<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-21603
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CENTRAL GARDEN & PET COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 5199 68-0275553
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER)IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
3697 MT. DIABLO BOULEVARD, LAFAYETTE, CALIFORNIA 94549 (510) 283-4573
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM E. BROWN
CENTRAL GARDEN & PET COMPANY
3697 MT. DIABLO BOULEVARD
LAFAYETTE, CALIFORNIA 94549
(510) 283-4573
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
JOHN F. SEEGAL
ORRICK, HERRINGTON & SUTCLIFFE
OLD FEDERAL RESERVE BANK BUILDING
400 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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 ANY 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, DATED MARCH 14, 1997
PROSPECTUS
LOGO
$115,000,000
6% CONVERTIBLE SUBORDINATED NOTES DUE 2003
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
This Prospectus relates to $115,000,000 aggregate principal amount of 6%
Convertible Subordinated Notes due 2003 (the "Notes") of Central Garden & Pet
Company ("the Company") and the shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company issuable upon the conversion of the
Notes (the "Conversion Shares"). The Notes and the Conversion Shares may be
offered from time to time for the accounts of the holders named herein (the
"Selling Securityholders").
The Common Stock has one vote per share, whereas the Company's Class B Stock
has the lesser of ten votes per share or 49% of the total votes cast. As of the
date of this Prospectus, the holders of the Class B Stock have 49% of the
combined voting power for the election of directors and all other matters
subject to stockholder vote.
The Notes are convertible at the option of the holder into shares of Common
Stock of the Company, at any time prior to redemption or maturity, at a
conversion price of $28.00 per share (equal to a conversion rate of 35.7143
shares per $1,000 principal amount of Notes and representing in the aggregate
4,107,143 shares), subject to adjustment under certain circumstances. Interest
on the Notes is payable semi-annually in arrears on March 15 and September 15
of each year, commencing on March 15, 1997.
The Notes are unsecured general obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture). See "Description of the Notes--Subordination."
The Notes will mature on November 15, 2003, and may be redeemed, at the option
of the Company, in whole or in part, at any time on or after November 15, 1999
at the redemption prices set forth herein plus accrued interest. In the event
of a Change of Control (as defined in the Indenture), each holder of Notes may
require the Company to repurchase all or a portion of such holder's Notes at
100% of the principal amount thereof, together with accrued interest to the
repurchase date. See "Description of Notes--Optional Redemption by the Company"
and "--Repurchase at Option of Holders upon Change in Control."
The Notes and the Conversion Shares may be offered by the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale at prices related to prevailing market prices, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the Notes
or Conversion Shares directly or to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Notes or Conversion Shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Company will not receive any of the
proceeds from the sale of the Notes or Conversion Shares by the Selling
Securityholders. The Company has agreed to pay all expenses incident to the
offer and sale of the Notes and Conversion Shares offered by the Selling
Securityholders hereby, except that the Selling Securityholders will pay all
underwriting discounts and selling commissions, if any. See "Plan of
Distribution."
The Notes have been designated for trading on the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") Market. Notes sold pursuant
to this Prospectus are not expected to remain eligible for trading on the
PORTAL Market. The Common Stock is traded on the Nasdaq National Market under
the symbol "CENT." On March 13, 1997, the last reported sale price of the
Common Stock on the Nasdaq National Market was $18.875 per share.
-----------
THE NOTES AND THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
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.
-----------
The date of this Prospectus is March , 1997
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), on Form S-3 (together with all amendments and
exhibits thereto) with respect to the Notes and Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company, the Notes and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus regarding the
contents of any contract or other document are not necessarily complete and in
each instance reference is hereby made to the copy of such contract or
document filed as an exhibit to the Registration Statement. Copies of the
Registration Statement and the exhibits thereto may be inspected, without
charge, at the principal office of the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549, the New York Regional Office located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and the Chicago Regional
Office located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, or obtained upon payment of prescribed rates from the Public
Reference Section of the Commission at its principal office.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other
information with the Commission at 450 Fifth Street N.W., Room 1024,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Reports, proxy statements and other information filed by the
Company can be inspected and copied (at prescribed rates) at the offices of
the Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements, and other information that are
filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval System. This Web site can be accessed at http://www.sec.gov.
Quotations relating to the Company's Common Stock appear on the Nasdaq
National Market and such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of The Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are hereby incorporated by reference in this Offering
Memorandum:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 28, 1996;
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarter
ended December 28, 1996, and its Current Reports on Form 8-K dated October
13, 1996, November 11, 1996 and January 20, 1997; and
(3) The description of the Company's capital stock in the Company's
Registration Statement on Form 8-A dated March 30, 1993.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the securities offered hereby shall be
deemed to be incorporated by reference in this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in any subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
2
<PAGE>
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents which are not specifically incorporated
by reference into the information that this Prospectus incorporates. Requests
for such copies should be directed to the Company's principal executive
offices at: Central Garden & Pet Company, 3697 Mt. Diablo Boulevard,
Lafayette, California 94549, Attn: Chief Financial Officer, (510) 283-4573.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and is subject to, the
detailed information, including "Risk Factors," contained elsewhere and
incorporated by reference in this Prospectus. As used herein, "fiscal 1995"
refers to the nine month period ended September 30, 1995, "fiscal 1996" refers
to the fiscal year ended September 28, 1996 and "fiscal 1997" refers to the
fiscal year ending September 27, 1997.
THE COMPANY
Central Garden & Pet Company is the leading national distributor of lawn and
garden and pet supply products as well as a major distributor of pool supplies.
As a result of both acquisitions and internal expansion, the Company has grown
rapidly from sales of approximately $25 million in 1987 to approximately
$620 million in fiscal 1996 and increased the number of Company distribution
centers from one in 1987 to 41 currently. Since 1988, the Company has completed
23 acquisitions, making it a leader in the consolidation of distribution
channels for the lawn and garden and pet supplies industries. In fiscal 1996,
lawn and garden products accounted for approximately 76% of the Company's net
sales, pet supplies accounted for approximately 19% and pool supplies accounted
for approximately 5%. As a result of its recent acquisitions, including Kenlin
Pet Supply, Inc. ("Kenlin"), the largest distributor of pet supply products in
the eastern United States, and Four Paws Products, Ltd., Inc., a manufacturer
of dog, cat, reptile and small animal products ("Four Paws"), the Company
expects that sales of pet supplies will increase as a percentage of net sales.
With 41 distribution centers servicing most regions of the United States, the
Company offers major retailers the opportunity to satisfy their distribution
requirements through a single source of supply. Similarly, the Company provides
manufacturers access to major retailers on a national basis through one primary
distributor. By focusing on the emergence of high-volume retailers and their
needs, the Company has become the principal provider of lawn and garden
products to a variety of major retailers including Wal*Mart, Home Depot, Target
and Price/Costco as well as to numerous other retailers.
The Company's business strategy is to capitalize on its national presence,
comprehensive product selection, menu of value-added services and efficient
operations. Utilizing these capabilities, the Company strives to develop and
enhance servicing relationships with both large national and regional retailers
as well as manufacturers. Customers may select a customized array of services
from a broad menu of the Company's value-added services, which are designed to
increase the sales and profitability of both retailers and manufacturers. The
Company's services extend beyond the scope of traditional distribution
functions of order taking, shipping and billing, and include merchandising,
training and developing sales programs. The Company believes that its focus,
experience and leading industry position enable it to provide these services
efficiently, particularly in product categories which have a high number of
SKUs and require continuous inventory management and merchandising.
The Company carries a wide selection of products consisting of approximately
45,000 SKUs from approximately 1,000 manufacturers. The Company generally
focuses on providing those brand name products that are suited to distribution
due to their seasonality, variable sales movements, complexity to consumers and
retailers and handling and transportation difficulties, and which therefore
generally require value-added services. Selected brand name lawn and garden
products sold by the Company include Ortho, Round-Up, Miracle-Gro and HTH. In
addition, the Company focuses on serving specialty pet supply retailers which
sell a wide variety of pet supplies. The Company currently also distributes
proprietary product brands.
The Company entered into an agreement effective October 1, 1995 with The
Solaris Group ("Solaris"), a strategic business unit of Monsanto Company, the
manufacturer of Ortho, Round-Up and
4
<PAGE>
Green Sweep lawn and garden products, to become the master agent and master
distributor for Solaris products nationwide. This agreement has led to an
increase in the Company's sales of Solaris products, which had been adversely
impacted by Solaris' increased direct sales to retailers in recent years. Under
the agreement, which has an initial four-year term, the Company provides a wide
range of value-added services in connection with sales of Solaris products,
including logistics, order processing and fulfillment, inventory distribution
and merchandising. Solaris is the Company's largest supplier, and the Company
believes that Solaris products accounted for approximately 29% and 44% of the
Company's net sales in fiscal 1995 and fiscal 1996, respectively.
The Company has developed a multi-faceted growth strategy designed to
increase its position as the dominant distributor of lawn and garden products
and to continue to consolidate the fragmented pet supplies industry. The
Company intends to further expand in these markets by (i) continuing to make
strategic acquisitions, (ii) obtaining new customers and increasing sales to
existing customers, (iii) obtaining new product lines or expanding existing
product lines that are currently distributed by the Company and (iv) over the
long-term, developing an array of proprietary product brands that are
complementary to the products it currently distributes and which the Company
believes will have higher overall operating margins.
The Company was incorporated in Delaware in June 1992 and is the successor to
Central Garden Supply, a California corporation which was acquired in 1980 by
William E. Brown, the Company's Chairman and Chief Executive Officer. Unless
the context otherwise requires, references in this Offering Memorandum to the
Company include Central Garden & Pet Company and its subsidiaries and
predecessor companies. The Company's executive offices are located at 3697 Mt.
Diablo Boulevard, Lafayette, California 94549, and its telephone number is
(510) 283-4573. This Prospectus refers to various trademarks owned by companies
other than the Company.
PENDING ACQUISITION
In October 1996, the Company announced that it had agreed to acquire the
United States and Canada flea and tick business of Sandoz Agro, Inc. Such
acquisition is subject to approval by the Federal Trade Commission ("FTC").
There can be no assurance that FTC approval will be obtained or that the
acquisition will be consummated. See "Risk Factors--Acquisitions; Expansion"
and "Risk Factors--Pending Sandoz Flea and Tick Acquisition; Branded Products
Strategy."
THE OFFERING
Securities Offered........ $115,000,000 aggregate principal amount of 6% Con-
vertible Subordinated Notes due 2003 (the "Notes"),
and the Common Stock issuable upon conversion
thereof (the "Conversion Shares").
Interest Payment Dates.... March 15 and September 15, commencing March 15,
1997.
Maturity Date............. November 15, 2003.
Conversion................ The Notes are convertible into Common Stock at any
time through maturity, unless previously redeemed
or repurchased, at a conversion price of $28.00 per
share, subject to certain adjustments. See "De-
scription of Notes--Conversion of Notes."
Redemption at the Option
of the Company...........
The Notes are not redeemable prior to November 15,
1999. Thereafter, the Notes will be redeemable on
at least 15 days' notice at the option of the Com-
pany, in whole or in part, at the redemption prices
set forth herein, in each case, together with ac-
crued interest. See "Description of Notes--Optional
Redemption by the Company."
5
<PAGE>
Repurchase at Option of
Holders upon Change in
Control .................
In the event a Change in Control (as defined) oc-
curs, each holder of Notes may require the Company
to repurchase all or a portion of such holder's
Notes at 100% of their principal amount thereof,
together with accrued interest to the repurchase
date. If a Change in Control were to occur, there
can be no assurance that the Company would have
sufficient funds to pay the repurchase price for
all Notes tendered by the holders thereof or that
the Company would be permitted to repurchase the
Notes tendered under its existing credit arrange-
ments. See "Description of Notes--Repurchase at Op-
tion of Holders upon Change in Control" and "Risk
Factors--Limitation on Repurchase of Notes upon
Change in Control."
Subordination............. The Notes are subordinated to all existing and fu-
ture Senior Indebtedness (as defined) and are ef-
fectively subordinated to all existing and future
indebtedness and other liabilities of the subsidi-
aries of the Company. As of December 28, 1996, the
Company had approximately $0.6 million of indebted-
ness outstanding that would have constituted Senior
Indebtedness. In addition, the Company has approxi-
mately $75 million available to be drawn upon its
principal line of credit that would constitute Se-
nior Indebtedness. The Indenture (as defined) does
not prohibit or limit the incurrence of Senior In-
debtedness or the incurrence of other indebtedness
and other liabilities by the Company and its sub-
sidiaries. See "Description of Notes--Subordination
of Notes."
Use of Proceeds........... The Company will not receive any of the proceeds
from the sale of the Notes or the Conversion
Shares.
Trading................... Prior to the resale thereof pursuant to this Pro-
spectus, each of the Notes was eligible for trading
in the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") market. Notes
sold pursuant to this Prospectus will no longer be
eligible for trading in the PORTAL market. The Con-
version Shares have been authorized for listing on
the Nasdaq National Market upon official notice of
issuance. The Common Stock is traded on the Nasdaq
National Market under the symbol "CENT."
6
<PAGE>
RISK FACTORS
The statements contained in or incorporated into this Prospectus which are
not historical facts are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in or implied by forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below,
as well as those discussed elsewhere in this Prospectus. In addition to the
other information contained and incorporated by reference in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the Notes and Conversion Shares
offered hereby.
Supplier Concentration; Dependence on Solaris. While the Company purchases
products from over 1,000 different manufacturers and suppliers, the Company
believes that over 59% of the Company's net sales in fiscal 1996 were derived
from products purchased from the Company's five largest suppliers. The Company
believes that approximately 29% of the Company's net sales during fiscal 1995
and 44% of the Company's net sales during fiscal 1996 were derived from sales
of products purchased from Solaris, the Company's largest supplier. Starting
in 1991, Solaris' predecessors began to sell directly to retailers. These
direct sales programs were expanded in 1994 and had a material adverse effect
on the Company's results of operations during 1994 and fiscal 1995. Because of
the dependence of the Company on sales of Solaris products, future changes
implemented by Solaris to its marketing and sales programs or any overall
decrease in the sales of Solaris products could have a material adverse effect
on the Company.
The Company entered into a four-year agreement with Solaris (the "Solaris
Agreement") effective October 1, 1995 which the Company believes has added
stability to its relationship with Solaris. As a result of the Solaris
Agreement, the Company's sales of Solaris products during fiscal 1996 have
increased substantially compared with fiscal 1995 and the Company's dependence
on Solaris is even greater than before the Solaris Agreement. The loss of, or
a significant adverse change in, the relationship between the Company and
Solaris or any other key manufacturer or supplier could have a material
adverse impact on the Company's business and financial results. In addition,
during the peak selling season, there may be unanticipated shortages of
certain high demand products. Although historically the Company has purchased
enough inventory of such products or their substitutes to satisfy retailer
demand, the unanticipated failure of any manufacturer or supplier to meet the
Company's requirements or the Company's inability to obtain substitutes could
have a material adverse effect on the Company. Although the Company has
entered into long-term agreements with certain suppliers, including Solaris,
in many cases the Company operates without written agreements with its
suppliers. Accordingly, although the Company believes it has good
relationships with its suppliers, there is a risk that one or more of its
suppliers may at any time terminate its supply relationship with the Company.
The Solaris Agreement. The Company believes that a significant portion of
its net sales and operating income during fiscal 1996 is attributable to its
relationship with Solaris. Under the Solaris Agreement, Solaris is obligated
to reimburse the Company for costs incurred in connection with services
provided by the Company to Solaris' direct sale accounts. In addition, the
Company receives payments based on the level of sales of Solaris products to
these accounts, and these payments are subject to increase based on the growth
of sales of Solaris products. The Company also shares with Solaris in the
economic benefits of certain cost reductions, if any. It is possible that
disagreements could arise between Solaris and the Company as to measurement of
the costs incurred in servicing Solaris' direct sales accounts. The cost
reimbursement arrangement is based on certain estimates which are subject to
reconciliation at the end of each fiscal year. As a result, the Solaris
Agreement could contribute to variability in the Company's operating results.
The relationship with Solaris embodied in the Solaris Agreement does not
assure that the Company will be profitable overall.
As a result of the Solaris Agreement, a majority of the Company's sales of
Solaris products are currently derived from servicing direct sales accounts,
whereas in 1994 and fiscal 1995, a majority of the Company's sales of Solaris
products were made by the Company as a traditional distributor. The Company
7
<PAGE>
acts as the master agent on direct sales of Solaris products to certain major
retailers and the master distributor in connection with sales of Solaris
products to other distributors and retailers. Solaris negotiates its sales
prices directly with its direct sales accounts. The Solaris Agreement contains
provisions which, without the consent of Solaris, could limit the Company's
ability to distribute certain lawn and garden products manufactured by
suppliers other than Solaris. These provisions could result in lower sales of
non-Solaris products, which could have an adverse effect on the Company's
business. The Solaris Agreement does not expire until September 30, 1999.
However, Solaris has the right to terminate the agreement prior to its
expiration in the event of a material breach of the agreement by the Company,
including the Company's failure to satisfy certain performance criteria, or,
under certain other circumstances, including a sale of Solaris. Any such early
termination would have a material adverse effect on the Company.
Customer Concentration; Dependence on Wal*Mart and Home Depot. Approximately
47%, 52% and 50% of the Company's net sales for the year ended December 25,
1994, the nine months ended September 30, 1995 and fiscal 1996, respectively,
were derived from sales to the Company's top ten customers. The Company's
largest customer is Wal*Mart, which accounted for approximately 19%, 22% and
23% of the Company's net sales for the year ended December 25, 1994, the nine
months ended September 30, 1995 and fiscal 1996, respectively. The Company's
second largest customer is Home Depot, which accounted for approximately 7%,
10% and 11% of the Company's net sales for the year ended December 25, 1994,
the nine months ended September 30, 1995 and fiscal 1996, respectively. The
loss of, or significant adverse change in, the relationship between the
Company and Wal*Mart or Home Depot could have a material adverse effect on the
Company's business and financial results. The loss of or reduction in orders
from any significant customer, losses arising from customer disputes regarding
shipments, fees, merchandise condition or related matters, or the Company's
inability to collect accounts receivable from any major customer could have a
material adverse impact on the Company's business and financial results. In
particular, the Company wrote off an account receivable of approximately
$500,000 from Ernst Home Centers which filed for bankruptcy in July 1996.
Direct Sales. Manufacturers and suppliers of lawn and garden products and
pet supplies have sold, and may intensify their efforts to sell, their
products directly to retailers, including major customers of the Company.
Prior to the acquisition of Ortho by Monsanto, both Ortho (in late 1991) and
Monsanto (in 1993) had initiated direct sale programs. Solaris, a strategic
business unit of Monsanto, expanded these direct sales programs in 1994. Most
of the Company's major customers, including its top ten customers, purchase
certain products--typically high volume items ordered in large quantities--
directly from manufacturers or suppliers. The Company believes that most major
manufacturers and suppliers that utilize distributors continually evaluate the
effectiveness of their distribution programs as well as the performance of
individual distributors, and accordingly, there can be no assurance that major
manufacturers and suppliers of the products distributed by the Company will
not modify their distribution programs in ways that could adversely affect the
Company. In addition to direct sales from manufacturers and suppliers to
retailers, certain retailers have, and may intensify their efforts to have,
products shipped by the Company to their internal distribution centers rather
than directly to stores. Such direct shipments generally yield lower gross
margins to the Company than shipments to retailers' stores, but the Company
believes that its associated operating costs are typically lower with such
direct shipments. If these programs become more common or if other methods of
distribution of lawn and garden products and pet supplies become more widely
accepted, the Company's business and financial results could be materially
adversely affected.
Weather and Seasonality. Because demand for lawn and garden products is
significantly influenced by weather, particularly weekend weather during the
peak gardening season, the Company's results of operations could be adversely
affected by certain weather patterns such as unseasonably cool or warm
temperatures, water shortages or floods. During the first six months of the
calendar year in both 1993 and 1995, and the first three months of the
calendar year in 1996, the Company's results of operations were negatively
affected by severe weather conditions in many parts of the country.
Additionally, the
8
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Company's business is highly seasonal, with approximately 66% of the Company's
sales in fiscal 1996 occurring during the second and third quarters of the
fiscal year. Substantially all of the Company's operating income is typically
generated in this period, while operating losses are generally incurred during
the rest of the calendar year. The Company seeks to mitigate the effects of
seasonality through various promotional efforts and incentives during the
second half of the calendar year and the sale of less seasonal products such
as pet supplies.
Low Margins; Competition. The distribution industry in which the Company
operates is characterized by relatively low profit margins. As a result, the
Company's success is highly dependent upon increasing revenues and profits
through internal expansion and acquisitions, effective cost and management
controls and differentiating its services from those of its competitors. The
wholesale lawn and garden and pet supplies distribution businesses are highly
competitive, with many companies competing principally on the basis of price
and service. In addition to competition from other distributors, the Company
also competes with manufacturers and suppliers that elect to distribute
certain of their products directly to retailers, including major customers of
the Company, and private label product suppliers. See "--Direct Sales." There
can be no assurance that the Company will not encounter increased competition
in the future or will not lose business from major manufacturers that elect to
sell their products directly to retailers, either of which could adversely
affect the Company's operations and financial results.
Acquisitions; Expansion. As part of its growth strategy, the Company
aggressively pursues the acquisition of other companies, assets and product
lines that either complement or expand its existing business. Acquisitions
involve a number of special risks, including the diversion of management's
attention to the assimilation of the operations and personnel of the acquired
companies, adverse short-term effects on the Company's operating results,
integration of financial reporting systems and the amortization of acquired
intangible assets. The Company completed seven acquisitions in 1993, four
acquisitions in 1994, one acquisition in 1995, two acquisitions in 1996,
including the acquisition of Kenlin, and to date, one acquisition in 1997, the
acquisition of Four Paws. There can be no assurance that the Company can
successfully integrate Kenlin or Four Paws or that the businesses of Kenlin
and Four Paws will enhance the Company's business. The Company has also had
preliminary acquisition discussions with, or has evaluated the potential
acquisition of, numerous other companies over the last several years. The
Company is unable to predict the likelihood of a material acquisition being
completed in the future. If the Company proceeds with a large acquisition for
cash, the Company may be able to use the proceeds from its convertible
subordinated notes offering in November 1996 or the increased borrowing
capacity resulting from that offering to consummate such transaction. The
Company may also seek to finance any such acquisition through additional debt
or equity financings.
The Company anticipates that one or more potential acquisition
opportunities, including those that would be material, may become available in
the near future. If and when appropriate acquisition opportunities become
available, the Company intends to pursue them actively. No assurance can be
given that any acquisition by the Company will or will not occur, that if an
acquisition does occur that it will not materially and adversely affect the
Company or that any such acquisition will be successful in enhancing the
Company's business. The Company's future results of operations will also
depend in part on its ability to successfully expand internally by increasing
the number of distribution centers and new product lines, and to manage any
future growth. No assurance can be given that the Company will be able to open
or operate new distribution centers, obtain or integrate additional product
lines or manage any future growth successfully.
Pending Sandoz Flea and Tick Acquisition; Branded Products Strategy. In
October 1996, the Company announced that it had agreed to acquire the United
States and Canada flea and tick business of Sandoz Agro, Inc. The consummation
of the acquisition is subject to FTC approval, and there can be no assurance
that FTC approval will be obtained or that the acquisition will be
consummated. If such acquisition is consummated, there can be no assurance
that the Company can successfully integrate the
9
<PAGE>
Sandoz Flea and Tick business or that it will enhance the Company's business.
The Company may seek to acquire additional manufacturers of consumer products,
such as Four Paws and Sandoz Flea and Tick, in pursuit of its branded products
strategy. Since the Company's management has limited experience in acquiring
or managing consumer products manufacturers, such acquisitions are likely to
subject the Company to additional risks and there can be no assurance that any
such acquisition will be successful in enhancing the Company's business. In
addition, there can be no assurance that the Company's branded products
strategy will not have a material adverse effect on the Company's relationship
with its suppliers or customers who may have competing products.
Dependence on Key Personnel. The Company's future performance is
substantially dependent upon the continued services of William E. Brown, its
Chairman and Chief Executive Officer, and Glenn W. Novotny, its President and
Chief Operating Officer. The loss of the services of either of such persons
could have a material adverse effect upon the Company. In addition, the
Company's future performance depends on its ability to attract and retain
skilled employees. There can be no assurance that the Company will be able to
retain its existing personnel or attract additional qualified employees in the
future.
Management Information Systems. The Company is presently upgrading and
installing one uniform, integrated management information system across the
United States at an estimated cost to complete of $1 million. The Company has
completed the installation of the new system for the Southwest, Midwest and
Southeast regions and expects to convert the remaining regions within the next
twelve months. No assurances can be given that such transition and system
enhancement can be accomplished in a timely and cost-effective manner without
disrupting the Company's operations. In addition, there can be no assurance
that the Company's current system or planned upgrade will be sufficient or
effective or that further investments in management information systems will
not be necessary.
Variability of Quarterly Results; Volatility of Stock Price. The Company
expects to continue to experience variability in its net sales and net income
on a quarterly basis. Factors that may contribute to this variability include:
(i) weather conditions and seasonality during peak gardening seasons as
described in "--Weather and Seasonality;" (ii) shifts in demand for lawn and
garden products; (iii) changes in product mix, service levels and pricing by
the Company and its competitors; (iv) the cost reimbursement and payment
provisions of the Solaris Agreement; (v) the effect of acquisitions and (vi)
economic stability of retail customers. In addition, because the Company
operates on relatively low margins, the Company's operating results in any
quarterly period could be affected significantly by slight variations in
revenues or operating costs. For the same reason, the Company's quarterly
results also may be vulnerable to problems in areas such as collectibility of
accounts receivable, inventory control and competitive price pressures. The
market price of the Common Stock could be subject to significant fluctuations
in response to these variations in quarterly operating results and other
factors including changes in stock market analysts' recommendations regarding
the Company. Fluctuations in the trading price of the Common Stock will affect
the trading price of the Notes.
Control of the Company; Disparate Voting Rights. William E. Brown, Chairman
of the Board and Chief Executive Officer of the Company controls approximately
45.8% of the voting power of the capital stock of the Company and, therefore,
will effectively control the Company, including the power to elect all of the
directors of the Company. Holders of Class B Stock are entitled to the lesser
of ten votes per share or 49% of the total votes cast. Holders of Common Stock
are entitled to one vote for each share owned. Holders of Class B Stock are
likely to be able to elect all of the Company's directors, control the
management and policies of the Company and determine the outcome of any matter
submitted to a vote of the Company's stockholders except to the extent that a
class vote of the Common Stock is required by applicable law. The
disproportionate voting rights of the Common Stock and Class B Stock could
have an adverse effect on the market price of the Common Stock. Such
disproportionate voting rights may make the Company a less attractive target
for a takeover than it otherwise might be, or render more difficult or
discourage a merger proposal, a tender offer or a proxy contest, even if such
actions were favored by stockholders of the Company other than the holders of
the Class B Stock. Accordingly, such
10
<PAGE>
disproportionate voting rights may deprive holders of Common Stock of an
opportunity to sell their shares at a premium over prevailing market prices,
since takeover bids frequently involve purchases of stock directly from
stockholders at such a premium price.
Environmental Considerations. The Company's subsidiary, Grant Laboratories,
Inc., which manufactures ant control products, and many of the products
distributed by the Company are subject to regulation by federal, state and
local authorities. In addition, in connection with Sandoz Flea and Tick
Acquisition, the Company will acquire a production facility in Texas which
manufactures, among other things, products based upon the active ingredient
Methoprene, and is subject to regulation by federal, state and local
authorities. Such regulations are often complex and are subject to change.
Environmental regulations may affect the Company by restricting the
manufacturing, transportation or use of its products or by regulating their
disposal. Regulatory or legislative changes may cause future increases in the
Company's operating costs or otherwise affect operations. Although the Company
believes it is and has been in substantial compliance with such regulations
and that it is adequately indemnified with respect to the environmental
liabilities of the operations of the Texas facility to be acquired pursuant to
the Sandoz Flea and Tick Acquisition, there is no assurance in the future that
the Company may not be adversely affected by such regulations or incur
increased operating costs in complying with such regulations. However, neither
the compliance with regulatory requirements nor the Company's environmental
procedures can ensure that the Company will not be subject to claims for
personal injury, property damages or governmental enforcement.
General Economic Conditions. The sale of lawn and garden products and pet
and pool supplies historically have been subject to fluctuation, with
purchases of these products tending to decline during periods of recession in
the general economy or uncertainty regarding future economic prospects that
affect consumer spending habits, particularly on discretionary items. These
economic cycles and any related fluctuation in consumer demand could have a
material adverse effect on the Company's results of operations and financial
condition. In addition, various retailers, including some of the Company's
customers, have experienced financial difficulties during the past several
years, thereby increasing the risk that such retailers may not pay for the
Company's products in a timely manner, if at all.
Subordination. The Notes are unsecured and subordinated in right of payment
in full to all existing and future Senior Indebtedness of the Company. As a
result of such subordination, in the event of any insolvency, liquidation or
reorganization of the Company or upon acceleration of the Notes due to an
event of default, the assets of the Company will be available to pay
obligations on the Notes and any other subordinated indebtedness of the
Company only after all Senior Indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes and any other subordinated indebtedness of the Company then outstanding.
The Notes are effectively subordinated to the liabilities, including trade
payables, of the Company's subsidiaries. The Indenture does not prohibit or
limit the incurrence of Senior Indebtedness or the incurrence of other
indebtedness and other liabilities by the Company or its subsidiaries. The
incurrence of such indebtedness could adversely affect the Company's ability
to pay its obligations on the Notes. As of December 28, 1996, the Company had
approximately $0.6 million of indebtedness outstanding that would have
constituted Senior Indebtedness. In addition, as of February 7, 1997 the
Company had up to $75 million available for acquisitions and general corporate
purposes under its principal line of credit. All borrowings under its
principal line of credit will constitute Senior Indebtedness. See "Description
of Notes--Subordination of Notes."
Absence of Public Market for the Notes and Restrictions on Resale. Prior to
the date hereof, there has been no established trading market for the Notes.
The Notes have been designated for trading on the PORTAL Market; however,
Notes sold pursuant to this Prospectus are not expected to remain eligible for
trading on the PORTAL Market. The Company does not intend to list the Notes on
any national securities exchange or on The Nasdaq Stock Market. There can be
no assurance that an active trading market for
11
<PAGE>
the Notes will develop or, if one does develop, that it will be maintained. If
an active trading market for the Notes fails to develop or be sustained, the
trading price of such Notes could be adversely affected and holders of the
Notes may experience difficulty in reselling the Notes or may be unable to
sell them at all. If a public trading market develops for the Notes, future
trading prices of the Notes will depend upon many factors, including, among
other things, prevailing interest rates and the market price of the shares of
Common Stock.
Limitation on Repurchase of Notes upon Change in Control. Upon the
occurrence of a Change of Control, each holder of Notes may require the
Company to repurchase all or a portion of such holder's Notes. If a Change in
Control were to occur, there can be no assurance that the Company would have
sufficient financial resources or would be able to arrange financing to pay
the repurchase price for all Notes tendered by holders thereof. The Company's
ability to repurchase the Notes in such event may be limited by law, the
Indenture and by the terms of other agreements relating to borrowings that
constitute Senior Indebtedness, as such indebtedness or agreements may be
entered into, replaced, supplemented or amended from time to time. The Company
may be required to refinance Senior Indebtedness in order to make any such
payment. If the Company is prohibited from repurchasing the Notes, such
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture, which may, in turn, constitute a further default under certain
of the Company's existing agreements relating to borrowings and the terms of
other indebtedness that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture would prohibit
payments to the holders of the Notes. Furthermore, the Company may not have
the financial ability to repurchase the Notes in the event payment of Senior
Indebtedness is accelerated. See "Description of Notes--Repurchase at Option
of Holders upon Change in Control."
12
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Securityholders of the Notes or the Conversion Shares.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratio of earnings
to fixed charges for the periods shown.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR NINE MONTH FISCAL YEAR THREE MONTHS
ENDED ENDED ENDED PERIOD ENDED ENDED ENDED
DECEMBER 27, DECEMBER 26, DECEMBER 25, SEPTEMBER 30, SEPTEMBER 28, DECEMBER 28,
1992 1993 1994 1995 1996 1996
------------ ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges.......... 1.92x 2.64x 1.39x 1.31x 4.00x --
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income (loss) before income taxes and
minority interest plus fixed charges and (ii) fixed charges consist of
interest expense incurred and the portion of rental expense under operating
leases deemed by the Company to be representative of the interest factor.
Earnings were inadequate to cover fixed charges by $0.8 million in the three
months ended December 28, 1996.
13
<PAGE>
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company in a private placement and
were resold by the initial purchasers thereof to qualified institutional
buyers (within the meaning of Rule 144A under the Securities Act) or other
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) in transactions exempt from registration under
the Securities Act, and in sales outside the United States to persons other
than U.S. persons in reliance upon Regulation S under the Securities Act. The
Notes and the Conversion Shares that may be offered pursuant to this
Prospectus will be offered by the Selling Securityholders. The following table
sets forth certain information as of March 3, 1997 concerning the principal
amount of Notes beneficially owned by each Selling Securityholder and the
number of Conversion Shares that may be offered from time to time pursuant to
this Prospectus.
From time to time, Alex. Brown & Sons Incorporated or its affiliates has
provided, and may continue to provide, investment banking services to the
Company, for which it received or will receive customary fees. None of the
other Selling Securityholders has had any position, office or other material
relationship with the Company or its affiliates within the past three years.
<TABLE>
<CAPTION>
NUMBER OF
CONVERSION PERCENTAGE OF
PRINCIPAL AMOUNT SHARES COMMON STOCK PERCENTAGE OF
OF NOTES PERCENTAGE THAT AND CLASS B TOTAL VOTING
BENEFICIALLY OWNED OF NOTES MAY BE STOCK POWER AFTER
NAME THAT MAY BE SOLD OUTSTANDING SOLD(1) OUTSTANDING(2) CONVERSION(3)
---- ------------------ ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
General Motors Investment
Management Corporation as
investment advisor to
General Motors Employees
Domestic Group Pension
Trust..................... $9,075,000 7.9% 324,107 2.4% 1.4%
The Northwestern Mutual
Life Insurance Company.... 8,200,000(4) 7.1 292,857 2.0 1.1
CFW-C, L.P. ............... 7,500,000 6.5 267,857 2.0 1.1
The TCW Group, Inc. ....... 7,145,000 6.2 255,178 1.7 1.0
Stark International........ 7,145,000 6.2 255,178 1.7 1.0
Shepard Investments
International, Ltd. ...... 7,145,000 6.2 255,178 1.7 1.0
General Motors Employees
Domestic Group Trust...... 6,920,000 6.0 247,142 1.7 1.0
The SMM Company B.V. ...... 6,000,000 5.2 214,285 1.4 *
The Kaufmann Fund.......... 6,000,000 5.2 214,285 9.4 *
Bear Stearns Securities
Corp. .................... 5,000,000 4.3 178,571 1.2 *
Husic Capital
Management(5)............. 2,000,000 1.7 71,428 * *
Fidelity Financial Trust:
Fidelity Convertible
Securities Fund(6)........ 2,000,000 1.7 71,428 * *
Swiss Bank Corporation--
London Branch(7).......... 1,845,000 1.6 65,892 * *
Lipper Convertibles,
L.P. ..................... 1,800,000 1.6 64,285 * *
General Motors Investment
Management Corporation as
investment advisor to
Motors Insurance
Corporation............... 1,661,000 1.4 59,321 * *
Delaware State Employees'
Retirement Fund........... 1,645,000 1.4 58,750 * *
Allstate Insurance
Company................... 1,500,000 1.3 53,571 * *
Lincoln National Life
Insurance................. 1,500,000 1.3 53,571 * *
Equitable Life Assurance-
Separate Account
Convertibles.............. 1,305,000 1.1 46,607 * *
Carrigaholt Capital
(Bermuda) L.P. ........... 700,000 * 25,000 * *
Alex. Brown & Sons, Inc. .. 699,000 * 24,964 * *
Aon Pension Trust.......... 650,000 * 23,214 * *
Hudson River Trust Balanced
Portfolio................. 585,000 * 20,892 * *
San Diego County
Convertible............... 580,000 * 20,714 * *
Memphis Light, Gas & Water
Retirement Fund........... 580,000 * 20,714 * *
Declaration of Trust for
the Defined Benefit Plan
of ICI Holding Inc. ...... 520,000 * 18,571 * *
Evergreen American
Retirement Fund........... 500,000 * 17,857 * *
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
CONVERSION PERCENTAGE OF
PRINCIPAL AMOUNT SHARES COMMON STOCK PERCENTAGE OF
OF NOTES PERCENTAGE THAT AND CLASS B TOTAL VOTING
BENEFICIALLY OWNED OF NOTES MAY BE STOCK POWER AFTER
NAME THAT MAY BE SOLD OUTSTANDING SOLD(1) OUTSTANDING(2) CONVERSION(3)
---- ------------------ ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
TQA Vantage Fund Ltd. ..... 500,000 * 17,857 * *
The Philip Morris Master
Retirement Trust.......... 500,000 * 17,857 * *
Hudson River Trust Growth
Investors................. 465,000 * 16,607 * *
Nicholas-Applegate Income &
Growth Fund............... 440,000 * 15,714 * *
Columbia/HCA Money Purchase
Plan...................... 435,000 * 15,535 * *
The Class 1C Company,
Ltd. ..................... 400,000 * 14,285 * *
Frank Russell Trust
Company, Equity II Fund... 400,000 * 14,285 * *
Thermo Electron Corp.
Balanced Investment Fund.. 395,000 * 14,107 * *
The Hudson River Trust
Growth & Income Account... 375,000 * 13,392 * *
Declaration of Trust for
the Defined Benefit Plans
of ZENECA Holdings Inc. .. 340,000 * 12,142 * *
Evergreen Small Cap Equity
Income Fund............... 300,000 * 10,714 * *
Ohio Carpenters' Pension
Trust..................... 300,000 * 10,714 * *
New York State Nurses
Association Pension Plan.. 300,000 * 10,714 * *
General Motors Investment
Mangement Corporation as
investment advisor to
General Motors Foundation,
Inc. ..................... 264,000 * 9,428 * *
Laborers' District Council
and Contractors' Pension
Fund of Ohio.............. 200,000 * 7,142 * *
The Hotel Union & Industry
of Hawaii................. 190,000 * 6,785 * *
Hillside Capital
Incorporated Corporate
Account................... 170,000 * 6,071 * *
Christian Science Trustees
for Gifts and Endowments.. 160,000 * 5,714 * *
First Church of Christ,
Scientist--Endowment...... 160,000 * 5,714 * *
The Gabelli Global
Convertible Securities
Fund...................... 150,000 * 5,357 * *
The HCA Foundation......... 150,000 * 5,357 * *
San Diego City Retirement.. 135,000 * 4,821 * *
Wake Forest University..... 108,000 * 3,857 * *
The Dakota Group Inc. ..... 100,000 * 3,571 * *
Equitable Life Assurance
Separate Account
Balanced.................. 100,000 * 3,571 * *
Paloma Securities L.L.C. .. 100,000 * 3,571 * *
Frank Russell Investment
Company, Equity II Fund... 100,000 * 3,571 * *
Frank Russell Investment
Company, Special Growth
Fund...................... 100,000 * 3,571 * *
Aon Savings Plan--Balanced
Fund B.................... 100,000 * 3,571 * *
The Hotel Union-ILWU
Pension Trust............. 70,000 * 2,500 * *
Engineers Joint Pension
Plan...................... 68,000 * 2,428 * *
Austin Firefighters........ 49,000 * 1,750 * *
David Lipscomb University
General Endowment......... 45,000 * 1,607 * *
Baptist Hospital of Miami.. 43,000 * 1,535 * *
Occidental College......... 41,000 * 1,464 * *
Boston Museum of Fine
Arts...................... 20,000 * 714 * *
Dunham & Associates Fund
II........................ 11,000 * 392 * *
Dunham & Associates Series
III....................... 5,000 * 178 * *
Any other holder of Notes
or future transferee from
any such holder(8)(9)..... 17,011,000 14.8 607,535 4.1 2.4
</TABLE>
15
<PAGE>
- --------
* Less than 1%.
(1) Assumes conversion of the full amount of Notes held by such holder at the
initial conversion price of $28.00 per share; such conversion price is
subject to adjustment as described under "Description of the Notes--
Conversion." Accordingly, the number of shares of Common Stock issuable
upon conversion of the Notes may increase or decrease from time to time.
Under the terms of the Indenture, fractional shares will not be issued
upon conversion of the Notes; cash will be paid in lieu of fractional
shares, if any.
(2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the
Exchange Act and based upon 13,071,957 shares of Common Stock and
1,863,167 shares of Class B Stock, respectively, outstanding as of March
10, 1997, treating as outstanding the number of Conversion Shares shown as
being issuable upon the assumed conversion by the named holder of the full
amount of such holder's Notes but not assuming the conversion of the Notes
of any other holder. Includes Common Stock, if any, beneficially owned by
the holder other than the Conversion Shares.
(3) The percentage of total voting power after conversion represents the
percentage of the voting power each stockholder will have after the
conversion based upon 13,071,957 shares of Common Stock and 1,863,167
shares of Class B Stock, respectively, outstanding as of March 10, 1997,
treating as outstanding the number of Conversion Shares as being issuable
upon the assumed conversion by the named holder of the full amount of such
holder's Notes but not assuming the conversion of the Notes of any other
holder, and giving effect to the disparate voting rights between Class B
Stock and the Common Stock and the 49% aggregate maximum voting right of
the Class B Stock. Includes Common Stock, if any, beneficially owned by
the holder other than the Conversion Shares.
(4) Includes $250,000 in principal amount held in The Northwestern Mutual Life
Insurance Company Group Annuity Separate Account.
(5) Held in its capacity as a discretionary asset manager for the Ameritech
Pension Plan under an Investment Management Agreement dated December 22,
1995.
(6) The entity is either an investment company or a portfolio of an investment
company registered under Section 8 of the Investment Company Act of 1940,
as amended, or a private investment account advised by Fidelity Management
& Research Company ("FMR Co."). FMR Co. is a Massachusetts corporation and
an investment advisor registered under Section 203 of the Investment
Advisers Act of 1940, as amended, and provides investment advisory
services to such entity mentioned above, and to other registered
investment companies and to certain other funds which are generally
offered to a limited group of investors. FMR Co. is a wholly-owned
subsidiary of FMR Corp. ("FMR"), a Massachusetts corporation.
(7) SBC Warburg Inc. acts as an investment advisor to Swiss Bank Corporation--
London Branch.
(8) Information concerning other Selling Securityholders will be set forth in
Prospectus Supplements from time to time, if required.
(9) Assumes that any other holders of registrable Notes do not beneficially
own any Common Stock other than the Conversion Shares.
The preceding table has been prepared based upon the information furnished
to the Company by the Selling Securityholders. The Selling Securityholders
identified above may have sold, transferred or otherwise disposed of, in
transactions exempt from the registration requirements of the Securities Act,
all or a portion of their Notes since the date on which the information in the
preceding table is presented. Information concerning the Selling
Securityholders may change from time to time and any such changed information
will be set forth in supplements to this Prospectus if and when necessary.
Because the Selling Securityholders may offer all or some of the Notes that
they hold and/or Conversion Shares pursuant to the offering contemplated by
this Prospectus, no estimate can be given as to the amount of the Notes or
Conversion Shares that will be held by the Selling Securityholders upon the
termination of this offering. See "Plan of Distribution."
16
<PAGE>
DESCRIPTION OF NOTES
The Notes have been issued under an indenture dated as of November 15, 1996
(the "Indenture"), between the Company and Chemical Trust Company of
California, as Trustee (the "Trustee"). The following summaries of certain
provisions of the Notes and the Indenture do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Notes and the Indenture, including the definitions therein
of certain terms which are not otherwise defined in this Prospectus. Wherever
particular provisions or defined terms of the Indenture (or of the form of
Note which is a part thereof) are referred to, such provisions or defined
terms are incorporated herein by reference.
GENERAL
The Notes are unsecured general obligations of the Company subordinate in
right of payment to certain other obligations of the Company as described
under "--Subordination of Notes," and convertible into Common Stock as
described under "--Conversion of Notes." The Notes are limited to $115,000,000
aggregate principal amount, will be issued only in denominations of $1,000 or
any multiple thereof and will mature on November 15, 2003, unless earlier
redeemed at the option of the Company or repurchased by the Company at the
option of the holder upon a Change in Control.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the incurrence of Senior Indebtedness or the
issuance or repurchase of securities of the Company. The Indenture contains no
covenants or other provisions to afford protection to holders of Notes in the
event of a highly leveraged transaction or a change in control of the Company
except to the extent described under "--Repurchase at Option of Holders upon
Change in Control".
The Notes bear interest from the most recent date that interest has been
paid, or if no interest has been paid, from November 15, 1996, payable semi-
annually on March 15 and September 15, commencing on March 15, 1997, to
holders of record at the close of business on the March 1 and September 1,
respectively (other than with respect to a Note or portion thereof called for
redemption on a redemption date, or repurchased in connection with a Change in
Control on a Repurchase Date (as defined below) during the period from the
record date to (but excluding) the next succeeding interest payment date (in
which case accrued interest shall be payable to the extent required to the
holder of the Note or portion thereof redeemed or repurchased) or converted
after the record date and before the next succeeding interest payment date
except to the extent that, at the time such Note or portion thereof is
submitted for conversion, such Note or portion thereof was required to be
accompanied by funds equal to interest payable on such succeeding interest
payment date on the principal amount so converted (see "--Conversion of Notes"
below). Interest may, at the Company's option, be paid by check mailed to such
holders, provided that a holder of Notes with an aggregate principal amount in
excess of $5,000,000 will be paid by wire transfer in immediately available
funds at the election of such holder. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
Principal and premium, if any, will be payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without
service charge, at the office of the Company maintained for such purpose in
New York, New York, which shall initially be the office or agency of the
Trustee.
The Indenture is governed by and construed under the laws of the state of
New York.
BOOK ENTRY, DELIVERY AND FORM
The Notes have been issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof. Except as
otherwise provided in the Indenture, Notes will be evidenced by one or more
global Notes ("Global Notes") deposited with the Trustee as custodian for DTC
17
<PAGE>
and registered in the name of Cede & Co. ("Cede") as DTC's nominee. Record
ownership of the Global Notes may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
Owners of beneficial interests in the Notes may hold their interests in the
Global Notes directly through DTC if they are participants in DTC
("Participants"), indirectly through Participants, through the Euroclear
System ("Euroclear") or Cedel Bank, societe anonyme ("Cedel"), if they are
participants in such systems, or indirectly through organizations that clear
through or maintain a custodial relationship with a Participant ("Indirect
Participants"). Euroclear and Cedel will hold interests in the Global Notes on
behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositaries, which, in
turn, will hold such interests in the Global Notes in customers' securities
accounts in the depositaries' names on the books of DTC. All interests in
Global Notes, including those held through Euroclear or Cedel, may be subject
to the procedures and requirements of DTC. Those interests held through
Euroclear and Cedel may also be subject to the procedures and requirements of
such systems.
Payment of interest on and the redemption price of the Global Notes will be
made to Cede, the nominee for DTC, as the registered owner of the Global
Notes, by wire transfer of immediately available funds on each interest
payment date. Neither the Company, the Trustee nor any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, the Global Notes, DTC's practice is
to credit Participants' accounts on the payment date therefor with payments in
amounts proportionate to their respective beneficial interests in the Notes
represented by the Global Notes, as shown on the records of DTC (adjusted as
necessary so that such payments are made with respect to whole Notes only),
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in
Notes represented by the Global Notes held through such Participants will be
the responsibility of such Participants, as is now the case with securities
held for the accounts of customers registered in "street name."
Holders who desire to convert their Notes into Common Stock pursuant to the
terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Notes represented by the Global Notes to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the direction
of one or more Participants to whose account with DTC interests in the Global
Notes are credited and only in respect of the principal amount of the Notes
represented by the Global Notes as to which such Participant or Participants
has or have given such direction.
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<PAGE>
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its Participants
and to facilitate the clearance and settlement of securities transactions
between Participants through electronic book-entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Certain of such Participants (or their representatives),
together with other entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust companies that
clear through, or maintain a custodial relationship with a Participant, either
directly or indirectly.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Notes among
Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will cause Notes to be issued in
definitive form in exchange for the Global Notes. None of the Company, the
Trustee nor any of their respective agents will have any responsibility for
the performance by DTC, Euroclear and Cedel, their Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing
the records relating to, or payments made on account of, beneficial ownership
interests in Global Notes.
CONVERSION OF NOTES
The holders of Notes are entitled at any time through the close of business
on the final maturity date of the Notes, subject to prior redemption or
repurchase, to convert any Notes or portions thereof (in denominations of
$1,000 or multiples thereof) into Common Stock of the Company, at the
conversion price set forth on the cover page of this Prospectus, subject to
adjustment as described below. Except as described below, no adjustment will
be made on conversion of any Notes for interest accrued thereon or for
dividends on any Common Stock issued upon conversion of the Notes.
In the event a Note is called for redemption on or after November 15, 1999
and before March 15, 2000 and the holder elects to convert such note after it
has been called for redemption, the holder will be entitled to receive
interest on such Note for the period from September 15, 1999 through November
15, 1999 in addition to any rights such holder may have upon conversion of the
Notes. If any Notes not called for redemption are converted after a record
date for the payment of interest and prior to the next succeeding interest
payment date, such Notes must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount so
converted. No such payment will be required if the Company exercises its right
to redeem such Notes on a redemption date that is an interest payment date.
The Company is not required to issue fractional shares of Common Stock upon
conversion of Notes and, in lieu thereof, will pay a cash adjustment based
upon the market price of the Common Stock on the last Trading Day (as defined)
prior to the date of conversion. In the case of Notes called for redemption,
conversion rights will expire at the close of business on the fifth business
day preceding the date fixed for redemption, unless the Company defaults in
payment of the redemption price. A Note in respect of which a holder is
exercising its option to require repurchase upon a Change in Control may be
converted only if such holder withdraws its election to exercise its option in
accordance with the terms of the Indenture.
The initial conversion price of $28.00 per share of Common Stock is subject
to adjustment (under formulae set forth in the Indenture) in certain events,
including: (i) the issuance of Common Stock and/or Class B Stock as a dividend
or distribution on Common Stock and/or Class B Stock of the Company;
(ii) certain subdivisions and combinations of the Common Stock and/or Class B
Stock; (iii) the issuance to
19
<PAGE>
all holders of Common Stock and/or Class B Stock of certain rights or warrants
to purchase Common Stock and/or Class B Stock; (iv) the distribution to all
holders of Common Stock and/or Class B Stock of shares of capital stock of the
Company (other than Common Stock and/or Class B Stock) or evidences of
indebtedness of the Company or assets (including securities, but excluding
those rights, warrants, dividends and distributions referred to above and
dividends and distributions in connection with the liquidation, dissolution or
winding up of the Company or paid in cash); (v) dividends or other
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in clause (iv)) to all holders of Common Stock
and/or Class B Stock to the extent that such distributions, combined together
with (A) all other such all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made plus (B) any cash and
the fair market value of other consideration payable in respect of any tender
offers by the Company for Common Stock and/or Class B Stock concluded within
the preceding 12 months in respect of which no adjustment has been made,
exceeds 10% of the Company's market capitalization (being the product of the
then current market price of the Common Stock times the number of shares of
Common Stock then outstanding plus the product of the then current market
price of the Class B Stock times the number of shares of Class B Stock
outstanding) on the record date for such distribution; (vi) the purchase of
Common Stock and/or Class B Stock pursuant to a tender offer made by the
Company or any of its subsidiaries to the extent that the same involves an
aggregate consideration that, together with (X) any cash and the fair market
value of any other consideration payable in any other tender offer by the
Company or any of its subsidiaries for Common Stock and/or Class B Stock
expiring within the 12 months preceding such tender offer in respect of which
no adjustment has been made plus (Y) the aggregate amount of any such all-cash
distributions referred to in clause (v) above to all holders of Common Stock
and/or Class B Stock within the 12 months preceding the expiration of such
tender offer in respect of which no adjustments have been made, exceeds 10% of
the Company's market capitalization on the expiration of such tender offer and
(vii) payment in respect of a tender offer or exchange offer by a person other
than the Company or any subsidiary of the Company in which, as of the closing
date of the offer, the Board of Directors is not recommending rejection of the
offer. If an adjustment is required to be made as set forth in clause (v)
above as a result of a distribution that is not a quarterly dividend, such
adjustment would be based upon the full amount of the distribution. The
adjustment referred to in clause (vii) above will only be made if the tender
offer or exchange offer is for an amount which increases that person's
ownership of Common Stock to more than 25% of the total shares of Common Stock
outstanding and, if the cash and value of any other consideration included in
such payment per share of Common Stock, exceeds the Current Market Price per
share of Common Stock on the business day next succeeding the last date on
which tenders or exchanges may be made pursuant to such tender or exchange
offer. The adjustment referred to in clause (vii) above will not be made,
however, if, as of the closing of the offer, the offering documents with
respect to such offer disclose a plan or an intention to cause the Company to
engage in a consolidation or merger of the Company or a sale of the Company's
assets, as an entirety or substantially as an entirety.
In addition, the Indenture provides that if the Company implements a
stockholders' rights plan, such rights plan must provide that upon conversion
of the Notes the holders will receive, in addition to the Common Stock
issuable upon such conversion, such rights whether or not such rights have
separated from the Common Stock at the time of such conversion.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least l% in the conversion price then
in effect; provided that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
In the case of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and
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<PAGE>
assets of the Company as an entirety or substantially as an entirety, in each
case as a result of which holders of Common Stock shall be entitled to receive
stock, other securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the holders of the Notes then
outstanding will be entitled thereafter to convert such Notes into the kind
and amount of shares of stock, other securities or other property or assets
which they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or
conveyance had such Notes been converted into Common Stock immediately prior
to such reclassification, change, consolidation, merger, combination, sale or
conveyance assuming that a holder of Notes would not have exercised any rights
of election as to the stock, other securities or other property or assets
receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock and/or
Class B Stock (or other transaction) which results in any adjustment of the
conversion price, the holders of Notes may, in certain circumstances, be
deemed to have received a distribution subject to United States income tax as
a dividend; in certain other circumstances, the absence of such an adjustment
may result in a taxable dividend to the holders of Common Stock.
The Company from time to time may, to the extent permitted by law, reduce
the conversion price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such
decrease would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in
the conversion price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock and/or Class B Stock resulting from any dividend or distribution
of stock (or rights to acquire stock) or from any event treated as such for
income tax purposes.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or after
November 15, 1999, all or any part of the Notes are redeemable at the
Company's option on at least 15 but not more than 60 days' notice, as a whole
or, from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to, but
excluding, the date fixed for redemption.
If redeemed during the 12-month period beginning November 15:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999.................................................... 103.428%
2000.................................................... 102.571
2001.................................................... 101.714
2002.................................................... 100.857
</TABLE>
and 100% at November 15, 2003; provided that any semi-annual payment of
interest becoming due on the date fixed for redemption shall be payable to the
holders of record on the relevant record date of the Notes being redeemed.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by
lot or, in its discretion, on a pro rata basis. If any Note is to be redeemed
in part only, a new Note or Notes in principal amount equal to the unredeemed
principal portion thereof will be issued. If a portion of a holder's Notes is
selected for partial redemption and such holder converts a portion of such
Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption.
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<PAGE>
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL
The Indenture provides that if a Change in Control occurs, each holder of
Notes shall have the right to require the Company to repurchase all of such
holder's Notes, or any portion of the principal amount thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date") that is 30
days after the date of the Company Notice (as defined below), for cash at a
price equal to 100% of the principal amount thereof (the "Repurchase Price"),
together with accrued and unpaid interest to, but excluding, the Repurchase
Date; provided that any semi-annual payment of interest becoming due on the
Repurchase Date shall be payable to the holders of record on the relevant
record date of the Notes being repurchased.
Within 15 days after the occurrence of a Change in Control, the Company or,
at the Company's request, the Trustee is obligated to mail to all holders of
record of Notes a notice (the "Company Notice") of the occurrence of such
Change in Control and of the repurchase right arising as a result thereof. The
Company must also deliver a copy of the Company Notice to the Trustee. To
exercise the repurchase right, a holder of such Notes must deliver to the
Trustee on or before the Repurchase Date written notice of the holder's
exercise of such right, together with the Notes with respect to which the
right is being exercised, duly endorsed for transfer to the Company.
A "Change in Control" will be deemed to have occurred at such time after the
original issuance of the Notes as:
(i) any Person (as defined) (including any syndicate or group deemed to
be a "person" under Section 13(d)(3) of the Exchange Act), other than the
Company, any subsidiary of the Company, William E. Brown, members of his
immediate family, his heirs or any entity Controlled by the foregoing, or
any employee benefit plan of the Company or any such subsidiary, is or
becomes the beneficial owner, directly or indirectly, through a purchase or
other acquisition transaction or series of transactions (other than a
merger or consolidation involving the Company), of shares of capital stock
of the Company entitling such Person to exercise in excess of 50% of the
total voting power of all shares of capital stock of the Company entitled
to vote generally in the election of directors;
(ii) there occurs any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of the assets of the Company, as an
entirety or substantially as an entirety, to another Person (other than (a)
any such transaction pursuant to which the holders of the Common Stock or
Class B Stock immediately prior to such transaction have, directly or
indirectly, shares of capital stock of the continuing or surviving
corporation immediately after such transaction which entitle such holders
to exercise in excess of 50% of the total voting power of all shares of
capital stock of the continuing or surviving corporation entitled to vote
generally in the election of directors and (b) any merger (1) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or Class B Stock or (2) which is
effected solely to change the jurisdiction of incorporation of the Company
and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock or Class B Stock solely into shares of common stock
and separate series of common stock carrying substantially the same
relative rights as the Common Stock and Class B Stock); or
(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the two-year period immediately preceding such change
(together with any other director whose election by the Board of Directors
of the Company or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a majority of the directors then
in office either who were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office;
provided, however, that a Change in Control shall not be deemed to have
occurred if either (a) the closing price per share of the Common Stock for any
10 Trading Days within the period of 20 consecutive Trading Days ending
immediately before the Change in Control shall equal or exceed 105% of the
conversion price
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<PAGE>
in effect on each such Trading Day, or (b) (i) at least 90% of the
consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change in Control consists of
shares of common stock with full voting rights traded on a national securities
exchange or quoted on the Nasdaq National Market (or which will be so traded
or quoted when issued or exchanged in connection with such Change in Control)
(such securities being referred to as "Publicly Traded Securities") and as a
result of such transaction or transactions such Notes become convertible
solely into such Publicly Traded Securities and (ii) the consideration in the
transaction or transactions constituting the Change in Control consists of
cash, Publicly Traded Securities or a combination of cash and Publicly Traded
Securities with an aggregate fair market value (which, in the case of Publicly
Traded Securities, shall be equal to the average closing price of such
Publicly Traded Securities during the ten consecutive Trading Days commencing
with the sixth Trading Day following consummation of the transaction or
transactions constituting the Change in Control) is at least 105% of the
Conversion Price in effect on the date immediately preceding the date of
consummation of such Change in Control. The term "beneficial owner" shall be
determined in accordance with Rule 13d-3 promulgated by the Commission under
the Exchange Act.
To the extent applicable, the Company will comply with the provisions of
Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any offer by
the Company to repurchase Notes at the option of the holders thereof upon a
Change in Control.
The Change in Control feature of the Notes may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal
of incumbent management. The repurchase right is not the result of
management's knowledge of any effort to accumulate any Common Stock or to
obtain control of the Company by means of a merger, tender offer, solicitation
or otherwise, or part of a plan by management to adopt a series of anti-
takeover provisions. Instead, this right is the result of negotiations between
the Company and the Initial Purchasers.
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, certain changes in
control of the Company or other transactions involving the Company that may
adversely affect holders.
The Company's ability to repurchase Notes upon the occurrence of a Change in
Control is subject to limitations. If a Change in Control were to occur, there
can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the terms of certain
of the Company's existing debt agreements prohibit the Company from purchasing
any Notes and also identify certain events that would constitute a Change in
Control, as well as certain other events with respect to the Company or
certain of its subsidiaries, which would constitute an event of default under
such debt agreements. Any future credit agreements or other agreements related
to other indebtedness (including other Senior Indebtedness) to which the
Company becomes a party may contain similar restrictions and provisions. In
the event a Change in Control occurs at a time when the Company is prohibited
from repurchasing Notes, the Company could seek the consent of its lenders to
repurchase the Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from repurchasing Notes. Any
failure by the Company to repurchase the Notes when required following a
Change in Control would result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Change in Control
may cause an event of default under Senior Indebtedness of the Company. As a
result, in each case, any repurchase of the Notes would, absent a waiver, be
prohibited under the subordination provisions of the Indenture until the
Senior Indebtedness is paid in full. See "--Subordination of Notes" below,
"Risk Factors--Subordination" and "Risk Factors--Limitation on Repurchase of
Notes upon Change in Control."
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<PAGE>
SUBORDINATION OF NOTES
The indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest on the Notes is to be
subordinated to the extent provided in the Indenture in right of payment to
the prior payment in full in cash of all Senior Indebtedness. In the event of
any acceleration of the Notes because of an Event of Default (as defined in
the Indenture), the holders of any Senior Indebtedness then outstanding would
be entitled to payment in full in cash of all obligations in respect of such
Senior Indebtedness before the holders of the Notes are entitled to receive
any payment or distribution in respect thereof. The Indenture requires that
the Company promptly notify holders of Senior Indebtedness if payment of the
Notes is accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the Notes if
(i) a default in the payment of the principal of, premium, if any, interest,
rent or other obligations in respect of Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness (as
defined) that permits holders of the Designated Senior Indebtedness as to
which such default relates to accelerate its maturity and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the Company or
other person permitted to give such notice under the Indenture. Payments on
the Notes may and shall be resumed (a) in case of a payment default, upon the
date on which such default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received if the maturity of such Designated Senior Indebtedness has
not been accelerated. No new period of payment blockage may be commenced
pursuant to a Payment Blockage Notice unless and until (i) 365 days have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if any,
and interest on the Notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, in the event of
the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination
will not prevent the occurrence of any Event of Default under the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of
any bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on
or in connection with, and all fees, costs, expenses and other amounts accrued
or due on or in connection with, Indebtedness (as defined) of the Company,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company
(including all deferrals, renewals, extensions or refundings of, or
amendments, modifications or supplements to, the foregoing), unless in the
case of any particular Indebtedness the instrument creating or evidencing the
same or the assumption or guarantee thereof expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes or expressly
provides that such Indebtedness is "pari passu" or "junior" to the Notes.
Notwithstanding the foregoing, the term Senior Indebtedness shall not include
any Indebtedness of the Company to any Subsidiary (as defined in the
Indenture) of the Company. The term "Indebtedness" means, with respect to any
Person (as defined in the Indenture), and without duplication, (a) the
principal of and premium, if any, and interest on, and fees, costs,
enforcement expenses, collateral protection expenses and other reimbursement
or indemnity obligations in respect to all indebtedness or obligations of the
Company to any Person, including but not limited to banks and other lending
institutions, for money borrowed that is evidenced by a note, bond, debenture,
loan agreement, or similar
24
<PAGE>
instrument or agreement (including purchase money obligations with original
maturities in excess of one year and noncontingent reimbursement obligations
in respect of amounts paid under letters of credit); (b) all reimbursement
obligations and other liabilities (contingent or otherwise) of such Person
with respect to letters of credit, bank guarantees or bankers' acceptances,
(c) all obligations and liabilities (contingent or otherwise) in respect of
leases of such Person required, in conformity with generally accepted
accounting principles, to be accounted for a capitalized lease obligations on
the balance sheet of such Person and all obligations and other liabilities
(contingent or otherwise) under any lease or related document (including a
purchase agreement) in connection with the lease of real property which
provides that such Person is contractually obligated to purchase or cause a
third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and the obligations of
such Person under such lease or related document to purchase or to cause a
third party to purchase such leased property, (d) all obligations of such
Person (contingent or otherwise) with respect to an interest rate or other
swap, cap or collar agreement or other similar instrument or agreement or
foreign currency hedge, exchange, purchase or similar instrument or agreement,
(e) all direct or indirect guaranties or similar agreements by such Person in
respect of, and obligations or liabilities (contingent or otherwise) of such
Person to purchase or otherwise acquire or otherwise assure a creditor against
loss in respect of, indebtedness, obligations or liabilities of another Person
of the kind described in clauses (a) through (d), (f) any indebtedness or
other obligations described in clauses (a) through (d) secured by any
mortgage, pledge, lien or other encumbrance existing on property which is
owned or held by such Person, regardless of whether the indebtedness or other
obligation secured thereby shall have been assumed by such Person and (g) any
and all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or liability of
the kind described in clauses (a) through (f). The term "Designated Senior
Indebtedness" means Indebtedness under the Credit Agreement (as defined in the
Indenture), and any particular Senior Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Senior Indebtedness shall be "Designated Senior
Indebtedness" for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right
of such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness).
Any right of the Company to receive any assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security interest in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company.
As of December 28, 1996, the Company had approximately $0.6 million of
indebtedness outstanding that would have constituted Senior Indebtedness. In
addition, the Company has approximately $75 million available to be drawn upon
its principal line of credit that would constitute Senior Indebtedness. The
Indenture does not limit the amount of additional indebtedness, including
Senior Indebtedness, which the Company can create, incur, assume or guarantee,
nor does the Indenture limit the amount of indebtedness which any subsidiary
can create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the subordination provisions of the Indenture,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior
Indebtedness is paid in full, then such payment or distribution will be held
by the recipient in trust for the benefit of holders of Senior Indebtedness or
their representative or representatives to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution, or provision therefor, to or
for the holders of Senior Indebtedness.
25
<PAGE>
The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against any losses, liabilities or expenses incurred
by it in connection with its duties relating to the Notes. The Trustee's
claims for such payments will be senior to those of holders of the Notes in
respect of all funds collected or held by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the Indenture: (i) default in the
payment of any interest, continued for 30 days, (ii) default in the payment of
principal or premium, if any, when due or in the payment of any redemption
obligation, (iii) default by the Company or any Significant Subsidiary with
respect to its obligation to pay principal of or interest on indebtedness for
borrowed money aggregating more than $10,000,000, or the acceleration of such
indebtedness under the terms of the instruments evidencing such indebtedness
which has not been withdrawn within 10 days from the date of such default,
(iv) failure to perform any other covenant or warranty of the Company,
continued for 60 days after written notice as provided in the Indenture, (v)
final judgments or orders are rendered against the Company or any of its
Significant Subsidiaries which require the payment by the Company or any of
its Significant Subsidiaries of an amount (to the extent not covered by
insurance) in excess of $10,000,000 and such judgments or orders remain
unsatisfied, undischarged, unvacated, unbonded and unstayed for more than 60
days and are not being contested in good faith by appropriate proceedings, and
(vi) certain events of bankruptcy, insolvency or reorganization with respect
to the Company.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of principal of, premium, if
any, and interest on any of the Notes which shall have become due by
acceleration) and certain other conditions are met, with certain exceptions,
such declaration may be annulled and past defaults may be waived by the
holders of a majority of the principal amount of the Notes then outstanding.
In the case of certain events of bankruptcy or insolvency, the principal of
and accrued interest on the Notes shall automatically become and be
immediately due and payable.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal
amount of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Notes, except that
no such modification shall (i) extend the fixed maturity of any Note, reduce
the rate or extend the time of payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount
payable upon redemption thereof, change, the obligation of the Company to
repurchase any Note upon the occurrence of any Change in Control in a manner
adverse to holders of Notes, impair the right of a holder to institute suit
for the payment thereof, change the currency in which the Notes are payable,
or impair the right to convert the Notes into Common Stock in any material
respect, or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the holders of the Notes in
any material respect, without the consent of the holder of each Note so
affected, or (ii) reduce the aforesaid percentage of Notes the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all of the Notes then outstanding.
26
<PAGE>
CONCERNING THE TRUSTEE
Chemical Trust Company of California, the Trustee under the Indenture, has
been appointed by the Company as the initial paying agent, conversion agent,
registrar and custodian with regard to the Notes. The Company may maintain
deposit accounts and conduct other banking transactions with the Trustee or
its affiliates in the ordinary course of business, and the Trustee and its
affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of their business.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock ("Common Stock"),
3,000,000 shares of Class B Stock ("Class B Stock") and 1,000 shares of
Preferred Stock ("Preferred Stock").
COMMON STOCK AND CLASS B STOCK
Voting, Dividend and Other Rights. The voting powers, preferences and
relative rights of the Common Stock and the Class B Stock are identical in all
respects, except that (i) the holders of Common Stock are entitled to one vote
per share and the holders of Class B Stock are entitled to the lesser of ten
votes per share or 49% of the total votes cast, (ii) stock dividends on Common
Stock may be paid only in shares of Common Stock and stock dividends on Class
B Stock may be paid only in shares of Class B Stock and (iii) shares of Class
B Stock have certain conversion rights and are subject to certain restrictions
on ownership and transfer described below under "Conversion Rights and
Restrictions on Transfer of Class B Stock." Except as described above,
issuances of additional shares of Class B Stock and modifications of the terms
of the Class B Stock require the approval of a majority of the holders of the
Common Stock and Class B Stock, voting as separate classes. The Certificate of
Incorporation cannot be modified, revised or amended without the affirmative
vote of the majority of outstanding shares of Common Stock and Class B Stock,
voting separately as a class. Except as described above or as required by law,
holders of Common Stock and Class B Stock vote together on all matters
presented to the stockholders for their vote or approval, including the
election of directors. The stockholders are not entitled to vote cumulatively
for the election of directors.
The outstanding shares of Common Stock equal 87.5% of the total shares
outstanding (and, together with the 100 shares of Series A Preferred Stock
owned by Monsanto Company, have 51% of the combined voting power of the
outstanding shares), and the holders of Class B Stock have 49% of the combined
voting power of the outstanding shares. The holders of the Class B Stock are,
therefore, likely to be able to elect the entire Board of Directors of the
Company and to determine the outcome of any matter submitted to the
stockholders for approval including the power to determine the outcome of all
corporate transactions.
Each share of Common Stock and Class B Stock is entitled to receive
dividends if, as and when declared by the Board of Directors of the Company
out of funds legally available therefor. The Common Stock and Class B Stock
share equally, on a share-for-share basis, in any cash dividends declared by
the Board of Directors.
Stockholders of the Company have no preemptive or other rights to subscribe
for additional shares. Subject to any rights of holders of any Preferred
Stock, all holders of Common Stock and Class B Stock, regardless of class, are
entitled to share equally on a share-for-share basis in any assets available
for distribution to stockholders on liquidation, dissolution or winding up of
the Company. No Common Stock or Class B Stock is subject to redemption or a
sinking fund. All shares of Common Stock offered hereby will be, when so
issued or sold, validly issued, fully paid and nonassessable.
27
<PAGE>
Conversion Rights and Restrictions on Transfer of Class B Stock. The Common
Stock has no conversion rights. However, at the option of the holder, each
share of Class B Stock is convertible at any time and from time to time into
one share of Common Stock. If at any time the holders of a majority of
outstanding shares of Class B Stock vote to convert the outstanding shares of
Class B Stock to Common Stock, then all outstanding shares of Class B Stock
shall be deemed automatically converted into shares of Common Stock.
The Company's Certificate of Incorporation provides that any holder of
shares of Class B Stock desiring to transfer such shares to a person other
than a Permitted Transferee (as defined below) must present such shares to the
Company for conversion into an equal number of shares of Common Stock upon
such transfer. Thereafter, such shares of Common Stock may be freely
transferred to persons other than Permitted Transferees, subject to applicable
securities laws.
Shares of Class B Common Stock may not be transferred except generally to
family members, certain trusts, heirs and devisees (collectively, "Permitted
Transferees"). Upon any sale or transfer of ownership or voting rights to a
transferee other than a Permitted Transferee or to the extent an entity no
longer remains a Permitted Transferee, such shares of Class B Stock will
automatically convert into an equal number of shares of Common Stock.
Accordingly, no trading market is expected to develop in the Class B Stock and
the Class B Stock will not be listed or traded on any exchange or in any
market.
Effects of Disproportionate Voting Rights. The disproportionate voting
rights of the Common Stock and Class B Stock could have an adverse effect on
the market price of the Common Stock. Such disproportionate voting rights may
make the Company a less attractive target for a takeover than it otherwise
might be, or render more difficult or discourage a merger proposal, a tender
offer or a proxy contest, even if such actions were favored by stockholders of
the Company other than the holders of the Class B Stock. Accordingly, such
disproportionate voting rights may deprive holders of Common Stock of an
opportunity to sell their shares at a premium over prevailing market prices,
since takeover bids frequently involve purchases of stock directly from
stockholders at such a premium price.
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to issue up to
1,000 shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders.
The issuance of Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of the Common Stock.
In July 1995, the Company issued 100 shares of Series A Preferred Stock to
Monsanto Company, of which Solaris is a strategic business unit. The Series A
Preferred Stock is entitled to receive a cumulative 5% annual cash dividend
which must be paid prior to the declaration or payment of any dividends on the
Common Stock. Each share of Series A Preferred Stock is entitled to a
liquidation preference of $9,000 per share, is convertible into 1,000 shares
of Common Stock, votes together with the Common Stock and has a number of
votes equal to the number of shares of Common Stock into which it is
convertible.
The Company has no present plans to issue any additional shares of Preferred
Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. This statute generally prohibits, under certain
circumstances, a Delaware corporation whose stock is publicly traded, from
engaging in a "business combination" with an "interested stockholder" for a
period
28
<PAGE>
of three years after the date of the transaction in which the person became an
interested stockholder, unless (i) a corporation has elected in its
certificate of incorporation or bylaws not to be governed by this Delaware law
(the Company has not made such an election); (ii) prior to the time the
stockholder became an interested stockholder, the board of directors approved
either the business combination or the transaction which resulted in the
person becoming an interested stockholder, (iii) the stockholder owned at
least 85% of the outstanding voting stock of the corporation (excluding shares
held by directors who were also officers or held in certain employee stock
plans) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder or (iv) the business combination was
approved by the board of directors and by two-thirds of the outstanding voting
stock of the corporation (excluding shares held by the interested
stockholder). An "interested stockholder" is a person who, together with
affiliates and associates, owns (or any time within the prior three years did
own) 15% or more of the corporation's outstanding voting stock. The term
"business combination" is defined generally to include mergers,
consolidations, stock sales, asset-based transactions, and other transactions
resulting in a financial benefit to the interested stockholder.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. serves as the transfer agent and
registrar for the Company's Common Stock.
PLAN OF DISTRIBUTION
Pursuant to a Registration Rights Agreement dated as of November 15, 1996
(the "Registration Rights Agreement") between the Company and the initial
purchasers named therein entered into in connection with the offering of the
Notes, the Registration Statement of which this Prospectus forms a part was
filed with the Commission covering the resale of the Notes and the Common
Stock issuable upon conversion of the Notes (the "Securities"). The Company
has agreed to use all reasonable efforts to keep the Registration Statement
effective until November 15, 1999 (or such earlier date when the holders of
the Securities are able to sell all such Securities immediately without
restriction pursuant to Rule 144(k) under the Securities Act or any successor
rule thereto or otherwise). The Company will be permitted to suspend the use
of this Prospectus (which is a part of the Registration Statement) in
connection with sales of Securities by holders during certain periods of time
under certain circumstances relating to pending corporate developments and
public filings with the Commission and similar events. The specific provisions
relating to the registration rights described above are contained in the
Registration Rights Agreement, and the foregoing summary is qualified in its
entirety by reference to the provisions of such agreement.
Sales of the Notes and the Conversion Shares may be effected by or for the
account of the Selling Securityholders from time to time in transactions
(which may include block transactions in the case of the Conversion Shares) on
any exchange or market on which such securities are listed or quoted, as
applicable, in negotiated transactions, through a combination of such methods
of sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Notes or Conversion Shares directly to purchasers,
through broker-dealers acting as agents for the Selling Securityholders, or to
broker-dealers who may purchase Notes or Conversion Shares as principals and
thereafter sell the Notes or Conversion Shares from time to time in
transactions (which may include block transactions in the case of the
Conversion Shares) on any exchange or market on which such securities are
listed or quoted, as applicable, in negotiated transactions, through a
combination of such methods of sale, or otherwise. In effecting sales, broker-
dealers engaged by Selling Securityholders may arrange for other broker-
dealers to participate. Such broker-dealers, if any, may receive compensation
in the form of discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of the Notes or Conversion Shares for
whom such broker-dealers may act as agents or to whom
29
<PAGE>
they may sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or Conversion Shares may be deemed to be "underwriters" within the
meaning of the Securities Act. Any commissions paid or any discounts or
concessions allowed to any such persons, and any profits received on the
resale of the Notes or Conversion Shares offered hereby and purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
At the time a particular offering of the Notes and/or the Conversion Shares
is made and to the extent required, the aggregate principal amount of Notes
and number of Conversion Shares being offered, the name or names of the
Selling Securityholders, and the terms of the offering, including the name or
names of any underwriters, broker-dealers or agents, any discounts,
concessions or commissions and other terms constituting compensation from the
Selling Securityholders, and any discounts, concessions or commissions allowed
or reallowed or paid to broker-dealers, will be set forth in an accompanying
Prospectus Supplement.
Pursuant to the Registration Rights Agreement, the Company has agreed to pay
all expenses incident to the offer and sale of the Notes and Conversion Shares
offered by the Selling Securityholders hereby, except that the Selling
Securityholders will pay all underwriting discounts and selling commissions,
if any. The Company has agreed to indemnify the Selling Securityholders
against certain labilities, including liabilities under the Securities Act,
and to contribute to payments the Selling Securityholders may be required to
make in respect thereof.
To comply with the securities laws of certain jurisdictions, if applicable,
the Notes and Conversion Shares offered hereby will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Notes or the Conversion Shares may be limited
in its ability to engage in market activities with respect to such Note or
Conversion Shares. In addition and without limiting the foregoing, each
Selling Securityholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchase and sales of any of the Notes and Conversion
Shares by the Selling Securityholders. The foregoing may affect the
marketability of the Notes and the Conversion Shares.
From time to time, Alex. Brown & Sons Incorporated or its affiliates has
provided, and may continue to provide investment banking services to the
Company, for which it received or will receive customary fees. See "Selling
Securityholders."
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby will be passed upon for the Company by Orrick, Herrington & Sutcliffe
LLP, San Francisco, California.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended September 28, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
30
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES,
IMPLY THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY DOCUMENT
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information..................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Summary.................................................................... 4
Risk Factors............................................................... 7
Use of Proceeds............................................................ 13
Ratio of Earnings to Fixed Charges......................................... 13
Selling Securityholders.................................................... 14
Description of Notes....................................................... 17
Description of Capital Stock............................................... 27
Plan of Distribution....................................................... 29
Legal Matters.............................................................. 30
Experts.................................................................... 30
</TABLE>
================================================================================
================================================================================
$115,000,000
LOGO
6% Convertible Subordinated
Notes due 2003
And
Shares of Common Stock
Issuable upon Conversion Thereof
-----------
PROSPECTUS
-----------
MARCH , 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities
being registered. All amounts are estimated except the SEC registration fee
and the Nasdaq Listing Application Fee.
<TABLE>
<S> <C>
SEC Registration Fee......................................... $ 34,848.48
Nasdaq Listing Application Fee............................... 17,500.00
Accounting Fees.............................................. 12,000.00
Legal Fees and Expenses...................................... 25,000.00
Printing and Engraving....................................... 15,000.00
Miscellaneous................................................ 25,651.52
-----------
Total...................................................... $130,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Sixth, Section 2 of the Registrant's Certificate of Incorporation
provides that directors of the Registrant shall not be personally liable to
the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, to the fullest extent permitted by the General
Corporation Law of the State of Delaware. Article V of the Registrant's By-
laws provides for indemnification of officers and directors to the full extent
and in the manner permitted by Delaware law. Section 145 of the Delaware
General Corporation Law makes provision for such indemnification in terms
sufficiently broad to cover officers and directors under certain circumstances
for liabilities arising under the Securities Act of 1933.
The Registrant has entered into indemnification agreements with each
director which provide indemnification under certain circumstances for acts
and omissions which may not be covered by any directors' and officers'
liabilities insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act of 1933, as
amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Set forth below is a list of exhibits that are being filed with this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
2.1 Form of Agreement of Merger and Plan of Merger between Central
Garden Supply of Southern California and Central Garden & Pet
Company (Incorporated by reference from Exhibit 2.1 to
Registration Statement No. 33-48070).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
2.2 Form of Agreement of Merger and Plan of Merger between Central
Garden Sales Corp. and Central Garden & Pet Company
(Incorporated by reference from Exhibit 2.2 to Registration
Statement No. 33-48070).
2.3 Form of Reorganization Agreement between Central Garden Supply
and Central Garden & Pet Company (Incorporated by reference
from Exhibit 2.3 to Registration Statement No. 33-48070).
2.4 Agreement and Plan of Merger between Central Garden & Pet Supply
Company and Central Garden & Pet Company dated as of June 11,
1992 (Incorporated by reference from Exhibit 2.4 to
Registration Statement No. 33-48070).
4.1 Specimen Common Stock Certificate (Incorporated by reference
from Exhibit 4.1 to Registration Statement No. 33-48070).
4.2 Indenture, dated as of November 15, 1996, between the Company
and Chemical Trust Company of California, as Trustee, including
the form of Notes. +
4.3 Registration Rights Agreement, dated as of November 15, 1996,
among the Company, Alex. Brown & Sons Incorporated, Merrill
Lynch, Pierce, Fenner & Smith + Incorporated, Hambrecht & Quist
LLC and Wasserstein Perella Securities, Inc.
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP, including
consent. +
12.1 Statement re computation ratios. +
23.1 Independent Auditors' Consent (Deloitte & Touche LLP).
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (See Exhibit
5.1). +
24 Power of Attorney (See page II-4). +
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of Chemical Trust Company of California,
as Trustee, on Form T-1. +
</TABLE>
- --------
+ Previously filed.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the provisions described on
Item 15 above, 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, 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 of 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.
II-2
<PAGE>
C. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this 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 this Registration Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CENTRAL GARDEN &
PET COMPANY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LAFAYETTE, STATE OF
CALIFORNIA, ON MARCH 14, 1997.
Central Garden & Pet Company
/s/ William E. Brown
By: _________________________________
(WILLIAM E. BROWN, CHIEF EXECUTIVE
OFFICER AND DIRECTOR)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
/s/ William E. Brown Chief Executive
- ------------------------------------- Officer and March 14, 1997
(WILLIAM E. BROWN) Director (Principal
Executive Officer)
Vice President,
/s/ Robert B. Jones* Chief Financial March 14, 1997
- ------------------------------------- Officer (Principal
(ROBERT B. JONES) Financial Officer
and Principal
Accounting Officer)
Director
/s/ Glenn W. Novotny* March 14, 1997
- -------------------------------------
(GLENN W. NOVOTNY)
Director
/s/ Daniel P. Hogan, Jr.* March 14, 1997
- -------------------------------------
(DANIEL P. HOGAN, JR.)
Director
/s/ Lee D. Hines, Jr.* March 14, 1997
- -------------------------------------
(LEE D. HINES, JR.)
/s/ William E. Brown
*By: ___________________________
(WILLIAM E. BROWN) ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
2.1 Form of Agreement of Merger and Plan of Merger
between Central Garden Supply of Southern
California and Central Garden & Pet Company
(Incorporated by reference from Exhibit 2.1 to
Registration Statement No. 33-48070).
2.2 Form of Agreement of Merger and Plan of Merger
between Central Garden Sales Corp. and Central
Garden & Pet Company (Incorporated by reference
from Exhibit 2.2 to Registration Statement No.
33-48070).
2.3 Form of Reorganization Agreement between Central
Garden Supply and Central Garden & Pet Company
(Incorporated by reference from Exhibit 2.3 to
Registration Statement No. 33-48070).
2.4 Agreement and Plan of Merger between Central
Garden & Pet Supply Company and Central Garden &
Pet Company dated as of June 11, 1992
(Incorporated by reference from Exhibit 2.4 to
Registration Statement No. 33-48070).
4.1 Specimen Common Stock Certificate (Incorporated by
reference from Exhibit 4.1 to Registration
Statement No. 33-48070).
4.2 Indenture, dated as of November 15, 1996, between
the Company and Chemical Trust Company of
California, as Trustee, including the form of
Notes. +
4.3 Registration Rights Agreement, dated as of
November 15, 1996, among the Company, Alex. Brown
& Sons Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Hambrecht & Quist
LLC and Wasserstein Perella Securities, Inc. +
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP,
including consent. +
12.1 Statement re computation ratios. +
23.1 Independent Auditors' Consent (Deloitte & Touche
LLP).
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (See
Exhibit 5.1). +
24 Power of Attorney (See page II-4). +
25.1 Statement of Eligibility and Qualification Under
the Trust Indenture Act of 1939 of Chemical Trust
Company of California, as Trustee, on Form T-1. +
</TABLE>
- --------
+ Previously filed.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Central Garden & Pet Company
Lafayette, California
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of Central Garden & Pet Company on Form S-3 of our
reports dated November 15, 1996, appearing in the Annual Report on Form 10-K
of Central Garden & Pet Company for the year ended September 28, 1996, and to
the reference to us under the heading "Experts" in the Prospectus, which is a
part of this Amendment No. 1 to the Registration Statement.
Deloitte & Touche LLP
San Francisco, California
March 14, 1997
