrued interest (Note 6) ............................................. 592,000 261,000
Accrued purchase consideration (Note 1) .............................. 489,000 489,000
------------ -------------
Total current liabilities .......................................... 7,648,000 17,454,000
Accrued purchase consideration (Note 1) ................................. -- 978,000
Deferred tax liability (Note 10) ....................................... 328,000 547,000
Notes payable, less current maturities (Notes 1, 6 and 13) ............... 6,238,000 17,570,000
------------ -------------
Total liabilities ...................................................... 14,214,000 36,549,000
------------ -------------
Commitments, contingency and subsequent events (Notes 1, 6, 8, 9 and 15)
Stockholders' equity (Note 9)
Preferred stock, $.001 par value - shares authorized, 1,000,000; no
shares outstanding ................................................... -- --
Common stock, $.001 par value -- shares authorized, 30,000,000;
10,507,000 and 14,073,000 shares issued and outstanding at June 30,
1996 and 1997 ...................................................... 11,000 14,000
Additional paid-in capital .......................................... 21,413,000 30,783,000
Retained earnings (deficit) .......................................... (2,054,000) 1,129,000
------------ -------------
Total stockholders' equity ....................................... 19,370,000 31,926,000
------------ -------------
$ 33,584,000 $ 68,475,000
============ =============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------------
1995 1996 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Net sales (Note 11) ....................................... $19,692,000 $27,031,000 $ 52,046,000
Cost of sales ............................................. 9,151,000 12,670,000 23,649,000
------------ ------------ ------------
Gross profit ............................................. 10,541,000 14,361,000 28,397,000
------------ ------------ ------------
Operating expenses
Selling and shipping .................................... 4,374,000 6,264,000 11,232,000
General and administrative .............................. 2,778,000 4,348,000 6,513,000
------------ ------------ ------------
7,152,000 10,612,000 17,745,000
------------ ------------ ------------
Income from operations .................................... 3,389,000 3,749,000 10,652,000
Other income (expense)
Investment income ....................................... 34,000 69,000 76,000
Interest expense (Note 6) ................................. (1,810,000) (2,009,000) (3,338,000)
------------ ------------ ------------
Income before income taxes and extraordinary expense ...... 1,613,000 1,809,000 7,390,000
Income tax (expense) benefit (Note 10) ..................... (38,000) 715,000 (3,200,000)
------------ ------------ ------------
Income before extraordinary expense ........................ 1,575,000 2,524,000 4,190,000
Extraordinary expense of $1,459,000 on debt refinancing,
net of income taxes of $452,000 (Note 13) .................. -- -- (1,007,000)
------------ ------------ ------------
Net income ................................................ $ 1,575,000 $ 2,524,000 $ 3,183,000
============ ============ ============
Income per common share before extraordinary expense
(Note 14) ................................................ $ 0.19 $ 0.25 $ 0.26
Extraordinary expense (Notes 13 and 14) .................. -- -- (0.06)
------------ ------------ ------------
Net income per common share (Note 14) ..................... $ 0.19 $ 0.25 $ 0.20
============ ============ ============
Weighted average common and common equivalent shares
outstanding (Note 14) .................................... 8,376,000 10,206,000 17,908,000
============ ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- -------------------------
Number of Number of
Shares Amount Shares Amount
----------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Balance, July 1, 1994 (Note 9) ............... -- -- 4,600,000 $ 5,000
Sale of common stock, net of stock issuance
costs of approximately $1,300,000............ -- -- 3,775,000 4,000
Issuance of common stock for payment of
trade payables .............................. -- -- 417,000 --
Exercise of stock options and warrants ...... -- -- 31,000 --
Issuance of unit purchase options ............ -- -- -- --
Conversion of debt and accrued interest into
common stock (Note 1) ..................... -- -- 914,000 1,000
Net income ................................. -- -- -- --
------ ------ ------------ --------
Balance, June 30, 1995 (Note 9) ............... -- -- 9,737,000 10,000
Exercise of stock warrants, net of stock
issuance costs of approximately $114,000. -- -- 770,000 1,000
Net income ................................. -- -- -- --
------ ------ ------------ --------
Balance, June 30, 1996 (Note 9) ............... -- -- 10,507,000 11,000
------ ------ ------------ --------
Exercise of stock options, warrants,
and UPOs, net of issuance costs of
approximately $300,000 ..................... -- -- 2,566,000(1) 2,000
Stock issued for Weatherly acquisition
(Note 1) .................................... -- -- 1,000,000 1,000
Options and warrants issued for acquisition
and consulting services and bank
refinancing (Note 1) ........................ -- -- -- --
Net income ................................. -- -- -- --
------ ------ ------------ --------
Balance, June 30, 1997 (Note 9) ............... -- -- 14,073,000 $14,000
====== ====== ============ ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional Retained Total
Paid-in Earnings Stockholders'
Capital (Deficit) Equity
------------- ----------------- --------------
<S> <C> <C> <C>
Balance, July 1, 1994 (Note 9) ............... $ 9,298,000 $ (6,153,000) $ 3,150,000
Sale of common stock, net of stock issuance
costs of approximately $1,300,000............ 7,432,000 -- 7,436,000
Issuance of common stock for payment of
trade payables .............................. 683,000 -- 683,000
Exercise of stock options and warrants ...... 35,000 -- 35,000
Issuance of unit purchase options ............ 400,000 -- 400,000
Conversion of debt and accrued interest into
common stock (Note 1) ..................... 2,059,000 -- 2,060,000
Net income ................................. -- 1,575,000 1,575,000
------------ ------------- ------------
Balance, June 30, 1995 (Note 9) ............... 19,907,000 (4,578,000) 15,339,000
Exercise of stock warrants, net of stock
issuance costs of approximately $114,000. 1,506,000 -- 1,507,000
Net income ................................. -- 2,524,000 2,524,000
------------ ------------- ------------
Balance, June 30, 1996 (Note 9) ............... 21,413,000 (2,054,000) 19,370,000
------------ ------------- ------------
Exercise of stock options, warrants,
and UPOs, net of issuance costs of
approximately $300,000 ..................... 5,292,000 -- 5,294,000
Stock issued for Weatherly acquisition
(Note 1) .................................... 2,999,000 -- 3,000,000
Options and warrants issued for acquisition
and consulting services and bank
refinancing (Note 1) ........................ 1,079,000 -- 1,079,000
Net income ................................. -- 3,183,000 3,183,000
------------ ------------- ------------
Balance, June 30, 1997 (Note 9) ............... $30,783,000 $ 1,129,000 $31,926,000
============ ============= ============
</TABLE>
- ------------
(1) Includes 38,000 shares of common stock issued for services relating to cash
proceeds and approximately 60,000 issued relating to cashless exercise of
4 UPOs (Note 9).
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------------------
1995 1996 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income .......................................... $ 1,575,000 $ 2,524,000 $ 3,183,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary expense .............................. -- -- 1,007,000
Loss on disposal of assets ........................ -- -- 226,000
Bad debt expense .................................... 3,000 167,000 323,000
Depreciation and other amortization ............... 637,000 834,000 1,990,000
Amortization of deferred financing costs ............ 219,000 264,000 323,000
Changes in operating assets and liabilities, net of
assets acquired and liabilities assumed:
Accounts receivable .............................. (2,523,000) (2,622,000) (2,763,000)
Inventories ....................................... 637,000 (940,000) 444,000
Prepaid expenses and other current assets ......... (201,000) (159,000) 324,000
Accounts payable and accrued expenses ............ 54,000 1,393,000 2,838,000
Trade credits .................................... 200,000 257,000 46,000
Other assets ....................................... (163,000) (95,000) 262,000
Deferred taxes .................................... -- (1,005,000) 2,342,000
------------- ------------- -------------
Net cash provided by operating activities ............ 438,000 618,000 10,545,000
------------- ------------- -------------
Cash flows from investing activities Payment for purchase
of businesses, net of cash acquired .................. (15,387,000) (1,602,000) (28,358,000)
Payment for non-compete agreement ..................... -- -- (500,000)
Sale of short-term investments ........................ 501,000 -- --
Increase in officer receivables ..................... (352,000) (131,000) (77,000)
Purchase of product rights ........................... (105,000) -- --
Purchase of furniture, fixtures and equipment ......... (151,000) (261,000) (528,000)
Purchase of package design ........................... (82,000) (109,000) (131,000)
------------- ------------- -------------
Net cash used in investing activities .................. (15,576,000) (2,103,000) (29,594,000)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from issuances of stock ..................... 7,452,000 1,507,000 5,294,000
Proceeds from bank line of credit ..................... 11,514,000 17,496,000 41,791,000
Payment on bank line of credit ........................ (12,109,000) (16,208,000) (43,079,000)
Proceeds from notes payable ........................... 11,000,000 -- 21,345,000
Payments of notes payable ........................... (800,000) (1,600,000) (3,385,000)
Acquisition finance costs ........................... (1,036,000) -- (1,514,000)
------------- ------------- -------------
Net cash provided by financing activities ............ 16,021,000 1,195,000 20,452,000
------------- ------------- -------------
Net increase (decrease) in cash ........................ 883,000 (290,000) 1,403,000
Cash and cash equivalents, beginning of year ......... 87,000 970,000 680,000
------------- ------------- -------------
Cash and cash equivalents, end of year ............... $ 970,000 $ 680,000 $ 2,083,000
============= ============= =============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
Nature of Business
U.S. Home & Garden Inc. (the "Company" -- formerly known as Natural Earth
Technologies, Inc. until July 1995), through its wholly-owned subsidiaries, is
a manufacturer and distributor of lawn and garden care products to retailers
primarily throughout North America.
Golden West Agri-Products, Inc. ("Golden West"), a wholly-owned
subsidiary, is a manufacturer and distributor of humic acid based agricultural
products. Golden West currently sells its products in the Western United
States, Mexico and Central America.
On September 1, 1994, the Company, through its wholly-owned subsidiary
Easy Gardener Acquisition Corporation ("Easy Gardener"), acquired all of the
assets of Easy Gardener, Inc., a developer, manufacturer and marketer of lawn
and garden care products. Easy Gardener primarily sells its products throughout
North America.
On August 11, 1995, Emerald Products Corporation, a wholly-owned
subsidiary of Easy Gardener, acquired the assets of Emerald Products, LLC.
Emerald Products sells its product, Emerald Edge(R), throughout North America.
On August 9, 1996, Easy Gardener acquired all of the outstanding stock of
Weatherly Consumer Products Group, Inc. ("Weatherly"), a lawn and garden care
company which primarily sells its products throughout North America.
On May 12, 1997, Easy Gardener acquired the Plasti-Chain product line from
Plastic Molded Concepts, Inc. ("Plastic").
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries and the results of operations of Weatherly, Easy
Gardener, Plastic, Golden West and Emerald Products since their date of
acquisition (Note 1). Significant intercompany accounts and transactions have
been eliminated.
Inventories
Inventories, which consist of raw materials, finished goods, and packaging
materials, are stated at the lower of cost or market; cost is determined by the
first-in, first-out (FIFO) cost method.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated five to seven year
useful lives of the assets.
Intangible Assets
Excess of Cost over Net Assets Acquired The excess of cost over net assets
acquired, which relates to the Company's acquisitions of Weatherly, Easy
Gardener, Plastic, Golden West, and Emerald Products, are being amortized over
periods of twenty to thirty years using the straight-line method. Periodically,
the recoverability of goodwill is evaluated by comparing undiscounted estimated
future net cash flows to the estimated net cash flows projected at the time of
acquisition.
Deferred Financing Costs Direct costs associated with the Company's
long-term financing arrangements are being amortized over the life of the
loans, a period of approximately six years.
Package Design Package design costs associated with Easy Gardener and
Weatherly products are being amortized over a five-year period using the
straight-line method.
F-7
<PAGE>
Product Rights Product rights are being amortized over a 15-year
estimated useful life.
Non-Compete Agreement The non-compete agreement was entered into with the
acquisition of Weatherly. The agreement is being amortized over its 20 year
term.
Revenue Recognition
Sales are recorded as products are shipped to customers.
Net Income Per Share
Net income per common share has been computed following Account ing
Principles Board Opinion No. 15 (APB No. 15). Net income per share for 1995 and
1996 has been computed by dividing the net income by the weighted average
number of common shares outstanding. For 1997, common stock equivalents such as
common stock options and warrants were included in the computation of average
shares outstanding because their inclusion was dilutive. 1997 earnings per
share was calculated using the modified treasury stock method (Note 14).
Income Taxes
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Reclassification
Certain 1996 financial statement amounts have been reclassified to conform
to the 1997 presentation.
Advertising Costs
The Company incurs advertising expense primarily relating to cooperative
advertising credits granted to customers based on qualified expenses incurred
by the customers to advertise the Company's products. Cooperative advertising
credits are usually limited to a percentage of an agreed-upon sales volume. The
Company also incurs advertising expense relating to the distribution of
catalogs and the broadcasting of radio and television commercials. Advertising
costs are expensed as incurred. Advertising expense was $1,236,000, $1,823,000
and $2,945,000 during the years ended June 30, 1995, 1996 and 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all short-term investments purchased with an initial
maturity of three months or less to be cash equivalents.
Stock Based Compensation
Effective July 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Under this standard, companies are encouraged, but not required,
to adopt the fair value method of accounting for employee stock-based
transactions. The fair value method is required for all stock based
compensation issued to non-employees. Under the fair value method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Companies are permitted to continue to account for
F-8
<PAGE>
employee stock-based transactions under Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," but are required to
disclose pro forma net income and earnings per share as if the fair value
method had been adopted. The Company has elected to continue to account for
stock-based compensation under APB No. 25 (see Note 9).
New Accounting Pronouncements
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per share. This pronouncement provides a different method of
calculating earnings per share than is currently used in accordance with APB
No. 15, Earnings per Share. SFAS No. 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. SFAS No. 128 is effective for periods
ending after December 15, 1997. Early application is not allowed and
restatement of prior earnings will be required.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Management does not believe that the Company's current financial
statement disclosures will need to be modified based upon current operations.
Results of operations and financial position, however, will be unaffected by
future implementation of this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS No.131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS No. 14., Financial reporting for Segments of a Business
Enterprises. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance.
SFAS 131 is effective for financial statements for period beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. The Company believes it operates under one business segment and has
already substantially complied with the required financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
Financial Instruments
The Company's financial instruments consist of cash, accounts receivable
and debt. The carrying value of cash and accounts receivable approximate fair
value based upon the liquidity and short-term nature of the assets. The
carrying value of short-term and long-term debt approximates the fair value
based upon short-term and long-term borrowings at market rate interest.
Cash and cash equivalents are held principally at three high quality
financial institutions. At times such balances may be in excess of the FDIC
insurance limit.
F-9
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Business Acquisitions
On May 12, 1997, Easy Gardener acquired from Plastic substantially all of
the assets, including product rights and all other intangible assets, of
Plastic used in connection with Plastic's home lawn and garden care
distribution business for approximately $4,300,000.
On August 9, 1996, Easy Gardener acquired all of the outstanding stock of
Weatherly, a lawn and garden care company, for 1,000,000 shares of the
Company's common stock (valued at $3 per share) and $22,937,000, less an amount
required to discharge certain outstanding indebtedness of the acquired company,
and adjusted dollar for dollar based upon the ultimate value of the acquired
company's net current assets (approximately $2.5 million). The acquisition was
accounted for as a purchase and, accordingly, the results of operations of
Weatherly have been included in the consolidated statement of income since
August 9, 1996. The Company operates the acquired company as a subsidiary of
Easy Gardener. In connection with the above acquisition, the Company's
outstanding notes payable were refinanced and a new line of credit arrangement
was established (See Note 6).
On August 11, 1995, Emerald Products Corporation, a newly-formed,
wholly-owned subsidiary of Easy Gardener, acquired from Emerald Products, LLC
("Emerald") all of the assets, including product rights and all other
intangible assets, of Emerald used in connection with Emerald's home lawn and
garden care distribution business. The purchase price, subject to adjustment as
described below, was $835,000 in cash and a $100,000 non-interest bearing
promissory note, which was paid off during fiscal 1996 using cash from
operations. The purchase price is subject to increase based upon the Company
achieving certain annual gross sales levels of acquired product lines through
September 2002. This additional consideration is payable in cash annually and
based upon 2.5% of annual Emerald gross sales of up to $4,000,000, 1.5% of
annual gross sales between $4,000,001 and $5,000,000 and 1% of annual gross
sales greater than $5,000,000.
On September 1, 1994 (the "Closing Date"), Easy Gardener Acquisition
Corp., a newly formed, wholly-owned subsidiary of the Company, acquired from
Easy Gardener, Inc. (the "Seller"), all of the assets of the Seller used in
connection with the Seller's home lawn and garden care products distribution
business (the "Purchased Assets") pursuant to an assets purchase agreement
dated as of June 19, 1994. The purchase price was $20,500,000 (subject to
adjustment as described below) which was paid by the delivery of (i) $8,000,000
in cash (ii) a promissory note (the "Note") issued by Easy Gardener Acquisition
Corp. in the initial principal amount of $10,500,000, and (iii) two convertible
promissory notes (the "Convertible Notes") issued by the Company each in the
initial principal amount of $1,000,000. The Note was paid from the proceeds of
the Company's bank financing in September 1994. The Convertible Notes plus
accrued interest were each converted into 457,198 shares of the Company's
common stock and Class B warrants to acquire 457,198 shares of common stock at
an exercise price of $2.28 per share. The Convertible Notes were automatically
converted upon the February 1995 approval by the stockholders of the Company of
an Amendment to the Company's Certificate of Incorporation increasing the
amount of the Company's authorized common stock to 30,000,000 shares. The
shares of common stock issued upon exercise of the Convertible Notes, and the
shares of common stock issuable upon exercise of the warrants, are subject to a
seven-year voting agreement with Mr. Robert Kassel, Chairman of the Company.
The purchase price was subject to increase, if and to the extent that on the
Closing Date current assets of Easy Gardener, Inc. exceeded current liabilities
by $6,600,000. This additional amount approximated $783,000 at the date of
closing and was paid in October 1994.
Approximately $2,200,000 was contingently payable to the Seller over the
four years following the Closing Date based upon the acquired business
generating certain specified levels of net income. As of June 30, 1997, the
entire $2,200,000 has been added to the excess of cost over net assets acquired
of Easy Gardener based upon operating results obtained through June 30, 1997
and forecasted results for fiscal year 1998. As of June 30, 1997, approximately
$1,467,000 is payable for this additional purchase price.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company, Weatherly and Easy Gardener as if the
acquisitions had occurred at the beginning of the year of acquisition and the
beginning of the prior year. Accordingly, Easy Gardener is reflected as if the
acquisition occurred
F-10
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
1. Business Acquisitions -- (Continued)
on July 1, 1994 and Weatherly as if the acquisition occurred July 1, 1995. The
proforma information gives effect to certain adjustments, including the amorti
zation of excess of cost over net assets acquired, the elimination of certain
expenses incurred by Weatherly related to its acquisition and additional
interest expense on the notes payable. This pro forma summary does not
necessarily reflect the results of operations as they would have been if the
Company, Weatherly and Easy Gardener had constituted a single entity during
such periods and is not necessarily indicative of results which may be obtained
in the future. The pro forma effect of the Emerald and Plastic acquisitions
have not been reflected since their prior revenue was not material to the
Company's operations.
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------------
1995 1996 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales ....................................... $ 21,349,000 $ 46,102,000 $ 52,788,000
============= ============= =============
Net income before extraordinary expense and income
taxes .......................................... $ 1,420,000 $ 2,369,000 $ 6,540,000
============= ============= =============
Net income before extraordinary expense ......... $ 1,382,000 $ 3,462,000 $ 3,648,000
============= ============= =============
Net income .................................... $ 1,382,000 $ 1,542,000 $ 2,121,000
============= ============= =============
Net income per common share before extraordinary
expenses ....................................... $ .16 $ .25 .22
============= ============= =============
Net income per common share ..................... $ .16 $ .11 $ .14
============= ============= =============
</TABLE>
2. Trade Credits
In April 1996, the Company entered into an agreement to exchange unsold
assets held for sale for credit against the future purchase of products and
services. This transaction has been reported at the estimated fair market value
of the assets exchanged by the Company. No gain or loss was recognized on such
transaction as the Company had previously written down its assets held for sale
to their estimated fair market value. The agreement requires the Company to pay
a portion of the purchase price of the product or services received. Depending
on the nature of the products or services purchased, the Company will receive a
credit against the future price ranging from 10% to 45% of the cash purchase
price. The Company will also receive a percentage of the cash proceeds from the
ultimate sale of the assets. As of June 30, 1996, included in accounts
receivable is approximately $105,000 of cash subsequently received on the sale
of a portion of the assets by the third party. The agreement provides that the
Company will receive maximum total credits and cash totaling $1.6 million. The
agreement expires in April 1999 and requires the Company to use all credits by
this date. The Company expects to use the credits primarily by purchasing
operating assets and advertising time. The Company expects to use all available
credits by the expiration date and will continually evaluate this asset based
upon credits utilized and future operating goals.
3. Inventories
Inventories consist of:
June 30,
---------------------------
1996 1997
------------ ------------
Raw materials ...... $ 82,000 $ 578,000
Finished goods ...... 3,310,000 4,676,000
----------- ------------
3,392,000 $ 5,254,000
=========== ============
F-11
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
4. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of:
June 30,
---------------------------
1996 1997
------------ ------------
Leasehold improvements .................. $ 74,000 $ 397,000
Furniture, fixtures and equipment ...... 1,575,000 2,761,000
----------- ------------
1,649,000 3,158,000
Less accumulated depreciation ......... 433,000 843,000
----------- ------------
1,216,000 $ 2,315,000
=========== ============
5. Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired consists of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Weatherly Consumer Products Group, Inc. ...... $ -- $ 23,046,000
Easy Gardener, Inc. ........................... 14,172,000 15,639,000
Plastic Molded Concepts, Inc. ............... -- 2,760,000
Golden West Chemical Distributions, Inc. ...... 2,098,000 2,098,000
Emerald Products, LLC ........................ 778,000 870,000
------------ -------------
17,048,000 44,413,000
Less accumulated amortization ............... 1,264,000 2,579,000
------------ -------------
15,784,000 $ 41,834,000
============ =============
</TABLE>
6. Notes Payable and Line of Credit
Notes payable consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
$23,000,000 note payable, interest due monthly at prime (8.5% at June 30, 1997)
plus 1.25% or LIBOR (5.72% at June 30, 1997) plus 3.50%, quarterly principal
payments ranging from $570,000 to $1,350,000 beginning September 30, 1996
through June 30, 2002, collateralized by Easy Gardener's assets and guaranteed
by the Company. ............................................................... $ -- $20,510,000
$2,250,000 note payable, interest due monthly at prime (8.5% at June 30, 1997)
plus 6.0%, quarterly principal payments of $140,625 beginning September 30,
1998 through June 30, 2002, collateralized by Easy Gardener's assets and guar-
anteed by the Company. .......................................................... -- 2,250,000
$3,800,000 note payable, interest only due monthly at 12% with the full principal
due November 1997. ............................................................ -- 3,800,000
$8,000,000 note payable, interest at 12.25%, monthly principal payments of
$133,333, plus interest, commencing January 31, 1995 until January 2000, col-
lateralized by the assets of Easy Gardener and a guaranty of the Company. This
note was refinanced during 1997. ............................................. 5,600,000 --
</TABLE>
F-12
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
6. Notes Payable and Line of Credit -- (Continued)
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1997
------------ -----------
<S> <C> <C>
$3,000,000 note payable, interest at 12%, equal monthly principal payments of
$125,000, plus interest, commencing the earlier of the repayment of the
$8,000,000 note payable or January 31, 2000, collateralized by assets of Easy
Gardener and a guaranty of the Company. This note was refinanced during 1997. 3,000,000 --
----------- -----------
8,600,000 26,560,000
Less current portion ......................................................... 2,362,000 8,990,000
----------- -----------
$6,238,000 17,570,000
=========== ===========
</TABLE>
At June 30, 1997, the Company's financing arrangements include a
$13,000,000 revolving credit facility expiring June 2002, bearing interest at
the lower of prime or LIBOR rates plus an additional marginal amount;
collateralized by Easy Gardener's assets and guaranteed by the Company. The
credit facility's availability increases to $16,000,000 for the months of
February through May.
As of June 30, 1997, no amounts were outstanding on the credit line. The
credit agreement contains various restrictions which require, among other
things, maintenance of certain financial ratios and an annual zero balance for
ten consecutive days during August. At June 30, 1997, the Company was in
compliance with all such covenants. If the revolving credit facility is
terminated prior to June 2002, the Company will be subject to certain
prepayment penalties.
At June 30, 1996, the Company's had a $6,000,000 revolving credit facility
bearing interest at prime (8.25% at June 30, 1996) plus 2%, payable in monthly
installments commencing January 1, 1995 and collateralized by assets of Easy
Gardener and a guaranty of the Company. As of June 30, 1996, there was
$1,288,000 outstanding on the credit line which was refinanced during August
1996 utilizing the $13,000,000 revolving credit facility noted above.
The $3 million note payable also required the Company to pay additional
interest (defined as a success fee) when the loan was paid off. The success fee
ranges from $300,000 in the first year to $4,140,000 in the seventh year. As of
June 30, 1996, the accrued success fee was approximately $481,000 (Note 13).
The $8 million note payable was subject to certain mandatory prepay ments
of "excess cash flow" of Easy Gardener and certain net proceeds of asset sales,
condemnation awards and insurance recoveries. As of June 30, 1996, $762,000 is
the payment for "excess cash flow" which was made subsequent to year end. This
amount has been included in the current portion of notes payable. Also, certain
optional prepayments of advances under the revolving facility and the $8
million note payable require the payment of a premium (Note 13).
In connection with the acquisition of Weatherly Products Inc. on August 9,
1996, both of the above term notes payable were refinanced and a new line of
credit agreement was executed (Note 13).
Future minimum principal payments are as follows:
Year ending June 30, Amount
-------------------- -------------
1998 $ 8,990,000
1999 4,402,000
2000 4,403,000
2001 4,402,000
2002 4,363,000
-------------
$ 26,560,000
=============
F-13
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
7. Officer Receivables
Officer receivables represents notes which bear interest at 7% and require
interest only payments on an annual basis. The notes are due June 2002.
8. Commitments
Employment Agreements
During 1996 and 1997, the Company entered into new employment agreements
with three of its officers. The agreements are for one-year periods but are
automatically renewed unless specifically terminated by the Company or the
employee. If the employment agreements are terminated by the Company, the
officers will be entitled to an additional ten and five years of annual
compensation. Annual compensation under the employment agreements are $350,000,
$162,000 and $101,000. The employment agreements also provide for certain lump
sum payments in the event of a change in control equal to approximately $5
million. An agreement with an officer of Easy Gardener provides for a base
aggregate annual salary of approximately $200,000 in 1998. In addition, the
agreements provide for incentive and additional compensation under certain
circumstances.
Operating Leases
The Company leases office and warehouse space under operating leases which
expire in various years through 2001. The Company also leases certain office
equipment and automobiles under operating leases expiring in 1998 through 2002.
The future minimum lease payments under these non-cancelable operating leases
are as follows:
Year ending June 30, Amount
-------------------- ------------
1998 $ 729,000
1999 591,000
2000 410,000
2001 176,000
2002 1,000
------------
$ 1,907,000
============
Rent expense was approximately $303,000, $336,000 and $680,000 for the
years ended June 30, 1995, 1996 and 1997.
Pension Plan
Easy Gardener has established an employee defined contribution pension
plan (the Plan). Employees of the Company, Weatherly, Easy Gardener and Golden
West are eligible to participate. The Company is required to match the first 3%
of employee contributions up to 5% of the employees wage base. The plan also
allows discretionary contributions by the Company. The Company's contribution
vests over a seven-year period. Pension expense associated with the Plan for
1995, 1996 and 1997 was approximately $64,000, $180,000 and $199,000.
Royalty Agreements
The Company has entered into royalty agreements which provide for payments
based upon a percentage of net sales of certain products. These agreements
expire in various years from 1998 to 2005. Royalty expense during the years
ended June 30, 1995, 1996 and 1997 was $64,000, $104,000 and $304,000.
F-14
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
9. Stockholders' Equity
(a) Convertible Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock
with such designations, rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's common
stock.
(b) Common Stock
The Company raised a portion of the Easy Gardener, Inc. purchase price
through the August 1994 private placement of $8,025,000 of Units (for which it
received net proceeds of approximately $6,900,000), each $100,000 Unit
consisting of 44,000 shares of common stock and a class B warrant to purchase
44,000 shares of common stock for $2.28 per share.
In June 1994, the Company sold approximately 200,000 shares to various
foreign investors. Proceeds to the Company, after deducting commissions and
expenses approximated $435,000. In a related transaction during July 1994, the
Company sold an additional 240,000 shares to foreign investors resulting in net
proceeds to the Company of approximately $518,000. Proceeds were used for the
Easy Gardener acquisition.
(c) Stock Option Plans
The Company adopted the 1991 Stock Option Plan (the "1991 Plan") pursuant
to which 700,000 shares of common stock have been reserved for issuance upon
the exercise of options designated as either (i) options intended to constitute
incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code") or (ii) non-qualified options. ISOs may be granted under
the Plan to employees and officers of the Company. Non-qualified options may be
granted to consultants, directors (whether or not they are employees),
employees or officers of the Company.
During fiscal 1995, the Board of Directors of the Company adopted, subject
to stockholder approval, two additional stock option plans. The 1995 Stock
Option Plan (the "1995 Plan") allows the granting of either ISOs or
non-qualified options. The maximum aggregate number of shares to be granted
under this plan is 1,500,000. The Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan") was established to attract, retain and compensate
for their services as directors, highly qualified individuals who are not
employees of the Company. The maximum aggregate number of shares issued under
this plan is 100,000. During 1996 and 1997, 10,000 options were granted each
year. The 1995 Plan is administered by a committee of the Board of Directors
and the Non-Employee Director Plan is a formula plan.
During May 1997, the Board of Directors approved the 1997 Stock Option
Plan. The plan reserves 1,500,000 shares of common stock.
The 1997 plan is subject to shareholder approval. No options have been
granted as of June 30, 1997.
The 1991 Plan is administered by the Board of Directors of the Company
(the "Board"). The Board, or committee, as the case may be, within the
limitations of the 1991 and 1995 Plans, as the case may be, determines the
persons to whom options will be granted, the number of shares to be covered by
each option, whether the options granted are intended to be ISOs, the duration
and rate of exercise of each option, the option purchase price per share and
the manner of exercise, the time, manner and form of payment upon exercise of
an option, and whether restrictions such as repurchase rights in the Company
are to be imposed on shares subject to options.
ISOs granted under the plans may not be granted at a price less than the
fair market value of the common stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee
F-15
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
9. Stockholders' Equity -- (Continued)
are exercisable for the first time by such employee during any calendar year
(under all stock option plans of the Company and any related corporation) may
not exceed $100,000. Non-qualified options granted under the 1991 Plan may not
be granted at a price less than the fair market value of the common stock on
the date of grant (not less than par value in the case of the 1995 Plan).
Options granted under the plans will expire not more than ten years from the
date of grant (five years in the case of ISOs granted to persons holding 10% or
more of the voting stock of the Company).
All options granted under the 1991 Plan, Non-Employee Director Plan and
ISOs under the 1995 Plan are not transferable during an optionee's lifetime but
are transferable at death by will or by the laws of descent and distribution.
The Board of Directors also has authorization to issue stock options
("Non-Plan Options") to employees or consultants for services performed.
The following is a summary of activity relating to stock options.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Option Available Remaining
Price Per Out- Exer- for Contractual
Share standing cisable Grant Life
-------------- ---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
1991 Plan
June 30, 1995 ............ $ 1.71(1) 688,000 588,000 12,000 5 years
Became exercisable ...... -- 100,000 --
---------- ----------- --------- --------- -------------
June 30, 1996 ............ $ 1.71(1) 688,000 688,000 12,000 4 years
Expired in 1997 ......... $ 1.69 (26,000) (26,000) 26,000
---------- ----------- --------- --------- -------------
June 30, 1997 ............ $ 1.71(1) 662,000 662,000 38,000 3 years
========== =========== ========= ========= =============
1995 Plan
June 30, 1995 ............ $ 2.28 400,000 -- 1,100,000 5 years
Granted during 1996 ...... 2.25 310,000(3) 10,000 (310,000)
Became exercisable ...... -- 400,000 --
---------- ----------- --------- --------- -------------
June 30, 1996 ............ $ 2.26 710,000 410,000 790,000 4.5 years
Granted during 1997 ...... 2.06(4) 675,000 675,000 (675,000)
Became exercisable ...... 2.28 -- 75,000 --
---------- ----------- --------- --------- -------------
June 30, 1997 ............ $ 2.10(4) 1,385,000 1,160,000 115,000 4 years
========== =========== ========= ========= =============
Non-Plan Options
June 30, 1995 ............ $ 1.85 745,000(2) 645,000 -- 4 years
Granted during 1996 ...... 2.25 315,000(3) -- --
---------- ----------- --------- --------- -------------
June 30, 1996 ............ $ 1.83(1) 1,060,000 645,000 -- 3.5 years
Became exercisable ...... 2.25 -- 125,000 --
Granted during 1997 ...... 1.91 1,225,000 1,225,000 --
---------- ----------- --------- --------- -------------
June 30, 1997 ............ $ 1.84(4) 2,285,000 1,995,000 -- 4 years
========== =========== ========= ========= =============
</TABLE>
- ------------
(1) During fiscal 1995, the Board of Directors authorized a reduction in the
exercise price. The ending option price per share reflects the reduced
exercise price. During fiscal 1995, approximately 1.1 million options to
purchase common stock were repriced to $1.69.
(2) Options outstanding reflect the effect of certain antidilution provisions.
F-16
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
9. Stockholders' Equity -- (Continued)
(3) Options vest over four years with the exception of 10,000 immediately
vesting 1995 Plan options.
(4) In December 1996, 1,490,000 options granted subsequent to June 1995 were
repriced to $2.06 per share.
In addition to certain stock options and warrants granted to employees,
the Company also issued a total of 925,000 options and warrants to various
consultants and a financial institution relating to various consulting
services, the acquisitions of Weatherly and PlastiChain, and the new bank
agreement entered into during August 1996. The fair value of such options and
warrants was estimated at approximately $1,079,000. The fair value of such
options and warrants has been expensed except for the fair value related to
acquisitions and the bank financing for which these amounts are being amortized
over the life of the bank financing agreement and the excess of cost of net
assets acquired.
(d) Unit Purchase Options
In October 1994, the Company granted six unit purchase options (UPOs),
each consisting of 43,860 shares of the Company's common stock and Class B
Warrants to purchase 43,860 shares of common stock at an exercise price of
$2.28. These UPOs, which expire on August 31, 1999, have a nominal exercise
price. Three of the UPOs were granted to an officer of the Company for his
personal guarantees in connection with the Easy Gardener acquisition. Three
were granted to an outside consultant for its services in connection with
financing obtained for the Easy Gardener acquisition. The six UPOs issued with
the nominal exercise price were valued at $400,000 and included in deferred
financing costs. Concurrently, the Company also granted six UPOs, consisting of
the same components, each with a current exercise price of approximately
$75,000, three of which were granted to an officer of the Company. All these
transactions were done in lieu of cash compensation in consideration for
certain financial consulting and other services and for the personal guarantee
and other collateral provided in connection with the Company's acquisition of
Easy Gardener, Inc., without which the Company's transaction with Easy
Gardener, Inc. would not have occurred. During 1997, one UPO and the related
warrants were exercised by the outside consultant. Proceeds to the Company were
approximately $175,000.
In connection with the Company's August 1994 Private Placement, the
placement agent and its designees were granted approximately 28 UPOs
exercisable at $100,000 each. Each UPO consists of 43,860 shares of common
stock and warrants to purchase 43,860 shares of common stock at $2.28 per
share. These warrants expire in August 1999, if the underlying UPO is not
exercised. If exercised, the warrants expire in May 2000. During 1997, 5 UPOs
were terminated in a cashless exercise and approximately 60,000 shares of
common stock was issued.
The total shares of common stock issuable upon exercise of the UPOs,
including the underlying warrants, would be approximately 3,500,000 and
3,000,000 shares at June 30, 1996 and 1997.
F-17
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
9. Stockholders' Equity -- (Continued)
(e) Warrants
In connection with certain business transactions and stock offerings, the
Company has granted various warrants to purchase common stock. The following
schedule will summarize the activity.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Warrant Remaining
Price Per Out- Exer- Contractual
Share standing(1) cisable Life
----------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
July 1, 1994 .................................... $ 1.89 1,729,000 1,729,000 3.5 years
Warrants issued in connection with private placement 2.28 3,520,000 3,520,000
Warrants issued with convertible debenture ...... 2.28 914,000 914,000
Warrants issued ................................. 2.75 100,000 100,000
Warrants exercised .............................. 1.85 (30,000) (30,000)
------- ----------- -----------
June 30, 1995 .................................... 2.12 6,233,000 6,233,000 4.5 years
------- ----------- ----------- -----------
Increase for antidilution ........................ 2.28 153,000 153,000
Warrants exercised .............................. 2.24 (770,000) (770,000)
------- ----------- -----------
June 30, 1996 .................................... 2.14 5,616,000 5,616,000 3.5 years
Warrants issued ................................. 2.45 525,000 525,000
Warrants exercised .............................. 2.15 (2,380,000) (2,380,000)
Expired .......................................... 6.00 (52,000) (52,000)
------- ----------- -----------
June 30, 1997 .................................... $ 2.18 3,709,000 3,709,000 3 years
======= =========== =========== ===========
</TABLE>
- ------------
(1) The warrants contain anti-dilution provisions which could effect the number
of shares of common issuable stock upon the exercise of the warrants as
well as the per share warrant prices. Additionally, these warrants contain
certain redemption provisions.
(f) Common Stock Reserved
At June 30, 1997, approximately 12,700,000 shares of common stock have
been reserved for issuance upon the exercise of warrants, options and UPOs.
(g) Stock Based Compensation
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for the plan. Under APB
Opinion No. 25, because the exercise price of the Company stock options equals
or exceeds the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
FASB Statement No. 123, Accounting for Stock-Based Compensation, requires
the Company to provide pro forma information regarding net loss as if
compensation costs for the Company's stock options and warrants had been
determined in accordance with the fair value based method prescribed in FASB
Statement No. 123. The Company estimates the fair value of each stock option
and warrant at the grant date by using a modified Black-Scholes pricing model
with the following weighted-average assumptions used for grants in 1996 and
1997, respectively: no dividend yield for any year; expected volatility of
approximately 30% in both years; risk-free interest rates of 6.65% and 6.6%;
and expected lives of approximately three to five years.
F-18
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
9. Stockholders' Equity -- (Continued)
Under the accounting provisions of FASB Statement No. 123, the Company net
income and net income per common share would have been decreased to the pro
forma amounts indicated below:
Years ended June 30,
----------------------------
1996 1997
------------- ------------
Net Income
As reported ............... $ 2,524,000 $ 3,183,000
Pro forma .................. 2,392,000 1,617,000
Per share as reported ...... 0.25 0.20
Pro forma .................. 0.23 0.12
============ ============
The above pro forma information includes only the effects of 1996 and 1997
grants. Because options potentially vest over several years and additional
awards are made each year, the results shown above may not be representative of
the effects on net earnings in future years.
10. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is
established for deferred income tax assets when realization is not deemed more
likely than not. Deferred tax assets (liabilities) consist principally of the
following:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards ........................... $ 1,384,000 $ 555,000
Accounts receivable allowance and other ..................... 97,000 58,000
----------- -----------
Total deferred tax asset .................................... 1,481,000 613,000
Less valuation allowance .................................... (148,000) (165,000)
----------- -----------
Net deferred tax asset ....................................... $ 1,333,000 $ 448,000
=========== ===========
Deferred tax liability
Depreciation and amortization in excess of book amount ...... $ (328,000) $ (547,000)
=========== ===========
</TABLE>
At June 30, 1997, the Company had approximately $1,025,000 of net
operating loss (NOL) carryforwards available to reduce future Federal taxable
income. These losses are available through 2011. California allows an NOL
carryforward of 50% of a company's California taxable loss. The carryforward
for California purposes, after the 50% reduction, was approximately $2,217,000
at June 30, 1997 and expires through 2001. Use of the Company's NOLs could be
limited in the future as a result of issuance or exercise of stock options and
warrants or sale or issuance of stock. The Company files its tax returns on a
calendar year basis. Because of the seasonal nature of the Company's
operations, the different reporting periods for book and tax purposes may
affect the amount of taxes that will ultimately be payable or deferred.
At June 30, 1996 and 1997, the Company established a $148,000 and $165,000
valuation allowance for the benefits pertaining to California NOLs which are
not estimated to be realizable prior to their expiration.
F-19
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
10. Income Taxes -- (Continued)
The income tax (provision) benefit consists of:
June 30,
----------------------------------------------
1995 1996 1997
------------ ------------- ---------------
Current
Federal ...... $ -- $ -- $ (283,000)
State ......... (38,000) (290,000) (280,000)
---------- ---------- -------------
(38,000) (290,000) (563,000)
---------- ---------- -------------
Deferred
Federal ...... -- 1,013,000 (2,129,000)
State ......... -- (8,000) (56,000)
---------- ---------- -------------
-- 1,005,000 (2,185,000)
---------- ---------- -------------
$ (38,000) $ 715,000 $ (2,748,000)
========== ========== =============
The 1997 income tax expense consists of $3,200,000 expense from continuing
operations reduced by $452,000 benefit associated with the extraordinary
expense.
The following is a reconciliation between the Statutory Federal income tax
rate and the Company's effective tax rate for continuing operations:
<TABLE>
<CAPTION>
1995 1996 1997
------------ --------- ------------
<S> <C> <C> <C>
Income tax (provision) computed at Federal Statutory rate ...... (34.0)% (34.0)% (34.0)%
State taxes, net of Federal tax benefits ........................ (2.4) (16.5) (4.6)
Nondeductible amortization and other ........................... (3.6) (4.1) (4.5)
Changes in valuation allowance on deferred tax asset ............ (37.6) 94.1 (0.2)
--------- --------- ---------
(Provision) benefit for income taxes ........................... (2.4)% 39.5% (43.3)%
========= ========= =========
</TABLE>
11. Concentration of Credit Risk and Significant Relationships
Trade accounts receivable are due primarily from numerous customers
located in many geographic regions throughout the United States. The Company
performs ongoing credit evaluations of its customers' financial conditions and
establishes an allowance for doubtful accounts based upon the credit risk of
specific customers, historical trends and other information. The Company does
not require collateral from its customers.
During the years ended June 30, 1996 and 1997, sales to two Easy Gardener
customer accounted for approximately 36% (27% and 9%) and 36% (26% and 10%) of
consolidated net sales. Included in accounts receivable at June 30, 1996 and
1997 is $1,440,000 and $2,320,000 due from the largest customer.
During the year ended June 30, 1995, sales to two Easy Gardener customers
accounted for approximately 24% and 9% of consolidated net sales.
Substantially all of Easy Gardener's raw material purchases for
Weedblock(R) inventory, representing approximately 66%, 50% and 22% of the
Company's consolidated raw material purchases during the years ended June 30,
1995, 1996 and 1997, are from one vendor.
Management believes that other suppliers could provide a similar product
on comparable terms. A change in suppliers, however, could cause delays and a
possible loss of sales, which would affect operating results adversely.
Included in accounts payable at June 30, 1996 and 1997 is $139,000 and $349,000
due to this vendor.
F-20
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
12. Supplemental Cash Flow Information
Cash paid during the period for:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest, including deferred financing costs and
extraordinary expense ........................ $ 1,528,000 $ 1,296,000 $ 5,816,000
Taxes ....................................... $ 10,000 $ 96,000 $ 131,000
============ ============ ============
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
The Company purchased all of the assets of Easy Gardener, Inc. for
$21,283,000 in September 1994.
Fair value of assets acquired ...... $ 28,526,000
Cash paid for assets acquired ...... (14,424,000)
Promissory notes .................. (12,783,000)
-------------
Liabilities assumed .................. $ 1,319,000
=============
During 1995, the Company entered into agreements to issue approximately
417,000 shares of common stock, valued at approximately $683,000 as payment of
certain accounts payable.
During 1995, $2,000,000 of convertible debentures and related accrued
interest was converted into 914,396 shares of common stock and 914,396 Class B
warrants.
During 1995, deferred financing costs of approximately $400,000 was paid
for by the issuance of 6 UPOs with a nominal exercise price.
During 1996, the Company exchanged assets held for sale with a book value
of approximately $1.4 million for future trade credits.
During 1997, the Company issued warrants and options for various
consulting services which were valued at approximately $1,079,000.
13. Extraordinary Expense
As a result of the refinancing of all of the Company's outstanding debt in
August 1996 (See Note 6), the entire balance of deferred finance costs at June
30, 1996, net of accumulated amortization, plus certain prepayment penalties
totaling approximately $455,000, was written off as an extraordinary expense
during the year ended June 30, 1997.
14. Earnings per Share
Earnings per share for 1997 was computed under the guidance of APB 15
using the modified treasury stock method. The following will detail how the
1997 earning per share figures were calculated.
<TABLE>
<S> <C>
Weighted average common shares outstanding for the period ...... 13,695,000
Weighted average common share equivalents ..................... 4,213,000
-----------
17,908,000
===========
</TABLE>
F-21
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
14. Earnings per Share -- (Continued)
Computation for Statement of Operations
Reconciliation of net income per statement of operations to amount used in
primary earnings per share computation:
<TABLE>
<S> <C>
Income before extraordinary expense, as reported .................. $ 4,190,000
Add:
Interest (expense reduction) on debt, net of income tax effect, on
application of assumed proceeds from exercise of options and
warrants in excess of 20% limitations ............................. 450,000
------------
Income before extraordinary expense .............................. 4,640,000
Extraordinary expense ............................................. (1,007,000)
------------
Net income assumed for the period in computing per share earnings as
adjusted ......................................................... $ 3,633,000
============
Income per share before extraordinary expense ..................... $ 0.26
Extraordinary expense ............................................. (0.06)
------------
Net income per share ............................................. $ 0.20
============
</TABLE>
15. Subsequent Events
Subsequent to June 30, 1997, a $350,000 liability was converted into
154,000 shares of common stock.
Subsequent to June 30, 1997, the Company granted stock options to acquire
565,000 and 98,000 shares of common stock under the 1997 and 1995 stock option
plans.
During July 1997, 453,000 warrants were exercised generating $1,033,000 in
cash proceeds to the Company.
The Company is involved in a lawsuit in which it has claimed a competitor
has infringed on a product trademark. The competitor has filed a counter-claim
in September 1997 seeking unspecified damages. The Company does not believe the
outcome of this matter will have a material impact on future operations.
F-22
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders of
Weatherly Consumer Products Group, Inc.,
and Subsidiaries
We have audited the accompanying consolidated statements of operations and
cash flows of Weatherly Consumer Products Group, Inc. (a Delaware Corporation)
and Subsidiaries for the year ended September 30, 1995 and the period October
1, 1995 through August 9, 1996, the date of the sale of the Company (Note 1).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1 to the consolidated financial statements, all
outstanding capital stock of the Company was acquired by Easy Gardener
Acquisition Corp., a wholly-owned subsidiary of U.S. House & Garden Inc., on
August 9, 1996.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Weatherly Consumer Products Group, Inc. and Subsidiaries for the year
ended September 30, 1995 and the period October 1, 1995 through August 9, 1996
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
San Francisco, California,
October 22, 1997
F-23
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Consolidated Statements of Operations
For the Year Ended September 30, 1995 and the Period October 1, 1995 through
August 9, 1996 (Note 1)
<TABLE>
<CAPTION>
1995 1996
------------- ---------------
<S> <C> <C>
NET SALES (Note 7) ................................. $18,532,297 $ 18,184,995
COST OF GOODS SOLD ................................. 8,872,354 7,677,707
----------- ------------
Gross profit ................................. 9,659,943 10,507,288
----------- ------------
OPERATING EXPENSES (Note 1):
Selling and marketing ........................... 4,960,793 5,251,782
Administrative .................................... 2,552,570 2,414,193
Redemption of employment contracts ............... -- 6,000,000
----------- ------------
7,513,363 13,665,975
----------- ------------
Operating income (loss) ..................... 2,146,580 (3,158,687)
----------- ------------
OTHER EXPENSES:
Interest, net .................................... 1,361,987 1,546,311
Other, net ....................................... (67,636) 8,575
----------- ------------
1,294,351 1,554,886
----------- ------------
Income (loss) before (provision) benefit for
income taxes and extraordinary item ......... 852,229 (4,713,573)
(PROVISION) BENEFIT FOR INCOME TAXES (Notes 1
and 3) ............................................. (400,033) 475,535
----------- ------------
Income (loss) before extraordinary item ...... 452,196 (4,238,038)
EXTRAORDINARY ITEM -- Write-off of deferred
financing costs and debt prepayment charges, net of
related income tax benefit of $57,815 (Note 1) ...... -- (520,334)
----------- ------------
Net income (loss) .............................. $ 452,196 $ (4,758,372)
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-24
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Year Ended September 30, 1995 and
the Period October 1, 1995 through August 9, 1996 (Note 1)
<TABLE>
<CAPTION>
Preferred Common
Stock Stock Warrants
--------------- -------------- ------------
<S> <C> <C> <C>
BALANCE,
September 30, 1994 ............... $ 9,983,662 $ (458,850) $ 350,000
Net income ..................... -- -- --
Conversion or retirement of Common
and Preferred Stock and Warrants
(Note 8) ........................ (9,983,662) 458,950 --
------------- ---------- -----------
BALANCE,
September 30, 1995 ............... -- 100 350,000
Net loss ........................ -- -- --
Accretion of warrants (Note 2) ... -- -- 810,442
------------- ---------- -----------
BALANCE,
August 9, 1996 .................. $ -- $ 100 $1,160,442
============= ========== ===========
<CAPTION>
Additional Accumulated
Paid-In-Capital Deficit Total
----------------- ----------------- ----------------
<S> <C> <C> <C>
BALANCE,
September 30, 1994 ............... $ -- $ (11,809,219) $ (1,934,407)
Net income ..................... -- 452,196 452,196
Conversion or retirement of Common
and Preferred Stock and Warrants
(Note 8) ........................ 6,324,712 -- (3,200,000)
----------- ------------- ------------
BALANCE,
September 30, 1995 ............... 6,324,712 (11,357,023) (4,682,211)
Net loss ........................ -- (4,758,372) (4,758,372)
Accretion of warrants (Note 2) ... -- (810,442) --
----------- ------------- ------------
BALANCE,
August 9, 1996 .................. $6,324,712 $ (16,925,837) $ (9,440,583)
=========== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
Weatherly Consumer Products Group, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended September 30, 1995
and the Period October 1, 1995 through August 9, 1996 (Note 1)
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................... $ 452,196 $ (4,758,372)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities-
Depreciation and amortization .................................... 1,018,594 977,986
Write-off of deferred financing costs and prepayment charges ...... -- 578,149
Reserves for certain property and other assets ..................... -- 247,661
(Gain) on disposition of assets ................................... (63,512) --
Future tax benefit ................................................ 10,828 209,902
Income tax receivable ............................................. -- (1,082,407)
Redemption of employment contracts ................................. -- 6,000,000
Changes in assets and liabilities-
Accounts receivable ................................................ 67,931 (529,880)
Inventory ......................................................... (714,412) 1,249,718
Prepaid expenses and other ....................................... 37,203 (103,273)
Accounts payable and accrued liabilities ........................... (161,761) (211,949)
------------ ------------
Net cash provided by operating activities ........................ 647,067 2,577,535
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on debt ................................................... 3,308,801 4,131,547
Payments on debt ................................................... (4,692,601) (4,978,047)
Proceeds from sale of land and building .............................. 74,492 --
------------ ------------
Net cash used in financing activities ........................... (1,309,308) (846,500)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets ............................................. (53,746) (4,348)
Capital expenditures, net .......................................... (359,134) (327,751)
------------ ------------
Net cash used in investing activities ................................. (412,880) (332,099)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... (1,075,121) 1,398,936
CASH AND CASH EQUIVALENTS, beginning of period ........................ 2,128,789 1,053,668
------------ ------------
CASH AND CASH EQUIVALENTS, end of period .............................. $ 1,053,668 $ 2,452,604
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............................................. $ 1,295,209 $ 1,039,261
============ ============
Cash paid for income taxes ....................................... $ 192,532 $ 334,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of preferred stock to long-term stockholder debt
(Note 8) ......................................................... $ 3,200,000 $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements
(1) Sale of the Company
Weatherly Consumer Products Group, Inc. (WCPG) and Subsidiaries (the
Company) is engaged in the manufacture and sale of fertilizer, watering,
insecticide and garden netting products.
On August 9, 1996, all outstanding capital stock of the Company was
acquired by Easy Gardener Acquisition Corp. (EGAC), a wholly-owned subsidiary
of U.S. Home & Garden Inc. for approximately $8 million dollars of net cash
consideration and approximately one million shares of U.S. Home & Garden Inc.
stock valued at $3 per share. Prior to and/or in conjunction with the sale;
o Certain of the officer and employee contracts were redeemed for
approximately $6 million. This expense and related obligation has been
included as a component of administrative expenses in the accompanying
1996 consolidated financial statements.
o The holders of the Company's warrants for Class B common shares agreed to
have their warrants redeemed for $1,160,442. Accordingly, the accretion of
the warrants was accelerated in the accompanying 1996 consolidated
financial statements to reflect the warrants at their respective
redemption price.
o Severance agreements were provided to certain Company employees.
Severance of approximately $450,000 was accrued or paid as of August 9,
1996 and is included in selling and marketing (approximately $395,000) and
administrative expenses ($55,000) in the accompanying 1996 consolidated
financial statements.
o Immediately subsequent to the sale of the Company's stock, the
preexisting debt obligations were paid off. Accordingly, the accretion of
the Company's bank loan with detachable warrants was accelerated,
unamortized deferred financing costs were written off and related
prepayment penalties were accrued. The expense associated with the
accretion of the bank loan with detachable warrants (approximately
$271,000) is included as a component of the 1996 interest expense, whereas
the costs associated with the prepayment of the debt obligations
(approximately $578,000) are reflected, net of the related tax benefit, in
the accompanying 1996 consolidated financial statements as an
extraordinary item.
o Immediately prior to the sale, specific assets were transferred to
certain employees and shareholders. The carrying amount of the net assets
transferred (approximately $248,000) is included in administrative
expenses in the accompanying 1996 consolidated financial statements.
o The selling shareholders of the Company entered into an agreement to
indemnify EGAC against any tax liabilities relating to periods prior to
the sale. If any such tax liabilities arise, EGAC would be required to
make the payments to the appropriate tax authority and, in turn, seek
reimbursement from the selling shareholders under their indemnification
agreement. The Internal Revenue Service (IRS) is currently examining
certain tax returns of the Company covering periods prior to the sale.
The Company believes that any payment it may be required to make will not
have a material adverse effect on the accompanying consolidated financial
statements.
(2) Summary of Accounting Policies
(a) Principles of Consolidation--The consolidated financial statements
include the accounts of WCPG and its subsidiaries, Weatherly Consumer
Products, Inc. and Ross Daniels, Inc. (WCP and RDI). All material
intercompany transactions have been eliminated.
(b) Translation of Foreign Currencies--Accounts of the United Kingdom
branch are stated in United States dollars. Currency gains and losses
have been reflected in the statements of operations. Translation
adjustments are not material to the consolidated financial statements
taken as a whole.
(c) Cash and Cash Equivalents--Cash and cash equivalents include operating
cash accounts and money market funds.
F-27
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(2) Summary of Accounting Policies -- (Continued)
(d) Inventories--Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
(e) Equipment and Leasehold Improvements--Equipment and leasehold
improvements are depreciated over their estimated useful lives using the
straight-line method. Major expenditures for renewals and betterments
are charged to the property accounts while repairs and maintenance,
which do not improve or extend the life of the assets, are charged to
operations.
The estimated useful lives of the various classes of assets are as
follows:
Years
--------
Machinery and equipment ...... 3 to 10
Furniture and vehicles ...... 3 to 10
Leasehold improvements ...... 3 to 18
(f) Research and Development--Costs incurred in connection with the
development of new products and changes to existing products are charged
to operations as incurred. Research and development expense for the year
ended September 30, 1995 and the period October 1, 1995 through August
9, 1996 approximated $106,000 and $113,000, respectively.
(g) Other Assets--Patents, trademarks, product packaging costs and goodwill
are amortized over their estimated lives using the straight-line method.
The estimated lives of these assets are summarized as follows:
Years
-------
Patents ........................... 11
Trademarks ........................ 25
Goodwill ........................ 25
Product packaging and other ...... 3 to 8
The Company capitalizes significant expenditures for product packaging
development and design work.
(h) Warrants for Common Stock--Detachable warrants to purchase 15% of
WCPG's common stock were issued to Nations Credit Commerical Corporation
(Nations) as part of the financing agreement with Nations and were
redeemed in conjunction with the sale of Company stock (Note l). Prior
to 1996, the warrants were exercisable through July 30, 2003 and subject
to redemption at the option of Nations on or after July 30, 1997 at a
redemption price equal to the greater of the appraised value of the
Company, liquidation value, consolidated net worth, as defined, or a
multiple of earnings, as defined.
The original value assigned to the warrants was $350,000 and included in
stockholders' equity in the accompanying consolidated financial
statements. The redemption price was estimated annually and adjustments
to accrete the warrants to the estimated redemption price were recorded,
as applicable, with a corresponding charge to retained earnings. No
accretion was recorded in fiscal 1995. In connection with the sale of the
Company, there was a charge of $810,442 to accumulated deficit to accrete
the value of the warrants to the agreed-upon redemption price.
(i) Advertising--The Company expenses the costs of advertising as incurred.
Advertising expense for the year ended September 30, 1995 and the period
October 1, 1995 through August 9, 1996 approximated $782,000 and
$732,000, respectively.
(j) Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-28
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(2) Summary of Accounting Policies -- (Continued)
(k) Reclassifications--Certain reclassifications have been made to the 1995
consolidated financial statements to conform with the 1996 presentation.
(l) New Accounting Pronouncements--In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of (SFAS 121), effective for fiscal
years beginning after December 15, 1995. The new standard requires that
long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be
recoverable. The Company does not expect that the adoption of SFAS 121
will have a material impact on the consolidated financial statements.
(m) Revenue Recognition--Sales are recorded as products are shipped to
customers.
(3) Income Taxes
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109). Under SFAS 109, deferred tax assets or liabilities are
computed based on the difference between the financial statement basis and
income tax basis of assets and liabilities using the enacted marginal tax rate.
Deferred income tax expenses or credits are based on the changes in the asset
or liability from period to period.
The provision (credit) for income taxes includes the following:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Current payable (receivable) ..................... $ 493,801 $ (685,437)
Benefit of net operating loss carryforwards ...... (104,596) (959,709)
Deferred .......................................... 10,828 (68,291)
Change in valuation allowance ..................... -- 1,237,902
---------- -----------
400,033 (475,535)
Tax benefit of extraordinary item ............... -- (57,815)
---------- -----------
$ 400,033 $ (533,350)
========== ===========
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
1995 1996
-------------------------- -------------------------------
Amount Rate Amount Rate
------------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Computed provision (benefit) for federal income
taxes at the statutory rate ..................... $ 289,757 34.0% $ (1,602,614) (34.0%)
State and local income taxes, net of federal income
taxes .......................................... 47,432 5.6% (263,960) (5.6%)
Changes in valuation allowance .................. (104,596) (12.3%) 1,237,902 26.4%
Nondeductible amortization and other, net ...... 167,440 19.6% 153,137 3.2%
---------- --------- ------------ ---------
$ 400,033 46.9% $ (475,535) (10.0%)
========== ========= ============ =========
</TABLE>
F-29
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(3) Income Taxes -- (Continued)
At September 30, 1995 and August 9, 1996, the net future tax benefit
consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- --------------
<S> <C> <C>
Advertising and rebate accruals .............................. $ 81,137 $ 65,808
Warranty reserves .......................................... 24,543 16,486
Accounts receivable reserves ................................. 37,367 6,554
Inventory costs ............................................. 29,873 23,586
Other ...................................................... 36,982 63,798
Benefit of net operating loss and credit carryforwards ...... -- 1,061,670
--------- ------------
209,902 1,237,902
Valuation allowance .......................................... -- (1,237,902)
--------- ------------
$209,902 $ --
--------- ------------
</TABLE>
The valuation allowance is required due to the uncertainty of realizing
the net deferred tax assets through future operations.
As of August 9, 1996, the Company has accumulated approximately $2,800,000
of tax net operating losses and approximately $149,000 of tax credits,
substantially all of which expire in 2011, which can be carried forward and
used to reduce future taxable income.
(4) Debt Obligations
The Company's long-term debt obligations outstanding during 1995 and 1996
principally consisted of bank loans with interest at a commercial paper rate
plus 4.5% (10.005% at August 9, 1996) and a floating rate equal to the greater
of 11% or the commercial paper rate plus 6% (11.505% at August 9, 1996), and
subordinated notes due to a shareholder with interest at the prime rate (8.25%
at August 9, 1996). All of these long-term obligations were paid in full on
August 10, 1996 in connection with the sale of the Company (Note 1).
The Company had a $20 million credit arrangement with Nations, which was
secured by substantially all the assets of the Company. The working capital
commitment of $7.5 million included within the arrangement permitted borrowings
based on a percentage of eligible receivables and inventory, as defined. There
were no borrowings outstanding on the working capital loan at September 30,
1995 or August 9, 1996.
The terms of the Nations agreement stipulated, among others, that the
Company maintain certain financial ratios; limit capital expenditures and
retirements; limit lease and debt commitments; may not merge, consolidate,
acquire or sell operating assets; limit compensation to key employees.
The notes payable to shareholders were subordinated to all bank debt.
Accordingly, these notes stipulated that if payments of annual interest to the
shareholders would violate the terms of the Nations agreement, the interest
payments would be deferred until the next annual interest payment date.
(5) Royalty Commitments
WCP has exclusive licenses under patent applications to make, lease, or
sell certain of its products. Royalty expense under the agreements is based on
a percentage of net sales and amounted to approximately $121,000 and $150,000
for the year ended September 30, 1995 and the period October 1, 1995 through
August 9, 1996, respectively.
(6) Commitment
WCP conducts a portion of its operations in leased facilities and leases
equipment under noncancelable operating leases. The total amount charged to
rental expense was approximately $343,000 and $298,000 in 1995 and 1996,
respectively. The minimum scheduled lease payments for the noncancelable
operating leases as of August 9, 1996 are as follows:
F-30
<PAGE>
Weatherly Consumer Products Group, Inc.
And Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(6) Commitment -- (Continued)
1997 ..................... $325,000
1998 ..................... 262,000
1999 ..................... 158,000
---------
$745,000
=========
(7) Significant Customers and Concentration of Credit Risk
Trade accounts receivable are due primarily from numerous customers
located in many geographic regions throughout the United States. The Company
performs ongoing credit evaluations of its customers' financial conditions and
establishes an allowance for doubtful accounts based upon the credit risk of
specific customers, historical trends and other information. The Company does
not require collateral from its customers.
Approximately 14% and 10% of consolidated gross sales in 1995 were with
two customers. These same two customers represented approximately 15% and 12%
of consolidated gross sales in 1996.
(8) Reorganization
In June, 1995, the Board of Directors approved an amendment of the
Certificate of Incorporation which converted all common and preferred shares
outstanding, except for the 12% Preferred "A" stock, into a new class of common
stock (Class A common stock). The 12% Preferred "A" stock, owned by one
shareholder, was converted into a $3,200,000 subordinated note. In addition,
previously accrued dividends owed by WCP to the shareholders were canceled,
preexisting stock option plans were terminated, certain stock was effectively
canceled for no consideration and consideration was provided to certain
shareholders for certain waivers and releases.
(9) Related Party Activities
During 1995 and 1996, the Company had outstanding subordinated notes and
accrued interest due to a stockholder. This related party debt was paid in full
on August 10, 1996 in connection with the sale of the Company (Notes 1 and 4).
In conjunction with the acquisition of the Company by WCPG, the prior sole
shareholder (and a current shareholder of WCPG) entered into a consulting
agreement with the Company which provided for annual consulting fees of
$125,000. This agreement was terminated January 1, 1995. Consulting fees
expensed in 1995 approximated $31,000.
In July 1993, the Company entered into a two year agreement, subject to
renewals, to sublease office space at fair market rental with its prior sole
stockholder. Rentals, as per the agreement, approximated $4,500 in 1995. The
lease agreement was amended and renewed during 1995 and provides for annual
rentals of $1 per year.
In 1993, the Company entered into a fully insured two year renewable
exclusive distributor agreement with its prior sole stockholder whereby WCP
markets and distributes lawn and garden products owned or controlled by its
prior sole stockholder. The Company distributed products under this agreement
in 1995. Commencing October 1, 1995 this agreement expired and the products
were owned and controlled by WCP.
(10) Employee Benefit Plans
(a) Health Plan--The Company has a fully insured health benefit plan which
provides for hospitalization, surgical, major medical and other benefits
for eligible employees.
(b) 401(k) Plan--The Company has a 401(k) plan for the benefit of all
employees meeting certain minimum eligibility requirements. The Company
contributed approximately $45,000 and $43,000 to this plan in matching
contributions in 1995 and 1996, respectively.
F-31
<PAGE>
U.S. HOME & GARDEN, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On August 9, 1996, Easy Gardener Acquisition Corporation, a wholly owned
subsidiary of U.S. Home & Garden, acquired all of the outstanding stock of
Weatherly Consumer Products (Weatherly), a lawn and garden care company, for
1,000,000 shares of the Company's common stock (valued at $3 per share) and
$22,937,321, less an amount required to discharge certain outstanding
indebtedness of the acquired company, and adjusted dollar for dollar based upon
the ultimate value of the acquired company's net current assets in excess of $2
million.
The acquisition was accounted for as a purchase, with the assets acquired
and liabilities assumed recorded at fair values. The results of Weatherly's
operations have been included in the Company's consolidated financial
statements from the date of acquisition.
The accompanying condensed pro forma consolidated statement of operations
illustrate the effect of the acquisition on the results of operations for the
year ended June 30, 1997 as if the acquisition had taken place on July 1, 1996.
The operating results for Weatherly as reflected on the pro forma statement of
operations represents the period ended July 1, 1996 to August 9, 1996.
The pro forma condensed consolidated results of operations may not be
indicative of the actual result which would have been obtained if the
acquisition had occurred on July 1, 1996.
F-32
<PAGE>
U.S. HOME & GARDEN, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Weatherly
Weatherly Adjustments Pro Forma
----------- ----------------- -----------
<S> <C> <C> <C>
Net sales ........................... $ 742 $ 742
Cost of sales ........................ 544 544
-------- -------
Gross profit ........................ 198 198
Operating Expenses:
Selling and shipping ............... 825 (395)(4) 430
(248)(4)
Administrative and general ......... 6,649 (6,055)(4) 346
-------- ----------- -------
Income from operations ............... (7,276) 6,698 (578)
Interest expense, net ............... 463 (271)(4) 192
-------- ----------- -------
Income (loss) before income taxes and
extraordinary item .................. (7,739) 6,969 (770)
Income tax benefit (expense) ......... 886 (578)(5) 308
-------- ----------- -------
Income before extraordinary items ... (6,853) 6,391 (462)
Extraordinary item .................. (520) (520)
-------- ----------- -------
Net income (loss) .................. $ (7,373) $ 6,391 $ (982)
======== =========== =======
(Income) loss per common share
Income before extraordinary item ...
Extraordinary item ..................
Net Income ...........................
Weighted average shares outstanding ...
<CAPTION>
U.S. Home & Consolidated
Garden Adjustments Pro Forma
--------------------- ------------- ----------------------
<S> <C> <C> <C>
Net sales ........................... 52,046 $ 52,788
Cost of sales ........................ 23,649 24,193
--------------- ----------------
Gross profit ........................ 28,397 28,595
Operating Expenses:
Selling and shipping ............... 11,232 11,662
Administrative and general ......... 6,513 80(1) 6,939
--------------- ------ ----------------
Income from operations ............... 10,652 (80) 9,994
Interest expense, net ............... 3,262 (2) 3,454
--------------- ------ ----------------
Income (loss) before income taxes and
extraordinary item .................. 7,390 (80) 6,540
Income tax benefit (expense) ......... (3,200) (2,892)
--------------- ----------------
Income before extraordinary items ... 4,190 (80) 3,648
Extraordinary item .................. (1,007) (1,527)
--------------- ------ ----------------
Net income (loss) .................. $ 3,183 (80) $ 2,121
=============== ====== ================
(Income) loss per common share
Income before extraordinary item ... $ 0.26 (3) $ 0.22 (3)
Extraordinary item .................. (0.06)(3) (0.08)(3)
--------------- ----------------
Net Income ........................... $ 0.20 (3) $ 0.14 (3)
=============== ================
Weighted average shares outstanding ... 17,908,000 (3) 18,276,000 (3)
=============== ================
</TABLE>
F-33
<PAGE>
U.S. HOME & GARDEN, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE A--BASIS OF PRESENTATION
Reference is made to the introduction at page PF-1
NOTE B--PRO FORMA ADJUSTMENTS
The pro forma adjustments to the condensed consolidated statement of operations
are as follows:
(1) Amortization of excess of cost over fair value of net assets acquired over
30 years.
(2) No adjustment to interest expense since the lower interest rate offsets the
increase in principal loan balances.
(3) Weighted average shares have been increased by 368,000 shares to reflect
the exercise of approximately 2,385,000 common stock warrants and the
issuance of 1,000,000 shares of common stock to the Weatherly shareholders
as if they had occurred at the beginning of the year. Approximately 4.2
million additional shares deemed outstanding in connection with the
earnings per share calculation using the modified treasury stock method.
Interest savings of $450,000 calculated using the modified treasury stock
method for calculating earnings per share. See Note 14 of the June 30,
1997 audited consolidated financial statements.
(4) To eliminate certain nonrecurring expenses including $6,000,000 buy-out of
employment agreements, severance payments of $450,000, $248,000 salary
expense relating to distribution of assets and nonrecurring interest
expense of $271,000 associated with prior stockholders sale of the
business.
(5) To adjust tax rate to U.S. Home and Garden's statutory tax rate.
F-34
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give
any information or to make representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, any of the selling
stockholders or any of the underwriters. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy, any security other than the
securities offered by this Prospectus, or an offer to sell or a solicitation of
an offer to buy to any person in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making the offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information in this Prospectus is correct as of any time subsequent to
the date hereof.
--------------------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ..................... 3
Risk Factors ........................... 9
Use of Proceeds ........................ 16
Dividend Policy ........................ 16
Capitalization ........................... 17
Price Range of Common Stock ............ 18
Selected Financial Data .................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 21
Business ................................. 28
Management .............................. 37
Principal and Selling Stockholders ...... 43
Certain Transactions ..................... 44
Description of Securities ............... 45
Underwriting ........................... 47
Legal Matters ........................... 49
Experts ................................. 49
Additional Information .................. 49
Index to Financial Statements ............ F-1
================================================================================
================================================================================
6,000,000 Shares
U.S. HOME
& GARDEN INC.
Common Stock
-----------------------------------
PROSPECTUS
-----------------------------------
EVEREN Securities, Inc.
JOSEPHTHAL LYON & ROSS
INCORPORATED
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
SEC registration .................................... $ 9,932.00
NASD fee ............................................. 3,777.50
NASDAQ listing fee .................................... 7,500.00
Printing and engraving costs ........................ *
Legal fees and expenses .............................. *
Accounting fees and expenses ........................ *
Blue Sky fees and expenses ........................... *
Transfer agent and registrar fees and expenses ...... *
Miscellaneous ....................................... *
------------
Total ............................................. $850,000
- ------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may
affect a director's liability with respect to any of the following: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not made in good faith or which involve
intentional misconduct of knowing violations of law; (iii) liability for
dividends paid or stock repurchased or redeemed in violation of the Delaware
General Corporation law; or (iv) any transaction from which the director
derived an improper personal benefit. Section 102(b)(7) does not authorize any
limitation on the ability of the corporation or its stockholders to obtain
injunction relief, specific performance or other equitable relief against
directors.
Article Nine of the Company's Certificate of Incorporation and the
Company's By-laws provide that all persons who the Company is empowered to
indemnify pursuant to the provisions of Section 145 of the General Corporation
law of the State of Delaware (or any similar provision or provisions of
applicable law at the time in effect), shall be indemnified by the Company to
the full extent permitted thereby. The foregoing right of indemnification shall
not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
Article Ten of the Company's Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders (i) for any monetary damages for breaches of fiduciary duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing-violation of
law; (iii) under Section 174 of the General Corporation of Law of the State of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit.
Insofar as indemnification for liabilities under the Act may be permitted
to directors, officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
II-1
<PAGE>
Reference is made to the Underwriting Agreement, the proposed form of
which is filed as Exhibit 1.1, pursuant to which the Underwriters agree to
indemnify the directors and certain officers of the Registrant and certain
other persons against certain civil liabilities.
Item 15. Recent Sales of Unregistered Securities.
Between October 8, 1994 and June 20, 1995 the Company issued to persons
who were officers, directors and non-officer employees and to two financial
consultants stock options to purchase an aggregate of 694,500 shares of its
common stock. These options have an average exercise price of $2.06 per share.
During the fiscal year ended June 30, 1996 the Company issued to a total of 7
of its directors and employees options to purchase an aggregate of 620,000
shares of its common stock. These options have an average exercise price of
$2.25 per share. During the fiscal year ended June 30, 1997 the Company issued
to a total of five of its officers, directors or employees, and seven
consultants and/or lending institutions options or warrants to purchase an
aggregate of 2,315,000 shares of its common stock. The options and warrants
have an average exercise price of $1.96 per share. Subsequent to June 30, 1997
the Company has issued to a total of eight officers and directors and four
consultants options and warrants to purchase an aggregate of 798,000 shares of
its common stock. These options have an average exercise price of $3.13. The
foregoing issuances were made in private transactions pursuant to the
exemptions from registration under the Securities Act of 1933 provided by
Section 4(2) of said act.
Item 16. Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation, as amended.**
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3(b) of the Company's
Registration Statement on Form S-1 (Registration No. 33-45428).
4.1 Specimen form of Common Stock Certificate, incorporated by reference to Exhibit 4(a) of the
Company's registration statement on Form S-1 (Registration No. 33-45428)*
4.3 Form of Unit Purchase Option granted to D.H. Blair & Co.*
4.4 Form of Public Warrant Agreement with respect to Class A Warrants.*
4.5 Warrant Agreement with respect to Class B Warrants, incorporated by reference to Exhibit 4(c) of
the Company's Registration Statement on Form S-3 (Registration No. 33-89800).
5.1 Opinion of Tenzer Greenblatt LLP***
9.1 Voting Agreement among Joseph A. Owens, II, the Company, and Robert Kassel.+
9.2 Voting Agreement among Richard M. Grandy, the Company and Robert Kassel.+
10.1 Employment Agreement between the Registrant and Robert Kassel+
10.2 Employment Agreement between the Registrant and Richard Raleigh+
10.3 1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-1 (Registration No. 33-45428).
10.4 1995 Stock Option Plan.*
10.5 Non-Employee Director Stock Option Plan.*
10.6 Asset Purchase Agreement dated as of June 18, 1994 among the Company, Easy Gardener
Acquisition Corp., Joseph A. Owens II, Richard M. Grandy and Easy Gardener, Inc.+
10.7 1997 Stock Option Plan, incorporated by reference to Exhibit A to the Company's proxy state-
ment dated May 27, 1997.
10.8 Asset Purchase Agreement dated as of June 18, 1994 among the Company, Easy Gardener Acqui-
sition Corp., Joseph A. Owens II, Richard M. Grandy and Easy Gardener, Inc.+
10.9 Lease with respect to the Company's executive offices, incorporated by reference to Exhibit 10.14
of the Company's Form 10-KSB for the fiscal year ended June 30, 1992.
10.10 February 8, 1995 modification to lease with respect to the Company's executive offices.++
10.11 May 6, 1997 modification to lease with respect to the Company's executive offices.+++
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.12 Lease with respect to Weatherly's warehouse facilities in Paris, Kentucky.+++
10.13 Form of Mergers and Acquisitions Agreement between the Company and D.H. Blair Investment
Banking Corp.**
10.14 Agreement dated as of April 16, 1996 between the Company and The Intrac Group.++
10.15 Credit Agreement among Easy Gardener Acquisition Corp., the Company, The Provident Bank,
as Administrative and Collateral Agent, and The Provident Bank and other certain lending insti-
tutions, dated as of August 9, 1996 (the "Credit Agreement").++
10.16 First Amendment to the Credit Agreement.+++
10.17 Second Amendment to the Credit Agreement.+++
10.18 Third Amendment to the Credit Agreement.+++
10.19 Lease and lease extension agreements between Crawford-Austin Mfg. Co. and Easy Gardener.*
10.20 Warehouse lease, dated May 7, 1997, between Weatherly Consumer Products, Inc. and Sarah C.
Leer.+++
10.21 Purchase Agreement, dated as of August 9, 1996, by and among the Company, Easy Gardener,
Weatherly and the Weatherly Stockholders (incorporated by reference to Exhibit 10.1 filed with
the Company's Form 8-K for the event dated August 9, 1996).
21 Subsidiaries of the Company.
23.1 Consent of Tenzer Greenblatt LLP (included in Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
24.1 Power of Attorney (included in the Registration Statement)
</TABLE>
- ------------
* Incorporated by reference to the comparable exhibit filed with the Company's
Form 10-KSB for the fiscal year ended June 30, 1995.
** Incorporated by reference to the exhibit filed under the same number in the
Company's Registration Statement on Form SB-2 (file no. 33-61984).
*** To be filed by amendment.
+ Incorporated by reference to the exhibit contained in the Current Report on
Form 8-K filed by the Company for the event dated September 1, 1994.
++ Incorporated by reference to the exhibit contained on the Company's Form
10-KSB for the fiscal year ended June 30, 1996.
+++ Incorporated by reference to the comparable exhibit filed with the
Company's Form 10-K for the fiscal year ended June 30, 1997.
(b) Financial Statement Schedule
(c) Report on 8-K. No reports on Form 8-K were filed by the Company during
its fiscal quarter ended June 30, 1997.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed the initial bona fide offering
thereof.
(3) To remove by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrar
pursuant to any arrangement, provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement for the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
Report of Independent Certified Public Accountants on
Financial Statement Schedule
Board of Directors
U.S. Home & Garden Inc.
and Subsidiaries
San Francisco, California
The audits referred to in our report to U.S. Home & Garden Inc., dated August 1,
1997, except for Note 15 which is as of September 15, 1997, which is contained
in the Prospectus constituting part of this Registration Statement included the
audit of the schedule listed under Item 16(b) for each of the three years in the
period ended June 30, 1997. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
San Francisco, California
August 1, 1997
II-5
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Charged to
Beginning Costs and Writeoffs Ending
Balance Expenses of Accounts Balance
----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year ended June 30, 1995 ...... $ 5,000 $ 3,000 $ (3,000) $ 5,000
Year ended June 30, 1996 ...... 5,000 167,000 (17,000) 155,000
Year ended June 30, 1997 ...... 155,000 323,000 (164,000) 314,000
========= ========= ========== =========
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, in the
City of San Francisco, State of California, on the 21st day of October, 1997.
U.S. HOME & GARDEN INC.
By: /s/ Robert Kassel
--------------------------
Robert Kassel, President
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert Kassel and Richard Raleigh
severally, as his true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorney-in-fact or agent or substitute lawfully
does or causes to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert Kassel Chairman of the Board; President, Chief October 21, 1997
----------------------- Executive Officer and Treasurer (Principal
Robert Kassel Executive and Financial Officer)
/s/ Richard Raleigh Chief Operating Officer and Director October 21, 1997
-----------------------
Richard Raleigh
/s/ Maureen Kassel Vice President, Secretary
- ----------------------- and Director October 21, 1997
Maureen Kassel
/s/ Lynda Gustafson Vice President of Finance (Principal October 21, 1997
----------------------- Accounting Officer)
Lynda Gustafson
/s/ Fred Heiden Director October 21, 1997
-----------------------
Fred Heiden
/s/ Jon Schulberg Director October 21, 1997
-----------------------
Jon Schulberg
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation, as amended.**
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3(b) of the Company's
Registration Statement on Form S-1 (Registration No. 33-45428).
4.1 Specimen form of Common Stock Certificate, incorporated by reference to Exhibit 4(a) of the
Company's registration statement on Form S-1 (Registration No. 33-45428)*
4.3 Form of Unit Purchase Option granted to D.H. Blair & Co.*
4.4 Form of Public Warrant Agreement with respect to Class A Warrants.*
4.5 Warrant Agreement with respect to Class B Warrants, incorporated by reference to Exhibit 4(c) of
the Company's Registration Statement on Form S-3 (Registration No. 33-89800).
5.1 Opinion of Tenzer Greenblatt LLP***
9.1 Voting Agreement among Joseph A. Owens, II, the Company, and Robert Kassel.+
9.2 Voting Agreement among Richard M. Grandy, the Company and Robert Kassel.+
10.1 Employment Agreement between the Registrant and Robert Kassel+
10.2 Employment Agreement between the Registrant and Richard Raleigh+
10.3 1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-1 (Registration No. 33-45428).
10.4 1995 Stock Option Plan.*
10.5 Non-Employee Director Stock Option Plan.*
10.6 Asset Purchase Agreement dated as of June 18, 1994 among the Company, Easy Gardener
Acquisition Corp., Joseph A. Owens II, Richard M. Grandy and Easy Gardener, Inc.+
10.7 1997 Stock Option Plan, incorporated by reference to Exhibit A to the Company's proxy state-
ment dated May 27, 1997.
10.8 Asset Purchase Agreement dated as of June 18, 1994 among the Company, Easy Gardener Acqui-
sition Corp., Joseph A. Owens II, Richard M. Grandy and Easy Gardener, Inc.+
10.9 Lease with respect to the Company's executive offices, incorporated by reference to Exhibit 10.14
of the Company's Form 10-KSB for the fiscal year ended June 30, 1992.
10.10 February 8, 1995 modification to lease with respect to the Company's executive offices.++
10.11 May 6, 1997 modification to lease with respect to the Company's executive offices.+++
10.12 Lease with respect to Weatherly's warehouse facilities in Paris, Kentucky.+++
10.13 Form of Mergers and Acquisitions Agreement between the Company and D.H. Blair Investment
Banking Corp.**
10.14 Agreement dated as of April 16, 1996 between the Company and The Intrac Group.++
10.15 Credit Agreement among Easy Gardener Acquisition Corp., the Company, The Provident Bank,
as Administrative and Collateral Agent, and The Provident Bank and other certain lending insti-
tutions, dated as of August 9, 1996 (the "Credit Agreement").++
10.16 First Amendment to the Credit Agreement.+++
10.17 Second Amendment to the Credit Agreement.+++
10.18 Third Amendment to the Credit Agreement.+++
10.19 Lease and lease extension agreements between Crawford-Austin Mfg. Co. and Easy Gardener.*
10.20 Warehouse lease, dated May 7, 1997, between Weatherly Consumer Products, Inc. and Sarah C.
Leer.+++
10.21 Purchase Agreement, dated as of August 9, 1996, by and among the Company, Easy Gardener,
Weatherly and the Weatherly Stockholders (incorporated by reference to Exhibit 10.1 filed with
the Company's Form 8-K for the event dated August 9, 1996).
21 Subsidiaries of the Company.
23.1 Consent of Tenzer Greenblatt LLP (included in Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
24.1 Power of Attorney (included in the Registration Statement)
</TABLE>
- ------------
* Incorporated by reference to the comparable exhibit filed with the Company's
Form 10-KSB for the fiscal year ended June 30, 1995.
** Incorporated by reference to the exhibit filed under the same number in the
Company's Registration Statement on Form SB-2 (file no. 33-61984).
*** To be filed by amendment.
+ Incorporated by reference to the exhibit contained in the Current Report on
Form 8-K filed by the Company for the event dated September 1, 1994.
++ Incorporated by reference to the exhibit contained on the Company's Form
10-KSB for the fiscal year ended June 30, 1996.
+++ Incorporated by reference to the comparable exhibit filed with the
Company's Form 10-K for the fiscal year ended June 30, 1997.
<PAGE>
EXHIBIT 1.1
===============================================================================
6,900,000 Shares
U.S. HOME & GARDEN INC.
Common Stock
UNDERWRITING AGREEMENT
November __, 1997
EVEREN Securities, Inc.
&
Josephthal Lyon & Ross Incorporated
===============================================================================
<PAGE>
6,900,000 Shares
U.S. HOME & GARDEN INC.
Common Stock
UNDERWRITING AGREEMENT
November __, 1997
EVEREN Securities, Inc.
Josephthal Lyon & Ross Incorporated
As Representatives of
the Several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Ladies and Gentlemen:
U.S. Home & Garden Inc., a Delaware corporation (the "Company"), and
the stockholders of the Company set forth on Schedule I hereto (collectively
referred to as the "Selling Stockholders"), confirm their agreement with each
other and the several underwriters listed in Schedule II hereto (the
"Underwriters"), for whom EVEREN Securities, Inc. and Josephthal Lyon & Ross
Incorporated (collectively, the "Representatives") have been duly authorized to
act as representatives, as follows:
1. The Shares. Subject to the terms and conditions set forth in this
agreement (the "Agreement"), the Company proposes to issue and sell Five Million
(5,000,000) shares of its authorized but unissued Common Stock, $.001 par value
(the "Common Stock"), to the several Underwriters, and the Selling Stockholders
propose to sell an aggregate of One Million (1,000,000) shares of issued and
outstanding Common Stock to the several Underwriters in the
<PAGE>
amounts set forth on Schedule I. Such Six Million (6,000,000) shares of Common
Stock proposed to be sold by the Company and the Selling Stockholders are
hereinafter referred to as the "Firm Shares." The Company also proposes to grant
to the Underwriters an option to purchase up to Nine Hundred Thousand (900,000)
additional shares of Common Stock (the "Additional Shares") if requested by the
Underwriters as provided in Section 3 hereof. The Firm Shares and the Additional
Shares are herein collectively called the "Shares."
The Company and each of the Selling Stockholders hereby
confirm their respective agreements with the Underwriters as follows:
2. Registration Statement and Prospectus. The Company has prepared and
duly filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (File No. 333-___) including a
prospectus, relating to the Shares. To the extent the registration statement has
been amended, each such amendment has been prepared and duly filed with the
Commission. The registration statement, as amended, at the time when it became
or becomes effective, including all financial schedules and exhibits thereto and
all of the information (if any) deemed to be part of the registration statement
at the time of its effectiveness pursuant to Rule 430A under the Act ("Rule
430A"), is hereinafter referred to as the "Registration Statement"; the
prospectus in the form first provided to the Underwriters by the Company in
connection with the offering and sale of the Shares (whether or not required to
be filed pursuant to Rule 424(b) under the Act ("Rule 424(b)")) is hereinafter
referred to as the "Prospectus," except that if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the Prospectus (whether or not any such
revised prospectus is required to be filed by the Company pursuant to Rule
424(b) under the Act), the term "Prospectus" shall refer to the revised
prospectus from and after the time it is first provided to the Underwriters for
such use. Each preliminary prospectus included in the Registration Statement
prior to the time it became or becomes effective is herein referred to as a
"Preliminary Prospectus."
3. Agreements to Sell and Purchase. On the basis of the representations
and warranties contained in this Agreement, and subject to the terms and
conditions hereof: (i) the Company agrees to issue and sell to the Underwriters,
at a price of $_____ per Share (the "Purchase Price"), Five Million (5,000,000)
newly issued Firm Shares; (ii) each Selling Stockholder agrees to sell to the
Underwriters, at the Purchase Price, the number of Firm Shares set forth next to
such Selling Stockholder's name on Schedule I; and (iii) each Underwriter
agrees, severally and not jointly, to purchase from the Company and the Selling
Stockholders, at the Purchase Price, the aggregate number of Firm Shares set
forth opposite the name of such Underwriter in Schedule II hereto. The number of
Firm Shares to be purchased by each Underwriter from the Company and each
Selling Stockholder shall be as nearly as practicable in the same proportion as
the number of Firm Shares being sold by the Company and each Selling Stockholder
bears to the total number of Firm Shares to be sold hereunder.
On the basis of the representations and warranties contained
in this Agreement, and subject to the terms and conditions hereof, (i) the
Company agrees to sell to the
2
<PAGE>
Underwriters, at the Purchase Price, up to Nine Hundred Thousand (900,000)
Additional Shares; and (ii) the Underwriters shall have the right to purchase,
severally and not jointly, from time to time (subject to the last sentence of
Section 4(b)), up to an aggregate of Nine Hundred Thousand (900,000) Additional
Shares at the Purchase Price. Additional Shares may be purchased as provided in
Section 4 hereof solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II bears to the total number of Firm Shares.
The Company covenants and agrees that it will not (other than
in connection with the transactions expressly contemplated by this Agreement),
directly or indirectly, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise issue any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, (2) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of any shares of
Common Stock, whether any such transaction described in clauses (1) or (2) above
is to be settled by delivery of shares of Common Stock or other securities, in
cash or otherwise, or (3) file any registration statement relating to any of the
foregoing on behalf of itself or any other person, for a period of 180 days
after the date of the Prospectus, without the prior written consent of EVEREN
Securities, Inc. on behalf of the Underwriters. The restrictions set forth in
the immediately preceding sentence shall not apply to: (i) grants of options
pursuant to the Company's Non-Employee Director Stock Option Plan, as in effect
on the date of the Prospectus (the "Director Plan"); (ii) the filing of any
registration statement on Form S-8 relating to shares of Common Stock issuable
upon exercise of options outstanding on the date hereof and described as such in
the Prospectus under the Company's 1991, 1995, 1997 Stock Option Plans and the
Director Plan (collectively, the "Stock Option Plans"); (iii) the filing of any
registration statement on Form S-3 relating to the potential sale of 100,000
shares of Common Stock issuable upon exercise of options and warrants granted
outside of the Stock Option Plans that expire during such 180-day period; and
(iv) the issuance of shares of Common Stock or options, warrants or rights to
purchase shares of Common Stock solely in connection with the acquisition by the
Company of lawn and garden companies or product lines; provided, however, that
no registration statement on Form S-4 or any other registration statement
relating to such issuance may be filed during such 180-day period without the
prior written consent of EVEREN Securities, Inc. on behalf of the Underwriters,
such consent not to be unreasonably withheld.
Each Selling Stockholder covenants and agrees that it will not
(other than in connection with the transactions expressly contemplated by this
Agreement or in connection with transfers of Common Stock to partnerships,
limited liability companies or trusts organized for the exclusive benefit of
family members of such Selling Stockholders, which partnerships, limited
liability companies or trust shall have first expressly agreed in writing to be
bound by the terms of this paragraph), directly or indirectly, (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
3
<PAGE>
purchase, or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
(2) enter into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of any shares of Common Stock,
whether any such transaction described in clauses (1) or (2) above is to be
settled by delivery of shares of Common Stock or other securities, in cash or
otherwise, for a period of 180 days after the date of the Prospectus, without
the prior written consent of EVEREN Securities, Inc. on behalf of the
Underwriters. The restrictions set forth in the immediately preceding sentence
shall not apply to: (i) the estate of the Selling Stockholder in the event such
Selling Stockholder dies during such 180-day period; or (ii) the exercise by the
Selling Stockholder of options to purchase shares of Common Stock; provided,
however, that any shares of Common Stock purchased by such Selling Stockholder
upon exercise of such options shall be subject to the restrictions set forth in
the immediately preceding sentence.
4. Agreements of the Company as to Delivery and Payment. The Company
and Selling Stockholders agree with each Underwriter that:
(a) Delivery to the Underwriters of and payment for the Firm
Shares shall be made at 10:00 A.M., New York City time, on the third
full business day (such time and date being referred to as the "Closing
Date") following the date of the initial public offering of the Firm
Shares as advised to you by the Company, at such place as you shall
designate.
(b) Delivery to the Underwriters of and payment for any
Additional Shares to be purchased by the Underwriters shall be made at
such place as the Representatives shall designate, at 10:00 A.M., New
York City time, on such date or dates (individually, an "Option Closing
Date" and collectively, the "Option Closing Dates"), which may be the
same as the Closing Date but shall in no event be earlier than the
Closing Date, as shall be specified in a written notice from the
Representatives to the Company of the Underwriters' determination to
purchase a number, specified in said notice, of Additional Shares. Any
such notice may be given at any time prior to the thirty-first (31st)
day after the date of this Agreement.
(c) Certificates for the Shares shall be registered in such
names and issued in such denominations as you shall request in writing
not later than two business days prior to the Closing Date or the
applicable Option Closing Date, as the case may be, and shall be made
available for inspection not later than 9:30 A.M., New York City time,
on the business day next preceding the Closing Date or the applicable
Option Closing Date, as the case may be, with any transfer taxes
payable upon initial issuance or the transfer thereof duly paid by the
Company for the respective accounts of the Underwriters against payment
of the Purchase Price therefor by certified or official bank check or
checks payable in New York Clearing House or similar next-day funds to
the order of the Company and the Selling Stockholders.
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<PAGE>
5. Further Agreements of the Company. The Company also agrees with each
Underwriter that:
(a) it will, if the Registration Statement has not heretofore
become effective under the Act, file an amendment to the Registration
Statement or, if necessary pursuant to Rule 430A under the Act, a
post-effective amendment to the Registration Statement, as soon as
practicable after the execution and delivery of this Agreement, and
will use its best efforts to cause the Registration Statement or such
post-effective amendment to become effective at the earliest possible
time; and the Company will comply fully and in a timely manner with the
applicable provisions of Rule 424(b), Rule 430A and the other rules
under the Act;
(b) it will advise you promptly and, if requested by you,
confirm such advice in writing, (i) when the Registration Statement has
become effective, if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the
receipt of any comments from the Commission that relate to the
Registration Statement or requests by the Commission for amendments to
the Registration Statement or amendments or supplements to the
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction, or the initiation or,
to the best knowledge of the Company, threat of any proceedings for
such purpose by the Commission or any state securities commission or
other regulatory authority, and (iv) of the happening of any event or
information becoming known during the period referred to in paragraph
(e) below that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any
additions to or changes in the Registration Statement (as amended or
supplemented from time to time) in order to make the statements therein
not misleading or that makes any statement of a material fact made in
the Prospectus (as amended or supplemented from time to time) untrue or
that requires the making of any additions to or changes in the
Prospectus (as amended or supplemented from time to time) in order to
make the statements therein, not misleading; if at any time the
Commission shall issue or institute proceedings (or threaten to
institute any such proceedings) to issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue or institute
proceedings (or threaten to institute proceedings) to issue an order
suspending the qualification or exemption of the Shares under any state
securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(c) it will furnish to you without charge three signed copies
of the Registration Statement as first filed with the Commission and of
each amendment to it, including all exhibits filed therewith, and will
furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request;
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<PAGE>
(d) it will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised and
provided a copy a reasonable period of time prior to the filing thereof
or to which you or your counsel shall reasonably object; and it will
prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or supplement to
the Prospectus that may be necessary or advisable in connection with
the distribution of the Shares by you in your or your counsel's
opinion, and will use its best efforts to cause the same to become
effective as promptly as possible;
(e) promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as a
prospectus is required by the Act to be delivered in connection with
the sales by an underwriter or a dealer (in the opinion of your
counsel), it will furnish to each Underwriter and dealer without charge
as many copies of the Prospectus (and any amendment or supplement of
the Prospectus) as such Underwriter or dealer may reasonably request
for the purposes contemplated by the Act; the Company consents to the
use of the Prospectus and any amendment or supplement thereto by any
Underwriter or any dealer, both in connection with the offering or sale
of the Shares and for such period of time thereafter as the Prospectus
is required by the Act to be delivered in connection therewith;
(f) if during the period specified in paragraph (e) any event
shall occur or information become known as a result of which in the
opinion of your counsel it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing as of the date the Prospectus is delivered to a
purchaser, not misleading, or it is necessary to amend or supplement
the Prospectus to comply with any law, forthwith to prepare and,
subject to paragraph 5(d) above, it will file with the Commission at
the sole expense of the Company an appropriate amendment or supplement
to the Prospectus so that the statements of any material facts in the
Prospectus, as so amended and supplemented, will not in light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with law and it will furnish to the Underwriters
and to such dealers as the Underwriters shall specify, at the sole
expense of the Company, such number of copies thereof as such
Underwriters or dealers may reasonably request;
(g) prior to any public offering of the Shares, it will
cooperate with you and counsel for the Underwriters in connection with
the registration or qualification of the Shares for offer and sale by
the several Underwriters and by dealers under the state securities or
Blue Sky laws of such jurisdictions as you may request (provided, that
the Company shall not be obligated to qualify as a foreign corporation
in any jurisdiction in which it is not so qualified or to take any
action which would subject it to general consent to service of process
in any jurisdiction in which it is not now so subject); the Company
will continue such qualification in effect so long as required by law
for the distribution of the Shares and will file such consents to
service of process or other documents as may be necessary in order to
effect such registration or qualification (provided, that the Company
6
<PAGE>
shall not be obligated to take any action that would subject it to
general consent to service of process in any jurisdiction in which it
is not now so subject);
(h) it will not, prior to the exercise in full or termination
or expiration of the option to purchase the Additional Shares, incur
any liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business,
except as contemplated by the Prospectus;
(i) it will not acquire any capital stock of the Company prior
to the exercise in full or termination or expiration of the option to
purchase the Additional Shares nor will the Company declare or pay any
dividend or make any other distribution upon the Common Stock payable
to stockholders of record on a date prior to the exercise in full or
termination or expiration of the option to purchase the Additional
Shares;
(j) it will mail and make generally available to its security
holders and furnish to the Underwriters as soon as reasonably
practicable a consolidated earnings statement covering a period of at
least 12 months beginning after the "effective date" (as defined in
Rule 158 under the Act) of the Registration Statement (but in no event
commencing later than 90 days after such date) that will satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder and to
advise you in writing when such statement has been made so available;
(k) during the period of five years after the date of this
Agreement, it will furnish to you a copy (i) as soon as practicable
after the filing thereof, of each report filed by the Company with the
Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"); (ii) as soon as practicable after
the release thereof, of each press release relating to the Company;
(iii) as soon as available, of each report of the Company mailed to
stockholders; and (iv) as soon as available, such other publicly
available information concerning the Company as you may reasonably
request;
(1) whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective as to all of its
provisions or is terminated, to pay all costs, fees, expenses and taxes
incident to the performance by the Company of its obligations
hereunder, including (i) the preparation, printing, filing and
distribution under the Act of the Registration Statement (including
financial statements and exhibits), each Preliminary Prospectus, the
Prospectus and all amendments and supplements to any of them prior to
or during the period specified in paragraph (e) above of this Section
5, (ii) the word processing, reproduction and distribution of this
Agreement, the Blue Sky Survey and any other agreements, memoranda,
correspondence and other documents prepared and delivered by the
Underwriters or their counsel in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such preparation and delivery), (iii) the
registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states, including in
each case the fees and disbursements of counsel for the Underwriters,
relating to such registration or qualification and memoranda relating
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<PAGE>
thereto, (iv) filings and clearance with the NASD in connection with
the offering and sale of the Shares, (v) the approval for quotation of
the Shares on the Nasdaq SmallCap Market or Nasdaq National Market,
(vi) furnishing such copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus and all amendments and
supplements thereto as may be requested for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to
whom the Shares may be sold, (vii) obtaining the opinions to be
provided pursuant to Section 8(g) of this Agreement and (viii) the
performance by the Company of all of its other obligations under this
Agreement; if the sale of the Shares provided for herein is not
consummated because the Underwriters exercise their right to terminate
this Agreement pursuant to Section 9 hereof and any of the following
have occurred during the term of this Agreement: (a) there has been any
material adverse change in the condition (financial or otherwise),
earnings, affairs, business or prospects of the Company, or (b) the
Company or any of the Selling Stockholders shall refuse or be unable to
comply with any provision hereof (except as the result of a breach of
this Agreement by the Underwriters), the Company will promptly
reimburse the Underwriters upon demand for all reasonable out-of-pocket
expenses (including the fees and disbursements of counsel for the
Underwriters) that shall have been incurred by the Underwriters in
connection with the proposed purchase and sale of Shares;
(m) it intends to use the net proceeds received by it from the
sale of the Shares being sold by it in the manner specified in the
Prospectus and it will file such reports with the Commission with
respect to the application of the proceeds therefrom as may be required
in accordance with Rule 463 under the Act and will furnish you copies
of any such reports as soon as practicable after the filing thereof;
(n) if, at the time of effectiveness of the Registration
Statement, any information shall have been omitted therefrom in
reliance upon Rule 430A, then immediately following the execution and
delivery of this Agreement, it will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule
424(b), copies of an amended prospectus, or, if required by such Rule
430A, a post-effective amendment to the Registration Statement
(including an amended prospectus), containing all information so
omitted;
(o) it will cause the Shares to be approved for quotation,
subject to notice of issuance or sale, on the Nasdaq SmallCap Market or
Nasdaq National Market; it will comply with all registration, filing
and reporting requirements of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and the Nasdaq SmallCap Market or Nasdaq
National Market; and
(p) it will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to
or after the Closing Date or any Option Closing Date, as the case may
be, and to satisfy all conditions precedent to the delivery of the
Shares; and
(q) in furtherance and not in limitation of the restrictions
set forth in Section 3 of this Agreement, it will not grant any option,
right or warrant to purchase, or otherwise
8
<PAGE>
issue any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or make any other award
based on the performance of the Common Stock, including, without
limitation, any issuance of shares of Common Stock, pursuant to the
Stock Option Plans or otherwise (except as may be required pursuant to
the Director Plan, as in effect on the date hereof): (i) during the
fiscal year ending June 30, 1998; or (ii) other than grants of
options, warrants or other rights to purchase no more than 750,000
shares of Common Stock under the Stock Option Plans or otherwise,
during the fiscal year ending June 30, 1999.
6. Representations and Warranties.
(a) The Company represents and warrants, and the Selling
Stockholders, severally and not jointly, represent and warrant, to each
Underwriter as of the date hereof, the Closing Date and each Option
Closing Date that:
(i) the Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus
relating to the proposed offering of the Shares nor instituted
or threatened any proceedings for that purpose. The
Registration Statement, on the date it became or becomes
effective, each Preliminary Prospectus, on the date of the
filing thereof with the Commission, and the Prospectus and any
amendment or supplement thereto, on the date of filing thereof
with the Commission (or if not filed, on the date provided by
the Company to the Underwriters in connection with the
offering and sale of the Shares) and at the Closing Date and
each Option Closing Date conformed or will conform with the
requirements of the Act and the rules and regulations
promulgated thereunder ("Rules and Regulations"); the
Registration Statement, on the date it became or becomes
effective, did not or will not contain an untrue statement of
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; each Preliminary Prospectus, on the date of the
filing thereof with the Commission, and the Prospectus and any
amendment or supplement thereto, on the date of filing thereof
with the Commission (or if not filed, on the date provided by
the Company to the Underwriters in connection with the
offering and sale of the Shares) and at the Closing Date and
each Option Closing Date did not and will not include an
untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; the foregoing shall not apply
to statements in or omissions from the Registration Statement
and the Prospectus made or omitted in reliance upon, and in
conformity with, information relating to the Underwriters
furnished in writing to the Company by or on behalf of the
Underwriters with your consent expressly for use therein; the
Company and the Selling Stockholders hereby acknowledge for
all purposes under this Agreement that (A) the last paragraph
set forth on the outside front cover page of the Prospectus,
(B) the stabilization and passive market making legends set
forth on the inside of the front cover page of the Prospectus
and (C) the statements set forth under the caption
"Underwriting" in the Prospectus constitute the only written
information furnished to the Company by or
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<PAGE>
on behalf of the Underwriters for use in the preparation of
the Registration Statement or the Prospectus or any
amendment or supplement thereto;
(ii) the Company has no subsidiaries other than the
subsidiaries set forth on Exhibit A to this Agreement
(singularly, a "Subsidiary" and collectively, the
"Subsidiaries"); the Company has been duly incorporated and is
a validly existing corporation in good standing under the laws
of Delaware, with full corporate power and authority to own or
lease its properties and assets and to conduct its business as
described in the Registration Statement and the Prospectus and
is duly qualified to do business in each jurisdiction in which
it owns or leases real property or in which the conduct of its
business or the ownership or leasing of property requires such
qualification, except where the failure to be so qualified,
either individually or in the aggregate, would not have a
material adverse effect on the condition (financial or
otherwise), business, assets, prospects, net worth or results
of operations of the Company and its Subsidiaries, taken as a
whole (a "Material Adverse Effect"); each Subsidiary has been
duly incorporated and is a validly existing corporation in
good standing under the laws of the jurisdiction set forth
opposite its name on Exhibit A, with full corporate power and
authority to own or lease its properties and assets and to
conduct its business as described in the Registration
Statement and the Prospectus and is duly qualified to do
business in each jurisdiction in which it owns or leases real
property or in which the conduct of its business or the
ownership or leasing of property requires such qualification,
except where the failure to be so qualified, either
individually or in the aggregate, would not have a Material
Adverse Effect;
(iii) the capitalization of the Company is, and upon
consummation of the transactions contemplated hereby and by
the Prospectus will be, as set forth in the Registration
Statement and the Prospectus under the caption
"Capitalization;" all of the outstanding shares of capital
stock of the Company have been duly authorized and are validly
issued, are fully paid and non-assessable and conform to the
description thereof in the Registration Statement and the
Prospectus and were not issued in violation of any preemptive
rights or other rights to subscribe for or purchase
securities; and, except as set forth in the Registration
Statement and the Prospectus with respect to the Company's
Stock Option Plans and for options, warrants or other rights
to acquire up to ___________ shares of Common Stock granted
outside of the Company's Stock Option Plans, no options,
warrants or other rights to purchase from the Company,
agreements or other obligations of the Company to issue or
other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of or ownership
interests in the Company are outstanding; the description of
the Company's Stock Options Plans and the other options or
rights granted and exercised thereunder, as set forth in the
Registration Statement and the Prospectus, accurately and
fairly presents the information required to be shown under the
Act with respect to such options and rights;
(iv) subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, and except as described therein, (A)
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<PAGE>
neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, direct or contingent,
or entered into any material transactions not in the
ordinary course of business, (B) neither the Company nor any
Subsidiary has purchased any of its outstanding capital
stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock or otherwise
and (C) there has not been any material adverse change in
the condition (financial or otherwise), business, affairs,
prospects or results of operations of the Company and its
Subsidiaries, taken as a whole, or any material change in
the Company's or any Subsidiary's capital stock, short-term
debt or long-term debt;
(v) the Shares to be sold by the Company pursuant to
this Agreement have been duly and validly authorized and, when
issued, delivered and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the
Prospectus;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company and is a legal, valid
and binding agreement of the Company enforceable in accordance
with its terms, except (i) as enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally
and by general equity principles and (ii) as rights to
indemnity or contribution hereunder may be limited by Federal
or state securities laws or the public policy underlying such
laws;
(vii) neither the Company nor any Subsidiary is in
violation of its Certificate of Incorporation or by-laws;
neither the Company nor any Subsidiary is in violation of or
in breach of or in default in (nor has any event occurred that
with notice or lapse of time, or both, would be a breach of or
a default in) the performance of any obligation, agreement or
condition contained in any agreement, lease, contract, permit,
license, franchise agreement, mortgage, loan agreement,
debenture, note, deed of trust, bond, indenture or other
evidence of indebtedness or any other instrument or obligation
(collectively, "Obligations and Instruments") to which the
Company or the Subsidiary is a party or by which the Company
or the Subsidiary or any of its properties or assets is bound
or affected (except for such contravention or default as would
not have a Material Adverse Effect); neither the Company nor
any Subsidiary is in violation of any statute, judgment,
decree, order, rule or regulation (collectively, "Laws")
applicable to the Company or the Subsidiary or any of its
properties or assets that, alone, or together with other
violations of Laws would result in a Material Adverse Effect;
and, to the best knowledge of the Company, no other party
under any contract or other agreement to which the Company or
any Subsidiary is a party is in material default thereunder
except for such defaults as would not individually or in the
aggregate result in a Material Adverse Effect;
(viii) the execution, delivery and performance of
this Agreement and delivery of the Shares by the Company and
compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated
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<PAGE>
hereby and as described in the Prospectus will not, alone or
upon notice or the passage of time or both (A) require any
consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other
governmental body or third party (except such as may be
required under the Act and the securities or Blue Sky laws
of the various states or by the NASD), (B) result in the
creation or imposition of any lien, charge or encumbrance
upon any of the properties or assets of the Company or any
Subsidiary pursuant to the terms and provisions of any
Obligation or Instrument, (C) conflict with or constitute a
breach or default under any Obligation or Instrument to
which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary or any of their properties or
assets are bound, (except for such creation, conflict,
breach or default as would not have a Material Adverse
Effect), or (D) assuming compliance with the Act and all
applicable state securities or Blue Sky laws, violate or
conflict with any Laws applicable to the Company or any
Subsidiary or any of their properties or assets (except for
such violation or conflict as could not have a Material
Adverse Effect); no action, suit or proceeding before any
court or arbitrator or any governmental body, agency or
official (domestic or foreign) is pending against or, to the
knowledge of the Company, threatened against the Company or
any Subsidiary, that, if adversely determined, could
reasonably be expected to in any manner invalidate this
Agreement;
(ix) except as set forth in the Prospectus, there is
no action, suit, proceeding, inquiry or investigation,
governmental or otherwise before any court, arbitrator or
governmental agency or body (collectively, "Proceedings")
pending to which the Company or any Subsidiary is a party or
to which any of their properties or assets are subject, that,
if determined adversely to the Company or such Subsidiary,
might result in a Material Adverse Effect, or that might
materially and adversely affect the properties or assets
thereof, or that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of
any of the Shares to be sold hereunder or the consummation of
the transactions described in the Prospectus and, to the best
knowledge of the Company after due inquiry, no such
Proceedings are threatened or contemplated; and there is no
contract, document, agreement or transaction to which the
Company or any Subsidiary is a party, or that involved or
involves the Company or any Subsidiary or any of their
properties or assets that are required to be described in or
filed as exhibits to the Registration Statement or the
Prospectus by the Act or the Rules and Regulations that have
not been so described or filed; no action has been taken with
respect to the Company or any Subsidiary, and, to the best
knowledge of the Company and the Selling Stockholders, no
statute, rule or regulation or order has been enacted, adopted
or issued by any governmental agency that suspends the
effectiveness of the Registration Statement, prevents or
suspends the use of any Preliminary Prospectus or the
Prospectus or suspends the sale of the Shares in any
jurisdiction referred to in Section 5(g) hereof; no
injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction has been
issued with respect to the Company or any Subsidiary that
might prevent the
12
<PAGE>
issuance of the Shares, suspend the effectiveness of the
Registration Statement, prevent or suspend the use of any
Preliminary Prospectus or the Prospectus or suspend the sale
of the Shares in any jurisdiction referred to in Section
5(g) hereof; and every request of the Commission, or any
securities authority or agency of any jurisdiction, for
additional information (to be included in the Registration
Statement or the Prospectus or otherwise) has been complied
with in all material respects;
(x) neither the Company nor any Subsidiary has
violated any foreign, Federal, state, or local law, statute,
ordinance, rule, regulation or common law relating to (A) the
protection, investigation, remediation, or restoration of the
environment or natural resources, (B) the handling, use,
storage, treatment, disposal, release or threatened release of
any Hazardous Material (as defined below), (C) noise, odor,
pollution, contamination, land use, or any injury or threat of
injury to persons or property or (D) the protection of the
health and safety of employees or the public ("Environmental
Laws"), nor are there any circumstances, either past, present
or that are reasonably foreseeable, that may lead to such
violation in the future that, in each case or in the
aggregate, might result in a Material Adverse Effect; no
property owned or leased by the Company or any Subsidiary is
included or proposed for inclusion on the National Priorities
List promulgated under the Comprehensive Response Compensation
and Liability Act of 1980, U.S.C. ss.9601 et seq.; no property
currently or in the past owned or leased by the Company or any
Subsidiary contains any Hazardous Material that requires
investigation or remediation under any Environmental Law;
neither the Company nor any Subsidiary has caused or allowed
the release of any Hazardous Material on, in, under or from
any property currently or in the past owned or leased by the
Company or any Subsidiary; neither the Company nor any
Subsidiary has received any notice of a claim under or
pursuant to any Environmental Law relating to any Hazardous
Material on or originating from any property currently or in
the past owned or leased by the Company or any Subsidiary;
there are no underground storage tanks located on or under any
property currently or in the past owned or leased by the
Company or any Subsidiary; for purposes of this Agreement,
"Hazardous Material" means any substance, material, or waste
that is (1) listed, classified or regulated in any
concentration pursuant to any Environmental Law, (2) any
petroleum hydrocarbon, asbestos-containing material,
lead-containing paint or plumbing, or polychlorinated
biphenyls or (3) any other substance, material, or waste which
may be the subject of regulatory action by any governmental
entity pursuant to any Environmental Law;
(xi) the Company and each Subsidiary has such
permits, licenses, registrations, franchises and
authorizations of governmental or regulatory authorities or
third parties ("Permits"), including, without limitation,
under any applicable Environmental Laws, as are necessary to
own, lease and operate its properties and assets and to
conduct its businesses, except where the failure to have any
such Permit would not have a Material Adverse Effect; the
Company and each Subsidiary are in compliance with and have
fulfilled and performed all of their
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<PAGE>
respective obligations with respect to such Permits and no
event has occurred that allows, or after notice or lapse of
time, or both would allow, revocation or termination thereof
or result in any other material impairment of the rights of
the holder of any such Permit; and such Permits contain no
restrictions that are materially burdensome to the Company
or the Subsidiary;
(xii) neither the Company nor any Subsidiary has
violated any foreign, Federal, state, or local law relating to
discrimination in the hiring, promotion or pay of employees,
or any applicable foreign, Federal or state wages and hours
laws, or any provisions of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations
promulgated thereunder or similar foreign laws, that, in each
case or in the aggregate, might result in a Material Adverse
Effect;
(xiii) neither the Company nor any subsidiary is, or
intends to conduct its business in a manner in which it would
become, an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company
Act");
(xiv) except as otherwise set forth in the
Prospectus, the Company and each Subsidiary has good and
marketable title, free and clear of all liens, claims,
encumbrances and restrictions (except liens for taxes not yet
due and payable) to all property and assets described in the
Registration Statement as being owned by it; all leases to
which the Company or any Subsidiary is a party are subsisting,
valid and binding and no default of the Company or the
Subsidiary or, to the best knowledge of the Company and the
Selling Stockholders, any other person has occurred or is
continuing thereunder that might result in a Material Adverse
Effect; and the Company and each Subsidiary enjoys peaceful
and undisturbed possession under all such leases to which the
Company or the Subsidiary is a party as lessee with such
exceptions as do not materially interfere with the use made
thereof by the Company or the Subsidiary;
(xv) the Company and each Subsidiary maintains
reasonably adequate insurance for the conduct of its business
in accordance with prudent business practices (and the
insurance maintained by retailers generally) with reputable
third-party insurers;
(xvi) to the best knowledge of the Company and the
Selling Stockholders, BDO Seidman, LLP, the accounting firm
that has certified or reviewed, or shall certify or review,
the financial statements and supporting schedules filed or to
be filed with the Commission as part of the Registration
Statement and the Prospectus, is an independent public
accounting firm with respect to the Company as required by the
Act;
(xvii) the consolidated financial statements of the
Company, together with related notes and schedules of the
Company included in the Registration Statement
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and the Prospectus, are accurate and present fairly the
financial position, results of operations and cash flows of
the Company and its Subsidiaries at the indicated dates and
for the indicated periods; such financial statements of have
been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied
throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such
periods have been made and any unaudited financial
statements have been prepared on a basis substantially
consistent with that of the audited operating financial
statements included in the Registration Statement and the
Prospectus; and the summary and selected financial and
operating data included in the Registration Statement and
the Prospectus presents fairly the information shown therein
and have been compiled on a basis consistent with the
audited and any unaudited financial statements, as the case
may be, included therein; and the pro forma information
included in the Prospectus present fairly the information
shown therein, have been prepared in accordance with GAAP
and the Commission's rules and guidelines with respect to
pro forma financial statements and other pro forma
information, have been properly compiled on the pro forma
basis described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used
therein are appropriate under the circumstances;
(xviii) no holder of any security of the Company has
any right to require inclusion of any such security in the
Registration Statement; there are no preemptive rights with
respect to the offering being made by the Prospectus;
(xvix) no labor dispute with the employees of the
Company or any Subsidiary exists, or to the best knowledge of
the Company after due inquiry, is imminent, that could result
in a Material Adverse Effect; and neither the Company nor any
Subsidiary has received notice of any existing or imminent
labor disturbance by the employees of any of its principle
suppliers, customers, manufacturers or contractors that could
result in any Material Adverse Effect;
(xx) the Company any each Subsidiary has filed or
caused to be filed, or has properly filed extensions for, all
foreign, federal, state and local income, value added and
franchise tax returns and has paid all taxes and assessments
shown thereon as due, except for such taxes and assessments as
are disclosed or adequately reserved against and that are
being contested in good faith by appropriate proceedings,
promptly instituted and diligently conducted; all material tax
liabilities are adequately provided for on the books of the
Company and each Subsidiary, and there is no material tax
deficiency that has been or might be asserted against the
Company or any Subsidiary that is not so provided for;
(xxi) the Company and each Subsidiary owns or
possesses, or can acquire on reasonable terms, the patents,
patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and or
unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names
(collectively, "Patents and Proprietary
15
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Rights") currently employed by it in connection with the
business it now operates except where the failure to so own,
possess or acquire such Patents and Proprietary Rights would
not have a Material Adverse Effect; and neither the Company
nor any Subsidiary has received any notice and is not
otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Patent or
Proprietary Rights that, if the subject of any unfavorable
decision, ruling or finding, singly or in the aggregate,
could result in a Material Adverse Effect;
(xxii) the Company and each Subsidiary has conducted,
is conducting and intends to conduct its business so as to
comply in all material respects with applicable federal,
state, local and foreign government Laws, except where the
failure to comply would not have a Material Adverse Effect;
and except as set forth in the Registration Statement and the
Prospectus, neither the Company nor any Subsidiary is charged
with or, to the Company's knowledge after due inquiry, under
investigation with respect to, any material violation of any
such Laws;
(xxiii) neither the Company nor any Subsidiary has
taken and or will take, directly or indirectly, any action
designed to or which has constituted or that might reasonably
be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale
of the Shares;
(xxiv) neither the Company, any Subsidiary nor, to
the best knowledge of the Company and the Selling
Stockholders, any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or the
Subsidiary or received or retained any funds in violation of
any law, rule or regulation (including, without limitation,
the Foreign Corrupt Practices Act) or of a character required
to be disclosed in the Prospectus; neither the Company nor any
Subsidiary has, at any time during the past five years, (1)
made any unlawful contributions to any candidate for any
political office, or failed fully to disclose any contribution
in violation of law, or (2) made any unlawful payment to
state, federal or foreign government officer or officers, or
other person charged with similar public or quasi-public duty;
(xxv) no transaction has occurred between or among
the Company or any Subsidiary and any of the Company's or such
Subsidiary's officers or directors or any affiliate or
affiliates of any such officer or director that is required to
be described in and is not described in the Registration
Statement and the Prospectus;
(xxvi) other than as provided to the Underwriters
under this Agreement, neither the Company nor any Subsidiary
has incurred any liability for finder's or broker's fees or
agent's commissions in connection with the execution and
delivery of this Agreement, the offer and sale of the Shares
or the transactions hereby contemplated;
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<PAGE>
(xxvii) the Company and each Subsidiary maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in
accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded
accountability for inventory is compared with the existing
inventory at reasonable intervals and appropriate action is
taken with respect to any differences;
(xxviii) there is no material document of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement that is not described or filed as required; and
(xxvix) the Company confirms as of the date hereof
that it and each Subsidiary is in compliance with all
provisions of Section 1 of Florida Statutes, Section 517.075,
An Act Relating to Disclosure of Doing Business with Cuba; the
Company further agrees that if it or any Subsidiary commences
engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, the
Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the
Department.
(b) In addition to the foregoing, the Selling Stockholders,
severally and not jointly, represent and warrant to, and agree with,
the Underwriters that:
(i) Such Selling Stockholder has all requisite power
to enter into this Agreement and to sell, assign, transfer and
deliver to the Underwriters the Shares to be sold by such
Selling Stockholder hereunder in accordance with the terms of
this Agreement. This Agreement has been duly executed and
delivered by such Selling Stockholder and constitutes and will
constitute the legal, valid and binding obligation of such
Selling Stockholder enforceable against such Selling
Stockholder in accordance with its terms, except (i) as
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general equity
principles and (ii) as rights to indemnity or contribution
hereunder may be limited by Federal or state securities laws
or the public policy underlying such laws;
(ii) Such Selling Stockholder has duly executed and
delivered a power of attorney and custody agreement (with
respect to such Selling Stockholder, the "Power-of-Attorney"
and the "Custody Agreement," respectively), each in the form
heretofore delivered to the Representatives, appointing each
of Robert Kassel and Richard Raleigh, individually, as such
Selling Stockholder's attorney-in-fact (in each case, the
"Attorney-in-Fact") with authority to execute, deliver and
perform
17
<PAGE>
this Agreement on behalf of such Selling Stockholder and
appointing North American Transfer Company, as custodian
thereunder (the "Custodian"). Certificates in negotiable
form, endorsed in blank or accompanied by blank stock powers
duly executed, with signatures appropriately guaranteed,
representing the Shares to be sold by such Selling
Stockholder hereunder have been deposited with the Custodian
pursuant to the Custody Agreement for the purpose of
delivery pursuant to this Agreement. Such Selling
Stockholder has full power to enter into the Custody
Agreement and the Power-of-Attorney and to perform its
obligations under the Custody Agreement. The Custody
Agreement and the Power-of-Attorney have been duly executed
and delivered by such Selling Stockholder and are the legal,
valid, binding and enforceable instruments of such Selling
Stockholder, except (i) as enforceability thereof may be
limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally and by general equity principles and (ii) as
rights to indemnity or contribution hereunder may be limited
by Federal or state securities laws or the public policy
underlying such laws. Such Selling Stockholder agrees that
each of the Shares represented by the certificates on
deposit with the Custodian is subject to the interests of
the Underwriters hereunder, that the arrangements made for
such custody, the appointment of the Attorneys-in-Fact and
the right, power and authority of the Attorneys-in-Fact to
execute and deliver this Agreement and to carry out the
terms of this Agreement, are to that extent irrevocable and
that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this
Agreement or the Custody Agreement, by any act of such
Selling Stockholder, by operation of law or otherwise,
whether in the case of any individual Selling Stockholder by
the death or incapacity of such Selling Stockholder, in the
case of a trust or estate by the death of the trustee or
trustees or the executor or executors or the termination of
such trust or estate, or in the case of a corporate or
partnership Selling Stockholder by its liquidation or
dissolution or by the occurrence of any other event. If any
individual Selling Stockholder, trustee or executor should
die or become incapacitated or any such trust should be
terminated, or if any corporate or partnership Selling
Stockholder shall liquidate or dissolve, or if any other
event should occur, before the delivery of such Shares
hereunder, the certificates for such Shares deposited with
the Custodian shall be delivered by the Custodian in
accordance with the respective terms and conditions of this
Agreement as if such death, incapacity, termination,
liquidation or dissolution or other event had not occurred,
regardless of whether or not the Custodian or the
Attorneys-in-Fact shall have received notice thereof;
(iii) Such Selling Stockholder is the lawful record
and beneficial owner of the Shares to be sold by such Selling
Stockholder hereunder. Upon sale and delivery of, and payment
for, such Shares, as provided herein, such Selling Stockholder
will convey good and marketable title to such Shares, free and
clear of any security interests, liens, encumbrances,
equities, claims, options, rights of third parties or other
defects;
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<PAGE>
(iv) Such Selling Stockholder has reviewed the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) and the Registration
Statement, and the information regarding such Selling
Stockholder set forth therein under the caption "Principal and
Selling Stockholders" is complete and accurate;
(v) The sale by such Selling Stockholder of Shares
pursuant hereto is not prompted by any adverse information
concerning the Company or any Subsidiary that is not set forth
in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus);
(vi) The sale of the Shares to the Underwriters by
such Selling Stockholder pursuant to this Agreement, the
compliance by such Selling Stockholder with the other
provisions of this Agreement, the Custody Agreement and the
consummation of the other transactions herein contemplated do
not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be
required under state and foreign Blue Sky laws and, if the
Registration Statement is not effective under the Securities
Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement)
under the Securities Act and the Exchange Act, or (B) result
in a breach or violation of any of the terms and provisions
of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which
such Selling Stockholder is a party or by which such Selling
Stockholder or any of such Selling Stockholder's properties
are bound, or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or
any arbitrator applicable to such Selling Stockholder; and
(vii) none of the Selling Stockholders nor any
trustee or beneficiary of the Selling Stockholders is
affiliated or associated as a director, officer, partner,
stockholder or otherwise with any securities broker or dealer
which is a member of the NASD.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty made by the Company and each of the Selling
Stockholders, severally and not jointly, to each Underwriter as to the
matters covered thereby and shall be deemed incorporated herein in its
entirety and shall be effective as if such representation and warranty
were made herein; and any certificate signed by the Selling
Stockholders as such and delivered to you or to counsel for the
Underwriters shall also be deemed a representation and warranty made by
the Company and each of the Selling Stockholders, severally and not
jointly, to each Underwriter as to the matters covered thereby and
shall also be deemed incorporated herein in its entirety and shall be
effective as if such representation and warranty were made herein.
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<PAGE>
7. Indemnification.
(a) The Company and each of the Selling Stockholders, jointly
and severally, agrees to indemnify and hold harmless each of the
Underwriters and each person, if any, who controls each of the
Underwriters within the meaning of Section 15 of the Act or Section 20
of the Exchange Act (collectively the Underwriters and each such person
are referred to herein as the "indemnified parties") from and against
any and all losses, claims, damages, liabilities and judgments caused
by, arising out of, related to or based upon: (i) any inaccuracy of any
representation or warranty by the Company or the Selling Stockholder
contained herein; (ii) any failure of the Company or the Selling
Stockholder to perform its respective obligations hereunder or under
law; or (iii) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), including the information deemed to be part of
the Registration Statement at the time of effectiveness pursuant to
Rule 430A, if applicable, or the Prospectus or any Preliminary
Prospectus or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the
indemnification contained in this paragraph with respect to any
Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such
Underwriter or any employee of such Underwriter) on account of any such
loss, liability, claim, damage or expense arising from the sale of the
Firm Shares or Additional Shares by such Underwriter to any person if a
copy of the Prospectus shall not have been sent to such person within
the time required by the Act and the Regulations, and the untrue
statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus, as amended or supplemented, provided that
the Company had delivered the Prospectus, as amended or supplemented,
to the several Underwriters on a timely basis to permit such delivery
or sending; and provided further, that neither the Company nor any
Selling Stockholder shall be liable in any such case to the extent that
such losses, claims, damages, liabilities or judgments are caused by an
untrue statement or omission made or omitted in reliance upon, and in
conformity with, information relating to the Underwriters furnished in
writing to the Company by or on behalf of the Underwriters with your
consent expressly for use therein (the Company and the Selling
Stockholders hereby acknowledge for all purposes under this Agreement
that (A) the last paragraph set forth on the outside front cover page
of the Prospectus, (B) the stabilization and passive market making
legends set forth on the inside of the front cover page of the
Prospectus and (C) the statements set forth under the caption
"Underwriting" in the Prospectus constitute the only written
information furnished to the Company by or on behalf of the
Underwriters for use in the preparation of the Registration Statement
or the Prospectus or any amendment or supplement thereto); and provided
further, that the liability of any Selling Stockholder under this
Section 7 shall be limited to the amount of proceeds received by such
Selling Stockholder from the sale of such Selling Stockholder's Shares
pursuant to this Agreement.
(b) In case any action shall be brought against any of the
indemnified parties, based upon any Preliminary Prospectus, the
Registration Statement or the Prospectus or
20
<PAGE>
any amendment or supplement thereto, or otherwise, and with respect to
which indemnity may be sought against the Company or any Selling
Stockholder, such indemnified parties shall promptly notify the
Company (and the Selling Stockholders, care of the Company) in writing
(but the failure so to notify shall not relieve the Company or the
Selling Stockholders of any liability that they may otherwise have to
such indemnified parties under this Section 7 (although the Company's
and the Selling Stockholders' liability to an indemnified party may be
reduced on a monetary basis to the extent, but only to the extent,
they have been prejudiced by such failure on the part of such
indemnified party), and the Company and the Selling Stockholders shall
promptly assume the defense thereof, including the employment of
counsel reasonably satisfactory to such indemnified party and payment
of all fees and expenses. The indemnified parties shall each have the
right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall
be at the expense of such indemnified parties unless (i) the
employment of such counsel shall have been specifically authorized by
the Company, (ii) the Company and the Selling Stockholders shall have
failed to assume promptly the defense or to employ counsel reasonably
satisfactory to such indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the
indemnified parties and the Company or the Selling Stockholders, and
an indemnified party shall have been advised by counsel that there may
be one or more legal defenses available to one or more of the
indemnified parties that are different from or additional to those
available to the Company or the Selling Stockholders (in which case
the Company and the Selling Stockholders shall not have the right to
assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the Company and the Selling
Stockholders shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for the
indemnified parties, which firm shall be designated in writing by
EVEREN Securities, Inc., and that all such fees and expenses shall be
reimbursed promptly as they are incurred). The Company and the Selling
Stockholders shall not be liable for any settlement of any such action
effected without their written consent, which consent shall not be
unreasonably withheld, but if settled with the written consent of the
Company and the Selling Stockholders, the Company and the Selling
Stockholders agree to indemnify and hold harmless the indemnified
parties from and against any and all loss or liability by reason of
such settlement. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement
of any proceeding effected without its written consent if (i) such
settlement is entered into more than 10 business days after delivery
by registered or certified mail to the proper address for notice to
such indemnifying party of the aforesaid request (whether or not such
delivery is accepted) and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior
to the date of such settlement. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which
any
21
<PAGE>
indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional and complete release in writing
of such indemnified party from any and all liability on claims that
are the subject matter of such proceeding, which such settlement shall
be in form and substance satisfactory to the indemnified party. The
indemnification provided in this Section 7 will be in addition to any
liability which the Company and the Selling Stockholders may otherwise
have.
(c) The Underwriters agree, severally and not jointly, to
indemnify and hold harmless the Selling Stockholders, the Company, its
directors, its officers who sign the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent as the
indemnity provided in Section 7(a)(iii) above from the Company and the
Selling Stockholders to the Underwriters, but only with reference to
information stated in or omitted from the Registration Statement, the
Prospectus or any Preliminary Prospectus in reliance upon, and in
conformity with, information relating to the Underwriters furnished in
writing to the Company by or on behalf of the Underwriters with your
consent expressly for use therein; the Company and the Selling
Stockholders hereby acknowledge for all purposes under this Agreement
that (A) the last paragraph set forth on the outside front cover page
of the Prospectus, (B) the stabilization and passive market making
legends set forth on the inside of the front cover page of the
Prospectus and (C) the statements set forth under the caption
"Underwriting" in the Prospectus constitute the only written
information furnished to the Company by or on behalf of the
Underwriters for use in the preparation of the Registration Statement
or the Prospectus or any amendment or supplement thereto. In case any
action shall be brought against the Company, any of the Selling
Stockholders, any of the Company's directors, any such officers or any
person controlling the Company based on the Registration Statement, the
Prospectus or any Preliminary Prospectus and in respect of which
indemnity may be sought against the Underwriters, the Underwriters
shall have the rights and duties given to the Company and the Selling
Stockholders by Section 7(b) hereof (except that if the Company and the
Selling Stockholders shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter),
and the Selling Stockholders, the Company, its directors, any such
officers and any person controlling the Company shall have the rights
and duties given to the "indemnified parties" by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
for any reason unavailable to an indemnified party or insufficient to
hold such indemnified party harmless in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders
on the one hand and the Underwriters on the other from the offering of
the Securities or (ii) if the allocation provided in clause (i) above
is not permitted by applicable law, in such
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<PAGE>
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering and sale of the
Shares (before deducting expenses) received by the Company and the
Selling Stockholders on the one hand, and the total underwriting
discounts and commissions received by the Underwriters on the other,
bears to the total price to the public of the Shares, in each case as
set forth in the table on the cover page of the Prospectus. The
relative fault of the Company, the Selling Stockholders and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or the alleged omission to state a material fact relates
to information supplied by the Company, the Selling Stockholders or
the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant
to this Section 7(d) were determined by pro rata allocation (even if
the Underwriters or the Selling Stockholders were treated as one entity
for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 7,
no Underwriter shall be required to contribute any amount in excess of
the amount of underwriting commissions received by such Underwriter in
connection with the Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligation in this Section 7(d) to
contribute are several in proportion to the respective amount of Shares
purchased hereunder by each Underwriter and not joint.
8. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Shares on the
Closing Date and the Additional Shares on any Option Closing Date are subject to
the fulfillment of each of the following conditions on or prior to the Closing
Date and each Option Closing Date:
(a) All the representations and warranties of the Company and
the Selling Stockholders contained in this Agreement and in any
certificate delivered hereunder shall be true and correct on the
Closing Date and each Option Closing Date with the same force and
effect as if made on and as of the Closing Date or Option Closing Date,
as applicable. The Company and the Selling Stockholders shall not have
failed at or prior to the Closing
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Date or Option Closing Date, as applicable, to perform or comply in
all respects with any of the agreements herein contained and required
to be performed or complied with by the Company or the Selling
Stockholders at or prior to the Closing Date.
(b) If the Registration Statement is not effective at the time
of the execution and delivery of this Agreement, the Registration
Statement shall have become effective (or, if a post-effective
amendment is required to be filed pursuant to Rule 430A under the Act,
such post-effective amendment shall have become effective) not later
than 9:30 A.M., New York City time, on the date of this Agreement or
such later time as you may approve in writing or, if the Registration
Statement has been declared effective prior to the execution and
delivery hereof in reliance on Rule 430A, the Prospectus shall have
been filed as required hereby, if necessary; and at the Closing Date
and each applicable Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been commenced or shall be
pending before or, to the best knowledge of the Underwriters, the
Company or the Selling Stockholders, threatened by the Commission;
every request for additional information on the part of the Commission
shall have been complied with to the Underwriters' satisfaction; no
stop order suspending the sale of the Shares in any jurisdiction
referred to in Section 5(g) shall have been issued and no proceeding
for that purpose shall have been commenced or shall be pending or
threatened.
(c) The Shares shall have been qualified for sale under the
Blue Sky laws of such states as shall have been specified by the
Representatives.
(d) The legality and sufficiency of the authorization,
issuance and sale or transfer and sale of the Shares hereunder, the
validity and form of the certificates representing the Shares, the
execution and delivery of this Agreement and all corporate proceedings
and other legal matters incident thereto, and the form of the
Registration Statement and the Prospectus (except financial statements)
shall have been approved by counsel for the Underwriters exercising
reasonable judgment, and no Underwriter shall have advised the Company
that the Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of material fact, or
omits to state a fact that in your opinion is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(e) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred any material change, or any
material development involving a prospective change, in or affecting
particularly the business or properties of the Company or any
Subsidiary, whether or not arising in the ordinary course of business,
that, in the judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or purchase of the
Shares as contemplated hereby.
(f) You shall have received an agreement from each of the
directors, executive officers of the Company, and each of the employees
of the Company as may be specified by the Underwriters, who are not
Selling Stockholders (the "Additional Shareholders"), whereby each such
director, executive officer and employee agrees to be bound by an
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<PAGE>
agreement to the same effect as the covenants set forth in the last
paragraph of Section 3 of this Agreement (the "Lock-Up Agreements").
(g) You shall have received an opinion (satisfactory to you
and your counsel) dated the Closing Date or the Option Closing Date, as
the case may be, of Tenzer Greenblatt LLP, counsel for the Company and
the Selling Stockholders, in form and substance satisfactory to the
Representatives and attached hereto as Exhibit B; and you shall have
received an opinion (satisfactory to you and your counsel) dated the
Closing Date or the Option Closing Date, as the case may be, of Riker,
Danzig, special counsel for the Company, in form and substance
satisfactory to the Representatives and attached hereto as Exhibit C.
(h) You shall have received an opinion of Gibson, Dunn &
Crutcher LLP, counsel for the Underwriters, dated the Closing Date or
the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representatives.
(i) You shall have received, in connection with the execution
of this Agreement and on the Closing Date and each Option Closing Date,
a "cold comfort" letter from BDO Seidman, LLP, dated as of each such
date in form and substance satisfactory to you with respect to the
financial statements and certain financial information and data
contained in the Registration Statement and the Prospectus.
(j) You shall have received from the Company a certificate,
signed by Robert Kassel and Richard Raleigh in their capacities as the
Chief Executive Officer, President and Treasurer and the Chief
Operating Officer of the Company, respectively, addressed to the
Underwriters and dated the Closing Date or Option Closing Date, as
applicable to the effect that:
(i) such officer does not know of any Proceedings
instituted, threatened or contemplated against the Company or
any Subsidiary of a character required to be disclosed in the
Prospectus that are not so disclosed; such officer does not
know of any material contract required to be filed as an
exhibit to the Registration Statement which is not so filed;
(ii) such officer has carefully examined the
Registration Statement and the Prospectus and all amendments
or supplements thereto and, in such officer's opinion, such
Registration Statement or such amendment as of its effective
date and as of the Closing Date, and the Prospectus or such
supplement as of its date and as of the Closing Date, did not
contain an untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and, in
such officer's opinion, since the effective date of the
Registration Statement, no event has occurred or information
become known that should have been set forth in an amendment
to the Registration Statement or a supplement to the
Prospectus which has not been so set forth in such amendment
or supplement;
25
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(iii) the representations and warranties of the
Company set forth in Section 6(a) of this Agreement are true
and correct as of the date of this Agreement and as of the
Closing Date or the Option Closing Date, as the case may be,
and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date; and
(iv) the Commission has not issued an order
preventing or suspending the use of the Prospectus or any
preliminary prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been
issued; and, to the best knowledge of the respective signers,
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act.
The delivery of the certificate provided for in this
subparagraph shall be and constitute a representation and warranty of
the Company as to the facts set forth in said certificate.
(k) You shall have received a certificate of each Selling
Stockholder dated the Closing Date or the Option Closing Date, as the
case may be, to the effect that the representations and warranties of
such Selling Stockholder set forth in Sections 6(a) and 6(b) of this
Agreement are true and correct as of such date and the Selling
Stockholder has complied with all the agreements and satisfied all the
conditions on the part of such Selling Stockholder to be performed or
satisfied at or prior to such date.
(1) You and Gibson, Dunn & Crutcher LLP, counsel for the
Underwriters, shall have received on or before the Closing Date or the
Option Closing Date, as the case may be, such further documents,
opinions, certificates and schedules or instruments relating to the
business, corporate, legal and financial affairs of the Company as you
and they shall have reasonably requested from the Company.
(m) Each Selling Stockholder will deliver to EVEREN
Securities, Inc., prior to the Effective Date, a properly completed and
executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof).
9. Effective Date of Agreement, Termination and Defaults. This
Agreement shall become effective upon, and shall not be deemed delivered until,
the later of (i) execution of this Agreement and (ii) when notification of the
effectiveness of the Registration Statement has been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
and any exercise of the option to purchase Additional Shares may be canceled at
any time prior to any Option Closing Date by the Underwriters by written notice
to the Company if any of the following has occurred: (i) since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or development involving a
26
<PAGE>
prospective material adverse change in the condition, financial or otherwise, of
the Company or the earnings, assets, liabilities, affairs, prospects, management
or business of the Company, whether or not arising in the ordinary course of
business, that would, in the Representatives' sole judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States that, in the Representatives'
judgment, is material and adverse and would, in the Representatives' judgment,
make it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus, (iii) the suspension or material limitation of
trading in securities on the NYSE, the American Stock Exchange, the Nasdaq
SmallCap Market or the Nasdaq Stock Market or limitation on prices for
securities on either such exchange, the Nasdaq SmallCap Market or the Nasdaq
Stock Market, (iv) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of any court or other
governmental authority that in the Representatives' opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company, (v) the declaration of a banking moratorium by either
federal or Illinois, New York or Colorado state authorities, (vi) the taking of
any action by any Federal, state or local government or agency in respect of its
monetary or fiscal affairs that in the Representatives' opinion has a material
adverse effect on the financial markets in the United States, (vii) there shall
be any change in financial markets or in political, economic or financial
conditions which, in the opinion of the Representatives, either renders it
impracticable or inadvisable to proceed with the offering and sale of the Shares
on the terms set forth in the Prospectus or materially adversely affects the
market for the Shares, or (vii) any conditions to the Underwriters' obligations
shall not have been fulfilled when and as required by this Agreement.
If on the Closing Date or on any Option Closing Date, as the
case may be, any of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has agreed to purchase
hereunder on such date, and the aggregate number of Firm Shares or Additional
Shares, as the case may be, that such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase does not exceed, in the aggregate, 10%
of the total number of Shares that all Underwriters are obligated to purchase on
such date, each non-defaulting Underwriter shall be obligated, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule II
hereto bears to the total number of Firm Shares or Additional Shares, as the
case may be, that all the non-defaulting Underwriters have agreed to purchase,
or in such other proportion as you may specify, to purchase the Firm Shares or
Additional Shares, as the case may be, that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
Closing Date or on the Option Closing Date, as the case may be, any of the
Underwriters shall fail or refuse to purchase the Firm Shares or Additional
Shares, as the case may be, in an amount that exceeds, in the aggregate, 10% of
the total number of the Shares, and arrangements satisfactory to you and the
Company for the purchase of such Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability on the part of the
non-defaulting Underwriters, the Company and the Selling Stockholders, except as
otherwise provided in this Section 9. In any such case that does not result in
termination of this Agreement, either you or the Company may postpone the
Closing Date or the Option Closing Date, as the case may be, for not longer than
seven (7) days, in order
27
<PAGE>
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve a defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
The indemnity and contribution provisions and other
agreements, representations and warranties of the Company, the Selling
Stockholders and the Company's officers and directors set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Shares, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any of the Underwriters or by or on behalf of the Company or any Selling
Stockholder or the officers or directors of the Company or any controlling
person of the Company, (ii) acceptance of the Shares and payment therefor
hereunder or (iii) termination of this Agreement. Notwithstanding any
termination of this Agreement, the Company shall be liable for and shall pay all
expenses it has agreed to pay pursuant to Section 5(l).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of, and shall be binding upon, the Company, the
Selling Stockholders, the Underwriters, any indemnified person referred to
herein and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The terms "successors and assigns" shall
not include a purchaser of any of the Shares from any of the several
Underwriters merely because of such purchase.
10. Effectiveness of Registration Statement. You, the Company and the
Selling Stockholders will use your, its and their best efforts to cause the
Registration Statement to become effective, if it has not yet become effective,
and to prevent the issuance of any stop order suspending the effectiveness of
the Registration Statement and, if such stop order be issued, to obtain as soon
as possible the lifting thereof.
11. Miscellaneous. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o EVEREN Securities, Inc., 77 West Wacker Drive, Chicago,
Illinois 60601-1994, Attention: Syndicate Department, with a copy to Gibson,
Dunn & Crutcher LLP, One Montgomery Street, San Francisco, California 94104,
Attention: Kenneth R. Lamb; if sent to the Company will be mailed, delivered or
telegraphed and confirmed to the Company at its corporate headquarters with a
copy to Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New York 10174,
Attention: Robert J. Mittman; and if sent to the Selling Stockholders will be
mailed, delivered or telegraphed care of the Company, with a copy to Tenzer
Greenblatt LLP, 405 Lexington Avenue, New York, New York 10174, Attention:
Robert J. Mittman, or in any case to such other address as the person to be
notified may have requested in writing.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW THEREOF.
28
<PAGE>
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
29
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters,
including you.
Very truly yours,
U.S. HOME & GARDEN
By: ________________________________
Robert Kassel
Chief Executive Officer,
President and Treasurer
SELLING STOCKHOLDERS:
*
____________________________________
*
____________________________________
*By: _______________________________
Robert Kassel, Attorney-in-Fact
*By: _______________________________
Richard Raleigh, Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
EVEREN Securities, Inc.
Josephthal Lyon & Ross Incorporated
Acting as Representatives of the several
Underwriters named in Schedule I.
By: EVEREN Securities, Inc.
By: _____________________________________
Todd Jadwin
Senior Managing Director
30
<PAGE>
Exhibit A
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
<PAGE>
Exhibit B
<PAGE>
Exhibit C
<PAGE>
Schedule I
Name and Address of Selling Stockholder Number of Firm Shares to be Sold
- --------------------------------------- --------------------------------
<PAGE>
Schedule II
Underwriter Number of Firm Shares to be Purchased
- ----------- -------------------------------------
EVEREN Securities, Inc. ...............................................
Josephthal Lyon & Ross Incorporated....................................
Total.........................................................
<PAGE>
Exhibit 21
SUBSIDIARIES OF U.S. HOME & GARDEN INC.
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Easy Gardener, Inc. Delaware
Golden West Agri-Products, Inc. California
Weatherly Consumer Products Group, Inc.* Delaware
Weatherly Consumer Products, Inc.+ Delaware
- --------
* Subsidiary of Easy Gardener, Inc.
+ Subsidiary of Weatherly Consumer Products Group, Inc
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
U.S. Home & Garden Inc.
San Francisco, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated August 1, 1997, except
for Note 15 which is as of September 15, 1997, relating to the consolidated
financial statements of U.S. Home & Garden Inc. and of our report dated October
20, 1997, relating to the consolidated financial statements of Weatherly
Consumer Products Group, Inc., both of which are contained in that Prospectus,
and, our report dated August 1, 1997 relating to the schedule of U.S. Home &
Garden Inc. which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
San Francisco, California
October 21, 1997
