-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IrQxxvhtAstk5743W/qd5Apt23vSTQ1DOeIsOePiSouxt9yaMUjMUiyQXtzXDxqJ mX/IGSyOF813mlDi8FBK4w== 0000891554-01-506377.txt : 20020410 0000891554-01-506377.hdr.sgml : 20020410 ACCESSION NUMBER: 0000891554-01-506377 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US HOME & GARDEN INC CENTRAL INDEX KEY: 0000879911 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 770262908 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14015 FILM NUMBER: 1791551 BUSINESS ADDRESS: STREET 1: 655 MONTGOMERY ST STE 500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156168111 MAIL ADDRESS: STREET 1: 655 MONTGOMERY ST STREET 2: SUITE 500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL EARTH TECHNOLOGIES INC DATE OF NAME CHANGE: 19930328 10-Q 1 d27369_form-10q.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 From the transition period from ____________ to ____________ Commission File Number 001-14015 U.S. HOME & GARDEN INC. (Exact name of registrant as specified in its charter) Delaware 77-0262908 (State or other jurisdiction IRS Employer of incorporation or organization) (Identification Number) 655 Montgomery Street San Francisco, California 94111 (Address of Principal Executive Offices) (Zip Code) (415) 616-8111 (Registrant's Telephone Number, Including Area Code) Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of November 4, 2001 there were 17,543,379 shares of the issuer's common stock, par value $.001 per share, outstanding. Part I. - Financial Information Item 1. - Consolidated Financial Statements Consolidated balance sheets as of September 30, 2001 1-2 and June 30, 2001 (Unaudited) Consolidated statements of loss for the three months ended 3 September 30, 2001 and 2000 (Unaudited) Consolidated statements of cash flows for the three months 4-5 ended September 30, 2001 and 2000 (Unaudited) Notes to consolidated financial statements 6-11 Item 2. - Management's Discussion and Analysis of Financial 12-16 Condition and Results of Operations Item 3. - Quantitative and Qualitative Disclosures About Market Risk 16 Part II. - Other Information Item 1. - Legal Proceedings 17 Item 6. - Exhibits and Reports on Form 8-K 17 Signatures 17 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheets ================================================================================
September 30, June 30, 2001 2001 ----------- ------------ (Unaudited) Assets Current Cash and cash equivalents $ 2,689,000 $ 2,724,000 Accounts receivable, less allowance for doubtful accounts and sales returns of $691,000 and $1,260,000 8,534,000 19,483,000 Inventories 11,867,000 11,043,000 Prepaid expenses and other current assets 897,000 697,000 Refundable income taxes 653,000 653,000 Deferred tax asset 1,205,000 1,205,000 Net current assets of discontinued operations 360,000 371,000 - ----------------------------------------------------------------------------------------------------- Total Current Assets 26,205,000 36,176,000 Property and Equipment, net 5,840,000 5,994,000 Intangible Assets Excess of cost over net assets acquired, net 59,632,000 59,632,000 Deferred financing costs, net of accumulated amortization of $613,000 and $562,000 3,050,000 3,001,000 Non-compete agreements, net of accumulated amortization of $139,000 and $132,000 1,371,000 1,378,000 Package tooling costs, net of accumulated amortization of $1,517,000 and $1,390,000 1,341,000 1,371,000 Product rights, patents and trademarks, net of accumulated amortization of $95,000 and $85,000 549,000 559,000 Officer Receivables 531,000 521,000 Other Assets 111,000 304,000 - ----------------------------------------------------------------------------------------------------- Total Assets $98,630,000 $108,936,000 =====================================================================================================
See accompanying notes to consolidated financial statements. 1 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheets ================================================================================
September 30, June 30, 2001 2001 ----------- ------------ (Unaudited) Liabilities and Stockholders' Equity Current Current portion of lines-of-credit $15,769,000 $ 21,650,000 Accounts payable 4,629,000 3,293,000 Accrued rebates 1,389,000 1,618,000 Accrued commissions 792,000 1,279,000 Accrued co-op advertising 612,000 732,000 Accrued restructuring costs 313,000 999,000 Accrued expenses 307,000 1,719,000 - ----------------------------------------------------------------------------------------------------- Total Current Liabilities 23,811,000 31,290,000 Deferred Tax Liability 1,205,000 1,205,000 Net Long-Term Liabilities of Discontinued Operations 246,000 263,000 Other Long Term Liabilities 1,000 20,000 Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures 56,951,000 56,951,000 - ----------------------------------------------------------------------------------------------------- Total Liabilities 82,214,000 89,729,000 - ----------------------------------------------------------------------------------------------------- Minority Interest in Equity of Affiliate 1,239,000 1,239,000 - ----------------------------------------------------------------------------------------------------- Stockholders' Equity Preferred stock, 1,000,000 shares authorized and unissued -- -- Common stock, $0.001 par value - shares authorized, 75,000,000; 21,433,000 shares issued at June 30, 2001 and September 30, 2001 21,000 21,000 Additional paid-in capital 51,876,000 51,846,000 Retained earnings (deficit) (23,892,000) (21,071,000) - ----------------------------------------------------------------------------------------------------- 28,005,000 30,796,000 Less: Treasury Stock, 3,890,000 shares at cost at June 30, 2001 and September 30, 2001 (12,828,000) (12,828,000) - ----------------------------------------------------------------------------------------------------- Total Stockholders' Equity 15,177,000 17,968,000 - ----------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders Equity $98,630,000 $108,936,000 =====================================================================================================
See accompanying notes to consolidated financial statements. 2 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Loss ================================================================================
Three Months Ended September 30, ------------------------------- 2001 2000 - -------------------------------------------------------------------------------------- Unaudited ------------------------------- Net sales $ 13,650,000 $ 13,111,000 Cost of Sales 8,154,000 8,731,000 - -------------------------------------------------------------------------------------- Gross Profit 5,496,000 4,380,000 - -------------------------------------------------------------------------------------- Operating Expenses Selling and shipping 4,030,000 3,567,000 General and administrative 2,142,000 1,713,000 Depreciation 184,000 262,000 Goodwill amortization -- 716,000 Other amortization 194,000 177,000 - -------------------------------------------------------------------------------------- 6,550,000 6,435,000 - -------------------------------------------------------------------------------------- Loss from Operations (1,054,000) (2,055,000) Other Income (Expense) Investment income 43,000 64,000 Interest expense (1,810,000) (1,660,000) - -------------------------------------------------------------------------------------- Loss from Continuing Operations Before Income Taxes and Extraordinary Gain (2,821,000) (3,651,000) Income Tax Benefit -- 1,779,000 - -------------------------------------------------------------------------------------- Loss from Continuing Operations Before Extraordinary Gain (2,821,000) (1,872,000) Discontinued Operations - Loss from discontinued operations net of tax benefit of $1,187,000 and minority interest of $217,000 in 2000 -- (883,000) - -------------------------------------------------------------------------------------- Net Loss Before Extraordinary Gain (2,821,000) (2,755,000) Extraordinary gain on purchase of Trust Preferred Securities, net of income taxes -- 4,000 - -------------------------------------------------------------------------------------- Net Loss $ (2,821,000) $ (2,751,000) ====================================================================================== Per Share Amounts: Weighted Average Common Shares Outstanding- Basic and Diluted 17,543,000 18,807,000 Loss from Continuing Operations per Common Share Before Extraordinary Gain - Basic and Diluted ($.16) ($.10) Discontinued operations -- (.05) Extraordinary gain -- -- - -------------------------------------------------------------------------------------- Net Loss ($.16) ($.15) ======================================================================================
See accompanying notes to consolidated financial statements. 3 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows ================================================================================
Three months ended September 30, 2001 2000 - ------------------------------------------------------------------------------------------ Unaudited -------------------------------- Cash Flows from Operating Activities: Net loss from continuing operations before extraordinary gain $ (2,821,000) $ (1,872,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 612,000 1,436,000 Compensation related to stock options 30,000 30,000 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed: Accounts receivable 10,949,000 9,117,000 Inventories (824,000) (1,342,000) Prepaid expenses and other current assets (200,000) (7,000) Accounts payable and accrued expenses (1,598,000) (3,595,000) Other assets 193,000 48,000 - ------------------------------------------------------------------------------------------ Net Cash Provided By Operating Activities 6,341,000 3,815,000 - ------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Payment from purchase of business, net of cash acquired -- (16,000) Increase in officer receivables (10,000) (10,000) Purchase of property and equipment (263,000) (218,000) Purchase of intangibles (97,000) (58,000) - ------------------------------------------------------------------------------------------ Net Cash Used in Investing Activities (370,000) (302,000) ==========================================================================================
4 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows ================================================================================
Three months ended September 30, 2001 2000 - ----------------------------------------------------------------------------------------------- Unaudited ------------------------------ Cash Flows from Financing Activities: Net proceeds from notes payable $ -- $ 272,000 Repurchase of common stock for treasury -- (492,000) Repurchase of mandatorily redeemable preferred securities (22,000) Finance costs (100,000) -- Payments on lines-of-credit (5,881,000) (2,000,000) Other (19,000) -- - ----------------------------------------------------------------------------------------------- Net Cash Used In Financing Activities (6,000,000) (2,242,000) - ----------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents from continuing operations (29,000) 1,271,000 Cash used in discontinued operations (6,000) (3,778,000) - ----------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (35,000) (2,507,000) Cash and Cash Equivalents, beginning of period 2,724,000 3,474,000 - ----------------------------------------------------------------------------------------------- Cash and Cash Equivalents, end of period $ 2,689,000 $ 967,000 =============================================================================================== Supplemental disclosure of Cash Flow Information Cash paid for interest $ 1,911,000 $ 1,635,000 Cash paid for taxes $ 173,000 $ 22,000 ===============================================================================================
See accompanying notes to consolidated financial statements. 5 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 1. The accompanying consolidated financial statements at September 30, 2001 and for the three months ended September 30, 2001 and 2000 are unaudited, but, in the opinion of management, include all adjustments necessary for a fair presentation of consolidated financial position and results of operations for the periods presented. The results for the three months ended September 30, 2001 are not necessarily indicative of the results of operations for a full year. Certain amounts as previously reported have been reclassified to conform to current year classifications 2. Refer to the audited consolidated financial statements for the year ended June 30, 2001, for details of accounting policies and detailed notes to the consolidated financial statements. 3. Inventories consist of: September 30, 2001 June 30, 2001 ------------------------------------------------------------------------ Raw materials $ 5,949,000 $ 6,290,000 Finished goods 5,918,000 4,753,000 ------------------------------------------------------------------------ $11,867,000 $11,043,000 ------------------------------------------------------------------------ 4. The Company completed a Credit Agreement with Bank of America (the "Bank") on October 13, 1998. The Credit Agreement originally provided for a $25 million revolving acquisition line of credit ("the Acquisition Facility") to finance acquisitions and a $20 million working capital revolving line of credit ("the Working Capital Facility"). The Credit Agreement originally provided that borrowings under such credit facilities will bear interest at variable annual rates equal to the higher of 0.5% above the then current Federal Funds Rate or the Prime Rate of Bank of America, in each case, plus an applicable marginal rate. The Company's obligations under the Credit Agreement are guaranteed by its subsidiaries and secured by a security interest in favor of the Bank in substantially all of the assets of the Company and its subsidiaries. Upon the occurrence of an event of default specified in the Credit Agreement, the maturity of loans outstanding under the Credit Agreement may be accelerated by the Bank, which may also foreclose its security interest on the assets of the Company and its subsidiaries. Under the Credit Agreement, the Company and its subsidiaries are required, among other things, to comply with (a) certain limitations on incurring additional indebtedness, liens and guaranties, on dispositions of assets, payment of cash dividends and cash redemption and repurchases of securities, and (b) certain limitations on merger, liquidations, changes in business, investments, loans and advances, affiliate transactions and certain acquisitions. In addition, the Company must comply with certain financial tests and ratios. A violation of any of these covenants constitutes an event of default under the Credit Agreement. At September 30, 2001, the Company was in violation of certain financial covenants. The Working Capital Facility has been extended and will terminate with the balances due on November 30, 2001. 6 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ During the three months ended September 30, 2001, the Company received a commitment from a bank to provide up to $33,000,000 in senior secured financing due three years from the closing date. The financing commitment provides for a $31,000,000 revolving credit facility and a $2,000,000 term loan. Interest on borrowings will be calculated at variable annual rates based on either the bank's prime rate plus an applicable marginal rate or the bank's fully absorbed Eurodollar rate plus an applicable marginal rate. Available borrowing on the revolving credit facility will be limited based on eligible borrowing bases. The bank will have first priority perfected security interest in substantially all of the Company's assets. The Company will be subject to certain fees and restrictions in conjunction with the financing. As part of the commitment, the Company is required to obtain an additional $2,250,000 in subordinated debt on or before the closing date. During the three months ended September 30, 2001, the Company also received a commitment to receive up to $6,250,000, of subordinated secured notes due six years from the closing date. Interest will be charged on the notes at 16% and 14% per annum, payable quarterly. The issue price of the notes will be 91.25% of the face amount of the notes. The notes will be secured by a second lien on all assets of the Company and will rank junior to the senior financing to be provided by the bank. The investors shall purchase, for a nominal price, detachable warrants to purchase between 3.45% and 3.75% of the fully diluted equity of the Company and between 3.45% and 3.75% of the Company's Cumulative Trust Preferred Securities with the exact amount to be determined at the closing of the subordinated secured notes. The Company will be subject to certain fees and restrictions in conjunction with the notes. As discussed above, the Company is currently in discussions to refinance the expiring Credit Agreement. There can be no assurances that a new credit agreement will be executed on terms equal to or more favorable than the expiring Credit Agreement, or that a new agreement can be completed at all. The Company would be adversely affected if it was unable to secure a new credit agreement before expiration of the expiring Credit Agreement. Since the Company is currently in discussions regarding a new credit facility, it has classified all bank debt associated with the expiring Credit Agreement as a current liability. 5. In June 2001, the Company announced that it was discontinuing its e-commerce initiative, which it was conducting through its subsidiary, Egarden, Inc. (Egarden), effective June 30, 2001. The Company plans to dispose of the assets and liabilities of Egarden, including amounts written off, by either contributing them to another company in exchange for an ownership interest in that company or through a sale of the assets and liquidation of the liabilities. During the year ended June 30, 2001, the Company recorded a net loss on disposal of discontinued operations of $4,551,000, net of minority interest of $1,118,000. The loss, prior to minority interest, included the write-off of all long-lived assets of $5,224,000 and severance expense of $445,000 related to the termination of all 39 employees. Approximately $326,000 of severance payments are unpaid at September 30, 2001. No adjustments were made to the liability recorded for severance payments during the three months ended September 30, 2001. The Company had a net loss from the operations of Egarden of $883,000, net of minority interest of $217,000, for the three months ended September 30, 2000. Revenues of the discontinued operations for the three months ended September 30, 2000 were not material. 7 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ The net assets and net liabilities of discontinued operations reported in the consolidated balance sheets consisted of the following: September 30, 2001 June 30, 2001 --------------------------------------------------------------------------- Current assets $ 686,000 $ 882,000 Current liabilities (326,000) (511,000) --------------------------------------------------------------------------- Net current assets $ 360,000 $ 371,000 --------------------------------------------------------------------------- Net long-term liabilities $ (246,000) $ (263,000) --------------------------------------------------------------------------- Minority interest in equity of affiliate $(1,239,000) $(1,239,000) =========================================================================== Pursuant to APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, the Company's consolidated financial statements and notes have been restated for all periods presented to reflect the discontinuation of Egarden. The net operating results, net assets and net cash flows of Egarden have been reported as "Discontinued Operations" in the accompanying consolidated financial statements. The restated notes exclude amounts related to these discontinued operations. 6. During the period ended June 30, 2001, the Company recorded a restructuring charge of $2,860,000 relating to the closing and sale of the Ampro Industries Inc. facility in Michigan. The Company intends to continue to sell products, through a contract manufacturing agreement, being manufactured at the former Ampro facility. As part of this agreement, the Company has a firm commitment to purchase a minimum amount of product totaling approximately $528,000 in the fiscal year ended June 30, 2002. However, the contract includes an exit provision, whereby the maximum cost to the Company of termination of the agreement is $332,000. During the period ended June 30, 2001, the Company recognized approximately $1,709,000 of expenses and losses relating to the closing and sale of property and equipment of the Ampro facility and $1,151,000 for termination benefits to be paid to all 60 employees involved with the facility. Approximately $313,000 of severance payments as a result of the restructuring were unpaid as of September 30, 2001. All payments are expected to be completed by June 30, 2002. No adjustments were made to the liability recorded for severance payments during the three months ended September 30, 2001. 7. In June 2001, the FASB finalized SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS No. 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS No. 142, that the Company reclassify the carrying amounts of goodwill and other intangible assets based on the criteria of SFAS No. 141. 8 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires that the Company identify reporting units for the purpose of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidelines in SFAS No. 142. SFAS No. 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS No. 142 requires the Company to complete a two-step transitional goodwill impairment test, with the first step to be completed within six months of the date of adoption. The first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying value. If it is determined that the carrying value of the net assets of the reporting unit (including goodwill) exceeds the fair value of that reporting unit, the second step must be performed as soon as possible, but no later than the end of the year of initial adoption, to measure the amount of the impairment loss, if any. An impairment loss resulting from the transitional goodwill impairment test is recognized as the effect of a change in accounting principle. The Company has elected to adopt SFAS No. 141 and SFAS No. 142, effective July 1, 2001. The adoption of SFAS No. 141 had no effect on the Company's financial statements for the three months ended September 30, 2001 as the Company engaged in no business acquisitions during this period and there were no reclassifications between goodwill and other intangible assets. The Company is currently in the process of performing step one of the SFAS No. 142 transitional goodwill impairment test that will be completed no later than December 31, 2001. Should it be determined that the carrying value of any reporting unit exceeds its fair value, step two of the test will be completed to measure the impairment loss, with the loss, if any, recorded no later than June 30, 2002. During the three months ended September 30, 2001, the Company completed a reassessment of the useful lives of other intangible assets which total $6,311,000 (net of accumulated amortization of $2,364,000) at September 30, 2001. As a result, no adjustments were made to previously determined amortization periods. The Company has no intangible assets with indefinite useful lives at September 30, 2001. The Company's previous business combinations were accounted for using the purchase method. As a result of such combinations, the Company has recognized a significant amount of goodwill, which, in the aggregate, was approximately $59,632,000, net of accumulated amortization, at September 30, 2001. Amortization expense for all intangible assets during the three months ended September 30, 2001 and 2000 was $194,000 and $893,000, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows: Year Ended June 30, --------------------------------------------------------- 2002 $ 926,000 2003 - 2006 $ 976,000 9 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ The following represents a reconciliation of the reported net loss to the adjusted net loss and the adjusted net loss before extraordinary gain for the three months ended September 30, 2000, which exclude goodwill amortization expense, net of tax benefit: Reported Net Loss $(2,751,000) Goodwill amortization, net of tax benefit of $349,000 367,000 --------------------------------------------------------------------- Adjusted Net Loss (2,384,000) Extraordinary gain 4,000 --------------------------------------------------------------------- Adjusted Net Loss Before Extraordinary Gain $(2,388,000) --------------------------------------------------------------------- Per Share Amounts: Reported Net Loss $ (.15) Goodwill amortization, net of tax benefit .02 --------------------------------------------------------------------- Adjusted Net Loss (.13) Extraordinary gain -- --------------------------------------------------------------------- Adjusted Net Loss Before Extraordinary Gain $ (.13) ===================================================================== Goodwill associated with the purchase of Ampro was approximately $17,078,000, net of accumulated amortization, at September 30, 2001. As disclosed at June 30, 2001, the Company restructured the operations of Ampro during the year ended June 30, 2001. This restructuring included the closing and sale of the Ampro facility in Michigan. The Company currently continues to sell Ampro products, through a contract manufacturing agreement, being manufactured at the former Ampro facility. This restructuring is currently being considered by the Company in conjunction with the transitional goodwill impairment test being completed. Should a related impairment loss exist, it will be recorded at such time it is determined. 8. In the normal course of business, the Company is subject to proceedings, lawsuits, and other claims, including proceedings under laws and government regulations related to product safety and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the ultimate amount of monetary liability or financial impact with respect to these matters at June 30, 2001 cannot be ascertained. During fiscal 2001, the U.S. Consumer Product Safety Commission ("CPSC") began an investigation into a product previously distributed by the Company's Weed Wizard subsidiary. This investigation could result in an adverse outcome for the Company. While the amount of loss cannot be reasonably estimated at this time, the approximate maximum potential loss is $1.6 million. The Company has vigorously defended, and will continue to vigorously defend, its actions with respect to this subsidiary and its discontinued product. In fiscal 2001, the Company commenced an action against A.A.B.B., Inc. (formerly known as Weed Wizard, Inc.) and certain stockholders and officers relating to the purchase from the defendants of substantially all of the assets of Weed Wizard, Inc. by the Company. The Company is seeking to rescind the transaction or to recover monetary damages. A.A.B.B., Inc. has asserted a counterclaim for breach of contract against the Company for $720,000, plus interest, representing an alleged adjustment to the purchase price. 10 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ During the three months ended September 30, 2001, the Company was notified by the staff of the CPSC that a cap on one of the products sold prior to June 30, 2000, was found to be defective. The Company is currently evaluating this information and the implications of accepting a voluntary corrective action to rectify this matter. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Report contains statements that are forward-looking, such as statements relating to plans for the Company's future activities. Such forward-looking information involves important known and unknown risks and uncertainties that could significantly affect actual results, performance or achievements in the future and, accordingly, such actual results, performance or achievements may materially differ from those expressed or implied in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the Company's growth strategy, customer concentration, outstanding indebtedness, dependence on weather conditions, seasonality, expansion and other activities of competitors, ability to successfully integrate acquired companies and products lines, changes in federal or state environmental laws and the administration of such laws, protection of trademarks and other proprietary rights, litigation, and the general condition of the economy and its effect on the securities markets and other risks detailed in the Company's other filings with the Securities and Exchange Commission. The words "believe," "expect," "anticipate," "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. General U.S. Home & Garden Inc., ("the Company"), manufactures and markets a broad range of brand-name consumer lawn and garden products through its wholly owned subsidiaries, Ampro Industries, Inc. ("Ampro"), Easy Gardener, Inc. ("Easy Gardener"), and Golden West Agri-Products, Inc., and Easy Gardener's wholly owned subsidiaries, Weatherly Consumer Products Group, Inc. and Weed Wizard Acquisition Corp. Since 1992, the Company consummated eleven acquisitions of complementary lawn and garden companies and product lines for an aggregate consideration of approximately $111,000,000 in cash, notes and equity securities. As a result of such acquisitions, the Company recognized a significant amount of goodwill, which, in the aggregate, was approximately $59,632,000, net of accumulated amortization, at June 30, 2001 and September 30, 2001. Results of Operations The following table sets forth, for the periods indicated, certain selected financial data as a percentage of net sales:
September 30, 2001 2000 ------ ------ Net sales 100.0% 100.0% Cost of sales 59.7 66.6 -------------------- Gross profit 40.3 33.4 Selling and shipping expenses 29.5 27.2 General and administrative expenses 15.7 13.1 Depreciation and amortization 2.8 8.8 -------------------- Loss from operations (7.7) (15.7) Interest expense, net (13.0) (12.2) Income tax benefit -- 13.6 -------------------- Loss from continuing operations before extraordinary item (20.7) (14.3) Loss from discontinued operations -- (6.7) -------------------- Loss before extraordinary gain (20.7) (21.0) -------------------- Extraordinary item -- -- -------------------- Net loss (20.7%) (21.0%)
12 Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Net sales. Net sales increased by $539,000, or 4.1%, to $13,650,000 during the three months ended September 30, 2001 from $13,111,000 during the comparable period in 2000. The increase in net sales was a result of growth in sales of core products to home center customers who in the prior year were reducing inventory levels. Gross profit. Gross profit increased by $1,116,000, or 25.5%, to $5,496,000 for the three months ended September 30, 2001 from $4,380,000 during the comparable period in 2000. Gross profit as a percentage of net sales increased to 40.3% during the three months ended September 30, 2001, from 33.4% during the comparable period in 2000. This increase in gross profit as a percentage of net sales is due to a decrease in cost of sales as a result of the restructuring and close of the Bradley, Michigan facility, and a focus on reducing costs throughout the Company. Selling and shipping expenses. Selling and shipping expenses increased by $463,000, or 13.0% to $4,030,000 during the three months ended September 30, 2001 from $3,567,000 during the comparable period in 2000. As a percentage of net sales, selling and shipping expenses increased to 29.5% during the three months ended September 30, 2001 from 27.2% during the comparable period in 2000. This increase in expense and increase as a percent of net sales was primarily attributable to increases in net sales and the accrual for cooperative advertising for the three months ended September 30, 2001. General and administrative expenses. General and administrative expenses increased by $429,000 or 25.0%, to $2,142,000 during the three months ended September 30, 2001 from $1,713,000 during the comparable period in 2000. This increase is primarily due to the allocation of certain costs in the prior year to the discontinued startup operations of Egarden. All general and administrative costs during the three months ended September 30, 2001 were charged to continuing operations. As a percentage of net sales, general and administrative expenses increased to 15.7% during the three months ended September 30, 2001 from 13.1% during the comparable period in 2000. Depreciation and amortization. Depreciation and amortization expenses decreased by $777,000 or 67.3% to $378,000 during the three months ended September 30, 2001 from $1,155,000 during the comparable period in 2000. This decrease is primarily a result of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") in July 2001. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. Goodwill amortization was also reduced due to the write off of Weed Wizard goodwill at June 30, 2001. As a percentage of net sales, depreciation and amortization expenses decreased to 2.8% during the three months ended September 30, 2001 from 8.8% during the comparable period in 2000. Loss from operations. Loss from operations decreased by $1,001,000 or 48.7% to $1,054,000 during the three months ended September 30, 2001, from $2,055,000 during the comparable period in 2000. The decrease in loss from operations was primarily due to increased gross profit noted above. Total operating expenses for the three months ended September 30, 2001 are consistent with such expenses for the comparable period in 2000. As a percentage of net sales, loss from operations decreased to 7.7% for the three months ended September 30, 2001 from 15.7% during the comparable period in 2000. Interest expense. Net interest expense increased $171,000, or 10.7% to $1,767,000 during the three months ended September 30, 2001, from $1,596,000 during the comparable period in 2000. The increase in interest expense is primarily related to an increase in the interest rate under the Working Capital Facility, and higher borrowing levels in the three months ended September 30, 2001. 13 Income taxes. Income tax benefit decreased to $0 during the three months ended September 30, 2001 from $1,779,000 during the comparable period in 2000. The income tax benefit for each interim period is based upon the Company's estimated effective income tax rate for the year. No income tax benefit was recorded for the three months ended September 30, 2001, due to a valuation allowance established for the full amount of the deferred tax asset generated during the three months ended September 30, 2001. Discontinued Operations. Loss from discontinued operations decreased by $883,000 to $0 during the three months ended September 30, 2001, from the comparable period in 2000. The decrease in loss from discontinued operations is due to the Company's decision to discontinue the operations of Egarden, Inc. during the quarter ended June 30, 2001. Net loss. Net loss increased by $70,000 to $2,821,000 during the three months ended September 30, 2001 from a net loss of $2,751,000 during the comparable period in 2000. Net loss per common share increased to $0.16 per share for the three months ended September 30, 2001 from net loss of $0.15 per share during the comparable period in 2000. The increase in net loss and net loss per common share is due primarily to not reflecting a tax benefit in 2001, largely offset by the reduced loss from continuing operations due to the factors discussed above and not having a loss related to the discontinued operations. There were fewer weighted average common and common equivalent shares outstanding in the three months ended September 30, 2001 compared to the comparable period in the prior year due to the Company's repurchase of shares of its common stock. Seasonality The Company's sales are seasonal due to the nature of the lawn and garden business, in parallel with the annual growing season. The Company's sales and shipping are most active from late December through May when home lawn and garden customers are purchasing supplies for spring planting and retail stores are increasing their inventory of lawn and garden products. Additionally, since the Company has better adjusted its operations to respond to the just-in-time inventory management programs increasingly utilized by its major customers, it expects to ship an increasingly larger proportion of its total orders on an annual basis in the seasonally strong fourth quarter of the year. Sales of the Company's agricultural products, which were not material during the three months ended September 30, 2001, are also seasonal. Most shipments occur during the agricultural cultivation period from March through October. Liquidity and Capital Resources Since inception, the Company has financed its operations primarily through cash generated by operations, net proceeds from the Company's private placements and public sales of securities and borrowings from lending institutions. At September 30, 2001, the Company had consolidated cash and short-term investments totaling $2,689,000, and working capital of $2,394,000. At June 30, 2001, the Company had consolidated cash and short-term investments totaling $2,724,000, and working capital of $4,886,000. The decrease in working capital is primarily attributable to the seasonal decrease in accounts receivable, partly offset by reduced line-of-credit borrowings. On October 13, 1998, the Company entered into a credit agreement (the "Credit Agreement") with Bank of America, N.A. (the "Bank"). The Credit Agreement originally provided for a revolving credit facility of up to $25 million to finance the cost of acquisitions by the Company (the "Acquisition Facility") and a revolving credit facility of up to $20 million to finance the Company's working capital requirements (the "Working Capital Facility"). The Credit Agreement originally provided that borrowings under such credit facilities will bear interest at variable annual rates equal to the higher of 0.5% above the then current Federal Funds Rate or the Prime Rate of Bank of America, N.A., in each case, plus an applicable marginal rate. 14 The Company's obligations under the Credit Agreement are guaranteed by its subsidiaries and secured by a security interest in favor of the Bank in substantially all of the assets of the Company and its subsidiaries. Upon the occurrence of an event of default specified in the Credit Agreement, the maturity of loans outstanding under the Credit Agreement may be accelerated by the Bank, which may also foreclose its security interest on the assets of the Company and its subsidiaries. Under the Credit Agreement, the Company and its subsidiaries are required, among other things, to comply with (a) certain limitations on incurring additional indebtedness, liens and guaranties, on dispositions of assets, payment of cash dividends and cash redemption and repurchases of securities, and (b) certain limitations on merger, liquidations, changes in business, investments, loans and advances, affiliate transactions and certain acquisitions. In addition, the Company must comply with certain financial tests and ratios. A violation of any of these covenants constitutes an event of default under the Credit Agreement. At September 30, 2001, the Company was in violation of certain financial covenants. The Working Capital Facility has been extended and will terminate with the balances due on November 30, 2001. During the three months ended September 30, 2001, the Company received a commitment from a bank to provide up to $33,000,000 in senior secured financing due three years from the closing date. The financing commitment provides for a $31,000,000 revolving credit facility and a $2,000,000 term loan. Interest on borrowings will be calculated at variable annual rates based on either the bank's prime rate plus an applicable marginal rate or the bank's fully absorbed Eurodollar rate plus an applicable marginal rate. Available borrowing on the revolving credit facility will be limited based on eligible borrowing bases. The bank will have first priority perfected security interest in substantially all of the Company's assets. The Company will be subject to certain fees and restrictions in conjunction with the financing. As part of the commitment, the Company is required to obtain an additional $2,250,000 in subordinated debt on or before the closing date. During the three months ended September 30, 2001, the Company also received a commitment to receive up to $6,250,000 of subordinated secured notes due six years from the closing date. Interest will be charged on the notes at 16% and 14% per annum, payable quarterly. The issue price of the notes will be 91.25% of the face amount of the notes. The notes will be secured by a second lien on all assets of the Company and will rank junior to the senior financing to be provided by the bank. The investors shall purchase, for a nominal price, detachable warrants to purchase between 3.45% and 3.75% of the fully diluted equity of the Company and between 3.45% and 3.75% of the Company's Cumulative Trust Preferred Securities with the exact amount to be determined at the closing of the subordinated secured notes. The Company will be subject to certain fees and restrictions in conjunction with the notes. As discussed above, the Company is currently in discussions to refinance the expiring Credit Agreement. There can be no assurances that a new credit agreement will be executed on terms equal to or more favorable than the expiring Credit Agreement, or that a new agreement can be completed at all. The Company would be adversely affected if it were unable to secure a new credit agreement before the expiration of the expiring Credit Agreement. Since the Company is currently in discussion regarding a new credit facility, it has classified all bank debt associated with the expiring Credit Agreement as a current liability. New Accounting Pronouncements In September 2000, the Emerging Issues Task Force (EITF) issued EITF Issue 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendors Products, which requires certain cooperative advertising charges to be classified as a reduction of revenue. This guidance is effective for fiscal periods beginning after December 15, 2001. Currently, the Company is assessing but has not yet adopted EITF 00-25. In August 2001, the Financial Accounting Standards Board finalized SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses accounting and reporting for the impairment or disposal of long-lived assets, including the disposal of a segment of business. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. We are currently reviewing the impact of SFAS No. 144 on the Company. 15 In June 2001, the FASB finalized SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS No. 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS No. 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria of SFAS No. 141. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires that the Company identify reporting units for the purpose of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS NO. 142. SFAS No. 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS No. 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS No. 142. The Company has elected to adopt SFAS No. 141 and SFAS No. 142, effective July 1, 2001. See Note 7 to the Consolidated Financial Statements. Inflation Inflation has historically not had a material effect on the Company's operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a result of its variable rate revolving credit line, the Company is exposed to the risk of rising interest rates. The following table provides information on the Company's fixed maturity debt as of September 30, 2001 that are sensitive to changes in interest rates. The Acquisition Line of Credit had an $10.9 million interest rate ranging from 9.62% to 10.12% for the three months ended September 30, 2001 The Working Capital Line of Credit had an $ 4.9 million interest rate ranging from 9.87% to 10.12% for the three months ended September 30, 2001. 16 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings In July 2000, our subsidiary, Weed Wizard Acquisition Corp. ("Weed Wizard") commenced an action in the U.S. District Court, Northern District of Georgia, against A.A.B.B., Inc. (formerly known as Weed Wizard, Inc.) and certain of its stockholders and officers. In this action we allege that the defendants made certain misrepresentations and omitted to disclose certain facts regarding, among other things, alleged defects in certain of the Weed Wizard products in connection with our purchase from defendants in 1998 of substantially all of the assets of Weed Wizard, Inc. We are seeking to rescind the transaction, or in the alternative, to recover rescissionary monetary damages, and to recover compensatory damages. In addition, we are seeking punitive damages. In October 2000 A.A.B.B., Inc. asserted a counterclaim for breach of contract against Weed Wizard alleging that it is owed $720,267, plus interest, representing an adjustment to the purchase price allegedly required to be made pursuant to the agreement in which Weed Wizard acquired certain A.A.B.B., Inc.'s assets. A.A.B.B., Inc. is also seeking to recover attorney's fees. We deny any liability and intend to defend this counterclaim. In fiscal 2001, we were notified by the staff of the U.S. Consumer Product Safety Commission ("CPSC") that the staff is considering recommending that the CSPC commence an action against Weed Wizard to obtain a monetary fine from Weed Wizard for the alleged failure of Weed Wizard to timely disclose to the CPSC, pursuant to the Consumer Products Safety Act, certain required information concerning Weed Wizard product previously distributed by us that was the subject of a voluntary recall during fiscal 2000. We believe that the maximum amount of any claim that may be brought by the CSPC will not exceed approximately $1.6 million. We intend to defend any claim against Weed Wizard or us that may be brought by the CSPC. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -- 10.1 Eighth Amendment dated September 26, 2001 to the Credit Agreement dated October 13, 1998 between U. S. Home & Garden Inc. and Bank of America, N.A. (b) No reports on Form 8-K were filed during the quarter ended September 30, 2001. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. November 14, 2001 U.S. Home & Garden Inc. (Registrant) By: /s/ Robert Kassel ---------------------------------- President, Chief Executive Officer By: /s/ Richard Kurz ---------------------------------- Chief Financial Officer 17 EX-10.1 3 d27369_ex10-1.txt AMENDMENT TO CREDIT AGREEMENT Exhibit 10.1 EIGHTH AMENDMENT TO CREDIT AGREEMENT This Eighth Amendment (the "Amendment") dated as of September 26, 2001, is between Bank of America, N.A. (the "Bank"), formerly known as Bank of America National Trust and Savings Association, and U.S. Home & Garden Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Credit Agreement as of October 12, 1998, as previously amended (the "Agreement"). B. The Bank and the Borrower desire to further amend the Agreement. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendment. The Agreement is hereby amended as follows: 2.1 In Section 1.1, the following definitions are hereby amended and restated in their entirety as follows: "Facility 2 Commitment" means the agreement of the Bank to lend under Section 2.1(b) in an aggregate amount at any time outstanding not exceeding $10,000,000, less the cumulative amounts of all reductions in the Facility 2 Commitment pursuant to Section 2.5. "Revolving Termination Date" means the earlier to occur of: (a) May 15, 2001, in the case of the Facility 1 Loans and October 31, 2001, in the case of the Facility 2 Loans, and (b) the date on which the Commitments otherwise terminate in accordance with the provisions of this Agreement. 2.2 Section 1.1 is hereby further amended to add the definition of "Eighth Amendment Agreement," to be inserted in appropriate alphabetical order, as follows: "Eighth Amendment Agreement" means that certain Eighth Amendment and Waiver, dated as of September 26, 2001, between Bank and Borrower. 3. Effect. Except as specifically set forth herein, this Agreement does not limit, modify, amend, waive, grant any consent with respect to, or otherwise affect (a) any right, power or remedy of the Bank under the Credit Agreement or any other Loan Document, (b) any provision of the Credit Agreement or any other Loan Documents all of which shall remain in full force and effect and are hereby ratified and confirmed. 4. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that the execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or 1 action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5. Amendment Fees. On or before the Effective Date, Borrower shall pay to Bank an amendment fee (the "Amendment Fee") in the amount of $25,000 in connection with this Amendment. The Amendment Fee is fully earned and non-refundable, without regard to whether this Amendment becomes otherwise effective. 6. Effective Date. This Amendment will be effective on the date that all conditions set forth below are satisfied: 6.1 Receipt by Bank of a duly executed original of this Amendment signed by Borrower and of counterparts to the Reaffirmation of Guarantors appended hereto signed by each of the Guarantors. 6.2 Receipt by Bank of the Amendment Fee. 6.3 Receipt by Bank of all documents it may reasonably request relating to the existence of Borrower and each Guarantor, the corporate authority for and the validity of this Amendment, the Loan Documents, and any other agreements, documents, instruments, or matters relevant hereto, all in form and substance satisfactory to Bank. 7. Reservation of Rights. The Borrower acknowledges and agrees that the execution by the Bank of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to execute similar waivers under the same or similar circumstances in the future. 8. Indemnity. As additional consideration for Bank entering into this Amendment, Borrower shall indemnify, exonerate, pay, and hold each Indemnified Party (as hereinafter defined) harmless from any and all claims, demands, grievances, liabilities, debts, accounts, obligations, costs, expenses, liens, rights, actions, and causes of action, of every kind and nature whatsoever (including fees and expenses of counsel to any Indemnified Party in connection with any investigative, administrative, or judicial proceeding, irrespective of whether such Indemnified Party shall be designated a party thereto), other than those arising as a result of the gross negligence or willful misconduct of any Indemnified Party, which may be imposed on, incurred by, or asserted against such Indemnified Party in any manner relating to or arising out of or in connection with this Amendment or any of the Loan Documents, or any of the transactions contemplated by any of the foregoing. As used in this Amendment, the term "Indemnified Parties" means, collectively, Bank and its affiliated corporations, and all of its current and former directors, officers, agents, employees, shareholders, and attorneys, and all of their respective successors and assigns. 9. Release by Borrower. 9.1 No Present Claims. Borrower acknowledges and agrees that: (i) Borrower has no claim or cause of action against any Indemnified Party; (ii) Borrower has no offset right, counterclaim, or defense of any kind against any of the Indebtedness; 2 and (iii) each Indemnified Party has heretofore properly performed and satisfied in a timely manner any and all of such Indemnified Party's obligations, if any, to Borrower. Bank desires, and Borrower agrees, to eliminate any possibility that any past conditions, acts, omissions, events, circumstances, or matters would impair or otherwise adversely affect any of Bank's rights, interests, collateral security, or remedies. Therefore, Borrower, on behalf of Borrower and all successors and assigns of Borrower and any and all other parties claiming rights through Borrower, unconditionally releases, acquits, and forever discharges each and every Indemnified Party from: (1) any and all liabilities, obligations, duties, or indebtedness of any of the Indemnified Parties to Borrower, whether known or unknown, arising prior to the date hereof, and (2) any and all claims, offsets, causes of action, suits, or defenses, whether known or unknown, which Borrower might otherwise have against any of the Indemnified Parties on account of any condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance, or matter of any kind which existed, arose or occurred at any time prior to the date hereof. As further consideration for the above release, Borrower specifically agrees, represents, and warrants that the matters released herein are not limited to matters which are known or disclosed, and Borrower hereby waives any and all rights and benefits which Borrower now has, or in the future may have, conferred upon Borrower by virtue of the provisions of Section 1542 of the Civil Code of the State of California which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 9.2 Waiver of Unknown Claims. Borrower is aware that Borrower may later discover facts in addition to or different from those which Borrower now knows or believes to be true with respect to the releases given herein, and that it is nevertheless Borrower's intention to settle, release, and discharge fully, finally, and forever all of these matters, known or unknown, suspected or unsuspected, which previously existed, now exist, or may exist. In furtherance of such intention, Borrower specifically acknowledges and agrees that the releases given in this Amendment shall be and shall remain in effect as full and complete releases of the matters being released, notwithstanding the discovery or existence of any such additional or different facts and that such releases shall not be subject to termination or rescission by reason of any such additional or different facts. 9.3 Warranty of Non-Assignment. Borrower hereby represents and warrants that it has not previously assigned or transferred, or purported to assign or transfer, to any person or entity any of the claims, demands, grievances, liabilities, debts, accounts, obligations, costs, expenses, liens, rights, actions, or causes of action released by the terms of this Amendment. 3 10. Miscellaneous. 10.1 Except as herein expressly amended, all terms, covenants and provisions of the Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to the Agreement shall henceforth refer to the Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Agreement. This Amendment is a Loan Document. 10.2 This Amendment shall be binding upon and inure to the benefit of the parties hereto and to the Agreement and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. 10.3 This Amendment shall be governed by and construed in accordance with the law of the State of California. 10.4 This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Bank of a facsimile transmitted document purportedly bearing the signature of the Borrower shall bind the Borrower with the same force and effect as the delivery of a hard copy original. Any failure by the Bank to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document. 11. Governing Law, Submission to Jurisdiction, and Waiver of Jury Trial/Arbitration. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA AND IS SUBJECT TO THE PROVISIONS OF SECTIONS 9.14 AND 9.15 OF THE AGREEMENT, RELATING TO SUBMISSION TO JURISDICTION AND WAIVER OF JURY TRIAL/ARBITRATION, THE PROVISIONS OF WHICH ARE BY THIS REFERENCE HEREBY INCORPORATED HEREIN IN FULL. This Amendment is executed as of the date stated at the beginning of this Amendment. BANK OF AMERICA, N.A. (formerly known as Bank of America National Trust and Savings Association) By /s/ Ronald Parish --------------------------------- Title Senior Vice President --------------------------------- U.S. HOME & GARDEN INC. By /s/ Robert Kassel --------------------------------- Title CEO --------------------------------- By /s/ Robert Kassel --------------------------------- Title CEO --------------------------------- 4 REAFFIRMATION OF GUARANTORS Each of the undersigned (each, a "Guarantor," and, collectively, the "Guarantors") acknowledges and agrees that such Guarantor has read and is familiar with, and consents to, all of the terms and conditions of the foregoing Eighth Amendment Agreement, dated as of September 26, 2001 (the "Amendment Agreement"). In light of the foregoing, each of the undersigned confirms and agrees that all of the terms and provisions of that certain Guaranty Agreement, dated as of October 13, 1998 (as amended or modified to the date hereof, the "Guaranty"), executed by it in connection with the Credit Agreement are ratified and reaffirmed, that the Guaranty shall continue in full force and effect. Although each Guarantor has been informed of the terms of the Amendment Agreement, each Guarantor understands and agrees that the Bank has no duty to so notify any Guarantor or to seek this or any future acknowledgement, consent, or reaffirmation, and nothing contained herein shall create or imply any such duty as to any transactions, past or future. GUARANTORS: EASY GARDENER, INC. By /s/ Robert Kassel -------------------------------- Title: CEO -------------------------------- WEATHERLY CONSUMER PRODUCTS GROUP, INC. By /s/ Robert Kassel -------------------------------- Title: CEO -------------------------------- WEATHERLY CONSUMER PRODUCTS, INC. By /s/ Robert Kassel -------------------------------- Title: CEO -------------------------------- WEED WIZARD ACQUISITION CORP. By /s/ Robert Kassel -------------------------------- Title: CEO -------------------------------- 1 GOLDEN WEST AGRI-PRODUCTS, INC. By /s/ Robert Kassel -------------------------------- Title: CEO -------------------------------- AMPRO INDUSTRIES, INC. By /s/ Robert Kassel -------------------------------- Title: CEO -------------------------------- 2 -----END PRIVACY-ENHANCED MESSAGE-----