-----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, FFmGucv8fUl71YBcic9Sg7cD5XWPUCN1T+TtPq7Wjq3858GJreLDrU8A44+hakOb AKO4rnN9QXQXs40ZFcPuvg== 0000891554-99-001021.txt : 20030213 0000891554-99-001021.hdr.sgml : 20030213 19990517160028 ACCESSION NUMBER: 0000891554-99-001021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 000-19899 FILM NUMBER: 99627673 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 QUARTERLY REPORT 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 March 31, 1999 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 0-19899 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) (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 stock, as of the latest practicable date. As of May 11, 1999 there were 19,325,376 shares of the issuer's common stock, par value $.001 per share, outstanding. Part 1. - Financial Information Item 1. - Consolidated Financial Statements Consolidated balance sheet as of June 30, 1998 and March 31, 1999 (Unaudited) 1-2 Consolidated statements of income for the three months and nine months ended March 31, 1998 and 1999 (Unaudited) 3 Consolidated statements of cash flows for the nine months ended March 31, 1998 and 1999 (Unaudited) 4-5 Notes to consolidated financial statements 6-8 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations. 9-16 Item 3. - Quantitative and Qualitative Disclosures about Market Risk 16 Part II. - Other Information Item 2. - Changes in Securities 17 Item 6. - Exhibits and Reports on Form 8-K 17 Signatures 18 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheets ================================================================================
June 30, 1998 March 31, 1999 - ------------------------------------------------------------------------------------------------------- (Unaudited) Assets Current Cash and cash equivalents $ 27,130,000 $ 3,276,000 Accounts receivable, less allowance for doubtful accounts and sales returns of $339,000 and $502,000 17,350,000 35,158,000 Inventories 11,763,000 21,273,000 Prepaid expenses and other current assets 1,130,000 998,000 Deferred tax asset 522,000 522,000 - ------------------------------------------------------------------------------------------------------- Total Current Assets 57,895,000 61,227,000 Property and Equipment, net 3,590,000 12,251,000 Intangible Assets Excess of cost over net assets acquired, net of accumulated amortization of $4,335,000 and $6,254,000 58,864,000 74,774,000 Deferred financing costs, net of accumulated amortization of $21,000 and $125,000 3,186,000 3,565,000 Product rights, patents and trademarks, net of accumulated amortization of $93,000 and $115,000 165,000 727,000 Non-compete agreement, net of accumulated amortization of $48,000 and $128,000 462,000 1,382,000 Package design, net of accumulated amortization of $247,000 and $450,000 718,000 1,108,000 Trade Credits 944,000 944,000 Officer Receivables 850,000 751,000 Other Assets 139,000 123,000 - ------------------------------------------------------------------------------------------------------- $126,813,000 $156,852,000 =======================================================================================================
See accompanying notes to consolidated financial statements. 1 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheets ================================================================================
June 30, 1998 March 31, 1999 - ----------------------------------------------------------------------------------------------- (Unaudited) Liabilities and Stockholders' Equity Current Working capital line of credit $ -- $ 15,500,000 Accounts payable 4,501,000 5,636,000 Accrued expenses 3,922,000 4,796,000 Accrued co-op advertising 645,000 1,489,000 Accrued commissions 1,106,000 1,963,000 Accrued purchase consideration 978,000 -- - ---------------------------------------------------------------------------------------------- Total Current Liabilities 11,152,000 29,384,000 Deferred Tax Liability 812,000 1,025,000 Acquisition Line of Credit -- 15,500,000 Other Long-Term Liabilities -- 754,000 Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures 63,250,000 63,250,000 - ---------------------------------------------------------------------------------------------- Total Liabilities 75,214,000 109,913,000 - ---------------------------------------------------------------------------------------------- Commitments, Contingency and Subsequent Events (Note 4) -- -- Stockholders' Equity Preferred stock, $.001 par value - shares authorized, 1,000,000; no shares outstanding -- -- Common stock, $.001 par value - shares authorized, 75,000,000; 20,133,000 and 21,052,000 shares issued at June 30, 1998 and March 31, 1999 20,000 21,000 Additional paid-in capital 50,153,000 50,300,000 Retained earnings 2,733,000 5,194,000 - ---------------------------------------------------------------------------------------------- 52,906,000 55,515,000 Less: Treasury Stock, 236,000 and 1,793,000 shares at cost (1,307,000) (8,576,000) - ---------------------------------------------------------------------------------------------- Total Stockholders' Equity 51,599,000 46,939,000 - ---------------------------------------------------------------------------------------------- $ 126,813,000 $ 156,852,000 ==============================================================================================
See accompanying notes to consolidated financial statements. 2 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Income ================================================================================
Three Months Ended March 31, Nine Months Ended March 31, ----------------------------- ----------------------------- 1998 1999 1998 1999 ======================================================================================================== Unaudited Unaudited ----------------------------- ----------------------------- Net Sales $23,520,000 $34,769,000 $39,058,000 $61,522,000 Cost of Sales 10,482,000 16,565,000 17,861,000 29,628,000 - -------------------------------------------------------------------------------------------------------- Gross Profit 13,038,000 18,204,000 21,197,000 31,894,000 - -------------------------------------------------------------------------------------------------------- Operating Expenses Selling and shipping 3,797,000 5,862,000 8,458,000 12,807,000 General and administrative 1,518,000 1,410,000 4,242,000 6,639,000 Depreciation 184,000 411,000 509,000 1,002,000 Goodwill amortization 428,000 698,000 1,226,000 1,919,000 Other amortization 40,000 120,000 84,000 303,000 - -------------------------------------------------------------------------------------------------------- 5,967,000 8,501,000 14,519,000 22,670,000 - -------------------------------------------------------------------------------------------------------- Income from Operations 7,071,000 9,703,000 6,678,000 9,224,000 Other Income (Expense) Investment income 245,000 15,000 349,000 512,000 Interest (expense) (922,000) (2,087,000) (2,519,000) (5,426,000) - -------------------------------------------------------------------------------------------------------- Income before Income Taxes 6,394,000 7,631,000 4,508,000 4,310,000 Income tax (expense) (2,700,000) (3,200,000) (1,900,000) (1,770,000) - -------------------------------------------------------------------------------------------------------- Net Income $3,694,000 $4,431,000 $2,608,000 $2,540,000 ======================================================================================================== Basic Earnings per Common Share $.19 $.23 $.15 $.13 ======================================================================================================== Diluted Earnings Per Common Share $.15 $.19 $.12 $.11 ========================================================================================================
See accompanying notes to consolidated financial statements. 3 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows ================================================================================
Increase (Decrease) in Cash Nine months ended March 31, 1998 1999 - -------------------------------------------------------------------------------------------------- (Unaudited) Cash Flows from Operating Activities Net income $2,608,000 $2,540,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation expense 509,000 1,002,000 Amortization of goodwill 1,226,000 1,919,000 Amortization of other intangibles 84,000 303,000 Amortization of deferred financing costs 301,000 75,000 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed: Accounts receivable (11,966,000) (18,040,000) Inventories (2,658,000) (6,162,000) Prepaid expenses and other current assets (1,716,000) 83,000 Accounts payable and accrued expenses 6,037,000 521,000 Deferred tax asset 401,000 213,000 Other assets 203,000 16,000 - -------------------------------------------------------------------------------------------------- Net Cash Used in Operating Activities (4,971,000) (17,530,000) - -------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Payment for purchase of businesses, net of cash acquired (20,274,000) (26,772,000) Payment for non-compete -- (1,000,000) (Increase) decrease in officer receivables (154,000) 99,000 Purchase of property and equipment (697,000) (1,404,000) Purchase of package design (435,000) (592,000) - -------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (21,560,000) (29,669,000) - --------------------------------------------------------------------------------------------------
4 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows ================================================================================
Increase (Decrease) in Cash Nine months ended March 31, 1998 1999 - -------------------------------------------------------------------------------------------------- (Unaudited) Cash Flows from Financing Activities Proceeds from issuances of stock $18,847,000 $147,000 Repurchase of common stock for treasury -- (7,268,000) Repurchase of unit purchase options (3,221,000) (79,000) Proceeds from bank line of credit 18,808,000 31,500,000 Payments on bank line of credit (10,643,000) (500,000) Proceeds from notes payable 10,000,000 -- Payments on notes payable (7,290,000) -- Acquisition of finance cost (122,000) (455,000) - ------------------------------------------------------------------------------------------------ Net Cash Provided by Financing Activities 26,379,000 23,345,000 - ------------------------------------------------------------------------------------------------ Net decrease in cash and cash equivalents (152,000) (23,854,000) Cash and Cash Equivalents, beginning of period 2,083,000 27,130,000 - ------------------------------------------------------------------------------------------------ Cash and Cash Equivalents, end of period $1,931,000 $3,276,000 ================================================================================================ Supplemental Disclosure of Cash Flow Information Cash paid for interest, including deferred financing costs $2,223,000 $5,609,000 Cash paid for taxes $238,000 $69,000 ================================================================================================
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 March 31, 1999 and for the three and nine months ended March 31, 1998 and 1999 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 and nine months ended March 31, 1999 are not necessarily indicative of the results of operations for a full year. 2. Refer to the audited consolidated financial statements for the year ended June 30, 1998, for details of accounting policies and detailed notes to the consolidated financial statements. 3. Inventories consist of: June 30, 1998 March 31, 1999 =========================================================================== (000) (000) Raw materials $4,362 $10,281 Finished goods 7,401 10,992 --------------------------------------------------------------------------- $11,763 $21,273 =========================================================================== 4. On February 28, 1998, Weed Wizard Acquisition Corporation, a wholly-owned subsidiary of the Company, acquired all the assets and assumed certain liabilities of Weed Wizard Inc., a lawn and garden company, for approximately $16.3 million. On October 16, 1998, the Company completed the acquisition of Ampro Industries Inc., a lawn and garden company, for approximately $24.6 million with additional purchase price payments over the next two years based upon its future operating cash flow. An additional $1 million was paid for a non-compete agreement. The acquisitions were accounted for as purchases and, accordingly, the results of operations have been included in the consolidated statement of the operations since the acquisition dates. The value of intangibles purchased and the excess of the purchase price over the fair value of assets acquired totaled approximately $28 million and will be amortized on a straight line basis over the estimated useful life of thirty years. 6 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ The following unaudited pro forma summary combines the consolidated results of operations of the Company, Weed Wizard, Inc. and Ampro Industries, Inc. as if the acquisitions had occurred at the beginning of fiscal 1998 and fiscal 1999, after giving effect to certain adjustments, including the amortization of excess costs over assets acquired, increased interest expense and the elimination of certain expenses incurred by Weed Wizard, Inc. and Ampro Industries, Inc. related to the acquisitions. This pro forma summary does not necessarily reflect the results of operations as they would have been if the Company, Weed Wizard, Inc. and Ampro Industries, Inc. had constituted a single entity during such period and is not necessarily indicative of results which may be obtained in the future. Nine months ended March 31, 1998 1999 ========================================================================== (000) (000) Net sales $57,695 $62,672 Net income 1,758 1,109 Diluted net income per common share .08 .05 ========================================================================== 5. The following is a reconciliation of the weighted average number of shares used to compute basic and dilutive earnings per share before extraordinary expense:
Three Months Ended March 31, Nine Months ended March 31, ---------------------------- --------------------------- 1998 1999 1998 1999 ============================================================================================== Basic earnings per common share 19,943,000 19,300,000 16,987,000 19,736,000 Options and warrants 5,095,000 4,209,000 4,900,000 4,090,000 ---------------------------------------------------------------------------------------------- Diluted earnings per common share 25,038,000 23,509,000 21,887,000 23,826,000 ==============================================================================================
7 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 6. During the quarter ended December 31, 1998, the Company completed a financing agreement (the "Credit Agreement") with Bank of America (the "Bank"). The Credit Agreement provides 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"). Borrowings under such credit facilities bear interest at variable annual rates chosen by the Company based on either (i) the London Interbank Offered Rate ("LIBOR") plus an applicable marginal rate, or (ii) 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 Acquisition Facility terminates at October 15, 2001 and the outstanding balance is payable in quarterly payments starting with December 31, 2001 and ending with December 31, 2004. The Working Capital Facility terminates with the balance due on October 15, 2001. The Company is required to maintain a zero balance, under the Working Capital Facility, for at least 30 consecutive days during the period from July 1 to December 1 of each year. However, if the Company elects to terminate the Credit Agreement prior to the expiration date, the outstanding balance must be prepaid together with a premium of 1% to 0.5% of the total facility. 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. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain information included in this Item 2. and elsewhere in the Form 10-Q that are not historical facts contain forward looking statements that involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, the Company's growth strategy, the effect of recent acquisitions, customer concentration, outstanding indebtedness, dependence on weather conditions, seasonality, expansion and other activities of competitors, changes in federal or state environmental laws and the administration of such laws, protection of trademarks and other proprietary rights, the general condition of the economy, uncertainty relating to the Company's Year 2000 compliance efforts and the possible failure of key suppliers and customers to be Year 2000 compliant, and other risks detailed in the Company's Securities and Exchange Commission filings. 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 Easy Gardener, Inc. ("Easy Gardener"), Ampro Industries, Inc. ("Ampro"), and Golden West Agri-Products, Inc. ("Golden West"), and through Easy Gardener's wholly-owned subsidiaries, Weatherly Consumer Products Group, Inc. ("Weatherly") and Weed Wizard Acquisition, Corp. ("Weed Wizard"). Between 1992 and December 31, 1998, the Company consummated nine acquisitions of complementary lawn and garden companies and product lines for an aggregate consideration of over $104 million in cash, notes and equity securities. As a result of such acquisitions, the Company recognized a significant amount of goodwill, which, in the aggregate, was approximately $81.0 million at March 31, 1999. The Company is currently amortizing such goodwill using the straight-line method over various time periods ranging from 20 to 30 years. 9 Results of Operations The following table sets forth, for the periods indicated, certain selected financial data as a percentage of net sales:
Three Months Ended Nine Months Ended March 31, March 31, 1998 1999 1998 1999 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 44.6 47.6 45.7 48.2 ------- ------- ------- ------- Gross profit 55.4 52.4 54.3 51.8 Selling and shipping expenses 16.1 16.9 21.7 20.8 General and administrative expenses 9.2 7.6 15.5 16.0 ------- ------- ------- ------- Income from operations 30.1 27.9 17.1 15.0 Interest expense, net (2.9) (6.0) (5.5) (8.0) Income tax expense (11.5) (9.2) (4.9) (2.9) ------------------- -------------------- Net income 15.7% 12.7% 6.7% 4.1% =================== ====================
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Net sales. Net sales increased by $11.3 million, or 47.8%, to $34.8 million during the three months ended March 31, 1999 from $23.5 million during the comparable period in 1998. The increase in net sales was primarily a result of the internal growth of the Company's pre-existing product lines combined with the Company's acquisition of substantially all of the assets used in the businesses of Weed Wizard, Inc. in February 1998, Landmaster Products, Inc. in March 1998, the acquisition in May 1998 of the Tensar(R) consumer products line from the Tensar Corporation and the acquisition of Ampro Industries, Inc. in October 1998. Gross profit. Gross profit increased by $5.2 million, or 39.6%, to $18.2 million for the three months ended March 31, 1999 from $13.0 million during the comparable period in 1998. This increase was due primarily to the increase in net sales. Gross profit as a percentage of net sales decreased to 52.4% during the three months ended March 31, 1999 from 55.4% during the comparable period in 1998. The decrease in gross profit as a percentage of net sales was primarily attributable to an increase in sales of lower-margin products. Selling and shipping expenses. Selling and shipping expenses increased $2.1 million, or 54.4%, to $5.9 million during the three months ended March 31, 1999 from $3.8 million during the comparable period in 1998. This increase was primarily the result of an increase in the amount of products shipped, which was a consequence of the internal growth of the Company's pre-existing product lines combined with the acquisition of the Tensar(R) consumer products line and substantially all of the assets used in the businesses of Weed Wizard, Inc., Landmaster Products, Inc. and the acquisition of Ampro Industries, Inc. Selling and shipping expenses as a percentage of net sales increased to 16.9% during the three months ended March 31, 1999 from 16.1% during the comparable period in 1998. This increase was a result of the acquisitions over the last twelve months having higher selling and shipping expenses. 10 General and administrative expenses. General and administrative expenses increased $469,000 or 21.6%, to $2.6 million during the three months ended March 31, 1999 from $2.2 million during the comparable period in 1998. This increase was primarily due to increased amortization of goodwill of $270,000 and depreciation of $227,000 as a result of the asset acquisitions of Weed Wizard, Inc. and Landmaster Products, Inc., the acquisition of Ampro Industries, Inc. and of the Tensar(R) consumer product line. As a percentage of net sales, general and administrative expenses decreased to 7.6% during the three months ended March 31, 1999 from 9.2% during the comparable period in 1998. Income from operations. Income from operations increased by $2.6 million, or 37.2%, to $9.7 million during the three months ended March 31, 1999 from $7.1 million during the comparable period in 1998. The increase in income from operations for the 1999 period was primarily attributable to the increase in net sales, offset in part by increased selling and shipping expenses. As a percentage of net sales, income from operations decreased to 27.9% for the three months ended March 31, 1999 from 30.1% during the comparable period in 1998. The decrease in income from operations as a percentage of net sales was primarily attributable to an increase in sales of lower-margin products. Interest expense. Interest expense increased by $1.2 million, or 126.4%, to $2.1 million during the three months ended March 31, 1999, from $922,000 during the comparable period in 1998. The increase in interest expense is primarily related to the interest associated with the increase in Company debt in April 1998, associated with the issuance by U.S. Home & Garden Trust I, a subsidiary of the Company, of certain trust preferred securities, and the October 1998 borrowings under the Company's credit facility to finance the acquisition of Ampro Industries, Inc. Income taxes. Income tax expense increased to $3.2 million during the three months ended March 31, 1999 from $2.7 million during the comparable period in 1998, primarily due to the increase in net income before taxes. The income tax expense for each interim period is based upon the Company's estimated effective income tax rate for the year. Net income. Net income increased by $737,000, or 20.0%, to $4.4 million during the three months ended March 31, 1999 from $3.7 million during the comparable period in 1998. Diluted net income per common share increased $.04 to $.19 per share for the three months ended March 31, 1999 from $.15 per share during the comparable period in 1998. The increase in diluted net income per common share is primarily attributable to the increase in net income and by fewer weighted average common and common equivalent shares outstanding in the three months ended March 31, 1999 compared to the comparable period in the prior year due to the Company repurchasing common stock for approximately 1,793,000 shares during the twelve months ended March 31, 1999. In addition, the Company repurchased unit purchase options in the twelve months ended March 31, 1999 that also reduced the weighted average common and common equivalent shares outstanding in the three months ended March 31, 1999. Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31, 1998 Net sales. Net sales increased by $22.4 million, or 57.5%, to $61.5 million during the nine months ended March 31, 1999 from $39.1 million during the comparable period in 1998. The increase in net sales was primarily a result of the internal growth of the Company's pre-existing product lines combined with the Company's acquisition of substantially all of the assets used in the businesses of Weed Wizard, Inc. in February 1998, Landmaster Products, Inc. in March 1998, the acquisition in May 1998 of the Tensar(R) consumer products line from the Tensar Corporation and the acquisition of Ampro Industries, Inc. in October 1998. Gross profit. Gross profit increased by $10.7 million, or 50.5%, to $31.9 million for the nine months ended March 31, 1999 from $21.2 million during the comparable period in 1998. This increase was due primarily to the increase in net sales. Gross profit as a percentage of net sales decreased to 51.8% during the nine months ended March 31, 1999 from 54.3% during the comparable period in 1998. The decrease in gross profit as a percentage of net sales was primarily attributable to an increase in sales of lower-margin products. 11 Selling and shipping expenses. Selling and shipping expenses increased $4.3 million, or 51.4%, to $12.8 million during the nine months ended March 31, 1999 from $8.5 million during the comparable period in 1998. This increase was primarily the result of an increase in the amount of products shipped, which was a consequence of the internal growth of the Company's pre-existing product lines combined with the acquisition of the Tensar(R) consumer products line and substantially all of the assets used in the businesses of Weed Wizard, Inc., Landmaster Products, Inc. and the acquisition of Ampro Industries, Inc. Selling and shipping expenses as a percentage of net sales decreased to 20.8% during the nine months ended March 31, 1999 from 21.7% during the comparable period in 1998. This decrease was primarily as a result of economies of scale gained from the sale of new products to existing customers. General and administrative expenses. General and administrative expenses increased $3.8 million or 62.7%, to $9.9 million during the nine months ended March 31, 1999 from $6.1 million during the comparable period in 1998. This increase was primarily due to increased amortization of goodwill of $693,000 and depreciation of $493,000 as a result of the asset acquisitions of Weed Wizard, Inc. and Landmaster Products, Inc., the acquisition of Ampro Industries, Inc. and of the Tensar(R) consumer product line. Furthermore, the increase is due to the addition of certain administrative personnel related to the Company's internal growth and recent acquisitions. As a percentage of net sales, general and administrative expenses increased to 16.0% during the nine months ended March 31, 1999 from 15.5% during the comparable period in 1998. Income from operations. Income from operations increased by $2.5 million, or 38.1%, to $9.2 million during the nine months ended March 31, 1999 from $6.7 million during the comparable period in 1998. The increase in income from operations for the 1999 period was primarily attributable to the increase in net sales, offset in part by increased selling and shipping expenses and general and administrative costs. As a percentage of net sales, income from operations decreased to 15.0% for the nine months ended March 31, 1999 from 17.1% during the comparable period in 1998. The decrease in income from operations as a percentage of net sales was primarily attributable to an increase in sales of lower-margin products. Interest expense. Interest expense increased by $2.9 million, or 115.4%, to $5.4 million during the nine months ended March 31, 1999, from $2.5 million during the comparable period in 1998. The increase in interest expense is primarily related to the interest associated with the increase in Company debt in April 1998, associated with the issuance by U.S. Home & Garden Trust I, a subsidiary of the Company, of certain trust preferred securities, and borrowings under the Company's credit facility to finance the acquisition of Ampro Industries, Inc. Income taxes. Income tax expense decreased to $1.8 million during the nine months March 31, 1999 from $1.9 million during the comparable period in 1998, primarily due to the decrease in net income before taxes. The income tax expense for each interim period is based upon the Company's estimated effective income tax rate for the year. Net income. Net income decreased by $68,000, or 2.6%, to $2.5 million during the nine months ended March 31, 1999 from $2.6 million during the comparable period in 1998. Diluted net income per common share decreased $.01 to $.11 per share for the nine months ended March 31, 1999 from $.12 per share during the comparable period in 1999. The decrease in diluted income per share is primarily attributable to more weighted average common and common equivalent shares outstanding in the nine months ended March 31, 1999 compared to the comparable period in the prior year due to the Company selling 4.3 million shares of common stock in a December 1997 public offering, offset in part by the Company repurchasing common stock for approximately 1,793,000 shares during the twelve months ended March 31, 1999. In addition, the Company repurchased unit purchase options in the last twelve months that also reduced the weighted average common and common equivalent shares outstanding in the nine months ended March 31, 1999. 12 Seasonality The Company's sales are seasonal due to the nature of the lawn and garden business, in parallel with the annual growing season. The Company's sales and shipping are most active from late December through May when home lawn and garden customers are purchasing supplies for spring planting and retail stores are increasing their inventory of lawn and garden products. Sales typically decline by early to mid-summer. Sales of the Company's agriculture products, which were not material during the three and nine months ended March 31, 1999, are also seasonal. Most shipments occur during the agriculture 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 and public sales of securities and borrowings from lending institutions. At March 31, 1999, the Company had consolidated cash and short-term investments totaling $3.3 million and working capital of $31.8 million. At June 30, 1998, the Company had consolidated cash and short-term investments totaling $27.1 million and working capital of $46.7 million. In addition to the decrease in working capital associated with the seasonal nature of the Company's business, $24.6 million was used for the purchase of substantially all the assets used in the business of Ampro Industries, Inc. and $7.3 million was used for the repurchase of common stock for treasury during the nine months ended March 31, 1999. This decrease was partially offset by proceeds from the Company's bank line of credit of $31 million. Net cash used in operating activities during the nine months ended March 31, 1999 was $17.5 million consisting primarily of an increase in inventory and accounts receivable, offset in part by net income and depreciation and amortization for the period. Net cash used in investing activities during the nine months ended March 31, 1999 was $29.7 million consisting primarily of cash used for the purchase of Ampro Industries Inc., and cash used for the purchase of property and equipment and package design. Net cash provided by financing activities during the nine months ended March 31, 1999 was $23.3 million consisting primarily of proceeds from the Company's bank line of credit, partially offset by the repurchase of approximately 1,557,000 shares of common stock for treasury in the amount of $7.3 million. At this time the Company is unable to quantify the impact on its financial results for the quarter ending June 30, 1999 of certain anticipated non-recurring restructuring charges expected to arise from the Company's previously announced realignment of its operations that commenced in the quarter ended March 31, 1999. 13 On October 13, 1998, the Company entered into a credit agreement (the "Credit Agreement") with Bank of America National Trust & Savings Association (the "Bank"). The Credit Agreement provides 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"). Both of such credit facilities expire on October 15, 2001, at which time borrowings under the Acquisition Facility are payable on a term loan basis in quarterly installments commencing December 31, 2001, with the final installment maturing on September 30, 2004 and, unless refinanced, borrowings under the Working Capital Facility mature on such expiration date. In addition, borrowings under the Acquisition Facility are subject to mandatory prepayment from the net proceeds of certain dispositions of assets, and certain losses or condemnation of property, from excess cash (as defined in the Credit Agreement) generated by the Company and its subsidiaries and 50% of the net proceeds of any new issuances of the Company's capital stock after such expiration date. Mandatory prepayments by the Company prior to such expiration have the effect of reducing the Acquisition Facility by the prepayment amount. In addition, during a period of 30 consecutive days during the period July 1 to December 1 in each year, no borrowings can be outstanding under the Working Capital Facility. The Company has the right under the Credit Agreement to terminate or permanently reduce the Bank's commitments under such credit facilities in the minimum amount of $1.0 million and multiples thereof subject to the payment to the Bank of "reduction fees" of 1% of the amount terminated or reduced on or prior to December 31, 1999 and 0.5% of the amounts terminated or reduced thereafter. Borrowings under such credit facilities bear interest at variable annual rates selected by the Company based on LIBOR ("London Interbank Offered Rate"), or the higher of 0.5% above the then current Federal Funds Rate or the Bank's prime rate plus, in each case, an applicable marginal rate of interest. 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. The Company believes that its operations will generate sufficient cash flow to service the debt incurred. However, if such cash flow is not sufficient to service such debt, the Company will be required to seek additional financing which may not be available on commercially acceptable terms or at all. As of March 31, 1999, the Company has a net deferred tax liability of $1,025,000 primarily relating to depreciation and amortization in excess of the book amount. The deferred tax asset of $522,000 relates to the allowance for accounts receivable, vacation accrual and certain other balance sheet reserves. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Transactions". SFAS 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the object of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings' effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. 14 Historically, the Company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of this new standard on July 1, 1999 to affect its financial statements. Inflation Inflation has historically not had a material effect on the Company's operations. Year 2000 Overview and Background The Company has implemented a project ("the Project") to address the Year 2000 readiness of its information technology systems (e.g. telephones, alarm systems, copy machines, computer systems, etc.) which have embedded technology (collectively referred to as Systems). Additionally, the Project includes the assessment of the Year 2000 readiness of the Company's significant suppliers and customers. Status of the Project The Project is divided into four separate phases - Planning and Awareness, Inventory, Assessment, and Remediation. The Planning and Awareness phase began in October 1997 and has been completed. This phase included: (i.) development and approval of the Project charter, (ii.) formation of a Project management team to carry out the Project charter, (iii.) identification and assessment of overall Project risks and (iv.) development of a Project budget. The Inventory phase began in January 1998 and has been completed. This phase included: (i.) identification of significant Systems to be assessed and (ii.) identification of all significant suppliers and customers. The Assessment phase began in November 1998 and is substantially complete as of March 1999. This phase involves: (i.) contacting vendors of significant Systems to assess the Year 2000 readiness of those systems, (ii.) testing of the assertions made by the vendors of significant Systems', (iii.) contacting significant suppliers and customers in order to understand their state of Year 2000 readiness, (iv.) assessment of assertions made by significant suppliers and customers, (v.) determination of the extent of which remediation will be required to ensure Year 2000 readiness and (vi.) development of contingency plans to the extent considered necessary. Although the Company's assessment identified certain systems that were not currently Year 2000 compliant, these systems have either been corrected or entered the remediation phase. The Remediation phase began concurrently with the Assessment phase. Systems identified during the Assessment phase as not Year 2000 compliant immediately enter the Remediation phase. The Remediation phase is projected to be completed by mid 1999 and is currently on schedule. The activities that will be undertaken during this phase include: (i.) repairing, replacing or reprogramming all significant Systems that are not Year 2000 compliant; (ii.) validation and testing of remediated Systems; and (iii.) establishment and completion of action plans to address any Year 2000 issues with significant customers or suppliers. To date, none of the Company's other information technology projects or initiatives have been delayed or materially affected due to the implementation of the Project. 15 Costs The Company has and will utilize primarily internal resources to carry out the Project. Costs incurred to ensure the Company's Systems are Year 2000 compliant have not been and are not expected to be material to the Company's results of operations, financial position or cash flows. The Project's costs are expensed as incurred. Risks and Contingencies The Company believes the Project will meet its Year 2000 objectives in a timely manner. However, the Company has not yet completed all necessary phases of its Year 2000 initiatives. The ability of suppliers and customers with which the Company interacts to timely convert their systems to Year 2000 compliant is somewhat uncertain and not directly under the control of the Company. The Company conducts operations in various markets worldwide which may not be Year 2000 compliant because of many factors, including, but not limited to, lack of resources and lack of attention to the Year 2000 issue. Disruptions in the economy generally resulting from Year 2000 issues could also have an adverse affect on the Company's operations. Such failures could materially and adversely effect the Company's results of operations, liquidity and financial position. The Company is dependent on several single source raw material manufacturers for supply of such products as weed block fabric and shade cloth fabric. Additionally, demand for the Company's products by the Company's customers is dependent on the ability of certain high volume customers to have effective systems in place such that Year 2000 issues do not negatively effect demand. In the event of a major economic slowdown as a result of Year 2000 issues, the Company would likely be adversely effected in kind. When the economy is depressed, the home and garden industry generally is depressed as well. Failure in the systems of the Company's major suppliers or the Company's major customers could have adverse effect on the company. The Company has substantially completed its initial contingency plans. These contingency plans will be continually updated as the Project progresses and new information becomes available regarding the remediation of systems that are not Year 2000 compliant. However, the Company's contingency plans have not yet been tested to ensure that they will provide adequate safeguards for Systems that are ultimately not Year 2000 compliant. The Company intends to continue evaluating its contingency plans until Project completion. The Project's estimated percentage of completion, estimated completion dates for the various phases, and estimated costs are dependent upon management's assumptions of certain future events, such as compliance efforts, the availability of personnel trained in this area, and the ability to locate and correct relevant computer codes in all significant Systems. There can be no assurance that third parties on which the Company relies will succeed in their Year 2000 compliance efforts or that failure by a third party would not have a material adverse effect on the Company's results of operations or financial condition. Item 3 - Quantitative and Qualitative Disclosures about Market Risk Not applicable. 16 Part II - OTHER INFORMATION Item 2. Changes in Securities During the quarter ended March 31, 1999 the vesting periods of previously issued options to purchase an aggregate of 382,500 shares of the Company's common stock at $1.69 per share were extended from four years to ten years and the termination dates of 132,500 of such options were extended from three years to five years. Adoption of Preferred Share Purchase Rights Plan. During the quarter ended March 31, 1999 the Company filed a certificate of amendment to its Certificate of Incorporation with respect to the designation of a class of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Shares"). The class of Preferred Shares was created in connection with the Company's previously announced adoption of its stockholder rights plan (the "Rights Plan") which grants a purchase right (a "Right") for each outstanding share of the Company's common stock held by holders of record on the close of business on October 1, 1998 (the "Record Date"). Each Right, which is attached to the Company's common stock, entitles the registered holder, under certain circumstances, to purchase from the Company one one-thousandth of a Preferred Share of the Company at a price of $22 per one one-thousandth of a Preferred Share. The Rights will generally be exercisable only if a person or group of affiliated or associated persons have acquired beneficial ownership of 12% or more of the outstanding shares of the Company's common stock or commences, or announces an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 12% or more of the outstanding shares of the Company's common stock. The Rights will expire on October 1, 2008, unless such date is extended or unless the rights are earlier redeemed or exchanged by the Company. The Rights Plan is designed to help ensure that the Company's stockholders receive fair treatment in the event of an unsolicited attempt to gain control of the Company and was not adopted in response to any specific takeover threat. The description and terms of the Rights are set forth in a Rights Agreement between the Company and Continental Stock Transfer & Trust Company, as Rights Agent Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1 Amendment to Certificate of Incorporation to designate a class of series A junior participating preferred stock. 27.1 Financial Data Schedule for the Quarter ended March 31, 1999.* (b) No reports on Form 8-K were filed during the quarter ended March 31, 1999. - ---------- * (For SEC use only) 17 SIGNATURES6 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. Dated May 12, 1999 U.S. Home & Garden Inc. (Registrant) /s/ Robert Kassel -------------------------------------- President, Chief Executive Officer and Treasurer /s/ Lynda Gustafson -------------------------------------- Vice President of Finance (Principal Accounting Officer) 18 EX-3.1 2 CERTIFICATE OF DESIGNATION U.S. HOME & GARDEN INC. CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK SETTING FORTH THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND OF THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCK Pursuant to Section 151 of the General Corporation Law of the State of Delaware, U.S. Home & Garden Inc., a Delaware corporation (the "Corporation"), in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority given to the Directors of the Board of Directors of the Corporation by Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation on October 1, 1998, adopted the following resolution creating a series of Preferred Stock designated as Series A Junior Participating Preferred Stock. RESOLVED, that pursuant to authority conferred upon the Board of Directors of the Corporation by its Certificate of Incorporation, a Series A Junior Participating Preferred Stock of the Corporation is hereby created, and the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: Section I. Designation and Number of Shares. The shares of such series shall be designated as "Series A Junior Participating Cumulative Preferred Stock" ("Series A Preferred Stock"). The number of shares initially constituting the Series A Stock shall be 20,100; provided, however, that, if more than a total of 20,100 shares of Series A Preferred Stock shall be at any time issuable upon the exercise of Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of October 1, 1998, between the Corporation and Continental Stock Transfer and Trust Company, as Rights Agent, as amended from time to time (the "Rights Agreement"), the Board of Directors, pursuant to Section 151(g) of the DGCL, shall direct by resolution or resolutions that a certificate be properly executed, acknowledged, filed and recorded, in accordance with the provisions of Section 103 thereof, providing for the total number of shares of Series A Preferred Stock authorized to be issued to be increased (to the extent that the Certificate of Incorporation then permits) to the largest number of whole shares (rounded up to the nearest whole number) then issuable upon exercise of such Rights. Section II. Dividends and Distributions. A. Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $1.00 or (ii) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. B. The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. C. Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section III. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: A. Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. B. Except as otherwise provided in this Certificate of Incorporation, in any Preferred Stock Designation or in any certificate of designations creating any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. C. Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section IV. Certain Restrictions. A. Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: 1. declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; 2. declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; 3. redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or 4. redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. B. The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section V. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Series A Preferred Stock and may be reissued as part of a new series of Series A Preferred Stock subject to the conditions and restrictions on issuance set forth herein or in any Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section VI. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of $1.00 per share or an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up; provided, however, that in the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section VII. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section VIII. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section IX. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, junior to all other series of the Corporation's Preferred Stock. Section X. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Corporation has caused this Certificate to be duly executed on its behalf by the undersigned, its Chief Executive Officer and President this 1st day of October, 1998. U.S. HOME & GARDEN INC. By: /s/ Robert Kassel ------------------------------------- Robert Kassel, Chief Executive Officer and President EX-27 3 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AT MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1999 MAR-31-1999 3,276,000 0 35,660,000 502,000 21,273,000 61,227,000 12,551,000 0 156,852,000 29,384,000 78,750,000 0 0 21,000 55,494,000 156,852,000 61,522,000 61,522,000 29,628,000 29,628,000 0 0 5,426,000 4,310,000 1,770,000 2,540,000 0 0 0 2,540,000 .13 .11
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