-----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, KA9dL4LBwOYpZqDevWeBjJW0+TO7zSktEZLMV+jHgqKP6ZmN5cARnTrTW8KUNsOL 9Sxgd+b9+RBwgAgN6aCtXw== 0000950116-98-000647.txt : 19980325 0000950116-98-000647.hdr.sgml : 19980325 ACCESSION NUMBER: 0000950116-98-000647 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19980324 SROS: NONE 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: S-1 SEC ACT: SEC FILE NUMBER: 333-48519 FILM NUMBER: 98571633 BUSINESS ADDRESS: STREET 1: 655 MONTGOMERY ST STE 830 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156168111 MAIL ADDRESS: STREET 1: 655 MONTGOMERY ST STREET 2: SUITE 830 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL EARTH TECHNOLOGIES INC DATE OF NAME CHANGE: 19930328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US HOME & GARDEN TRUST I CENTRAL INDEX KEY: 0001057699 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-48519-01 FILM NUMBER: 98571634 BUSINESS ADDRESS: STREET 1: C/O US HOME & GARDEN INC STREET 2: 655 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156188111 MAIL ADDRESS: STREET 1: C/O US HOME & GARDEN INC STREET 2: 655 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 S-1 1 As filed with the Securities and Exchange Commission on March 24, 1998. Registration No. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ----------------
U.S. Home & Garden U.S. Home & Garden Inc. Trust I (Exact name of registrant as specified in its charter) (Exact name of co-registrant as specified in its charter) Delaware Delaware (State or other jurisdiction of incorporation or organization) (State or other jurisdiction of incorporation or organization) 2879 6719 (Primary standard industrial classification number) (Primary standard industrial classification number) 77-0262908 Applied for (IRS employer identification number) (IRS employer identification number)
655 Montgomery Street San Francisco, CA 94111 (415) 616-8111 (Address, including zip code, and telephone number, including area code, of co-registrants' principal executive offices) ---------------- Robert Kassel, President U.S. Home & Garden Inc. 655 Montgomery Street San Francisco, CA 94111 (415) 616-8111 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Robert J. Mittman, Esq. Kenneth R. Lamb, Esq. Tenzer Greenblatt LLP Gibson, Dunn & Crutcher LLP 405 Lexington Avenue One Montgomery Street New York, New York 10174 Telesis Tower Telephone No. (212) 885-5000 San Francisco, California 94104 Telecopier No. (212) 885-5001 Telephone No. (415) 393-8300 Telecopier No. (415) 986-5309 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] The Co-Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Co-Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ---------------- =============================================================================== CALCULATION OF REGISTRATION FEE
================================================================================================================ Proposed Maximum Proposed Maximum Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of Securities to be Registered Registered Per Share(1) Price(1) Registration Fee - ---------------------------------------------------------------------------------------------------------------- % Cumulative Trust Preferred Securities of U.S. Home & Garden Trust I ................ 2,530,000 (2) $ 25.00 $63,250,000 $ 18,658.75 - ---------------------------------------------------------------------------------------------------------------- % Junior Subordinated Defer- rable Interest Debentures of U.S. Home & Garden Inc.(3) - ---------------------------------------------------------------------------------------------------------------- U.S. Home & Garden Inc. Guarantee with respect to % Cumulative Trust Pre- ferred Securities(4) .......... - ---------------------------------------------------------------------------------------------------------------- Total Registration Fee(5) ................................................................... $ 18,658.75 ================================================================================================================
- -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act. (2) Includes 330,000 additional ($8,250,000 aggregate liquidation amount of) % Cumulative Trust Preferred Securities pursuant to an over-allotment option. (3) The % Junior Subordinated Deferrable Interest Debentures will be purchased by U.S. Home & Garden Trust I with the proceeds from the sale of the % Cumulative Trust Preferred Securities. Such securities may later be distributed for no additional consideration to the holders of the % Cumulative Trust Preferred Securities of U.S. Home & Garden Trust I upon its dissolution and the distribution of its assets. (4) No separate consideration will be received for the U.S Home & Garden Inc. Guarantee. (5) This Registration Statement is deemed to cover the % Junior Subordinated Deferrable Interest Debentures of U.S. Home & Garden Inc., the rights of holders of % Junior Subordinated Deferrable Interest Debentures of U.S. Home & Garden Inc. under the Indenture, the rights of holders of the % Cumulative Trust Preferred Securities of U.S. Home & Garden Trust I under the Trust Agreement, the rights of holders of the % Cumulative Trust Preferred Securities under the Guarantee and the Expense Agreement entered into by U.S. Home & Garden Inc. and certain backup undertakings as described herein, which taken together, fully, irrevocably and unconditionally guarantee all of the obligations of U.S. Home & Garden Trust I under the % Cumulative Trust Preferred Securities. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MARCH 24, 1998 2,200,000 TRUST PREFERRED SECURITIES U.S. HOME & GARDEN TRUST I % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED BY [U.S. HOME & GARDEN INC. - LOGO] --------------------- The % Cumulative Trust Preferred Securities (the "Trust Preferred Securities") offered hereby represent undivided beneficial preferred interests in the assets of U.S. Home & Garden Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"). U.S. Home & Garden Inc., a Delaware corporation (the "Company"),. . . (continued on page 3) --------------------- See "Risk Factors" beginning on Page 17 for a discussion of certain information that should be considered by prospective purchasers of the securities offered hereby. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ===============================================================================
Underwriting Price to the Discounts and Proceeds to Public Commissions(1) the Trust(2) - ------------------------------------------------------------------------------- Per Trust Preferred Security $ 25 (2) $ 25 - ------------------------------------------------------------------------------- Total(3) .................... $55,000,000 (2) $55,000,000 ===============================================================================
- -------------------------------------------------------------------------------- (1) See "Underwriting" for information concerning indemnification of the Underwriters by the Trust and the Company and other matters. (2) In view of the fact that all of the proceeds of the sale of the Trust Preferred Securities will be used to purchase the Junior Subordinated Debentures, the Company has agreed to pay the Underwriters as compensation for arranging the investment therein of such proceeds, $1.00 per Trust Preferred Security or $2,200,000 in the aggregate. See "Underwriting." The Company has also agreed to pay the expenses of the offering estimated to be $575,000. (3) The Trust has granted to the Underwriters a 30-day option to purchase up to an additional $8,250,000 aggregate liquidation amount of Trust Preferred Securities on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to the Public and Proceeds to the Trust will be $63,250,000 and $63,250,000, respectively and the total compensation to be paid by the Company to the Underwriters will be $2,530,000. See "Underwriting." --------------------- The Trust Preferred Securities are being offered hereby by the Underwriters named herein, subject to prior sale, when, as and if issued by the Trust and delivered to and accepted by the Underwriters and subject to certain prior conditions, including the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the Trust Preferred Securities will be made in New York, New York in book-entry form only through the facilities of The Depository Trust Company on or about , 1998. EVEREN Securities, Inc. Josephthal & Co. Inc. The date of this Prospectus is , 1998 [Photos of certain products] SOME OF THE COMPANY'S ACCOUNTS - ------------------------------------------------------------------------------- Home Improvement Centers Mass Merchants Co-ops - ------------------------------------------------------------------------------- Builder's Square Home Quarters Country General Ace Hardware Eagle Hardware Lowe's Kmart Mid-States Hechinger Orchard Supply Scotty's True*Serve HomeBase Yardbirds Wal-Mart Home Depot - ------------------------------------------------------------------------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE TRUST PREFERRED SECURITIES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE TRUST PREFERRED SECURITIES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 (Continued from cover page) will be the owner of all of the beneficial interests represented by common securities of the Trust (the "Common Securities" and, collectively with the Trust Preferred Securities, the "Trust Securities"). The Trust exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in an equivalent amount of ___% Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated Debentures") to be issued by the Company. The Junior Subordinated Debentures will mature on , 2028, which date may be shortened (such date, as it may be shortened, the "Stated Maturity") to a date not earlier than , 2003. The Trust Preferred Securities will have a preference under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise over the Common Securities, which will be held by the Company. See "Description of the Trust Preferred Securities--Subordination of Common Securities of the Trust Held by the Company." Holders of the Trust Preferred Securities will be entitled to receive preferential cumulative cash distributions accruing from the date of original issuance and payable monthly in arrears on the day of each calendar month of each year (subject to possible deferral as described below), commencing , 1998, at the annual rate of % of the Liquidation Amount (as defined herein) of $25 per Trust Preferred Security ("Distributions"). The amount of each Distribution due with respect to the Trust Preferred Securities will include amounts accrued through the date the Distribution payment is due. The Company will have the right, so long as no Debenture Event of Default (as defined herein) has occurred and is continuing, to defer payments of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 60 consecutive months with respect to each deferral period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due, the Company may elect to begin a new Extension Period subject to the requirements set forth herein. If interest payments on the Junior Subordinated Debentures are so deferred, Distributions on the Trust Preferred Securities will also be deferred and the Company will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to its capital stock or to make any payment with respect to its debt securities that rank pari passu with or junior to the Junior Subordinated Debentures. During an Extension Period, interest on the Junior Subordinated Debentures will continue to accrue (and the amount of Distributions to which holders of the Trust Preferred Securities are entitled will accumulate) at the rate of % per annum, compounded monthly, and holders of the Trust Preferred Securities will be required to accrue income and will be required to pay United States federal income tax on that income. See "Description of Junior Subordinated Debentures--Option to Defer Interest Payment Period" and "Certain Federal Income Tax Consequences--Interest Income and Original Issue Discount." The Company has, through the Guarantee, the Guarantee Agreement, the Trust Agreement, the Junior Subordinated Debentures, the Indenture and the Expense Agreement (each as defined herein), taken together, fully, irrevocably and unconditionally guaranteed all of the Trust's obligations under the Trust Preferred Securities. See "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee." Under the Guarantee, the Company guarantees the payment of Distributions by the Trust and payments on liquidation of or redemption of the Trust Preferred Securities (subordinate to the right to payment of Senior Debt and Subordinated Debt of the Company, each as defined herein) to the extent of funds held by the Trust. See "Description of Guarantee." If the Company does not make required payments on the Junior Subordinated Debentures held by the Trust, the Trust will have insufficient funds to pay Distributions on the Trust Preferred Securities. The Guarantee does not cover payment of Distributions when the Trust does not have sufficient funds to pay such Distributions. In such event, a holder of the Trust Preferred Securities may institute a legal proceeding directly against the Company pursuant to the terms of the Indenture to enforce payment of such Distributions to such holder. See "Description of Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of Trust Preferred Securities." The obligations of the Company under the Guarantee and the Junior Subordinated Debentures are subordinate and junior in right of payment to all Senior Debt and Subordinated Debt of the Company. "See Description of Junior Subordinated Debentures-Subordination." The Trust Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Junior Subordinated Debentures at the Stated Maturity or their earlier redemption, in each case at a redemption price equal to the aggregate liquidation preference of the Trust Preferred Securities plus any accumulated 3 and unpaid Distributions thereon to the date of redemption. The Junior Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after , 2003, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 90 days following the occurrence of a Tax Event or an Investment Company Event (each as defined herein), in each case at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures to the date fixed for redemption, plus 100% of the principal amount thereof. See "Description of the Trust Preferred Securities--Redemption." The Company will have the right at any time to dissolve the Trust and, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, cause a Like Amount (as defined herein) of the Junior Subordinated Debentures to be distributed to the holders of the Trust Securities in liquidation of the Trust. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Dissolution." In the event of the dissolution of the Trust, after satisfaction of liabilities to creditors of the Trust as required by applicable law, the holders of Trust Preferred Securities will be entitled to receive a liquidation amount of $25 per Trust Preferred Security ("Liquidation Amount"), plus accumulated and unpaid Distributions thereon to the date of payment, which may be in the form of a Distribution of such Like Amount of Junior Subordinated Debentures, subject to certain exceptions. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Dissolution." The Junior Subordinated Debentures and the Guarantee are unsecured and subordinated to all Senior Debt and Subordinated Debt. The terms of the Junior Subordinated Debentures and the Guarantee place no limitation on the amount of Senior Debt and Subordinated Debt that the Company can issue. Currently, the Company has bank credit agreements (collectively, the "Credit Facility") that consists of a $30.2 million term loan and a revolving credit facility that provides for borrowings of up to $20.0 million. The Company will apply a portion of the net proceeds of this offering to pay off the outstanding balance under the Credit Facility which was approximately $37.5 million as of March 20, 1998. The Credit Facility will then be terminated. The Company has entered into negotiations regarding a new credit facility, which may be for an amount less than the Company's current Credit Facility. Because the Company is a holding company, substantially all of the Company's assets consist of the capital stock of its subsidiaries. All obligations of the Company relating to the securities described herein will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries. The Company may cause additional trust preferred securities to be issued by trusts similar to the Trust in the future, and there is no limit on the amount of such securities that may be issued. In that event, the Company's obligations under the junior subordinated debentures to be issued to such other trusts and the Company's guarantees of the payments by such trusts will be pari passu with the Company's obligations under the Junior Subordinated Debentures and the Guarantee, respectively. The Trust Preferred Securities have been approved for listing on the American Stock Exchange, subject to notice of issuance. In order to meet the listing requirements of the American Stock Exchange, the representatives of the Underwriters have undertaken to distribute the Trust Preferred Securities to a minimum of 400 public stockholders. Although the Underwriters have indicated an intention to make a market in the Trust Preferred Securities, the Underwriters are not obligated to do so, and any market making may be discontinued at any time at the sole discretion of any of the Underwriters. There can be no assurance that a market will develop for the Trust Preferred Securities. See "Risk Factors--Absence of Existing Public Market; Market Prices" and "Underwriting." Each of the Trust Preferred Securities and, if the Junior Subordinated Debentures are distributed to holders of Trust Preferred Securities, the Junior Subordinated Debentures will be represented by one or more global certificates registered in the name of The Depository Trust Company (the "Depositary") or its nominee. Beneficial interests in the Trust Preferred Securities and, in such event, the Junior Subordinated Debentures will be shown on, and transfers thereof will be effected only through, records maintained by participants in the Depositary. The Depositary and the Paying Agent (as defined herein) will be responsible for interest and dividend payments to holders of the Trust Preferred Securities and the Junior Subordinated Debentures. Except as described herein, the Trust Preferred Securities in certificated form will not be issued in exchange for global certificates. See "Book-Entry Issuance." 4 As used herein, (i) the "Indenture" means the Junior Subordinated Indenture dated as of , 1998, as amended and supplemented from time to time, between the Company and Wilmington Trust Company, as Trustee (the "Indenture Trustee"), under which the Junior Subordinated Debentures will be issued, (ii) the "Trust Agreement" means the Amended and Restated Trust Agreement relating to the Trust among the Company, as depositor, Wilmington Trust Company, as Property Trustee (the "Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the "Delaware Trustee"), the Administrative Trustees named therein (collectively, with the Property Trustee and Delaware Trustee, the "Issuer Trustees") and the holders, from time to time, of the trust securities, (iii) the "Guarantee Agreement" means the Guarantee Agreement relating to the guarantee between the Company and Wilmington Trust Company, as Guarantee Trustee (the "Guarantee Trustee"), and (iv) the "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Company and the Trust. AVAILABLE INFORMATION The Company and the Trust have jointly filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement"), under the Securities Act of 1933 (the "Securities Act"), with respect to the offering of the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company, the Trust and the securities offered hereby, reference is made to the Registration Statement and the exhibits and the financial statements, notes and schedules filed as a part thereof or incorporated by reference therein, which may be inspected at the public reference facilities of the Commission, at the addresses set forth below. Statements made in this Prospectus concerning the contents of any documents referred to herein are not necessarily complete, and in each instance are qualified in all respects by reference to the copy of such document filed as an exhibit to the Registration Statement. The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company can be inspected and copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices of the Commission: Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048. The Commission also maintains a Web site (http://www.sec.gov) at which reports, proxy and information statements and other information regarding the Company may be accessed. No separate financial statements of the Trust have been included herein. The Company and the Trust do not consider that such financial statements would be material to holders of the Trust Preferred Securities because the Trust is a newly formed special purpose entity, has no operating history or independent operations and is not engaged in and does not propose to engage in any activity other than holding as trust assets the Junior Subordinated Debentures of the Company and issuing the Trust Securities. The Trust is a wholly-owned subsidiary of the Company, and the Company will fully, irrevocably and unconditionally guarantee all of the Trust's obligations under the Trust Preferred Securities. See "Prospectus Summary--The Company" and "--U.S. Home & Garden Trust I," "Description of the Trust Preferred Securities," "Description of Junior Subordinated Debentures" and "Description of Guarantee." The Company will provide to the holders of the Trust Preferred Securities annual reports containing financial statements audited by the Company's independent auditors and such other reports as the Company shall determine or as shall be required by law. The Company will also furnish annual reports on Form 10-K and quarterly reports on Form 10-Q (except for exhibits thereto) free of charge to holders of the Trust Preferred Securities who so request in writing to the Company. 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Prospectus contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important known and unknown risks, uncertainties and other factors that could significantly affect actual results, performance or achievements of the Company 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, uncertainties and factors include, but are not limited to, those relating to the Company's growth strategy, customer concentration, outstanding indebtedness, dependence on weather conditions, seasonality, expansion and other activities of competitors, changes in federal or state environmental laws and the administration of such laws, protection of trademarks and other proprietary rights and the general condition of the economy and its effect on the securities markets. 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-looding statements which speak only as of the date the statement was made. See "Risk Factors." The Company The Company is a leading manufacturer and marketer of a broad range of consumer lawn and garden products. The Company's products include weed preventive landscape fabrics, fertilizer spikes, decorative landscape edging, shade cloth and root feeders, which are sold under recognized brand names such as WeedBlock(R), Jobe's(R), Emerald Edge(R), Shade Fabric(TM) and Ross(R). In February 1998, the Company acquired the assets of Weed Wizard, Inc., a manufacturer and distributor of weed trimmer replacement heads, and will continue marketing the product under the "Weed Wizard" trademark. In addition, in March 1998, the Company acquired substantially all of the assets of Landmaster Products, Inc., a manufacturer and distributor of polyspun landscape fabrics. The Company believes that it has significant market share and brand-name recognition in several of its primary product categories. The Company markets its products through most large national home improvement and mass merchant retailers ("Retail Accounts"), including Home Depot, Lowe's, Kmart, Builder's Square, Wal-Mart and Home Base. The Company has experienced significant growth in recent years. Net sales, EBITDA (as defined herein) and net income grew at average compound annual rates of 63%, 77% and 42%, respectively, during the period from the fiscal year ended June 30, 1995 through the fiscal year ended June 30, 1997. The Company achieved record results from operations for the fiscal year ended June 30, 1997, with net sales, EBITDA and net income increasing to $52.0 million, $12.6 million and $3.2 million, respectively, from $27.0 million, $4.6 million and $2.5 million for the fiscal year ended June 30, 1996. The Company believes that its success has been primarily attributable to the expansion of its product lines through the acquisition of complementary lawn and garden businesses, the quality of its products, its focus on providing Retail Accounts with a single source of lawn and garden products, the efficiency and reliability of its inventory tracking and order fulfillment systems and its distinctive advertising and in-store displays. Lawn and Garden Industry Historically, the lawn and garden industry was comprised of relatively small regional manufacturers and distributors whose products were sold to consumers primarily through local nurseries and garden centers. As the industry has grown, national home improvement and mass merchant retailers have replaced many of these local garden centers as the primary retail source for lawn and garden products. In an effort to improve operating margins and reduce the number of vendors needed to source high volume lawn and garden products, the preference among home improvement and mass merchant retailers has shifted to single source suppliers such as the Company that offer broad product lines of consumer brand-name merchandise and provide the product support necessary to stimulate consumer demand and ensure timely and cost effective order fulfillment. Smaller regional suppliers generally lack the capital and other resources necessary to offer the variety and number of product lines, the product support and the inventory stocking and tracking capabilities required by home improvement and mass merchant retailers. 6 Regional manufacturers, distributors and marketers are now largely fragmented and the Company believes that many of them are attractive acquisition candidates for larger suppliers and distributors in the lawn and garden industry. The Company has historically been successful in locating, acquiring and integrating certain of these manufacturers and distributors into its business and intends to continue its acquisition program as a principal component of its growth strategy. According to the 1996-1997 National Gardening Survey, 1996 retail sales of lawn and garden products were approximately $22 billion and 64% of the approximately 101 million households in the United States participated in some form of gardening activity during 1996. In addition, sales growth in the lawn and garden industry is being driven in part by the aging of the "baby boomer" consumer segment. According to the National Gardening Survey, persons 50 years of age and older spent an average of $400 per household on lawn and garden activities in 1996. Business Strategy The Company's business objective is to be a leading single source supplier of lawn and garden products to Retail Accounts and its strategy includes: (i) marketing low-cost, high-margin products that stimulate impulse buying by consumers; (ii) supplying Retail Accounts with a broad range of brand-name products within each of its product categories; (iii) utilizing distinctive packaging and point-of-purchase product displays, new product introductions and other merchandising techniques to stimulate consumer demand; (iv) generating brand-name recognition of its products through national marketing and advertising programs; and (v) promoting Retail Account satisfaction by providing them with timely and cost efficient order fulfillment services. Growth Strategy The Company attributes its historical growth and success to its ability to capitalize on the consolidation of the lawn and garden industry by locating, acquiring and effectively integrating acquisition targets and its ability to act as an efficient single source supplier of a broad range of quality products. The Company intends to continue this growth strategy, which consists of the following principal components: o Pursue Additional Strategic Acquisitions. The Company plans to continue its primary strategy of acquiring complementary lawn and garden companies and product lines. The Company has consummated seven (7) such acquisitions since 1992 and recently entered into a non-binding letter of intent to acquire another lawn and garden product business. By consolidating companies with complementary product lines, the Company believes it can capitalize on its existing channels of distribution and gain market share by increasing sales to its Retail Accounts. o Increase Brand Awareness. The Company intends to enhance existing consumer brand awareness by expanding its advertising and marketing efforts with an emphasis on its Jobe's fertilizer spikes, a nationally-recognized brand name. The Company believes that the modernization of its Jobe's packaging, together with a national television advertising campaign targeted at the "baby boomer" consumer segment, will allow it to further capitalize on its brand name recognition. o Utilize Existing Infrastructure. The Company's management and administrative infrastructure has been designed to accommodate the integration of additional products when suitable lawn and garden companies and product lines are acquired. The Company believes that its ability to efficiently integrate new businesses and product lines into its existing infrastructure will result in significant savings in the areas of management, distribution, marketing and customer service. The Company also believes that its infrastructure, including its on-line inventory tracking and order fulfillment capabilities, allows it to be an effective and efficient source of lawn and garden products for Retail Accounts. o Focus on High-Volume Retailers. National high-volume retailers such as the Company's Retail Accounts are gaining an increasing share of the lawn and garden retail market. By focusing on the 7 emergence of high-volume retailers and their needs, including providing broad product lines, order fulfillment capabilities and marketing and merchandising programs, the Company believes that it will increase its market share and enhance its position as a leading single source supplier of lawn and garden products. Recent and Proposed Acquisitions Since August 1992, the Company has consummated the following seven (7) acquisitions of lawn and garden companies or product lines for a total of over $75 million in consideration: o Golden West Chemical Distributors, Inc. A manufacturer of humic acid-based products designed to improve crop yield, which was acquired in August 1992 for aggregate consideration of approximately $2.2 million. o Easy Gardener, Inc. A manufacturer of multiple fabric landscaping products including WeedBlock, which was acquired in September 1994 for aggregate consideration of approximately $23.5 million. o Emerald Products LLC. A manufacturer of decorative landscape edging, which was acquired in August 1995 for aggregate consideration of $935,000. o Weatherly Consumer Products Group, Inc. A manufacturer of fertilizer spikes and other lawn and garden products, which was acquired in August 1996 for aggregate consideration of approximately $25.9 million. o Plasti-Chain Product Line of Plastic Molded Concepts, Inc. A line of plastic chain links and decorative edgings, which was acquired in May 1997 for approximately $4.3 million. o Weed Wizard, Inc. A manufacturer and distributor of weed trimmer replacement heads which was acquired in February 1998 for approximately $16.0 million, of which approximately $5.0 million was based on the value of certain net current assets acquired. o Landmaster Products, Inc. A manufacturer and distributor of polyspun landscape fabrics for use by consumers and professional landscapers, substantially all of whose assets were acquired in March 1998 for approximately $3.0 million, of which approximately $750,000 was based on the value of certain net current assets acquired. In addition, the Company has entered into a non-binding letter of intent to purchase a manufacturer and distributor of lawn and garden products for approximately $4.8 million (the "Proposed Acquisition"). The Company was organized under the laws of the State of California in August 1990 under the name Natural Earth Technologies, Inc. In January 1992, the Company reincorporated under the laws of the State of Delaware and, in July 1995, changed its name to U.S. Home & Garden Inc. The Company's lawn and garden operations are conducted through its subsidiary Easy Gardener, Inc. ("Easy Gardener") and Easy Gardener's subsidiaries, Weatherly Consumer Products Group, Inc. ("Weatherly") and Weed Wizard Acquisition Corp. ("Weed Wizard"), and the Company's agricultural operations are conducted through its subsidiary Golden West Agri-Products, Inc. ("Golden West"). Except when used with respect to the Trust Preferred Securities or where the context otherwise requires, references in this Prospectus to the "Company" mean U.S. Home & Garden Inc., its subsidiaries Easy Gardener and Golden West and the subsidiaries of Easy Gardener (all such subsidiaries to be referred to herein as the "Subsidiaries"). The Company's executive offices are located at 655 Montgomery Street, San Francisco, California 94111, and its telephone number is (415) 616-8111. 8 U.S. Home & Garden Trust I The Trust is a statutory business trust created under Delaware law pursuant to (i) the trust agreement of the Trust among the Company, as depositor, the Delaware Trustee and an Administrative Trustee, and (ii) the filing of a Certificate of Trust with the Delaware Secretary of State on March 16, 1998. The Trust's business and affairs are conducted by the Property Trustee, the Delaware Trustee and three individual Administrative Trustees who are officers of the Company. The Trust exists for the exclusive purposes of: (i) issuing and selling the Trust Securities, (ii) using the proceeds from the sale of the Trust Securities to acquire the Junior Subordinated Debentures issued by the Company and (iii) engaging in only those other activities necessary, advisable or incidental thereto. The Junior Subordinated Debentures will be the sole assets of the Trust and payments by the Company under the Junior Subordinated Debentures and the Expense Agreement will be the sole revenues of the Trust. All of the Common Securities will be owned by the Company. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Trust Preferred Securities, except that upon the occurrence and during the continuance of an event of default under the Trust Agreement resulting from an event of default under the Indenture, the rights of the Company as holder of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Subordination of Common Securities of the Trust Held by the Company." The Company will acquire Common Securities in an aggregate liquidation amount equal to 3% of the total capital of the Trust. The Trust has a term of 31 years, but may dissolve earlier as provided in the Trust Agreement. The Trust's principal offices are located at 655 Montgomery Street, San Francisco, California 94111 and its telephone number is (415) 616-8111. 9 SUMMARY FINANCIAL DATA AND OTHER INFORMATION (in thousands, except percentages, ratios and per share data) The summary financial data set forth below has been derived from the Company's consolidated financial statements. Such information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company, including the notes thereto, appearing elsewhere in this Prospectus.
Year Ended June 30, -------------------------------------------------------------------- 1993 1994 1995 1996 1997 ------------ -------------- ------------ ---------- ------------ Statement of Income Data: Net sales ............................. $2,910 $ 3,063 $ 19,692 $ 27,031 $ 52,046 Gross profit .......................... 1,402 1,608 10,541 14,361 28,397 Selling, general and administrative expenses(1) ......................... 1,826 6,786 7,152 10,612 17,745 ------ -------- ---------- -------- ---------- Income (loss) from operations ......... (424) (5,178) 3,389 3,749 10,652 Interest expense, net ................. (45) (41) (1,776) (1,940) (3,262) Income (loss) before extraordinary expense ............................. (469) (5,219) 1,575 2,524 4,190 ------ -------- ---------- -------- ---------- Extraordinary gain (expense), net...... 389 -- -- -- (1,007) ------ -------- ---------- -------- ---------- Net income (loss) ..................... $ (80) $ (5,219) $ 1,575 $ 2,524 $ 3,183 ====== ======== ========== ======== ========== Dilutive income (loss) per share: Income (loss) per share before extraordinary expense(2) ............ $ (.22) $ (1.31) $ 0.16 $ 0.19 $ 0.26 Net income (loss) per share(2) ........ $ (.04) $ (1.31) $ 0.16 $ 0.19 $ 0.20 ====== ======== ========== ======== ========== Weighted average number of com- mon and common equivalent shares outstanding(2) ............... 2,178 3,980 10,125 13,361 16,068 ====== ======== ========== ======== ========== Other Data(3): EBITDA(4) ............................. $ 4,026 $ 4,583 $ 12,642 Interest expense, net ................. 1,776 1,940 3,262 Depreciation and amortization ......... 637 834 1,990 Capital expenditures .................. 151 261 528 Net cash provided by (used in) operating activities ................ 438 618 10,545 Net cash (used in) investing activities .......................... (15,576) (2,103) (29,594) Net cash provided by financing activities .......................... 16,021 1,195 20,452 Growth Rates(3): Net sales growth ...................... 37.3% 92.5% EBITDA growth(4) ...................... 13.8 175.9 Income from Operations growth ......... 10.6 184.1 Margins(3): EBITDA margin(4)(5) ................... 20.4% 17.0% 24.3% Operating income (loss) margin(6) 17.2 13.9 20.5 Net income (loss) margin .............. 8.0 9.3 6.1 Ratios: EBITDA to interest expense, net(4) .............................. 2.3x 2.4x 3.9x Earnings to fixed charges(7) .......... 468(9) 5,219(9) 1.9x 1.9x 3.1x Pro forma ratio of earnings to fixed charges(7)(8) ................. 3.6x
Six Months Ended December 31, ------------------------------ 1996 1997 -------------- -------------- Statement of Income Data: Net sales ............................. $ 12,939 $ 15,538 Gross profit .......................... 7,114 8,159 Selling, general and administrative expenses(1) ......................... 7,312 8,552 -------- -------- Income (loss) from operations ......... (198) (393) Interest expense, net ................. (1,332) (1,493) Income (loss) before extraordinary expense ............................. (1,055) (1,086) -------- -------- Extraordinary gain (expense), net...... (1,007) -- -------- -------- Net income (loss) ..................... $ (2,062) $ (1,086) ======== ======== Dilutive income (loss) per share: Income (loss) per share before extraordinary expense(2) ............ $ (0.08) $ (0.07) Net income (loss) per share(2) ........ $ (0.15) $ (0.07) ======== ======== Weighted average number of com- mon and common equivalent shares outstanding(2) ............... 13,437 15,552 ======== ======== Other Data(3): EBITDA(4) ............................. $ 760 $ 870 Interest expense, net ................. 1,332 1,493 Depreciation and amortization ......... 958 1,263 Capital expenditures .................. 230 486 Net cash provided by (used in) operating activities ................ (1,540) 682 Net cash (used in) investing activities .......................... (24,667) (1,414) Net cash provided by financing activities .......................... 25,783 11,383 Growth Rates(3): Net sales growth ...................... 20.1% EBITDA growth(4) ...................... 14.5 Income from Operations growth ......... (98.5) Margins(3): EBITDA margin(4)(5) ................... 5.9% 5.6% Operating income (loss) margin(6) ( 1.5) (2.5) Net income (loss) margin .............. (15.9) (7.0) Ratios: EBITDA to interest expense, net(4) .............................. .6x .6x Earnings to fixed charges(7) .......... 1,530(9) 1,886(9) Pro forma ratio of earnings to fixed charges(7)(8) ................. 1,488(9)
10
At December 31, 1997 -------------------------------- At June 30, 1997 Actual As Adjusted(10) ------------------ ---------- ------------------- Balance Sheet Data: Working capital ...................................... $ 2,292 $15,753 $ 30,829 Intangible assets, net ............................... 44,364 43,474 57,947 Total assets ......................................... 68,475 77,636 107,985 Short-term debt ...................................... 8,990 6,086 0 Long-term debt ....................................... 17,570 16,430 0 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures(11) ........................ 55,000 Stockholders' equity ................................. 31,926 46,616 45,335
- ------------- (1) Includes goodwill amortization expense of $91,000, $105,000, $475,000, $585,000, $1.3 million, $590,000 and $730,000 for the fiscal years ended June 30, 1993, 1994, 1995, 1996 and 1997 and the six months ended December 31, 1996 and 1997, respectively. (2) Net income (loss) per share calculations for all periods presented reflects the retroactive adoption of the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). See "Management's Discussion and Analysis of Financial Condition and Results of Operations," Summary of Accounting Policies of Consolidated Financial Statements and Note 14 of Notes to Consolidated Financial Statements. (3) Certain Other Data, Growth Rates and Margins for the fiscal years ended June 30, 1993, 1994 and 1995 have been omitted due to the lack of relevant comparison after the Company's acquisition of Easy Gardener, Inc. in September 1994. (4) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization and non-recurring charges. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be considered as an alternative to cash flow or as a measure of liquidity or as an alternative to net earnings as indicative of operating performance. The Company's reported EBITDA may not be comparable to similarly titled measures of other companies that do not have non-recurring charges. EBITDA, EBITDA growth, EBITDA margin and EBITDA to interest expense, net are included herein because management believes they are useful for measuring the Company's ability to service its debt. (5) EBITDA margin represents EBITDA divided by net sales. (6) Operating income (loss) margin represents income (loss) from operations divided by net sales. (7) For purposes of calculating the ratio and pro forma ratio of earnings to fixed charges, earnings consist of income before income taxes, plus fixed charges. Fixed charges consist of the interest expense on all indebtedness, including amortization of deferred financing costs, and the estimated representative interest factor of rental expense. (8) The average outstanding debt balances for the year ended June 30, 1997 and the six-month period ended December 31, 1997 were approximately $28,877,000 and $24,188,000, respectively, and gross interest expense was approximately $3,338,000 and $1,597,000, respectively. The pro forma ratios assume the replacement of this indebtedness with a corresponding amount of Junior Subordinated Debentures on July 1, 1996. If, on a consolidated basis, the entire $55,000,000 principal amount of Junior Subordinated Debentures had been outstanding throughout the periods, total interest expense would have been approximately $5,225,000 and $2,612,500, respectively. (9) Earnings are inadequate to cover fixed charges. Amounts shown reflect the coverage deficiency for this ratio to equal one. 11 (10) As adjusted to give effect to (i) the acquisitions by the Company of the assets of Weed Wizard, Inc. and Landmaster Products, Inc. in February and March 1998 using $10.0 million under the Credit Facility to pay a portion of the acquisition costs, and (ii) the issuance by the Trust of the 2,200,000 Trust Preferred Securities offered hereby and the receipt by the Company of the proceeds, net of estimated underwriting compensation and other estimated offering expenses, from the corresponding sale of the Junior Subordinated Debentures to the Trust, and the application of the net proceeds therefrom as described under "Use of Proceeds." Estimated underwriting compensation and other estimated offering expenses have been reflected as a deferred financing cost to be amortized over the life of the Junior Subordinated Debentures. Existing deferred financing costs related to debt to be repaid from the proceeds of this offering have been reflected as a charge to earnings. (11) The assets of the Trust consist solely of an aggregate principal amount of $56,700,000 Junior Subordinated Debentures. 12 THE OFFERING Trust Preferred Securities issuer .......... U.S. Home & Garden Trust I ("the Trust") Securities offered ......... 2,200,000 Trust Preferred Securities having a Liquidation Amount of $25 per Trust Preferred Security. The Trust Preferred Securities represent preferred undivided beneficial interests in the Trust's assets, which will consist solely of the Junior Subordinated Debentures and payments thereunder. Distributions .............. The Distributions payable on each Trust Preferred Security will be fixed at a rate per annum of % of the Liquidation Amount of $25 per Trust Preferred Security, will be cumu- lative, will accrue from the date of issuance of the Trust Preferred Securities, and will be payable monthly in arrears on the day of each calendar month of each year, com- mencing on , 1998 (subject to possible deferral as described below). The amount of each Distribution due with respect to the Trust Preferred Securities will include amounts accrued through the date the Distribution payment is due. See "Description of the Trust Preferred Securities." Extension periods .......... So long as no Debenture Event of Default (as defined herein) has occurred and is continuing, the Company will have the right, at any time, to defer payments of interest on the Junior Subordinated Debentures by extending the inter- est payment period thereon for a period not exceeding 60 consecutive months with respect to each deferral period (each an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Jun- ior Subordinated Debentures. If interest payments are so deferred, Distributions on the Trust Preferred Securities will also be deferred and the Company will not be permit- ted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to the Company's capital stock or debt securities that rank pari passu with or junior to the Junior Subordinated Deben- tures. During an Extension Period, Distributions will con- tinue to accumulate with income thereon compounded monthly. Because interest would continue to accrue and compound on the Junior Subordinated Debentures, to the extent permitted by applicable law, holders of the Trust Preferred Securities will be required to accrue income for United States federal income tax purposes. See "Descrip- tion of Junior Subordinated Debentures--Option to Defer Interest Payment Period" and "Certain Federal Income Tax Consequences--Interest Income and Original Issue Discount."
13 Maturity .......................... The Junior Subordinated Debentures will mature on , 2028 which date may be shortened (such date, as it may be shortened, the "Stated Maturity") to a date not earlier than , 2003. The Company might exercise its right to shorten the maturity of the Junior Sub- ordinated Debentures under the circumstances where a Tax Event, Investment Company Event or other undesirable event could be avoided simply by shortening the maturity of the Junior Subordinated Debentures. See "Description of Junior Subordinated Debentures--General." Redemption ........................ The Trust Securities are subject to mandatory redemption upon repayment of the Junior Subordinated Debentures at their Stated Maturity or their earlier redemption at a redemption price equal to the aggregate Liquidation Amount of the Trust Securities plus accumulated and unpaid Distributions thereon to the date of redemption. The Junior Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after , 2003 in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 90 days following the occurrence of a Tax Event or an Investment Company Event, in each case at a redemp- tion price equal to 100% of the principal amount of the Junior Subordinated Debentures so redeemed, together with any accrued but unpaid interest to the date fixed for redemption. See "Description of the Trust Preferred Securities--Redemption" and "Description of Junior Sub- ordinated Debentures--Redemption." Distribution of Junior Subordinated Debentures ......... The Company has the right at any time to dissolve the Trust, and, after satisfaction of creditors of the Trust as required by applicable law, to cause the Junior Subordinated Debentures to be distributed to holders of Trust Preferred Securities in liquidation of the Trust. See "Description of the Trust Preferred Securities-- Distribution of Junior Subordinated Debentures." Guarantee ......................... Taken together, the Company's obligations under the vari- ous documents described herein, including the Guarantee Agreement, provide a full and unconditional guarantee (the "Guarantee") of payments by the Trust of Distributions and other amounts due on the Trust Preferred Securities. Under the Guarantee Agreement, the Company guarantees the payment of Distributions by the Trust and payments on liq- uidation or redemption of the Trust Preferred Securities (subordinate to the right to payment of Senior Debt and Subordinated Debt of the Company) to the extent of funds
14 held by the Trust. If the Trust has insufficient funds to pay Distributions on the Trust Preferred Securities (i.e., if the Company has failed to make required payments under the Junior Subordinated Debentures), a holder of the Trust Pre- ferred Securities would have the right to institute a legal proceeding directly against the Company to enforce pay- ment of such Distributions to such holder. See "Description of Junior Subordinated Debentures--Enforcement of Cer- tain Rights by Holders of Trust Preferred Securities," and "--Debenture Events of Default" and "Description of Guarantee." Ranking ............... The Trust Preferred Securities will rank pari passu, and payments thereon will be made pro rata, with the Common Securities of the Trust held by the Company, except as described under "Description of the Trust Preferred Securities--Subordination of Common Securities of the Trust Held by the Company." The obligations of the Com- pany under the Guarantee, the Junior Subordinated Deben- tures and other documents described herein are unsecured and rank subordinate and junior in right of payment to all current and future Senior Debt and Subordinated Debt of the Company, the amount of which is unlimited. The Com- pany will apply a portion of the net proceeds of this offer- ing to pay off the outstanding balance under the Credit Facility, which was approximately $37.5 million as of March 20, 1998. The Credit Facility will then be termi- nated. Because the Company is a holding company, all obligations of the Company relating to the securities described herein will be effectively subordinated to all existing and future liabilities of the Company's Subsidiar- ies. The Company may cause additional trust preferred securities to be issued by trusts similar to the Trust in the future, and there is no limit on the amount of such securi- ties that may be issued. In that event, the Company's obli- gations under the junior subordinated debentures to be issued to such other trusts and the Company's guarantees of the payments by such trusts will rank pari passu with the Company's obligations under the Junior Subordinated Debentures and the Guarantee, respectively. Voting rights ......... The holders of the Trust Preferred Securities will have no voting rights except in limited circumstances. Except as provided below, the affirmative consent of the holders of at least a majority of the outstanding Trust Preferred Securi- ties will be required by the Trust for amendments to the Trust Agreement that would affect adversely the rights or privileges of the holders of the Trust Preferred Securities. The Property Trustee, the Administrative Trustees and the Company may amend the Trust Agreement without the
15 consent of holders of the Trust Preferred Securities to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust or to ensure that the Trust will not be required to register as an "invest- ment company" under the Investment Company Act, even if such action adversely affects the interests of such hold- ers. See "Description of the Trust Preferred Securities-- Voting Rights; Amendment of the Trust Agreement." ERISA considerations ......... Prospective purchasers should carefully consider the information set forth under the caption "ERISA Considerations." American Stock Exchange symbol ..................... UHG.Pr.A Use of proceeds .............. The proceeds to the Trust from the sale of the Trust Pre- ferred Securities offered hereby will be invested by the Trust in the Junior Subordinated Debentures of the Com- pany. The Company will use approximately $37.5 million of the net proceeds of the offering to pay off in full the indebtedness outstanding under the Credit Facility. The balance of the proceeds will be applied to working capital, which may include, without limitation, funding additional investments in, or extensions of credit to, the Company's operating subsidiaries for the expansion of operations. In addition, a portion of the proceeds allocated to working capital may be used for possible future acquisitions. See "Use of Proceeds."
16 RISK FACTORS Each prospective investor should carefully consider, in addition to the other information contained in this Prospectus, the following information before purchasing the Trust Preferred Securities offered hereby. Risk Factors Relating to the Offering Ranking of the Company's Obligations Under the Junior Subordinated Debentures and the Guarantee All obligations of the Company under the Guarantee, the Junior Subordinated Debentures and other documents described herein are unsecured and rank subordinate and junior in right of payment to all current and future Senior Debt and Subordinated Debt of the Company, the amount of which is unlimited. The Company will use a portion of the proceeds from this offering to pay off the outstanding balance under the Credit Facility which was $37.5 million as of March 20, 1998. The Credit Facility will then be terminated. No assurance can be given that the Company will be successful in obtaining a replacement credit facility that will be on terms favorable to the Company. In addition, no assurance can be given that any such replacement credit facility will not contain terms and conditions in addition to those already contained in the Junior Subordinated Debentures which might cause the Company to exercise its existing right under the Junior Subordinated Debentures to defer the payment of interest on the Junior Subordinated Debentures or otherwise restrict the ability of the Company to pay interest on the Junior Subordinated Debentures and, consequently, the Trust's ability to pay Distributions on the Trust Preferred Securities. In addition, because the Company is a holding company, substantially all of the Company's assets consist of the capital stock of its Subsidiaries. All obligations of the Company relating to the securities described herein will be effectively subordinated to all existing and future liabilities of the Company's Subsidiaries. As a holding company, the right of the Company to participate in any distribution of assets of any Subsidiary upon such Subsidiary's liquidation or reorganization or otherwise (and thus the ability of holders of the Trust Preferred Secur-ities to benefit indirectly from such distribution) is subject to the prior claims of creditors of that Subsidiary, except to the extent that the Company may itself be recognized as a creditor of that Subsidiary. Accordingly, the Junior Subordinated Debentures and all obligations of the Company relating to the Trust Preferred Securities will be effectively subordinated to all existing and future liabilities of the Subsidiaries and holders of the Trust Preferred Securities should look only to the assets of the Company, and not of its Subsidiaries, for principal and interest payments on the Junior Subordinated Debentures. None of the Indenture, the Guarantee, the Guarantee Agreement or the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Debt and Subordinated Debt, that may be incurred by the Company or its Subsidiaries. Further, there is no limitation on the Company's ability to issue additional junior subordinated debentures in connection with any further offerings of trust preferred securities, and such additional debentures would rank pari passu with the Junior Subordinated Debentures. See "Description of Junior Subordinated Debentures--Subordination" and "Description of Guarantee--Status of the Guarantee." Option to Defer Interest Payment Period So long as no Debenture Event of Default (as defined herein) has occurred and is continuing, the Company has the right under the Indenture to defer payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 60 consecutive months with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a consequence of any such deferral, monthly Distributions on the Trust Preferred Securities by the Trust will be deferred (and the amount of Distributions to which holders of the Trust Preferred Securities are entitled will accumulate additional amounts thereon at the rate of % per annum, compounded monthly, from the relevant payment date for such Distributions) during any such Extension Period. During any such Extension Period, the Company will be prohibited from making certain payments or distributions with respect to the Company's capital stock (including dividends on or redemptions of common or preferred stock) and from making certain payments with respect to any debt securities of the Company that rank pari passu with or junior in interest to the Junior Subordinated Debentures; however, the Company will not be restricted from (a) paying dividends or distributions in capital stock of the Company, (b) redeeming rights or taking certain other actions under 17 a stockholders rights plan, (c) making payments under the Guarantee or (d) making purchases of common stock related to the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers, employees or consultants. Further, during an Extension Period, the Company would have the ability to continue to make payments on its Senior Debt and Subordinated Debt, if any. Prior to the termination of any Extension Period, the Company may further extend such Extension Period provided that such extension does not cause such Extension Period to exceed 60 consecutive months or to extend beyond the Stated Maturity. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid (together with interest thereon at the annual rate of %, compounded monthly), the Company may elect to begin a new Extension Period subject to the above requirements. There is no limitation on the number of times that the Company may elect to begin an Extension Period. As a consequence of the Company's deferral of interest payments, holders of the Trust Preferred Securities will not receive cash distributions during such deferral periods (although the Distributions to which holders of the Trust Preferred Securities are entitled will continue to accumulate until payment in full), and the market price of the Trust Preferred Securities is likely to be adversely affected by such deferral. A holder that disposes of such holder's Trust Preferred Securities during an Extension Period, therefore, might not receive the same return on such holder's investment as a holder that continues to hold Trust Preferred Securities. See "Description of the Trust Preferred Securities--Distributions," "Description of Junior Subordinated Debentures--Option to Defer Interest Payment Period," and "Description of Junior Subordinated Debentures--Debenture Events of Default." Tax Consequences of Option to Defer Interest Payment Period and of a Deferral of Interest Payment Because the Company has no current plan to exercise its option to defer payments of interest and considers the likelihood of exercising the option to be a remote contingency as of the issue date of the Junior Subordinated Debentures, it is the Company's position that the Junior Subordinated Debentures will be treated as issued without "original issue discount" for United States federal income tax purposes. As a result, holders of Trust Preferred Securities will include interest in taxable income under their own methods of accounting (i.e., cash or accrual). However, if the Internal Revenue Service were to successfully challenge the Company's position, or if the Company exercises its right to defer payments of interest, the holders of Trust Preferred Securities will be required to include their pro rata share of original issue discount in gross income as it accrues for United States federal income tax purposes in advance of the receipt of cash. If the tax authorities successfully asserted that, as of the issue date of the Junior Subordinated Debentures, exercise of the deferment option is not a remote or incidental contingency, interest would be reportable under the contingent payment debt rules of the Treasury Regulations as of the issue date. See "Certain Federal Income Tax Consequences--Interest Income and Original Issue Discount." Should the Company elect to exercise its right to defer payments of interest in the future, the market price of the Trust Preferred Securities is likely to be adversely affected. A holder that disposes of such holder's Trust Preferred Securities during an Extension Period, therefore, might not receive the same return on such holder's investment as a holder that continues to hold Trust Preferred Securities. See "Description of Junior Subordinated Debentures--Option to Defer Interest Payment Period." Redemption Prior to Stated Maturity The Company may, at its option, on or after , 2003, redeem the Junior Subordinated Debentures in whole at any time or in part from time to time at 100% of the principal amount together with accrued but unpaid interest to the date fixed for redemption and therefore cause a mandatory redemption of the Trust Securities. In addition, upon the occurrence and during the continuation of a Tax Event or an Investment Company Event (whether occurring before or after , 2003), the Company has the right, if certain conditions are met, to redeem the Junior Subordinated Debentures in whole (but not in part) at 100% of the principal amount together with accrued but unpaid interest to the date fixed for redemption within 90 days following the occurrence of such Tax Event or Investment Company Event and therefore cause a mandatory redemption of Trust Securities. See "Description of the Trust Preferred Securities--Redemption." 18 A "Tax Event" means the receipt by the Company and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the original issuance of the Trust Preferred Secur-ities, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Junior Subordinated Debentures, (ii) interest payable by the Company on the Junior Subordinated Debentures is not, or within 90 days of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, or (iii) the Trust is, or will be within 90 days of the date of the opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. An "Investment Company Event" means the receipt by the Company and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), which change becomes effective on or after the original issuance of the Trust Preferred Securities. If less than all of the Trust Securities issued by the Trust are to be redeemed on a Redemption Date, then the aggregate Redemption Price for such Trust Securities to be redeemed shall be allocated pro rata to the Trust Preferred Securities and the Common Securities based upon the relative Liquidation Amounts of such classes. The particular Trust Preferred Securities to be redeemed shall be selected by the Property Trustee from the outstanding Trust Preferred Securities not previously called for redemption, by such method as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple thereof) of the Liquidation Amount of Trust Preferred Securities. Possible Distribution of Junior Subordinated Debentures to Holders of Trust Preferred Securities; Risk of Taxation Upon a Distribution The Company will have the right at any time to dissolve the Trust and, after satisfaction of liabilities to creditors of the Trust as required by applicable law, cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities in liquidation of the Trust. Because holders of the Trust Preferred Securities may receive Junior Subordinated Debentures in liquidation of the Trust and because Distributions are otherwise limited to payments on the Junior Subordinated Debentures, prospective purchasers of the Trust Preferred Securities are also making an investment decision with regard to the Junior Subordinated Debentures and should carefully review all the information regarding the Junior Subordinated Debentures contained herein. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Dissolution" and "Description of Junior Subordinated Debentures." If a Tax Event were to occur which would cause the Trust to be subject to United States federal income tax with respect to income received or accrued on the Junior Subordinated Debentures, a distribution of the Junior Subordinated Debentures by the Trust could be a taxable event to the Trust and the holders of the Trust Preferred Securities. See "Certain Federal Income Tax Consequences--Distribution of Junior Subordinated Debentures to Holders of Trust Preferred Securities." Shortening of Stated Maturity of Junior Subordinated Debentures The Company will have the right at any time to shorten the maturity of the Junior Subordinated Debentures to a date not earlier than five years from the date of issuance and thereby cause the Trust Preferred Securities to be redeemed on such earlier date. See "Description of Junior Subordinated Debentures--Redemption." Limitations on Direct Actions Against the Company and on Rights Under the Guarantee The Guarantee guarantees to the holders of the Trust Preferred Securities the following payments, to the extent not paid by the Trust: (i) any accumulated and unpaid Distributions required to be paid on the Trust Preferred Securities, to the extent that the Trust has funds on hand available therefor at such time, (ii) the redemption price with respect to any Trust Preferred Securities called for redemption, to the extent that the Trust has 19 funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of the Trust (unless the Junior Subordinated Debentures are distributed to holders of the Trust Preferred Securities), the lesser of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid Distributions to the date of payment to the extent that the Trust has funds on hand available therefor at such time (the "Liquidation Distribution") and (b) the amount of assets of the Trust remaining available for distribution to holders of the Trust Preferred Securities after satisfaction of liabilities to creditors of the Trust as required by applicable law. The holders of not less than a majority in aggregate liquidation amount of the Trust Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the Trust Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. If the Company were to default on its obligation to pay amounts payable under the Junior Subordinated Debentures, the Trust would lack funds for the payment of Distributions or amounts payable on redemption of the Trust Preferred Securities or otherwise, and, in such event, holders of the Trust Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, in the event a Debenture Event of Default shall have occurred and be continuing and such event is attributable to the failure of the Company to pay interest on or principal of the Junior Subordinated Debentures on the date on which such payment is due and payable, then a holder of Trust Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Junior Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Trust Preferred Securities of such holder (a "Direct Action"). In connection with such Direct Action, the Company will have a right of set-off under the Indenture to the extent of any payment made by the Company to such holder of Trust Preferred Securities in the Direct Action. Except as described herein, holders of Trust Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Junior Subordinated Debentures or assert directly any other rights in respect of the Junior Subordinated Debentures. See "Description of Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of Trust Preferred Securities" and "Description of Guarantee." The Trust Agreement provides that each holder of Trust Preferred Securities by acceptance thereof agrees to the provisions of the Guarantee Agreement and the Indenture. Ability to Make Payments on the Trust Preferred Securities and Junior Subordinated Debentures; Dependence on Subsidiaries The ability of the Trust to pay amounts due on the Trust Preferred Securities is solely dependent upon the Company making payments on the Junior Subordinated Debentures as and when required. The Company will have significant interest expense under the Junior Subordinated Debentures. As of the date hereof, after giving effect to the offering and the application of net proceeds therefrom, the Company would have no indebtedness outstanding on a consolidated basis. As a holding company without significant assets other than its equity interest in the Subsidiaries, the Company's ability to pay interest on the Junior Subordinated Debentures to the Trust (and consequently, the Trust's ability to pay distributions on the Trust Preferred Securities and the Company's ability to pay its obligations under the Guarantee) depends primarily on cash and liquid investments of the Company and upon cash dividends and interest payments the Company may receive in the future from its Subsidiaries. Such Subsidiaries' ability to make payments to the Company is subject to such Subsidiaries' profitability, financial condition, and capital expenditure and other cash flow requirements. In addition, the Indenture does not prohibit the Company or such Subsidiaries from incurring additional indebtedness including indebtedness secured by their assets or properties, or from entering into credit agreements or other financial arrangements that restrict such Subsidiaries from making payments to the Company. While the Company expects that its operating cash flow will be sufficient to cover its expenses including interest costs, there can be no assurance with respect thereto. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Limited Covenants; Absence of Sinking Fund The covenants in the Indenture are limited. The Company is not required under the Indenture to meet any financial tests that measure the Company's working capital, interest coverage or net worth in order to comply 20 with the terms of the Indenture. There are no covenants relating to the Company in the Trust Agreement. As a result, neither the Indenture nor the Trust Agreement protects holders of Junior Subordinated Debentures, or Trust Preferred Securities, respectively, in the event of a material adverse change in the Company's financial condition or results of operations, or limits the ability of the Company or any Subsidiary to incur additional indebtedness. Therefore, the provisions of these governing instruments should not be considered a significant factor in evaluating whether the Company will be able to comply with its obligations under the Junior Subordinated Debentures or the Guarantee. Further, the Junior Subordinated Debentures do not have the benefit of any sinking fund payments by the Company. Limited Voting Rights The holders of the Trust Preferred Securities will have no voting rights except in limited circumstances relating only to the modification of the Trust Preferred Securities and the exercise of the rights of the Trust as holder of the Junior Subordinated Debentures and the Guarantee. Except as provided below, the affirmative consent of the holders of at least a majority of the outstanding Trust Preferred Securities will be required by the Trust for amendments to the Trust Agreement that would affect adversely the rights or privileges of the holders of the Trust Preferred Securities. Holders of Trust Preferred Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, and such voting rights are vested exclusively in the holder of the Common Securities except upon the occurrence of certain events described herein. In no event will the holders of the Trust Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees; such voting rights are vested exclusively in the holder of the Common Securities. The Property Trustee, the Administrative Trustees and the Company may amend the Trust Agreement without the consent of holders of the Trust Preferred Securities to cure any ambiguity or make other provisions not inconsistent with the Trust Agreement or to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust or to ensure that the Trust will not be required to register as an "investment company" under the Investment Company Act, even if such action adversely affects the interests of such holders. See "Description of the Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of Trustees." Absence of Existing Public Market; Market Prices There is no existing market for the Trust Preferred Securities. The Trust Preferred Securities have been approved for listing on the American Stock Exchange, subject to notice of issuance. There can be no assurance, however, that an active and liquid trading market for the Trust Preferred Securities will develop or that continued quotation of the Trust Preferred Securities will be available on the American Stock Exchange. Although the representatives of the Underwriters have informed the Trust and the Company that the Underwriters intend to make a market in the Trust Preferred Securities offered hereby, the Underwriters are not obligated to do so and any such market making activity may be terminated at any time without notice to the holders of the Trust Preferred Securities. Future trading prices of the Trust Preferred Securities will depend on many factors including, among other things, prevailing interest rates, the operating results and financial condition of the Company, and the market for similar securities. As a result of the existence of the Company's right to defer interest payments on or shorten the Stated Maturity of the Junior Subordinated Debentures, the market price of the Trust Preferred Securities may be more volatile than the market prices of debt securities that are not subject to such optional deferrals or reduction in maturity. There can be no assurance as to the market prices for the Trust Preferred Securities or the Junior Subordinated Debentures that may be distributed in exchange for the Trust Preferred Securities if the Company exercises its right to dissolve and liquidate the Trust. Accordingly, the Trust Preferred Securities that an investor may purchase, or the Junior Subordinated Debentures that a holder of the Trust Preferred Securities may receive in liquidation of the Trust, may trade at a discount from the price that the investor paid to purchase the Trust Preferred Securities offered hereby. Risk Factors Relating to the Company Each prospective investor should carefully consider, in addition to the other information contained in this Prospectus, the following information in evaluating the Company and its business before purchasing the Trust Preferred Securities offered hereby. 21 Risks Associated with Growth Strategy The acquisition of complementary lawn and garden companies and product lines continues to be a principal component of the Company's growth strategy. The Company's ability to successfully implement its strategy will depend upon a number of factors including, among other things, the Company's ability to identify attractive acquisition candidates, to consummate such acquisitions on terms favorable to the Company, to obtain financing to consummate such acquisitions on economically acceptable terms, to retain, hire and train professional management and sales personnel at each such acquired business and to promptly and profitably integrate the acquired operations into the Company's operations. Acquiring additional businesses may also require the consent of the Company's lenders. No assurance can be given that such consent will be obtained. Any such acquisitions are likely to involve incurring additional debt or the issuance of one or more classes or series of the Company's equity securities, which could have a dilutive effect on the then outstanding Common Stock of the Company. Other than a non-binding letter of intent relating to the Proposed Acquisition, the Company currently has no agreements, commitments, understandings or arrangements with respect to any acquisition. There can be no assurance that the Proposed Acquisition will be consummated or that the Company will continue to be able to manage its expanding operations successfully, implement its acquisition strategy or that any acquired operations will be profitable or will be successfully integrated into the Company or that any such future acquisitions will not otherwise materially and adversely affect the Company. See "Business -- Recent and Proposed Acquisitions." As a result of seven prior acquisitions, the Company is required to amortize the excess of costs over net assets acquired (an aggregate of approximately $57.4 million) over a period of up to 30 years. Although such amortization does not have an effect on the Company's available capital, it will be treated as an operating expense that will reduce the Company's reported earnings. Future acquisitions could result in substantial additional amortization expenses to the Company which would reduce future earnings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and Consolidated Financial Statements. Customer Concentration; Consolidating Customer Base The Company's customers include home improvement centers, mass merchandisers, hardware stores, nurseries and garden centers and other retail channels throughout the United States. The Company's three largest customers for fiscal 1997, Home Depot, Lowe's and Kmart, accounted for approximately 26%, 10% and 7%, respectively, of its net sales during such year. During fiscal 1996, Home Depot, Lowe's, Kmart and Builder's Square accounted for 27%, 9%, 7% and 5%, respectively, of the Company's net sales. During fiscal 1995, sales to Home Depot, Kmart, Builders Square and Lowe's accounted for approximately 27%, 9%, 7% and 6%, respectively, of the Company's net sales. The Company's ten largest customers as a group accounted for 71%, 69% and 65% of its net sales during fiscal 1995, 1996 and 1997, respectively. Sales to such customers are not governed by any contractual arrangement and are made pursuant to standard purchase orders. While the Company believes that relations with its largest customers are good, the loss of any of these customers could have a material adverse effect on the Company. The Company does not have long-term purchase agreements or other contractual assurances as to future sales to these or any other Retail Accounts. The loss of, or significant reduction in sales to, such Retail Accounts could have a material adverse effect on the Company. Moreover, retail distribution channels in the lawn and garden industry have been consolidating in recent years, as home improvement and mass merchant retailers have replaced local nurseries and garden centers as the dominant source for lawn and garden products. To the extent such consolidation continues to occur, the Company's sales and profitability may be increasingly sensitive to a significant deterioration in the financial condition of, or other adverse developments in its relationships with, one or more Retail Accounts. In addition, from time to time, the Company has experienced credit losses due to customers seeking protection under bankruptcy or similar laws. Although such credit losses have not had a material adverse effect on the Company to date, there can be no assurance that future credit losses will not have a material adverse effect on the Company. See "Business -- Customers." 22 Effect of Early Repayment of Outstanding Indebtedness - Possible Need for Additional Financing The Company intends to use substantially all of the proceeds from the sale of the Junior Subordinated Debentures to repay the entire indebtedness outstanding under the Credit Facility with certain financial institutions (the "Lenders") pursuant to a credit agreement (the "Credit Agreement"). As a result of the early payment, the Company will write off deferred financing costs of approximately $1.4 million and incur a prepayment penalty of approximately $735,000 during its quarter ending March 31, 1998 which will reduce its reported income. Upon repayment of the outstanding indebtedness, the Credit Facility will be terminated and the Company will have no alternate sources of financing. Although the Company is currently negotiating new credit facilities with several banks, there can be no assurance that the Company will be able to obtain a new credit facility on terms acceptable to it, or at all. Failure to obtain a new credit facility would materially adversely affect the Company's operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Dependence on Weather Conditions Weather is a significant factor in determining market demand for the Company's products and is inherently unpredictable. Inclement weather during the spring gardening season, particularly poor weekend weather, tends to depress consumer purchases of do-it-yourself lawn and garden care products. During protracted periods of inclement weather, sales of lawn and garden products are likely to be severely diminished. In addition, lack of snow or rain during the winter may adversely affect spring growing conditions and also lower sales of lawn and garden products. Any of the foregoing may have a material adverse effect on the Company. Without limiting the generality of the foregoing, protracted or particularly severe weather conditions may adversely impact the Company's ability to comply with its obligations under the Junior Subordinated Debentures or to its lenders under any financing arrangements. In recent months, large segments of the United States (particularly the east and west coasts) have experienced severe weather conditions which may be due to a phenomenon known as "El Nino." The effects of such severe weather on the Company's operations for the balance of the current fiscal year and the fiscal year ending June 30, 1999 cannot be predicted at this time. See "--Significant Outstanding Indebtedness." Competition The consumer lawn and garden care industry is highly competitive and somewhat fragmented. The Company competes with a combination of national and regional companies ranging from large agri-chemical companies to garden catalog businesses and companies specializing in the manufacture of lawn and garden care products. Several of such companies, such as Solaris Group, a division of Monsanto Company, and the Scotts Miracle Gro Company have captured a significant, and in certain cases controlling, share of such markets. Many of the Company's competitors have achieved significant national, regional and local brand name and product recognition and engage in frequent and extensive advertising and promotional programs, both generally and in response to efforts by new competitors entering the market or existing competitors introducing new products. Many of these companies have substantially greater financial, technical, marketing and other resources than the Company. There can be no assurance that the Company will be able to compete successfully or that reacting to competitive pressures will not materially adversely affect the Company. See "Business--Competition." Dependence on Third-Party Manufacturing and Supply Arrangements The Company purchases all of the material for its primary lawn and garden product, WeedBlock, from Tredegar Industries, Inc. ("Tredegar") pursuant to a supply arrangement that can be terminated by Tredegar at any time. The Company purchases its basic materials for its other lawn and garden products from a variety of suppliers. Although the Company has purchased all of its landscape fabric supply from Tredegar for in excess of 10 years and believes that its relationship with Tredegar is good, Tredegar is free to terminate its relationship with the Company at any time and accordingly could market its fabrics to other companies, including competitors of the Company. There can be no assurance that the production capacity of Tredegar or the Company's other suppliers, manufacturers and processors will be sufficient to satisfy the Company's requirements or that alternate suppliers, manufacturers and processors will be available on commercially reasonable terms, or at all. The unavailability of certain materials, the unavailability of manufacturing and processing sources or delays either in manufacturing or in locating new manufacturing and processing sources could adversely affect the Company's 23 ability to deliver its products on a timely and competitive basis. In addition, because the Company recognizes a significant percentage of its annual sales during a few months of the year, any delay in the delivery or the unavailability of its products during such months could materially adversely affect the Company. See "Business --Conversion, Manufacturing and Supply," and "--Seasonality." Seasonality The Company's sales are highly seasonal due to the nature of the lawn and garden business, which parallels the annual growing season. The Company's sales and shipping are concentrated in the period from late December through May when customers purchase supplies for spring planting and Retail Accounts increase their inventory of lawn and garden products. To support this sales peak, the Company must anticipate demand and increase inventories of finished goods throughout the fall and winter. Accordingly, the Company's levels of raw materials and finished goods inventories tend to be at their highest, relative to sales, during the Company's first and second fiscal quarters. These factors increase variations in the Company's quarterly results of operations and potentially expose the Company to greater adverse effects of changes in economic conditions and industry trends. Moreover, actual demand for the Company's products may vary substantially from the anticipated demand, leaving the Company with either excess inventory or insufficient inventory to satisfy customer orders. Sales typically decline by early to mid-summer. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations and Seasonality," "Business--Seasonality" and "--Inventory and Distribution." Dependence on a Limited Number of Product Lines Approximately 44% and 24% of the Company's net sales for fiscal 1997 were derived from sales of landscape fabric and fertilizer spikes. In fiscal 1995 and 1996, landscape fabric represented 71% and 66% of the Company's net sales, respectively. Any adverse developments with respect to either of these product lines, whether arising from actions by existing or new competitors, the inability of the Company to obtain adequate supplies of landscape fabrics or the raw materials necessary to manufacture fertilizers, or otherwise, could have a material adverse effect on the Company. The Company has also developed a new marketing campaign for the Jobe's line of products, which has required, and will require, the allocation of significant capital and other resources by the Company. No assurance can be given that such campaign will be successful, in which case the expenditures made to date and in the future in connection with the campaign may not generate sufficient sales to be profitable or profitable at the same level as has been achieved historically in connection with the Jobe's line of products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Products" and "--Sales and Marketing." Retail Industry; General Economic Conditions The Company sells its products through retailers, including home improvement centers, mass merchandisers, hardware stores, nurseries and other retail channels. Retail sales depend, in part, on general economic conditions. A significant decline in such conditions could have a negative impact on sales by retailers of products sold by the Company and consequently could have a material adverse effect on the Company. Retail environments which are poor or perceived to be poor, whether due to economic or other conditions, may lead manufacturers and marketers, including the Company, to increase their discounting and promotional activities. Such activities could have a material adverse effect on the Company's profit margins and, consequently, its results of operations. The Company may also not be able to fully offset the impact of inflation through price increases in an unfavorable retail market. Government Regulation The Company is subject to many laws and governmental regulations and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently. Fertilizer and Pesticide Regulation. Products marketed, or which may be marketed, by the Company as fertilizers or pesticides are subject to an extensive and frequently evolving statutory and regulatory framework, at both the Federal and state levels. 24 The distribution and sale of pesticides is subject to regulation by the U.S. Environmental Protection Agency ("EPA") pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as well as regulation by many states in a manner similar to FIFRA. Under FIFRA and similar state laws, all pesticides must be registered with the EPA and the state and must be approved for their intended use. FIFRA and state regulations also impose other stringent requirements on marketing of such products. Moreover, many states also impose similar requirements upon products marketed for use as fertilizing materials, which are not typically regulated under FIFRA. Failure to comply with the requirements of FIFRA and state laws that regulate marketing and distribution of pesticides and fertilizers could result in the imposition of sanctions, including, but not limited to, suspension or restriction of product distribution, civil penalties and/or criminal sanctions. The Company markets certain animal repellent and pesticide products that are subject to FIFRA and to similar state regulations. The Company also markets certain fertilizer products that are subject to regulation in some states. The Company believes that it is in material compliance with FIFRA and applicable state regulations regarding its material business operations. However, there can be no assurance that the Company will be able to comply with future regulations in every jurisdiction in which the Company's material business operations are conducted without substantial cost or interruption of operations. Moreover, there can be no assurance that future products marketed by the Company will not also be subject to FIFRA or to state regulations. If future costs of compliance with regulations governing pesticides or fertilizers increase or exceed the Company's budgets for such items, the Company's business could be adversely affected. If any of the Company's products are distributed and/or marketed in violation of any of these regulations, the Company could be subject to a recall of, or a sales limitation placed on, one or more of its products, or civil or criminal sanctions, any of which could have a material adverse effect upon the Company's business. Environmental Regulation. The Company's manufacturing operations are subject to various evolving federal, state and local laws and regulations relating to the protection of the environment, which laws govern, among other things, emissions to air, discharges to ground, surface water and groundwater, and the generation, handling, storage, transportation, treatment and disposal of a variety of hazardous and non-hazardous substances and wastes. Federal and state environmental laws and regulations often require manufacturers to obtain permits for these emissions and discharges. Failure to comply with environmental laws or to obtain, or comply with, the necessary state and federal permits can subject the manufacturer to substantial civil and criminal penalties. Easy Gardener operates two manufacturing facilities and Weatherly and Weed Wizard each operate one manufacturing facility. The Company believes that all of its facilities are in substantial compliance with all applicable material environmental laws. However, it is possible that there are material environmental liabilities of which the Company is unaware. If the costs of compliance with the various existing or future environmental laws and regulations, including any penalties which may be assessed for failure to obtain necessary permits, exceed the Company's budgets for such items, the Company's business could be adversely affected. Potential Environmental Cleanup Liability. The Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and many similar state statutes, impose joint and several liability for environmental damages and cleanup costs on past or current owners and operators of facilities at which hazardous substances have been discharged, as well as on persons who generate, transport or arrange for disposal of hazardous substances at a particular site. In addition, the operator of a facility may be subject to claims by third parties for personal injury, property damage or other costs resulting from contamination present at or emanating from property on which its facility is located. Easy Gardener operates two manufacturing facilities and Weatherly and Weed Wizard each operate one manufacturing facility. Moreover, the Company or its predecessors have owned or operated other manufacturing facilities in the past and may have liability for remediation of such facilities in the future, to the extent any is required. In this regard, Weatherly previously owned a facility that was the subject of certain soil remediation activities. Although this facility was sold by Weatherly prior to the Company's acquisition of Weatherly, there can be no assurance that the Company will not be liable for any previously existing environmental contamination at the facility. Moreover, although the purchaser of the facility indemnified Weatherly for any environmental contamination liability and the sellers of Weatherly, in turn, indemnified the Company from such liability, there can be no assurance that, if required, the indemnifying parties will be able to fulfill their respective obligations to indemnify the Company. Furthermore, certain business operations of the Company's subsidiaries also involve shipping hazardous waste off-site for disposal. As a result, the Company could be subject to liability under these statutes. The Company could also incur liability under 25 CERCLA or similar state statutes for any damage caused as a result of the release of hazardous substances owned by the Company but processed and manufactured by others on the Company's behalf. As a result, there can be no assurance that the manufacture of the products sold by the Company will not subject the Company to liability pursuant to CERCLA or a similar state statute. Furthermore, there can be no assurance that Easy Gardener, Weatherly and Weed Wizard will not be subject to liability relating to manufacturing facilities owned and/or operated by them currently or in the past. Other Regulations. The Company is also subject to various other federal, state and local regulatory requirements such as worker health and safety, transportation, and advertising requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. See "Business--Government Regulation." Product Liability The Company, as a manufacturer of lawn and garden care and pesticide products, may be exposed to significant product liability claims by consumers. Although the Company has obtained product liability insurance coverage for U.S. Home & Garden Inc. and Golden West in the aggregate amount of $3.0 million, and for Easy Gardener, Weatherly and Weed Wizard in the aggregate amount of $2.0 million (with all policies limited to $1.0 million per occurrence), and has obtained three umbrella policies in the amounts of $5.0 million, $15.0 million and $20.0, respectively, there can be no assurance that such insurance will provide coverage for any claim against the Company or will be sufficient to cover all possible liabilities. In the event a successful suit is brought against the Company, unavailability or insufficiency of insurance coverage could have a material adverse effect on the Company. Moreover, any adverse publicity arising from claims made against the Company, even if such claims were not successful, could adversely affect the reputation and sales of the Company's products. Uncertainty of Protection of Trademarks and Proprietary Rights The Company believes that its ability to successfully implement its growth strategy is partially dependent on its ability to use its trademarks, in particular, Easy Gardener, Jobe's, Weed Wizard and WeedBlock. In addition, except for patents covering two lawn edge products currently sold by the Company and certain products obtained as a result of the acquisition of Weatherly, none of the Company's products is covered by patents. There can be no assurance that the Company will apply for any additional trademark or patent protection relating to its products or that its current trademarks and patents will be enforceable or adequately protect the Company from infringement of its proprietary rights. Although the Company believes that the products sold by it do not infringe upon the patents or violate the proprietary rights of others, it is possible that such infringement or violation has occurred or may occur. In the event that products sold by the Company are deemed to infringe upon the patents or proprietary rights of others, the Company could be required to modify its products or obtain a license for the manufacture and sale of such products. There can be no assurance that, in such an event, the Company would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon the Company. Moreover, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. In addition, if the Company's products or proposed products are deemed to infringe upon the patents or proprietary rights of others, the Company could, under certain circumstances, become liable for damages, which could also have a material adverse effect on the Company. See "Business--Trademarks, Proprietary Information and Patents." Legal Proceeding In response to a claim for trademark infringement filed on July 30, 1997 by Easy Gardener against Dalen Products, Inc. ("Dalen") in the United States District Court for the Western District of Texas, Waco Division, Dalen filed a counterclaim against Easy Gardener and a third party complaint against the Company. Dalen alleges, among other things, that the Company and Easy Gardener monopolized or attempted to monopolize the market for landscape fabrics; that the Company and Easy Gardener tortiously interfered with Dalen's contractual and prospective contractual relationships; and that Easy Gardener infringed a Dalen trademark, deceptively 26 advertised the thickness of one of its products, and misrepresented the porosity of a Dalen product. Dalen's counterclaim and third party complaint seek an award of unspecified damages and the entry of unspecified injunctive relief. An adverse ruling could have a material adverse effect on the Company. See "Business--Legal Proceeding." Dependence on Management The success of the Company will be largely dependent on the personal efforts of Robert Kassel, its Chairman of the Board, Chief Executive Officer and President, Richard Raleigh, its Chief Operating Officer, and Richard Grandy, the President of Easy Gardener, all of whom devote their full time to the affairs of the Company. Although the Company has entered into employment agreements with Mr. Kassel and Mr. Raleigh which expire on March 31, 1998, subject to automatic renewal unless terminated, and an employment agreement with Mr. Grandy that expires in August 1998, and has obtained "key man" life insurance in the amount of $2.0 million on the life of Mr. Kassel and $1.0 million on the lives of each of Messrs. Raleigh and Grandy, the loss of the services of either Mr. Kassel, Mr. Raleigh or Mr. Grandy could have a material adverse effect on the Company. In addition, the employment agreements provide that Messrs. Kassel and Raleigh will receive a significant severance payment from the Company upon a change in control of the Company or the occurrence of certain other events as described therein. The success of the Company may also be dependent, in part, upon its ability to hire and retain additional qualified sales and marketing personnel. There can be no assurance that the Company will be able to hire or retain such necessary personnel. See "Management." In addition, only two of the current five members of the Company's Board of Directors may be considered to be "independent" as they are not officers or employees of the Company or its subsidiaries. See "Certain Transactions." USE OF PROCEEDS All of the proceeds to the Trust from the sale of the Trust Preferred Securities offered by it hereby will be invested by the Trust in the Junior Subordinated Debentures. The net proceeds to the Company from the sale of the Junior Subordinated Debentures are estimated to be approximately $52,225,000 (approximately $60,145,000 if the Underwriters' over-allotment option is exercised in full) after deducting the estimated underwriting compensation and offering expenses payable by the Company. The Company expects to use the net proceeds to repay approximately $37.5 million outstanding under its Credit Facility, which consists of: (i) approximately $30.2 million outstanding under Easy Gardener's term loan, of which approximately $10.0 million was incurred in February and March 1998 to fund the purchase prices of the acquisitions of the assets of Weed Wizard, Inc. and Landmaster Products, Inc.; and (ii) approximately $7.3 million outstanding under Easy Gardener's revolving credit facility. The remaining proceeds will be allocated to working capital which may include, without limitation, funding additional investments in, or extensions of credit to, the Company's operating subsidiaries for the expansion of operations. In addition, a portion of the proceeds allocated to working capital may be used for possible future acquisitions. The Company may use a portion of the proceeds allocated to working capital to acquire businesses or products which the Company believes will enhance its business. While the Company actively seeks and evaluates possible acquisition opportunities, except for the Proposed Acquisition the Company currently has no agreements, commitments, understandings or arrangements with respect to any acquisition. There can be no assurance that the Proposed Acquisition or any other acquisition will be consummated. Proceeds not immediately required for the purposes set forth above will be invested principally in United States government securities, short-term certificates of deposit, money market funds or other investment grade interest-bearing investments. ACCOUNTING TREATMENT For financial reporting purposes, the Trust will be treated as a subsidiary of the Company and, accordingly, the accounts of the Trust will be included in the consolidated financial statements of the Company. The Trust Preferred Securities will be presented as a separate line item in the consolidated balance sheet of the Company under the caption "Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures," and appropriate disclosures about the Trust Preferred Securities, the Guarantee and the Junior Subordinated Debentures will be included in the notes to consolidated financial statements. Estimated underwriting compensation and other estimated offering expenses will be capitalized as a 27 deferred financing cost and amortized over the life of the Junior Subordinated Debentures. For financial reporting purposes, the Company will record Distributions payable on the Trust Preferred Securities and amortization of deferred financing costs as interest expense in the consolidated statements of operations. Future reports of the Company filed under the Exchange Act will include a footnote to the financial statements stating that (i) the Trust is wholly owned, (ii) the sole assets of the Trust are the Junior Subordinated Debentures (specifying the principal amount, interest rate and maturity date of such Junior Subordinated Debentures), and (iii) the back up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of the Trust under the Trust Preferred Securities. The Trust will not provide separate reports under the Exchange Act. 28 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company as of December 31, 1997 and as adjusted to give effect to: (i) the issuance by the Trust of the 2,200,000 Trust Preferred Securities offered hereby, (ii) the receipt by the Company of the proceeds, net of estimated underwriting compensation and other estimated offering expenses, from the corresponding sale of the Junior Subordinated Debentures to the Trust, and (iii) the application by the Company of the net proceeds therefrom as described under "Use of Proceeds."
December 31, 1997 ------------------------- Actual As Adjusted ---------- ------------ (Dollars in thousands) Short-term debt ............................................... $ 6,086 $ ======== ======== Notes payable, less current portion ........................... $ 16,430 $ Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures(1) ................................................ 55,000 Stockholders' equity: Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued or outstanding ................................. Common stock, $.001 par value; 30,000,000 shares authorized; 19,860,000 shares issued and outstanding(2); ............... 20 20 Additional paid-in capital ................................... 49,775 49,775 Accumulated deficit(3) ....................................... (3,179) (4,460) -------- -------- Total stockholders' equity ................................. 46,616 45,335 -------- -------- Total capitalization .................................... $ 63,046 $100,335 ======== ========
- ------------ (1) The subsidiary trust is the Trust, which will hold an aggregate principal amount of $56,700,000 of the Junior Subordinated Debentures as its sole asset. The Trust Preferred Securities are issued by the Trust. The Junior Subordinated Debentures will bear interest at the rate of % per annum and will mature on 2028, which date may be shortened to a date not earlier than , 2003 if certain conditions are met. The Junior Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after , 2003, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 90 days following the occurrence and continuation of a Tax Event or an Investment Company Event. See "Description of Junior Subordinated Debentures--Redemption." The Company owns all of the Common Securities of the Trust. (2) Does not include (i) an aggregate of approximately 2,550,000 shares of Common Stock reserved for issuance upon exercise of outstanding options under the Stock Option Plans; (ii) an aggregate of approximately 890,000 shares of Common Stock which may be issued upon exercise of options available for future grant under the Stock Option Plans; and (iii) approximately 6,270,000 shares issuable upon exercise of options granted outside of the Stock Option Plans and certain outstanding warrants, exclusive of any shares that may be issuable as a result of the anti-dilution provisions of such options and warrants. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Management--Stock Option Plan," "Certain Transactions," "Underwriting" and Note 9 of Notes to Consolidated Financial Statements. (3) The accumulated deficit, as adjusted, reflects deferred financing costs of approximately $1.4 million and a prepayment penalty of approximately $735,000 ($1,281,000 net of tax benefits) expensed as a result of the early repayment of the entire indebtedness outstanding under Easy Gardener's credit facility from the assumed use of proceeds from the sale of the Junior Subordinated Debentures to the Trust. See "Use of Proceeds." 29 SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION (in thousands, except percentages, ratios and per share data) The following selected financial data at and for the years ended June 30, 1993, 1994, 1995, 1996 and 1997 and at and for the six months ended December 31, 1996 and 1997 have been derived from the Company's consolidated financial statements. Such information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company, including the notes thereto, appearing elsewhere in this Prospectus.
Year Ended June 30, -------------------------------------------------------------- 1993 1994 1995 1996 1997 --------- ----------- ------------ ---------- ------------ Statement of Income Data: Net sales ............................. $2,910 $ 3,063 $ 19,692 $ 27,031 $ 52,046 Gross profit .......................... 1,402 1,608 10,541 14,361 28,397 Selling, general and administrative expenses(1) .......................... 1,826 6,786 7,152 10,612 17,745 ------ -------- ---------- -------- ---------- Income (loss) from operations ......... (424) (5,178) 3,389 3,749 10,652 Interest expense, net ................. (45) (41) (1,776) (1,940) (3,262) Income (loss) before extraordinary expense .............................. (469) (5,219) 1,575 2,524 4,190 ------ -------- ---------- -------- ---------- Extraordinary gain (expense), net ..... 389 (1,007) ------ -------- ---------- -------- ---------- Net income (loss) ..................... $ (80) $ (5,219) $ 1,575 $ 2,524 $ 3,183 ====== ======== ========== ======== ========== Dilutive income (loss) per share: Income (loss) per share before extraordinary expense(2) ............. $ (.22) $ (1.31) $ 0.16 $ 0.19 $ 0.26 Net income (loss) per share(2) ........ $ (.04) $ (1.31) $ 0.16 $ 0.19 $ 0.20 ====== ======== ========== ======== ========== Weighted average number of common and common equivalent shares outstanding(2) ................ 2,178 3,980 10,125 13,361 16,068 ====== ======== ========== ======== ========== Other Data(3): EBITDA(4) ............................. $ 4,026 $ 4,583 $ 12,642 Interest expense, net ................. 1,776 1,940 3,262 Depreciation and amortization ......... 637 834 1,990 Capital expenditures .................. 151 261 528 Net cash provided by (used in) operating activities ................. 438 618 10,545 Net cash (used in) investing activities ........................... (15,576) (2,103) (29,594) Net cash provided by financing activities ........................... 16,021 1,195 20,452 Growth Rates(3): Net sales growth ...................... 37.3% 92.5% EBITDA growth(4) ...................... 13.8 175.9 Income from Operations growth ......... 10.6 184.1 Margins(3): EBITDA margin(4)(5) ................... 20.4% 17.0% 24.3% Operating income (loss) margin(6) 17.2 13.9 20.5 Net income (loss) margin .............. 8.0 9.3 6.1
Six Months Ended December 31, -------------------------- 1996 1997 ------------ ------------ Statement of Income Data: Net sales ............................. $ 12,939 $15,538 Gross profit .......................... 7,114 8,159 Selling, general and administrative expenses(1) .......................... 7,312 8,552 -------- ------- Income (loss) from operations ......... (198) (393) Interest expense, net ................. (1,332) (1,493) Income (loss) before extraordinary expense .............................. (1,055) (1,086) -------- ------- Extraordinary gain (expense), net ..... (1,007) -------- ------- Net income (loss) ..................... $ (2,062) $(1,086) ======== ======= Dilutive income (loss) per share: Income (loss) per share before extraordinary expense(2) ............. $ (0.08) $ (0.07) Net income (loss) per share(2) ........ $ (0.15) $ (0.07) ======== ======= Weighted average number of common and common equivalent shares outstanding(2) ................ 13,437 15,552 ======== ======= Other Data(3): EBITDA(4) ............................. $ 760 $ 870 Interest expense, net ................. 1,332 1,493 Depreciation and amortization ......... 958 1,263 Capital expenditures .................. 230 486 Net cash provided by (used in) operating activities ................. (1,540) 682 Net cash (used in) investing activities ........................... (24,667) (1,414) Net cash provided by financing activities ........................... 25,783 11,383 Growth Rates(3): Net sales growth ...................... 20.1% EBITDA growth(4) ...................... 14.5 Income from Operations growth ......... (98.5) Margins(3): EBITDA margin(4)(5) ................... 5.9% 5.6% Operating income (loss) margin(6) (1.5) (2.5) Net income (loss) margin .............. (15.9) (7.0)
30
Six Months Ended Year Ended June 30, December 31, ------------------------------------------------------ ------------------------------ 1993 1994 1995 1996 1997 1996 1997 ------------ ------- --------- --------- --------- -------------- -------------- Ratios: EBITDA to interest expense, net(4) 2.3 x 2.4 x 3.9 x .6x .6x Earnings to fixed charges(7) ......... 468(9) 5,219(9) 1.9 x 1.9 x 3.1 x 1,530(9) 1,886(9) Pro forma ratio of earnings to fixed charges(7)(8) ....................... 3.6 x 1,488(9) At December At June 30, 31, --------------------------------------------------------- ----------- 1993 1994 1995 1996 1997 1997 -------- ---------- --------- --------- --------- ----------- Balance Sheet Data: Working capital (deficiency) ......... $ 607 $ (347) $ 3,326 $ 5,328 $ 2,292 $15,753 Intangible assets, net ............... 2,858 2,046 16,692 17,167 44,364 43,474 Total assets ......................... 5,977 5,654 28,140 33,584 68,475 77,636 Short-term debt ...................... 1,134 594 2,200 3,650 8,990 6,086 Long-term debt ....................... 8,000 6,238 17,570 16,430 Stockholders' equity ................. 3,827 3,150 15,339 19,370 31,926 46,616
- ------------ (1) Includes goodwill amortization expense of $91,000, $105,000, $475,000, $585,000, $1.3 million, $590,000 and $730,000 for the fiscal years ended June 30, 1993, 1994, 1995, 1996 and 1997 and the six months ended December 31, 1996 and 1997, respectively. (2) Net income (loss) per share calculations for all periods presented reflects the retroactive adoption of the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). See "Management's Discussion and Analysis of Financial Condition and Results of Operations," Summary of Accounting Policies of Consolidated Financial Statements and Note 14 of Notes to Consolidated Financial Statements. (3) Certain Other Data, Growth Rates and Margins for the fiscal years ended June 30, 1993, 1994 and 1995 have been omitted due to the lack of relevant comparison after the Company's acquisition of Easy Gardener, Inc. in September 1994. (4) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization and non-recurring charges. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be considered as an alternative to cash flow or as a measure of liquidity or as an alternative to net earnings as indicative of operating performance. The Company's reported EBITDA may not be comparable to similarly titled measures of other companies that do not have non-recurring charges. EBITDA, EDITDA growth, EBITDA margin, and EBITDA to interest expense, net are included herein because management believes they are useful for measuring the Company's ability to service its debt. (5) EBITDA margins represent EBITDA divided by net sales. (6) Operating income (loss) margin represents income (loss) from operations divided by net sales. (7) For purposes of calculating the ratio and pro forma ratio of earnings to fixed charges, earnings consist of income before income taxes, plus fixed charges. Fixed charges consist of the interest expense on all indebtedness, including amortization of deferred financing costs, and the estimated representative interest factor of rental expense. (8) The average outstanding debt balances for the year ended June 30, 1997 and the six-month period ended December 31, 1997 were approximately $28,877,000 and $24,188,000, respectively, and gross interest expense was approximately $3,338,000 and $1,597,000, respectively. The pro forma ratios assume the replacement of this indebtedness with a corresponding amount of Junior Subordinated Debentures on July 1, 1996. If, on a consolidated basis, the entire $55,000,000 principal amount of Junior Subordinated Debentures had been outstanding throughout the periods, total interest expense would have been approximately $5,225,000 and $2,612,500, respectively. (9) Earnings are inadequate to cover fixed changes. Amounts shown reflect the coverage deficiency for this ratio to equal one. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company manufactures and markets a broad range of brand-name consumer lawn and garden products through its wholly-owned subsidiaries, Easy Gardener and Golden West, and through Easy Gardener's wholly-owned subsidiaries, Weatherly and Weed Wizard. Since 1992, the Company has consummated seven acquisitions of complementary lawn and garden companies and product lines for an aggregate consideration of over $75 million in cash, notes and equity securities. As a result of such acquisitions, the Company has recognized a significant amount of goodwill which, in the aggregate, is approximately $57.5 million at the date of this Prospectus. The Company is currently amortizing such goodwill using the straight-line method over various time periods ranging from 20 to 30 years and amortization expenses for the fiscal year ended June 30, 1997 were $1.3 million or $0.08 per dilutive share. See Consolidated Financial Statements. The Company's results of operations for the fiscal year ended June 30, 1997 were significantly affected by the acquisition of Weatherly in August 1996. In connection with the acquisition of Weatherly, the Company's outstanding notes payable were refinanced and replaced with a new credit facility (the "Refinancing"). As a result of the Refinancing, the Company was required to record an extraordinary expense of $1.0 million, net of tax benefits, for the fiscal year ended June 30, 1997, which expense consisted of the write-off of deferred finance costs at June 30, 1996 plus prepayment penalties. Such extraordinary expense reduced the Company's net income per share for fiscal 1997 by $0.06, from $0.26 to $0.20. See Notes 13 and 14 to Notes to Consolidated Financial Statements. The Company experienced net sales growth of 37% from fiscal 1995 to fiscal 1996 and 93% from fiscal 1996 to fiscal 1997. The Company believes that this growth in net sales was primarily attributable to expansion of its product lines through the acquisition of complementary lawn and garden businesses and product lines. Net sales were also positively affected by an increase in sales of pre-existing product lines. Assuming each of the Company's first five acquisitions had been completed prior to the beginning of fiscal 1996, the growth in net sales from fiscal 1996 to fiscal 1997 would have been 15%. The Company was required to calculate its net income per share for all periods presented in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share," which is effective for periods ending after December 15, 1997 and requires the Company to report basic earnings per share (giving no dilutive effect to derivative securities) and diluted earnings per share (reflecting the dilutive effect of all derivative securities). Under the SFAS No. 128 dilutive earnings per share calculation, all derivative securities with exercise prices below the market price have been assumed exercised. All proceeds from the exercise of such derivative securities have been assumed to be used to repurchase common stock (at an average stock price). In April 1996, the Company entered into an agreement to exchange certain unsold assets held for sale for certain trade credits issued by a third party to be applied against future purchases of products and services from such third party (primarily the purchase of operating assets and advertising time). These trade credits are listed as an asset on the balance sheet of the Company. The agreement requires the Company to pay a portion of the purchase price of the products and services received, ranging from 45% to 90% of the total purchase price, and apply the trade credits to the balance. All trade credits will expire to the extent not used in April 1999 and are required to be recognized as an expense to the Company as used, with any balance remaining in April 1999 being expensed at that time. The maximum that the Company is entitled to receive in credits and cash is $1.6 million, of which the Company had received approximately $50,000 in cash and had expensed approximately $400,000 in credits as of December 31, 1997. See Note 2 of Notes to Consolidated Financial Statements. No assurance can be given that the Company will use all or any portion of such trade credits or that, to the extent that the Company uses the trade credits, such trade credits will be used in a manner likely to generate additional sales of the Company's products. See "Business -- Sales and Marketing." Results of Operations The following table sets forth, for the periods indicated, certain selected financial data as a percentage of net sales: 32
Percentages of Net Sales ------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, --------------------------------------- ------------------------- 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- Net sales ................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales ............................... 46.5 46.9 45.4 45.0 47.5 ------ ------ ------ ------ ------ Gross profit ................................ 53.5 53.1 54.6 55.0 52.5 Selling and shipping expenses ............... 22.2 23.2 21.6 30.8 30.0 General and administrative expenses ......... 14.1 16.1 12.5 25.7 25.0 ------ ------ ------ ------ ------ Income (loss) from operations ............... 17.2 13.9 20.5 (1.5) (2.5) Interest expense ............................ 9.2 7.4 6.4 10.6 10.3 Income tax (expense) benefit ................ (0.2) 2.7 (6.2) 3.7 5.2 Extraordinary expense, net .................. -- -- 1.9 (7.8) -- ------ ------ ------ ------ ------ Net income (loss) ........................... 8.0 9.3 6.1 (15.9) (6.9) ====== ====== ====== ====== ======
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31, 1996 Net sales. Net sales increased by $2.6 million, or 20%, to $15.5 million during the six months ended December 31, 1997, from $12.9 million during the comparable period in 1996. The increase in net sales was primarily a result of the August 1996 acquisition of Weatherly and the May 1997 acquisition of the Plasti-Chain line of plastic chain links and decorative edgings, combined with internal growth of the Company's pre-existing product lines. Gross profit. Gross profit increased by $1.1 million, or 15%, to $8.2 million for the six months ended December 31, 1997, from $7.1 million during the comparable period in 1996. This increase was due primarily to the Weatherly acquisition. Gross profit as a percentage of net sales decreased to 52.5% during the six months ended December 31, 1997, from 55.0% during the comparable period in 1996. The decrease in gross profit as a percentage of net sales was primarily attributable to the decrease in sales of higher-margin products. Selling and shipping expenses. Selling and shipping expenses increased $671,000, or 17%, to $4.7 million during the six months ended December 31, 1997, from $4.0 million during the comparable period in 1996. This increase was primarily the result of an increase in the amount of products shipped, which was a consequence of the acquisition of Weatherly and an increase in sales of pre-existing product lines. Selling and shipping expenses as a percentage of net sales decreased from 30.8% during the six months ended December 31, 1996, to 30.0% during the comparable period in 1997. This decrease was a result of economies of scale achieved from the sale of new products to existing customers. General and administrative expenses. General and administrative expenses increased $569,000, or 17%, to $3.9 million during the six months ended December 31, 1997 from $3.3 million during the comparable period in 1996. This increase was primarily due to increased amortization of goodwill as a result of the acquisition of Weatherly. Furthermore, the increase is due to the addition of certain administrative personnel as part of the Company's efforts to build an infrastructure that it believes will be able to more readily integrate any future products or businesses that may be acquired. As a percentage of net sales, general and administrative expenses decreased from 25.7% during the six months ended December 31, 1996, to 25.0% during the comparable period in 1997. This improvement is primarily due to the closing of the Weatherly administrative offices in February 1997 and the integration of certain administrative functions into the Company's existing infrastructure. Loss from operations. Loss from operations increased by $195,000, or 98%, to $393,000 during the six months ended December 31, 1997 from $198,000 during the comparable period in 1996. The loss from operations in actual dollars was primarily due to the seasonal nature of the business. The increase in the loss for the 1997 period was primarily attributable to the increased general and administrative costs resulting from increased amortization of goodwill and, to a lesser extent increased marketing expenses. As a percentage of net sales, loss from operations increased to 2.5% for the six months ended December 31, 1997 from 1.5% during the comparable period in 1996. Interest expense. Interest expense increased by $222,000, or 16%, to $1.6 million during the six months ended December 31, 1997, from $1.4 million during the comparable period in 1996. The increase in interest 33 expense is primarily related to the interest associated with the increase in term debt associated with the Weatherly acquisition and the acquisition of the Plasti Chain links and decorative edgings, which was partially offset by a decrease in the Company's effective borrowing rate. Income taxes. Income tax benefits increased to $800,000 during the six months ended December 31, 1997 from $475,000 during the comparable period in 1996 primarily due to the increase in the Company's effective tax rate and, to a lesser extent, the increase in the loss before income taxes and extraordinary expense. The income tax benefit for each interim period is based upon the Company's estimated effective income tax rate for the year. Extraordinary expense, net. In connection with the acquisition of Weatherly in August 1996, the Company refinanced its term debt and its revolving line of credit. As a result of its refinancing, the Company was required to record an extraordinary expense of $1.0 million net of tax benefits of $452,000, during the six months ended December 31, 1996. The expense consisted of deferred finance costs at June 30, 1996, net of accumulated amortization, plus prepayment penalties. Net loss. Net loss decreased by $976,000, or 47%, to $1.1 million during the six months ended December 31, 1997 from $2.1 million during the comparable period in 1996. This decrease was attributable to the $1.0 million extraordinary expense incurred in the 1996 period due to the refinancing. Net loss per common share decreased $0.08 to $0.07 during the six months ended December 31, 1997 from $0.15 during the comparable period in 1996. The decrease was primarily attributable to the foregoing expense incurred during the 1996 period and, to a lesser extent, the increase in the number of weighted average common and equivalent shares outstanding during the 1997 period. Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996 Net sales. Net sales increased by $25.0 million, or 93%, to $52.0 million in fiscal 1997 from $27.0 million in fiscal 1996. The increase in net sales was primarily a result of the August 1996 acquisition of Weatherly and increased sales of the Company's landscape fabrics and landscape edging products. Gross profit. Gross profit increased by $14.0 million, or 98%, to $28.4 million in fiscal 1997 from $14.4 million in fiscal 1996. This increase was due primarily to the Weatherly acquisition. Gross profit as a percentage of net sales increased to 54.6% in fiscal 1997 from 53.1% in fiscal 1996. The increase in gross profit as a percentage of net sales was primarily attributable to the sales of higher-margin products acquired in the Weatherly acquisition. Selling and shipping expenses. Selling and shipping expenses increased $4.9 million, or 78%, to $11.2 million in fiscal 1997 from $6.3 million in fiscal 1996. This increase was primarily the result of an increase in the amount of products shipped, which was a consequence of the acquisition of Weatherly and an increase in sales of pre-existing product lines, particularly landscape fabrics and landscape edging products. Selling and shipping expenses as a percentage of net sales decreased from 23.2% in fiscal 1996 to 21.6% in fiscal 1997. This decrease was primarily due to the consolidation of the Company's customer services at the Waco, Texas office and the elimination of the majority of the Weatherly sales positions in connection with the integration of the acquisition. General and administrative expenses. General and administrative expenses increased $2.1 million, or 50%, to $6.5 million in fiscal 1997 from $4.4 million in fiscal 1996. This increase was primarily the result of the acquisition of Weatherly. As a percentage of net sales, general and administrative expenses decreased from 16.1% in fiscal 1996 to 12.5% in fiscal 1997. This improvement is primarily due to the closing of the Weatherly administrative offices in February 1997 and the integration of certain administrative functions into the Company's existing infrastructure. Income from operations. Income from operations increased by $6.9 million, or 184%, to $10.7 million in fiscal 1997 from $3.8 million in fiscal 1996. The growth in income from operations in actual dollars was primarily due to the increase in net sales and gross profit as a result of the Weatherly acquisition. As a percentage of net sales, income from operations increased to 20.5% in fiscal 1997 from 13.9% in fiscal 1996. This increase was due to the decreases in selling and shipping and general and administrative expenses as a percentage of net sales. 34 Interest expense. Interest expense increased by $1.3 million, or 65%, to $3.3 million in fiscal 1997, from $2.0 million in fiscal 1996. The increase in interest expense is primarily related to the interest associated with the increase in both term and working capital debt and expenses associated with the Weatherly acquisition, partially offset by a decrease in the Company's effective borrowing rate. Income taxes. In fiscal 1996, the Company reported a tax benefit of $715,000 which was a result of the recognition of a deferred tax asset relating to available net operating loss carryforwards. In fiscal 1997, the Company incurred a tax expense of $3.2 million, excluding the benefit associated with the extraordinary expense, reflecting the Company's profitability and exhaustion of the majority of net operating loss carryforwards. Extraordinary expense, net. In connection with the acquisition of Weatherly, the Company completed the Refinancing. As a result of the Refinancing, the Company was required to record an extraordinary expense of $1.0 million net of tax benefits for fiscal 1997, which expense consisted of deferred finance costs at June 30, 1996 net of accumulated amortization, plus prepayment penalties. Net income. Net income increased $659,000, or 26%, to $3.2 million in fiscal 1997 from $2.5 million in fiscal 1996. This increase was attributable to the successful integration into Easy Gardener of the Weatherly organization in fiscal 1997, partially offset by the $1.0 million extraordinary expense, net of tax benefits, incurred due to the Refinancing. Dilutive earnings per common share increased $0.01 to $0.20 in fiscal 1997 from $0.19 in fiscal 1996. The increase was due primarily to the increase in income from operations, which was partially offset by increases in interest and income tax expense and the extraordinary expense of approximately $1.0 million net of tax benefits in fiscal 1997 which did not occur in fiscal 1996. Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995 Net sales. Net sales increased by $7.3 million, or 37%, to $27.0 million in fiscal 1996 from $19.7 million in fiscal 1995. A majority of the increase in net sales resulted from the introduction of new landscape edging and shade cloth products. In addition, the Company believes that its sales were positively affected by continued penetration in existing markets, expansion into new markets and a more widespread recognition of the Easy Gardener brand and products. The increase in net sales also resulted from the inclusion of 12 months of net sales of Easy Gardener products in the fiscal 1996 period compared to 10 months in the prior fiscal year. Gross profit. Gross profit increased by $3.8 million, or 36%, to $14.4 million in fiscal 1996 from $10.5 million in fiscal 1995, primarily due to the increase in net sales, partially offset by the inclusion of 12 months of Easy Gardener's cost of goods sold in fiscal 1996 compared to 10 months in fiscal 1995. Gross profit as a percentage of net sales decreased from 53.5% in fiscal 1995 to 53.1% in fiscal 1996. The decrease was due to a change in the product mix sold and to higher costs, during fiscal 1996, of resin and corrugated cardboard, which are the principal materials used in the manufacturing and packaging of WeedBlock. Selling and shipping expenses. Selling and shipping expenses increased by $1.9 million, or 43%, to $6.3 million in fiscal 1996 from $4.4 million in fiscal 1995. The increase was primarily the result of the increase in the amount of product shipped and the inclusion of 12 months of Easy Gardener's selling and shipping expenses in fiscal 1996 compared to 10 months in fiscal 1995. As a percentage of net sales, selling and shipping expenses increased to 23.2% in fiscal 1996 compared to 22.2% in fiscal 1995. This increase was primarily due to introductory advertising on new products. General and administrative expenses. General and administrative expenses increased by $1.6 million, or 57%, to $4.4 million in fiscal 1996 from $2.8 million in fiscal 1995. General and administrative expenses as a percentage of net sales increased to 16.1% in fiscal 1996 from 14.1% in fiscal 1995. The increase in general and administrative expenses during fiscal 1996 was primarily a result of the inclusion of 12 months of Easy Gardener's general and administrative expenses in fiscal 1996 compared to 10 months in fiscal 1995. The increase in general and administrative expenses was also due to additional amortization and depreciation expense, and additional related overhead expenses, associated with the overall increase in the size of the Company. Income from operations. Income from operations increased by approximately $400,000, or 12%, to $3.8 million in fiscal 1996 from $3.4 million in fiscal 1995. As a percentage of net sales, income from operations 35 decreased to 13.9% in fiscal 1996 from 17.2% in fiscal 1995. The decrease in income from operations as a percentage of net sales was primarily the result of a slight decrease in gross profit as a percentage of net sales, combined with more significant increases in selling and shipping and general and administrative expenses as a percentage of net sales. Interest expense. Interest expense increased by $200,000, or 11%, to $2.0 million during fiscal 1996 from $1.8 million during fiscal 1995 primarily as a result of the inclusion in fiscal 1996 of 12 months of interest on Easy Gardener's outstanding indebtedness which was incurred in connection with the purchase of the assets of Easy Gardener, Inc. in September 1994 when compared to the inclusion of such interest for only 10 months in fiscal 1995. This increase was partially offset by the February 1995 conversion of $2.0 million of convertible notes into Common Stock and the repayment of $1.6 million on other notes payable. The convertible notes and other notes payable were incurred in connection with the purchase of the assets of Easy Gardener, Inc. in September 1994. Income taxes. During fiscal 1996, the Company recorded a $715,000 tax benefit compared to a $38,000 tax expense during the fiscal 1995 primarily due to the Company's recognition of a deferred tax asset associated with Federal net operating loss carryforwards. See "-- Liquidity and Capital Resources." Net income. Net income in fiscal 1996 was $2.5 million, or $0.19 per share (assuming dilution), based on 13,361,000 weighted average common and common equivalent shares outstanding compared to net earnings of $1.6 million, or $0.16 per share, in fiscal 1995 based on 10,125,000 common and common equivalent shares outstanding. Such increase was primarily the result of the recognition of a $715,000 income tax benefit. Quarterly Results of Operations and Seasonality The Company's sales are seasonal due to the nature of the lawn and garden business, in parallel with the annual growing season. The Company's sales and shipping are most active from late December through May when home lawn and garden customers are purchasing supplies for spring planting and retail stores are increasing their inventory of lawn and garden products. Sales typically decline by early to mid-summer. Sales of the Company's agricultural products, which were not material for fiscal 1997, are also seasonal. Most shipments occur during the agricultural cultivation period from March through October. 36
Set forth below is certain unaudited quarterly financial information: Quarter Ended ----------------------------------------------- (in thousands, except percentages and per share data) September 30, December 31, March 31, 1995 1995 1996 --------------- -------------- -------------- Net sales .......................................... $ 3,265 $ 2,715 $ 10,760 Cost of sales ..................................... 1,555 1,290 5,156 ---------- --------- --------- Gross profit ...................................... 1,710 1,425 5,604 Selling, general and administrative expenses . 2,211 2,394 2,753 ---------- --------- --------- Income (loss) from operations ...................... (501) (969) 2,851 Investment income .................................. 24 10 19 Interest expense ................................... (458) (473) (541) ---------- --------- --------- Income (loss) before income taxes .................. (935) (1,432) 2,329 Income tax benefit (expense) ...................... 100 80 138 Extraordinary expense net .......................... Net income (loss) .................................. $ (835) $ (1,352) $ 2,467 ========== ========= ========= Dilutive income (loss) per share(1) ................ $ (0.08) $ (0.13) $ 0.20 ========== ========= ========= Weighted average common and common equivalent shares outstanding(1) .................. 9,944 10,200 12,535 ========== ========= ========= Net sales .......................................... 100% 100% 100% Cost of sales ..................................... 47.6% 47.5% 47.9% ---------- --------- --------- Gross profit ...................................... 52.4% 52.5% 52.1% Selling, general and administrative ............... 67.7% 88.2% 25.6% ---------- --------- --------- Income (loss) from operations ...................... (15.3%) (35.7%) 26.5% Investment income .................................. 0.7% 0.4% 0.2% Interest expense ................................... (14.0%) (17.4%) (5.0%) ---------- --------- --------- Income (loss) before income taxes .................. (28.6%) (52.7%) 21.7% Income tax benefit (expense) ....................... 3.1% 3.0% 1.3% Extraordinary expense .............................. 0% 0% 0% ---------- --------- --------- Net income (loss) .................................. (25.5%) (49.7%) 23.0% ========== ========= ========= Quarter Ended ---------------------------------------------------------------------------- (in thousands, except percentages and per share data) June 30, September 30, December 31, March 31, June 30, 1996 1996 1996 1997 1997 ------------ --------------- -------------- -------------- ------------ Net sales .......................................... $ 10,291 $ 5,523 $ 7,416 $ 20,559 $18,549 Cost of sales ..................................... 4,670 2,607 3,217 9,025 8,800 -------- --------- ---------- --------- ------- Gross profit ...................................... 5,621 2,916 4,199 11,534 9,749 Selling, general and administrative expenses . 3,252 3,264 4,048 5,539 4,894 -------- --------- ---------- --------- ------- Income (loss) from operations ...................... 2,369 (348) 151 5,995 4,855 Investment income .................................. 16 26 16 16 17 Interest expense ................................... (538) (563) (812) (993) (970) -------- --------- ---------- --------- ------- Income (loss) before income taxes .................. 1,847 (885) (645) 5,018 3,902 Income tax benefit (expense) ...................... 397 280 195 (2,075) (1,600) Extraordinary expense net .......................... (1,007) -------- --------- ---------- --------- ------- Net income (loss) .................................. $ 2,244 $ (1,612) $ (450) $ 2,943 $ 2,302 ======== ========= ========== ========= ======= Dilutive income (loss) per share(1) ................ $ 0.16 $ (0.12) $ (0.03) $ 0.18 $ 0.14 ======== ========= ========== ========= ======= Weighted average common and common equivalent shares outstanding(1) .................. 14,142 12,915 13,917 16,059 16,524 ======== ========= ========== ========= ======= Net sales .......................................... 100% 100% 100% 100% 100% Cost of sales ..................................... 45.4% 47.2% 43.4% 43.9% 47.4% -------- --------- ---------- --------- ------- Gross profit ...................................... 54.6% 52.8% 56.6% 56.1% 52.6% Selling, general and administrative ............... 31.6% 59.1% 54.6% 26.9% 26.4% -------- --------- ---------- --------- ------- Income (loss) from operations ...................... 3.0% (6.3%) 2.0% 29.2% 26.2% Investment income .................................. 0.2% 0.5% 0.2% 0.1% 0.1% Interest expense ................................... (5.3%) (10.2%) (11.0%) (4.8%) (5.3%) -------- --------- ---------- --------- ------- Income (loss) before income taxes .................. 17.9% (16.0%) (8.8%) 24.5% 21.0% Income tax benefit (expense) ....................... 3.9% 5.1% 2.6% (10.1%) (8.6%) Extraordinary expense .............................. 0% (18.2%) 0% 0% 0% -------- --------- ---------- --------- ------- Net income (loss) .................................. 21.8% (29.1%) (6.2%) 14.3% 12.4% ======== ========= ========== ========= =======
Quarter Ended ------------------------------ (in thousands, except percentages and per share data) September 30, December 31, 1997 1997 --------------- ------------- Net sales .......................................... $ 7,025 $ 8,513 Cost of sales ..................................... 3,522 3,857 --------- ------- Gross profit ...................................... 3,503 4,656 Selling, general and administrative expenses . 3,963 4,589 --------- ------- Income (loss) from operations ...................... (460) 67 Investment income .................................. 47 57 Interest expense ................................... (853) (744) --------- ------- Income (loss) before income taxes .................. (1,226) (620) Income tax benefit (expense) ...................... 550 250 Extraordinary expense net .......................... 0 --------- ------- Net income (loss) .................................. $ (716) $ (370) ========= ======= Dilutive income (loss) per share(1) ................ $ (0.05) $ (.02) ========= ======= Weighted average common and common equivalent shares outstanding(1) .................. 14,702 16,384 ========= ======= Net sales .......................................... 100% 100% Cost of sales ..................................... 50.1% 45.3% --------- ------- Gross profit ...................................... 49.9% 54.7% Selling, general and administrative ............... 56.4% 53.9% --------- ------- Income (loss) from operations ...................... (6.5%) 0.08% Investment income .................................. 0.7% 0.7% Interest expense ................................... (12.1%) (8.7%) --------- -------- Income (loss) before income taxes .................. (18.0%) 7.3% Income tax benefit (expense) ....................... 7.8% 2.9% Extraordinary expense .............................. 0% 0% --------- -------- Net income (loss) .................................. (10.2%) (4.3%) ========= ========
- -------- (1) Pursuant to SFAS No. 128, dilutive income per share was calculated using the treasury stock method except for quarters reporting a net loss. Such quarters only reflect issued and outstanding shares of Common Stock in the weighted average shares outstanding. 37 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 December 31, 1997, the Company had consolidated cash and short-term investments totalling $12.7 million and working capital of $15.8 million. At June 30, 1997, the Company had consolidated cash and short-term investments totalling $2.1 million and working capital of $2.3 million. The increase in working capital at December 31, 1997 was due primarily to the proceeds of the Company's public offering of Common Stock, which was consummated in December 1997 and which resulted in net proceeds to the Company of approximately $15.9 million. In addition, during the six months ended December 31, 1997 the Company received the proceeds of the exercise of warrants to purchase Common Stock in the amount of approximately $2.7 million. Net cash provided by operating activities for fiscal 1997 was $10.5 million, consisting primarily of net income plus depreciation and amortization and an extraordinary expense resulting from the Refinancing, an increase in accounts payable and a decrease in deferred taxes, offset in part by an increase in accounts receivable. Net cash used in investing activities for fiscal 1997 was $29.6 million, consisting primarily of cash used for the acquisition of Weatherly. Net cash provided by financing activities for fiscal 1997 was $20.5 million, consisting primarily of the additional proceeds from the notes payable used in connection with the purchase of Weatherly, and the exercise of warrants to purchase Common Stock, the proceeds of which were used primarily for the purchase of Weatherly. Net cash provided by operating activities during the six months ended December 31, 1997 was $682,000, consisting primarily of a decrease in accounts receivable plus depreciation and amortization, offset in part by a decrease in accounts payable and accrued expenses and an increase in inventory. Net cash used in investing activities during the six months ended December 31, 1997 was $1.4 million, consisting primarily of cash used for the additional purchase price for Easy Gardener, Inc. and purchases of furniture and equipment. Net cash provided by financing activities during the six months ended December 31, 1997 was $11.4 million, consisting of the $15.9 million from the Company's public offering and $2.7 million from the exercise of warrants to purchase Common Stock, offset in part by $6.3 million of payments of outstanding notes payable and $3.2 million to repurchase certain Unit Purchase Options. At December 31, 1997, the Company had consolidated term debt of $20.3 million which included debt incurred pursuant to the Refinancing and consisted of outstanding Term Loans I and II (as defined below) of $18 million and $2.25 million. In connection with the acquisition of Weatherly, Easy Gardener entered into the Credit Agreement with the Lenders. Pursuant to the Credit Agreement, the Lenders have provided the Company with the following revolving credit and term loan facilities: (a) Revolving Credit Facility: The maximum amount available for borrowing under the revolving credit facility (the "Revolving Credit Facility") from time to time is equal to the lesser of $13.0 million and a borrowing base determined by reference to specified percentages of Easy Gardener's consolidated accounts receivable and inventory deemed to be "eligible" by the Lenders. As of December 31, 1997, based on this formula, $4.5 million was available for borrowing and $2.2 million was outstanding. In April 1997, the Revolving Credit Facility was amended to provide the Company with an additional $3.0 million in available borrowing during the months of February, March, April and May of each fiscal year. Any additional borrowing must be paid by May 31 of the year in which borrowed. This additional increase is for the working capital needs during the peak season months and has the same "eligibility" requirements as the original amount. In February 1998, the Revolving Credit Facility was amended to provide the Company with a maximum amount available for borrowing thereunder of $20.0 million. Revolving credit loans bear interest at an annual rate chosen by Easy Gardener based on the prime rate of one of the lenders or the London Inter-Bank Offered Rate ("LIBOR") plus an applicable marginal rate. Under certain circumstances, outstanding prime rate loans may be converted to LIBOR rate loans at the Company's option. At December 31, 1997, the effective annual rate for outstanding borrowings under the Revolving Credit 38 Facility was 9.75%. The Revolving Credit Facility expires on June 30, 2002 (the "Expiration Date") and all outstanding revolving credit loans are then due. In addition, for a 10-day period in August of each year, all outstanding revolving credit loans must be paid and no revolving credit loans may be borrowed. Revolving credit loans may be prepaid at any time. However, if Easy Gardener elects to terminate the Revolving Credit Facility prior to the Expiration Date, the outstanding balance must be prepaid together with a premium of from 1% to 2% of the "Average Yearly Loan Balance" (as defined in the Credit Agreement) under the Revolving Credit Facility. (b) Term Loan Facility: Pursuant to this facility, Easy Gardener obtained three term loans (the "Term Loans"), one in the principal amount of $23.0 million ("Term Loan I"), $18.0 million of which was outstanding at December 31, 1997, one in the principal amount of $2.25 million ("Term Loan II"), all of which was outstanding at December 31, 1997, and one in the principal amount of $3.8 million ("Term Loan III"), all of which was paid in full and expired in November 1997. At December 31, 1997, the effective annual rate of interest for Term Loan I was 9.75%. At December 31, 1997, the effective annual rate of interest for Term Loan II was 14.5%. In connection with the Company's acquisition of Weed Wizard, Inc, in February 1998 Term Loan I and Term Loan II were consolidated into a single term loan (the "Term Loan") and the balance of the Term Loan was increased to $30.3 million. The Term Loan matures on the Expiration Date. The Term is payable in quarterly installments of principal commencing March 31, 1998. The Term Loan bears interest, at the election of Easy Gardener, at the adjusted prime rate or LIBOR rate described above, and Easy Gardener may from time to time, subject to certain restrictions, convert the Term Loan from a prime rate loan to a LIBOR rate loan. As of the date of this Prospectus approximately $18.0 million of the Term Loan bears interest at 9.1% and the balance bears interest at 9.75%. Interest on the Term Loan is payable monthly in arrears on prime rate loans and at the end of the interest period for a LIBOR rate loan if the interest period is three months or less or on the last day of each three-month interval during the interest period if it is longer than three months. If Easy Gardener elects to pay the Term Loan in full at any time prior to the Expiration Date, Easy Gardener is also obligated to pay a premium of from 1% to 2% of the amount prepaid. The Term Loan is subject to certain mandatory prepayments of principal from "excess cash flow" (as defined in the Credit Agreement) of Easy Gardener and certain net proceeds of asset sales, condemnation awards and insurance recoveries. Mandatory prepayment of principal of the Term Loan on account of "excess cash flow", if any, will be due in October of the following fiscal year. No mandatory prepayment under the Term Loans was due in October 1997. Easy Gardener's obligation to pay the principal of, interest on, premium, if any, and all other amounts payable on account of the Revolving Credit Facility and the Term Loan is secured by substantially all of the assets of Easy Gardener and its subsidiaries and the irrevocable guaranties of the Company and Easy Gardener's subsidiaries. Upon the occurrence of an event of default specified in the Credit Agreement, the maturity of the outstanding principal amounts of the Revolving Credit Facility and the Term Loan may be accelerated by the lenders who may also foreclose on the secured assets of Easy Gardener and its subsidiaries. Under the Credit Agreement (a) Easy Gardener is required, among other things, to comply with certain limitations on incurring additional indebtedness, liens, guaranties, capital and operating lease expenses in excess of a specified amount per year, and sales of assets and payment of dividends and (b) Easy Gardener and the Company must comply with certain limitations on merger, liquidations, changes in business, investments, loans and advances, or certain acquisition of subsidiaries. In addition, Easy Gardener must comply with certain minimum interest coverage, debt service and fixed charge rates, not permit its Net Worth (as defined in the Credit Agreement) to be less than certain amounts and generate certain minimum amounts of income before interest expenses, taxes, depreciation and amortization. A violation of any of these covenants constitutes an event of default under the Credit Agreement. The Company intends to use substantially all of the proceeds from the sale of the Junior Subordinated Debentures to repay the entire indebtedness outstanding under the Credit Facility. As a result of the early payment, the Company will write off deferred financing costs of approximately $1.4 million and incur a prepayment penalty of approximately $735,000 during its quarter ending March 31, 1998 which will reduce its reported income. Upon repayment of the outstanding indebtedness, the Credit Facility will be terminated and the Company will have no alternate sources of financing. Although the Company is currently negotiating new credit facilities with several banks, there can be no assurance that the Company will be able to obtain a new credit facility on terms acceptable to it, or at all. Failure to obtain a new credit facility would materially adversely affect the Company's operations. 39 As of December 31, 1997, the Company had a deferred tax liability of $650,000 and a deferred tax asset of $1.1 million (net of a $302,000 valuation allowance), the majority of which relates to the tax benefit associated with the accumulated net operating losses of approximately $3.4 million for Federal income tax purposes which expire in 2011. For California income tax purposes, the Company accumulated net operating losses of approximately $3.6 million which expire at various times through 2001. Based upon the estimated taxable income to be apportioned to California over the next few fiscal years and considering the expiration date of the net operating loss carryovers, the Company has established a valuation reserve relating to the majority of the estimated $302,000 tax benefit associated with the California net operating loss carryovers. In January 1997, the Company borrowed $550,000 in the aggregate from certain lenders. The loans were used to satisfy short term working capital requirements. In July 1997, the Company repaid $200,000 of the loans and the $350,000 balance was converted into 154,000 shares of Common Stock. The Department of Labor has recently advised the Company that it is examining the method used by the Company to calculate overtime wage payments and whether the Company should be required to pay certain workers at its Waco, Texas facilities additional monies as a result thereof. Although there can be no assurance, the Company believes that any payments it will be required to make will not have a material adverse effect on the Company. The Company anticipates spending approximately $4.0 million, including anticipated use of a portion of existing trade credits, in the fiscal year ending June 30, 1998 on a combination of media development, print, radio and television advertising, co-operative advertising (advertising done in conjunction with retailers), and attendance at trade shows and public relations to promote awareness, understanding and brand identification of its lawn and garden products. In May 1997, the Company purchased from Plastic Molded Concepts, Inc. certain assets relating to its Plasti-Chain Line of products for approximately $4.3 million. The purchase price was paid through the use of the Revolving Credit Facility and Term Loan III. In February 1998, the Company completed its acquisition of Weed Wizard, Inc. for a purchase price of approximately $16.0 million, of which approximately $5.0 million was based on the value of certain current assets acquired. In March 1998 the Company completed its acquisition of Landmaster Products, Inc. for a purchase price of approximately $3.0 million, of which approximately $750,000 was based on the value of certain net assets acquired. The Company has entered into a non-binding letter of intent to purchase a manufacturer and distributor of outdoor lawn and garden products for approximately $4.8 million. Recent Accounting Pronouncement In February 1997, the Financial Accounting Standards Board ("FASB") issued a Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is effective for both interim and annual periods ending after December 15, 1997. SFAS No. 128 requires the calculation and presentation of basic earnings per share (giving no dilutive effect to derivative securities) and dilutive earnings per share (reflecting the dilutive effect of all derivative securities). Accordingly, the Company has adopted SFAS No. 128 in its December 31, 1997 interim financial statements. As required by SFAS No. 128, all prior earnings have been restated to reflect the retroactive application of this pronouncement. Inflation Inflation has historically not had a material effect on the Company's operations. 40 BUSINESS General The Company is a leading manufacturer and marketer of a broad range of consumer lawn and garden products. The Company's products include weed preventive landscape fabrics, fertilizer spikes, decorative landscape edging, shade cloth, root feeders and weed trimmer replacement heads, which are sold under recognized brand names such as WeedBlock(R), Jobe's(R), Emerald Edge(R), Shade FabricTM, Ross(R) and Weed WizardTM. The Company believes that it has significant market share and brand-name recognition in several of its primary product categories. The Company markets its products through most large national home improvement and mass merchant retailers ("Retail Accounts"), including Home Depot, Lowe's, Kmart, Builder's Square, Wal-Mart and Home Base. The Company has experienced significant growth in recent years and believes that its success has been primarily attributable to the expansion of its product lines through the acquisition of complementary lawn and garden businesses, the quality of its products, its focus on providing Retail Accounts with a single source of lawn and garden products, the efficiency and reliability of its inventory tracking and order fulfillment systems and its distinctive advertising and store displays. Lawn and Garden Industry Historically, the lawn and garden industry was comprised of relatively small regional manufacturers and distributors whose products were sold to consumers primarily through local nurseries and garden centers. As the industry has grown, national home improvement and mass merchant retailers have replaced many of these local garden centers as the primary retail source for lawn and garden products. In an effort to improve operating margins and reduce the number of vendors needed to source high volume lawn and garden products, the preference among home improvement and mass merchant retailers has shifted towards single source suppliers that offer broad product lines of consumer brand-name merchandise and the product support necessary to stimulate consumer demand and ensure timely and cost effective order fulfillment. Smaller regional suppliers generally lack the capital and other resources necessary to offer the variety and number of product lines, the product support and the inventory stocking and tracking capabilities required by home improvement and mass merchant retailers. Regional manufacturers, distributors and marketers are now largely fragmented and the Company believes that many of them are attractive acquisition candidates for larger, single source suppliers and distributors in the lawn and garden industry. The Company has historically been successful in locating, acquiring and integrating certain of these manufacturers and distributors into its business and intends to continue its acquisition program as a principal component of its growth strategy. According to the 1996-1997 National Gardening Survey, 1996 retail sales of lawn and garden products were approximately $22 billion, and 64% of the approximately 101 million households in the United States participated in some form of gardening activity during 1996. In addition, sales growth in the lawn and garden industry is being driven in part by the aging of the "baby boomer" consumer segment. According to the National Gardening Survey, persons 50 years of age and older spent an average of $400 per household on lawn and garden activities in 1996. Business Strategy The Company's business objective is to be a leading single source supplier to Retail Accounts and its strategy includes the following key components: o Market Low-Cost, High-Margin Products. The Company focuses on manufacturing and marketing low-cost, high-margin products, such as landscape fabric, fertilizer spikes, landscape edging, shade cloth and root feeders, with suggested retail prices generally ranging from $2 to $30. The Company believes that such point-of-purchase products stimulate impulse buying by consumers and provide high margins with relatively low price sensitivity. 41 o Supply a Wide Variety of Products. The Company supplies Retail Accounts with several product lines, such as landscape fabric, fertilizer spikes, landscape edging, shade cloth and root feeders. Within such product categories the Company offers a broad range of products. For example, the Company's landscape fabrics are available in both woven and non-woven fabrics of varying grades of thickness. Similarly, the Company's fertilizer, plant food and insecticide spikes are designed for a wide variety of indoor and outdoor plants, including multiple types of trees, flowers, vegetable plants and shrubs. o Capitalize on Point-of-Purchase Displays. The Company utilizes distinctive packaging and point-of-purchase product displays, new product introductions and other merchandising techniques to stimulate consumer purchases. The Company's sales representatives periodically visit individual Retail Accounts to assist them in achieving innovative and optimal use of the Company's product displays through prominent product placement and inventory management. o Utilize Marketing and Advertising Programs. The Company uses national and regional marketing and advertising programs to generate consumer brand-name recognition of its product lines. The Company retains agencies that market and advertise its products through television programs, newspaper inserts and weekly circulars. o Promote Retail Account Satisfaction. The Company promotes Retail Account satisfaction by providing timely and efficient order fulfillment services. The Company maintains a sophisticated retail data information system which enables it to provide timely order fulfillment so that Retail Accounts are not required to maintain a large inventory of the Company's products. Growth Strategy The Company attributes its historical growth and success to its ability to capitalize on the consolidation of the lawn and garden industry by locating, acquiring and effectively integrating acquisition targets and its ability to act as an efficient single source supplier of a broad range of quality products. The Company intends to continue this growth strategy, which consists of the following principal components: o Pursue Additional Strategic Acquisitions. The Company plans to continue its primary strategy of acquiring complementary lawn and garden companies and product lines. The Company has consummated seven (7) such acquisitions since 1992 and recently entered into a non-binding letter of intent to acquire another lawn and garden product business. By consolidating companies with complementary product lines, the Company believes it can capitalize on its existing channels of distribution and gain market share by increasing sales to its Retail Accounts. o Increase Brand Awareness. The Company intends to enhance existing consumer brand awareness by expanding its advertising and marketing efforts with an emphasis on its Jobe's fertilizer spikes, a nationally-recognized brand name. The Company believes that the modernization of its Jobe's packaging, together with a national television advertising campaign targeted at the "baby boomer" consumer segment, will allow it to further capitalize on its brand-name recognition. o Utilize Existing Infrastructure. The Company's management and administration infrastructure has been designed to accommodate the integration of additional products when suitable lawn and garden companies and product lines are acquired. The Company believes that its ability to efficiently integrate new businesses and product lines into its existing infrastructure will result in significant savings in the areas of management, distribution, marketing and customer service. The Company also believes that its infrastructure, including its on-line inventory tracking and order fulfillment capabilities, allows it to be an effective and efficient source of lawn and garden products for Retail Accounts. o Focus on High-Volume Retailers. National high-volume retailers such as the Company's Retail Accounts are gaining an increasing share of the lawn and garden retail market. By focusing on the emergence of high-volume retailers and their needs, including providing broad product lines, order fulfillment capabilities and marketing and merchandising programs, the Company believes that it will increase its market share and enhance its position as a leading single source supplier of lawn and garden products. 42 Recent and Proposed Acquisitions Since August 1992, the Company has consummated the following seven (7) acquisitions of lawn and garden companies or product lines for a total of over $75.0 million in consideration: o Golden West Chemical Distributors, Inc. A manufacturer of humic acid-based products designed to improve crop yield, which was acquired in August 1992 for approximately $1.1 million in cash and $1.1 million of promissory notes. o Easy Gardener, Inc. A manufacturer of multiple fabric landscaping products including WeedBlock(R), which was acquired in September 1994 for approximately $21.3 million consisting of $8.8 million in cash, a $10.5 million promissory note and two convertible notes each in the principal amount of $1.0 million. Approximately $2.2 million of additional purchase price was contingent on Easy Gardener meeting certain income requirements. A total of approximately $1.2 million of the additional amount has been paid to date and the remaining $1.0 million is payable in fiscal 1999. o Emerald Products LLC. A manufacturer of decorative landscape edging, which was acquired in August 1995 for $835,000 in cash and a $100,000 promissory note. o Weatherly Consumer Products Group, Inc. A manufacturer of fertilizer spikes and other lawn and garden products, which was acquired in August 1996 for 1,000,000 shares of Common Stock valued at $3.0 million and approximately $22.9 million in cash. o Plasti-Chain Product Line of Plastic Molded Concepts, Inc. A line of plastic chain links and decorative edgings, which was acquired from Plastic Molded Concepts, Inc. in May 1997 for approximately $4.3 million in cash. o Weed Wizard, Inc. A manufacturer and distributor of weed trimmer replacement heads, which was acquired in February 1998 for approximately $16.0 million, of which approximately $5.0 million was based on the value of certain net assets acquired. For its 1996 and 1997 fiscal years, Weed Wizard Inc. achieved net income of $900,000 and $900,000 on revenues of $8.0 and $7.1 million, respectively. The decrease in revenues was primarily the result of a decrease in aggregate sales of Weed Wizard and Weed Wizard II (the "Weed Wizard Line") of over $3.0 million in 1997 from their 1996 levels. Sales of the Weed Wizard Line decreased mainly due to (i) Weed Wizard Inc's decision to allow its retail customers to replace their inventories of older models of the Weed Wizard Line for improved models of such products at no cost and (ii) unfavorable weather conditions in 1997. Although Weed Wizard Inc. believes that allowing the replacement of the older inventory at no cost generated goodwill with its retail customers, no assurance can be given that sales of the Weed Wizard Line will return to their 1996 levels. o Landmaster Products, Inc. A manufacturer and distributor of polyspun landscape fabrics for use by consumers and professional landscapers, substantially all of whose assets were acquired in March 1998 for approximately $3.0 million, of which approximately $750,000 was based on the value of certain assets acquired. In addition, the Company has entered into a non-binding letter of intent to purchase a manufacturer and distributor of lawn and garden products for approximately $4.8 million. Products Landscape Fabric. The Company markets different types of landscape fabric in varying thicknesses and strengths under the trade names WeedBlock, WeedBlock 6TM, MicroPore(R), Pro WeedBlockTM and WeedShieldTM. Landscape fabrics allow water, nutrients and oxygen to filter through to soil but prevent weed growth by blocking sunlight to prevent seeds from germinating. The Company's primary landscape fabrics are made from non-woven fabrics which are generally manufactured with extruded polymers, pressed or vacuum formed into thin sheets having the feel and texture of light plastics. For the fiscal years ended June 30, 1995, 1996 and 1997, sales of landscape fabrics represented 71%, 66% and 44%, respectively, of the Company's net sales. Fertilizer, Plant Food and Insecticide Spikes. Fertilizer and plant food spikes deliver plant nutrients directly to the root of the plant, as an alternative method of maintaining plant health to surface-delivered liquid or solid fertilizers. Some of the Company's fertilizer spikes have the added feature of containing an insecticide for the control of unwanted insects. The Company markets a variety of indoor and outdoor specialty fertilizer and plant food spikes primarily under the Jobe's tradename, one of the most recognized brands in the consumer lawn and garden industry. For the fiscal year ended June 30, 1997, sales of fertilizer, plant food and insecticide spikes represented approximately 24% of the Company's net sales. 43 Landscape Edging. The Company markets a variety of resin-based decorative landscape edgings under trade names including Emerald Edge and Terra Cotta Tiles. The Company's decorative edgings are used by consumers to enclose or define the perimeter of planting areas with a variety of designs which include stone, log, terra cotta tiles and picket fences. The Company recently acquired the Plasti-Chain line of products, which include additional styles of decorative landscape edgings. Shade Cloth. The Company markets shade cloth fabrics in a variety of sizes and colors. Shade cloth is utilized generally in conjunction with some type of outdoor structure such as a patio veranda, and provides shade, privacy and/or protection from wind for people, plants and pets. The Company markets shade cloth fabrics as an exclusive United States retail distributor of a shade cloth manufacturer pursuant to an agreement that expires on September 30, 1998 (unless renewed at the option of the Company for an additional two-year period). Fertilizers and Root Feeders. The Company markets fertilizers under the Ross trade name. The Ross fertilizer, when applied through a Ross root feeder, a long steel irrigation tube with a hose connector that is inserted deep into the ground, provides the homeowner with a means of deep feeding and irrigating trees and shrubs. The Ross root feeder may also be used without fertilizer as a deep watering device. Weed Trimmer Replacement Heads. The Company also manufactures and distributes replacement heads for string weed trimmer products under the Weed Wizard trademark. The Company's weed trimmer replacement head products consist of a replacement casing containing either a chain link for heavy duty use or a plastic blade for routine weed and grass trimming. The products are part of a multi fit system offered by the Company, which allows the replacement heads to fit on virtually all consumer gas weed trimmers and most consumer electric weed trimmers. Other Products. In addition to landscape fabrics, fertilizer, plant food and insecticide spikes, landscape edging, shade cloth and root feeders, the Company also sells complementary lawn and garden products for the home gardener. The products include a line of animal repellents that are formulated to deter dogs, cats, deer and rabbits from destroying garden and landscape environs, a variety of protective plant and tree covers, bird and animal mesh blocks, protective garden and tree netting to prevent animal damage, synthetic mulch and fabric pegs. Agricultural Products. The Company, through Golden West, manufactures and distributes certain humic acid-based agricultural products for use on farms and orchards. Golden West generally sells its products to agricultural distributors, which in turn market Golden West's products to farms and orchards. The principal agricultural products manufactured and/or distributed by the Company are: Energizer(R), a formulation of humic acids which, when applied in conjunction with liquid fertilizers, permits crops to absorb a greater amount of the nutrients in the fertilizer; Penox(R), a surfactant, or penetrating wetting agent, that contains humic acid which, when applied in conjunction with herbicides, defoliants and other agricultural products, increases their effectiveness and Powergizer(R), a foliar nutrient, or plant food, containing humic acid which promotes growth and vigor in many types of crops. Sales of the Company's agricultural products accounted for less than 2% of the Company's net sales in fiscal 1997. Conversion, Manufacturing and Supply Lawn and Garden Products Except for the materials for WeedBlock, which are obtained from a single source, the basic materials for the Company's lawn and garden products are purchased from a variety of suppliers. All of such materials are converted, packaged and shipped by the Company from either its Waco, Texas facility or its Paris, Kentucky facility. The Company purchases all of the landscape fabric used to manufacture WeedBlock from Tredegar. The Company purchases large rolls of various types of landscape fabric for shipment to its Waco, Texas facility where it sizes, cuts and packages the fabric for consumer sale. Although the Company has purchased all of its supply from Tredegar for over 10 years and believes that its relationship with Tredegar is good, Tredegar is free to terminate its relationship with the Company at any time and accordingly could market its fabrics to other companies, including competitors of the Company. Nevertheless, the Company owns the registered trademark "WeedBlock(R)" and, to the extent that it establishes alternative supply arrangements, its rights to market products under the WeedBlock brand name would continue without restriction. 44 The Company manufactures and packages its Jobe's fertilizer spikes at its Paris, Kentucky facility. The raw materials that comprise the Company's indoor fertilizer spikes are mixed with a binding agent and then passed through an extrusion process which feeds a continuous strand of fertilizer through a heat-drying system. The strand is then cut into ready to use fertilizer spikes which are then machine counted and packaged as shelf-ready product. The Company's outdoor fertilizer spikes are manufactured in a similar manner except rather than passing through an extrusion process, the outdoor spikes are processed through molds which shape the spikes into their final form. The outdoor spikes are packaged in either a foil pouch, bag or box. The specifications for the Company's landscape edging, shade cloth and root feeder products and packaging are designed by the Company and independent design consultants. The products are then manufactured and packaged by third party manufacturers according to the Company's specifications. The nylon product body (rotary head) and the plastic blades and the chain links used in the Company's weed trimmer replacement heads are manufactured for the Company pursuant to open purchaser orders. The Company assembles and packages the weed trimmer replacement heads with the aid of an electronic packaging machine. Agricultural Products The Company does not own or lease any manufacturing facilities for its agricultural products. Substantially all of the Company's humic acid-based agricultural products, including Energizer, Penox and Powergizer, are processed by Western Farm Services, Inc. ("Western Farm") pursuant to purchase orders placed by the Company from time to time in the ordinary course of business. The Company, through Western Farm, also has an open purchase order arrangement with an entity which supplies it with leonardite ore, a source of humic acid used in its agricultural products. Customers The Company's customers include home improvement centers, mass merchandisers, hardware stores, nurseries and garden centers and other retail channels throughout the United States. The Company's three largest customers for fiscal 1997, Home Depot, Lowe's and Kmart, accounted for approximately 26%, 10% and 7%, respectively, of its net sales during such year. During fiscal 1996, Home Depot, Lowe's, Kmart and Builder's Square accounted for 27%, 9%, 7% and 5%, respectively, of the Company's net sales. During fiscal 1995, sales to Home Depot, Kmart, Builder's Square and Lowe's accounted for approximately 27%, 9%, 7% and 6%, respectively, of the Company's net sales. The Company's ten largest customers as a group accounted for 69% and 65% of its net sales during fiscal 1996 and 1997, respectively. Sales to such customers are not governed by any contractual arrangement and are made pursuant to standard purchase orders. While the Company believes that relations with its largest customers are good, the loss of any of these customers could have an adverse effect upon the results of operations of the Company. The Company's sales are concentrated in the United States, with international sales (primarily Europe and Canada) accounting for less than 2% of the Company's net sales for fiscal 1996 and fiscal 1997. The Company is currently attempting to develop relationships with distributors outside of the United States. Sales and Marketing The Company's sales efforts are coordinated by its national sales manager, whose duties include overseeing key accounts and directing the activities of the Company's 8 regional sales managers. Because of the service-oriented nature of the Company's business, the national and regional sales managers devote a substantial amount of their time to servicing and maintaining relationships with the Company's largest customers in addition to managing the overall sales operations. The Company also utilizes the services of over 39 non-exclusive independent sales organizations, on a commission basis, who are responsible primarily for sales to customers not serviced regularly by the regional sales managers. Sales of the Company's agricultural products are coordinated primarily by two full-time employees who are compensated on a salary plus commission basis. The Company's marketing activities are coordinated by its marketing manager. The marketing manager designs and develops the Company's distinctive packaging and point-of-sale displays and oversees, among other things, the Company's advertising campaigns, which are created and placed by advertising and public relations firms. 45 The Company expects that its lawn and garden products will continue to be marketed by retailers primarily through the use of special displays and in-store consumer promotions in Retail Accounts, hardware stores, nurseries and garden centers. In addition, the Company believes that a substantial portion of lawn and garden sales are impulse driven and not overly price sensitive. Therefore, the Company seeks to increase consumer awareness, understanding and brand identification of its products through its distinctive packaging and point-of-sale displays. Retail Accounts and the Company's other customers receive the Company's products in packaging that is easily displayed. The retail product packaging is informative to the end-user and incorporates attention-getting, eye-pleasing color schemes. The Company also tailors its displays to the evolving needs of retailers. Because many home improvement and mass merchant retailers maintain outdoor sales areas for their lawn and garden products, the Company utilizes waterproof displays for many of its products. In addition, the Company meets the specific needs of many of its larger customers by tailoring the size of its displays to the dimensions requested by such customers. The Company's independent sales representatives periodically visit individual retail outlets to replenish product, rearrange displays and otherwise assist Retail Accounts in achieving innovative and optimal use of the Company's distinctive store displays. In order to anticipate and react quickly to changing consumer preferences, the Company also engages in market research. During fiscal 1997 the Company conducted consumer market research and a regional media advertising campaign of its Jobe's spikes product line to determine the effectiveness of such advertising in increasing product line sales. Based on the positive data derived from such research, the Company intends to focus its advertising and promotional campaign on the Jobe's brand name, as well as on the Easy Gardener and Emerald Edge brand names. Prior to the Company's acquisition of Weatherly, brand recognition of Jobe's product line was not heavily promoted. In order to enhance the consumer recognition of the Jobe's name, the Company has recently or intends to: o Modernize Packaging. The Company has recently redesigned the packaging of the Jobe's products to make more attention getting, eye-pleasing and informative and instructional as to product purpose and use in order to increase impulse purchasing. o Assist Retail Accounts. The Company will continue its current process of assisting Retail Accounts in their inventory purchasing, in-store product placement and the implementation of innovative and optimal use of the distinctive displays for Jobe's products. o Advertise Nationally. The Company has recently commenced a national television advertising campaign designed to target the "baby boomer" consumer segment, which represents the largest lawn and garden consumer segment. The campaign, which was created by the Company's advertising agency, will appear primarily on programming on national cable channels with favorable "baby boomer" viewing demographics, such as CNN or CNBC. The Company will also continue to engage in co-operative advertising with its Retail Accounts primarily through national and regional weekly print advertising circulars during the primary lawn and garden season. The Company anticipates spending approximately $4.0 million, including anticipated use of a portion of existing trade credits, in the fiscal year ending June 30, 1998 on a combination of media development, print, radio and television advertising, co-operative advertising (advertising done in conjunction with retailers), and attendance at trade shows and public relations to promote awareness, understanding and brand identification of its lawn and garden products. The Company intends to utilize a substantial portion of its marketing budget for the fiscal year ending June 30, 1998 on the enhancement of brand-name recognition of the Jobe's product line. There can be no assurance that any attempt to increase such recognition will be successful or have any favorable effect on the Company's net sales. Information Systems The Company maintains a sophisticated retail data information system which enables it to track orders and provide timely and efficient order fulfillment to its Retail Accounts and other customers. Internally, the Company's information systems track orders and deliveries and provide exception reports if product is not delivered on 46 time. The systems "push" the necessary information to the proper personnel, allowing the Company to react quickly to information. The Company's purchase order process can be paperless, with most Retail Accounts placing their orders through an electronic data interchange with the Company. Seasonality The Company sales are seasonal due to the nature of the lawn and garden business, in parallel with the annual growing season. The Company's sales and shipping are most active from late December through May when home lawn and garden customers are purchasing supplies for spring planting and retail stores are increasing their inventory of lawn and garden products. Sales typically decline by early to mid-summer. Sales of the Company's agricultural products are also seasonal. Most shipments occur during the agricultural cultivation period from March through October. Inventory and Distribution In order to meet product demand, the Company keeps relatively large amounts of product inventory on hand, particularly from December to May, the months of highest demand. Despite maintaining these relatively high levels of inventory, historically the Company has experienced minimal inventory obsolescence. There can be no assurance that inventory obsolescence will not be higher in the future. Retail Accounts generally require delivery within five business days. Orders are generally processed within 48 hours and shipped by common carrier. Competition The consumer lawn and garden care industry is highly competitive and somewhat fragmented. The Company competes with a combination of national and regional companies ranging from large petrochemical companies to garden catalog businesses and companies specializing in the manufacture of lawn and garden care products. Several of such companies, such as Solaris Group, a division of Monsanto Company, and the Scotts Miracle Gro Company have captured a significant, and in certain cases controlling, share of such markets. Many of the Company's competitors have achieved significant national, regional and local brand name and product recognition and engage in frequent and extensive advertising and promotional programs, both generally and in response to efforts by new competitors entering the market or existing competitors introducing new products. Many of these companies have substantially greater financial, technical, marketing and other resources than the Company. There can be no assurance that the Company will be able to compete successfully or that reacting to competitive pressures will not materially adversely affect the Company. Large, dominant manufacturers, which manufacture and sell lawn and garden products, such as the Solaris Group and other lawn and garden care companies have, in the past, manufactured and marketed landscape fabrics. Currently, few of such competitors compete with the Company in this industry. Nevertheless, well capitalized companies and smaller regional firms may develop and market landscape fabrics and compete with the Company for customers who purchase such products. Among the Company's competitors in the lawn and garden market for the Jobe's line of fertilizer and insecticide spikes are large agri-chemical companies such as Solaris Group and Scotts Miracle-Gro Products, Inc. Competition for the Company's agricultural products consist of other manufacturers of products that are humic acid based but that utilize formulas that are different from Golden West's. These competitors include American Colloid Company, Monterey Chemical Corporation and Custom Chemicide Inc. The Company competes with a variety of regional lawn and garden manufacturers in the markets for landscape edging, shade cloth and root feeders. Competition for the Company's weed trimmer replacement heads consists of other manufacturers of weed trimming replacement part products using nylon based lines and blades. These include The Source Company. Government Regulation The Company is subject to many laws and governmental regulations and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently. 47 Fertilizer and Pesticide Regulation. Products marketed, or which may be marketed, by the Company as fertilizers or pesticides are subject to an extensive and frequently evolving statutory and regulatory framework, at both the Federal and state levels. The distribution and sale of pesticides is subject to regulation by the U.S. Environmental Protection Agency ("EPA") pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as well as regulation by many states in a manner similar to FIFRA. Under FIFRA and similar state laws, all pesticides must be registered with the EPA and state and must be approved for their intended use. FIFRA and state regulations also impose other stringent requirements on the marketing of such products. Moreover, many states also impose similar requirements upon products marketed for use as fertilizing materials, which are not typically regulated under FIFRA. Failure to comply with the requirements of FIFRA and state laws that regulate marketing and distribution of pesticides and fertilizers could result in the imposition of sanctions, including, but not limited to, suspension or restriction of product distribution, civil penalties or criminal sanctions. The Company markets certain animal repellent and pesticide products that are subject to FIFRA and to similar state regulations. The Company also markets certain fertilizer products that are subject to regulation in some states. The Company believes that it is in material compliance with FIFRA and applicable state regulations regarding its material business operations. However, there can be no assurance that the Company will be able to comply with future regulations in every jurisdiction in which the Company's material business operations are conducted without substantial cost or interruption of operations. Moreover, there can be no assurance that future products marketed by the Company will not also be subject to FIFRA or to state regulations. If future costs of compliance with regulations governing pesticides or fertilizers increase or exceed the Company's budgets for such items, the Company's business could be adversely affected. If any of the Company's products are distributed and/or marketed in violation of any of these regulations, the Company could be subject to a recall of, or a sales limitation placed on, one or more of its products, or civil or criminal sanctions, any of which could have a material adverse effect upon the Company's business. Environmental Regulation. The Company's manufacturing operations are subject to various evolving federal, state and local laws and regulations relating to the protection of the environment, which laws govern, among other things, emissions to air, discharges to ground, surface water and groundwater, and the generation, handling, storage, transportation, treatment and disposal of a variety of hazardous and non-hazardous substances and wastes. Federal and state environmental laws and regulations often require manufacturers to obtain permits for these emissions and discharges. Failure to comply with environmental laws or to obtain, or comply with, the necessary state and federal permits can subject the manufacturer to substantial civil and criminal penalties. Easy Gardener operates two manufacturing facilities and Weatherly and Weed Wizard each operate one manufacturing facility. The Company believes that all of its facilities are in substantial compliance with all applicable material environmental laws. However, it is possible that there are material environmental liabilities of which the Company is unaware. If the costs of compliance with the various existing or future environmental laws and regulations including any penalties which may be assessed for failure to obtain necessary permits, exceed the Company's budgets for such items, the Company's business could be adversely affected. Potential Environmental Cleanup Liability. The Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and many similar state statutes, impose joint and several liability for environmental damages and cleanup costs on past or current owners and operators of facilities at which hazardous substances have been discharged, as well as on persons who generate, transport or arrange for disposal of hazardous substances at a particular site. In addition, the operator of a facility may be subject to claims by third parties for personal injury, property damage or other costs resulting from contamination present at or emanating from property on which its facility is located. Easy Gardener operates two manufacturing facilities and Weatherly and Weed Wizard each operate one manufacturing facility. Moreover, the Company or its predecessors have owned or operated other manufacturing facilities in the past and may have liability for remediation of such facilities in the future, to the extent any is required. In this regard, Weatherly previously owned a facility that was the subject of certain soil remediation activities. Although this facility was sold by Weatherly prior to the Company's acquisition of Weatherly, there can be no assurance that the Company will not be liable for any previously existing environmental contamination at the facility. Moreover, although the purchaser of the facility indemnified Weatherly for any environmental contamination liability and the sellers of Weatherly, in turn, indemnified the Company from such liability, there can be no assurance that, if required, the indemnifying parties will be able to fulfill their respective obligations to indemnify the Company. Furthermore, certain business 48 operations of the Company's subsidiaries also involve shipping hazardous waste off-site for disposal. As a result, the Company could be subject to liability under these statutes. The Company could also incur liability under CERCLA or similar state statutes for any damage caused as a result of the release of hazardous substances owned by the Company but processed and manufactured by others on the Company's behalf. As a result, there can be no assurance that the manufacture of the products sold by the Company will not subject the Company to liability pursuant to CERCLA or a similar state statute. Furthermore, there can be no assurance that Easy Gardener, Weatherly or Weed Wizard will not be subject to liability relating to manufacturing facilities owned and/or operated by them currently or in the past. Other Regulations. The Company is also subject to various other federal, state and local regulatory requirements such as worker health and safety, transportation, and advertising requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. Trademarks, Proprietary Information and Patents The Company believes that product recognition is an important competitive factor in the lawn and garden care products industry. Accordingly, in connection with its marketing activities of its lawn and garden care products, the Company promotes, and intends to promote, certain tradenames and trademarks which are believed to have value to the Company. In connection with its acquisition of the assets of Easy Gardener Inc. in September 1994, the Company acquired certain trademarks used by Easy Gardener Inc. in connection with its business including, but not limited to, the trademarks WeedBlock(R), Easy Gardener(R), WeedShield, MicroPore and Birdblock(R). In connection with its acquisition of Weatherly, the Company acquired certain patents, as well as certain trademarks used in connection with Weatherly's business including, but not limited to, Jobe's(R), Ross(R), Green Again(R), Gro-Stakes(R), Tree Gard(R) and XP-20(R). The Company also acquired certain patents and trademarks when it acquired the assets of Emerald Products LLC and acquired trademarks with certain assets of Plastic Molded Concepts, Inc. In connection with its acquisition of Weed Wizard, the Company acquired the Weed WizardTM product patent and trademark. There can be no assurance that the Company will apply for any additional trademark or patent protections relating to its products or that its current trademarks and patents will be enforceable or adequately protect the Company from infringement of its proprietary rights. Although the Company believes that the products sold by it do not infringe upon the patents or violate the proprietary rights of others, it is possible that such infringement or violation has or may occur. In the event that products sold by the Company are deemed to infringe upon the patents or proprietary rights of others, the Company could be required to pay damages and modify its products or obtain a license for the manufacture or sale of such products. There can be no assurance that, in such an event, the Company would be able to do so in a timely manner, upon acceptable terms and conditions or at all, and the failure to do any of the foregoing could have a material adverse effect upon the Company. Product Liability The Company, as a manufacturer of lawn and garden care and pesticide products, may be exposed to significant product liability claims by consumers. Although the Company has obtained product liability insurance coverage for U.S. Home & Garden Inc. and Golden West in the aggregate amount of $3.0 million, and for Easy Gardener, Weatherly and Weed Wizard in the aggregate amount of $2.0 million (with all policies limited to $1.0 million per occurrence), and has obtained three umbrella policies in the amounts of $5.0 million, $15.0 million, and $20.0 million, respectively, there can be no assurance that such insurance will provide coverage for any claim against the Company or will be sufficient to cover all possible liabilities. In the event a successful suit is brought against the Company, unavailability or insufficiency of insurance coverage could have a material adverse effect on the Company. Moreover, any adverse publicity arising from claims made against the Company, even if such claims were not successful, could adversely affect the reputation and sales of the Company's products. Legal Proceeding In response to a claim for trademark infringement filed July 30, 1997 by Easy Gardener against Dalen Products, Inc. ("Dalen") in the United States District Court for the Western District of Texas, Waco Division, 49 Dalen filed a counterclaim against Easy Gardener and a third party complaint against the Company. Dalen alleges, among other things, that the Company and Easy Gardener monopolized or attempted to monopolize the market for landscape fabrics; that the Company and Easy Gardener tortiously interfered with Dalen's contractual and prospective contractual relationships; and that Easy Gardener infringed upon a Dalen trademark, deceptively advertised the thickness of one of its products, and misrepresented the porosity of a Dalen product. Dalen's counterclaim and third party complaint seek an award of unspecified damages and the entry of unspecified injunctive relief. An adverse ruling could have a material adverse effect on the Company. Employees As of March 13, 1998, the Company had 192 full-time employees. Of such employees, three are executive officers of the Company, 41 were engaged in administration and finance, 19 were engaged in sales and marketing, 33 were engaged in warehouse, shipping and receiving, and 96 were engaged in production. An additional 20 temporary employees were engaged in warehouse and production. None of the Company's employees is covered by collective bargaining agreements. The Company believes that it has a good relationship with its employees. Properties The Company's executive offices are currently located in San Francisco, California, in approximately 3,000 square feet of office space for which the Company pays $10,275 per month in rent, which amount includes the costs of utilities and janitorial services. The Company believes that its office space, which it rents pursuant to a lease expiring in February 2001, is adequate for the Company's planned future operations. Easy Gardener leases approximately 200,000 square feet of office and warehouse space in Waco, Texas for which the Company pays $17,918 per month in rent, which will increase to $18,544 per month in February 1998, pursuant to a lease agreement that expires on February 28, 2001. Easy Gardener's facilities contain landscape fabric converters, packaging equipment and warehouse and shipping facilities. Weatherly leases approximately 72,000 square feet of manufacturing and warehouse space in Paris, Kentucky for $10,000 per month pursuant to a lease that expires on June 30, 1998. The Company also leases an additional 53,000 feet of warehouse space in Paris, Kentucky for $5,417 per month in rent pursuant to a lease that expires on May 6, 1998. If the Company is unable to extend such leases it believes that it will be able to lease a replacement facility and warehouse space on commercially reasonable terms. Golden West's offices are located in Merced, California in approximately 900 square feet of space it leases for $1,150 per month base rent, with rent increases at a rate of 4% a year. The lease expires in June 1999 subject to the Company's option to renew the lease for an additional three year period. With respect to the Company's weed trimmer replacement heads, the Company leases, for nominal rent, a one story office/manufacturing facility of approximately 50,600 feet in Dahlonega, Georgia pursuant to a lease that expires in August 1998. If the Company is unable to extend such lease it believes that it will be able to lease a replacement facility on commercially reasonable terms. The Trust The Trust is a statutory business trust created under Delaware law pursuant to (i) the trust agreement of the Trust among the Company, as depositor, the Delaware Trustee and an Administrative Trustee, and (ii) the filing of a Certificate of Trust with the Delaware Secretary of State on March 16, 1998. The Trust's business and affairs are conducted by the Property Trustee, the Delaware Trustee and three individual Administrative Trustees who are officers of the Company. The Trust exists for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using the proceeds from the sale of the Trust Securities to acquire the Junior Subordinated Debentures issued by the Company, and (iii) engaging in only those other activities necessary, advisable or incidental thereto. The Junior Subordinated Debentures will be the sole assets of the Trust, and payment by the Company under the Junior Subordinated Debentures and the Expense Agreement will be the sole revenues of the Trust. All of the Common Securities will be owned by the Company. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Trust Preferred Securities, except that upon the occurrence and during 50 the continuance of an event of default under the Trust Agreement resulting from an event of default under the Indenture, the rights of the Company as holder of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Subordination of Common Securities of the Trust Held by the Company." The Company will acquire Common Securities in an aggregate liquidation amount equal to 3% of the total capital of the Trust. The Trust has a term of 31 years, but may dissolve earlier as provided in the Trust Agreement. 51 MANAGEMENT Directors, Executive Officers and Certain Key Employees The current directors, executive officers and certain key employees of the Company are as follows:
Directors and Executive Officers Age Position - ---------------------------------- ----- --------- Robert Kassel(1) ................. 57 Chairman of the Board, Chief Executive Officer, President and Treasurer Richard Raleigh(2) ............... 44 Chief Operating Officer and Director Maureen Kassel ................... 50 Vice President of Public Relations and Advertising, Secretary and Director Jon Schulberg(1)(2) .............. 39 Director Fred Heiden(1)(2) ................ 57 Director Certain Key Employees - --------------------------- Richard M. Grandy ................. 52 President, Easy Gardener Lynda Gustafson ................... 33 Vice President of Finance Sheila Jones ...................... 43 Vice President of Operations, Easy Gardener Paul Logue ........................ 41 National Sales Manager, Easy Gardener
- ------------ (1) Member, Compensation Committee (2) Member, Audit Committee Directors and Executive Officers: Robert Kassel co-founded the Company and has been Chairman of the Board, Chief Executive Officer, President and Treasurer of the Company since October 1990. From 1985 to August 1991, he was a consultant to Comtel Communications, Inc. ("Comtel"), a company specializing in the installation and operation of telephone systems in hotels. From 1985 to 1990, Mr. Kassel was also a real estate developer in Long Island, New York and Santa Barbara, California. From 1965 to 1985, he was a practicing attorney in New York City, specializing in corporate and securities law. Richard Raleigh has been a Director of the Company since March 1993, Chief Operating Officer of the Company since June 1992 and served as the Company's Executive Vice President-Operations from December 1991 to June 1992. Prior to joining the Company, Mr. Raleigh was a free-lance marketing consultant to the lawn and garden industry from January 1991 to December 1991. From April 1988 to January 1991, he was Director of Marketing, Lawn and the Company of Monsanto Agricultural Co. From December 1986 to April 1988, he was Vice President of Sales and Marketing of The Andersons, a company engaged in the sale of consumer and professional lawn and garden products. From November 1978 to December 1986, he held a variety of positions at The Andersons, including Operations Manager and New Products Development Manager. Maureen Kassel, the wife of Robert Kassel, co-founded the Company and has been Vice President of Public Relations and Advertising and a director of the Company since November 1990 and Secretary of the Company since February 1992. For the last ten years, she has assisted in the general administration and operation of real estate and other businesses. Ms. Kassel is Chairman of the Board of Comtel. Jon Schulberg, a director of the Company since March 1993, has been employed as President of Schulberg MediaWorks, a company engaged in the independent production of television programs and television advertising since January 1992. From January 1989 to January 1992, he was a producer for Guthy-Renker Corporation, a television production company. From September 1987 to January 1989, he was Director of Development for Eric Jones Productions. Fred Heiden, a director of the Company since March 1993, has been a private investor since November 1989. From April 1984 to November 1989, Mr. Heiden was President and principal owner of Bonair Construction, a Florida-based home improvement construction company. 52 Certain Key Employees: Richard M. Grandy has been President of Easy Gardener since July 1997 and served as its Vice President from the date of the Company's acquisition of Easy Gardener, Inc. in September 1994 until July 1997. Mr. Grandy co-founded Easy Gardener, Inc. in 1983 after serving as Marketing Director at International Spike, Inc. from 1977 through 1983. From 1968 through 1977, Mr. Grandy was a sales representative of lawn and garden products for the Ortho Division of Chevron Chemical Co. Lynda Gustafson has been Vice President of Finance of the Company since September 1997 and served as Controller of the Company from November 1993 to September 1997. From September 1990 through October 1993, Ms. Gustafson was a supervisor of the Business Consulting Department of the certified public accounting firm of Hood & Strong. From September 1988 to August 1990, she held the positions of Staff Accountant and Senior Accountant at the certified public accounting firm of Schwartz, McGuire & Co. Sheila Jones has been Vice President of Easy Gardener since July 1997 and has also served as its General Manager from September 1994. Prior to the acquisition of Easy Gardener, Inc. by the Company, Ms. Jones was employed by Easy Gardener, Inc. from its inception in September 1983 to September 1994, where she advanced to the positions of Vice President and General Manager. From April 1977 to September 1983, she was employed by International Spike, Inc., where she held various project management positions. Paul Logue has been National Sales Manager of Easy Gardener since its acquisition by the Company in September 1994. Prior to joining the Company, Mr. Logue was employed by Easy Gardener, Inc. from September 1989 to September 1994, where he advanced from the position of Northeastern Regional Sales Manager to National Sales Manager. From March 1988 to September 1989, he was Regional Sales Manager for Hoffman Brand Fertilizers. Executive Compensation The following table discloses the compensation awarded by the Company, for the three fiscal years ended June 30, 1995, 1996 and 1997, to Mr. Robert Kassel, its Chief Executive Officer, and Mr. Richard J. Raleigh, its Chief Operating Officer (together, the "Named Executives"). During the fiscal year ended June 30, 1997, no other executive officer of the Company received a salary that exceeded $100,000 during such fiscal year. Summary Compensation Table
Annual Compensation -------------------------------------------------------------------------- Long Term All Other Name and Principal Position Year Salary($) Bonus($) Compensation Compensation (1) - ----------------------------------- ------ ----------- ---------- ------------------ ----------------- Securities Underlying Options(#) ------------------ Robert Kassel, 1997 350,000 250,000 1,200,000(2) 5,995 Chairman, Chief Executive 1996 250,000 100,000 200,000(3) -- Officer, President and Treasurer 1995 150,000 100,000 687,653(4) -- Richard Raleigh, 1997 195,000 111,275 500,000(2) 8,390 Chief Operating Officer 1996 150,000 10,000 100,000(3) -- 1995 120,000 10,000 50,000(4) --
- ------------ (1) Represents Company contributions to the Named Executives' 401(k) accounts. (2) Includes options to purchase 200,000 shares previously granted to Mr. Kassel and options to purchase 100,000 shares previously granted to Mr. Raleigh whose exercise prices were repriced to reflect a reduction in the market price of the Common Stock at the time of repricing. Does not include options to purchase 50,000 shares previously granted to Mr. Raleigh the expiration date of which was extended during fiscal 1997. 53 (3) Includes five-year options to purchase 200,000 shares granted to Mr. Kassel and five-year options to purchase 100,000 shares granted to Mr. Raleigh in June 1995 under the Company's 1995 Stock Option Plan, which grants were subject to stockholder approval of the plan obtained in February 1996. (4) Does not include the options referenced in footnote (3) above. The following table discloses information concerning options granted in fiscal 1997 to the Named Executives. Option Grants in Fiscal Year Ended June 30, 1997
Individual Grants ----------------------------------------------------------------------------------------- Potential Realizable Value at Assumed Number of Annual Rates of Stock Securities Percent of Total Price Underlying Options Granted to Exercise Appreciation for Options Granted Employees in Fiscal Price Expiration Option Name (#)(1) Year(%) ($/Sh) Date Term ($)(2) - ----------------- ----------------- --------------------- ---------- ------------ --------------------- 5% 10% --------- ---------- Robert Kassel 350,000 19.8 2.06 7/24/01 199,199 440,177 450,000 25.5 2.06 8/30/01 256,113 565,943 200,000 11.3 2.06 12/24/01 113,828 251,530 200,000 11.3 2.06 6/01/00 113,828 251,530 Richard Raleigh 125,000 7.0 2.06 7/24/01 71,142 157,706 175,000 9.5 2.06 8/30/01 99,599 220,089 100,000 5.7 2.06 12/24/01 56,914 125,765 100,000 5.7 2.06 6/01/00 56,914 125,765
- ------------ (1) All of such options were exercisable in full from the date of grant. (2) The potential realizable value columns of the table illustrate values that might be realized upon exercise of the options immediately prior to their expiration, assuming the Company's Common Stock appreciates at the compounded rates specified over the term of the options. These numbers do not take into account provisions of options providing for termination of the option following termination of employment or nontransferability of the options and do not make any provision for taxes associated with exercise. Because actual gains will depend upon, among other things, future performance of the Common Stock, there can be no assurance that the amounts reflected in this table will be achieved. The following table sets forth information concerning the number of options owned by the Named Executives and the value of any in-the-money unexercised options as of June 30, 1997. No options were exercised by the Named Executives during fiscal 1997: Aggregated Option Exercises And Fiscal Year-End Option Values
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at June 30, 1997 June 30, 1997(1) ------------------------------- ------------------------------ Name Exercisable Unexercisable Exercisable Unexercisable - ------------------------- ------------- --------------- ------------- -------------- Robert Kassel ........... 2,067,653 -0- $3,214,598 $-0- Richard Raleigh ......... 637,500 -0- $ 887,938 $-0-
- ------------ (1) Year-end values for unexercised in-the-money options represent the positive spread between the exercise price of such options and the fiscal year-end market value of the Common Stock. An option is "in-the-money" if the fiscal year-end fair market value of the Common Stock exceeds the option exercise price. The last sale price (the fair market value) of the Common Stock on June 30, 1997 was $3.375 per share. 54 Employment Agreements The Company has entered into employment agreements with Messrs. Kassel and Raleigh, each dated as of April 1, 1996. Mr. Kassel currently serves as Chief Executive Officer and President pursuant to the employment agreement for a term expiring on March 31, 1999, subject to automatic renewal unless terminated. His current annual salary is $450,000, and is subject to such bonuses and increases as are approved at the discretion of the Board of Directors. Mr. Raleigh currently serves as Chief Operating Officer pursuant to the employment agreement for a term expiring on March 31, 1999, subject to automatic renewal unless terminated. His current annual salary is $195,000, and is subject to such bonuses and increases as are approved at the discretion of the Board of Directors. Each of the employment agreements requires that substantially all of the employee's business time be devoted to the Company and that the employee not compete, or engage in a business competitive with, the Company's current or anticipated business for the term of the agreement and for two years thereafter (although they each may own not more than 5% of the securities of any publicly traded competitive company). Each of Mr. Kassel and Mr. Raleigh is, in addition to salary, entitled to certain fringe benefits, including the use of an automobile and payment of related expenses. Mr. Kassel's employment agreement also provides that if his employment is terminated under certain circumstances, including termination of Mr. Kassel upon a change of control of the Company, (as defined in the agreement) a failure by the Company to comply with its obligations under the agreement, the failure of the Company to obtain the assumption of the agreement by any successor corporation, or a change in Mr. Kassel's duties and obligations from those contemplated by the agreement, and termination by the Company of Mr. Kassel's employment other than for disability or cause, he will be entitled to receive severance pay equal to the greater of (i) $350,000 ($3.5 million in the event of a change of control), or (ii) the total compensation earned by Mr. Kassel from the Company during the one-year period (multiplied by ten in the event of a change of control) prior to the date of his termination. Mr. Raleigh's employment agreement also provides that if his employment is terminated under certain circumstances, including termination of Mr. Raleigh upon a change of control of the Company, (as defined in the agreement) a failure by the Company to comply with its obligations under the agreement, the failure of the Company to obtain the assumption of the agreement by any successor corporation, or a change in Mr. Raleigh's duties and obligations from those contemplated by the agreement, and termination by the Company of Mr. Raleigh's employment other than for disability or cause, he will be entitled to receive severance pay equal to the greater of (i) $162,500 ($812,500 in the event of a change of control), or (ii) the total compensation earned by Mr. Raleigh from the Company during the one-year period (multiplied by five in the event of a change of control) prior to the date of his termination. Easy Gardener has entered into an employment agreement with Mr. Grandy, dated as of September 1, 1994 which expires on August 31, 1998. Mr. Grandy currently serves as President of Easy Gardener. His current annual salary is $200,000. The Agreement requires Mr. Grandy to devote substantially all of his business time to Easy Gardener, and in the event Mr. Grandy's employment agreement is terminated by Easy Gardener without cause (as defined in the agreement) or if Mr. Grandy resigns with "Good Reason" (as defined in the agreement), Mr. Grandy will be entitled to receive his base salary through the expiration of the agreement. Committees of the Board of Directors The Company recently established an Audit Committee comprised of Messrs. Raleigh, Heiden and Schulberg. The Audit Committee will, among other things, make recommendations to the Board of Directors with respect to the engagement of the Company's independent certified public accountants and the review of the scope and effect of the audit engagement. The Company recently established a Compensation Committee of its Board of Directors, comprised of Messrs. Kassel, Schulberg and Heiden. The Compensation Committee will, among other things, make recommendations to the Board of Directors with respect to the compensation of the executive officers of the Company. The Company maintains a Stock Option Committee comprised of Messrs. Schulberg and Heiden, which determines the persons to whom options should be granted under the Company's 1995 and 1997 Stock Option Plans and the number and other terms of options to be granted to each person under such plans. 55 Compensation Committee Interlocks and Insider Participation in Compensation Decisions The Company did not have a Compensation Committee of its Board of Directors during fiscal 1997. Decisions as to compensation during fiscal 1997 were made by the Company's Board of Directors. Messrs. Kassel and Raleigh, in their capacity as directors, each participated in the Board of Directors deliberations concerning compensation of executive officers for fiscal 1997. During fiscal 1997, none of the executive officers of the Company served on the Board of Directors or the compensation committee of any other entity, any of whose officers served on the Board of Directors of the Company. Stock Option Plans In September 1991, the Company adopted a stock option plan (the "1991 Plan") pursuant to which 700,000 shares of Common Stock have been reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified options ("NQO's"). ISOs may be granted under the 1991 Plan to employees and officers of the Company. NQO's may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. The purpose of the 1991 Plan is to encourage stock ownership by certain directors, officers and employees of the Company and certain other persons instrumental to the success of the Company and give them a greater personal interest in the success of the Company. The 1991 Plan is administered by the Board of Directors. The Board, within the limitations of the 1991 Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the option purchase price per share and the manner of exercise, the time, manner and form of payment upon exercise of an option, and whether restrictions such as repurchase rights in the Company are to be imposed on shares subject to options. ISOs granted under the 1991 Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). The aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any related corporation) may not exceed $100,000. NQO's granted under the 1991 Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant. Options granted under the 1991 Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company). Options to acquire an aggregate of approximately 522,000 shares are outstanding under the 1991 Plan. The Company has adopted, a Non-Employee Director Stock Option Plan (the "Director Plan"). Only non-employee directors of the Company are eligible to receive grants under the Director Plan. The Director Plan provides that eligible directors automatically receive a grant of options to purchase 5,000 shares of Common stock at fair market value upon first becoming a director and, thereafter, an annual grant, in January of each year, of 5,000 options at fair market value. Options to purchase an aggregate of up to 100,000 shares of Common Stock available for the automatic grants under the Director Plan. Options to acquire an aggregate of 10,000 shares are outstanding under the Director Plan. The Company has also adopted a 1995 Stock Option Plan ("1995 Plan") which provides for grants of options to purchase up to 1,500,000 shares of Common Stock. The Board of Directors or the Stock Option Committee (the "Committee"), as the case may be, will have discretion to determine the number of shares subject to each NQO (subject to the number of shares available for grant under the 1995 Plan and other limitations on grant set forth in the 1995 Plan), the exercise price thereof (provided such price is not less than the par value of the underlying shares of Common Stock), the term thereof (but not in excess of 10 years from the date of grant, subject to earlier termination in certain circumstances), and the manner in which the option becomes exercisable (amounts, intervals and other conditions). Directors who are employees of the Company will be eligible to be granted ISOs or NQOs under such plan. The Board or Committee, as the case may be, also has discretion to determine the number of shares subject to each ISO, the exercise price and other terms and conditions thereof, 56 but their discretion as to the exercise price, the term of each ISO and the number of ISOs that may vest may be in any year is limited by the same Code provisions applicable to ISOs granted under the 1991 Plan. Options to acquire an aggregate of approximately 1,460,000 shares are outstanding under the 1995 Plan. The Company has adopted a 1997 Stock Option Plan ("1997 Plan") which provides for grants of options to purchase up to 1,500,000 shares of Common Stock. The Board of Directors or the Committee of the 1997 Plan, as the case may be, will have discretion to determine the number of shares subject to each NQO (subject to the number of shares available for grant under the 1997 Plan and other limitations on grant set forth in the 1997 Plan), the exercise price thereof (provided such price is not less than the par value of the underlying shares of Common Stock), the term thereof (but not in excess of 10 years from the date of grant, subject to earlier termination in certain circumstances), and the manner in which the option becomes exercisable (amounts, intervals and other conditions). Directors who are employees of the Company will be eligible to be granted ISOs or NQOs under such plan. The Board or Committee, as the case may be, also has discretion to determine the number of shares subject to each ISO, the exercise price and other terms and conditions thereof, but their discretion as to the exercise price, the term of each ISO and the number of ISOs that may vest may be in any year is limited by the same Code provisions applicable to ISOs granted under the 1991 Plan. Options to acquire an aggregate of 615,000 shares are outstanding under the 1997 Plan. The Company from time to time has also granted non-plan options to certain officers, employees and consultants. See Note 9 of Notes to Consolidated Financial Statements. The Company has adopted a policy not to grant in the future to its officers, directors, employees, 5% or greater stockholders or to affiliates of the Company, any option or warrant having an exercise price less than 85% of the then fair market value of the Common Stock. The Company will not issue further options, warrants or other securities convertible into the Common Stock prior to December 10, 1998, except for (i) options, warrants, or convertible securities issued in connection with mergers or acquisitions or in connection with financings obtained from unaffiliated third parties and (ii) options to purchase shares of Common Stock pursuant to the Director Plan. Director Compensation During fiscal 1997 each of the Company's two non-employee directors, Messrs. Schulberg and Heiden, received $5,000 for serving as directors of the Company. 57 PRINCIPAL STOCKHOLDERS The following table sets forth information at February 28, 1998, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of Common Stock by (i) each person known by the Company to be the owner of more than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) each Named Executive and (iv) all executive officers and directors as a group.
Amount and Nature Name of Beneficial Percentage of Beneficial Owner(1) Ownership(2)(3) of Class - ------------------------------- ------------------------------ ----------- Maureen Kassel ................ 680,650(4) 3.4% Robert Kassel ................. 4,482,095(5)(6) 20.2 Richard Raleigh ............... 621,731(7) 3.0 Fred Heiden ................... 258 * Jon Schulberg ................. 258 * Joseph Owens II(8) ............ 1,101,896(8) 5.5 Richard Grandy(8) ............. 1,101,896(8) 5.5 Warburg Pincus Asset Management, Inc.(9) .......... 1,310,500(9) 6.6 All executive officers and directors as a group (five persons) ......... 5,429,342(4)(5)(6) 23.4
- ------------ *less than 1% (1) Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from February 28, 1998 upon the exercise of warrants or options. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person (but not those held by any other person) and which are exercisable within 60 days from February 28, 1998 have been exercised. (3) The address of Maureen and Robert Kassel is c/o the Company. (4) Includes presently exercisable options and warrants issued to Ms. Kassel to purchase an aggregate of 325,000 shares of the Company's Common Stock. (5) Of such shares, (i) 355,650 are owned of record by Maureen Kassel; however, because Ms. Kassel has appointed her husband as her proxy and attorney-in-fact to vote all 355,650 of the shares owned of record by her, Robert Kassel may also be deemed to have beneficial ownership of such shares; (ii) an aggregate of 914,396 shares are owned of record by each of Messrs. Joseph Owens and Richard Grandy, who have each entered into a voting trust agreement (the "Voting Agreement") providing Mr. Kassel with the right to vote the shares until September 1, 2001. (6) Includes 2,297,653 shares of Common Stock issuable upon exercise of options and warrants. (7) Represents shares of Common Stock issuable upon exercise of options and warrants. (8) Includes 162,500 shares of Common Stock issuable to each of Messrs. Grandy and Owens upon exercise of options. The address of Mr. Grandy is c/o the Company. The address of Mr. Owens is 8 Hillendale, Waco, Texas 76710. (9) According to a Schedule 13G filed with the Commission, the shares are held by accounts for which Warburg Pincus Asset Management, Inc. acts as investment advisor. The address of Warburg Pincus Asset Management, Inc. is 466 Lexington Avenue, New York, New York 10017. 58 CERTAIN TRANSACTIONS To obtain a portion of the financing for the Company's acquisition of Easy Gardner, Inc., Mr. Kassel provided for the benefit of the lender $500,000 cash collateral and a personal guarantee of $333,000. In consideration of providing such collateral and guarantee, the Company granted Mr. Kassel options to purchase an aggregate of 526,300 shares of Common Stock for an aggregate exercise price of approximately $822,000. In connection with certain acquisitions, during fiscal 1997, the Company granted five year non-plan options to Messrs. Kassel and Raleigh to purchase an aggregate of 650,000 and 275,000 shares of Common Stock, respectively at an exercise price of $2.0625 per share. The Company will not issue further options, warrants or other securities convertible into the Common Stock prior to December 10, 1998, except for (i) options, warrants or convertible securities issued in connection with mergers or acquisitions or in connection with financings obtained from unaffiliated third parties and (ii) options to purchase shares of Common Stock which are issued pursuant to the Director Plan. In addition, pursuant to an agreement with the underwriters of its December 1997 public offering, the Company has agreed not to issue any options, warrants or any other securities convertible into Common Stock for the remainder of fiscal 1999, other than options, warrants or any other securities convertible into up to an aggregate of 750,000 shares of Common Stock. From time to time Messrs. Kassel and Raleigh have borrowed monies from the Company. During fiscal 1997, the highest amounts owed to the Company by Messrs. Kassel and Raleigh were $607,472 and $225,294, respectively, and at December 31, 1997, the balance of such indebtedness was $589,560 and $239,802, respectively. The loans bear interest at 7% per annum and mature on June 30, 2002. Company loans to all officers of the Company are restricted to a maximum of $850,000 by the terms of the Credit Agreement. Messrs. Kassel and Raleigh will make annual payments of principal and interest on the outstanding principal balance of their loans through the maturity of the loans as follows: As to Mr. Kassel -- $50,000, $50,000, $100,000, $150,000 and the balance of approximately $240,000 respectively. As to Mr. Raleigh, $25,000, $25,000, $50,000, $50,000 and the balance of approximately $90,000, respectively. The above transactions and loans were approved or ratified by the independent directors of the Company who did not have an interest in such transactions or loans. All future transactions or loans between the Company and its officers, directors or 5% or greater stockholders will be made or entered into on terms no less favorable to the Company than those that can be obtained from unaffiliated third parties. Furthermore, the Company has adopted a policy that any future material transactions and loans between the Company and its officers, directors and 5% or greater stockholders, and any forgiveness of any such loans, must be approved by a majority of the Company's independent directors who do not have an interest in the transactions and who have access, at the Company's expense, to the Company's or independent legal counsel. Notwithstanding the foregoing, there can be no assurance that conflicts of interest will not arise with respect to any such transactions, or that if conflicts do arise, they will be resolved in a manner favorable to the Company. 59 DESCRIPTION OF THE TRUST PREFERRED SECURITIES The Trust Preferred Securities will be issued pursuant to the terms of the Trust Agreement. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act. Initially, Wilmington Trust Company will be the Delaware Trustee and the Property Trustee. The Property Trustee is the independent trustee whose sole responsibility is to fulfill the trustee obligations specified in the Trust Indenture Act. Wilmington Trust Company will act as trustee for the purpose of fulfilling these obligations. The terms of the Trust Preferred Securities will include those stated in the Trust Agreement and those made part of the Trust Agreement by the Trust Indenture Act. This summary of certain terms and provisions of the Trust Preferred Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Trust Agreement, including the definitions therein of certain terms, and the Trust Indenture Act. Wherever particular defined terms of the Trust Agreement (as amended or supplemented from time to time) are referred to herein, such defined terms are incorporated herein. The form of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. General Pursuant to the terms of the Trust Agreement, the Administrative Trustees on behalf of the Trust will issue the Trust Preferred Securities and the Common Securities (collectively, the "Trust Securities"). The Trust Preferred Securities will represent preferred undivided beneficial interests in the assets of the Trust and the holders thereof will be entitled to a preference over the Common Securities of the Trust (which will be held by the Company) in certain circumstances with respect to Distributions and amounts payable on redemption or liquidation, as well as other benefits as described in the Trust Agreement. The Trust Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities of the Trust, except as described under "--Subordination of Common Securities of the Trust Held by the Company" below. Legal title to the Junior Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Trust Securities. The Guarantee executed by the Company for the benefit of the holders of the Trust Preferred Securities (the "Guarantee") will be a guarantee on a subordinated basis with respect to the Trust Preferred Securities but will not guarantee payment of Distributions or amounts payable on redemption or on liquidation of the Trust Preferred Securities if the Trust does not have funds on hand available to make such payments. See "Description of Guarantee." Distributions Payment of Distributions. Distributions on the Trust Preferred Securities will be payable at the annual rate of % of the stated Liquidation Amount of $25, payable monthly in arrears on the day of each calendar month of each year to the holders of the Trust Preferred Securities on the relevant record dates (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). The amount of each Distribution due with respect to the Trust Preferred Securities will include amounts accrued through the Distribution Date. Distributions on the Trust Preferred Securities will be payable to the holders thereof as they appear on the register of the Trust on the relevant record date which will be, so long as such securities remain in book-entry form, one Business Day (as defined below) prior to the relevant Distribution Date or, in the event that the Trust Preferred Securities are not then in book-entry form, the relevant record date will be the date 15 days prior to the relevant Distribution Date. Distributions will accumulate from the date of original issuance. The first Distribution Date for the Trust Preferred Securities will be , 1998. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Distributions are payable on the Trust Preferred Securities is not a Business Day, payment of the Distribution payable on such date will be made on the next Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date such payment was originally payable. As used in this Prospectus, a "Business Day" shall mean any day other than a Saturday or a Sunday, or a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or a day on which the corporate trust office of the Property Trustee or the Indenture Trustee is closed for business. 60 The funds of the Trust available for distribution to holders of its Trust Preferred Securities will be limited to payments by the Company under the Junior Subordinated Debentures in which the Trust will invest the proceeds from the issuance and sale of its Trust Preferred Securities. See "Description of Junior Subordinated Debentures." If the Company does not make interest payments on the Junior Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Trust Preferred Securities. The payment of Distributions (if and to the extent the Trust has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by the Company. See "Description of Guarantee." Extension Period. So long as no Debenture Event of Default has occurred and is continuing, the Company has the right under the Indenture to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 60 consecutive months with respect to each such period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a consequence of any such election, monthly Distributions on the Trust Preferred Securities will be deferred by the Trust during any such Extension Period. Distributions to which holders of Trust Preferred Securities are entitled will accumulate additional amounts thereon at the rate per annum of % thereof, compounded monthly from the relevant Distribution Date, to the extent permitted under applicable law. The term "Distribution," as used herein, shall include any such additional accumulated amounts. During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred stock), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in the Company's capital stock (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee and (d) purchases of common stock related to the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers, employees or consultants) or (iii) redeem, purchase or acquire less than all of the Junior Subordinated Debentures or any of the Trust Preferred Securities. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 60 consecutive months or extend beyond the Stated Maturity. Upon the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, the Company may elect to begin a new Extension Period. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extension Period. The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures. Redemption Mandatory Redemption. Upon the repayment or redemption at any time, in whole or in part, of any Junior Subordinated Debentures, the proceeds from such repayment or redemption shall be applied by the Property Trustee to redeem a Like Amount (as defined below) of the Trust Securities, upon not less than 30 nor more than 60 days' notice of a date of redemption (the "Redemption Date"), at the Redemption Price (as defined below). See "Description of Junior Subordinated Debentures--Redemption." If less than all of the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds from such repayment or redemption shall be allocated to the redemption of the Trust Securities on a pro rata basis. The amount of premium, if any, paid by the Company upon the redemption of all or any part of the Junior Subordinated Debentures to be repaid or redeemed on a Redemption Date shall be allocated to the redemption pro rata of the Trust Securities. Optional Redemption. The Company will have the right to redeem the Junior Subordinated Debentures (i) on or after , 2003, in whole at any time or in part from time to time at a redemption price equal to the 61 accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof, or (ii) at any time, in whole (but not in part), upon the occurrence of a Tax Event or an Investment Company Event at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. See "Description of Junior Subordinated Debentures--Redemption." Tax Event Redemption, Investment Company Event Redemption or Distribution of Junior Subordinated Debentures. If a Tax Event or an Investment Company Event shall occur and be continuing, the Company has the right to redeem the Junior Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of the Trust Securities in whole (but not in part) at the Redemption Price (as defined below) within 90 days following the occurrence of such Tax Event or Investment Company Event. If a Tax Event or an Investment Company Event has occurred and is continuing and the Company does not elect to redeem the Junior Subordinated Debentures and thereby cause a mandatory redemption of the Trust Securities or to dissolve the Trust and cause the Junior Subordinated Debentures to be distributed to holders of the Trust Securities in liquidation of the Trust as described below, such Trust Securities will remain outstanding and Additional Sums (as defined below) may be payable on the Junior Subordinated Debentures. Definitions "Additional Sums" means the additional amounts as may be necessary to be paid by the Company with respect to the Junior Subordinated Debentures in order that the amount of Distributions then due and payable by the Trust on the outstanding Trust Securities of the Trust shall not be reduced as a result of any additional taxes, duties and other governmental charges to which the Trust has become subject as a result of a Tax Event. "Like Amount" means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount (as defined below) equal to that portion of the principal amount of Junior Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, allocated to the Common Securities and to the Trust Preferred Securities based upon the relative Liquidation Amounts of such classes and the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Junior Subordinated Debentures to holders of Trust Securities in connection with a dissolution and liquidation of the Trust, Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Junior Subordinated Debentures are distributed. "Liquidation Amount" means the stated amount of $25 per Trust Security. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date. Distribution of Junior Subordinated Debentures Subject to the Company and the Trust having received an opinion of counsel to the effect that such distribution will not be a taxable event to the holders of the Trust Preferred Securities, the Company will have the right at any time to dissolve the Trust and, after satisfaction of the liabilities of creditors of the Trust as provided by applicable law, cause the Junior Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of the Trust. After the liquidation date fixed for any distribution of Junior Subordinated Debentures for Trust Preferred Securities (i) such Trust Preferred Securities will no longer be deemed to be outstanding, and (ii) certificates representing Trust Preferred Securities that are not then held by the Depositary or its nominee will be deemed to represent Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Trust Preferred Securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on the Trust Preferred Securities until such certificates are presented to the Administrative Trustees or their agent for transfer or exchange. There can be no assurance as to the market prices for the Trust Preferred Securities or the Junior Subordinated Debentures that may be distributed in exchange for the Trust Preferred Securities if a dissolution and liquidation of the Trust were to occur. Accordingly, the Trust Preferred Securities that an investor may purchase, or the Junior Subordinated Debentures that the investor may receive on dissolution and liquidation of the Trust, may trade at a discount to the price that the investor paid to purchase the Trust Preferred Securities offered hereby. 62 Redemption Procedures Trust Preferred Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Junior Subordinated Debentures. Redemptions of the Trust Preferred Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has funds on hand available for the payment of such Redemption Price. See "-- Subordination of Common Securities of the Trust Held by the Company" herein and "Description of Guarantee." If the Trust gives a notice of redemption in respect of the Trust Preferred Securities, then, by 12:00 noon, Eastern time on the Redemption Date, to the extent funds are available and to the extent the Trust Preferred Securities are no longer in book-entry form, the Property Trustee will deposit with the paying agent for such Trust Preferred Securities funds sufficient to pay the aggregate Redemption Price and will give such paying agent irrevocable instructions and authority to pay the Redemption Price to the holders thereof upon surrender of their certificates evidencing such Trust Preferred Securities. If such Trust Preferred Securities are only in book-entry form, the Property Trustee, to the extent funds are available, will deposit with the Depositary funds sufficient to pay the aggregate Redemption Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of such Trust Preferred Securities. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date shall be payable to the holders of such Trust Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of the Trust Preferred Securities will cease, except the right of the holders of the Trust Preferred Securities to receive the applicable Redemption Price, but without interest on such Redemption Price, and such Trust Preferred Securities will cease to be outstanding. In the event that any date fixed for redemption of such Trust Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date such payment was originally payable. In the event that payment of the Redemption Price in respect of Trust Preferred Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Company pursuant to the Guarantee, Distributions on such Trust Preferred Securities will continue to accrue at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. See "Description of Guarantee." Subject to applicable law (including, without limitation, United States federal securities law), and further provided that the Company is not then exercising its right to defer interest payments on the Junior Subordinated Debentures, the Company may at any time and from time to time purchase outstanding Trust Preferred Securities by tender, in the open market or by private agreement. Payment of the Redemption Price on the Trust Preferred Securities and any distribution of Junior Subordinated Debentures to holders of Trust Preferred Securities shall be made to the applicable recordholders thereof as they appear on the register for such Trust Preferred Securities on the relevant record date, which date shall be, so long as such securities remain in book-entry form, one Business Day prior to the Redemption Date or Liquidation Date, as applicable. In the event that the Trust Preferred Securities are not in book-entry form, the relevant record date for such Trust Preferred Securities shall be the date 15 days prior to the relevant Redemption Date. If less than all of the Trust Securities issued by the Trust are to be redeemed on a Redemption Date, then the aggregate Redemption Price for such Trust Securities to be redeemed shall be allocated pro rata to the Trust Preferred Securities and Common Securities based upon the relative Liquidation Amounts of such classes. The particular Trust Preferred Securities to be redeemed shall be selected by the Property Trustee from the outstanding Trust Preferred Securities not previously called for redemption, by such method as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple thereof) of the Liquidation Amount of Trust Preferred Securities. The Property Trustee shall promptly notify the Securities Registrar (as defined below) in writing of the Trust Preferred Securities selected for redemption and, in the case of any Trust Preferred Securities selected for partial redemption, the Liquidation 63 Amount thereof to be redeemed. For all purposes of the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Trust Preferred Securities shall relate to the portion of the aggregate Liquidation Amount of Trust Preferred Securities which has been or is to be redeemed. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Trust Securities at such holder's registered address. Unless the Trust defaults in payment of the applicable Redemption Price, on and after the Redemption Date, Distributions will cease to accrue on such Trust Preferred Securities called for redemption. Subordination of Common Securities of the Trust Held by the Company Payment of Distributions on, and the Redemption Price of, the Trust Preferred Securities and Common Securities, as applicable, shall be made pro rata based on the Liquidation Amounts of the Trust Preferred Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution on, or applicable Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of the Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Trust Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the applicable Redemption Price, the full amount of such Redemption Price on all of the outstanding Trust Preferred Securities then called for redemption, shall have been made or provided for, and all funds available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price of, the Trust Preferred Securities then due and payable. In the case of any Event of Default under the Trust Agreement resulting from a Debenture Event of Default, the Company as holder of the Common Securities, will be deemed to have waived any right to act with respect to any such Event of Default until the effect of all such Events of Default have been cured, waived or otherwise eliminated. Until any such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the holders of the Trust Preferred Securities and not on behalf of the Company as holder of the Common Securities, and only the holders of the Trust Preferred Securities will have the right to direct the Property Trustee to act on their behalf. Liquidation Distribution Upon Dissolution The Company will have the right at any time to dissolve the Trust and, after satisfaction of liabilities to creditors of the Trust as required by applicable law, cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities. See "--Distribution of Junior Subordinated Debentures" above. The Company might exercise its right to dissolve the Trust under circumstances where a "Tax Event," "Investment Company Event" or other undesirable event could be avoided simply by dissolving the Trust and causing the Junior Subordinated Debentures to be distributed to holders of the Trust Preferred Securities. In addition, pursuant to the Trust Agreement, the Trust shall automatically dissolve upon expiration of its term and shall earlier dissolve on the first to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the Company; (ii) the distribution of a Like Amount of the Junior Subordinated Debentures to the holders of its Trust Securities, if the Company, as Depositor, has delivered written direction to the Property Trustee to dissolve the Trust (which direction is optional and, except as described above, wholly within the discretion of the Company, as Depositor); (iii) redemption of all of the Trust Preferred Securities as described under "--Redemption" and (iv) the entry of an order for the dissolution of the Trust by a court of competent jurisdiction. If an early dissolution occurs as described in clause (i), (ii), or (iv) above, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to the holders of such Trust Securities a Like Amount of the Junior Subordinated Debentures, unless such distribution is determined by the Property Trustee not to be 64 practical, in which event such holders will be entitled to receive out of the assets of the Trust available for distribution to holders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to, in the case of holders of Trust Preferred Securities, the aggregate of the Liquidation Amount plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If such Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Trust Preferred Securities shall be paid on a pro rata basis. The holder(s) of the Common Securities will be entitled to receive distributions upon any such liquidation on a pro rata basis with the holders of the Trust Preferred Securities, except that if a Debenture Event of Default has occurred and is continuing, the Trust Preferred Securities shall have a priority over the Common Securities. Under current United States federal income tax law and interpretations, and assuming that the Trust is treated as a grantor trust, a distribution of the Junior Subordinated Debentures should not be a taxable event to holders of the Trust Preferred Securities. Should there be a change in law, a change in distribution, a Tax Event or other circumstances, however, the distribution could be a taxable event to the Trust and to holders of the Trust Preferred Securities. See "Certain Federal Income Tax Consequences." If the Company elects neither to redeem the Junior Subordinated Debentures prior to maturity nor to liquidate the Trust and distribute the Junior Subordinated Debentures to holders of the Trust Preferred Securities, the Trust Preferred Securities will remain outstanding until the repayment of the Junior Subordinated Debentures. If the Company elects to dissolve the Trust and thereby causes the Junior Subordinated Debentures to be distributed to holders of the Trust Preferred Securities in liquidation of the Trust, the Company shall continue to have the right to shorten the Stated Maturity of such Junior Subordinated Debentures. See "Description of Junior Subordinated Debentures--General." Events of Default; Notice Any one of the following events that has occurred and is continuing constitutes an "Event of Default" under the Trust Agreement (an "Event of Default") with respect to the Trust Preferred Securities (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the occurrence of a Debenture Event of Default (see "Description of Junior Subordinated Debentures-- Debenture Events of Default"); or (ii) default by the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (iii) default by the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (iv) default in the performance, or breach, in any material respect, of any covenant or warranty of the Property Trustee in the Trust Agreement (other than a default or breach in the performance of a covenant or warranty which is addressed in clause (ii) or (iii) above), and continuation of such default or breach, for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Property Trustee by the holders of at least 25% in aggregate Liquidation Amount of the outstanding Trust Preferred Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" under the Trust Agreement; or (v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure by the Company to appoint a successor Property Trustee within 60 days thereof. Within five Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit notice of such Event of Default to the holders of the Trust Preferred Securities, the Administrative Trustees and the Company, as Depositor, unless such Event of Default shall have 65 been cured or waived. The Company, as Depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Trust Preferred Securities shall have a preference over the Common Securities upon dissolution of the Trust as described above. See "--Liquidation Distribution upon Dissolution" herein. Upon a Debenture Event of Default (other than with respect to certain events in bankruptcy, insolvency or reorganization), unless the principal of all the Junior Subordinated Debentures has already become due and payable, either the Property Trustee or the holders of not less than 25% in aggregate principal amount of the Junior Subordinated Debentures then outstanding may declare all of the Junior Subordinated Debentures to be due and payable immediately by giving notice in writing to the Company (and to the Property Trustee, if notice is given by holders of the Junior Subordinated Debentures). If the Property Trustee or the holders of the Junior Subordinated Debentures fail to declare the principal of all of the Junior Subordinated Debentures due and payable upon a Debenture Event of Default, the holders of at least 25% in Liquidation Amount of the Trust Preferred Securities then outstanding shall have the right to declare the Junior Subordinated Debentures immediately due and payable. In either event, payment of principal and interest on the Junior Subordinated Debentures shall remain subordinated to the extent provided in the Indenture. In addition, holders of the Trust Preferred Securities have the right in certain circumstances to bring a Direct Action (as hereinafter defined). See "Description of Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of Trust Preferred Securities." If a Debenture Event of Default with respect to certain events in bankruptcy, insolvency or reorganization occurs, the Junior Subordinated Debentures shall automatically, and without any declaration or other action on the part of the Property Trustee or the holders of the Junior Subordinated Debentures, become immediately due and payable. In such event, payment of principal and interest on the Junior Subordinated Debentures will also remain subordinated to the extent provided in the Indenture. Removal of Trustees Unless a Debenture Event of Default has occurred and is continuing, any of the Property Trustee, the Delaware Trustee or the Administrative Trustees may be removed at any time by the holder of the Common Securities. For example, the holder of the Common Securities may seek to remove such trustees upon substandard performance or non-performance of their duties or upon a significant increase in a trustee's fee. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee also may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Trust Preferred Securities. In no event will the holders of the Trust Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of the Common Securities. No resignation or removal of an Issuer Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement. Co-Trustees and Separate Property Trustee Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust property may at the time be located, the Company, as the holder of the Common Securities, and the Administrative Trustees shall have power to appoint one or more persons either to act as a co-trustee, jointly with the Property Trustee, of all or any part of such Trust property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such person or persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Merger or Consolidation of Trustees Any Person (as defined in the Trust Agreement) into which the Property Trustee, the Delaware Trustee or any Administrative Trustee (that is not a natural person) may be merged or converted or with which it may be 66 consolidated, or any Person resulting from any merger, conversion or consolidation to which such Issuer Trustee shall be a party, or any person succeeding to all or substantially all the corporate trust business of such Issuer Trustee, shall be the successor of such Issuer Trustee under the Trust Agreement, provided such Person shall be otherwise qualified and eligible. Mergers, Consolidations, Amalgamations or Replacements of the Trust The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except as described below or as described in "--Liquidation Distribution Upon Dissolution." The Trust may, at the request of the Company, with the consent of the Administrative Trustees and without the consent of the holders of the Trust Preferred Securities, merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Trust Preferred Securities or (b) substitutes for the Trust Preferred Securities other securities having substantially the same terms as the Trust Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Trust Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Company expressly appoints a trustee of such successor entity, possessing the same powers and duties as the Property Trustee, as the holder of the Junior Subordinated Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange, national stock market or other organization on which the Trust Preferred Securities are then listed, if any, (iv) such merger, consolidation, amalgamation, conveyance, transfer or lease does not cause the Trust Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization which gives ratings to the Trust Preferred Securities, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company has received an opinion from independent counsel to the Trust experienced in such matters to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the Investment Company Act and (viii) the Company or any permitted successor or designee owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Trust Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or loan its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or loan would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. Voting Rights; Amendment of the Trust Agreement Except as provided below and under "Description of Guarantee--Amendments and Assignment" and as otherwise required by law and the Trust Agreement, the holders of the Trust Preferred Securities will have no voting rights. The Trust Agreement may be amended from time to time by the Company, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Trust Securities, (i) to cure any ambiguity, correct or supplement any provisions in the Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement, which shall not be inconsistent with the other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to 67 any provisions of the Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any holder of Trust Securities, and any such amendments of the Trust Agreement shall become effective when notice thereof is given to the holders of the Trust Securities. The Trust Agreement may be amended by the Issuer Trustees and the Company with (i) the consent of holders representing not less than a majority of the aggregate Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Issuer Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Issuer Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status as an "investment company" under the Investment Company Act, provided that without the consent of each holder of Trust Securities to be affected thereby, the Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. So long as any Junior Subordinated Debentures are held by the Property Trustee, the Issuer Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the Junior Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Junior Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Junior Subordinated Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding Trust Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Junior Subordinated Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior consent of each holder of the Trust Preferred Securities. The Issuer Trustees shall not revoke any action previously authorized or approved by a vote of the holders of the Trust Preferred Securities except by subsequent vote of the holders of the Trust Preferred Securities. The Property Trustee shall notify each holder of the Trust Preferred Securities of any notice of default with respect to the Junior Subordinated Debentures. In addition to obtaining the foregoing approvals of such holders of the Trust Preferred Securities, prior to taking any of the foregoing actions, the Issuer Trustees shall obtain an opinion of counsel experienced in such matters to the effect that such action will not cause the Trust to fail to be classified as a grantor trust for United States federal income tax purposes. Any required approval of holders of the Trust Preferred Securities may be given at a meeting of holders of Trust Preferred Securities convened for such purpose or pursuant to written consent. The Property Trustee will cause a notice of any meeting at which holders of the Trust Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of the Trust Preferred Securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of the Trust Preferred Securities will be required for the Trust to redeem and cancel the Trust Preferred Securities in accordance with the Trust Agreement. Notwithstanding that holders of the Trust Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Trust Preferred Securities that are owned by the Company, the Issuer Trustees or any affiliate of the Company or any Issuer Trustees, shall, for purposes of such vote or consent, be treated as if they were not outstanding. Global Trust Preferred Securities The Trust Preferred Securities will be represented by one or more global certificates registered in the name of the Depositary or its nominee ("Global Trust Preferred Security"). Beneficial interests in the Global Trust Preferred Securities will be shown on, and transfers thereof will be effected only through, records maintained by participants in the Depositary. Except as described below, Trust Preferred Securities in certificated form will not be issued in exchange for the global certificates. See "Book-Entry Issuance." 68 A global security shall be exchangeable for Trust Preferred Securities registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall have been appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act, at a time when the Depositary is required to be so registered to act as such depositary, (ii) the Company in its sole discretion determines that such global security shall be so exchangeable, or (iii) there shall have occurred and be continuing an Event of Default under the Indenture. Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable for definitive certificates registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary with respect to ownership of beneficial interests in such global security. In the event that Trust Preferred Securities are issued in definitive form, such Trust Preferred Securities will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices of the Depositary described below. Unless and until it is exchanged in whole or in part for the individual Trust Preferred Securities represented thereby, a Global Trust Preferred Security may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of the Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. Payments on Trust Preferred Securities represented by a global security will be made to the Depositary, as the record holder of the Trust Preferred Securities. In the event the Trust Preferred Securities are issued in definitive form, Distributions will be payable, the transfer of the Trust Preferred Securities will be registrable, and Trust Preferred Securities will be exchangeable for Trust Preferred Securities of other denominations of a like aggregate Liquidation Amount, at the corporate office of the Property Trustee, or at the offices of any paying agent or transfer agent appointed by the Administrative Trustees, provided that payment of any Distribution may be made at the option of the Administrative Trustees by check mailed to the address of the persons entitled thereto or by wire transfer, provided that payments will be made by wire transfer if so requested by a holder of more than $1 million aggregate Liquidation Amount. In addition, if the Trust Preferred Securities are issued in definitive, certificated form, the record dates for payment of Distributions will be the first day of the month in which the relevant Distribution Date occurs. For a description of the terms of the depositary arrangements relating to payments, transfer, voting rights, redemptions and other notices and other matters, see "Book-Entry Issuance." Upon the issuance of a Global Trust Preferred Security, and the deposit of such Global Trust Preferred Security with or on behalf of the Depositary, the Depositary for such Global Trust Preferred Security or its nominee will credit, on its book-entry registration and transfer system, the respective aggregate Liquidation Amounts of the individual Trust Preferred Securities represented by such Global Trust Preferred Securities to the accounts of Participants (as defined below). Such accounts shall be designated by the dealers, underwriters or agents with respect to such Trust Preferred Securities. Ownership of beneficial interests in a Global Trust Preferred Security will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Trust Preferred Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Trust Preferred Security. So long as the Depositary for a Global Trust Preferred Security, or its nominee, is the registered owner of such Global Trust Preferred Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Trust Preferred Securities represented by such Global Trust Preferred Security for all purposes under the Trust Agreement governing such Trust Preferred Securities. Except as provided below, owners of beneficial interests in a Global Trust Preferred Security will not be entitled to have any of the individual Trust Preferred Securities represented by such Global Trust Preferred Security registered in their names, will not receive or be entitled to receive physical delivery of any such Trust Preferred Securities in definitive form and will not be considered the owners or holders thereof under the Trust Agreement. 69 None of the Company, the Property Trustee, any Paying Agent, or the Securities Registrar for such Trust Preferred Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Trust Preferred Security representing such Trust Preferred Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depositary for Trust Preferred Securities or its nominee, upon receipt of any payment of the Liquidation Amount or Distributions in respect of a permanent Global Trust Preferred Security immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interest in the aggregate Liquidation Amount of such Global Trust Preferred Security as shown on the records of such Depositary or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Trust Preferred Security held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If the Depositary for the Trust Preferred Securities is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Trust will issue individual Trust Preferred Securities in exchange for the Global Trust Preferred Security. In addition, the Trust may at any time and in its sole discretion, subject to any limitations described herein relating to such Trust Preferred Securities, determine not to have any Trust Preferred Securities represented by one or more Global Trust Preferred Securities and, in such event, will issue individual Trust Preferred Securities in exchange for the Global Trust Preferred Security or Securities representing the Trust Preferred Securities. In any such instance, an owner of a beneficial interest in a Global Trust Preferred Security will be entitled to physical delivery of individual Trust Preferred Securities represented by such Global Trust Preferred Security equal in Liquidation Amount to such beneficial interest and to have such Trust Preferred Securities registered in its name. Individual Trust Preferred Securities so issued will be issued in denominations, unless otherwise specified by the Trust, of $25 and integral multiples thereof. Payment and Paying Agent Payments in respect of the Trust Preferred Securities shall be made to the Depositary, which shall credit the relevant accounts at the Depositary on the applicable Distribution Dates or, if any of the Trust Preferred Securities are not held by the Depositary, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the Register. The paying agent (the "Paying Agent") shall initially be the Property Trustee and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and the Company. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Company. In the event that the Property Trustee shall no longer be the Paying Agent, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company acceptable to the Administrative Trustees and the Company) to act as Paying Agent. Registrar and Transfer Agent The Property Trustee will act as registrar and transfer agent for the Trust Preferred Securities. Registration of transfers of the Trust Preferred Securities will be effected without charge by or on behalf of the Trust, but upon payment by the holder of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. The Trust will not be required to register or cause to be registered the transfer of the Trust Preferred Securities after such Trust Preferred Securities have been called for redemption. Information Concerning the Property Trustee The Property Trustee, other than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the 70 conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Trust Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and is continuing and the Property Trustee is required to decide between alternative causes of action or to construe ambiguous provisions in the Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of the Trust Preferred Securities are entitled under the Trust Agreement to vote, then the Property Trustee shall take such action as is directed by the Company and, if not so directed, shall take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct. Miscellaneous The Administrative Trustees are authorized and directed to conduct the affairs of and to operate the Trust in such a way that the Trust will not be deemed to be an "investment company" required to be registered under the Investment Company Act or fail to be classified as a grantor trust for United States federal income tax purposes and so that the Junior Subordinated Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. In this connection, the Company and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of the Trust or the Trust Agreement, that the Company and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes, as long as such action does not materially adversely affect the interests of the holders of the Trust Preferred Securities. Holders of the Trust Preferred Securities have no preemptive or similar rights. The Trust may not borrow money, issue debt or mortgage or pledge any of its assets. DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES Concurrently with the issuance of the Trust Preferred Securities, the Trust will invest the proceeds thereof, together with the consideration paid by the Company for the Common Securities, in Junior Subordinated Debentures issued by the Company. The Junior Subordinated Debentures will be issued as unsecured debt under the Junior Subordinated Indenture, dated as of , 1998 (the "Indenture"), between the Company and the Indenture Trustee. The following summary of the terms and provisions of the Junior Subordinated Debentures and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part, and to the Trust Indenture Act. The Indenture is qualified under the Trust Indenture Act. Whenever particular defined terms of the Indenture are referred to herein, such defined terms are incorporated herein by reference. General The Junior Subordinated Debentures will bear interest at the annual rate of % of the principal amount thereof, payable monthly in arrears on the day of each calendar month of each year (each, an "Interest Payment Date"), commencing , 1998, to the person in whose name each Junior Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the day of the month in which such payment is made. Notwithstanding the above, in the event that either the (i) Junior Subordinated Debentures are held by the Property Trustee and the Trust Preferred Securities are registered in book-entry only form or (ii) the Junior Subordinated Debentures are represented by a Global Subordinated Debenture (as defined herein), the record date for such payment shall be the Business Day next preceding such Interest Payment Date. The amount of each interest payment due with respect to the Junior Subordinated Debentures will include amounts accrued through the date the interest payment is due. It is anticipated that, until the liquidation, if any, of the Trust, each Junior Subordinated Debenture will be held in the name of the Property Trustee, in trust for the benefit of the holders of the Trust Preferred Securities. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Junior Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will 71 be made on the next Business Day (and without any interest or other payment in respect of any such delay), in each case with the same force and effect as if made on the date such payment was originally payable. Accrued interest that is not paid on the applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at the rate per annum of % thereof. The term "interest" as used herein shall include monthly interest payments, interest on monthly interest payments not paid on the applicable Interest Payment Date and Additional Sums (as defined below), as applicable. The Junior Subordinated Debentures will mature on , 2028 (such date, as it may be shortened as hereinafter described, the "Stated Maturity"). Such date may be shortened at any time by the Company to any date not earlier than , 2003. The Company might exercise its right to shorten the maturity of the Junior Subordinated Debentures under circumstances where a "Tax Event," "Investment Company Event" or other undesirable event could be avoided simply by shortening the maturity of the Junior Subordinated Debentures. In the event that the Company elects to shorten the Stated Maturity of the Junior Subordinated Debentures, it shall give notice to the Indenture Trustee, and the Indenture Trustee shall give notice of such shortening to the holders of the Junior Subordinated Debentures no less than 60 days prior to the effectiveness thereof. The Junior Subordinated Debentures will be unsecured and will rank junior and be subordinate in right of payment to all Senior Debt and Subordinated Debt of the Company. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any subsidiaries upon any such subsidiaries' liquidation or reorganization or otherwise (and thus the ability of holders of the Trust Preferred Securities to benefit indirectly from such distribution), is subject to the prior claims of creditors of that subsidiary, except to the extent that the Company may itself be recognized as a creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively subordinated to all existing and future liabilities of any subsidiaries of the Company, and holders of Junior Subordinated Debentures should look only to the assets of the Company for payments on the Junior Subordinated Debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Debt and Subordinated Debt, whether under the Indenture or any existing or other indenture that the Company may enter into in the future or otherwise. See "--Subordination" below. Option to Defer Interest Payment Period So long as no Debenture Event of Default has occurred and is continuing, the Company has the right under the Indenture at any time during the term of the Junior Subordinated Debentures to defer the payment of interest at any time or from time to time for a period not exceeding 60 consecutive months (each such period an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity. At the end of such Extension Period, the Company must pay all interest then accrued and unpaid (together with interest thereon at the annual rate of %, compounded monthly, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Junior Subordinated Debentures will be required to accrue interest income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences--Interest Income and Original Issue Discount." Neither the default by the Company on any Senior Debt and Subordinated Debt, nor a default with respect to Senior Debt and Subordinated Debt resulting in acceleration of the maturity thereof, constitutes a Debenture Event of Default. See "--Debenture Events of Default" below. During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred stock), or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including other Junior Subordinated Debentures) that rank pari passu with or junior in interest to the Junior Subordinated Debentures, (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in capital stock of the Company (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, and (d) purchases of common stock related to 72 the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers or employees), or (iv) redeem, purchase or acquire less than all of the Junior Subordinated Debentures or any of the Trust Preferred Securities. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 60 consecutive months or extend beyond the Stated Maturity. Upon the termination of any such Extension Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extension Period subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must give notice to the Property Trustee, the Administrative Trustees and the Indenture Trustee of its election of any Extension Period at least one Business Day prior to the earlier of (i) the date the distributions on the Trust Preferred Securities would have been payable but for the election to begin or extend such Extension Period, (ii) the date the Administrative Trustees are required to give notice to the American Stock Exchange, the New York Stock Exchange, The Nasdaq Stock Market or any applicable stock exchange or automated quotation system on which the Trust Preferred Securities are then listed or quoted or to the holders of the Trust Preferred Securities on the record date or (iii) the date such distributions are payable, but in any event not less than one Business Day prior to such record date. The Indenture Trustee shall give notice of the Company's election to begin or extend a new Extension Period to the holders of the Trust Preferred Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period. Distributions on the Trust Preferred Securities will be deferred by the Trust during any such Extension Period. See "Description of the Trust Preferred Securities--Distributions." For a description of certain federal income tax consequences and special considerations applicable to any such Junior Subordinated Debentures, see "Certain Federal Income Tax Consequences." Additional Sums If the Trust is required to pay any additional taxes, duties or other governmental charges as a result of a Tax Event, the Company will pay as additional amounts on the Junior Subordinated Debentures such amounts ("Additional Sums") as shall be required so that the Distributions payable by the Trust shall not be reduced as a result of any such additional taxes, duties or other governmental charges. Redemption The Junior Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after , 2003, in whole at any time or in part from time to time, or (ii) at any time in whole (but not in part), within 90 days following the occurrence of a Tax Event or an Investment Company Event, in each case at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Junior Subordinated Debentures to be redeemed at such holder's registered address. Unless the Company defaults in payment of the redemption price, on and after the redemption date interest ceases to accrue on such Junior Subordinated Debentures or portions thereof called for redemption. If the Trust is required to pay additional taxes, duties or other governmental charges as a result of a Tax Event, the Company will pay as additional amounts on the Junior Subordinated Debentures the Additional Sums (as defined herein). The Junior Subordinated Debentures will not be subject to any sinking fund. Distribution Upon Liquidation As described under "Description of the Trust Preferred Securities-- Liquidation Distribution Upon Dissolution," under certain circumstances involving the dissolution of the Trust, the Junior Subordinated Debentures may be distributed to the holders of the Trust Preferred Securities in liquidation of the Trust after satisfaction of liabilities to creditors of the Trust as provided by applicable law. If the Junior Subordinated Debentures are distributed to the holders of Trust Preferred Securities upon the liquidation of the Trust, the Company will use its 73 best efforts to list the Junior Subordinated Debentures on the American Stock Exchange or the NASDAQ SmallCap Market or such other stock exchanges or automated quotation system, if any, on which the Trust Preferred Securities are then listed or quoted. There can be no assurance as to the market price of any Junior Subordinated Debentures that may be distributed to the holders of Trust Preferred Securities. Restrictions on Certain Payments If at any time (i) there shall have occurred a Debenture Event of Default, (ii) the Company shall have given notice of its election of an Extension Period as provided in the Indenture with respect to the Junior Subordinated Debentures and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing, or (iii) while the Junior Subordinated Debentures are held by the Trust, the Company shall be in default with respect to its payment of any obligation under the Guarantee, then the Company will not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock, (2) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including other Junior Subordinated Debt) that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in capital stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee and (d) purchases of common stock related to issuance of common stock or rights under any of the Company's benefit plans for its directors, officers, employees or consultants) or (3) redeem, purchase or acquire less than all of the Junior Subordinated Debentures or any of the Trust Preferred Securities. Subordination The Indenture provides that the Junior Subordinated Debentures are subordinated and junior in right of payment to all Senior Debt and Subordinated Debt whether now existing or hereafter incurred. Senior Debt and Subordinated Debt may include indebtedness of the Company which is subordinated to other indebtedness of the Company but nevertheless senior to the Junior Subordinated Debentures. No payment of principal of (including redemption payments, if any), premium, if any, or interest on, the Junior Subordinated Debentures may be made if (a) there is a default in the payment of principal, premium, interest or any other payment due on any Senior Debt and Subordinated Debt, or (b) the maturity of any Senior Debt and Subordinated Debt has been accelerated because of a default. Upon any payment by the Company or distribution of assets of the Company to creditors upon any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due on all Senior Debt and Subordinated Debt must be paid in full before the holders of the Junior Subordinated Debentures are entitled to receive or retain any payment. Upon payment in full of all amounts due on the Senior Debt and Subordinated Debt then outstanding, the rights of the holders of the Junior Subordinated Debentures will be subrogated to the rights of the holders of Senior Debt and Subordinated Debt to receive payments or distributions applicable to such Senior Debt and Subordinated Debt until all amounts owing on the Junior Subordinated Debentures are paid in full. "Debt" means, with respect to any person, whether recourse is to all or a portion of the assets of such person and whether or not contingent: (i) every obligation of such person for money borrowed; (ii) every obligation of such person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such person; (iv) every obligation of such person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such person; (vi) all indebtedness of such person whether incurred on or prior to the date of the Indenture or thereafter incurred, for claims in respect of derivative products including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another person and all dividends of another person the payment of which, in either case, such person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise. 74 "Senior Debt and Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt of the Company whether incurred on or prior to the date of the Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Junior Subordinated Debentures or to other Debt which is pari passu with, or subordinated to, the Junior Subordinated Debentures; provided, however, that Senior Debt and Subordinated Debt shall not be deemed to include (i) any Debt of the Company which when incurred and without respect to any election under Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to the Company, (ii) any Debt of the Company to any of its subsidiaries, (iii) Debt to any employee of the Company, and (iv) any other debt securities issued pursuant to the Indenture. The Indenture places no limitation on the amount of additional Senior Debt and Subordinated Debt that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Debt and Subordinated Debt. Registration, Denomination and Transfer The Junior Subordinated Debentures will initially be registered in the name of the Property Trustee. If the Junior Subordinated Debentures are distributed to holders of Preferred Securities, it is anticipated that the depository arrangements for the Junior Subordinated Debentures will be substantially identical to those in effect for the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Global Trust Preferred Securities" and "Book-Entry Issuance." Although the Depositary has agreed to the procedures described above, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. If the Depositary is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 days of receipt of notice from the Depositary to such effect, the Company will cause the Junior Subordinated Debentures to be issued in definitive form. Payments on Junior Subordinated Debentures represented by a global certificate will be made to Cede & Co., the nominee for the Depositary as the registered holder of the Junior Subordinated Debentures, as described under "Description of the Trust Preferred Securities--Global Trust Preferred Securities." If Junior Subordinated Debentures are issued in certificate form, principal and interest will be payable, the transfer of the Junior Subordinated Debentures will be registrable, and Junior Subordinated Debentures will be exchangeable for Junior Subordinated Debentures of other authorized denominations of a like aggregate principal amount, at the corporate trust office of the Indenture Trustee in Wilmington, Delaware or at the offices of any paying agent or transfer agent appointed by the Company, provided that payment of interest may be made at the option of the Company by check mailed to the address of the persons entitled thereto, However, a holder of $1 million or more in aggregate principal amount of Junior Subordinated Debentures may receive payments of interest (other than interest payable at the Stated Maturity) by wire transfer of immediately available funds upon wirtten request to the Debenture Trustee not later than 15 calendar days prior to the date on which the interest is payable. Junior Subordinated Debentures will be exchangeable for other Junior Subordinated Debentures of like tenor, of any authorized denominations and of a like aggregate principal amount. Junior Subordinated Debentures may be presented for exchange as provided above, and may be presented for registration of transfer (with the form of transfer endorsed thereon, or a satisfactory written instrument of transfer, duly executed), at the office of the securities registrar (the "Securities Registrar") appointed under the Indenture or at the office of any transfer agent designated by the Company for such purpose without service charge and upon payment of any taxes and other governmental charges as described in the Indenture. The Company will appoint the Indenture Trustee as Securities Registrar under the Indenture. The Company may at any time designate additional transfer agents with respect to the Junior Subordinated Debentures. In the event of any redemption, neither the Company nor the Indenture Trustee shall be required to (i) issue, register the transfer of or exchange Junior Subordinated Debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of the Junior Subordinated Debentures to be 75 redeemed and ending at the close of business on the date of mailing of the relevant notice of redemption or (ii) transfer or exchange any Junior Subordinated Debentures so selected for redemption, except in the case of any Junior Subordinated Debentures being redeemed in part, any portion thereof not to be redeemed. Payment and Paying Agents Payment of principal of (and premium, if any) and any interest on the Junior Subordinated Debentures will be made at the office of the Indenture Trustee, except that at the option of the Company payment of any interest may be made (i) except in the case of Global Junior Subordinated Debentures, by check mailed to the address of the person entitled thereto as such address shall appear in the securities register, (ii) by transfer to an account maintained by the person entitled thereto as specified in the securities register, provided that proper transfer instructions have been received by the regular record date, or (iii) if the Junior Subordinated Debentures are held by the Property Trustee, by agreement between the Company and the Property Trustee. Payment of any interest on Junior Subordinated Debentures will be made to the person in whose name such Junior Subordinated Debenture is registered at the close of business on the regular record date for such interest. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent; however the Company will at all times be required to maintain a Paying Agent in each place of payment for the Junior Subordinated Debentures. Any moneys deposited with the Indenture Trustee or any Paying Agent, or then held by the Company in trust, for the payment of the principal of or interest on the Junior Subordinated Debentures and remaining unclaimed for two years after such principal of (and premium, if any) or interest has become due and payable shall, at the request of the Company, be repaid to the Company and the holder of such Junior Subordinated Debenture shall thereafter look, as a general unsecured creditor, only to the Company for payment thereof. Modification of Indenture From time to time the Company and the Indenture Trustee may, without the consent of the holders of the Junior Subordinated Debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies (provided that any such action does not materially adversely affect the interests of the holders of the Junior Subordinated Debentures or the Trust Preferred Securities so long as they remain outstanding) and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting the Company and the Indenture Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Junior Subordinated Debentures, to modify the Indenture in a manner affecting the rights of the holders of the Junior Subordinated Debentures; provided, that no such modification may, without the consent of the holder of each outstanding Junior Subordinated Debenture, (i) change the Stated Maturity of the Junior Subordinated Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon or (ii) reduce the percentage of principal amount of Junior Subordinated Debentures, the holders of which are required to consent to any such modification of the Indenture; provided that so long as any of the Trust Preferred Securities remain outstanding, no such modification may be made that adversely affects the holders of such Trust Preferred Securities in any material respect, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default or compliance with any covenant under the Indenture may be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Trust Preferred Securities unless and until the principal of the Junior Subordinated Debentures and all accrued and unpaid interest thereon have been paid in full and certain other conditions have been satisfied. Where a consent under the Indenture would require the consent of each holder of Junior Subordinated Debentures, no such consent shall be given by the Property Trustee without the prior consent of each holder of Trust Preferred Securities. In addition, the Company and the Indenture Trustee may execute, without the consent of any holder of Junior Subordinated Debentures, any supplemental Indenture for the purpose of creating any new series of Junior Subordinated Debentures. 76 Debenture Events of Default The Indenture provides that any one or more of the following described events with respect to the Junior Subordinated Debentures that has occurred and is continuing constitutes a "Debenture Event of Default," with respect to the Junior Subordinated Debentures: (i) failure for 30 days to pay any interest on the Junior Subordinated Debentures, when due (subject to the deferral of any due date in the case of an Extension Period), or (ii) failure to pay any principal on the Junior Subordinated Debentures when due whether at maturity, upon redemption, by declaration or otherwise; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to the Company from the Indenture Trustee or to the Company and the Indenture Trustee by the holders of at least 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of the Company or certain of its Subsidiaries. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures may declare the principal due and payable immediately upon a Debenture Event of Default. If the Indenture Trustee or such holders of such Junior Subordinated Debentures fail to make such declaration, the holders of at least 25% in aggregate Liquidation Amount of the Trust Preferred Securities shall have such right. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures may annul such declaration and waive the default if the default (other than the non-payment of the principal of the Junior Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Indenture Trustee. Should the holders of the Junior Subordinated Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Trust Preferred Securities shall have such right. The holders of a majority in aggregate outstanding principal amount of Junior Subordinated Debentures affected thereby may, on behalf of the holders of all the Junior Subordinated Debentures, waive any past default, except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Indenture Trustee) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Junior Subordinated Debenture. In case a Debenture Event of Default shall occur and be continuing as to the Junior Subordinated Debentures, the Property Trustee, as holder of the Junior Subordinated Debentures, will have the right to declare the principal of and the interest on such Junior Subordinated Debentures, and any other amounts payable under the Indenture, to be forthwith due and payable and to enforce its other rights as a creditor with respect to such Junior Subordinated Debentures. The Company is required to file annually with the Indenture Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Indenture. Enforcement of Certain Rights by Holders of Trust Preferred Securities If a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Junior Subordinated Debentures on the date such interest or principal is otherwise payable, a holder of Trust Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Junior Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Trust Preferred Securities of such holder (a "Direct Action"). The Company may not amend the Indenture to remove the 77 foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Trust Preferred Securities outstanding. If the right to bring a Direct Action is removed, the Trust may become subject to the reporting obligations under the Exchange Act. The Company shall have the right under the Indenture to set off any payment made to such holder of Trust Preferred Securities by the Company in connection with a Direct Action. The holders of the Trust Preferred Securities would not be able to exercise directly any remedies other than those set forth in the preceding paragraph available to the holders of the Junior Subordinated Debentures unless there shall have been an Event of Default under the Trust Agreement. See "Description of the Trust Preferred Securities--Events of Default; Notice." Consolidation, Merger, Sale of Assets and Other Transactions The Indenture provides that the Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless (i) in case the Company consolidates with or merges into another Person or conveys, transfers or leases its properties and assets substantially as an entirety to any Person, the successor Person is organized under the laws of the United States or any state or the District of Columbia, and such successor Person expressly assumes the Company's obligations on the Junior Subordinated Debentures issued under the Indenture; (ii) immediately after giving effect thereto, no Debenture Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, shall have occurred and be continuing; and (iii) certain other conditions an prescribed in the Indenture are met. The general provisions of the Indenture do not afford holders of the Junior Subordinated Debentures protection in the event of a highly leveraged or other similar transaction involving the Company that may adversely affect holders of the Junior Subordinated Debentures. Satisfaction and Discharge The Indenture provides that when, among other things, all Junior Subordinated Debentures not previously delivered to the Indenture Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at their Stated Maturity within one year, and the Company deposits or causes to be deposited with the Indenture Trustee trust funds, in trust, for the purpose and in an amount in the currency or currencies in which the Junior Subordinated Debentures are payable sufficient to pay and discharge the entire indebtedness on the Junior Subordinated Debentures not previously delivered to the Indenture Trustee for cancellation, for the principal and interest to the date of the deposit or to the Stated Maturity, as the case may be, then the Indenture will cease to be of further effect (except as to the Company's obligations to pay all other sums due pursuant to the Indenture and to provide the officers' certificates and opinions of counsel described therein), and the Company will be deemed to have satisfied and discharged the Indenture. Covenants of the Company The Company will covenant in the Indenture, as to the Junior Subordinated Debentures, that if and so long as (i) the Property Trustee on behalf of the Trust is the holder of all such Junior Subordinated Debentures, (ii) a Tax Event in respect of the Trust has occurred and is continuing and (iii) the Company has elected, and has not revoked such election, to pay Additional Sums (as defined under "Description of the Trust Preferred Securities--Redemption") in respect of the Trust Preferred Securities, the Company will pay to the Trust such Additional Sums. The Company will also covenant, as to the Junior Subordinated Debentures, (i) to maintain directly or indirectly 100% ownership of the Common Securities of the Trust to which Junior Subordinated Debentures have been issued, provided that certain successors which are permitted to do so pursuant to the Indenture may succeed to the Company's ownership of the Common Securities, (ii) not to voluntarily dissolve, wind up or liquidate the Trust, except (a) in connection with a distribution of Junior Subordinated Debentures to the holders of the Trust Preferred Securities in liquidation of the Trust or (b) in connection with certain mergers, consolidations, or amalgamations permitted by the Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause the Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes. 78 Governing Law The Indenture and the Junior Subordinated Debentures will be governed by and construed in accordance with the laws of the State of New York, except that the immunities and standard of care of the Indenture Trustee will be governed by Delaware law. Information Concerning the Indenture Trustee The Indenture Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Junior Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Indenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Indenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. 79 BOOK-ENTRY ISSUANCE The Depositary will act as securities depositary for all of the Trust Preferred Securities and, if the Junior Subordinated Debentures are distributed to holders of Trust Preferred Securities, the Junior Subordinated Debentures. The Trust Preferred Securities and, in such event, the Junior Subordinated Debentures will be issued only as fully-registered securities registered in the name of Cede & Co. (the Depositary's nominee). One or more fully-registered global certificates will be issued for the Trust Preferred Securities and the Junior Subordinated Debentures and will be deposited with the Depositary. The Depositary is a limited purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary holds secur-ities that its Participants deposit with the Depositary. The Depositary also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. "Direct Participants" include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The Depositary is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the Depositary system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain custodial relationships with Direct Participants, either directly or indirectly ("Indirect Participants"). The rules applicable to the Depositary and its Participants are on file with the Commission. Purchases of Trust Preferred Securities or Junior Subordinated Debentures within the Depositary system must be made by or through Direct Participants, which will receive a credit for the Trust Preferred Securities or Junior Subordinated Debentures on the Depositary's records. The ownership interest of each actual purchaser of each Trust Preferred Security and each Junior Subordinated Debenture ("Beneficial Owner") will be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from the Depositary of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Trust Preferred Securities or Junior Subordinated Debentures. Transfers of ownership interests in the Trust Preferred Securities or Junior Subordinated Debentures are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Trust Preferred Securities or Junior Subordinated Debentures, except in the event that use of the book-entry system for the Junior Subordinated Debentures is discontinued. The Depositary has no knowledge of the actual Beneficial Owners of the Trust Preferred Securities or Junior Subordinated Debentures; the Depositary's records reflect only the identity of the Direct Participants to whose accounts such Trust Preferred Securities or Junior Subordinated Debentures are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners and the voting rights of Direct Participants, Indirect Participants and Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to Cede & Co. as the registered holder of the Trust Preferred Securities or Junior Subordinated Debentures. If less than all of the Trust Preferred Securities or the Junior Subordinated Debentures are being redeemed, the Depositary will determine by lot or pro rata the amount of the Trust Preferred Securities of each Direct Participant to be redeemed. Although voting with respect to the Trust Preferred Securities or the Junior Subordinated Debentures is limited to the holders of record of the Trust Preferred Securities or Junior Subordinated Debentures, as applicable, in those instances in which a vote is required, neither the Depositary nor Cede & Co. will itself consent or vote with respect to Trust Preferred Securities or Junior Subordinated Debentures. Under its usual procedures, 80 the Depositary would mail an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts such Trust Preferred Securities or Junior Subordinated Debentures are credited on the record date (identified in a listing attached to the Omnibus Proxy). Distribution payments on the Trust Preferred Securities or the Junior Subordinated Debentures will be made by the relevant Trustee to the Depositary. The Depositary's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on the Depositary's records unless the Depositary has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participant and not of the Depositary, the relevant Trustee, the Trust or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of Distributions to the Depositary is the responsibility of the relevant Trustee, disbursement of such payments to Direct Participants is the responsibility of the Depositary, and disbursements of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. The Depositary may discontinue providing its services as securities depositary with respect to any of the Trust Preferred Securities or the Junior Subordinated Debentures at any time by giving reasonable notice to the relevant Trustee and the Company. In the event that a successor securities depositary is not obtained, definitive Trust Preferred Securities or Junior Subordinated Debenture certificates representing such Trust Preferred Secur-ities or Junior Subordinated Debentures are required to be printed and delivered. The Company, at its option, may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor depositary). After a Debenture Event of Default, the holders of a majority in liquidation preference of Trust Preferred Securities or aggregate principal amount of Junior Subordinated Debentures may determine to discontinue the system of book-entry transfers through the Depositary. In any such event, definitive certificates for such Trust Preferred Securities or Junior Subordinated Debentures will be printed and delivered. The information in this section concerning the Depositary and the Depositary's book-entry system has been obtained from sources that the Trust and the Company believe to be accurate, but the Trust and the Company assume no responsibility for the accuracy thereof. Neither the Trust nor the Company has any responsibility for the performance by the Depositary or its Participants of their respective obligations as described herein or under the rules and procedures governing their respective operations. DESCRIPTION OF GUARANTEE The Guarantee Agreement will be executed and delivered by the Company concurrently with the issuance of the Trust Preferred Securities for the benefit of the holders of the Trust Preferred Securities. Wilmington Trust Company will act as Guarantee Trustee under the Guarantee Agreement for the purposes of compliance with the Trust Indenture Act, and the Guarantee Agreement will be qualified as an indenture under the Trust Indenture Act. The following summary of certain provisions of the Guarantee does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Guarantee Agreement, including the definition therein of certain terms, and the Trust Indenture Act. The form of the Guarantee Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Trust Preferred Securities. General The Guarantee will be an irrevocable guarantee on a subordinated basis of the Trust's obligations under the Trust Preferred Securities, but will apply only to the extent that the Trust has funds sufficient to make such payments, and is not a guarantee of collection. The Company will irrevocably agree to pay in full on a subordinated basis, to the extent set forth herein, the Guarantee Payments (as defined below) to the holders of the Trust Preferred Securities, as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert other than the defense of payment. The following payments with respect to the Trust Preferred Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee Payment"), will be subject to the Guarantee: (i) any accumulated and 81 unpaid Distributions required to be paid on the Trust Preferred Securities, to the extent that the Trust has funds on hand available therefor at such time, (ii) the redemption price with respect to any Trust Preferred Securities called for redemption, to the extent that the Trust has funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of the Trust (unless the Junior Subordinated Debentures are distributed to holders of the Trust Preferred Securities), the lesser of (a) the Liquidation Distribution and (b) the amount of assets of the Trust remaining available for distribution to holders of Trust Preferred Securities after satisfaction of liabilities to creditors of the Trust as required by law. The Company's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Company to the holders of the Trust Preferred Securities or by causing the Trust to pay such amounts to such holders. If the Company does not make interest payments on the Junior Subordinated Debentures held by the Trust, the Trust will not be able to pay Distributions on the Trust Preferred Securities and will not have funds legally available therefor. The Guarantee will rank subordinate and junior in right of payment to all Senior Debt and Subordinated Debt of the Company. See "--Status of the Guarantee" below. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent the Company may itself be recognized as a creditor of that subsidiary. Accordingly, the Company's obligations under the Guarantee will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries, and claimants should look only to the assets of the Company for payments thereunder. Except as otherwise described herein, the Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Debt and Subordinated Debt whether under the Indenture, any other indenture that the Company may enter into in the future, or otherwise. The Company has, through the Guarantee Agreement, the Trust Agreement, the Junior Subordinated Debentures, the Indenture and the Expense Agreement, taken together, fully, irrevocably and unconditionally guaranteed all of the Trust's obligations under the Trust Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the Trust's obligations under the Trust Preferred Securities. See "Relationship Among the Trust Preferred Secur-ities, the Junior Subordinated Debentures and the Guarantee." Status of the Guarantee The Guarantee will constitute an unsecured obligation of the Company and will rank subordinate and junior in right of payment to all Senior Debt and Subordinated Debt in the same manner as the Junior Subordinated Debentures. The Guarantee will constitute a guarantee of payment and not of collection. For example, the guaranteed party may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against any other person or entity. The Guarantee will be held for the benefit of the holders of the Trust Preferred Securities. The Guarantee will not be discharged except by payment of the Guarantee Payment in full to the extent not paid by the Trust or upon distribution of the Junior Subordinated Debentures to the holders of the Trust Preferred Securities. The Guarantee does not place a limitation on the amount of additional Senior Debt and Subordinated Debt that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Debt and Subordinated Debt. Amendments and Assignment Except with respect to any changes which do not materially adversely affect the rights of holders of the Trust Preferred Securities (in which case no vote will be required), the Guarantee Agreement may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount of such outstanding Trust Preferred Securities. See "Description of the Trust Preferred Securities--Vot-ing Rights; Amendment of the Trust Agreement." All guarantees and agreements contained in the Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the holders of the Trust Preferred Securities then outstanding. 82 Events of Default An event of default under the Guarantee Agreement will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate Liquidation Amount of the Trust Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the Trust Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. The Company, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Guarantee Agreement. Information Concerning the Guarantee Trustee The Guarantee Trustee, other than during the occurrence and continuance of a default by the Company in performance of the Guarantee, has undertaken to perform only such duties as are specifically set forth in the Guarantee Agreement and, after default with respect to the Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee Agreement at the request of any holder of the Trust Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. Termination of the Guarantee The Guarantee will terminate and be of no further force and effect upon full payment of the Redemption Price of the Trust Preferred Securities, upon full payment of the amounts payable upon liquidation of the Trust or upon distribution of Junior Subordinated Debentures to the holders of the Trust Preferred Securities. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Trust Preferred Securities must restore payment of any sums paid under the Trust Preferred Securities or the Guarantee. Governing Law The Guarantee Agreement will be governed by and construed in accordance with the laws of the State of New York. EXPENSE AGREEMENT Pursuant to the Expense Agreement entered into by the Company under the Trust Agreement, the Company will irrevocably and unconditionally guarantee to each person or entity to whom the Trust becomes indebted or liable, the full payment of any costs, expenses or liabilities of the Trust (including, without limitation, expenses relating to the offering of the Trust Preferred Securities and any expenses the Property Trustee may incur relating to the enforcement of the rights of the holders of the Trust Preferred Securities or the Junior Subordinated Debentures pursuant to the Trust Agreement and the Indenture, respectively) other than obligations of the Trust to pay to the holders of the Trust Preferred Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Trust Preferred Securities or such other similar interests, as the case may be. The Expense Agreement may be enforced against the Company by any person or entity to whom the Trust is or becomes indebted or liable. RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE Full and Unconditional Guarantee Payments of Distributions and other amounts due on the Trust Preferred Securities (to the extent the Trust has funds available for the payment of such Distributions) are irrevocably guaranteed by the Company as and 83 to the extent set forth under "Description of Guarantee." Taken together, the Company's obligations under the Junior Subordinated Debentures, the Indenture, the Trust Agreement, the Expense Agreement and the Guarantee Agreement provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the Trust Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the Trust's obligations under the Trust Preferred Securities. If and to the extent that the Company does not make payments on the Junior Subordinated Debentures, the Trust will not pay Distributions or other amounts due on the Trust Preferred Securities. The Guarantee does not cover payment of Distributions when the Trust does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of the Trust Preferred Securities is to institute a legal proceeding directly against the Company for enforcement of payment of such Distributions to such holder. The obligations of the Company under the Guarantee are subordinate and junior in right of payment to all Senior Debt and Subordinated Debt of the Company. Sufficiency of Payments As long as payments of interest and other payments are made when due on the Junior Subordinated Debentures, such payments will be sufficient to cover Distributions and other payments due on the Trust Preferred Securities, primarily because: (i) the aggregate principal amount of the Junior Subordinated Debentures will be equal to the sum of the aggregate Liquidation Amount of the Trust Preferred Securities and Common Securities; (ii) the interest rate and interest and other payment dates on the Junior Subordinated Debentures will match the Distribution rate and Distribution and other payment dates for the Trust Preferred Securities; (iii) the Company shall pay for all and any costs, expenses and liabilities of the Trust except the Trust's obligations to holders of Trust Preferred Securities; and (iv) the Trust Agreement further provides that the Trust will not engage in any activity that is not consistent with its limited purposes. Notwithstanding anything to the contrary in the Indenture, the Company has the right to set off any payment it is otherwise required to make thereunder with and to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee. Enforcement Rights of Holders of the Trust Preferred Securities Under the Guarantee A holder of any of the Trust Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee, the Trust or any other person or entity. A default or event of default under any Senior Debt and Subordinated Debt would not constitute a default or Event of Default. However, in the event of payment defaults under, or acceleration of, Senior Debt and Subordinated Debt, the subordination provisions of the Indenture provide that no payments may be made in respect of the Junior Subordinated Debentures until such Senior Debt and Subordinated Debt has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on Junior Subordinated Debentures would constitute an Event of Default. Limited Purpose of the Trust The Trust Preferred Securities evidence a beneficial interest in the Trust, and the Trust exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in Junior Subordinated Debentures. A principal difference between the rights of a holder of the Trust Preferred Securities and a holder of a Junior Subordinated Debenture is that a holder of a Junior Subordinated Debenture is entitled to receive from the Company the principal amount of and interest accrued on Junior Subordinated Debentures held, while a holder of the Trust Preferred Securities is entitled to receive Distributions from the Trust (or from the Company under the Guarantee) if and to the extent the Trust has funds available for the payment of such Distributions. Rights upon Dissolution Upon any voluntary or involuntary dissolution, winding-up or liquidation of the Trust involving the liquidation of the Junior Subordinated Debentures, after satisfaction of liabilities to creditors of the Trust as provided 84 by applicable law, the holders of Trust Preferred Securities will be entitled to receive, out of assets held by the Trust, the Liquidation Distribution in cash. See "Description of the Trust Preferred Securities-- Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of the Company, the Property Trustee, as holder of the Junior Subordinated Debentures, would be a subordinated creditor of the Company, subordinated in right of payment to all Senior Debt and Subordinated Debt as set forth in the Indenture, but entitled to receive payment in full of principal and interest, before any stockholders of the Company receive payments or distributions. Since the Company is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of the Trust (other than the Trust's obligations to the holders of its Trust Preferred Securities), the positions of a holder of the Trust Preferred Securities and a holder of Junior Subordinated Debentures relative to other creditors and to stockholders of the Company in the event of liquidation or bankruptcy of the Company are substantially the same. CERTAIN FEDERAL INCOME TAX CONSEQUENCES It is the opinion of Tenzer Greenblatt LLP, counsel to the Company ("Counsel") that the following is accurate in all material respects and, subject to the limitations stated herein, represents the material federal income tax consequences to holders of the Trust Preferred Securities arising from the purchase, ownership and disposition thereof. The following opinions assume the accuracy of the facts set forth in the prospectus. The opinions set forth in this section, unless otherwise stated, deal only with Trust Preferred Securities held as capital assets by United States Persons (defined below) who purchase the Trust Preferred Securities upon original issuance at their original offering price. As used herein, a "United States Person" means a person that is (i) a citizen or resident of the United States as determined for United States federal income tax purposes, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source, or (iv) a trust if a U.S. court is able to exercise primary supervision over the administration of such trust and one or more United States persons have the authority to control all substantial decisions of such trust. The tax treatment of holders may vary depending on their particular situation. The following opinions do not address all the tax consequences that may be relevant to a particular holder or to holders who may be subject to special tax treatment, such as banks, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, foreign investors, investors that hold the Trust Preferred Securities as part of a hedging, straddle, constructive sale, or conversion or other risk reduction transaction or whose functional currency is not the U.S. dollar. In addition, the following opinions do not include any description of any alternative minimum tax consequences or the tax laws of any state, local or foreign government that may be applicable to a holder of Trust Preferred Securities. The opinions set forth herein are based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. The following opinions do not address the tax consequences that might be relevant to persons that are not United States Persons ("non-United States Persons"). Non-United States Persons should consult their own tax advisors as to the specific United States federal income and other tax consequences of the purchase, ownership and disposition of Trust Preferred Securities. The authorities on which the opinions set forth herein are based are subject to various interpretations, and opinions of Counsel are not binding on the Internal Revenue Service ("Service") or the courts, either of which could take a contrary position. Moreover, no rulings have been or will be sought from the Service with respect to the transactions described herein. Accordingly, there can be no assurance that the Service will not challenge the opinions expressed herein or that a court would not sustain such a challenge. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE TRUST PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE "DESCRIPTION OF THE TRUST PREFERRED SECURITIES--REDEMPTION." 85 Classification of the Trust In connection with the issuance of the Trust Preferred Securities, Counsel will render its opinion that, under current law and assuming compliance with the terms of the Trust Agreement, and based on certain facts and assumptions contained in such opinion, the Trust will be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. As a result, each beneficial owner of the Trust Preferred Securities (a "Securityholder") will be treated as owning an undivided beneficial interest in the Junior Subordinated Debentures. Accordingly, each Securityholder will be required to include in its gross income its pro rata share of the interest income or original issue discount ("OID") that is paid or accrued on the Junior Subordinated Debentures. See "-- Interest Income and Original Issue Discount" herein. Classification of the Junior Subordinated Debentures The Company intends to take the position that the Junior Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company under current law, and, by acceptance of a Trust Preferred Security, each holder covenants to treat the Junior Subordinated Debentures as indebtedness and the Trust Preferred Securities as evidence of an indirect beneficial ownership interest in the Junior Subordinated Debentures. Counsel has not delivered any opinion relating to the classification of the Junior Subordinated Debentures as indebtedness and no assurance can be given that such position of the Company will not be challenged by the Service or, if challenged, that such a challenge will not be successful. The remainder of this "Certain Federal Income Tax Consequences" section assumes that the Junior Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. No amount included in income with respect to the Junior Subordinated Debentures and Trust Preferred Securities will be eligible for the dividends received deduction. Interest Income and Original Issue Discount Except as set forth below, stated interest on the Junior Subordinated Debentures generally will be included in income by a Securityholder at the time such interest income is paid or accrued in accordance with such Secur- ityholder's regular method of tax accounting. Under the applicable Treasury regulations, the Junior Subordinated Debentures will not be considered to have been issued with OID within the meaning of Section 1273(a) of the Code, so long as the Junior Subordinated Debentures have terms and conditions that render the likelihood of the Company's exercising its right to defer payments of interest on the Junior Subordinated Debentures to be remote. The Company believes that the terms and conditions of the Junior Subordinated Debentures (including the restrictions on other payments during the Extension Period) are such that the likelihood of its exercising such right is remote, and intends to take the position that the Junior Subordinated Debentures are not issued with OID. Because this issue is inherently factual, Counsel is unable to express any opinion regarding whether the Junior Subordinated Debentures are issued with OID. If, however, the Company exercises its right to defer payments of interest on the Junior Subordinated Debentures, the Junior Subordinated Debentures will become OID instruments at such time and all Securityholders will be required to accrue the stated interest on the Junior Subordinated Debentures as it accrues on a daily basis during the Extension Period, even though the Company will not pay such interest until the end of the Extension Period, and even though some Securityholder otherwise may use the cash method of tax accounting. Moreover, if the Company exercises such right, the Junior Subordinated Debentures thereafter will be taxed as OID instruments for as long as they remain outstanding. Thus, even after the end of the Extension Period, all Securityholders will be required to continue to include the stated interest on the Junior Subordinated Debentures in income on a daily economic accrual basis, regardless of their method of tax accounting and in advance of receipt of the cash attributable to such interest income. Under the economic accrual rules, a Securityholder is required to accrue an amount of interest income each year that approximates the stated interest payments called for under the Junior Subordinated Debentures, and actual cash payments of interest on the Junior Subordinated Debentures are not reported separately as taxable income. A Securityholder's basis in Trust Preferred Securities will be increased by any OID includible in income. The Company's determination that there is a remote likelihood of exercising its right to defer the payment of interest on the Trust Preferred Securities is binding on each Securityholder unless the holder explicitly discloses in the manner required by applicable Treasury regulations that its determination is different from the Company's. The Company's determination is not, however, binding on the Service. 86 The Treasury regulations described above have not yet been addressed in any definitive interpretations by the Service, and it is possible that the Service could take a contrary position. If the Service were to assert successfully that the stated interest on the Junior Subordinated Debentures was OID regardless of whether the Company exercises its right to defer payments of interest on such debentures, all Securityholders will be required to include such stated interest in income on a daily economic accrual basis as described above. Distribution of Junior Subordinated Debentures to Holders of Trust Preferred Securities Under current law, a distribution by the Trust of the Junior Subordinated Debentures as described under the captions "Description of the Trust Preferred Securities--Distribution of Junior Subordinated Debentures" and "Liquidation Distribution Upon Dissolution" will be non-taxable and will result in the Securityholder receiving directly its pro rata share of the Junior Subordinated Debentures previously held indirectly through the Trust, with a holding period and aggregate tax basis equal to the holding period and aggregate tax basis such Securityholder had in its Trust Preferred Securities before such distribution. A Securityholder would continue to recognize interest income in respect of Junior Subordinated Debentures received from the Trust in the manner described above under "--Interest Income and Original Issue Discount" herein. If, however, the liquidation of the Trust were to occur because the Trust is subject to United States federal income tax with respect to income accrued or received on the Junior Subordinated Debentures as a result of a Tax Event or otherwise, the distribution of Junior Subordinated Debentures to Securityholders by the Trust could be a taxable event to the Trust and each Securityholder, and a Securityholder could be required to recognize gain or loss as if the Securityholder had exchanged its Trust Preferred Securities for the Junior Subordinated Debentures it received upon the liquidation of the Trust, and the Securityholder's holding period for the Junior Subordinated Debentures received would not include the holding period for the Trust Preferred Securities surrendered in the liquidation. Sales or Redemption of Trust Preferred Securities Gain or loss will be recognized by a Securityholder on a sale of Trust Preferred Securities (including a redemption for cash) in an amount equal to the difference between the amount realized (which for this purpose, will exclude amounts attributable to accrued interest or OID not previously included in income) and the Secur-ityholder's adjusted tax basis in the Trust Preferred Securities sold or so redeemed. Gain or loss recognized by a Securityholder on Trust Preferred Securities held for more than one year will generally be taxable as long-term capital gain or loss, although the preferential 20% rate applicable to individuals applies only in the case of a capital asset sold or exchanged having a holding period in excess of 18 months. Amounts attributable to accrued interest or OID with respect to a Securityholder's pro rata share of the Junior Subordinated Debentures not previously included in income will be taxable as ordinary income. Backup Withholding Tax and Information Reporting The amount of interest and OID accrued on the Trust Preferred Securities held of record by United States Persons (other than certain exempt Securityholders), if any, will be reported to the Service. "Backup" with-holding at a rate of 31% will apply to payments of interest to non-exempt United States Persons unless the Securityholder furnishes its taxpayer identification number in the manner prescribed in applicable Treasury Regulations, certifies that such number is correct, certifies as to no loss of exemption from backup withholding and meets certain other conditions. Any amounts withheld from a Securityholder under the backup withholding rules will be allowed as a refund or a credit against such Securityholder's United States federal income tax liability, provided the required information is timely furnished to the Service. Possible Tax Law Changes Affecting the Trust Preferred Securities There can be no assurance that future legislative proposals or final legislation will not affect the ability of the Company to deduct interest on the Junior Subordinated Debentures. Such a change could give rise to a Tax Event, which may permit the Company to cause a redemption of the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Redemption--Tax Event Redemption, Investment Company Event Redemption or Distribution of Junior Subordinated Debentures" and "Description of Junior Subordinated Debentures--Redemption." 87 ERISA CONSIDERATIONS A fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") should consider the fiduciary standards of ERISA in the context of the plan's particular circumstances before authorizing an investment in the Trust Preferred Securities. Among other factors, the fiduciary should consider whether such an investment is in accordance with the documents governing the plan and whether an investment is appropriate for the plan in view of its overall investment policy and the composition and diversification of its portfolio. Other provisions of ERISA and the Code prohibit an employee benefit plan subject to either ERISA or Section 4975 of the Code (which generally includes individual retirement accounts and so-called "Keogh" plans as well as other employer-sponsored plans) from engaging in certain transactions involving "plan assets" with parties which are "parties in interest" under ERISA or "disqualified persons" under the Code with respect to the plan. Therefore, a fiduciary of an employee benefit plan should also consider whether an investment in the Trust Preferred Securities might constitute or give rise to a prohibited transaction under ERISA and the Code. If the assets of the Trust were deemed to be plan assets of employee benefit plans that are holders of the Trust Preferred Securities (including holders, who are not employee benefit plans themselves but are investing "plan assets" of an employee benefit plan), the plan's investment in the Trust Preferred Securities might be deemed to constitute a delegation under ERISA of the duty to manage plan assets by an ERISA plan fiduciary investing in Trust Preferred Securities, and certain transactions involving the operation of the Trust might be deemed to constitute prohibited transactions under ERISA and the Code. The U.S. Department of Labor (the "DOL") has issued a regulation with regard to whether the underlying assets of an entity in which employee benefit plans acquire equity investments would be deemed to be plan assets. The regulation provides that the underlying assets of an entity will not be considered to be plan assets if the interests of the entity acquired by the employee benefit plan are "publicly-offered securities" -- that is, they are (1) widely held (i.e., owned by more than 100 investors independent of the entity and of each other), (2) freely transferable, and (3) sold as part of an offering pursuant to an effective registration statement under the Securities Act and timely registered under Section 12(b) or 12(g) of the Exchange Act. It is expected that the Trust Preferred Securities will meet the criteria of "publicly offered securities" above. The Underwriters expect that the Trust Preferred Securities will be held by at least 100 independent investors at the conclusion of the offering. There are no restrictions imposed on the transfer of the Trust Preferred Securities and the Trust Preferred Securities will be sold as part of an offering pursuant to an effective registration statement under the Securities Act, and will be timely registered under the Exchange Act. Even if the assets of the Trust were deemed to be "plan assets" of employee benefit plans that are holders of the Trust Preferred Securities, there are five class exemptions issued by the DOL which could apply to except certain transactions involving assets of the Trust from the prohibited transaction provisions of ERISA and the Code--Prohibited Transaction Exemption 84-14, for certain transactions determined by qualified professional asset managers; Prohibited Transaction Exemption 90-1, for certain transactions involving insurance company pooled separate accounts; Prohibited Transaction Exemption 91-38, for certain transactions involving bank collective investment funds; Prohibited Transaction Exemption 95-60, for certain transactions involving insurance company general accounts; and Prohibited Transaction Exemption 96-23, for certain transactions determined by in-house asset managers. Even if the assets of the Trust are not deemed "plan assets" of employee benefit plans that hold Trust Preferred Securities, the Company might be considered a party in interest or a disqualified person with respect to certain such employee benefit plans by reason of pre-existing relationships, such as plans for which the Company, or an affiliate serves as trustee. Therefore, before such employee benefit plans purchase Trust Preferred Securities, they should determine that either (a) neither the Company nor any affiliate is a party in interest on disqualified person with respect to such plan or (b) one of the class exemptions referred to in the preceding paragraph or any other exemption from the prohibited transacted rules under ERISA and the Code is applicable to their purchase and holding of the Trust Preferred Securities. 88 Due to the complexity of these rules and the penalties imposed upon persons involved in prohibited transactions, it is important that an employee benefit plan considering the purchase of Trust Preferred Securities consult with its counsel regarding the consequences under ERISA of the acquisition and ownership of Trust Preferred Securities. Employee benefit plans which are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) generally are not subject to ERISA requirements of the prohibited transaction provisions of the Code. UNDERWRITING Subject to the terms and certain conditions of the Underwriting Agreement (the "Underwriting Agreement"), the underwriters named below (the "Underwriters"), for whom EVEREN Securities, Inc. and Josephthal & Co. Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase an aggregate of 2,200,000 Trust Preferred Securities from the Trust. The number of Trust Preferred Securities that each Underwriter has agreed to purchase is set forth opposite its name below: Underwriters Number of Trust Preferred Securities ------------ ------------------------------------ EVEREN Securities, Inc. .......... Josephthal & Co. Inc. ............ Total .......................... 2,200,000 ========= The Underwriting Agreement provides that the obligations of the several Underwriters who are parties thereunder are subject to certain conditions. If any of the Trust Preferred Securities are purchased by the Underwriters pursuant to the Underwriting Agreement, all of such Trust Preferred Securities (other than the Trust Preferred Securities covered by the over-allotment option described below) must be so purchased. The Trust and the Company have been advised by the Representatives that the Underwriters propose to offer the Trust Preferred Securities to the public initially at the price to the public set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not to exceed $ per Trust Preferred Security. The Underwriters may allow, and such dealers may reallow, discounts not to exceed $ per Trust Preferred Security to certain other dealers. After the initial public offering of the Trust Preferred Securities, the public offering price and the other selling terms may be changed by the Representatives. In view of the fact that the proceeds of the sale of the Trust Preferred Securities will be used to purchase the Junior Subordinated Debentures of the Company, the Underwriting Agreement provides that the Company will pay as compensation to the Underwriters arranging the investment therein of such proceeds, an amount in immediately available funds of $1.00 per Trust Preferred Security (or $2,200,000 in the aggregate) for the accounts of the Underwriters. The Trust has granted to the Underwriters an option to purchase up to an additional $8,250,000 aggregate liquidation amount of Trust Preferred Securities at the price to the public set forth on the cover page of this Prospectus, solely to cover over-allotments, if any. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of option Trust Preferred Securities proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Trust and the Company have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Trust Preferred Securities are a new issue of securities with no established trading market. The Trust Preferred Securities have been approved for listing on the American Stock Exchange, subject to notice of issuance. In order to meet the listing requirements of the American Stock Exchange, the Representatives have undertaken to distribute the Trust Preferred Securities to a minimum of 400 public stockholders. The Representatives have advised the Trust and the Company that the Underwriters presently intend to make a market in the Trust Preferred Securities after the commencement of trading on the American Stock Exchange, but no assurances can be made 89 as to the liquidity of the Trust Preferred Securities or that an active and liquid trading market will develop or, if developed, that it will continue. The offering price and distribution rate have been determined by negotiations among representatives of the Company and the Representatives, and the offering price of the Trust Preferred Securities may not be indicative of the market price following the offering. The Underwriters will have no obligation to make a market in the Trust Preferred Securities, however, and may cease market-making activities, if commenced, at any time. The Trust and the Company have agreed with the Underwriters not to (other than in connection with this offering), directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise issue any Trust Preferred Securities or any securities convertible into or exercisable or exchangeable for Trust Preferred Securities, enter into any swap or other agreement to do any of the foregoing, or file any registration statement relating to any of the foregoing on behalf of itself or any other person, for a period of 180 days after the date of this Prospectus, without the written consent of EVEREN Securities, Inc. In connection with the offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Trust Preferred Securities. Such transactions may include stabilization transactions effected in accordance with the Securities Exchange Act of 1934 pursuant to which such persons may bid for or purchase Trust Preferred Securities for the purpose of stabilizing its market price. The Underwriters also may create a short position for the account of the Underwriters by selling more Trust Preferred Securities in connection with this offering than they are committed to purchase from the Trust, and in such case may purchase Trust Preferred Securities in the open market following completion of the offering to cover all or a portion of such Trust Preferred Securities or may exercise the Underwriters' over-allotment option referred to above. In addition, the Representatives, on behalf of the Underwriters, may impose "penalty bids" under contractual arrangements with the Underwriters whereby they may reclaim from an Underwriter (or dealer participating in the offering), for the account of the other Underwriters, the selling concession with respect to Trust Preferred Securities that are distributed in this offering but subsequently purchased for the account of the Underwriters in the open market. Josephthal & Co. Inc. has performed investment banking and advisory services for the Company since April 1997 for which it received a $100,000 cash payment and warrants to purchase 250,000 shares of Common Stock at a price of $4.25 per share. The warrants issued to Josephthal & Co. Inc. (the "Josephthal Warrants") are exercisable at any time during the four-year period ending December 10, 2002 (the "Warrant Exercise Term"). The Josephthal Warrants and the shares of Common Stock issuable upon exercise of the Josephthal Warrants may not be sold, transferred, pledged or hypothecated for a period ending December 10, 1998. Josephthal & Co. Inc. has the right to require the Company to register the shares of Common Stock issuable upon exercise of the Josephthal Warrants under the Act, on one occasion, during the Warrant Exercise Term. The Josephthal Warrants provide that the exercise price will be proportionately adjusted in the event of a stock split, subdivisions combination of the Common Stock or the issuance of a stock dividend on the Common Stock. In connection with the Company's December 1997 public offering, the Company granted EVEREN Secur-ities, Inc. and Josephthal & Co. Inc. certain rights of first refusal to underwrite or place any public or private offering of equity or debt securities of the Company for a period ending December 15, 1998. LEGAL MATTERS Certain matters of Delaware law relating to the validity of the Trust Preferred Securities, the enforceability of the Trust Agreement and the creation of the Trust will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Company and the Trust. The validity of the Guarantee and the Junior Subordinated Debentures will be passed upon for the Company by Tenzer Greenblatt LLP, counsel to the Company. Certain legal matters relating to the offering will be passed upon for the Underwriters by Gibson, Dunn & Crutcher, LLP. Tenzer Greenblatt LLP and Gibson, Dunn & Crutcher LLP will rely on the opinions of Richards, Layton & Finger, P.A. as to certain matters of Delaware law. Certain matters relating to United States federal income tax considerations will be passed upon for the Company by Tenzer Greenblatt LLP. Certain partners of Tenzer Greenblatt LLP are the beneficial owners of options and/or warrants to purchase Common Stock. 90 EXPERTS The financial statements and schedule included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. 91 Index to Financial Statements U.S. Home & Garden Inc. and Subsidiaries
Page --------------- Report of Independent Certified Public Accountants ...................................... F-2 Consolidated Financial Statements Consolidated balance sheets as of June 30, 1996 and 1997 and December 31, 1997 (unaudited) .......................................................................... F-3 Consolidated statements of income for the years ended June 30, 1995, 1996 and 1997 and for the six months ended December 31, 1996 and 1997 (unaudited) .................. F-4 Consolidated statements of stockholders' equity for the years ended June 30, 1995, 1996 and 1997 and for the six months ended December 31, 1997 (unaudited) ............. F-5 Consolidated statements of cash flows for the years ended June 30, 1995, 1996 and 1997 and for the six months ended December 31, 1996 and 1997 (unaudited) ............. F-6 Summary of Accounting Policies ........................................................ F-7 - F-9 Notes to Consolidated Financial Statements ............................................ F-10 - F-23 Weatherly Consumer Products Group, Inc. and Subsidiaries Report of Independent Public Accountants ................................................ F-24 Consolidated Financial Statements Consolidated statements of operations for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996 ........................................ F-25 Consolidated statements of stockholders' equity for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996 ........................... F-26 Consolidated statements of cash flows for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996 ........................................ F-27 Notes to Financial Statements ......................................................... F-28-F-32 Proforma Condensed Consolidated Financial Statements Proforma condensed consolidated financial statements - background ..................... F-33 Proforma condensed consolidated statement of operations for the year ended June 30, 1997 ................................................................................. F-34 Notes to proforma condensed consolidated financial statements ......................... F-35
F-1 Report of Independent Certified Public Accountants Board of Directors U.S. Home & Garden Inc. and Subsidiaries San Francisco, California We have audited the accompanying consolidated balance sheets of U.S. Home & Garden Inc. and Subsidiaries as of June 30, 1996 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Home & Garden Inc. and Subsidiaries at June 30, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. BDO Seidman, LLP San Francisco, California August 1, 1997, except for Note 15 which is as of September 15, 1997 F-2 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheets
June 30, December 31, -------------------------------- --------------- 1996 1997 1997 --------------- -------------- --------------- (unaudited) Assets (Notes 1 and 6) Current Cash and cash equivalents ....................................... $ 680,000 $ 2,083,000 $ 12,734,000 Accounts receivable, less allowance for doubtful accounts and sales returns of $155,000, $314,000 and $375,000 ........... 7,109,000 11,542,000 7,533,000 Inventories (Note 3) ............................................ 3,392,000 5,254,000 7,673,000 Prepaid expenses and other current assets ....................... 462,000 419,000 674,000 Deferred tax asset (Note 10) .................................... 1,333,000 448,000 1,079,000 ------------ ------------ ------------ Total current assets .......................................... 12,976,000 19,746,000 29,693,000 Furniture, fixtures and equipment, net (Note 4) .................... 1,216,000 2,315,000 2,401,000 Intangible assets (Note 1) Excess of cost over net assets acquired (Note 5) ................ 15,784,000 41,834,000 41,010,000 Deferred financing costs, net of accumulated amortization of $467,000, $302,000 and $533,000 ................ 1,005,000 1,621,000 1,389,000 Product rights, patents and trademarks, net of accumulated amortization of $56,000, $75,000 and $83,000 ................... 198,000 180,000 172,000 Non-compete agreement, net of accumulated amortization of $22,000 and $35,000 ............................ 478,000 465,000 Package design, net of accumulated amortization of $56,000, $110,000 and $155,000........................................... 180,000 251,000 438,000 Trade credits (Note 2) ............................................. 1,295,000 1,149,000 1,044,000 Officer receivables (Note 7) ....................................... 617,000 694,000 829,000 Other assets ....................................................... 313,000 207,000 195,000 ------------ ------------ ------------ $ 33,584,000 $ 68,475,000 $ 77,636,000 ============ ============ ============ Liabilities and Stockholders' Equity (Note 1) Current Line of credit (Notes 1, 6 and 13) .............................. $ 1,288,000 $ $ 2,246,000 Current maturities of notes payable (Notes 1, 6 and 13) 2,362,000 8,990,000 3,840,000 Accounts payable ................................................ 1,285,000 1,774,000 2,974,000 Accrued expenses ................................................ 901,000 3,983,000 2,415,000 Accrued co-op advertising ....................................... 185,000 1,098,000 890,000 Accrued commissions ............................................. 546,000 859,000 372,000 Accrued interest (Note 6) ....................................... 592,000 261,000 225,000 Accrued purchase consideration (Note 1) ......................... 489,000 489,000 978,000 ------------ ------------ ------------ Total current liabilities ..................................... 7,648,000 17,454,000 13,940,000 Accrued purchase consideration (Note 1) ............................ 978,000 Deferred tax liability (Note 10) ................................... 328,000 547,000 650,000 Notes payable, less current maturities (Notes 1, 6 and 13) ......... 6,238,000 17,570,000 16,430,000 ------------ ------------ ------------ Total liabilities .................................................. 14,214,000 36,549,000 31,020,000 ------------ ------------ ------------ Commitments, contingency and subsequent events (Notes 1, 6, 8, 9 and 15) Stockholders' equity (Note 9) Preferred stock, $.001 par value - shares authorized, 1,000,000; no shares outstanding ............................... Common stock, $.001 par value -- shares authorized, 30,000,000; 10,507,000, 14,073,000 and 19,860,000 shares issued and outstanding at June 30, 1996 and 1997, and December 31, 1997 ....................... 11,000 14,000 20,000 Additional paid-in capital ...................................... 21,413,000 30,783,000 49,775,000 Retained earnings (deficit) ..................................... (2,054,000) 1,129,000 (3,179,000) ------------ ------------ ------------ Total stockholders' equity .................................... 19,370,000 31,926,000 46,616,000 ------------ ------------ ------------ $ 33,584,000 $ 68,475,000 $ 77,636,000 ============ ============ ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Income
Six months ended Years ended June 30, December 31, ------------------------------------------------- --------------------------------- 1995 1996 1997 1996 1997 --------------- --------------- --------------- --------------- ---------------- (unaudited) (unaudited) Net sales (Note 11) ...................... $ 19,692,000 $ 27,031,000 $ 52,046,000 $ 12,939,000 $ 15,538,000 Cost of sales ............................ 9,151,000 12,670,000 23,649,000 5,825,000 7,379,000 ------------ ------------ ------------ ------------ ------------ Gross profit ............................. 10,541,000 14,361,000 28,397,000 7,114,000 8,159,000 ------------ ------------ ------------ ------------ ------------ Operating expenses Selling and shipping .................... 4,374,000 6,264,000 11,232,000 3,990,000 4,661,000 General and administrative .............. 2,778,000 4,348,000 6,513,000 3,322,000 3,891,000 ------------ ------------ ------------ ------------ ------------ 7,152,000 10,612,000 17,745,000 7,312,000 8,552,000 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations ............ 3,389,000 3,749,000 10,652,000 (198,000) (393,000) Other income (expense) Investment income ....................... 34,000 69,000 76,000 43,000 104,000 Interest expense (Note 6) ............... (1,810,000) (2,009,000) (3,338,000) (1,375,000) (1,597,000) ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary expense ................... 1,613,000 1,809,000 7,390,000 (1,530,000) (1,886,000) Income tax (expense) benefit (Note 10) (38,000) 715,000 (3,200,000) 475,000 800,000 ------------ ------------ ------------ ------------ ------------ Income (loss) before extraordinary expense ................................. 1,575,000 2,524,000 4,190,000 (1,055,000) (1,086,000) Extraordinary expense of $1,459,000 on debt refinancing, net of income taxes of $452,000 (Note 13) ............. (1,007,000) (1,007,000) ------------ ------------ ------------ ------------ ------------ Net income (loss) ........................ $ 1,575,000 $ 2,524,000 $ 3,183,000 $ (2,062,000) $ (1,086,000) ============ ============ ============ ============ ============ Basic earnings (loss) per share: Income (loss) per common share before extraordinary expense (Note 14) ......... $ 0.19 $ 0.25 $ 0.31 $ (.08) $ (.07) Extraordinary expense (Notes 13 and 14) ..................................... (0.08) (.07) ------------ ------------ ------------ ------------ ------------ Net income (loss) per common share (Note 14) ............................... $ 0.19 $ 0.25 $ 0.23 $ (.15) $ (.07) ============ ============ ============ ============ ============ Dilutive earnings (loss) per share: Income (loss) per common share before extraordinary expense (Note 14) ......... $ 0.16 $ 0.19 $ 0.26 $ (.08) $ (.07) Extraordinary expense (Notes 13 and 14) ..................................... (0.06) (.07) ------------ ------------ ------------ ------------ ------------ Net income (loss) per common share (Note 14) ............................... $ 0.16 $ 0.19 $ 0.20 $ (.15) $ (.07) ============ ============ ============ ============ ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Preferred Stock Common Stock --------------------- ------------------------------ Number of Number of Shares Amount Shares Amount ----------- -------- ------------------ ---------- Balance, July 1, 1994 (Note 9) ...................... 4,600,000 $ 5,000 Sale of common stock, net of stock issuance costs of approximately $1,300,000.................. 3,775,000 4,000 Issuance of common stock for payment of trade payables .......................................... 417,000 Exercise of stock options and warrants ............. 31,000 Issuance of unit purchase options .................. Conversion of debt and accrued interest into common stock (Note 1) ............................. 914,000 1,000 Net income ......................................... ----- ----- --------- ------- Balance, June 30, 1995 (Note 9) ..................... 9,737,000 10,000 Exercise of stock warrants, net of stock issuance costs of approximately $114,000........... 770,000 1,000 Net income ......................................... ----- ----- --------- ------- Balance, June 30, 1996 (Note 9) ..................... 10,507,000 11,000 Exercise of stock options, warrants, and UPOs, net of issuance costs of approximately $300,000............................. 2,566,000(1) 2,000 Stock issued for Weatherly acquisition (Note 1) .......................................... 1,000,000 1,000 Options and warrants issued for acquisition and consulting services and bank refinancing (Note 1) .............................. Net income ......................................... ----- ----- ------------ ------- Balance, June 30, 1997 (Note 9) ..................... 14,073,000 14,000 Conversion of debt into common stock (unaudited) ........................................ 154,000 Repurchase of UPOs (unaudited) (Note 9) ............. Sale of common stock, net of stock issuance costs of approximately $950,000 (unaudited) .............. 4,290,000 5,000 Exercise of stock options and warrants (unaudited) ........................................ 1,343,000 1,000 Net loss (unaudited) ................................ ----- ----- ------------ ------- Balance, December 31, 1997 (unaudited) .............. 19,860,000 $20,000 ===== ===== ============ =======
Additional Retained Total Paid-in Earnings Stockholders' Capital (Deficit) Equity -------------- ----------------- -------------- Balance, July 1, 1994 (Note 9) ...................... $ 9,298,000 $ (6,153,000) $ 3,150,000 Sale of common stock, net of stock issuance costs of approximately $1,300,000.................. 7,432,000 7,436,000 Issuance of common stock for payment of trade payables .......................................... 683,000 683,000 Exercise of stock options and warrants ............. 35,000 35,000 Issuance of unit purchase options .................. 400,000 400,000 Conversion of debt and accrued interest into common stock (Note 1) ............................. 2,059,000 2,060,000 Net income ......................................... 1,575,000 1,575,000 ----------- ------------- ------------ Balance, June 30, 1995 (Note 9) ..................... 19,907,000 (4,578,000) 15,339,000 Exercise of stock warrants, net of stock issuance costs of approximately $114,000........... 1,506,000 1,507,000 Net income ......................................... 2,524,000 2,524,000 ----------- ------------- ------------ Balance, June 30, 1996 (Note 9) ..................... 21,413,000 (2,054,000) 19,370,000 Exercise of stock options, warrants, and UPOs, net of issuance costs of approximately $300,000............................. 5,292,000 5,294,000 Stock issued for Weatherly acquisition (Note 1) .......................................... 2,999,000 3,000,000 Options and warrants issued for acquisition and consulting services and bank refinancing (Note 1) .............................. 1,079,000 1,079,000 Net income ......................................... 3,183,000 3,183,000 ----------- ------------- ------------ Balance, June 30, 1997 (Note 9) ..................... 30,783,000 1,129,000 31,926,000 Conversion of debt into common stock (unaudited) ........................................ 350,000 350,000 Repurchase of UPOs (unaudited) (Note 9) ............. (3,222,000) (3,222,000) Sale of common stock, net of stock issuance costs of approximately $950,000 (unaudited) .............. 15,934,000 15,939,000 Exercise of stock options and warrants (unaudited) ........................................ 2,708,000 2,709,000 Net loss (unaudited) ................................ (1,086,000) (1,086,000) ----------- ------------- ------------ Balance, December 31, 1997 (unaudited) .............. $49,775,000 $ (3,179,000) $ 46,616,000 =========== ============= ============
- -------- (1) Includes 38,000 shares of common stock issued for services relating to cash proceeds and approximately 60,000 issued relating to cashless exercise of 4 UPOs (Note 9). See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows Increase (decrease) in cash and cash equivalents
Years ended June 30, ---------------------------------------------------- 1995 1996 1997 ---------------- ---------------- ---------------- Cash flows from operating activities Net income (loss) .......................... $ 1,575,000 $ 2,524,000 $ 3,183,000 Adjustments to reconcile net income (loss) to net cash pro- vided by (used in) operating activities: Extraordinary expense .................... 1,007,000 Loss on disposal of assets ............... 226,000 Bad debt expense ......................... 3,000 167,000 323,000 Depreciation and other amortization ............................ 637,000 834,000 1,990,000 Amortization of deferred financing costs ......................... 219,000 264,000 323,000 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed: Accounts receivable ..................... (2,523,000) (2,622,000) (2,763,000) Inventories ............................. 637,000 (940,000) 444,000 Prepaid expenses and other current assets ........................ (201,000) (159,000) 324,000 Accounts payable and accrued expenses ...................... 54,000 1,393,000 2,838,000 Trade credits ........................... 200,000 257,000 46,000 Other assets ............................ (163,000) (95,000) 262,000 Deferred taxes .......................... (1,005,000) 2,342,000 -------------- -------------- -------------- Net cash provided by (used in) oper- ating activities ........................... 438,000 618,000 10,545,000 -------------- -------------- -------------- Cash flows from investing activities Payment for purchase of busi- nesses, net of cash acquired ............... (15,387,000) (1,602,000) (28,358,000) Payment for non-compete agreement ................................ (500,000) Sale of short-term investments ............. 501,000 Increase in officer receivables ............ (352,000) (131,000) (77,000) Purchase of product rights ................. (105,000) Purchase of furniture, fixtures and equipment ................................ (151,000) (261,000) (528,000) Purchase of package design ................. (82,000) (109,000) (131,000) -------------- -------------- -------------- Net cash used in investing activities . (15,576,000) (2,103,000) (29,594,000) -------------- -------------- -------------- Cash flows from financing activities . Proceeds from issuances of stock . 7,452,000 1,507,000 5,294,000 Buyout of unit purchase options ............ Proceeds from bank line of credit . 11,514,000 17,496,000 41,791,000 Payment on bank line of credit ............. (12,109,000) (16,208,000) (43,079,000) Proceeds from notes payable ................ 11,000,000 21,345,000 Payments of notes payable .................. (800,000) (1,600,000) (3,385,000) Acquisition finance costs .................. (1,036,000) (1,514,000) -------------- -------------- -------------- Net cash provided by financing activities ................................. 16,021,000 1,195,000 20,452,000 -------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents ........................... 883,000 (290,000) 1,403,000 Cash and cash equivalents, begin- ning of period ............................. 87,000 970,000 680,000 -------------- -------------- -------------- Cash and cash equivalents, end of period $ 970,000 $ 680,000 $ 2,083,000 ============== ============== ==============
Six months ended December 31, ---------------------------------- 1996 1997 ---------------- ---------------- (unaudited) (unaudited) Cash flows from operating activities Net income (loss) .......................... $ (2,062,000) $ (1,086,000) Adjustments to reconcile net income (loss) to net cash pro- vided by (used in) operating activities: Extraordinary expense .................... 1,007,000 Loss on disposal of assets ............... Bad debt expense ......................... Depreciation and other amortization ............................ 958,000 1,263,000 Amortization of deferred financing costs ......................... 119,000 232,000 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed: Accounts receivable ..................... 2,119,000 4,008,000 Inventories ............................. (4,464,000) (2,419,000) Prepaid expenses and other current assets ........................ 541,000 (255,000) Accounts payable and accrued expenses ...................... 1,084,000 (651,000) Trade credits ........................... 105,000 Other assets ............................ 92,000 13,000 Deferred taxes .......................... (934,000) (528,000) ------------- ------------ Net cash provided by (used in) oper- ating activities ........................... (1,540,000) 682,000 ------------- ------------ Cash flows from investing activities Payment for purchase of busi- nesses, net of cash acquired ............... (23,801,000) (561,000) Payment for non-compete agreement ................................ (500,000) Sale of short-term investments ............. Increase in officer receivables ............ (136,000) (135,000) Purchase of product rights ................. Purchase of furniture, fixtures and equipment ................................ (230,000) (486,000) Purchase of package design ................. (232,000) ------------- ------------ Net cash used in investing activities . (24,667,000) (1,414,000) ------------- ------------ Cash flows from financing activities . Proceeds from issuances of stock . 5,193,000 18,648,000 Buyout of unit purchase options ............ (3,221,000) Proceeds from bank line of credit . 17,884,000 6,010,000 Payment on bank line of credit ............. (11,975,000) (3,764,000) Proceeds from notes payable ................ 16,783,000 Payments of notes payable .................. (703,000) (6,290,000) Acquisition finance costs .................. (1,399,000) ------------- ------------ Net cash provided by financing activities ................................. 25,783,000 11,383,000 ------------- ------------ Net increase (decrease) in cash and cash equivalents ........................... (424,000) 10,651,000 Cash and cash equivalents, begin- ning of period ............................. 680,000 2,083,000 ------------- ------------ Cash and cash equivalents, end of period $ 256,000 $ 12,734,000 ============= ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 U.S. Home & Garden Inc. and Subsidiaries Summary of Accounting Policies Nature of Business U.S. Home & Garden Inc. (the "Company" -- formerly known as Natural Earth Technologies, Inc. until July 1995), through its wholly-owned subsidiaries, is a manufacturer and distributor of lawn and garden care products to retailers primarily throughout North America. Golden West Agri-Products, Inc. ("Golden West"), a wholly-owned subsidiary, is a manufacturer and distributor of humic acid based agricultural products. Golden West currently sells its products in the Western United States, Mexico and Central America. On September 1, 1994, the Company, through its wholly-owned subsidiary Easy Gardener Acquisition Corporation ("Easy Gardener"), acquired all of the assets of Easy Gardener, Inc., a developer, manufac turer and marketer of lawn and garden care products. Easy Gardener primarily sells its products throughout North America. On August 11, 1995, Emerald Products Corporation, a wholly-owned subsidiary of Easy Gardener, acquired the assets of Emerald Products, LLC. Emerald Products sells its product, Emerald Edge(R), throughout North America. On August 9, 1996, Easy Gardener acquired all of the outstanding stock of Weatherly Consumer Products Group, Inc. ("Weatherly"), a lawn and garden care company which primarily sells its products throughout North America. On May 12, 1997, Easy Gardener acquired the Plasti-Chain product line from Plastic Molded Concepts, Inc. ("Plastic"). Principles of Consolidation The financial statements include the accounts of the Company and its wholly-owned subsidiaries and the results of operations of Weatherly, Easy Gardener, Plastic, Golden West and Emerald Products since their date of acquisition (Note 1). Significant intercompany accounts and transactions have been eliminated. Inventories Inventories, which consist of raw materials, finished goods, and packaging materials, are stated at the lower of cost or market; cost is determined by the first-in, first-out (FIFO) cost method. Furniture, Fixtures and Equipment Furniture, fixtures and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated five to seven year useful lives of the assets. Intangible Assets Excess of Cost over Net Assets Acquired The excess of cost over net assets acquired, which relates to the Company's acquisitions of Weatherly, Easy Gardener, Plastic, Golden West, and Emerald Products, are being amortized over periods of twenty to thirty years using the straight-line method. Periodically, the recoverability of goodwill is evaluated by comparing undiscounted estimated future net cash flows to the estimated net cash flows projected at the time of acquisition. Deferred Financing Costs Direct costs associated with the Company's long-term financing arrangements are being amortized over the life of the loans, a period of approximately six years. Package Design Package design costs associated with Easy Gardener and Weatherly products are being amortized over a five-year period using the straight-line method. F-7 Product Rights Product rights are being amortized over a 15-year estimated useful life. Non-Compete Agreement The non-compete agreement was entered into with the acquisition of Weatherly. The agreement is being amortized over its 20 year term. Revenue Recognition Sales are recorded as products are shipped to customers. Net Income Per Share Effective for the six months ended December 31, 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. As required by SFAS 128, all prior earnings have been restated to reflect the retroactive application of this accounting pronouncement. (Note 14). Income Taxes Income taxes are calculated using the liability method specified by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Reclassification Certain 1996 financial statement amounts have been reclassified to conform to the 1997 presentation. Advertising Costs The Company incurs advertising expense primarily relating to cooperative advertising credits granted to customers based on qualified expenses incurred by the customers to advertise the Company's products. Cooperative advertising credits are usually limited to a percentage of an agreed-upon sales volume. The Company also incurs advertising expense relating to the distribution of catalogs and the broadcasting of radio and television commercials. Advertising costs are expensed as incurred. Advertising expense was $1,236,000, $1,823,000 and $2,945,000 during the years ended June 30, 1995, 1996 and 1997, respectively, and $757,000 and $963,000 for the six months ended December 31, 1996 and 1997, respectively (unaudited). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Company considers all short-term investments purchased with an initial maturity of three months or less to be cash equivalents. Stock Based Compensation Effective July 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Under this standard, companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based transactions. The fair value method is required for all stock based compensation issued to non-employees. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Companies are permitted to continue to account for employee F-8 stock-based transactions under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," but are required to disclose pro forma net income and earnings per share as if the fair value method had been adopted. The Company has elected to continue to account for stock-based compensation under APB No. 25 (see Note 9). New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Management does not believe that the Company's current financial statement disclosures will need to be modified based upon current operations. Results of operations and financial position, however, will be unaffected by future implementation of this standard. In June 1997, the Financial Accounting Standards Board issued SFAS No.131, Disclosures about Segments of an Enterprise and Related Information, (SFAS 131) which supersedes SFAS No. 14., Financial reporting for Segments of a Business Enterprises. SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 is effective for financial statements for period beginning after December 15, 1997 and requires comparative information for earlier years to be restated. The Company believes it operates under one business segment and has already substantially complied with the required financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of this standard. Financial Instruments The Company's financial instruments consist of cash, accounts receivable and debt. The carrying value of cash and accounts receivable approximate fair value based upon the liquidity and short-term nature of the assets. The carrying value of short-term and long-term debt approximates the fair value based upon short-term and long-term borrowings at market rate interest. Cash and cash equivalents are held principally at three high quality financial institutions. At times such balances may be in excess of the FDIC insurance limit. Basis of Presentation The accompanying balance sheet as of December 31, 1997 and the statements of operations and cash flows for each of the six months ended December 31, 1996 and 1997 have not been audited. However, in the opinion of management, they include all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented. The results of operations for the six months ended December 31, 1997 are not necessarily indicative of results to be expected for any future period. F-9 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements (Information for December 31, 1996 and 1997 is Unaudited) 1. Business Acquisitions On May 12, 1997, Easy Gardener acquired from Plastic substantially all of the assets, including product rights and all other intangible assets, of Plastic used in connection with Plastic's home lawn and garden care distribution business for approximately $4,300,000. On August 9, 1996, Easy Gardener acquired all of the outstanding stock of Weatherly, a lawn and garden care company, for 1,000,000 shares of the Company's common stock (valued at $3 per share) and $22,937,000, less an amount required to discharge certain outstanding indebtedness of the acquired company, and adjusted dollar for dollar based upon the ultimate value of the acquired company's net current assets (approximately $2.5 million). The acquisition was accounted for as a purchase and, accordingly, the results of operations of Weatherly have been included in the consolidated statement of income since August 9, 1996. The Company operates the acquired company as a subsidiary of Easy Gardener. In connection with the above acquisition, the Company's outstanding notes payable were refinanced and a new line of credit arrangement was established (See Note 6). On August 11, 1995, Emerald Products Corporation, a newly-formed, wholly-owned subsidiary of Easy Gardener, acquired from Emerald Products, LLC ("Emerald") all of the assets, including product rights and all other intangible assets, of Emerald used in connection with Emerald's home lawn and garden care distribution business. The purchase price, subject to adjustment as described below, was $835,000 in cash and a $100,000 non-interest bearing promissory note, which was paid off during fiscal 1996 using cash from operations. The purchase price is subject to increase based upon the Company achieving certain annual gross sales levels of acquired product lines through September 2002. This additional consideration is payable in cash annually and based upon 2.5% of annual Emerald gross sales of up to $4,000,000, 1.5% of annual gross sales between $4,000,001 and $5,000,000 and 1% of annual gross sales greater than $5,000,000. On September 1, 1994 (the "Closing Date"), Easy Gardener Acquisition Corp., a newly formed, wholly-owned subsidiary of the Company, acquired from Easy Gardener, Inc. (the "Seller"), all of the assets of the Seller used in connection with the Seller's home lawn and garden care products distribution business (the "Purchased Assets") pursuant to an assets purchase agreement dated as of June 19, 1994. The purchase price was $20,500,000 (subject to adjustment as described below) which was paid by the delivery of (i) $8,000,000 in cash (ii) a promissory note (the "Note") issued by Easy Gardener Acquisition Corp. in the initial principal amount of $10,500,000, and (iii) two convertible promissory notes (the "Convertible Notes") issued by the Company each in the initial principal amount of $1,000,000. The Note was paid from the proceeds of the Company's bank financing in September 1994. The Convertible Notes plus accrued interest were each converted into 457,198 shares of the Company's common stock and Class B warrants to acquire 457,198 shares of common stock at an exercise price of $2.28 per share. The Convertible Notes were automatically converted upon the February 1995 approval by the stockholders of the Company of an Amendment to the Company's Certificate of Incorporation increasing the amount of the Company's authorized common stock to 30,000,000 shares. The shares of common stock issued upon exercise of the Convertible Notes, and the shares of common stock issuable upon exercise of the warrants, are subject to a seven-year voting agreement with Mr. Robert Kassel, Chairman of the Company. The purchase price was subject to increase, if and to the extent that on the Closing Date current assets of Easy Gardener, Inc. exceeded current liabilities by $6,600,000. This additional amount approximated $783,000 at the date of closing and was paid in October 1994. Approximately $2,200,000 was contingently payable to the Seller over the four years following the Closing Date based upon the acquired business generating certain specified levels of net income. As of June 30, 1997, the entire $2,200,000 has been added to the excess of cost over net assets acquired of Easy Gardener based upon operating results obtained through June 30, 1997 and forecasted results for fiscal year 1998. As of June 30, 1997, approximately $1,467,000 is payable for this additional purchase price. F-10 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 1. Business Acquisitions -- (Continued) The following unaudited pro forma summary combines the consolidated results of operations of the Company, Weatherly and Easy Gardener as if the acquisitions had occurred at the beginning of the year of acquisition and the beginning of the prior year. Accordingly, Easy Gardener is reflected as if the acquisition occurred on July 1, 1994 and Weatherly as if the acquisition occurred July 1, 1995. The proforma information gives effect to certain adjustments, including the amortization of excess of cost over net assets acquired, the elimination of certain expenses incurred by Weatherly related to its acquisition and additional interest expense on the notes payable. This pro forma summary does not necessarily reflect the results of operations as they would have been if the Company, Weatherly and Easy Gardener had constituted a single entity during such periods and is not necessarily indicative of results which may be obtained in the future. The pro forma effect of the Emerald and Plastic acquisitions have not been reflected since their prior revenue was not material to the Company's operations.
Six months ended Years ended June 30, December 31, --------------------------------------------------------- ----------------- 1995 1996 1997 1996 ----------------- ----------------- ----------------- ----------------- (unaudited) Net sales .................................. $ 21,349,000 $ 46,102,000 $ 52,788,000 $ 13,680,000 ============= ============= ============= ============ Net income (loss) before extraordinary expense and income taxes .................. $ 1,420,000 $ 2,369,000 $ 6,540,000 $ (2,379,000) ============= ============= ============= ============ Net income (loss) before extraordinary expense ................................... $ 1,382,000 $ 3,462,000 $ 3,648,000 $ (1,429,000) ============= ============= ============= ============ Net income (loss) .......................... $ 1,382,000 $ 1,542,000 $ 2,121,000 $ (2,955,000) ============= ============= ============= ============ Diluted earnings (loss) per share: Net income (loss) per common share before extraordinary expenses ............. $ .11 $ .21 $ .22 $ (.10) ============= ============= ============= ============ Net income (loss) per common share ......... $ .11 $ .09 $ .13 $ (.21) ============= ============= ============= ============
2. Trade Credits In April 1996, the Company entered into an agreement to exchange unsold assets held for sale for credit against the future purchase of products and services. This transaction has been reported at the estimated fair market value of the assets exchanged by the Company. No gain or loss was recognized on such transaction as the Company had previously written down its assets held for sale to their estimated fair market value. The agreement requires the Company to pay a portion of the purchase price of the product or services received. Depending on the nature of the products or services purchased, the Company will receive a credit against the future price ranging from 10% to 45% of the cash purchase price. The Company will also receive a percentage of the cash proceeds from the ultimate sale of the assets. As of June 30, 1996, included in accounts receivable is approximately $105,000 of cash subsequently received on the sale of a portion of the assets by the third party. The agreement provides that the Company will receive maximum total credits and cash totaling $1.6 million. The agreement expires in April 1999 and requires the Company to use all credits by this date. The Company expects to use the credits primarily by purchasing operating assets and advertising time. The Company expects to use all available credits by the expiration date and will continually evaluate this asset based upon credits utilized and future operating goals. F-11 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 3. Inventories Inventories consist of: June 30, December 31, ----------------------------- ------------- 1996 1997 1997 ------------ -------------- ------------- (unaudited) Raw materials .......... $ 82,000 $ 578,000 $ 257,000 Finished goods ......... 3,310,000 4,676,000 7,416,000 --------- ----------- ---------- 3,392,000 $ 5,254,000 $7,673,000 ========= =========== ========== 4. Furniture, Fixtures and Equipment Furniture, fixtures and equipment consist of:
June 30, December 31, ----------------------------- ------------- 1996 1997 1997 ------------ -------------- ------------- (unaudited) Leasehold improvements .................... $ 74,000 $ 397,000 $ 393,000 Furniture, fixtures and equipment ......... 1,575,000 2,761,000 3,162,000 --------- ----------- ---------- 1,649,000 3,158,000 3,555,000 Less accumulated depreciation ............. 433,000 843,000 1,154,000 --------- ----------- ---------- 1,216,000 $ 2,315,000 $2,401,000 ========= =========== ==========
5. Excess of Cost Over Net Assets Acquired The excess of cost over net assets acquired consists of the following:
June 30, December 31, ------------------------------- ------------- 1996 1997 1997 ------------- --------------- ------------- (unaudited) Weatherly Consumer Products Group, Inc. .......... $ $ 23,046,000 $22,948,000 Easy Gardener, Inc. .............................. 14,172,000 15,639,000 15,639,000 Plastic Molded Concepts, Inc. .................... 2,760,000 2,810,000 Golden West Chemical Distributions, Inc. ......... 2,098,000 2,098,000 2,098,000 Emerald Products, LLC ............................ 778,000 870,000 894,000 ---------- ------------ ----------- 17,048,000 44,413,000 44,389,000 Less accumulated amortization .................... 1,264,000 2,579,000 3,379,000 ---------- ------------ ----------- 15,784,000 $ 41,834,000 $41,010,000 ========== ============ ===========
F-12 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 6. Notes Payable and Line of Credit Notes payable consist of the following:
June 30, December 31, ----------------------------- ------------- 1996 1997 1997 ------------ -------------- ------------- (unaudited) $23,000,000 note payable, interest due monthly at prime (8.5% at June 30, 1997) plus 1.25% or LIBOR (5.72% at June 30, 1997) plus 3.50%, quarterly principal payments ranging from $570,000 to $1,350,000 beginning September 30, 1996 through June 30, 2002, collateralized by Easy Gardener's assets and guaranteed by the Company. ...................................................... $ $20,510,000 $18,020,000 $2,250,000 note payable, interest due monthly at prime (8.5% at June 30, 1997) plus 6.0%, quarterly principal payments of $140,625 beginning September 30, 1998 through June 30, 2002, collateralized by Easy Gardener's assets and guaranteed by the Company. .......................................................... 2,250,000 2,250,000 $3,800,000 note payable, interest only due monthly at 12% with the full principal due November 1997. ................................. 3,800,000 $8,000,000 note payable, interest at 12.25%, monthly principal pay- ments of $133,333, plus interest, commencing January 31, 1995 until January 2000, collateralized by the assets of Easy Gardener and a guaranty of the Company. This note was refinanced during 1997. ............................................................. 5,600,000 $3,000,000 note payable, interest at 12%, equal monthly principal payments of $125,000, plus interest, commencing the earlier of the repayment of the $8,000,000 note payable or January 31, 2000, collateralized by assets of Easy Gardener and a guaranty of the Company. This note was refinanced during 1997. ................ 3,000,000 ---------- ----------- ----------- 8,600,000 26,560,000 20,270,000 Less current portion ............................................... 2,362,000 8,990,000 3,840,000 ---------- ----------- ----------- $6,238,000 $17,570,000 $16,430,000 ========== =========== ===========
At June 30 and December 31, 1997, the Company's financing arrangements include a $13,000,000 revolving credit facility expiring June 2002, bearing interest at the lower of prime or LIBOR rates plus an additional marginal amount; collateralized by Easy Gardener's assets and guaranteed by the Company. The credit facility's availability increases to $16,000,000 for the months of February through May. As of June 30, 1997, no amounts were outstanding on the credit line, and at December 31, 1997, $2,246,000 was outstanding on the credit line. The credit agreement contains various restrictions which require, among other things, maintenance of certain financial ratios and an annual zero balance for ten consecutive days during August. At June 30, 1997 and December 31, 1997, the Company was in compliance with all such covenants. If the revolving credit facility is terminated prior to June 2002, the Company will be subject to certain prepayment penalties. F-13 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 6. Notes Payable and Line of Credit -- (Continued) At June 30, 1996, the Company's had a $6,000,000 revolving credit facility bearing interest at prime (8.25% at June 30, 1996) plus 2%, payable in monthly installments commencing January 1, 1995 and collateralized by assets of Easy Gardener and a guaranty of the Company. As of June 30, 1996, there was $1,288,000 outstanding on the credit line which was refinanced during August 1996 utilizing the $13,000,000 revolving credit facility noted above. The $3 million note payable also required the Company to pay additional interest (defined as a success fee) when the loan was paid off. The success fee ranges from $300,000 in the first year to $4,140,000 in the seventh year. As of June 30, 1996, the accrued success fee was approximately $481,000 (Note 13). The $8 million note payable was subject to certain mandatory prepay ments of "excess cash flow" of Easy Gardener and certain net proceeds of asset sales, condemnation awards and insurance recoveries. As of June 30, 1996, $762,000 is the payment for "excess cash flow" which was made subsequent to year end. This amount has been included in the current portion of notes payable. Also, certain optional prepayments of advances under the revolving facility and the $8 million note payable require the payment of a premium (Note 13). In connection with the acquisition of Weatherly Products Inc. on August 9, 1996, both of the above term notes payable were refinanced and a new line of credit agreement was executed (Note 13). Future minimum principal payments are as follows: Year ending June 30, Amount - ---------------------- -------------- 1998 $ 8,990,000 1999 4,402,000 2000 4,403,000 2001 4,402,000 2002 4,363,000 ------------ $ 26,560,000 ============ 7. Officer Receivables Officer receivables represents notes which bear interest at 7% and require interest only payments on an annual basis. The notes are due June 2002. 8. Commitments Employment Agreements During 1996 and 1997, the Company entered into new employment agreements with three of its officers. The agreements are for one-year periods but are automatically renewed unless specifically terminated by the Company or the employee. If the employment agreements are terminated by the Company, the officers will be entitled to an additional ten and five years of annual compensation. Annual compensation under the employment agreements are $350,000, $162,000 and $101,000. The employment agreements also provide for certain lump sum payments in the event of a change in control equal to approximately $5 million. An agreement with an officer of Easy Gardener provides for a base aggregate annual salary of approximately $200,000 in 1998. In addition, the agreements provide for incentive and additional compensation under certain circumstances. Operating Leases The Company leases office and warehouse space under operating leases which expire in various years through 2001. The Company also leases certain office equipment and automobiles under operating leases expiring in 1998 through 2002. The future minimum lease payments under these non-cancelable operating leases are as follows: F-14 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 8. Commitments -- (Continued) Year ending June 30, Amount - ---------------------- -------------- 1998 $ 729,000 1999 591,000 2000 410,000 2001 176,000 2002 1,000 ----------- $ 1,907,000 =========== Rent expense was approximately $303,000, $336,000 and $680,000 for the years ended June 30, 1995, 1996 and 1997, respectively, and $322,000 and $168,000 for the six months ended December 31, 1996 and 1997 respectively. Pension Plan Easy Gardener has established an employee defined contribution pension plan (the Plan). Employees of the Company, Weatherly, Easy Gardener and Golden West are eligible to participate. The Company is required to match the first 3% of employee contributions up to 5% of the employees wage base. The plan also allows discretionary contributions by the Company. The Company's contribution vests over a seven-year period. Pension expense associated with the Plan for 1995, 1996 and 1997 was approximately $64,000, $180,000 and $199,000. Pension expense associated with the Plan for the six months ended December 31, 1996 and 1997 was $161,000 and $159,000. Royalty Agreements The Company has entered into royalty agreements which provide for payments based upon a percentage of net sales of certain products. These agreements expire in various years from 1998 to 2005. Royalty expense during the years ended June 30, 1995, 1996 and 1997 was $64,000, $104,000 and $304,000. Royalty expense during the six months ended December 31, 1996 and 1997 was $51,000 and $132,000. 9. Stockholders' Equity (a) Convertible Preferred Stock The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's common stock. (b) Common Stock The Company raised a portion of the Easy Gardener, Inc. purchase price through the August 1994 private placement of $8,025,000 of Units (for which it received net proceeds of approximately $6,900,000), each $100,000 Unit consisting of 44,000 shares of common stock and a class B warrant to purchase 44,000 shares of common stock for $2.28 per share. In June 1994, the Company sold approximately 200,000 shares to various foreign investors. Proceeds to the Company, after deducting commissions and expenses approximated $435,000. In a related transaction during July 1994, the Company sold an additional 240,000 shares to foreign investors resulting in net proceeds to the Company of approximately $518,000. Proceeds were used for the Easy Gardener acquisition. F-15 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 9. Stockholders' Equity -- (Continued) (c) Stock Option Plans The Company adopted the 1991 Stock Option Plan (the "1991 Plan") pursuant to which 700,000 shares of common stock have been reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified options. ISOs may be granted under the Plan to employees and officers of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. During fiscal 1995, the Board of Directors of the Company adopted, subject to stockholder approval, two additional stock option plans. The 1995 Stock Option Plan (the "1995 Plan") allows the granting of either ISOs or non-qualified options. The maximum aggregate number of shares to be granted under this plan is 1,500,000. The Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan") was established to attract, retain and compensate for their services as directors, highly qualified individuals who are not employees of the Company. The maximum aggregate number of shares issued under this plan is 100,000. During 1996 and 1997, 10,000 options were granted each year. The 1995 Plan is administered by a committee of the Board of Directors and the Non-Employee Director Plan is a formula plan. During May 1997, the Board of Directors approved the 1997 Stock Option Plan. The plan reserves 1,500,000 shares of common stock. The 1997 plan is subject to shareholder approval. No options have been granted as of June 30, 1997. The 1991 Plan is administered by the Board of Directors of the Company (the "Board"). The Board, or committee, as the case may be, within the limitations of the 1991 and 1995 Plans, as the case may be, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the option purchase price per share and the manner of exercise, the time, manner and form of payment upon exercise of an option, and whether restrictions such as repurchase rights in the Company are to be imposed on shares subject to options. ISOs granted under the plans may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). The aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any related corporation) may not exceed $100,000. Non-qualified options granted under the 1991 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (not less than par value in the case of the 1995 Plan). Options granted under the plans will expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company). All options granted under the 1991 Plan, Non-Employee Director Plan and ISOs under the 1995 Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution. The Board of Directors also has authorization to issue stock options ("Non-Plan Options") to employees or consultants for services performed. F-16 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 9. Stockholders' Equity -- (Continued) The following is a summary of activity relating to stock options.
Weighted Weighted Average Average Option Available Remaining Price Per Out- Exer- for Contractual Share standing cisable Grant Life -------------- ----------------- ------------ ---------------- ------------ 1991 Plan June 30, 1995 ............... $ 1.71(1) 688,000 588,000 12,000 5 years Became exercisable .......... 100,000 --------- ------- ------ ---------- June 30, 1996 ............... $ 1.71(1) 688,000 688,000 12,000 4 years Expired in 1997 ............. $ 1.69 (26,000) (26,000) 26,000 --------- --------- ------- ------ ---------- June 30, 1997 ............... $ 1.71(1) 662,000 662,000 38,000 3 years ========= ========= ======= ====== ========== 1995 Plan June 30, 1995 ............... $ 2.28 400,000 1,100,000 5 years Granted during 1996 ......... 2.25 310,000(3) 10,000 (310,000) Became exercisable .......... 400,000 --------- ------- --------- ---------- June 30, 1996 ............... $ 2.26 710,000 410,000 790,000 4.5 years Granted during 1997 ......... 2.06 (4) 675,000 675,000 (675,000) Became exercisable .......... 2.28 75,000 ---------- --------- ------- --------- ---------- June 30, 1997 ............... $ 2.10(4) 1,385,000 1,160,000 115,000(5) 4 years ========== =========== ========= ========= ========== Non-Plan Options June 30, 1995 ............... $ 1.85 745,000(2) 645,000 4 years Granted during 1996 ......... 2.25 315,000(3) ---------- ----------- --------- --------- ---------- June 30, 1996 ............... $ 1.83(1) 1,060,000 645,000 3.5 years Became exercisable .......... 2.25 125,000 Granted during 1997 ......... 1.91 1,225,000 1,225,000 ---------- ----------- --------- --------- ---------- June 30, 1997 ............... $ 1.84(4) 2,285,000 1,995,000 4 years ========== =========== ========= ========= ==========
- ------------ (1) During fiscal 1995, the Board of Directors authorized a reduction in the exercise price. The ending option price per share reflects the reduced exercise price. During fiscal 1995, approximately 1.1 million options to purchase common stock were repriced to $1.69. (2) Options outstanding reflect the effect of certain antidilution provisions. F-17 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 9. Stockholders' Equity -- (Continued) (3) Options vest over four years with the exception of 10,000 immediately vesting 1995 Plan options. (4) In December 1996, 1,490,000 options granted subsequent to June 1995 were repriced to $2.06 per share. (5) During the period July 1, 1997 to September 30, 1997, the Company granted options to acquire 98,000 shares of common stock under the 1995 Plan. In addition to certain stock options and warrants granted to employees, the Company also issued a total of 925,000 options and warrants to various consultants and a financial institution relating to various consulting services, the acquisitions of Weatherly and PlastiChain, and the new bank agreement entered into during August 1996. The fair value of such options and warrants was estimated at approximately $1,079,000. The fair value of such options and warrants has been expensed except for the fair value related to acquisitions and the bank financing for which these amounts are being amortized over the life of the bank financing agreement and the excess of cost of net assets acquired. (d) Unit Purchase Options In October 1994, the Company granted six unit purchase options (UPOs), each consisting of 43,860 shares of the Company's common stock and Class B Warrants to purchase 43,860 shares of common stock at an exercise price of $2.28. These UPOs, which expire on August 31, 1999, have a nominal exercise price. Three of the UPOs were granted to an officer of the Company for his personal guarantees in connection with the Easy Gardener acquisition. Three were granted to an outside consultant for its services in connection with financing obtained for the Easy Gardener acquisition. The six UPOs issued with the nominal exercise price were valued at $400,000 and included in deferred financing costs. Concurrently, the Company also granted six UPOs, consisting of the same components, each with a current exercise price of approximately $75,000, three of which were granted to an officer of the Company. All these transactions were done in lieu of cash compensation in consideration for certain financial consulting and other services and for the personal guarantee and other collateral provided in connection with the Company's acquisition of Easy Gardener, Inc., without which the Company's transaction with Easy Gardener, Inc. would not have occurred. During 1997, one UPO and the related warrants were exercised by the outside consultant. Proceeds to the Company were approximately $175,000. In connection with the Company's August 1994 Private Placement, the placement agent and its designees were granted approximately 28 UPOs exercisable at $100,000 each. Each UPO consists of 43,860 shares of common stock and warrants to purchase 43,860 shares of common stock at $2.28 per share. These warrants expire in August 1999, if the underlying UPO is not exercised. If exercised, the warrants expire in May 2000. During 1997, 5 UPOs were terminated in a cashless exercise and approximately 60,000 shares of common stock was issued. The total shares of common stock issuable upon exercise of the UPOs, including the underlying warrants, would be approximately 3,500,000 and 3,000,000 shares at June 30, 1996 and 1997. In December 1997, the Company repurchased 1,661,871 shares of common stock underlying 16.8 UPO's and warrants to acquire 85,000 of common stock for approximately $3,221,000. F-18 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 9. Stockholders' Equity -- (Continued) (e) Warrants In connection with certain business transactions and stock offerings, the Company has granted various warrants to purchase common stock. The following schedule will summarize the activity.
Weighted Weighted Average Average Warrant Remaining Price Per Out- Exer- Contractual Share standing(1) cisable Life ----------- ------------------ ------------------ ------------ July 1, 1994 ....................................... $ 1.89 1,729,000 1,729,000 3.5 years Warrants issued in connection with private placement 2.28 3,520,000 3,520,000 Warrants issued with convertible debenture ......... 2.28 914,000 914,000 Warrants issued .................................... 2.75 100,000 100,000 Warrants exercised ................................. 1.85 (30,000) (30,000) ------- --------- --------- June 30, 1995 ...................................... 2.12 6,233,000 6,233,000 4.5 years ------- --------- --------- ------------ Increase for antidilution .......................... 2.28 153,000 153,000 Warrants exercised ................................. 2.24 (770,000) (770,000) ------- --------- --------- June 30, 1996 ...................................... 2.14 5,616,000 5,616,000 3.5 years Warrants issued .................................... 2.45 525,000 525,000 Warrants exercised ................................. 2.15 (2,380,000) (2,380,000) Expired ............................................ 6.00 (52,000) (52,000) ------- ---------- ---------- June 30, 1997 ...................................... $ 2.18 3,709,000(2) 3,709,000(2) 3 years ======= ============ ============ ============
- ------------ (1) The warrants contain anti-dilution provisions which could effect the number of shares of common issuable stock upon the exercise of the warrants as well as the per share warrant prices. Additionally, these warrants contain certain redemption provisions. (2) During the period July 1, to December 31, 1997, 1,343,000 warrants were exercised. (f) Common Stock Reserved At June 30, 1997, approximately 12,700,000 shares of common stock have been reserved for issuance upon the exercise of warrants, options and UPOs. (g) Stock Based Compensation The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for the plan. Under APB Opinion No. 25, because the exercise price of the Company stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation cost is recognized. FASB Statement No. 123, Accounting for Stock-Based Compensation, requires the Company to provide pro forma information regarding net loss as if compensation costs for the Company's stock options and warrants had been determined in accordance with the fair value based method prescribed in FASB Statement No. 123. The Company estimates the fair value of each stock option and warrant at the grant date by using a modified Black-Scholes pricing model with the following weighted-average assumptions used for grants in 1996 and 1997, respectively: no dividend yield for any year; expected volatility of approximately 30% in both years; risk-free interest rates of 6.65% and 6.6%; and expected lives of approximately three to five years. F-19 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 9. Stockholders' Equity -- (Continued) Under the accounting provisions of FASB Statement No. 123, the Company net income and net income per common share would have been decreased to the pro forma amounts indicated below: Years ended June 30, ----------------------------------- 1996 1997 ---------------- ---------------- Net Income As reported ................... $ 2,524,000 $ 3,183,000 Pro forma ..................... 2,392,000 1,617,000 Per share as reported ......... 0.25 0.20 Pro forma ..................... 0.23 0.12 ============= ============= The above pro forma information includes only the effects of 1996 and 1997 grants. Because options potentially vest over several years and additional awards are made each year, the results shown above may not be representative of the effects on net earnings in future years. 10. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is established for deferred income tax assets when realization is not deemed more likely than not. Deferred tax assets (liabilities) consist principally of the following:
June 30, December 31, --------------------------------- ------------- 1996 1997 1997 --------------- --------------- ------------- (unaudited) Deferred tax assets Net operating loss carryforwards ............................... $ 1,384,000 $ 555,000 $1,212,000 Accounts receivable allowance and other ........................ 97,000 58,000 169,000 ----------- ----------- ---------- Total deferred tax asset ....................................... 1,481,000 613,000 1,381,000 Less valuation allowance ....................................... (148,000) (165,000) (302,000) ----------- ----------- ---------- Net deferred tax asset ......................................... $ 1,333,000 $ 448,000 $1,079,000 =========== =========== ========== Deferred tax liability Depreciation and amortization in excess of book amount ......... $ (328,000) $ (547,000) $ (650,000) =========== =========== ==========
At June 30, 1997, the Company had approximately $1,025,000 of net operating loss (NOL) carryforwards available to reduce future Federal taxable income. These losses are available through 2011. California allows an NOL carryforward of 50% of a company's California taxable loss. The carryforward for California purposes, after the 50% reduction, was approximately $2,217,000 at June 30, 1997 and expires through 2001. Use of the Company's NOLs could be limited in the future as a result of issuance or exercise of stock options and warrants or sale or issuance of stock. The Company files its tax returns on a calendar year basis. Because of the seasonal nature of the Company's operations, the different reporting periods for book and tax purposes may affect the amount of taxes that will ultimately be payable or deferred. At June 30, 1996, June 30, 1997 and December 31, 1997, the Company established a $148,000, $165,000 and $302,000 valuation allowance for the benefits pertaining to California NOLs which are not estimated to be realizable prior to their expiration. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized through future taxable earnings or alternative tax strategies. F-20 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 10. Income Taxes -- (Continued) The income tax (provision) benefit consists of: June 30, -------------------------------------------------- 1995 1996 1997 -------------- ------------- ----------------- Current Federal ......... $ -- $ -- $ (283,000) State ........... (38,000) (290,000) (280,000) ---------- ---------- ------------- (38,000) (290,000) (563,000) ---------- ---------- ------------- Deferred Federal ......... -- 1,013,000 (2,129,000) State ........... -- (8,000) (56,000) ---------- ---------- ------------- -- 1,005,000 (2,185,000) ---------- ---------- ------------- $ (38,000) $ 715,000 $ (2,748,000) ========== ========== ============= The 1997 income tax expense consists of $3,200,000 expense from continuing operations reduced by $452,000 benefit associated with the extraordinary expense. The following is a reconciliation between the Statutory Federal income tax rate and the Company's effective tax rate for continuing operations:
1995 1996 1997 ------------- ------------- ------------- Income tax (provision) computed at Federal Statutory rate .......... (34.0)% (34.0)% (34.0)% State taxes, net of Federal tax benefits ........................... ( 2.4) (16.5) ( 4.6) Nondeductible amortization and other ............................... ( 3.6) ( 4.1) ( 4.5) Changes in valuation allowance on deferred tax asset ............... (37.6) 94.1 ( 0.2) ----- ----- ----- (Provision) benefit for income taxes ............................... ( 2.4)% 39.5% (43.3)% ===== ===== =====
The income tax benefit for the six months ended December 31, 1996 and 1997 is computed based upon the Company's estimated effective tax rate for the respective fiscal year. 11. Concentration of Credit Risk and Significant Relationships Trade accounts receivable are due primarily from numerous customers located in many geographic regions throughout the United States. The Company performs ongoing credit evaluations of its customers' financial conditions and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other information. The Company does not require collateral from its customers. During the years ended June 30, 1996 and 1997, sales to two Easy Gardener customers accounted for approximately 36% (27% and 9%) and 36% (26% and 10%) of consolidated net sales. During the six months ended December 31, 1996 and 1997, sales to two Easy Gardener customers accounted for approximately 34% (25% and 9%) and 35% (26% and 9%) of consolidated net sales. Included in accounts receivable at June 30, 1996, June 30, 1997 and December 31, 1997 is $1,440,000, $2,320,000 and $455,000 due from the largest customer. During the year ended June 30, 1995, sales to two Easy Gardener customers accounted for approximately 24% and 9% of consolidated net sales. Substantially all of Easy Gardener's raw material purchases for Weedblock(R) inventory, representing approximately 66%, 50% and 22% of the Company's consolidated raw material purchases during the years ended June 30, 1995, 1996 and 1997, are from one vendor. F-21 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 11. Concentration of Credit Risk and Significant Relationships -- (Continued) Management believes that other suppliers could provide a similar product on comparable terms. A change in suppliers, however, could cause delays and a possible loss of sales, which would affect operating results adversely. Included in accounts payable at June 30, 1996, June 30, 1997 and December 31, 1997 is $139,000, $349,000 and $520,000 due to this vendor. 12. Supplemental Cash Flow Information Cash paid for:
Years ended Six months ended June 30, December 31, ------------------------------------------------ ---------------------------- 1995 1996 1997 1996 1997 -------------- -------------- -------------- ------------- ------------ (unaudited) (unaudited) Cash paid during the period for: Interest, including deferred financing costs and extraordinary expense ......... $ 1,528,000 $ 1,296,000 $ 5,816,000 $3,251,000 $1,358,000 =========== =========== =========== ========== ========== Taxes .......................... $ 10,000 $ 96,000 $ 131,000 $ 7,000 $ 30,000 =========== =========== =========== ========== ==========
Supplemental Schedule of Non-cash Investing and Financing Activities: The Company purchased all of the assets of Easy Gardener, Inc. for $21,283,000 in September 1994. Fair value of assets acquired ......... $ 28,526,000 Cash paid for assets acquired ......... (14,424,000) Promissory notes ...................... (12,783,000) ------------ Liabilities assumed ................... $ 1,319,000 ============ During 1995, the Company entered into agreements to issue approximately 417,000 shares of common stock, valued at approximately $683,000 as payment of certain accounts payable. During 1995, $2,000,000 of convertible debentures and related accrued interest was converted into 914,396 shares of common stock and 914,396 Class B warrants. During 1995, deferred financing costs of approximately $400,000 was paid for by the issuance of 6 UPOs with a nominal exercise price. During 1996, the Company exchanged assets held for sale with a book value of approximately $1.4 million for future trade credits. During 1997, the Company issued warrants and options for various consulting services which were valued at approximately $1,079,000. 13. Extraordinary Expense As a result of the refinancing of all of the Company's outstanding debt in August 1996 (See Note 6), the entire balance of deferred finance costs at June 30, 1996, net of accumulated amortization, plus certain prepayment penalties totaling approximately $455,000, was written off as an extraordinary expense during the year ended June 30, 1997. F-22 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (Information for December 31, 1996 and 1997 is Unaudited) 14. Earnings per Share The following is a reconciliation of the weighted average number of shares used to compute basic and dilutive earnings per share before extraordinary expense:
Six months ended Years ended June 30, December 31, ------------------------------------------ ---------------------------- 1995 1996 1997 1996 1997 ------------ ------------ ------------ ------------- ------------ (unaudited) (unaudited) Basic earnings per common share............ 8,376,000 10,206,000 13,695,000 13,437,000 15,552,000 Options and warrants ...................... 1,749,000 3,155,000 2,373,000 --------- ---------- ---------- ---------- ---------- Diluted earning per common share .................................... 10,125,000 13,361,000 16,068,000 13,437,000 15,552,000 ---------- ---------- ---------- ---------- ----------
Options and warrants to purchase 11,274,000 and 8,672,000 shares were outstanding during the six months ended December 31, 1996 and 1997 but were not included in the computation of diluted loss per common share because the effect would be antidilutive. 15. Subsequent Events Subsequent to June 30, 1997, a $350,000 liability was converted into 154,000 shares of common stock. Subsequent to June 30, 1997, the Company granted stock options to acquire 565,000 and 98,000 shares of common stock under the 1997 and 1995 stock option plans. During July 1997, 453,000 warrants were exercised generating $1,033,000 in cash proceeds to the Company. The Company is involved in a lawsuit in which it has claimed a competitor has infringed on a product trademark. The competitor has filed a counter-claim in September 1997 seeking unspecified damages. The Company does not believe the outcome of this matter will have a material impact on future operations. F-23 Report of Independent Certified Public Accountants To the Shareholders of Weatherly Consumer Products Group, Inc., and Subsidiaries We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Weatherly Consumer Products Group, Inc. (a Delaware Corporation) and Subsidiaries for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996, the date of the sale of the Company (Note 1). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, all outstanding capital stock of the Company was acquired by Easy Gardener Acquisition Corp., a wholly-owned subsidiary of U.S. House & Garden Inc., on August 9, 1996. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Weatherly Consumer Products Group, Inc. and Subsidiaries for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996 in conformity with generally accepted accounting principles. BDO Seidman, LLP San Francisco, California, October 20, 1997 F-24 Weatherly Consumer Products Group, Inc. And Subsidiaries Consolidated Statements of Operations For the Year Ended September 30, 1995 and the Period October 1, 1995 through August 9, 1996 (Note 1)
1995 1996 -------------- ---------------- NET SALES (Note 7) ...................................... $18,532,297 $ 18,184,995 COST OF GOODS SOLD ...................................... 8,872,354 7,677,707 ----------- ------------ Gross profit ...................................... 9,659,943 10,507,288 ----------- ------------ OPERATING EXPENSES (Note 1): Selling and marketing ................................ 4,960,793 5,251,782 Administrative ....................................... 2,552,570 2,414,193 Redemption of employment contracts ................... 6,000,000 ----------- ------------ 7,513,363 13,665,975 ----------- ------------ Operating income (loss) ........................... 2,146,580 (3,158,687) ----------- ------------ OTHER EXPENSES: Interest ............................................. 1,361,987 1,546,311 Other, net ........................................... (67,636) 8,575 ----------- ------------ 1,294,351 1,554,886 ----------- ------------ Income (loss) before (provision) benefit for income taxes and extraordinary item .............. 852,229 (4,713,573) (PROVISION) BENEFIT FOR INCOME TAXES (Notes 1 and 3) ................................................. (400,033) 475,535 ----------- ------------ Income (loss) before extraordinary item ........... 452,196 (4,238,038) EXTRAORDINARY ITEM -- Write-off of deferred financing costs and debt prepayment charges, net of related income tax benefit of $57,815 (Note 1).......... (520,334) ----------- ------------ Net income (loss) ................................. $ 452,196 $ (4,758,372) =========== ============
See accompanying notes to consolidated financial statements F-25 Weatherly Consumer Products Group, Inc. And Subsidiaries Consolidated Statements of Stockholders' Equity For the Year Ended September 30, 1995 and the Period October 1, 1995 through August 9, 1996 (Note 1)
Preferred Common Stock Stock Warrants --------------- -------------- ------------- BALANCE, September 30, 1994 ................... $ 9,983,662 $ (458,850) $ 350,000 Net income ........................... Conversion or retirement of Common and Preferred Stock and Warrants (Note 8) ............................ (9,983,662) 458,950 ------------- ---------- ---------- BALANCE, September 30, 1995 .................... 100 350,000 Net loss ............................. Accretion of warrants (Note 2) ....... 810,442 ------------- ---------- ---------- BALANCE, August 9, 1996 ....................... $ $ 100 $1,160,442 ============= ========== ========== Additional Accumulated Paid-In-Capital Deficit Total ----------------- ----------------- ---------------- BALANCE, September 30, 1994 ................... $ $ (11,809,219) $ (1,934,407) Net income ........................... 452,196 452,196 Conversion or retirement of Common and Preferred Stock and Warrants (Note 8) ............................ 6,324,712 (3,200,000) ---------- ------------- ------------ BALANCE, September 30, 1995 .................... 6,324,712 (11,357,023) (4,682,211) Net loss ............................. (4,758,372) (4,758,372) Accretion of warrants (Note 2) ....... (810,442) ---------- ------------- ------------ BALANCE, August 9, 1996 ....................... $6,324,712 $ (16,925,837) $ (9,440,583) ========== ============= ============
See accompanying notes to consolidated financial statements. F-26 Weatherly Consumer Products Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Year Ended September 30, 1995 and the Period October 1, 1995 through August 9, 1996 (Note 1)
1995 1996 --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................................................... $ 452,196 $ (4,758,372) Adjustments to reconcile net income (loss) to net cash provided by operating activities- Depreciation and amortization ........................................ 1,018,594 977,986 Write-off of deferred financing costs and prepayment charges ......... 578,149 Reserves for certain property and other assets ....................... 247,661 (Gain) on disposition of assets ...................................... (63,512) Future tax benefit ................................................... 10,828 209,902 Income tax receivable ................................................ (1,082,407) Redemption of employment contracts ................................... 6,000,000 Changes in assets and liabilities- Accounts receivable .................................................. 67,931 (529,880) Inventory ............................................................ (714,412) 1,249,718 Prepaid expenses and other ........................................... 37,203 (103,273) Accounts payable and accrued liabilities ............................. (161,761) (211,949) ------------ ------------ Net cash provided by operating activities ........................... 647,067 2,577,535 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on debt ..................................................... 3,308,801 4,131,547 Payments on debt ....................................................... (4,692,601) (4,978,047) Proceeds from sale of land and building ................................ 74,492 ------------ ------------ Net cash used in financing activities ............................... (1,309,308) (846,500) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in other assets ............................................... (53,746) (4,348) Capital expenditures, net .............................................. (359,134) (327,751) ------------ ------------ Net cash used in investing activities ................................... (412,880) (332,099) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................................................ (1,075,121) 1,398,936 CASH AND CASH EQUIVALENTS, beginning of period .......................... 2,128,789 1,053,668 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period ................................ $ 1,053,668 $ 2,452,604 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest ............................................... $ 1,295,209 $ 1,039,261 ============ ============ Cash paid for income taxes ........................................... $ 192,532 $ 334,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Conversion of preferred stock to long-term stockholder debt (Note 8) ............................................................ $ 3,200,000 $ ============ ============
See accompanying notes to consolidated financial statements. F-27 Weatherly Consumer Products Group, Inc. And Subsidiaries Notes to Consolidated Financial Statements (1) Sale of the Company Weatherly Consumer Products Group, Inc. (WCPG) and Subsidiaries (the Company) is engaged in the manufacture and sale of fertilizer, watering, insecticide and garden netting products. On August 9, 1996, all outstanding capital stock of the Company was acquired by Easy Gardener Acquisition Corp. (EGAC), a wholly-owned subsidiary of U.S. Home & Garden Inc. for approximately $8 million dollars of net cash consideration and approximately one million shares of U.S. Home & Garden Inc. stock valued at $3 per share. Prior to and/or in conjunction with the sale; o Certain of the officer and employee contracts were redeemed for approximately $6 million. This expense and related obligation has been included as a component of administrative expenses in the accompanying 1996 consolidated financial statements. o The holders of the Company's warrants for Class B common shares agreed to have their warrants redeemed for $1,160,442. Accordingly, the accretion of the warrants was accelerated in the accompanying 1996 consolidated financial statements to reflect the warrants at their respective redemption price. o Severance agreements were provided to certain Company employees. Severance of approximately $450,000 was accrued or paid as of August 9, 1996 and is included in selling and marketing (approximately $395,000) and administrative expenses ($55,000) in the accompanying 1996 consolidated financial statements. o Immediately subsequent to the sale of the Company's stock, the preexisting debt obligations were paid off. Accordingly, the accretion of the Company's bank loan with detachable warrants was accelerated, unamortized deferred financing costs were written off and related prepayment penalties were accrued. The expense associated with the accretion of the bank loan with detachable warrants (approximately $271,000) is included as a component of the 1996 interest expense, whereas the costs associated with the prepayment of the debt obligations (approximately $578,000) are reflected, net of the related tax benefit, in the accompanying 1996 consolidated financial statements as an extraordinary item. o Immediately prior to the sale, specific assets were transferred to certain employees and shareholders. The carrying amount of the net assets transferred (approximately $248,000) is included in administrative expenses in the accompanying 1996 consolidated financial statements. o The selling shareholders of the Company entered into an agreement to indemnify EGAC against any tax liabilities relating to periods prior to the sale. If any such tax liabilities arise, EGAC would be required to make the payments to the appropriate tax authority and, in turn, seek reimbursement from the selling shareholders under their indemnification agreement. The Internal Revenue Service (IRS) is currently examining certain tax returns of the Company covering periods prior to the sale. The Company believes that any payment it may be required to make will not have a material adverse effect on the accompanying consolidated financial statements. (2) Summary of Accounting Policies (a) Principles of Consolidation--The consolidated financial statements include the accounts of WCPG and its subsidiaries, Weatherly Consumer Products, Inc. and Ross Daniels, Inc. (WCP and RDI). All material intercompany transactions have been eliminated. (b) Translation of Foreign Currencies--Accounts of the United Kingdom branch are stated in United States dollars. Currency gains and losses have been reflected in the statements of operations. Translation adjustments are not material to the consolidated financial statements taken as a whole. (c) Cash and Cash Equivalents--Cash and cash equivalents include operating cash accounts and money market funds. F-28 Weatherly Consumer Products Group, Inc. And Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (2) Summary of Accounting Policies -- (Continued) (d) Inventories--Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. (e) Equipment and Leasehold Improvements--Equipment and leasehold improvements are depreciated over their estimated useful lives using the straight-line method. Major expenditures for renewals and betterments are charged to the property accounts while repairs and maintenance, which do not improve or extend the life of the assets, are charged to operations. The estimated useful lives of the various classes of assets are as follows: Years -------- Machinery and equipment .......... 3 to 10 Furniture and vehicles ........... 3 to 10 Leasehold improvements ........... 3 to 18 (f) Research and Development--Costs incurred in connection with the development of new products and changes to existing products are charged to operations as incurred. Research and development expense for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996 approximated $106,000 and $113,000, respectively. (g) Other Assets--Patents, trademarks, product packaging costs and goodwill are amortized over their estimated lives using the straight-line method. The estimated lives of these assets are summarized as follows: Years ------- Patents .............................. 11 Trademarks ........................... 25 Goodwill ............................. 25 Product packaging and other .......... 3 to 8 The Company capitalizes significant expenditures for product packaging development and design work. (h) Warrants for Common Stock--Detachable warrants to purchase 15% of WCPG's common stock were issued to Nations Credit Commerical Corporation (Nations) as part of the financing agreement with Nations and were redeemed in conjunction with the sale of Company stock (Note l). Prior to 1996, the warrants were exercisable through July 30, 2003 and subject to redemption at the option of Nations on or after July 30, 1997 at a redemption price equal to the greater of the appraised value of the Company, liquidation value, consolidated net worth, as defined, or a multiple of earnings, as defined. The original value assigned to the warrants was $350,000 and included in stockholders' equity in the accompanying consolidated financial statements. The redemption price was estimated annually and adjustments to accrete the warrants to the estimated redemption price were recorded, as applicable, with a corresponding charge to retained earnings. No accretion was recorded in fiscal 1995. In connection with the sale of the Company, there was a charge of $810,442 to accumulated deficit to accrete the value of the warrants to the agreed-upon redemption price. (i) Advertising--The Company expenses the costs of advertising as incurred. Advertising expense for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996 approximated $782,000 and $732,000, respectively. (j) Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-29 Weatherly Consumer Products Group, Inc. And Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (2) Summary of Accounting Policies -- (Continued) (k) Reclassifications--Certain reclassifications have been made to the 1995 consolidated financial statements to conform with the 1996 presentation. (l) New Accounting Pronouncements--In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of (SFAS 121), effective for fiscal years beginning after December 15, 1995. The new standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company does not expect that the adoption of SFAS 121 will have a material impact on the consolidated financial statements. (m) Revenue Recognition--Sales are recorded as products are shipped to customers. (3) Income Taxes Income taxes are calculated using the liability method specified by Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred tax assets or liabilities are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The provision (credit) for income taxes includes the following:
1995 1996 ------------ --------------- Current payable (receivable) ......................... $ 493,801 $ (685,437) Benefit of net operating loss carryforwards .......... (104,596) (959,709) Deferred ............................................. 10,828 (68,291) Change in valuation allowance ........................ 1,237,902 ---------- ----------- 400,033 (475,535) Tax benefit of extraordinary item .................... (57,815) ---------- ----------- $ 400,033 $ (533,350) ========== ===========
The following is a reconciliation between the statutory federal income tax rate and the provision (benefit) for income taxes:
1995 1996 ---------------------------- ------------------------------- Amount Rate Amount Rate ------------- ------------ ---------------- ------------ Computed provision (benefit) for federal income taxes at the statutory rate ...................... $ 289,757 34.0% $ (1,602,614) (34.0%) State and local income taxes, net of federal income taxes ............................................ 47,432 5.6% (263,960) ( 5.6%) Changes in valuation allowance .................... (104,596) (12.3%) 1,237,902 26.4% Nondeductible amortization and other, net ......... 167,440 19.6% 153,137 3.2% ---------- ----- ------------ ----- $ 400,033 46.9% $ (475,535) (10.0%) ========== ===== ============ =====
F-30 Weatherly Consumer Products Group, Inc. And Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (3) Income Taxes -- (Continued) At September 30, 1995 and August 9, 1996, the net future tax benefit consists of the following:
1995 1996 ----------- --------------- Advertising and rebate accruals ................................. $ 81,137 $ 65,808 Warranty reserves ............................................... 24,543 16,486 Accounts receivable reserves .................................... 37,367 6,554 Inventory costs ................................................. 29,873 23,586 Other ........................................................... 36,982 63,798 Benefit of net operating loss and credit carryforwards .......... 1,061,670 -------- ------------ 209,902 1,237,902 Valuation allowance ............................................. (1,237,902) -------- ------------ $209,902 $ -------- ------------
The valuation allowance is required due to the uncertainty of realizing the net deferred tax assets through future operations. As of August 9, 1996, the Company has accumulated approximately $2,800,000 of tax net operating losses and approximately $149,000 of tax credits, substantially all of which expire in 2011, which can be carried forward and used to reduce future taxable income. (4) Debt Obligations The Company's long-term debt obligations outstanding during 1995 and 1996 principally consisted of bank loans with interest at a commercial paper rate plus 4.5% (10.005% at August 9, 1996) and a floating rate equal to the greater of 11% or the commercial paper rate plus 6% (11.505% at August 9, 1996), and subordinated notes due to a shareholder with interest at the prime rate (8.25% at August 9, 1996). All of these long-term obligations were paid in full on August 10, 1996 in connection with the sale of the Company (Note 1). The Company had a $20 million credit arrangement with Nations, which was secured by substantially all the assets of the Company. The working capital commitment of $7.5 million included within the arrangement permitted borrowings based on a percentage of eligible receivables and inventory, as defined. There were no borrowings outstanding on the working capital loan at September 30, 1995 or August 9, 1996. The terms of the Nations agreement stipulated, among others, that the Company maintain certain financial ratios; limit capital expenditures and retirements; limit lease and debt commitments; may not merge, consolidate, acquire or sell operating assets; limit compensation to key employees. The notes payable to shareholders were subordinated to all bank debt. Accordingly, these notes stipulated that if payments of annual interest to the shareholders would violate the terms of the Nations agreement, the interest payments would be deferred until the next annual interest payment date. (5) Royalty Commitments WCP has exclusive licenses under patent applications to make, lease, or sell certain of its products. Royalty expense under the agreements is based on a percentage of net sales and amounted to approximately $121,000 and $150,000 for the year ended September 30, 1995 and the period October 1, 1995 through August 9, 1996, respectively. (6) Commitment WCP conducts a portion of its operations in leased facilities and leases equipment under noncancelable operating leases. The total amount charged to rental expense was approximately $343,000 and $298,000 in 1995 and 1996, respectively. The minimum scheduled lease payments for the noncancelable operating leases as of August 9, 1996 are as follows: F-31 Weatherly Consumer Products Group, Inc. And Subsidiaries Notes to Consolidated Financial Statements -- (Continued) (6) Commitment -- (Continued) 1997 ........... $325,000 1998 ........... 262,000 1999 ........... 158,000 -------- $745,000 ======== (7) Significant Customers and Concentration of Credit Risk Trade accounts receivable are due primarily from numerous customers located in many geographic regions throughout the United States. The Company performs ongoing credit evaluations of its customers' financial conditions and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other information. The Company does not require collateral from its customers. Approximately 14% and 10% of consolidated gross sales in 1995 were with two customers. These same two customers represented approximately 15% and 12% of consolidated gross sales in 1996. (8) Reorganization In June, 1995, the Board of Directors approved an amendment of the Certificate of Incorporation which converted all common and preferred shares outstanding, except for the 12% Preferred "A" stock, into a new class of common stock (Class A common stock). The 12% Preferred "A" stock, owned by one shareholder, was converted into a $3,200,000 subordinated note. In addition, previously accrued dividends owed by WCP to the shareholders were canceled, preexisting stock option plans were terminated, certain stock was effectively canceled for no consideration and consideration was provided to certain shareholders for certain waivers and releases. (9) Related Party Activities During 1995 and 1996, the Company had outstanding subordinated notes and accrued interest due to a stockholder. This related party debt was paid in full on August 10, 1996 in connection with the sale of the Company (Notes 1 and 4). In conjunction with the acquisition of the Company by WCPG, the prior sole shareholder (and a current shareholder of WCPG) entered into a consulting agreement with the Company which provided for annual consulting fees of $125,000. This agreement was terminated January 1, 1995. Consulting fees expensed in 1995 approximated $31,000. In July 1993, the Company entered into a two year agreement, subject to renewals, to sublease office space at fair market rental with its prior sole stockholder. Rentals, as per the agreement, approximated $4,500 in 1995. The lease agreement was amended and renewed during 1995 and provides for annual rentals of $1 per year. In 1993, the Company entered into a fully insured two year renewable exclusive distributor agreement with its prior sole stockholder whereby WCP markets and distributes lawn and garden products owned or controlled by its prior sole stockholder. The Company distributed products under this agreement in 1995. Commencing October 1, 1995 this agreement expired and the products were owned and controlled by WCP. (10) Employee Benefit Plans (a) Health Plan--The Company has a fully insured health benefit plan which provides for hospitalization, surgical, major medical and other benefits for eligible employees. (b) 401(k) Plan--The Company has a 401(k) plan for the benefit of all employees meeting certain minimum eligibility requirements. The Company contributed approximately $45,000 and $43,000 to this plan in matching contributions in 1995 and 1996, respectively. F-32 U.S. HOME & GARDEN, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On August 9, 1996, Easy Gardener Acquisition Corporation, a wholly owned subsidiary of U.S. Home & Garden, acquired all of the outstanding stock of Weatherly Consumer Products (Weatherly), a lawn and garden care company, for 1,000,000 shares of the Company's common stock (valued at $3 per share) and $22,937,321, less an amount required to discharge certain outstanding indebtedness of the acquired company, and adjusted dollar for dollar based upon the ultimate value of the acquired company's net current assets in excess of $2 million. The acquisition was accounted for as a purchase, with the assets acquired and liabilities assumed recorded at fair values. The results of Weatherly's operations have been included in the Company's consolidated financial statements from the date of acquisition. The accompanying condensed pro forma consolidated statement of operations illustrate the effect of the acquisition on the results of operations for the year ended June 30, 1997 as if the acquisition had taken place on July 1, 1996. The operating results for Weatherly as reflected on the pro forma statement of operations represents the period ended July 1, 1996 to August 9, 1996. The pro forma condensed consolidated results of operations may not be indicative of the actual result which would have been obtained if the acquisition had occurred on July 1, 1996. F-33 U.S. HOME & GARDEN, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1997
Weatherly Weatherly Adjustments Pro Forma ----------- ------------------- ----------- Net sales ............................... $ 742 $ 742 Cost of sales ........................... 544 544 -------- ------- Gross profit ............................ 198 198 Operating Expenses: Selling and shipping .................. 825 (395) (4) 430 (248) (4) Administrative and general ............ 6,649 (6,055) (4) 346 -------- ------ ------- Income from operations .................. (7,276) 6,698 (578) Interest expense, net ................... 463 (271) (4) 192 -------- ------ ------- Income (loss) before income taxes and extraordinary item ..................... (7,739) 6,969 (770) Income tax benefit (expense) ............ 886 (578)(5) 308 -------- ------ ------- Income before extraordinary items ....... (6,853) 6,391 (462) Extraordinary item ...................... (520) (520) -------- ------- Net income (loss) ....................... $ (7,373) $ 6,391 $ (982) ======== =========== ======= Diluted earnings per share: (Income) loss per common share Income before extraordinary item ....... Extraordinary item ...................... Net Income .............................. Weighted average shares outstanding ..... U.S. Home & Consolidated Garden Adjustments Pro Forma --------------------- ------------- ---------------------- Net sales ............................... 52,046 $ 52,788 Cost of sales ........................... 23,649 24,193 ------ -------------- Gross profit ............................ 28,397 28,595 Operating Expenses: Selling and shipping .................. 11,232 11,662 Administrative and general ............ 6,513 80 (1) 6,939 ------ -- -------------- Income from operations .................. 10,652 (80) 9,994 Interest expense, net ................... 3,262 (2) 3,454 ------ --- -------------- Income (loss) before income taxes and extraordinary item ..................... 7,390 (80) 6,540 Income tax benefit (expense) ............ (3,200) (2,892) ------ -------------- Income before extraordinary items ....... 4,190 (80) 3,648 Extraordinary item ...................... (1,007) (1,527) ------ -------------- Net income (loss) ....................... $ 3,183 (80) $ 2,121 ============= === ============== Diluted earnings per share: (Income) loss per common share Income before extraordinary item ....... $ 0.26 (3) $ 0.22 (3) Extraordinary item ...................... ( 0.06)(3) (0.09)(3) ------------- -------------- Net Income .............................. $ 0.20 (3) $ 0.13 (3) ============= ============== Weighted average shares outstanding ..... 16,068,000(3) 16,436,000 (3) =============== ==============
F-34 U.S. HOME & GARDEN, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A--BASIS OF PRESENTATION Reference is made to the introduction at page PF-1 NOTE B--PRO FORMA ADJUSTMENTS The pro forma adjustments to the condensed consolidated statement of operations are as follows: (1) Amortization of excess of cost over fair value of net assets acquired over 30 years. (2) No adjustment to interest expense since the lower interest rate offsets the increase in principal loan balances. (3) Weighted average shares have been increased by 368,000 shares to reflect the exercise of approximately 2,385,000 common stock warrants and the issuance of 1,000,000 shares of common stock to the Weatherly shareholders as if they had occurred at the beginning of the year. Approximately 2,373,000 additional shares deemed outstanding in connection with potential dilution securities. See Note 14 of the June 30, 1997 audited consolidated financial statements. (4) To eliminate certain nonrecurring expenses including $6,000,000 buy-out of employment agreements, severance payments of $450,000, $248,000 salary expense relating to distribution of assets and nonrecurring interest expense of $271,000 associated with prior stockholders sale of the business. (5) To adjust tax rate to U.S. Home and Garden's statutory tax rate. F-35 ================================================================================ No dealer, salesperson or any other person has been authorized to give any information or to make representations other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, the Trust or any of the underwriters. This Prospectus does not constitute an offer to sell or solicitation of an offer to buy, any security other than the securities offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy to any person in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making the offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information in this Prospectus is correct as of any time subsequent to the date hereof. -------------------------------------------- TABLE OF CONTENTS Page --------- Available Information ............................. 5 Prospectus Summary ................................ 6 Risk Factors ...................................... 17 Use of Proceeds ................................... 27 Accounting Treatment .............................. 27 Capitalization .................................... 29 Selected Consolidated Financial Data and Other Information .............................. 30 Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................... 32 Business .......................................... 41 Management ........................................ 52 Principal Stockholders ............................ 58 Certain Transactions .............................. 59 Description of the Trust Preferred Securities...... 60 Description of Junior Subordinated Debentures ..................................... 71 Book-Entry Issuance ............................... 80 Description of Guarantee .......................... 81 Expense Agreement ................................. 83 Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee ................... 83 Certain Federal Income Tax Consequences............ 85 ERISA Considerations .............................. 88 Underwriting ...................................... 89 Legal Matters ..................................... 90 Experts ........................................... 91 Index to Consolidated Financial Statements......... F-1 ================================================================================ ================================================================================ 2,200,000 Trust Preferred Securities U.S. HOME & GARDEN TRUST I % Cumulative Trust Preferred Securities (Liquidation Amount $25 Per Trust Preferred Security) Fully and Unconditionally Guaranteed By U.S. HOME & GARDEN INC. [LOGO] ----------------------------------- PROSPECTUS ----------------------------------- EVEREN Securities, Inc. Josephthal & Co. Inc. , 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. SEC registration Fee .................... $ 18,658.75 NASD fee ................................ American Stock Exchange fees ............ 20,000.00 Trustees' fees and expenses ............. Legal fees and expenses ................. * Accounting fees and expenses ............ 90,000.00 Printing and engraving expenses ......... 100,000.00 Miscellaneous expenses .................. $ * ----------- Total ................................. $575,000.00 =========== - ------------ * To be provided by amendment. Item 14. Indemnification of Directors and Officers. Section 145 of the General Corporation Law of the State of Delaware provides for the indemnification of officers and directors under certain circumstances against expenses incurred in successfully defending against a claim and authorizes Delaware corporations to indemnify their officers and directors under certain circumstances against expenses and liabilities incurred in legal proceedings involving such persons because of their being or having been an officer or director. Section 102(b) of the Delaware General Corporation Law permits a corporation, by so providing in its certificate of incorporation, to eliminate or limit director's liability to the corporation and its stockholders for monetary damages arising out of certain alleged breaches of their fiduciary duty. Section 102(b)(7) provides that no such limitation of liability may affect a director's liability with respect to any of the following: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not made in good faith or which involve intentional misconduct of knowing violations of law; (iii) liability for dividends paid or stock repurchased or redeemed in violation of the Delaware General Corporation law; or (iv) any transaction from which the director derived an improper personal benefit. Section 102(b)(7) does not authorize any limitation on the ability of the corporation or its stockholders to obtain injunction relief, specific performance or other equitable relief against directors. The Company's Certificate of Incorporation and the Company's By-laws provide that all persons who the Company is empowered to indemnify pursuant to the provisions of Section 145 of the General Corporation law of the State of Delaware (or any similar provision or provisions of applicable law at the time in effect), shall be indemnified by the Company to the full extent permitted thereby. The foregoing right of indemnification shall not be deemed to be exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The Company's Certificate of Incorporation also provides that no director of the Company shall be personally liable to the Company or its stockholders for any monetary damages for breaches of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing-violation of law, (iii) under Section 174 of the General Corporation of Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Insofar as indemnification for liabilities under the Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. II-1 Under the Trust Agreement, the Company will agree to indemnify each of the Trustees of the Trust or any predecessor Trustee for the Trust, and to hold each Trustee harmless against any loss, damage, claims, liability or incurred without negligence or bad faith on its part, arising out of or connection with the acceptance or administration of the Trust Agreement, the costs and expenses of defending itself against any claim or in connection with the exercise or performance of any of its powers or duties under the Trust Agreement. The Company and the Trust have agreed to indemnify the Underwriters and the Underwriters have agreed to indemnify the Trust and the Company for certain liabilities, including liabilities under the Securities Act of 1933, as amended. Reference is made to the Underwriting Agreement filed as Exhibit 1.1 herewith. Item 15. Recent Sales of Unregistered Securities. Between October 8, 1994 and June 30, 1995 the Company issued to a total of 21 persons who were officers, directors and non-officer employees and to two financial consultants stock options to purchase an aggregate of 694,500 shares of its common stock. These options have an average exercise price of $ 2.06 per share. During the fiscal year ended June 30, 1996 the Company issued to a total of 7 of its directors and employees options to purchase an aggregate of 620,000 shares of its common stock. These options have an average exercise price of $2.25 per share. During the fiscal year ended June 30, 1997 the Company issued to a total of five of its officers, directors or employees, and seven consultants and/or lending institutions options or warrants to purchase an aggregate of 2,315,000 shares of its common stock. The options and warrants have an average exercise price of $ 1.96 per share. Subsequent to June 30, 1997 the Company has issued to a total of eight officers and directors, four consultants and three employees options and warrants to purchase an aggregate of 988,000 shares of its common stock. These options have an average exercise price of $3.13. The foregoing issuances were made in private transactions pursuant to the exemptions from registration under the Securities Act of 1933 provided by Section 4(2) of said act. Item 16. Exhibits (a) Exhibits
Exhibit Number Description - ------------- ------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement 3.1 Certificate of Incorporation, as amended.** 3.2 Bylaws of the Company, incorporated by reference to Exhibit 3(b) of the Company's Registration Statement on Form S-1 (Registration No. 33-45428). 4.1 Form of Subordinated Indenture to be entered into between U.S. Home & Garden Inc. and Wilmington Trust Company, as the Indenture Trustee. 4.2 Form of Officers' Certificate and Company Order. 4.3 Certificate of Trust of the Trust dated March 16, 1998. 4.4 Trust Agreement of the Trust dated as of March 16, 1998. 4.4.1 Form of Amended and Restated Trust Agreement of the Trust. 4.5 Form of Trust Preferred Securities Certificate of the Trust. 4.6 Form of Common Securities Certificate of the Trust. 4.7 Form of Guarantee Agreement. 4.8 Form of Agreement as to Expenses and Liabilities. 4.9 Form of Junior Subordinated Deferrable Interest Debenture of the Company. 4.10 Form of Unit Purchase Option granted to D.H. Blair & Co.*** 4.11 Form of Public Warrant Agreement with respect to Class A Warrants.*** 4.12 Warrant Agreement with respect to Class B Warrants, incorporated by reference to Exhibit 4(c) of the Company's Registration Statement on Form S-3 (Registration No. 33-89800). 5.1 Opinion and Consent of Tenzer Greenblatt LLP* 5.2 Opinion and Consent of Richards, Layton & Finger, P.A.* 8.1 Opinion and Consent of Tenzer Greenblatt LLP, as counsel to U.S. Home & Garden Inc. as to certain federal income tax matters.*
II-2
9.1 Voting Agreement among Joseph A. Owens, II, the Company, and Robert Kassel.+ 9.2 Voting Agreement among Richard M. Grandy, the Company and Robert Kassel.+ 10.1 Employment Agreement between the Company and Robert Kassel++ 10.2 Employment Agreement between the Company and Richard Raleigh++ 10.3 1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1 (Registration No. 33-45428). 10.4 1995 Stock Option Plan.** 10.5 Non-Employee Director Stock Option Plan.** 10.6 Asset Purchase Agreement dated as of June 18, 1994 among the Company, Easy Gardener Acqui- sition Corp., Joseph A. Owens II, Richard M. Grandy and Easy Gardener, Inc.+ 10.7 Employment Agreement of Richard Grandy.+++ 10.8 Lease with respect to the Company's executive offices, incorporated by reference to Exhibit 10.14 of the Company's Form 10-KSB for the fiscal year ended June 30, 1992. 10.9 February 8, 1995 modification to lease with respect to the Company's executive offices.** 10.10 May 6, 1997 modification to lease with respect to the Company's executive offices.+++ 10.11 Lease with respect to Weatherly's Warehouse Facilities in Paris, Kentucky+++ 10.12 Form of Mergers and Acquisitions Agreement between the Company and D.H. Blair Investment Banking Corp.*** 10.13 Agreement dated as of April 16, 1996 between the Company and The Intrac Group.++ 10.14 Credit Agreement among Easy Gardener Acquisition Corp., the Company, The Provident Bank, as Administrative and Collateral Agent, and The Provident Bank and other certain lending insti- tutions, dated as of August 9, 1996 (the "Credit Agreement").++ 10.15 First Amendment to the Credit Agreement.+++ 10.16 Second Amendment to the Credit Agreement.+++ 10.17 Third Amendment to the Credit Agreement.+++ 10.18 Lease and lease extension agreements between Crawford-Austin Mfg. Co. and Easy Gardener.** 10.19 Purchase Agreement, dated as of August 9, 1996, by and among the Company, Easy Gardener, Weatherly and the Weatherly Stockholders (incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K for the event dated August 9, 1996). 10.20 Lease and Lease Extension Agreement dated October 16, 1997 between Crawford-Austin Mfg. Co. and Easy Gardener (incorporated by reference to Exhibit 10.22 to the Company's Registra- tion Statement on Form S-1 No. 333-38483). 10.21 1997 Stock Option Plan (incorporated by reference to Exhibit A to the Company's proxy state- ment dated May 27, 1997). 10.22 Purchase Agreement dated as of May 9, 1997 by and among the Company, Easy Gardener Plastic Molded Concepts inc.+++ 10.23 Assets Purchase Agreement dated as of February 25, 1998 by and among the Company, Weed Wizard, Weed Wizard Inc. and the Weed Wizard stockholders (incorporated by reference to exhibit 10.1 filed with the Company's Form 8-K for the event dated February 26, 1998). 10.24 Fourth Amendment to the Credit Agreement. 21 Subsidiaries of the Company. 23.1 Consent of Tenzer Greenblatt LLP (included in Exhibits 5.1 and 8.1)* 23.2 Consent of BDO Seidman, LLP 23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2).* 24.1 Power of Attorney (included in the Registration Statement) 25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Indenture. 25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Trust Preferred Securities Guarantee Agreement. 25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Amended and Restated Trust Agreement.
- ------------ * to be filed by amendment II-3 ** Incorporated by reference to the comparable exhibit filed with the Company's Form 10-KSB for the fiscal year ended June 30, 1995. *** Incorporated by reference to the exhibit filed under the same number in the Company's Registration Statement on Form SB-2 (file no. 33-61984). + Incorporated by reference to the exhibit contained in the Current Report on Form 8-K filed by the Company for the event dated September 1, 1994. ++ Incorporated by reference to the exhibit contained on the Company's Form 10-KSB for the fiscal year ended June 30, 1996. +++ Incorporated by reference to the exhibit contained the Company's Form 10-K for the fiscal year ended June 30, 1997. (b) Report on 8-K. No reports on Form 8-K were filed by the Company during its fiscal quarter ended June 30, 1997. Item 17. Undertakings. The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed the initial bona fide offering thereof. (3) To remove by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrar pursuant to any arrangement, provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (4) The undersigned Registrant hereby undertakes that: (i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or 47(h) under the Securities Act is part of this Registration Statement as of the time it was declared effective. (ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement for the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, in the City of San Francisco, State of California, on the 20th day of March 1998. U.S. HOME & GARDEN INC. By: /s/ Robert Kassel --------------------------------- Robert Kassel, President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert Kassel and Richard Raleigh severally, as his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or agent or substitute lawfully does or causes to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - ----------------------------------------------- ---------------------------------------- --------------- /s/ Robert Kassel - ------------------------- Chairman of the Board President, Chief March 20, 1998 Robert Kassel Executive Officer and Treasurer (Principal Executive and Financial Officer) /s/ Richard Raleigh Chief Operating Officer and Director March 20, 1998 - ------------------------- Richard Raleigh /s/ Maureen Kassel Vice President, Secretary and Director March 20, 1998 - ------------------------- Maureen Kassel /s/ Lynda Gustafson Vice President of Finance (Principal March 20, 1998 - ------------------------- Accounting Officer) Lynda Gustafson /s/ Fred Heiden Director March 20, 1998 - ------------------------- Fred Heiden /s/ Jon Schulberg Director March 20, 1998 - ------------------------- Jon Schulberg
II-5 Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, in the City of San Francisco, State of California, on March 20, 1998. U.S. HOME & GARDEN TRUST I By: U.S. Home & Garden Inc. as Depositor Dated: March 20 , 1998 By: /s/ Robert Kassel ----------------------------- Robert Kassel, President II-6 Report of Independent Certified Public Accountants on Financial Statement Schedule Board of Directors U.S. Home & Garden Inc. and Subsidiaries San Francisco, California The audits referred to in our report to U.S. Home & Garden Inc., dated August 1, 1997, except for Note 15 which is as of September 15, 1997, which is contained in the Prospectus constituting part of this Registration Statement included the audit of the schedule listed under Item 16(b) for each of the three years in the period ended June 30, 1997. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based upon our audits. In our opinion, such schedule presents fairly, in all material respects, the information set forth therein. BDO Seidman, LLP San Francisco, California August 1, 1997 II-7 U.S. Home & Garden Inc. and Subsidiaries Schedule II -- Valuation and Qualifying Accounts
Charged to Beginning Costs and Writeoffs Ending Balance Expenses of Accounts Balance ----------- ----------- ------------- ---------- Allowance for Doubtful Accounts Year ended June 30, 1995 ......... $ 5,000 $ 3,000 $ (3,000) $ 5,000 Year ended June 30, 1996 ......... 5,000 167,000 (17,000) 155,000 Year ended June 30, 1997 ......... 155,000 323,000 (164,000) 314,000 ======== ======== ========== ========
II-8 EXHIBIT INDEX
Exhibit Number Description - ------------- -------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement 3.1 Certificate of Incorporation, as amended.** 3.2 Bylaws of the Company, incorporated by reference to Exhibit 3(b) of the Company's Registration Statement on Form S-1 (Registration No. 33-45428). 4.1 Form of Subordinated Indenture to be entered into between U.S. Home & Garden Inc. and Wilmington Trust Company, as the Indenture Trustee. 4.2 Form of Officers' Certificate and Company Order. 4.3 Certificate of Trust of the Trust dated March 16, 1998. 4.4 Trust Agreement of the Trust dated as of March 16, 1998. 4.4.1 Form of Amended and Restated Trust Agreement of the Trust. 4.5 Form of Trust Preferred Securities Certificate of the Trust. 4.6 Form of Common Securities Certificate of the Trust. 4.7 Form of Guarantee Agreement. 4.8 Form of Agreement as to Expenses and Liabilities. 4.9 Form of Junior Subordinated Deferrable Interest Debenture of the Company. 4.10 Form of Unit Purchase Option granted to D.H. Blair & Co.*** 4.11 Form of Public Warrant Agreement with respect to Class A Warrants.*** 4.12 Warrant Agreement with respect to Class B Warrants, incorporated by reference to Exhibit 4(c) of the Company's Registration Statement on Form S-3 (Registration No. 33-89800). 5.1 Opinion and Consent of Tenzer Greenblatt LLP* 5.2 Opinion and Consent of Richards, Layton & Finger, P.A.* 8.1 Opinion and Consent of Tenzer Greenblatt LLP, as counsel to U.S. Home & Garden Inc. as to certain federal income tax matters.* 9.1 Voting Agreement among Joseph A. Owens, II, the Company, and Robert Kassel.+ 9.2 Voting Agreement among Richard M. Grandy, the Company and Robert Kassel.+ 10.1 Employment Agreement between the Company and Robert Kassel++ 10.2 Employment Agreement between the Company and Richard Raleigh++ 10.3 1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1 (Registration No. 33-45428). 10.4 1995 Stock Option Plan.** 10.5 Non-Employee Director Stock Option Plan.** 10.6 Asset Purchase Agreement dated as of June 18, 1994 among the Company, Easy Gardener Acqui- sition Corp., Joseph A. Owens II, Richard M. Grandy and Easy Gardener, Inc.+ 10.7 Employment Agreement of Richard Grandy.+++ 10.8 Lease with respect to the Company's executive offices, incorporated by reference to Exhibit 10.14 of the Company's Form 10-KSB for the fiscal year ended June 30, 1992. 10.9 February 8, 1995 modification to lease with respect to the Company's executive offices.** 10.10 May 6, 1997 modification to lease with respect to the Company's executive offices.+++ 10.11 Lease with respect to Weatherly's Warehouse Facilities in Paris, Kentucky+++ 10.12 Form of Mergers and Acquisitions Agreement between the Company and D.H. Blair Investment Banking Corp.*** 10.13 Agreement dated as of April 16, 1996 between the Company and The Intrac Group.++ 10.14 Credit Agreement among Easy Gardener Acquisition Corp., the Company, The Provident Bank, as Administrative and Collateral Agent, and The Provident Bank and other certain lending insti- tutions, dated as of August 9, 1996 (the "Credit Agreement").++ 10.15 First Amendment to the Credit Agreement.+++ 10.16 Second Amendment to the Credit Agreement.+++ 10.17 Third Amendment to the Credit Agreement.+++ 10.18 Lease and lease extension agreements between Crawford-Austin Mfg. Co. and Easy Gardener.**
10.19 Purchase Agreement, dated as of August 9, 1996, by and among the Company, Easy Gardener, Weatherly and the Weatherly Stockholders (incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K for the event dated August 9, 1996). 10.20 Lease and Lease Extension Agreement dated October 16, 1997 between Crawford-Austin Mfg. Co. and Easy Gardener (incorporated by reference to Exhibit 10.22 to the Company's Registra- tion Statement on Form S-1 No. 333-38483). 10.21 1997 Stock Option Plan (incorporated by reference to Exhibit A to the Company's proxy state- ment dated May 27, 1997). 10.22 Purchase Agreement dated as of May 9, 1997 by and among the Company, Easy Gardener Plastic Molded Concepts inc.+++ 10.23 Assets Purchase Agreement dated as of February 25, 1998 by and among the Company, Weed Wizard, Weed Wizard Inc. and the Weed Wizard stockholders (incorporated by reference to exhibit 10.1 filed with the Company's Form 8-K for the event dated February 26, 1998). 10.24 Fourth Amendment to the Credit Agreement. 21 Subsidiaries of the Company. 23.1 Consent of Tenzer Greenblatt LLP (included in Exhibits 5.1 and 8.1)* 23.2 Consent of BDO Seidman, LLP 23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2)* 24.1 Power of Attorney (included in the Registration Statement) 25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Indenture. 25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Trust Preferred Securities Guarantee Agreement. 25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Amended and Restated Trust Agreement.
- ------------ * to be filed by amendment ** Incorporated by reference to the comparable exhibit filed with the Company's Form 10-KSB for the fiscal year ended June 30, 1995. *** Incorporated by reference to the exhibit filed under the same number in the Company's Registration Statement on Form SB-2 (file no. 33-61984). + Incorporated by reference to the exhibit contained in the Current Report on Form 8-K filed by the Company for the event dated September 1, 1994. ++ Incorporated by reference to the exhibit contained on the Company's Form 10-KSB for the fiscal year ended June 30, 1996. +++ Incorporated by reference to the exhibit contained the Company's Form 10-K for the fiscal year ended June 30, 1997. EX-1.1 2 UNDERWRITING AGREEMENT - -------------------------------------------------------------------------------- 2,530,000 Shares U.S. Home & Garden Trust I (a Delaware Business Trust) ___% Cumulative Trust Preferred Securities (Liquidation Amount of $25 per Trust Preferred Security) UNDERWRITING AGREEMENT ________ __, 1998 EVEREN Securities, Inc. & Josephthal & Co. Inc. - -------------------------------------------------------------------------------- 2,530,000 Shares U.S. Home & Garden Trust I (a Delaware Business Trust) ____% Cumulative Trust Preferred Securities (Liquidation Amount of $25 per Trust Preferred Security) UNDERWRITING AGREEMENT _________ __, 1998 EVEREN Securities, Inc. Josephthal & Co. Inc. As Representatives of the Several Underwriters c/o EVEREN Securities, Inc. 77 West Wacker Drive Chicago, Illinois 60601-1994 Ladies and Gentlemen: U.S. Home & Garden Inc., a Delaware corporation (the "Company"), and its financing subsidiary, U.S. Home & Garden Trust I, a Delaware business trust (the "Trust," and together with the Company, the "Offerors"), confirm their agreements with the several underwriters listed in Schedule I hereto (the "Underwriters"), for whom EVEREN Securities, Inc. and Josephthal & Co. Inc. (collectively, the "Representatives") have been duly authorized to act as representatives, as follows: 1. The Shares. Subject to the terms and conditions set forth in this agreement (the "Agreement"), the Trust proposes to issue and sell to the Underwriters 2,200,000 shares of __% Cumulative Trust Preferred Securities having a Liquidation Amount of $25 per share (the "Trust Preferred Securities"), to be issued under the Trust Agreement (as defined below), the terms of which are more fully described in the Prospectus (as defined below). Such 2,200,000 shares of Trust Preferred Securities proposed to be sold by the Trust are hereinafter referred to as the "Firm Shares." The Trust also proposes to grant to the Underwriters an option to purchase up to 330,000 additional shares of Trust Preferred Securities (the "Additional Shares") solely for the purpose of covering overallotments, if any, if requested by the Underwriters as provided in Section 3 hereof. The Firm Shares and the Additional Shares are herein collectively called the "Shares." The Offerors hereby confirm their agreements with the Underwriters as follows: 2. Registration Statement and Prospectus. The Offerors have prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 (File No. 333-_____) including a prospectus, relating to the Shares, the __% Junior Subordinated Deferrable Interest Debentures due 2028 of the Company (the "Debentures"), and the Guarantee pursuant to the Guarantee Agreement (as defined below) for the benefit of the Trust Preferred Securities (the "Guarantee"). To the extent the registration statement has been amended, each such amendment has been prepared and filed with the Commission. The registration statement, as amended, at the time when it became effective, and any registration statement filed with the Commission pursuant to Rule 462(b) under the Act, at the time when it becomes effective, including all financial schedules and exhibits thereto and all of the information (if any) deemed to be part of the registration statements at the time of effectiveness pursuant to Rule 430A under the Act ("Rule 430A"), is hereinafter referred to as the "Registration Statement;" the prospectus in the form first provided to the Underwriters by the Offerors for use in connection with the offering and sale of the Shares (whether or not required to be filed pursuant to Rule 424(b) under the Act ("Rule 424(b)")) are hereinafter referred to as the "Prospectus," except that if any revised prospectus shall be provided to the Underwriters by the Offerors for use in connection with the offering of the Shares that differs from the Prospectus (whether or not any such revised prospectus is required to be filed by the Offerors pursuant to Rule 424(b) under the Act), the term "Prospectus" shall refer to the revised prospectus from and after the time it is first provided to the Underwriters for such use. Each preliminary prospectus included in the Registration Statement prior to the time it became effective is herein referred to as a "Preliminary Prospectus." 3. Agreements to Sell and Purchase. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions hereof: (i) the Offerors agree that the Trust will issue and sell to the Underwriters, at a price of $25 per Share (the "Purchase Price"), 2,200,000 newly issued Firm Shares; and (ii) each Underwriter agrees, severally and not jointly, to purchase from the Trust, at the Purchase Price, the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions hereof: (i) the Offerors agree that the Trust will issue and sell to the Underwriters, at the Purchase Price, up to 530,000 newly issued Additional Shares; and (ii) the Underwriters shall have the right from time to time (subject to the last sentence of Section 4(b)) to purchase from the Trust, at the Purchase Price, up to the aggregate number of Additional Shares. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase the number of Additional Shares (subject to such 2 adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I bears to the total number of Firm Shares. As compensation to the Underwriters for their commitments hereunder and in view of the fact that the proceeds of the sale of the Shares (together with the entire proceeds from the sale by the Trust to the Company of the Common Securities (as defined below)) will be used to purchase the Debentures, the Company hereby agrees to pay by wire transfer of same day funds on the Closing Date, directly to the Underwriters, a commission of $______ per Share purchased by the Underwriters and delivered by the Trust pursuant to this Agreement (the "Underwriting Commission"). Each of the Offerors covenants and agrees that it will not (other than in connection with the transactions expressly contemplated by this Agreement), directly or indirectly, for a period of 180 days after the date of the Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise issue any shares of Trust Preferred Securities, or any securities convertible into or exercisable or exchangeable for Trust Preferred Securities or debentures, or any equity securities substantially similar to the Trust Preferred Securities or any debt securities substantially similar to the Debentures, or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of Trust Preferred Securities or the Debentures, whether any such transaction described in clauses (1) or (2) above is to be settled by delivery of shares of Trust Preferred Securities or other securities, in cash or otherwise, or (3) file any registration statement relating to any of the foregoing on behalf of itself or any other person, in each case without the prior written consent of EVEREN Securities, Inc. on behalf of the Underwriters. 4. Agreements of the Company as to Delivery and Payment. The Offerors agree with each Underwriter that: (a) Delivery to the Underwriters of and payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on the third full business day (such time and date being referred to as the "Closing Date") following the date of the public offering of the Firm Shares as advised to the Representatives by the Offerors, at such place as the Representatives shall designate. (b) Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at such place as the Representatives shall designate, at 10:00 A.M., New York City time, on such date or dates (individually, an "Option Closing Date" and collectively, the "Option Closing Dates"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date, as shall be specified in a written notice from the Representatives to the Offerors of the Underwriters' determination to purchase a number, specified in said notice, of Additional Shares. Any such notice may be given at any time prior to the thirty-first (31st) day after the date of this Agreement. Any Option Closing Date shall be within five (5) business days of the date of the applicable notice. 3 (c) Unless otherwise agreed, the Shares to be purchased by each Underwriter in book-entry form and in authorized denominations and registered in the name of the nominee of The Depository Trust Company ("DTC") shall be delivered by or on behalf of the Offerors through the facilities of DTC for the account of such Underwriter, against payment of the Purchase Price therefor by wire transfer of same day funds to the Trust, or upon its order, to an account designated by the Trust, with any transfer taxes payable upon initial issuance or the transfer thereof duly paid by the Offerors for the respective accounts of the Underwriters. 5. Further Agreements of the Offerors. Each of the Offerors also agrees with each Underwriter that: (a) it will, if the Registration Statement has not heretofore become effective under the Act, file an amendment to the Registration Statement or, if necessary pursuant to Rule 430A under the Act, a post-effective amendment to the Registration Statement, as soon as practicable after the execution and delivery of this Agreement, and will use its best efforts to cause the Registration Statement or such post-effective amendment to become effective at the earliest possible time; and the Offerors will comply fully and in a timely manner with the applicable provisions of Rule 424(b), Rule 430A and the other rules under the Act; (b) it will advise the Underwriters promptly (i) when the Registration Statement has become effective, if and when the Prospectus is sent for filing pursuant to Rule 424 under the Act and when any post-effective amendment to the Registration Statement becomes effective, (ii) of the receipt of any comments or correspondence from the Commission that relate to the Registration Statement or requests by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or, to the best knowledge of the Offerors, of the threat or initiation of any proceedings for such purpose by the Commission or any state securities commission or other regulatory authority, and (iv) of the happening of any event or information becoming known during the period referred to in paragraph (e) below that makes any statement of a material fact made in the Registration Statement untrue or that requires the making of any additions to or changes in the Registration Statement (as amended or supplemented from time to time) in order to make the statements therein not misleading or that makes any statement of a material fact made in the Prospectus (as amended or supplemented from time to time) untrue or that requires the making of any additions to or changes in the Prospectus (as amended or supplemented from time to time) in order to make the statements therein, not misleading; if at any time the Commission shall issue or institute proceedings (or threaten to institute any such proceedings) to issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue or institute proceedings (or threaten to institute proceedings) to issue an order suspending the qualification or exemption of the Shares under any state securities or Blue Sky laws, the Offerors shall use their best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; 4 (c) it will furnish to the Representatives without charge signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits filed therewith, and will furnish to the Representatives such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits, as the Representatives may reasonably request; (d) it will not file any amendment or supplement to the Registration Statement, whether before or after the time when it becomes effective, or make any amendment or supplement to the Prospectus of which the Representatives shall not previously have been advised and provided a copy a reasonable period of time prior to the filing thereof and to which the Representatives or their counsel shall reasonably object in writing; and it will prepare and file with the Commission, promptly upon the Representatives' reasonable request, any amendment to the Registration Statement or supplement to the Prospectus that may be necessary or advisable in connection with the distribution of the Shares by the Representatives in their or their counsel's reasonable opinion, and will use its best efforts to cause the same to become effective as promptly as possible; (e) promptly after the Registration Statement becomes effective, and from time to time thereafter for such period as a prospectus is required by the Act to be delivered in connection with the sales by an underwriter or a dealer (in the reasonable written opinion of the Representatives' counsel, it being understood that no opinion of the Representatives' counsel shall be necessary for distribution of the Prospectus prior to or on the Closing Date), it will furnish to each Underwriter and dealer without charge as many copies of the Prospectus (and any amendment or supplement of the Prospectus) as the Representatives may reasonably request for the purposes contemplated by the Act; the Offerors consent to the use of the Prospectus and any amendment or supplement thereto by any Underwriter or any dealer, both in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection therewith; (f) if during the period specified in paragraph (e) any event shall occur or information become known as a result of which in the reasonable opinion of the Representatives' counsel it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in light of the circumstances existing as of the date the Prospectus is delivered to a purchaser, not misleading, or it is necessary to amend or supplement the Prospectus to comply with any law, forthwith to prepare and, subject to paragraph 5(d) above, it will file with the Commission at the sole expense of the Offerors an appropriate amendment or supplement to the Prospectus so that the statements of any material facts in the Prospectus, as so amended and supplemented, will not in light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with law and it will furnish to the Representatives and to such Underwriters and dealers as the Representatives shall specify, at the sole expense of the Offerors, such number of copies thereof as the Representatives may reasonably request; 5 (g) prior to any public offering of the Shares, it will cooperate with the Representatives and counsel for the Representatives in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as the Representatives may request (provided, that the Offerors shall not be obligated to qualify as a foreign corporation or business trust in any jurisdiction in which it is not so qualified or to take any action which would subject it to general consent to service of process in any jurisdiction in which it is not now so subject); the Offerors will continue such qualification in effect so long as required by law for the distribution of the Shares and will file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification (provided, that the Offerors shall not be obligated to take any action that would subject it to general consent to service of process in any jurisdiction in which it is not now so subject); (h) it will promptly notify the Representatives if it incurs any liability or obligation, direct or contingent, or enters into any material transaction, other than in the ordinary course of business prior to the exercise in full or termination or expiration of the option to purchase the Additional Shares; (i) it will not acquire any Trust Preferred Securities or any capital stock of the Company prior to the exercise in full or termination or expiration of the option to purchase the Additional Shares nor will the Company declare or pay any dividend or make any other distribution upon its common stock, $.001 par value per share (the "Common Stock"), payable to stockholders of record on a date prior to the exercise in full or termination or expiration of the option to purchase the Additional Shares; (j) the Offerors will mail and make generally available to the Trust's stockholders and furnish to the Representatives as soon as reasonably practicable a consolidated earnings statement covering a period of at least 12 months beginning after the "effective date" (as defined in Rule 158 under the Act) of the Registration Statement (but in no event commencing later than 90 days after such date) that will satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder; (k) during the period of 12 months after the date of this Agreement, it will furnish to the Representatives a copy (i) as soon as practicable after the filing thereof, of each report filed by it with the Commission, any securities exchange or the National Association of Securities Dealers, Inc. ("NASD"); (ii) as soon as practicable after the release thereof, of each press release relating to the Offerors; (iii) as soon as available, of each report of the Company mailed to the Company's stockholders and each report of the Trust mailed to the Trust's stockholders; and (iv) as soon as available, such other publicly available information concerning the Offerors as the Representatives may reasonably request; (1) whether or not the transactions contemplated hereby are consummated or this Agreement becomes effective as to all of its provisions or is terminated, to pay all costs, fees, expenses and taxes incident to the performance by the Offerors of their obligations 6 hereunder, including (i) the preparation, printing, filing and distribution under the Act of the Registration Statement (including financial statements and exhibits), each Preliminary Prospectus, the Prospectus and all amendments and supplements to any of them prior to or during the period specified in paragraph (e) above of this Section 5, (ii) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states, including, in each case, the applicable filing fees and the fees and actual out-of-pocket disbursements of counsel for the Underwriters in connection with such registration or qualification and with the preparation of the memoranda relating thereto, (iii) the filing fee of the NASD in connection with its review of the terms of the offering and the sale of the Shares, (iv) the approval for quotation of the Shares on the American Stock Exchange, Inc. or other securities exchange, (v) furnishing such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus and all amendments and supplements thereto as may be requested by the Representatives for use in connection with the offering or sale of the Shares by the Underwriters or by dealers to whom the Shares may be sold, (vi) obtaining the opinions to be provided pursuant to Section 8(g) of this Agreement, (vii) the fees and expenses of the Property Trustee, the Delaware Trustee, the Guarantee Trustee and the Indenture Trustee (each as defined below), including the fees and disbursements of counsel for such trustees, (viii) the cost of qualifying the Shares with DTC and (ix) the performance by the Offerors of all of their other obligations under this Agreement; if the sale of the Shares provided for herein is not consummated because the Underwriters exercise their right to terminate this Agreement pursuant to Section 9 hereof and any of the following have occurred during the term of this Agreement: (a) there has been any material adverse change in the condition (financial or otherwise), earnings, affairs, business or prospects of the Company; or (b) the Offerors shall refuse or be unable to comply with any provision hereof (except as the result of a breach of this Agreement by the Underwriters), the Offerors will promptly reimburse the Underwriters upon demand for all reasonable out-of-pocket expenses (including the fees and actual out-of-pocket disbursements of counsel for the Underwriters in connection with the matters set forth solely in clause (ii) above) that shall have been incurred by the Underwriters in connection with the proposed purchase and sale of the Shares; (m) it intends to use the net proceeds received by it from the sale of the Shares being sold by the Trust in the manner specified in the Prospectus; (n) if, at the time of effectiveness of the Registration Statement, any information shall have been omitted therefrom in reliance upon Rule 430A, then immediately following the execution and delivery of this Agreement, it will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b), copies of an amended prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended prospectus), containing all information so omitted; (o) it will cause the Shares to be approved for quotation, subject to notice of issuance or sale, on the American Stock Exchange, Inc. or other securities exchange; it will comply with all registration, filing and reporting requirements of the Securities 7 Exchange Act of 1934, as amended, (the "Exchange Act") American Stock Exchange, Inc. or other securities exchange in connection with the sale of the Shares; and (p) it will use its best efforts to do and perform all things required to be done and performed under this Agreement by it prior to or after the Closing Date or any Option Closing Date, as the case may be, and to satisfy all conditions precedent required to be satisfied under this Agreement prior to the delivery of the Shares. 6. Representations and Warranties. (a) The Offerors, jointly and severally, represent and warrant to each Underwriter that: (i) the Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus relating to the proposed offering of the Shares nor, to the best of the Offerors' knowledge, instituted or threatened any proceedings for that purpose. The Registration Statement, on the date it became effective, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission (or if not filed, on the date provided by the Offerors to the Underwriters in connection with the offering and sale of the Shares) and at the Closing Date and each Option Closing Date conformed or will conform with the requirements of the Act and the rules and regulations promulgated thereunder (the "Rules and Regulations") and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the rules and regulations promulgated thereunder (the "Trust Indenture Regulations"); the Registration Statement, on the date it became effective, did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission (or if not filed, on the date provided by the Offerors to the Underwriters in connection with the offering and sale of the Shares) and at the Closing Date and each Option Closing Date did not and will not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the foregoing shall not apply to statements in or omissions from the Registration Statement and the Prospectus made or omitted in reliance upon, and in conformity with information relating to the Underwriters furnished to the Offerors by or on behalf of the Underwriters expressly for use therein (the Offerors hereby acknowledge for all purposes under this Agreement that (A) the last paragraph set forth on the outside front cover page of the Prospectus, (B) the stabilization legend set forth on the inside of the front cover page of the Prospectus, (C) the statements set forth under the caption "Underwriting" in the Prospectus and (D) the statement set forth in the second sentence under the caption "Legal Matters" in the Prospectus constitute the only information furnished to the Offerors by or on behalf of the Underwriters for use in the preparation of the Registration Statement or the Prospectus or any amendment or supplement thereto); 8 (ii) the only subsidiaries of the Company (other than the Trust) are as set forth on Exhibit A to this Agreement (singularly, a "Subsidiary" and collectively, the "Subsidiaries"); the Company has been duly incorporated and is a validly existing corporation in good standing under the laws of Delaware, with full corporate power and authority to own or lease its properties and assets and to conduct its business as described in the Registration Statement and the Prospectus and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which the conduct of its business or the ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or otherwise), business, assets, prospects, net worth or results of operations of the Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect," and, when used with respect to the Trust, "Material Adverse Effect" means any a material adverse effect on the condition (financial or otherwise), business, assets, prospects, net worth or results of operations of the Trust); each Subsidiary has been duly incorporated and is a validly existing corporation in good standing under the laws of the jurisdiction set forth opposite its name on Exhibit A, with full corporate power and authority to own or lease its properties and assets and to conduct its business as described in the Registration Statement and the Prospectus and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which the conduct of its business or the ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; (iii) the trust has been duly formed and is a validly existing business trust in good standing under the laws of Delaware, with full power and authority to own or lease its properties and assets and to conduct its business as described in the Registration Statement and the Prospectus, including, without limitation, to enter into this Agreement and the other agreements or instruments contemplated hereby, to issue and sell the Shares, to issue and sell the Common Securities and to otherwise consummate the transactions contemplated hereby, and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which the conduct of its business or the ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; the Trust is a consolidated subsidiary of the Company and has no subsidiaries of its own, the Trust is not a party to or bound by any agreement or instrument other than the Trust Agreement, this Agreement and the agreements and instruments contemplated by the Trust Agreement and this Agreement and described in the Registration Statement and the Prospectus; the Trust has no liabilities or obligations other than those arising out of the transactions contemplated by the Trust Agreement and this Agreement and described in the Registration Statement and the Prospectus; the Trust is not, and on the Closing Date will not be, to the knowledge of the Offerors, classified as an association taxable as a corporation for United States federal income tax purposes; the Trust is, and on the Closing Date will be, treated as a consolidated subsidiary of the Company pursuant to generally accepted accounting principles; 9 (iv) the capitalization of the Company is, and upon consummation of the transactions contemplated hereby and by the Prospectus will be, as set forth in the Registration Statement and the Prospectus under the caption "Capitalization;" all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, are fully paid and non-assessable and conform to the description thereof in the Registration Statement and the Prospectus and were not issued in violation of any preemptive rights or other rights to subscribe for or purchase securities; and, except as set forth in the Registration Statement and the Prospectus with respect to the Company's stock option plans and options, warrants or other rights to acquire shares of Common Stock granted outside of the Company's stock option plans, no options, warrants or other rights to purchase from the Company, agreements or other obligations of the Company to issue or other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company are outstanding; (v) subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as described therein, (A) neither the Trust, the Company nor any Subsidiary has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business, (B) neither the Trust, the Company nor any Subsidiary has purchased any of its outstanding capital stock or declared, paid or otherwise made any dividend or distribution of any kind on its capital stock or otherwise and (C) there has not been any material adverse change in the condition (financial or otherwise), business, affairs, prospects or results of operations of the Trust or the Company and its Subsidiaries, taken as a whole, or any material change in the Trust's, the Company's or any Subsidiary's capital stock, short-term debt or long-term debt; (vi) the Shares to be sold by the Trust pursuant to this Agreement have been duly and validly authorized and, when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable undivided beneficial assets of the Trust and will be entitled to the benefits of the Trust Agreement; the shares of __% Cumulative Trust Common Securities having a Liquidation Amount of $25 per share (the "Common Securities") to be sold by the Trust to the Company have been duly and validly authorized and, when issued, delivered and paid for, will be validly issued, fully paid and nonassessable undivided beneficial assets of the Trust and will be entitled to the benefits of the Trust Agreement; the Shares and the Common Securities conform to the descriptions thereof contained in the Registration Statement and the Prospectus; 10 (vii) Subject to the terms of the Trust Agreement, holders of the Shares will be entitled to the same limitation of personal liability under Delaware law as extended to stockholders of private corporations for profit; (viii) this Agreement has been duly authorized, executed and delivered by the Trust and the Company and is a legal, valid and binding agreement of the Trust and the Company enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) as rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws; (ix) each of the Administrative Trustees (as defined below) of the Trust is an employee of the Company and has been authorized by the Company to execute and deliver the Trust Agreement (as amended and restated, the "Trust Agreement") by and among the Company, as Depositor, Wilmington Trust Company ("WTC") as Delaware Trustee (the "Delaware Trustee"), WTC as Property Trustee (the "Property Trustee") and ___________, ______________ and ____________ as Administrative Trustees (the "Administrative Trustees"); the Trust Agreement has been duly authorized by the Company, will be duly executed and delivered by the Company, as Depositor, and the Administrative Trustees on the Closing Date, and will be legal, valid and binding agreements of the Company and the Administrative Trustees enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) as rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws; the Trust Agreement conforms in all material respects with the description thereof and all statements relating thereto in the Registration Statement and the Prospectus and has been qualified under the Trust Indenture Act; (x) the Indenture ("Indenture") by and between the Company and WTC as Indenture Trustee (the "Indenture Trustee") has been duly authorized by the Company, will be duly executed and delivered by the Company on the Closing Date, and will be a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) as rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws; the Indenture conforms in all material respects with the description thereof and all statements relating thereto in the Registration Statement and the Prospectus and has been qualified under the Trust Indenture Act; 11 (xi) the Debentures have been duly authorized by the Company, will be duly executed and delivered by the Company on the Closing Date, and, when authenticated in the manner provided for in the Indenture and delivered against payment therefor as described in the Registration Statement and the Prospectus, will be legal, valid and binding obligations of the Company enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) as rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws, and will be entitled to the benefits of the Indenture; the Debentures conform in all material respects with the description thereof and all statements relating thereto in the Registration Statement and the Prospectus (xii) the Guarantee Agreement (the "Guarantee Agreement") by and between the Company and WTC, as Guarantee Trustee (the "Guarantee Trustee") has been duly authorized by the Company, will be duly executed and delivered by the Company on the Closing Date, and will be legal, valid and binding agreement of the Company enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) as rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws; the Guarantee pursuant to the Guarantee Agreement and related documents conforms in all material respects with the description thereof and all statements relating thereto in the Registration Statement and the Prospectus and the Trust, pursuant to the Guarantee, has been qualified under the Trust Indenture Act; (xiii) the Expense Agreement (the "Expense Agreement") by and between the Trust and the Company has been duly authorized by the Trust and the Company, will be duly executed and delivered by the Trust and the Company on the Closing Date, and will be legal, valid and binding agreements of the Trust and the Company enforceable in accordance with its terms, except (i) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equity principles and (ii) as rights to indemnity or contribution hereunder may be limited by Federal or state securities laws or the public policy underlying such laws; the Expense Agreement conforms in all material respects with the description thereof and all statements relating thereto in the Registration Statement and the Prospectus; (xiv) neither the Trust, the Company nor any Subsidiary is in violation of its Certificate of Trust and Trust Agreement, or its Certificate or Articles of Incorporation or by-laws, as the case may be; neither the Trust, the Company nor any Subsidiary is in violation of or in breach of or in default in (nor has any event occurred that 12 with notice or lapse of time, or both, would be a breach of or a default in) the performance of any obligation, agreement or condition contained in any agreement, lease, contract, permit, license, franchise agreement, mortgage, loan agreement, debenture, note, deed of trust, bond, indenture or other evidence of indebtedness or any other instrument or obligation (collectively, "Obligations and Instruments") to which it is a party or by which it or any of its properties or assets are bound or affected, except for such violation, breach, default as, either individually or in the aggregate, would not have a Material Adverse Effect; neither the Trust, the Company nor any Subsidiary is in violation of any statute, judgment, decree, order, rule or regulation (collectively, "Laws") applicable to it or any of its properties or assets that, alone or together with other violations of Laws, would result in a Material Adverse Effect; (xv) the execution, delivery and performance of this Agreement and delivery of the Shares by the Trust and compliance by the Trust and the Company with all the provisions hereof and the consummation of the transactions contemplated hereby and as described in the Registration Statement and the Prospectus will not, alone or upon notice or the passage of time or both (A) require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body or third party (except such as may be required under the Act and the securities or Blue Sky laws of the various states or by the NASD), (B) result in the creation or imposition of any material lien, charge or encumbrance upon any of the properties or assets of the Trust, the Company or any Subsidiary pursuant to the terms and provisions of any Obligation or Instrument, (C) conflict with or constitute a breach or default under any Obligation or Instrument to which the Trust, the Company or any Subsidiary is a party or by which it or any of it properties or assets are bound, or (D) assuming compliance with the Act and all applicable state securities or Blue Sky laws violate or conflict with any Laws applicable to the Trust, the Company or any Subsidiary or any of its properties or assets, except, with respect to clauses (B), (C) and (D) hereof, for such liens, charges, encumbrances, conflicts, breaches, defaults or violations as would not, either individually or in the aggregate, have a Material Adverse Effect; (xvi) except as set forth in the Registration Statement and the Prospectus, there is no action, suit, proceeding, inquiry or investigation, governmental or otherwise before any court, arbitrator or governmental agency or body (collectively, "Proceedings") pending to which the Trust, the Company or any Subsidiary is a party or to which any of its properties or assets are subject, that, if determined adversely to the Trust, the Company or such Subsidiary, could reasonably be expected to result in a Material Adverse Effect, or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of any of the Shares to be sold hereunder or the consummation of the transactions described in the Registration Statement and the Prospectus and, to the best knowledge of the Offerors, no such Proceedings are threatened or contemplated; and there is no contract, document, agreement 13 or transaction to which the Trust, the Company or any Subsidiary is a party, or that involved or involves the Trust, the Company or any Subsidiary or any of its properties or assets that is required to be described in or filed as an exhibit to the Registration Statement by the Act or the Rules and Regulations that has not been so described or filed; to the best knowledge of the Offerors, no action has been taken by any governmental agency that suspends the effectiveness of the Registration Statement, prevents or suspends the use of any Preliminary Prospectus or the Prospectus or suspends the sale of the Shares in any jurisdiction referred to in Section 5(g) hereof; no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued with respect to the Trust, the Company or any Subsidiary that might prevent the issuance of the Shares, suspend the effectiveness of the Registration Statement, prevent or suspend the use of any Preliminary Prospectus or the Prospectus or suspend the sale of the Shares in any jurisdiction referred to in Section 5(g) hereof; and every request of the Commission, or any securities authority or agency of any jurisdiction, for additional information (to be included in the Registration Statement or the Prospectus or otherwise) has been complied with in all material respects; (xvii) Except as set forth in the Registration Statement and the Prospectus, (1) neither the Company nor any Subsidiary has violated any Federal or state law, statute, ordinance, rule, regulation or common law, as the same may be interpreted or administered by any Federal, state, regional, county or local agencies, relating to (A) the protection, investigation, remediation, or restoration of the environment or natural resources, (B) the handling, use, storage, treatment, disposal, release or threatened release of any Hazardous Material (as defined below), or (C) pollution or contamination ("Environmental Laws"), except for such violations as would not, either individually or in the aggregate, have a Material Adverse Effect, nor, to the knowledge of the Company, are there any circumstances, either past, present or that are reasonably foreseeable, that may lead to such violation in the future that, in each case or in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (2) no property owned or leased by the Company or any Subsidiary is included or, to the best of the knowledge of the Company, proposed for inclusion on the National Priorities List promulgated under the Comprehensive Environmental Response Compensation and Liability Act of 1980, U.S.C. ss.9601 et seq.; (3) except for any asbestos containing materials or lead-based paint that may be, or may have been contained, on property, to the knowledge of the Company no property currently, or in the past, owned or leased by the Company or any Subsidiary contains, or contained, as the case may by, any Hazardous Material that requires or required, as the case may be, investigation or remediation under any Environmental Law, except for such investigation or remediation as would not, either individually or in the aggregate, have a Material Adverse Effect; (4) neither the Company nor any Subsidiary has caused or allowed the release of any Hazardous Material on, in, under or from any property currently or in the past owned or leased by the Company or any Subsidiary, except for such releases as would not, either individually or in the aggregate, have a Material Adverse 14 Effect; (5) neither the Company nor any Subsidiary has received any notice of a claim under or pursuant to any Environmental Law relating to any Hazardous Material on or originating from any property currently or in the past owned or leased by the Company or any Subsidiary, except for such claims as would not, either individually or in the aggregate, have a Material Adverse Effect; (6) there are no underground storage tanks located on or under any property currently owned or leased by the Company or any Subsidiary at their current facilities; "Hazardous Material" means any substance, material, or waste that is (A) listed, classified or regulated as a hazardous substance or waste in any concentration pursuant to any Environmental Law, or (B) any other substance, material, or waste which may be the subject of regulatory action by any governmental entity pursuant to any Environmental Law; (xviii) Except as set forth in the Registration Statement and the Prospectus, the Trust, the Company and each Subsidiary has such permits, licenses, registrations, franchises and authorizations of governmental or regulatory authorities or third parties ("Permits"), including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease and operate its properties and assets and to conduct its businesses or operations, except where the failure to have any such Permit would not have a Material Adverse Effect; the Trust, the Company and each Subsidiary are in compliance with such Permits, except where to failure to comply with such Permits would not, either individually or in the aggregate, have a Material Adverse Effect, and no event has occurred that allows, or after notice or lapse of time, or both would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such Permits; (xix) Neither the Company nor any Subsidiary has violated any foreign, Federal, state, or local law relating to discrimination in the hiring, promotion or pay of employees, or any applicable foreign, Federal or state wages and hours laws, or any provisions of the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations promulgated thereunder or similar foreign laws, that, in each case or in the aggregate, might result in a Material Adverse Effect; (xx) Neither the Trust, the Company nor any Subsidiary is, or intends to conduct its business in a manner in which it would become, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (xxi) except as otherwise set forth in the Registration Statement and the Prospectus, the Company and each Subsidiary has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions (except liens for taxes not yet due and payable) to all property and assets described in the Registration Statement as being owned by it, except for such liens, claims, encumbrances and restrictions as would not have a Material Adverse Effect; all 15 leases to which the Company or any Subsidiary is a party are subsisting, valid and binding obligation of the Company or such Subsidiary and no default of the Company or the Subsidiary or, to the best knowledge of the Company, any other person has occurred or is continuing thereunder that might result in a Material Adverse Effect; and the Company and each Subsidiary enjoys peaceful and undisturbed possession under all such leases to which the Company or the Subsidiary is a party as lessee with such exceptions as do not materially interfere with the use made thereof by the Company or the Subsidiary; (xxii) the Company and each Subsidiary is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as is reasonable and prudent for the business in which it is engaged; (xxiii) BDO Seidman, LLP, the accounting firm that has audited the required annual financial statements and supporting schedules filed or to be filed with the Commission as part of the Registration Statement and the Prospectus, is an independent public accounting firm with respect to the Trust and the Company as required by the Act; (xxiv) the consolidated financial statements of the Company, together with related notes and schedules of the Company included in the Registration Statement and the Prospectus, are accurate and present fairly the financial position, results of operations and cash flows of the Company as consolidated with its Subsidiaries at the indicated dates and for the indicated periods; such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made and any unaudited financial statements have been prepared on a basis substantially consistent with that of the audited operating financial statements included in the Registration Statement and the Prospectus; and the summary and selected financial and operating data included in the Registration Statement and the Prospectus presents fairly the information shown therein and have been prepared on a basis consistent with the audited and any unaudited financial statements, as the case may be, included therein; and the pro forma information included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with GAAP and the Commission's rules and guidelines with respect to pro forma financial statements and other pro forma information, have been properly prepared on the pro forma basis described therein; (xxv) no holders of any security of the Company have any rights to require inclusion of any such security in the Registration Statement or, to the extent such rights exist, (a) such rights have been waived or (b) the securities as to which such rights exist are currently subject to an effective registration statement under the Act; there are no preemptive rights with respect to the offering being made by the Prospectus or the Common Securities; 16 (xxvi) no labor dispute with the employees of the Company or any Subsidiary exists, or to the best knowledge of the Offerors after due inquiry, is imminent, that could result in a Material Adverse Effect; and neither the Company nor any Subsidiary has received notice of any existing or imminent labor disturbance by the employees of any of its principle suppliers, customers, manufacturers or contractors that would result in any Material Adverse Effect; (xxvii) the Trust, the Company and each Subsidiary has filed or caused to be filed, or has properly filed extensions for, all foreign, federal, state and local income, value added and franchise tax returns and has paid all taxes and assessments shown thereon as due, except for such taxes and assessments as are disclosed or adequately reserved against and that are being contested in good faith by appropriate proceedings, promptly instituted and diligently conducted; all material tax liabilities are adequately provided for on the books of the Company and each Subsidiary, and there is no material tax deficiency that has been or might be asserted against the Trust, the Company or any Subsidiary that is not so provided for; (xxviii) the Company and each Subsidiary owns or possesses, or can acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, "Patents and Proprietary Rights") currently employed by it in connection with the business it now operates except where the failure to so own, possess or acquire such Patents and Proprietary Rights would not have a Material Adverse Effect; and, except as disclosed in the Registration Statement and Prospectus, neither the Company nor any Subsidiary has received any notice and the Offerors are not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Patent or Proprietary Rights that, if the subject of any unfavorable decision, ruling or finding, singly or in the aggregate, could result in a Material Adverse Effect; (xxix) the Trust, the Company and each Subsidiary has conducted, is conducting and intends to conduct its business so as to comply in all material respects with applicable federal, state, local and foreign government Laws, except where the failure to comply would not have a Material Adverse Effect; and except as set forth in the Registration Statement and the Prospectus, neither the Trust, the Company nor any Subsidiary is charged with or, to the Offerors' knowledge, under investigation with respect to, any material violation of any such Laws; (xxx) neither the Trust, the Company nor any Subsidiary has taken or will take, directly or indirectly, any action designed to or which has constituted or that might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Trust or the Company to facilitate the sale or resale of the Shares; 17 (xxxi) neither the Trust, the Company, any Subsidiary nor, to the best knowledge of the Offerors, any employee or agent of the Trust, the Company or any Subsidiary has made any payment of funds of the Trust, the Company or the Subsidiary or received or retained any funds in violation of any law, rule or regulation (including, without limitation, the Foreign Corrupt Practices Act) or of a character required to be disclosed in the Prospectus; neither the Trust, the Company nor any Subsidiary has, at any time during the past five years, (1) made any unlawful contributions to any candidate for any political office, or failed fully to disclose any contribution in violation of law, or (2) made any unlawful payment to state, federal or foreign government officer or officers, or other person charged with similar public or quasi-public duty; (xxxii) no transaction has occurred between or among the Trust, the Company or any Subsidiary and any of the Trust's, the Company's or such Subsidiary's officers, directors or trustees or any affiliate or affiliates of any such officer, director or trustee that is required to be described in and is not described in the Registration Statement and the Prospectus; (xxxiii) other than as provided to the Underwriters under this Agreement, neither the Trust, the Company nor any Subsidiary has incurred any liability for finder's or broker's fees or agent's commissions in connection with the execution and delivery of this Agreement, the offer and sale of the Shares or the transactions hereby contemplated; (xxxiv) the Trust, the Company and each Subsidiary maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for inventory is compared with the existing inventory at reasonable intervals and appropriate action is taken with respect to any differences; (xxxv) the Offerors confirm as of the date hereof that the Trust, the Company and each Subsidiary is in compliance with all provisions of Section 1 of Florida Statutes, Section 517.075, An Act Relating to Disclosure of Doing Business with Cuba; the Offerors further agree that if they or any Subsidiary commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, the Trust and the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. 18 (xxxvi) except as set forth in the Registration Statement and the Prospectus, no Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on any such Subsidiary's capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary's property or assets to the Company or any other Subsidiary. (b) Any certificate signed by any trustee of the Trust or officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed a representation and warranty made by the Trust or Company, as the case may be, to each Underwriter as to the matters covered thereby and shall be deemed incorporated herein in its entirety and shall be effective as if such representation and warranty were made herein. 7. Indemnification. (a) The Offerors agree, jointly and severally, to indemnify and hold harmless each of the Underwriters and each person, if any, who controls each of the Underwriters within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively the Underwriters and each such person are sometimes referred to in this Section 7 as the "indemnified parties") from and against any and all losses, claims, damages, liabilities and judgments caused by, arising out of, related to or based upon: (i) any inaccuracy of any representation or warranty by the Offerors contained in Section 6 hereof; (ii) any failure of the Offerors to perform their respective obligations hereunder or under law; or (iii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (as amended or supplemented if the Offerors shall have furnished any amendments or supplements thereto), including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A, if applicable, or the Prospectus or any Preliminary Prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the indemnification contained in this paragraph with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter or any employee of such Underwriter) on account of any such loss, liability, claim, damage or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been sent to such person within the time required by the Act and the Regulations, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus, as amended or supplemented, provided that the Offerors had delivered the Prospectus, as amended or supplemented, to the several Underwriters on a timely basis to permit such delivery or sending; and provided further, that the Offerors shall not be liable in any such case to the extent that such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission made or omitted in reliance upon, and in conformity with, information relating to the Underwriters furnished to the Offerors by or on behalf of the Underwriters expressly for use therein (the Offerors hereby acknowledge for all purposes under this Agreement that (A) the last paragraph set 19 forth on the outside front cover page of the Prospectus, (B) the stabilization legend set forth on the inside of the front cover page of the Prospectus, (C) the statements set forth under the caption "Underwriting" in the Prospectus and (D) the statement set forth in the second sentence under the caption "Legal Matters" in the Prospectus constitute the only information furnished to the Offerors by or on behalf of the Underwriters for use in the preparation of the Registration Statement or the Prospectus or any amendment or supplement thereto). (b) In case any action shall be brought against any of the indemnified parties, based upon any Preliminary Prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto, or otherwise, and with respect to which indemnity may be sought against the Offerors, such indemnified parties shall promptly notify the Offerors in writing (but the failure so to notify shall not relieve the Offerors of any liability that it may otherwise have to such indemnified parties under this Section 7, although the Offerors' liability to an indemnified party may be reduced on a monetary basis to the extent, but only to the extent, it has been prejudiced by such failure on the part of such indemnified party), and the Offerors shall promptly assume the defense thereof, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses. The indemnified parties shall each have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified parties unless (i) the employment of such counsel shall have been specifically authorized by the Offerors, (ii) the Offerors shall have failed to assume promptly the defense or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified parties and the Offerors, and an indemnified party shall have been advised by counsel that there may be a conflict of interest between the indemnified parties, on the one hand, and the Offerors, on the other hand, (in which case the Offerors shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the Offerors shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for the indemnified parties, which firm shall be designated in writing by EVEREN Securities, Inc., and that all such fees and expenses shall be reimbursed promptly as they are incurred). The Offerors shall not be liable for any settlement of any such action effected without their written consent, which consent shall not be unreasonably withheld, but if settled with the written consent of the Offerors, the Offerors agree to indemnify and hold harmless the indemnified parties from and against any and all loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested the Offerors to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, the Offerors agree that they shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 15 business days after delivery by registered or certified mail to the proper address for notice to the Offerors of the aforesaid request (whether or not such delivery is accepted) and (ii) the Offerors shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. The 20 Offerors shall not, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional and complete release in writing of such indemnified party from any and all liability on claims that are the subject matter of such proceeding, which settlement shall be in form and substance reasonably satisfactory to the indemnified party. The indemnification provided in this Section 7 will be in addition to any liability which the Offerors may otherwise have. (c) The Underwriters agree, severally and not jointly, to indemnify and hold harmless each of the Offerors, its directors, officers or trustees who sign the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the indemnity provided in Section 7(a) above from the Offerors to the Underwriters, but only with reference to information stated in or omitted from the Registration Statement, the Prospectus or any Preliminary Prospectus in reliance upon, and in conformity with, information relating to the Underwriters furnished in writing to the Offerors by or on behalf of the Underwriters expressly for use therein; the Offerors hereby acknowledge for all purposes under this Agreement that (A) the last paragraph set forth on the outside front cover page of the Prospectus, (B) the stabilization legend set forth on the inside of the front cover page of the Prospectus, (C) the statements set forth under the caption "Underwriting" in the Prospectus and (D) the statement set forth in the second sentence under the caption "Legal Matters" in the Prospectus constitute the only information furnished to the Offerors by or on behalf of the Underwriters for use in the preparation of the Registration Statement or the Prospectus or any amendment or supplement thereto. In case any action shall be brought against the Offerors, any of the Offerors' directors, any such officers or any person controlling the Offerors based on the Registration Statement, the Prospectus or any Preliminary Prospectus and in respect of which indemnity may be sought against the Underwriters, the Underwriters shall have the rights and duties given to the Offerors by Section 7(b) hereof (except that if the Offerors shall have assumed the defense thereof, such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), and the Offerors, their directors, any such officers and any person controlling the Officers shall have the rights and duties given to the "indemnified parties" by Section 7(b) hereof. (d) The Company agrees to indemnify and hold harmless the Trust, its directors, officers or trustees who sign the Registration Statement and any person controlling the Trust within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the indemnity provided in Section 7(a) above from the Offerors to the Underwriters. (e) If the indemnification provided for in this Section 7 is for any reason unavailable to an indemnified party or insufficient to hold such indemnified party harmless in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, 21 shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Offerors on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided in clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Offerors on the one hand and the Underwriters on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Offerors on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering and sale of the Shares (before deducting expenses) received by the Offerors on the one hand, and the total underwriting discounts and commissions received by the Underwriters on the other, bears to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Offerors and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact relates to information supplied by the Offerors or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Offerors and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount of underwriting commissions received by such Underwriter in connection with the Shares underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligation in this Section 7(e) to contribute are several in proportion to the respective amount of Shares purchased hereunder by each Underwriter and not joint. 8. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Shares on the Closing Date and the Additional Shares on any Option Closing Date are subject to the fulfillment of each of the following conditions on or prior to the Closing Date and each Option Closing Date: (a) All the representations and warranties of the Offerors contained in this Agreement and in any certificate delivered hereunder shall be true and correct on the Closing Date and each Option Closing 22 Date with the same force and effect as if made on and as of the Closing Date or Option Closing Date, as applicable. The Offerors shall not have failed at or prior to the Closing Date or Option Closing Date, as applicable, to perform or comply in all material respects with any of the agreements herein contained and required to be performed or complied with by the Offerors at or prior to the Closing Date or the Option Closing Date, as applicable. (b) If the Registration Statement is not effective at the time of the execution and delivery of this Agreement, the Registration Statement shall have become effective (or, if a post-effective amendment is required to be filed pursuant to Rule 430A under the Act, such post-effective amendment shall have become effective) not later than 9:30 A.M., New York City time, on the date of this Agreement or such later time as the Representatives may approve in writing or, if the Registration Statement has been declared effective prior to the execution and delivery hereof in reliance on Rule 430A, the Prospectus shall have been filed as required by the Act, if necessary; and at the Closing Date and each applicable Option Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or, to the best knowledge of the Underwriters or the Offerors, threatened by the Commission; every request for additional information on the part of the Commission shall have been complied with to the Underwriters' satisfaction; no stop order suspending the sale of the Shares in any jurisdiction referred to in Section 5(g) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or, to the best knowledge of the Underwriters or the Offerors, threatened. (c) The Shares shall have been qualified for sale under the Blue Sky laws of such states as shall have been specified by the Representatives. (d) The legality and sufficiency of the authorization, issuance and sale or transfer and sale of the Shares hereunder, the validity and form of the certificates representing the Shares, the execution and delivery of this Agreement and all corporate proceedings and other legal matters incident thereto, and the form of the Registration Statement and the Prospectus (except financial statements) shall have been approved by counsel for the Underwriters exercising reasonable judgment, and no Underwriter shall have advised the Offerors that the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains an untrue statement of material fact, or omits to state a fact that in the Underwriters' opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading. (e) Subsequent to the execution and delivery of this Agreement, there shall not have occurred any material adverse change, or any development involving a prospective material adverse change, in or affecting particularly the business or properties of the Trust, the Company or any Subsidiary, whether or not arising in the ordinary course of business, that, in the reasonable judgment of the Representatives, makes it impractical or inadvisable to proceed with the public offering or purchase of the Shares as contemplated hereby. 23 (g) The Underwriters shall have received an opinion (satisfactory to them and their counsel) dated the Closing Date or the Option Closing Date, as the case may be, of Tenzer Greenblatt LLP, counsel for the Company, in form and substance satisfactory to the Representatives and attached hereto as Exhibit B-1; the Underwriters shall have received an opinion (satisfactory to them and their counsel) dated the Closing Date or the Option Closing Date, as the case may be, of Richards, Layton & Finger, P.A., special counsel for the Offorers, in form and substance satisfactory to the Representatives and attached hereto as Exhibit B-2; the Underwriters shall have received an opinion (satisfactory to the Underwriters and their counsel) dated the Closing Date or the Option Closing Date, as the case may be, of Riker, Danzig, Scherer, Hyland & Perretti LLP, special counsel for the Company, in form and substance satisfactory to the Representatives and attached hereto as Exhibit B-3; the Underwriters shall have received an opinion (satisfactory to them and their counsel) dated the Closing Date or the Option Closing Date, as the case may be, of Richards, Layton & Finger, P.A., special counsel for the Property Trustee, the Indenture Trustee and the Guarantee Trustee, in form and substance satisfactory to the Representatives and attached hereto as Exhibit B-4. (h) The Underwriters shall have received an opinion of Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, dated the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Representatives and attached hereto as Exhibit C. (i) The Underwriters shall have received, in connection with the execution of this Agreement and on the Closing Date and each Option Closing Date, a "cold comfort" letter from BDO Seidman, LLP, dated as of each such date in form and substance satisfactory to the Representatives with respect to the financial statements and certain financial information and data contained in the Registration Statement and the Prospectus. (j) The Underwriters shall have received from the Company a certificate, signed by Robert Kassel and Richard Raleigh in their capacities as the Chief Executive Officer, President and Treasurer and the Chief Operating Officer of the Company, respectively, addressed to the Underwriters and dated the Closing Date or Option Closing Date, as applicable, to the effect that: (i) such officer does not know of any Proceedings instituted, threatened or contemplated against the Company or any Subsidiary of a character required to be disclosed in the Prospectus that are not so disclosed; such officer does not know of any material contract required to be filed as an exhibit to the Registration Statement which is not so filed; (ii) such officer has carefully examined the Registration Statement and the Prospectus and all amendments or supplements thereto and, in such officer's opinion, such Registration Statement or such amendment as of its effective date and as of the Closing Date, and the Prospectus or such supplement as of its date and as of the Closing Date, did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in 24 order to make the statements therein not misleading and, in such officer's opinion, since the effective date of the Registration Statement, no event has occurred or information become known that should have been set forth in an amendment to the Registration Statement or a supplement to the Prospectus which has not been so set forth in such amendment or supplement; (iii) the representations and warranties of the Company set forth in Section 6 of this Agreement are true and correct as of the date of this Agreement and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied in all material respects with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date or the Option Closing Date, as the case may be; and (iv) the Commission has not issued an order preventing or suspending the use of the Prospectus or any preliminary prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and, to the best knowledge of the respective officers, no proceedings for that purpose have been instituted or are pending or contemplated under the Act. The delivery of the certificate provided for in this subparagraph shall be and constitute a representation and warranty of the Company as to the facts set forth in said certificate. (k) The Underwriters shall have received from the Trust a certificate, signed by each of the Administrative Trustees, addressed to the Underwriters and dated the Closing Date or Option Closing Date, as applicable, to the effect that: (i) such trustee does not know of any Proceedings instituted, threatened or contemplated against the Trust of a character required to be disclosed in the Prospectus that are not so disclosed; such trustee does not know of any material contract required to be filed as an exhibit to the Registration Statement which is not so filed; (ii) such trustee has carefully examined the Registration Statement and the Prospectus and all amendments or supplements thereto and, in such trustee's opinion, such Registration Statement or such amendment as of its effective date and as of the Closing Date, and the Prospectus or such supplement as of its date and as of the Closing Date, did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and, in such trustee's opinion, since the effective date of the Registration Statement, no event has occurred or information become known that should have been set forth in an amendment to the Registration Statement or a supplement to the Prospectus which has not been so set forth in such amendment or supplement; 25 (iii) the representations and warranties of the Trust set forth in Section 6 of this Agreement are true and correct as of the date of this Agreement and as of the Closing Date or the Option Closing Date, as the case may be, and the Trust has complied in all material respects with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date or the Option Closing Date, as the case may be; and (iv) the Commission has not issued an order preventing or suspending the use of the Prospectus or any preliminary prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and, to the best knowledge of the respective trustees, no proceedings for that purpose have been instituted or are pending or contemplated under the Act. The delivery of the certificate provided for in this subparagraph shall be and constitute a representation and warranty of the Offerors as to the facts set forth in said certificate. (l) The Underwriters and Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, shall have received on or before the Closing Date or the Option Closing Date, as the case may be, such further documents, opinions, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Offerors as the Underwriters and they shall have reasonably requested from the Offerors. 9. Effective Date of Agreement, Termination and Defaults. This Agreement shall become effective upon, and shall not be deemed delivered until, the later of (i) execution of this Agreement and (ii) when notification of the effectiveness of the Registration Statement has been released by the Commission. This Agreement may be terminated at any time prior to the Closing Date and any exercise of the option to purchase Additional Shares may be canceled at any time prior to any Option Closing Date by the Underwriters by written notice to the Offerors if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or development involving a prospective material adverse change in the condition, financial or otherwise, of the Trust or the Company or the earnings, assets, liabilities, affairs, prospects, management or business of the Trust or the Company, whether or not arising in the ordinary course of business, that would, in the Representatives' sole judgment, make it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States that, in the Representatives' judgment, is material and adverse and would, in the Representatives' judgment, make it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (iii) the suspension or material limitation of trading in securities on the New York Stock Exchange, Inc., the American Stock Exchange, Inc., the Nasdaq SmallCap Market or the Nasdaq Stock Market or limitation on prices for securities on either such exchange, the Nasdaq SmallCap Market or the Nasdaq Stock Market, (iv) the 26 enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority that in the Representatives' opinion materially and adversely affects, or will materially and adversely affect, the business or operations of the Trust or the Company, (v) the declaration of a banking moratorium by either federal or Illinois or New York state authorities, (vi) the taking of any action by any Federal, state or local government or agency in respect of its monetary or fiscal affairs that in the Representatives' opinion has a material adverse effect on the financial markets in the United States, (vii) there shall be any change in financial markets or in political, economic or financial conditions which, in the opinion of the Representatives, either renders it impracticable or inadvisable to proceed with the offering and sale of the Shares on the terms set forth in the Prospectus or materially adversely affects the market for the Shares, or (vii) any conditions to the Underwriters' obligations shall not have been fulfilled when and as required by this Agreement. If on the Closing Date or on any Option Closing Date, as the case may be, any of the Underwriters shall fail or refuse to purchase the Firm Shares or Additional Shares, as the case may be, which it has agreed to purchase hereunder on such date, and the aggregate number of Firm Shares or Additional Shares, as the case may be, that such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed, in the aggregate, 10% of the total number of Shares that all Underwriters are obligated to purchase on such date, each non-defaulting Underwriter shall be obligated, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the total number of Firm Shares or Additional Shares, as the case may be, that all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as the non-defaulting Underwriters may specify, to purchase the Firm Shares or Additional Shares, as the case may be, that such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the Closing Date or on the Option Closing Date, as the case may be, any of the Underwriters shall fail or refuse to purchase the Firm Shares or Additional Shares, as the case may be, in an amount that exceeds, in the aggregate, 10% of the total number of the Shares, and arrangements satisfactory to the non-defaulting Underwriters and the Offerors for the purchase of such Shares are not made within 48 hours after such default, this Agreement shall terminate without liability on the part of the non-defaulting Underwriters and the Offerors, except as otherwise provided in this Section 9. In any such case that does not result in termination of this Agreement, either the Representatives or the Company may postpone the Closing Date or the Option Closing Date, as the case may be, for not longer than seven (7) days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve a defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. The indemnity and contribution provisions and other agreements, representations and warranties of the Offerors and the Offerors' officers, directors and trustees set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any of the Underwriters or by or on behalf of the Offerors or the officers or directors of the Offerors or any controlling person of the Offerors, (ii) acceptance of the Shares and payment therefor hereunder or (iii) termination of this Agreement. Notwithstanding any termination of this Agreement, the Offerors shall be liable for and shall pay all expenses they have agreed to pay pursuant to Section 5(l). 27 Except as otherwise provided, this Agreement has been and is made solely for the benefit of, and shall be binding upon, the Offers, the Underwriters, any indemnified person referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The terms "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. 10. Effectiveness of Registration Statement. The Underwriters and the Offerors will use their best efforts to cause the Registration Statement to become effective, if it has not yet become effective, and to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof. 11. Miscellaneous. All communications hereunder will be in writing and, if sent to the Underwriters will be mailed, delivered or telegraphed and confirmed to the Representatives c/o EVEREN Securities, Inc., 77 West Wacker Drive, Chicago, Illinois 60601-1994, Attention: Syndicate Department, with a copy to Gibson, Dunn & Crutcher LLP, One Montgomery Street, San Francisco, California 94104, Attention: Kenneth R. Lamb, Esq.; and if sent to the Offerors will be mailed, delivered or telegraphed and confirmed to the Offerors at the Company's corporate headquarters with a copy to Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New York 10174, Attention: Robert J. Mittman, Esq. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 28 Please confirm that the foregoing correctly sets forth the agreement among the Offerors and the several Underwriters, including the Representatives. Very truly yours, U.S. HOME & GARDEN INC. By:__________________________________ Robert Kassel Chief Executive Officer, President and Treasurer Very truly yours, U.S. HOME & GARDEN TRUST I By:__________________________________ Robert Kassel Administrative Trustee The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. EVEREN SECURITIES, INC. JOSEPHTHAL & CO. INC. Acting as Representatives of the several Underwriters named in Schedule I. By: EVEREN Securities, Inc. By:__________________________________ Todd Jadwin Senior Managing Director 29 Exhibit A Name of Subsidiary State of Incorporation - ------------------ ---------------------- Easy Gardener, Inc. Delaware (100% owned by the Company) Golden West Agri-Products, Inc. California (100% owned by the Company) Weatherly Consumer Products Group, Inc. Delaware (100% owned by Easy Gardener, Inc.) Weatherly Consumer Products, Inc. Delaware (100% owned by Weatherly Consumer Products Group, Inc.) Weed Wizard Acquisition Corp. Delaware (100% owned by Easy Gardener, Inc.) Exhibit B-1 through B-4 Attached Exhibit C Attached Exhibit D Attached Schedule I Number of Firm Shares Underwriter to be Purchased - ----------- --------------------- EVEREN Securities, Inc. ................................ Josephthal & Co. Inc.................................... Total.......................................... EX-4.1 3 JUNIOR SUBORDINATED INDENTURE EXHIBIT 4.1 U.S. HOME & GARDEN INC. to WILMINGTON TRUST COMPANY Trustee JUNIOR SUBORDINATED INDENTURE Dated as of ____________ ___, 1998 U.S. HOME & GARDEN, INC. Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Junior Subordinated Indenture, dated as of ________________, 1998. Trust Indenture Indenture Act Section Section ----------- --------- ss 310(a)(1), (2) and (5) Not Applicable (a) (3) Not Applicable (a) (4) Not Applicable (b) 6.8 6.10 (c) Not Applicable ss 311(a) 6.13 (b) 6.13 7.3(a) ss 312(a) 7.1 7.2(a) (b) 7.2(b) (c) 7.2(c) ss 313(a) 7.3(a) (b) 7.3(b) (c) 7.3(a), 7.3(b) (d) 7.3(c) ss 314(a) (1), (2) and (3) 7.4 (a) (4) 10.5 (b) Not Applicable (c) (1) 1.2 (c) (2) 1.2 (c) (3) Not Applicable (d) Not Applicable (e) 1.2 (f) Not Applicable ss 315(a) 6.1(a) (b) 6.2 7.3(a) (c) 6.1(b) (d) 6.1(c) (d)(1) 6.1(a)(1) (d)(2) 6.1(c)(2) (d)(3) 6.1(c)(3) (e) 5.14 ss 316(a) 1.1 (a)(1)(A) 5.12 (a)(1)(B) 5.13 (a)(2) Not Applicable (b) 5.8 (c) 1.4(f) ss 317(a)(1) 5.3 (a)(2) 5.4 (b) 10.3 ss 318(a) 1.7 - ------------------ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture. TABLE OF CONTENTS
Page ARTICLE I: DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION............................................................................................ 1 Section 1.1 Definitions......................................................... 1 Section 1.2 Compliance Certificate and Opinions................................. 10 Section 1.3 Forms of Documents Delivered to Trustee............................................................. 11 Section 1.4 Acts of Holders..................................................... 12 Section 1.5 Notices, Etc. to Trustee and Company................................ 14 Section 1.6 Notice to Holders; Waiver........................................... 15 Section 1.7 Conflict with Trust Indenture Act................................... 15 Section 1.8 Effect of Headings and Table of Contents............................................................ 15 Section 1.9 Successors and Assigns.............................................. 15 Section 1.10 Separability Clause................................................. 15 Section 1.11 Benefits of Indenture............................................... 16 Section 1.12 Governing Law....................................................... 16 Section 1.13 Non-Business Days................................................... 16 ARTICLE II: SECURITY FORMS............................................................................. 16 Section 2.1 Forms Generally..................................................... 16 Section 2.2 Form of Face of Security............................................ 17 Section 2.3 Form of Reverse of Security......................................... 21 Section 2.4 Additional Provisions Required in Global Security............................................................ 25 Section 2.5 Form of Trustee's Certificate of Authentication...................................................... 25 ARTICLE III: THE SECURITIES............................................................................ 25 Section 3.1 Title and Terms..................................................... 25 Section 3.2 Denominations....................................................... 28 Section 3.3 Execution, Authentication, Delivery and Dating.............................................................. 28 Section 3.4 Temporary Securities................................................ 30 Section 3.5 Registration, Transfer and Exchange................................. 30 Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities.......................................................... 32 Section 3.7 Payment of Interest; Interest Rights Preserved........................................................... 33 Section 3.8 Persons Deemed Owners............................................... 35 Section 3.9 Cancellation........................................................ 35 Section 3.10 Computation of Interest............................................. 35 Section 3.11 Deferrals of Interest Payment Dates................................. 36 Section 3.12 Right of Set-Off.................................................... 37 Section 3.13 Agreed Tax Treatment................................................ 37 Section 3.14 Shortening of Stated Maturity....................................... 37 Section 3.15 CUSIP Numbers....................................................... 38
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Page ARTICLE IV: SATISFACTION AND DISCHARGE................................................................. 38 Section 4.1 Satisfaction and Discharge of Indenture........................................................... 38 Section 4.2 Application of Trust Money.......................................... 39 ARTICLE V: REMEDIES.................................................................................... 40 Section 5.1 Events of Default................................................... 40 Section 5.2 Acceleration of Maturity; Rescission and Annulment........................................................... 41 Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.............................................. 42 Section 5.4 Trustee May File Proofs of Claim.................................... 43 Section 5.5 Trustee May Enforce Claim Without Possession of Securities............................................ 44 Section 5.6 Application of Money Collected...................................... 44 Section 5.7 Limitation on Suits................................................. 45 Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities.................... 46 Section 5.9 Restoration of Rights and Remedies.................................. 46 Section 5.10 Rights and Remedies Cumulative...................................... 46 Section 5.11 Delay or Omission Not Waiver........................................ 47 Section 5.12 Control by Holders.................................................. 47 Section 5.13 Waiver of Past Defaults............................................. 47 Section 5.14 Undertaking for Costs............................................... 48 Section 5.15 Waiver of Usury, Stay or Extension Laws................................................................ 48 ARTICLE VI: THE TRUSTEE................................................................................ 49 Section 6.1 Certain Duties and Responsibilities................................. 49 Section 6.2 Notice of Defaults.................................................. 50 Section 6.3 Certain Rights of Trustee........................................... 50 Section 6.4 Not Responsible for Recitals or Issuance of Securities....................................................... 51 Section 6.5 May Hold Securities................................................. 52 Section 6.6 Money Held in Trust................................................. 52 Section 6.7 Compensation and Reimbursement...................................... 52 Section 6.8 Disqualification; Conflicting Interests........................................................... 53 Section 6.9 Corporate Trustee Required; Eligibility......................................................... 53 Section 6.10 Resignation and Removal; Appointment of Successor........................................................... 54 Section 6.11 Acceptance of Appointment by Successor.............................. 55 Section 6.12 Merger, Conversion, Consolidation or Succession to Business.............................................. 56 Section 6.13 Preferential Collection of Claims Against Company..................................................... 57 Section 6.14 Appointment of Authenticating Agent................................. 57
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Page ARTICLE VII: HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY....................................................................................... 59 Section 7.1 Company to Furnish Trustee Names and Addresses of Holders................................................ 59 Section 7.2 Preservation of Information, Communications to Holders........................................... 59 Section 7.3 Reports by Trustee.................................................. 60 Section 7.4 Reports by Company.................................................. 60 ARTICLE VIII: CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE......................................................................................... 61 Section 8.1 Company May Consolidate, Etc., Only on Certain Terms....................................................... 61 Section 8.2 Successor Corporation Substituted................................... 61 ARTICLE IX: SUPPLEMENTAL INDENTURES.................................................................... 62 Section 9.1 Supplemental Indentures without Consent of Holders.......................................................... 62 Section 9.2 Supplemental Indentures with Consent of Holders............................................................. 63 Section 9.3 Execution of Supplemental Indentures................................ 65 Section 9.4 Effect of Supplemental Indentures................................... 65 Section 9.5 Conformity with Trust Indenture Act................................. 66 Section 9.6 Reference in Securities to Supplemental Indentures.......................................................... 66 ARTICLE X: COVENANTS................................................................................... 66 Section 10.1 Payment of Principal, Premium and Interest............................................................ 66 Section 10.2 Maintenance of Office or Agency..................................... 66 Section 10.3 Money for Security Payments to be Held in Trust............................................................ 67 Section 10.4 Statement as to Compliance.......................................... 68 Section 10.5 Waiver of Certain Covenants......................................... 69 Section 10.6 Additional Sums..................................................... 69 Section 10.7 Additional Covenants................................................ 70 ARTICLE XI: REDEMPTION OF SECURITIES................................................................... 71 Section 11.1 Applicability of This Article....................................... 71 Section 11.2 Election to Redeem; Notice to Trustee............................... 71 Section 11.3 Selection of Securities to be Redeemed.............................. 72 Section 11.4 Notice of Redemption................................................ 72 Section 11.5 Deposit of Redemption Price......................................... 73 Section 11.6 Payment of Securities Called for Redemption.......................................................... 73 Section 11.7 Right of Redemption of Securities Initially Issued to a U.S. Home & Garden Trust...................... 74 ARTICLE XII: SINKING FUNDS............................................................................. 74 Section 12.1 Applicability of Article............................................ 74
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Page Section 12.2 Satisfaction of Sinking Fund Payments with Securities..................................................... 75 Section 12.3 Redemption of Securities for Sinking Fund................................................................ 75 ARTICLE XIII: SUBORDINATION OF SECURITIES.............................................................. 77 Section 13.1 Securities Subordinate to Senior Debt and Subordinated Debt............................................... 77 Section 13.2 Payment Over of Proceeds Upon Dissolution, Etc.................................................... 77 Section 13.3 Prior Payment to Senior Debt and Subordinated Debt Upon Acceleration of Securities.......................................................... 79 Section 13.4 No Payment When Senior Debt and Subordinated Debt in Default........................................ 79 Section 13.5 Payment Permitted If No Default..................................... 80 Section 13.6 Subrogation to Rights of holders of Senior Debt and Subordinated Debt................................... 81 Section 13.7 Provisions Solely to Define Relative Rights.............................................................. 81 Section 13.8 Trustee to Effectuate Subordination................................. 82 Section 13.9 No Waiver of Subordination Provisions............................... 82 Section 13.10 Notice to Trustee................................................... 82 Section 13.11 Reliance on Judicial Order or Certificate of Liquidating Agent.................................... 83 Section 13.12 Trustee Not Fiduciary for holders of Senior Debt and Subordinated Debt................................... 84 Section 13.13 Rights of Trustee as Holder of Senior Debt and Subordinated Debt; Preservation of Trustee's Rights.................................................... 84 Section 13.14 Article Applicable to Paying Agents................................. 84 Section 13.15 Certain Conversions or Exchanges Deemed Payment............................................................. 84
-iv- JUNIOR SUBORDINATED INDENTURE, dated as of _________ __, 1998, between U.S. HOME & GARDEN INC., a Delaware corporation (hereinafter called the "company") having its principal office at 655 Montgomery Street, San Francisco, California 94111, and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured junior subordinated debt securities in series (hereinafter called the "Securities") of substantially the tenor hereinafter provided, including, without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more business trusts (each a "U.S. Home & Garden Trust," and, collectively, the "U.S. Home & Garden Trusts") of preferred trust interests in such Trusts (the "Preferred Securities") and common interests in such Trusts (the "Common Securities" and, collectively with the Preferred Securities, the "Trust Securities"), and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1 Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the contest otherwise requires: (a) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles which are generally accepted at the date or time of such computation; provided, that when two or more principles are so generally accepted, it shall mean that set of principles consistent with those in use by the Company; and (d) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "1940 Act" means the Investment Company Act of 1940, as amended. "Act" when used with respect to any Holder has the meaning specified in Section 1.4. "Additional Interest" means the interest, if any, that shall accrue on any interest on the Securities of any series the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security. "Additional Sums" has the meaning specified in Section 10.6. "Additional Taxes" means the sum of any additional taxes, duties and other governmental charges to which a U.S. Home & Garden Trust has become subject from time to time as a result of a Tax Event. "Administrative Trustee" means, in respect of any U.S. Home & Garden Trust, each Person identified as an "Administrative Trustee" or an "Administrative Agent" in the related Amended and Restated Trust Agreement, solely in such Person's capacity as Administrative Trustee or an Administrative Agent, as the case may be, of such U.S. Home & Garden Trust under such Amended and Restated Trust Agreement and not in such Person's individual capacity, or any successor administrative trustee or successor administrative agent, as the case may be, appointed as therein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, no U.S. Home & Garden Trust to which Securities have been issued shall be deemed to be an Affiliate of the Company. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, -2- by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the Company or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of the Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee, or, with respect to the Securities of a series initially issued to a U.S. Home & Garden Trust, the principal office of the Property Trustee under the related Trust Agreement, is closed for business. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned -3- to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Securities" has the meaning specified in the first recital of this Indenture. "Common Stock" means the common stock, $.01 par value per share, of the Company. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, the written request or order signed in the name of the Company by the Chief Executive Officer, President or a Vice President, and by its Vice President, Controller, its Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. "Corporation" includes a corporation, association, company, joint-stock company or business trust. "Debt" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent: (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; (vi) all indebtedness of such Person whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise. -4- "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depositary by the Company pursuant to Section 3.1 with respect to such series (or any successor thereto). "Discount Security" means any security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2. "Distributions" with respect to the Trust Securities issued by a U.S. Home & Garden Trust, means amounts payable in respect of such Trust Securities as provided in the related Trust Agreement and referred to therein as "Distributions." "Dollar" or "U.S. $" means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Article V unless otherwise specified in the supplemental indenture or the Officers' Certificate delivered pursuant to Section 3.1 hereof creating a series of Securities. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Extension Period" has the meaning specified in Section 3.11. "Global Security" means a Security in the form prescribed in Section 2.4 evidencing all or part of a series of Securities, issued to the Depositary or its nominee for such series, and registered in the name of such Depositary or its nominee. "Guarantee Agreement" means the Guarantee Agreement substantially in the form attached hereto as Annex C, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Holder" means a Person in whose name a Security is registered in the Securities Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof or one or more Officers' -5- Certificates delivered pursuant to Section 3.1 and shall include the terms of each particular series of Securities established as contemplated by Section 3.1. "Interest Payment Date" means as to each series of Securities, the Stated Maturity of an installment of interest on such Securities. "Investment Company Event" means, in respect of a U.S. Home & Garden Trust, the receipt by the Company and a U.S. Home & Garden Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, such U.S. Home & Garden Trust is or will be considered an "investment company" that is required to be registered under the 1940 Act, which change becomes effective on or after the date of original issuance of the Preferred Securities of such U.S. Home & Garden Trust. "Junior Subordinated Payment" has the meaning specified in Section 13.2. "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 5.2. "Officers' Certificate" means a certificate signed by the Chief Executive Officer, the President or a Vice President, and by the Vice President, Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Date" means the date of issuance specified as such in each Security. "Outstanding" means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; -6- (ii) Securities for whose payment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; and (iii) Securities in substitution for or in lieu of which other Securities have been authenticated and delivered or which have been paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of the Company, or any other obligor on the Securities or any Affiliate of the Company or such obligor, and, subject to the provisions of Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. "Paying Agent" means the Trustee or any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means, with respect to the Securities of any series, the place or places where the principal of (and premium, if any) and interest on the Securities of such series are payable pursuant to Sections 3.1 and 3.11. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same -7- debt as that evidenced by such particular Security; and, for the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Preferred Securities" has the meaning specified in the first recital of this Indenture. "Proceeding" has the meaning specified in Section 13.2. "Property Trustee" means, in respect of any U.S. Home & Garden Trust, the commercial bank or trust company identified as the "Property Trustee" in the related Trust Agreement, solely in its capacity as Property Trustee of such U.S. Home & Garden Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date with respect to the Securities of a series means, unless otherwise provided pursuant to Section 3.1 with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). "Responsible Officer" when used with respect to the Trustee means any officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters. "Securities" or "Security" means any debt securities or debt security, as the case may be, authenticated and delivered under this Indenture. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 3.5. "Senior Debt and Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such -8- claim for post-petition interest is allowed in such proceeding), on Debt of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Securities or to other Debt which is pari passu with, or subordinated to, the Securities; provided, however, that Senior Debt and Subordinated Debt shall not be deemed to include (a) any Debt of the Company which, when incurred and without respect to any election under Section 1111(b) of the United States Bankruptcy Reform Act of 1978, as amended, was without recourse to the Company, (b) any Debt of the Company to any of its Subsidiaries, (c) Debt to any employee of the Company, and (d) any Securities. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified pursuant to the terms of such Security as the date on which the principal of such Security or such installment of interest is due and payable, in the case of such principal, as such date may be shortened or extended as provided pursuant to the terms of such Security and this Indenture. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Tax Event" means the receipt by the Company and the U.S. Home & Garden Trust of an Opinion of Counsel (as defined in the relevant U.S. Home & Garden Trust Agreement) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or Judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of such U.S. Home & Garden Trust, there is more than an insubstantial risk that (i) such U.S. Home & Garden Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the corresponding series of Securities, (ii) interest -9- payable by the Company on such corresponding series of Securities is not, or within 90 days of the date of such Opinion of Counsel, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes or (iii) such U.S. Home & Garden Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trust" has the meaning specified in the first recital of this Indenture. "Trust Agreement" means the Trust Agreement substantially in the form attached hereto as Annex A, as amended by the form of Amended and Restated Trust Agreement substantially in the form attached hereto as Annex B, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder and, if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbb), as amended and as in effect on the date as of this Indenture, except as provided in Section 9.5. "Trust Securities" has the meaning specified in the first recital of this Indenture. "U.S. Home & Garden Guarantee" means the guarantee by the Company of distributions on the Preferred Securities of a U.S. Home & Garden Trust to the extent provided in the related Guarantee Agreement. "U.S. Home & Garden Trust" has the meaning specified in the first recital of this Indenture. "Vice President" when used with respect to the Company, means any duly appointed vice president, whether or not designated by a word or words added before or after the title "vice president" of the Company. Section 1.2 Compliance Certificate and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate -10- stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitute a condition precedent), if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.5) shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1.3 Forms of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to matters upon which his certificate or opinion is based -11- are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions, or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 1.4 Acts of Holders. (i) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the Acts of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (ii) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a Person acting in other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (iii) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. (iv) The ownership of Securities shall be proved by the Securities Register. -12- (v) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (vi) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(b) or (iv) any direction referred to in Section 5.12, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date, provided that no -13- such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day, provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (vii) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Section 1.5 Notices, Etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient for every purpose -14- hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust office, or (b) the Company by the Trustee, any Holder or any holder of Preferred Securities shall be sufficient for every purpose (except as otherwise provided in Section 5.1) hereunder if in writing and mailed, first class, postage prepaid, to the Company, addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 1.6 Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Securities Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 1.7 Conflict with Trust Indenture Act. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control. Section 1.8 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.9 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 1.10 Separability Clause. -15- In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.11 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the Holders of Senior Debt and Subordinated Debt, the Holders of the Securities and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 1.12 Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles thereof, except that the immunities and standard of care of the Trustee shall be governed by Delaware law. Section 1.13 Non-Business Days. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day, with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity). ARTICLE II SECURITY FORMS Section 2.1 Forms Generally. The Securities of each series shall be in substantially the forms set forth in this Article, or in such other form or forms as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities -16- exchange or as may, consistently herewith, be determined by the officers executing such securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Vice President, Controller, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.3 with respect to the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be substantially in the form set forth in this Article. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange on which the Securities may be listed, on a steel engraved border or steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such securities. Section 2.2 Form of Face of Security. -17- U.S. HOME & GARDEN INC. ___% JUNIOR SUBORDINATED DEBENTURE DUE _______ Registered Principal Amount: No. CUSIP No. U.S. Home & Garden Inc., a corporation organized and existing under the laws of Delaware (hereinafter called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _____________________, or registered assigns, the principal sum of $___________ ( Dollars) on ______________________; provided that the Company may shorten the Stated Maturity of the principal of this Security to a date not earlier than ___________. The Company further promises to pay interest on said principal sum from ____________ or from the most recent interest payment date (each such date, an "Interest Payment Date") on which interest has been paid or duly provided for, monthly (subject to deferral as set forth herein) in arrears on the 15th day of each calendar month of each year commencing __________ at the rate of ___% per annum, until the principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of ___% per annum. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than a Saturday or Sunday a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or on a day on which the Corporate Trust Office of the Trustee, or the principal office of the Property Trustee under the Amended and Restated Trust Agreement (hereinafter referred to) for [name of Trust] is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be [insert Record Date] next preceding such Interest Payment Date. Any such interest installment not so punctually paid or duly provided for -18- shall forthwith cesse to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to holders of Securities of this series not less than ______ days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. [If applicable insert--So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time during the term of this Security to defer payment of interest on this Security, at any time or from time to time, for up to 60 consecutive monthly interest payment periods with respect to each deferral period (each an "Extension Period"), (during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law)); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred stock), or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company (including Securities issued by the Company pursuant to the Indenture other than the Securities represented by this certificate) that ranks pari passu with or junior in interest to this Security, (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiaries of the Company (if such guarantee ranks pari passu in all respects with or junior in interest to this Security (other than (a) dividends or distributions in the Company's capital stock (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the U.S. Home & Garden Guarantee related to the Preferred Securities issued by [name of Trust], and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, or (iv) redeem, purchase or acquire less than all of the Securities of this series or any of the Preferred Securities. Prior to the termination of any such Extension Period, the -19- Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed [60] consecutive interest payment periods or to extend beyond the Stated Maturity. Upon the termination of any such Extension Period and upon the payment of all amounts then due on any Interest Payment Date, and subject to the foregoing limitation, the Company may elect to begin a new Extension Period. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Trustee, the Property Trustee and the Administrative Trustees of [name of Trust] notice of its election to begin any Extension Period at least [one] Business Day prior to the earlier of (i) the date on which Distributions on the Preferred Securities would be payable except for the election to begin such Extension Period, or (ii) the date the Administrative Trustees are required to give notice to the American Stock Exchange, the New York Stock Exchange, the Nasdaq Stock Market or other applicable stock exchange or automated quotation system on which the Preferred Securities are then listed or quoted or to holders of such Preferred Securities on the record date or (iii) the date such Distributions are payable, but in any event not less than [one] Business Day prior to such record date. The Trustee shall give notice of the Company's election to begin a new Extension Period to the holders of the Preferred Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period.] Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Trustee or at the office of such paying agent or paying agents as the Company may designate from time to time, maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by transfer to an account maintained by the person entitled thereto, in immediately available funds, at such place and to such account as may be designated by the Person entitled thereto as specified in the Securities Register. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, unsecured and will rank junior and subordinate and subject in right of payments to the prior payment in full of all Senior Debt and Subordinated Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each -20- Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt and Subordinated Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. U.S. Home & Garden, Inc. By:_________________________ [Chief Executive Officer, President or Vice President] Attest: __________________________________ [Secretary or Assistant Secretary] Section 2.3 Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under a Junior Subordinated Indenture, dated as of ____________, 1998 (herein called the "Indenture"), between the Company and ______________ as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $ ______________. All terms used in this Security that are defined in the Indenture and in the Amended and Restated Trust Agreement, dated as of ____________, 1998, as amended (the "Amended and Restated Trust Agreement"), for [insert name of trust] among U.S. Home & -21- Garden, Inc., as depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture or the Amended and Restated Trust Agreement, as the case may be. [If applicable, insert--The Company may at any time, at its option, on or after _______________, and subject to the terms and conditions of Article XI of the Indenture, redeem this Security [in whole at any time] [or in part from time to time], without premium or penalty, at a redemption price equal to [insert redemption price] to the Redemption Date.] [If applicable, insert--Upon the occurrence and during the continuation of a Tax Event or Investment Company Event in respect of a U.S. Home & Garden Trust, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event or Investment Company Event redeem this Security, [if applicable, insert--in whole but not in part], subject to the provisions of Section 11.7 and the other provisions of Article XI of the Indenture, at a redemption price equal to [insert redemption price] to the Redemption Date.] [If applicable, insert--In the event of redemption of this Security in part only, a new Security or Securities of this series for the portion hereof not redeemed will be issued in the name of the Holder hereof upon the cancellation hereof.] The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. [If the Security is not a Discount Security,--As provided in and subject to the provisions of the Indenture, if an Event of -22- Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a U.S. Home & Garden Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture.] [If the Security is a Discount Security,--As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than such portion of the principal amount as may be specified in the terms of this series may declare an amount of principal of the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a U.S. Home & Garden Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee. Such amount shall be equal to [insert formula for determining the amount]. Upon any such declaration, such amount of the principal of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the -23- payment of the principal of and interest, if any, on this Security shall terminate.] No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Securities of this series are issuable only in registered form without coupons in minimum denominations of $25 and any integral multiples of $25 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same. The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that for United States Federal, state and local tax purposes it is intended that this Security constitute indebtedness. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. -24- Section 2.4 Additional Provisions Required in Global Security. Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the following form: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY." Section 2.5 Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within mentioned Indenture. Dated: [INSERT NAME OF TRUSTEE] as Trustee By:______________________________ Authorized Officer ARTICLE III THE SECURITIES Section 3.1 Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate (such Officers' Certificate shall have the effect of a supplemental indenture for all purposes hereunder), or established in one or more indentures supplemental hereto, prior to the issuance of Securities of a series: (i) the title of the securities of such series, which shall distinguish the Securities of the series from all other Securities; -25- (ii) the limit, if any, upon the aggregate principal amount of the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any Securities which, pursuant to Section 3.3, are deemed never to have been authenticated and delivered hereunder); provided, however, that the authorized aggregate principal amount of such series may be increased above such amount by a Board Resolution to such effect; (iii) the Stated Maturity or Maturities on which the principal of the Securities of such series is payable or the method of determination thereof; (iv) the rate or rates, if any, at which the Securities of such series shall bear interest, if any, the rate or rates and extent to which Additional Interest, if any, shall be payable in respect of any Securities of such series, the Interest Payment Dates on which such interest shall be payable, the right, pursuant to Section 3.11 or as otherwise set forth therein, of the Company to defer or extend an Interest Payment Date, and the Regular Record Date for the interest payable on any Interest Payment Date or the method by which any of the foregoing shall be determined; (v) the place or places where the principal of (and premium, if any) and interest on the Securities of such series shall be payable, the place or places where the Securities of such series may be presented for registration of transfer or exchange, and the place or places where notices and demands to or upon the Company in respect of the Securities of such series may be made; (vi) the period or periods within or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which the Securities of such series may be redeemed, in whole or in part, at the option of the Company; (vii) the obligation or the right, if any, of the Company to prepay, repay or purchase the Securities of such series pursuant to any sinking fund, amortization or analogous provisions, or at the option of a holder thereof, and the period or periods within which, the price or prices at which, the currency or currencies (including currency unit or units) in which and the other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (viii) the denominations in which any Securities of such series shall be issuable, if other than denominations of $25 and any integral multiples of $25 in excess thereof; -26- (ix) if other than Dollars, the currency or currencies (including currency unit or units) in which the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable, or in which the Securities of the series shall be denominated; (x) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Company set forth herein with respect to the Securities of such series; (xi) if other than the principal amount thereof, the portion of the principal amount of Securities of such series that shall be payable upon declaration of acceleration of the Maturity thereof; (xii) the additions or changes, if any, to this Indenture with respect to the Securities of such series as shall be necessary to permit or facilitate the issuance of the Securities of such series in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (xiii) any index or indices used to determine the amount of payments of principal of and premium, if any, on the Securities of such series or the manner in which such amounts will be determined; (xiv) whether the Securities of the series, or any portion thereof, shall initially be issuable in the form of a temporary Global Security representing all or such portion of the Securities of such series and provisions for the exchange of such temporary Global Security for definitive Securities of such series; (xv) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 2.4 and any circumstances in addition to or in lieu of those set forth in Section 3.5 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (xvi) the appointment of any Paying Agent or Agents for the Securities of such series; (xvii) the terms of any right to convert or exchange Securities of such series into any other securities or property of the Company, and the additions or changes, if any, to this -27- Indenture with respect to the Securities of such series to permit or facilitate such conversion or exchange; (xviii) the form or forms of the Trust Agreement, Amended and Restated Trust Agreement and Guarantee Agreement, if different from the forms attached hereto as Annexes A, B and C, respectively; (xix) the relative degree, if any, to which the Securities of the series shall be senior to or be subordinated to other series of Securities in right of payment, whether such other series of Securities are Outstanding or not; and (xx) any other terms of the Securities of such series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. The Securities shall be subordinated in right of payment to Senior Debt and Subordinated Debt as provided in Article XIII. Section 3.2 Denominations. The Securities of each series shall be in registered form without coupons and shall be issuable in minimum denominations of $25 and integral multiples of $25 in excess thereof, unless otherwise specified as contemplated by Section 3.1. Section 3.3 Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its President or one of its Vice Presidents under its corporate seal reproduced or impressed thereon and attested by its Vice President, Controller, Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior -28- to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.1, that such form has been established in conformity with the provisions of this Indenture; (b) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.1, that such terms have been established in conformity with the provisions of this Indenture; and (c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 3.1 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.1 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. -29- No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.9, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Section 3.4 Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Securities of such series in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for that purpose without charge to the holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series of authorized denominations having the same Original Issue Date and Stated Maturity and having the same terms as such temporary Securities. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 3.5 Registration, Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Such register is herein sometimes referred to as the -30- "Securities Register." The Trustee is hereby appointed "Securities Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms. At the option of the Holder, Securities may be exchanged for other Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Securities Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities. The provisions of Clauses (a), (b), (c) and (d) below shall apply only to Global Securities (a) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. -31- (b) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act at a time when the Depositary is required to be so registered to act as depositary, in each case unless the Company has approved a successor Depositary within 90 days, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security, (C) the Company in its sole discretion determines that such Global Security will be so exchangeable or transferable or (D) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.1. (c) Subject to Clause (6) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (d) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 3.4, 3.6, 9.6 or 11.6 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Neither the Company nor the Trustee shall be required, pursuant to the provisions of this Section, (a) to issue, transfer or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of selection for redemption of Securities pursuant to Article XI and ending at the close of business on the day of mailing of notice of redemption or (b) to transfer or exchange any Security so selected for redemption in whole or in part, except, in the case of any Security to be redeemed in part, any portion thereof not to be redeemed. Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same issue and series of like tenor and principal amount, having the same -32- Original Issue Date and Stated Maturity, and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 3.7 Payment of Interest; Interest Rights Preserved. Interest on any Security of any series which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest in respect of Securities of such series, except that, unless otherwise provided in the Securities of such series, interest payable on the Stated Maturity of the principal of a Security shall be paid to the Person to whom principal is paid. The initial payment of interest on any Security of any series which is issued between a -33- Regular Record Date and the related Interest Payment Date shall be payable as provided in such Security or in the Board Resolution pursuant to Section 3.1 with respect to the related series of Securities. Any interest on any Security which is payable, but is not timely paid or duly provided for, on any Interest Payment Date for Securities of such series (herein called "Defaulted Interest"), shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clauses (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series in respect of which interest is in default (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held ln trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon, the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Security of such series at the address of such Holder as it appears in the Securities Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the State of California, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered on such Special Record -34- Date and shall no longer be payable pursuant to the following Clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of the series in respect of which interest is in default may be listed and, upon such notice as may be required by such exchange (or by the Trustee if the Securities are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 3.7, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 3.8 Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of and (subject to Section 3.7) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 3.9 Cancellation. All Securities surrendered for payment, redemption, transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Securities surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be destroyed by the Trustee and the Trustee shall deliver to the Company a certificate of such destruction. Section 3.10 Computation of Interest. Except as otherwise specified as contemplated by Section 3.1 for Securities of any series, interest on the Securities of each series for any period shall be computed on the basis of a 360-day year of twelve 30-day months and interest on the Securities of -35- each series for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. Section 3.11 Deferrals of Interest Payment Dates. If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, so long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of such series, from time to time to defer the payment of interest on such Securities for such period or periods as may be specified as contemplated by Section 3.1 (each, an "Extension Period") during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Securities (together with Additional Interest thereon, if any, at the rate specified for the Securities of such series to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities of such series; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred atock), (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including securities other than the Securities of such series) that ranks pari passu in all respects with or in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee rank pari passu in all respects with or Junior in interest to the securities of such series (other than (a) dividends or distributions in capital stock (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the U.S. Home & Garden Guarantee related to the Preferred Securities issued by the U.S. Home & Garden Trust holding Securities of such series, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees) or (iii) redeem, purchase or acquire less than all of the Securities of such series or any of the Preferred Securities. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to extend beyond the Stated Maturity of the principal of such Securities. Upon termination of any Extension Period and upon the payment of - -36- all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company shall give the Trustee, the Property Trustee and the Administrative Trustees of the U.S. Home & Garden Trust holding securities of such series notice of its election of any Extension Period (or an extension thereof) at least one business Day prior to the earlier of (i) the next occurring date on which Distributions on the Preferred Securities of such U.S. Home & Garden Trust would be payable except for the election to begin or extend such Extension Period or (ii) the date the Administrative Trustees are required to give notice to the American Stock Exchange, the New York Stock Exchange, the Nasdaq Stock Market or other applicable stock exchange or automated quotation system on which the Preferred Securities are then listed or quoted or to holders of such Preferred Securities as of the record date or (iii) the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. The Trustee shall give notice of the Company's election to begin a new Extension Period to the holders of the Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period. The Trustee shall promptly give notice of the Company's election to begin any such Extension Period to the holders of the outstanding Securities of such series. Section 3.12 Right of Set-Off. With respect to the Securities of a series issued to a U.S. Home & Garden Trust, notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set off any payment it is otherwise required to make thereunder in respect of any such Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee Agreement relating to such Security or under Section 5.8 of the Indenture. Section 3.13 Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States Federal, state and local tax purposes it is intended that such Security constitute indebtedness. Section 3.14 Shortening of Stated Maturity. If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, the Company shall have the right to shorten the Stated Maturity of -37- the principal of the Securities of such series at any time to any date not earlier than the first date on which the Company has the right to redeem the Securities of such series. In the event that the Company elects to shorten the Stated Maturity of the Junior Subordinated Debentures, it shall give notice to the Indenture Trustee, and the Indenture Trustee shall give notice of such shortening to the Holders of the Junior Subordinated Debentures no less than 60 days prior to the effectiveness thereof. Section 3.15 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE IV SATISFACTION AND DISCHARGE Section 4.1 Satisfaction and Discharge of Indenture. This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of securities herein expressly provided for and as otherwise provided in this Section 4.1) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, [if] (i) either (a) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3), have been delivered to the Trustee for cancellation; or (b) all such Securities not theretofore delivered to the Trustee for cancellation -38- 1) have become due and payable, or 2) will become due and payable at their Stated Maturity within one year of the date of deposit, or 3) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of Clause (b) (1), (2) or (3) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount in the currency or currencies in which the Securities of such series are payable sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest (including any Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (i) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. Section 4.2 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which such money or obligations have been deposited with or received by the Trustee. -39- ARTICLE V REMEDIES Section 5.1 Events of Default. "Event of Default," wherever used herein with respect to the Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest upon any Security of that series, including any Additional Interest in respect thereof, when it becomes due and payable, and continuance of such default for a period of 30 days (subject to the deferral of any due date in the case of an Extension Period); or (b) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity, upon redemption by declaration or otherwise; or (c) default in the performance, or breach, in any material respect, of any covenant of the Company in this Indenture (other than a covenant, a default in the performance of which is elsewhere in this Section 5.1 specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied; or (d) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or (e) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State -40- bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit for creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action; or (f) any other Event of Default provided with respect to Securities of that series. Section 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(d) or 5.1(e)) with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the holders of not less than 25% in principal amount of the outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of a series issued to a U.S. Home & Garden Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series fail to declare the principal of all the Securities of that series to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the corresponding series of Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration such principal amount (or specified portion thereof) of and the accrued interest (including any Additional Interest) on all the Securities of such series shall become immediately due and payable. Payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII notwithstanding that such amount shall become immediately due and payable as herein provided. If an Event of Default specified in Section 5.1(d) or 5.1(e) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the Securities of that series (or, if the Securities of that series are Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms of that series) shall automatically, and without any declaration or other action on the part of the Trustee or any holder, become immediately due and payable. -41- At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay: (i) all overdue installments of interest (including any Additional Interest) on all Securities of that series, (ii) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (iii) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13. In the case of Securities of a series issued to a U.S. Home & Garden Trust, the holders of a majority in aggregate Liquidation Amount (as defined in the Trust Agreement under which such U.S. Home & Garden Trust is formed) of the related series of Preferred Securities issued by such U.S. Home & Garden Trust shall also have the right to rescind and annul such declaration and its consequences by written notice to the Company and the Trustee subject to the satisfaction of the conditions set forth in Clauses (a) and (b) above of this Section 5.2. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (a) default is made in the payment of any installment of interest (including any Additional Interest) on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or -42- (b) default is made in the payment of the principal of (and premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest (including any Additional Interest); and, in addition thereto, all amounts owing the Trustee under Section 6.7. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 5.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, (a) the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceeding or otherwise, 1) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (including any Additional Interest) owing and unpaid in respect to the Securities and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the -43- claims of the Holders and any predecessor to the Trustee under Section 6.7 allowed in any such judicial proceedings; and 2) in particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.6; and (b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.6, and in the event that the Trustee shall consent to the making of such payments directly to the holders, to pay to the Trustee any amount due to it and any predecessor Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any holder thereof, or to authorize the Trustee to vote in respect of the claim of any holder in any such proceeding; provided, however, that the Trustee may, on behalf of the holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. Section 5.5 Trustee May Enforce Claim Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.7, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 5.6 Application of Money Collected. Any money or property collected or to be applied by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal (or premium, if any) or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: -44- FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.7; SECOND: Subject to Article XIII, to the payment of the amounts then due and unpaid upon such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. Section 5.7 Limitation on Suits. No Holder of any Securities of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request: (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities, or to obtain or to seek to obtain priority or preference over any other of such holders or to enforce any right -45- under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Securities of a series issued to a U.S. Home & Garden Trust, any holder of the corresponding series of Preferred Securities issued by such U.S. Home & Garden Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.1(a) or 5.1(b), to institute a suit directly against the Company for enforcement of payment to such holder of principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on the Securities having a principal amount equal to the aggregate Liquidation Amount (as defined in the Trust Agreement under which such U.S. Home & Garden Trust is formed) of such Preferred Securities of the corresponding series held by such holder. Section 5.9 Restoration of Rights and Remedies. If the Trustee, any Holder or any holder of Preferred Securities has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Preferred Securities, then and in every such case the Company, the Trustee, the Holders and such holder of Preferred Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee, the Holders and the holders of Preferred Securities shall continue as though no such proceeding had been instituted. Section 5.10 Rights and Remedies Cumulative. Except as otherwise provided in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or -46- employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee, any holder of any Security or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders and the right and remedy given to the holders of Preferred Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the holders or the holders of Preferred Securities, as the case may be. Section 5.12 Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that: (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (c) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability. Section 5.13 Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series and, in the case of any Securities of a series issued to a U.S. Home & Garden Trust, the holders of Preferred Securities issued by such U.S. Home & Garden Trust may waive any past default hereunder and its consequences with respect to such series except a default: (a) in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, or -47- (b) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Any such waiver shall be deemed to be on behalf of the Holders of all the Securities of such series or, in the case of a waiver by holders of Preferred Securities issued by such U.S. Home & Garden Trust, by all holders of Preferred Securities issued by such U.S. Home & Garden Trust. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 5.14 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security on or after the respective Stated Maturities expressed in such Security. Section 5.15 Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. -48- ARTICLE VI THE TRUSTEE Section 6.1 Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct except that (i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of Holders pursuant to Section 5.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any -49- financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. Section 6.2 Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Securities Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of Securities of such series; and provided, further, that, in the case of any default of the character specified in Section 5.1(c), no such notice to Holders of Securities of such series shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. Section 6.3 Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or -50- established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, indenture, Security or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 6.4 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. -51- Section 6.5 May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Securities Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Securities Registrar or such other agent. Section 6.6 Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. Section 6.7 Compensation and Reimbursement. The Company agrees (a) to pay to the Trustee from time to time compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense (including the reasonable compensation and the expenses and disbursements of its agents and counsel) incurred without negligence or bad faith, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Agreement. To secure the Company's payment obligations in this Section 6.7, the Company and the Holders agree that the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. Such lien shall survive the satisfaction and discharge of this Indenture. -52- When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(d) or (e) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Reform Act of 1978 or any successor statute. Section 6.8 Disqualification; Conflicting Interests. The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of said Section 3.10(b). Section 6.9 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be (a) a corporation organized and doing business under the laws of the United States of America or of any State or Territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority, or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, in either case having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section 6.9, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.9, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VI. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee for the Securities of any series issued hereunder. -53- Section 6.10 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VI shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee with respect to all Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee with respect to the Securities of -54- that or those series. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of such series as their names and addresses appear in the Securities Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 6.11 Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and -55- which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) or (b) of this Section 6.11, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VI. Section 6.12 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be -56- otherwise qualified and eligible under this Article VI, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated, and in case any Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee or in the name of such successor Trustee, and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Securities or in this Indenture that the certificate of the Trustee shall have. Section 6.13 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). Section 6.14 Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, or of any State or Territory or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 6.14 the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, such Authenticating -57- Agent shall resign immediately in the manner and with the effect specified in this Section 6.14. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section 6.14. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.14, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7. If an appointment with respect to one or more series is made pursuant to this Section 6.14, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: -58- This is one of the Securities referred to in the within mentioned Indenture. Dated: [INSERT NAME OF TRUSTEE] As Trustee By:________________________ As Authenticating Agent By:________________________ Authorized Officer ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 7.1 Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after January 15 and July 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of January 1 and July 1 of such year, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Securities Registrar. Section 7.2 Preservation of Information, Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act. -59- (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act. Section 7.3 Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act, at the times and in the manner provided pursuant thereto. (b) Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than July 15 in each calendar year, commencing with the first July 15 after the first issuance of Securities under this Indenture. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed and also with the Commission. The Company will notify the Trustee when any Securities are listed on any stock exchange. Section 7.4 Reports by Company. The Company shall file with the Trustee and with the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided in the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is required to be filed with the Commission. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the Commission and provide the Trustee with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a). -60- ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 8.1 Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (a) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest (including any Additional Interest) on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and any such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1. Section 8.2 Successor Corporation Substituted. Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer or lease by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 8.1, the successor corporation formed by such consolidation or into which the -61- Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and in the event of any such conveyance, transfer or lease the Company shall be discharged from all obligations and covenants under the Indenture and the Securities and may be dissolved and liquidated. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor Person thereafter shall cause to be signed and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.1 Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, provided, however, that the form and terms of Securities of any series may be established by a Board Resolution, as set forth in the Officers' Certificate delivered to the Trustee pursuant to Section 3.1, without entering into a supplemental indenture for all purposes hereunder, for any of the following purposes: (a) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or -62- (b) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or to surrender any right or power herein conferred upon the Company; or (c) to establish the form or terms of Securities of any series as permitted by Sections 2.1 or 3.1; or (d) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (e) to add any additional Events of Default for the benefit of the holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (f) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (g) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (g) shall not adversely affect the interest of the Holders of Securities of any series in any material respect or, in the case of the Securities of a series issued to a U.S. Home & Garden Trust and for so long as any of the corresponding series of Preferred Securities issued by such U.S. Home & Garden Trust shall remain outstanding, the holders of such Preferred Securities; or (h) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or (i) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. Section 9.2 Supplemental Indentures with Consent of Holders. -63- With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (a) except to the extent permitted by Sections 3.11 or 3.14 or as otherwise specified as contemplated by Section 2.1 or Section 3.1 with respect to the deferral of the payment of interest on the Securities of any series or the shortening of the Stated Maturity of the Securities of any series, change the Stated Maturity of the principal of, or any installment of interest (including any Additional Interest) on, any Security, or reduce the principal amount thereof or the rate of interest thereon or reduce any premium payable upon the redemption thereof, or reduce the amount of principal of a Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2, or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (b) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (c) modify any of the provisions of this Section, Section 5.13 or Section 10.5, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security affected thereby; or (d) modify the provisions in Article XIII of this Indenture with respect to the subordination of Outstanding Securities of any series in a manner adverse to the Holders thereof; provided, further, that, in the case of the Securities of a series issued to a U.S. Home & Garden Trust, so long as any of the corresponding series of Preferred Securities issued by such U.S. Home & Garden Trust remains outstanding, (i) no such amendment shall be made that adversely affects the holders of such -64- Preferred Securities in any material respect, and no termination of this Indenture shall occur, and no waiver of any Event of Default or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation preference of such Preferred Securities then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and, subject to Section 3.7, unpaid interest (including any Additional Interest) thereon have been paid in full and (ii) no amendment shall be made to Section 5.8 of this Indenture that would impair the rights of the holders of Preferred Securities provided therein without the prior consent of the holders of each Preferred Security then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and (subject to Section 3.7) unpaid interest (including any Additional Interest) thereon have been paid in full. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Securities or Preferred Securities, or which modifies the rights of the Holders of Securities or holders of Preferred Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities or holders of Preferred Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.3 Execution of Supplemental Indentures. In executing or accepting the additional series of Securities created by any supplemental indenture permitted by this Article or the modifications thereby of any series of Securities previously created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article IX or delivery to the Trustee of the Officers' Certificate pursuant to Section 3.1 hereof (which Officers' -65- Certificate shall have the effect of a supplemental indenture for all purposes hereunder), this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 9.5 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article IX and every Officers' Certificate delivered to the trustee pursuant to Section 3.1 hereof shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.6 Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX or delivery to the Trustee of the Officers' Certificate pursuant to Section 3.1 hereof (which Officers' Certificate shall have the effect of a supplemental indenture for all purposes hereunder) may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture or such Officers' Certificate. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Company, to any such supplemental indenture or such Officers's Certificate may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE X COVENANTS Section 10.1 Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of such Securities and this Indenture. Section 10.2 Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities, an office or agency where Securities of that series may be presented or surrendered for payment and an office or agency where Securities of that series may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of -66- that series and this Indenture may be served. The Company initially appoints the Trustee, acting through its Corporate Trust Office, as its agent for said purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such office or agency. Section 10.3 Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m. California time on each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal and premium (if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.3, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such -67- sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the state of California, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 10.4 Statement as to Compliance. The Company shall deliver to the Trustee, within 120 days after the end of each calendar year of the Company ending after -68- the date hereof, an Officers' Certificate covering the preceding calendar year, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance, observance or fulfillment of or compliance with any of the terms, provisions, covenants and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For the purpose of this Section 10.4, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. Section 10.5 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition provided pursuant to Sections 3.1, 9.1(3), or 9.1(4) with respect to the Securities of any series, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect. Section 10.6 Additional Sums. In the case of the Securities of a series issued to a U.S. Home & Garden Trust, so long as no Event of Default has occurred and is continuing and except as otherwise specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) such U.S. Home & Garden Trust is the Holder of all of the Outstanding Securities of such series, (ii) a Tax Event in respect of such U.S. Home & Garden Trust shall have occurred and be continuing and (iii) the Company shall not have (A) redeemed the Securities of such series pursuant to Section 11.7 or (B) terminated such U.S. Home & Garden Trust pursuant to Section 9.2(b) of the related Trust Agreement, the Company shall pay to such U.S. Home & Garden Trust (and its permitted successors or assigns under the related Trust Agreement) for so long as such U.S. Home & Garden Trust (or its permitted successor or assignee) is the registered holder of any Securities of such series, such additional amounts as may be necessary in order that the amount of Distributions (including any Additional Amounts (as defined in such Trust Agreement)) then due and payable by such U.S. Home & Garden Trust on the related Preferred Securities and Common Securities that at any time remain outstanding in accordance with the terms thereof shall not be reduced as a result of any Additional Taxes (the "Additional Sums"). Whenever in this Indenture or the Securities there is a reference in any context to the payment of principal of or interest on the Securities, -69- such mention shall be deemed to include mention of the payments of the Additional Sums provided for in this paragraph to the extent that, in such context, Additional Sums are, were or would be payable in respect thereof pursuant to the provisions of this paragraph and express mention of the payment of Additional Sums (if applicable) in any provisions hereof shall not be construed as excluding Additional Sums in those provisions hereof where such express mention is not made; provided, however, that the deferral of the payment of interest pursuant to Section 3.11 or the Securities shall not defer the payment of any Additional Sums that may be due and payable. Section 10.7 Additional Covenants. If at any time (i) there shall have occurred an Event of Default, (ii) the Company shall have given notice of its election of an Extension Period as provided herein and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing, or (iii) while Securities are held by a U.S. Home & Garden Trust, the Company shall be in default with respect to its payment of any obligation under the Guarantee, then the Company covenants and agrees with each Holder of Securities of any series that it shall not, and it shall not permit any Subsidiary of the Company to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of the Company's capital stock (which includes common and preferred stock), (b) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including Securities other than the Securities of such series) that rank pari passu in all respects with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of debt securities of any subsidiary of the Company if such guarantee ranks pari passu in all respects with or junior in interest to the Securities (other than (i) dividends or distributions in capital stock (which includes common and preferred stock), (ii) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan or the redemption or repurchase of any such rights pursuant thereto, (iii) payments under the U.S. Home & Garden Guarantee related to the Preferred Securities issued by the U.S. Home & Garden Trust holding Securities of such series, and (iv) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers, consultants or employees), or (c) redeem, purchase or acquire less than all of the Securities of such series or any of the Preferred Securities if at such time (i) there shall have occurred an Event of Default with respect to the Securities of such series, (ii) if the Securities of such series are held by a U.S. Home & Garden Trust, the Company shall be in default with respect to its payment of any obligations under the U.S. Home & -70- Garden Guarantee relating to the Preferred Securities issued by such U.S. Home & Garden Trust, or (iii) the Company shall have given notice of its election to begin an Extension Period with respect to the Securities of such series as provided herein and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing. The Company also covenants with each Holder of Securities of a series issued to a U.S. Home & Garden Trust (i) to maintain directly or indirectly 100% ownership of the Common Securities of such U.S. Home & Garden Trust; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate such U.S. Home & Garden Trust, except (a) in connection with a distribution of the Securities of such series to the holders of Trust Securities in liquidation of such U.S. Home & Garden Trust or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of such Trust Agreement, to cause such U.S. Home & Garden Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes. ARTICLE XI REDEMPTION OF SECURITIES Section 11.1 Applicability of This Article. Redemption of Securities of any series (whether by operation of a sinking fund or otherwise) as permitted or required by any form of Security issued pursuant to this Indenture shall be made in accordance with such form of Security and this Article; provided, however, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. Except as otherwise set forth in the form of Security for such series, each Security of such series shall be subject to partial redemption only in the amount of $25 or, in the case of the Securities of a series issued to a U.S. Home & Garden Trust, $25, or integral multiples of $25 in excess thereof. Section 11.2 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any particular series and having the same terms, the Company shall, not less than 30 nor more than 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and -71- of the principal amount of Securities of that series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing compliance with such restriction. Section 11.3 Selection of Securities to be Redeemed. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, provided that the portion of the principal amount of any Security not redeemed shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for partial redemption and the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Securities selected for redemption. Section 11.4 Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not later than the thirtieth day, and not earlier than the sixtieth day, prior to the Redemption Date, to each Holder of Securities to be redeemed, at the address of such Holder as it appears in the Securities Register. With respect to Securities of each series to be redeemed, each notice of redemption shall state: -72- (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities of such particular series and having the same terms are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed; (d) that on the Redemption Date, the Redemption Price will become due and payable upon each such Security or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date; (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and (f) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall not be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 11.5 Deposit of Redemption Price. Prior to 12:00 noon, Eastern time on the Redemption Date specified in the notice of redemption given as provided in Section 11.4, the Company will deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and any accrued interest (including Additional Interest) on, all the Securities which are to be redeemed on that date. Section 11.6 Payment of Securities Called for Redemption. If any notice of redemption has been given as provided in Section 11.4, the Securities or portion of Securities with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price. On presentation and surrender of such Securities at a Place of Payment in said notice specified, the said securities or the specified portions thereof -73- shall be paid and redeemed by the Company at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 3.1, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the portion of the Security not redeemed so presented and having the same Original Issue Date, Stated Maturity and terms. If a Global Security is so surrendered, such new Security will also be a new Global Security. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and premium, if any, on such Security shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 11.7 Right of Redemption of Securities Initially Issued to a U.S. Home & Garden Trust. In the case of the Securities of a series initially issued to a U.S. Home & Garden Trust, except as otherwise specified as contemplated by Section 3.1, the Company, at its option, may redeem such Securities (i) on or after the date five years after the Original Issue Date of such Securities, in whole at any time or in part from time to time, or (ii) upon the occurrence and during the continuation of a Tax Event or Investment Company Event, at any time within 90 days following the occurrence of such Tax Event or Investment Company Event in respect of such U.S. Home & Garden Trust, in whole (but not in part), in each case at a Redemption Price equal to 100% of the principal amount thereof. ARTICLE XII SINKING FUNDS Section 12.1 Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 3.1 for such Securities. -74- The minimum amount of any sinking fund payment provided for by the terms of any Securities of any series is herein referred to as a "mandatory sinking fund payment", and any sinking fund payment in excess of such minimum amount which is permitted to be made by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment." If provided for by the terms of any Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of such Securities. Section 12.2 Satisfaction of Sinking Fund Payments with Securities. In lieu of making all or any part of a mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option, at any time no more than 16 months and no less than 30 days prior to the date on which such sinking fund payment is due, deliver to the Trustee Securities of such series (together with the unmatured coupons, if any, appertaining thereto) theretofore purchased or otherwise acquired by the Company, except Securities of such series that have been redeemed through the application of mandatory or optional sinking fund payments pursuant to the terms of the Securities of such series, accompanied by a Company Order instructing the Trustee to credit such obligations and stating that the Securities of such series were originally issued by the Company by way of bona fide sale or other negotiation for value; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the redemption price for such Securities, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. Section 12.3 Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash in the currency in which the Securities of such series are payable (except as provided pursuant to Section 3.1) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 12.2 and will also deliver to the Trustee any Securities to be so delivered. Such Officers' Certificate shall be irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any, on or before the succeeding sinking fund payment date. In the case of the failure of the Company to deliver such -75- Officers' Certificate (or, as required by this Indenture, the Securities and coupons, if any, specified in such Officers' Certificate), the sinking fund payment due on the succeeding sinking fund payment date for such series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of the Securities of such series subject to a mandatory sinking fund payment without the right to deliver or credit securities as provided in Section 12.2 and without the right to make the optional sinking fund payment with respect to such series at such time. Any sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made with respect to the Securities of any particular series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent) on the sinking fund payment date on which such payment is made (or, if such payment is made before a sinking fund payment date, on the sinking fund payment date immediately following the date of such payment) to the redemption of Securities of such series at the Redemption Price specified in such Securities with respect to the sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee (or, if the Company is acting as its own Paying Agent, segregated and held in trust by the Company as provided in Section 10.3) for such series and together with such payment (or such amount so segregated) shall be applied in accordance with the provisions of this Section 12.3. Any and all sinking fund moneys with respect to the Securities of any particular series held by the Trustee (or if the Company is acting as its own Paying Agent, segregated and held in trust as provided in Section 10.3) on the last sinking fund payment date with respect to Securities of such series and not held for the payment or redemption of particular Securities of such series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent), together with other moneys, if necessary, to be deposited (or segregated) sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity. The Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 11.6. On or before each sinking fund payment date, the Company shall pay to the Trustee (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust as provided in Section 10.3) in cash a sum in the currency in which Securities of such series are payable (except as provided pursuant to Section 3.1) equal to the principal and any interest accrued to the Redemption Date for Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 12.3. -76- Neither the Trustee nor the Company shall redeem any Securities of a series with sinking fund moneys or mail any notice of redemption of Securities of such series by operation of the sinking fund for such series during the continuance of a default in payment of interest, if any, on any Securities of such series or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph) with respect to the Securities of such series, except that if the notice of redemption shall have been provided in accordance with the provisions hereof, the Trustee (or the Company, if the Company is then acting as its own Paying Agent) shall redeem such Securities if cash sufficient for that purpose shall be deposited with the Trustee (or segregated by the Company) for that purpose in accordance with the terms of this Article XII. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur and any moneys thereafter paid into such sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of the Securities and coupons, if any, of such series; provided, however, that in case such default or Event of Default shall have been cured or waived herein, such moneys shall thereafter be applied on the next sinking fund payment date for the Securities of such series on which such moneys may be applied pursuant to the provisions of this Section 12.3. ARTICLE XIII SUBORDINATION OF SECURITIES Section 13.1 Securities Subordinate to Senior Debt and Subordinated Debt. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article XIII, the payment of the principal of (and premium, if any) and interest (including any Additional Interest) on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all amounts then due and payable in respect of all Senior Debt and Subordinated Debt. Section 13.2 Payment Over of Proceeds Upon Dissolution, Etc. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company (each such event, if any, herein sometimes referred to as a "Proceeding"), then the holders of Senior Debt and Subordinated Debt shall be entitled to receive payment in full of such Senior Debt and Subordinated Debt, or provision shall be made for such payment in cash or cash equivalents or -77- otherwise in a manner satisfactory to the holders of Senior Debt and Subordinated Debt, before the Holders of the Securities are entitled to receive or retain any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Debt of the Company subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a "Junior Subordinated Payment"), on account of principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary and to that end the holders of Senior Debt and Subordinated Debt shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, which may be payable or deliverable in respect of the Securities in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section 13.2, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, before all Senior Debt and Subordinated Debt are paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt and Subordinated Debt, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Debt and Subordinated Debt remaining unpaid, to the extent necessary to pay all Senior Debt and Subordinated Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt and Subordinated Debt. For purposes of this Article XIII only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which securities are subordinated in right of payment to all then outstanding Senior Debt and Subordinated Debt to substantially the same extent as the Securities are so subordinated as provided in this Article XIII. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its -78- properties and assets as an entirety to another Person upon the terms and conditions set forth in Article VIII shall not be deemed a Proceeding for the purposes of this Section 13.2 if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article VIII. Section 13.3 Prior Payment to Senior Debt and Subordinated Debt Upon Acceleration of Securities. In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Debt and Subordinated Debt outstanding at the time such Securities become due and payable shall be entitled to receive payment in full of all amounts due on or in respect of such Senior Debt and Subordinated Debt (including any amounts due upon acceleration), or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt and Subordinated Debt, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities (including any Junior Subordinated Payment) by the Company on account of the principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary; provided, however, that nothing in this Section 13.3 shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such declaration of acceleration. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section 13.3, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 13.3 shall not apply to any payment with respect to which Section 13.2 would be applicable. Section 13.4 No Payment When Senior Debt and Subordinated Debt in Default. (a) In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest -79- on any Senior Debt and Subordinated Debt, or in the event that any event of default with respect to any Senior Debt and Subordinated Debt shall have occurred and be continuing and shall have resulted in such Senior Debt and Subordinated Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or (b) in the event any Judicial Proceeding shall be pending with respect to any such default in payment or such event or default, then no payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) shall be made by the Company on account of principal of (or premium, if any) or interest (including any Additional Interest), if any, on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary, in each case unless and until all such Senior Debt and Subordinated Debt are paid in full; provided, however, that nothing in this Section 13.4 shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such default in payment or event of default. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section 13.4, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 13.4 shall not apply to any payment with respect to which Section 13.2 would be applicable. Section 13.5 Payment Permitted If No Default. Nothing contained in this Article XIII or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 13.2 or under the conditions described in Sections 13.3 and 13.4, from making payments at any time of principal of (and premium, if any) or interest (including Additional Interest) on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest (including any Additional Interest) on the Securities or the retention of such payment by the holders, if, at the time of such application by the Trustee, it did not have -80- knowledge that such payment would have been prohibited by the provisions of this Article XIII. Section 13.6 Subrogation to Rights of holders of Senior Debt and Subordinated Debt. Subject to the payment in full of all amounts due or to become due on all Senior Debt and Subordinated Debt, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt and Subordinated Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt and Subordinated Debt pursuant to the provisions of this Article XIII (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Debt and Subordinated Debt of the Company to substantially the same extent as the Securities are subordinated to the Senior Debt and Subordinated Debt and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Debt and Subordinated Debt) to the rights of the holders of such Senior Debt and Subordinated Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt and Subordinated Debt until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt and Subordinated Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article XIII to the holders of Senior Debt and Subordinated Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Debt and Subordinated Debt, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt and Subordinated Debt. Section 13.7 Provisions Solely to Define Relative Rights. The provisions of this Article XIII are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt and Subordinated Debt on the other hand. Nothing contained in this Article XIII or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as between the Company and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional, to pay to the holders of the Securities the principal of (and premium, if any) and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than their rights in relation to -81- the holders of Senior Debt and Subordinated Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture including, without limitation, filing and voting claims in any Proceeding, subject to the rights, if any, under this Article XIII of the holders of Senior Debt and Subordinated Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. Section 13.8 Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article XIII and appoints the Trustee his or her attorney-in-fact for any and all such purposes. Section 13.9 No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt and Subordinated Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of the immediately preceding paragraph, the holders of Senior Debt and Subordinated Debt may, at any time and from to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt and Subordinated Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt and Subordinated Debt, or otherwise amend or supplement in any manner Senior Debt and Subordinated Debt or any instrument evidencing the same or any agreement under which Senior Debt and Subordinated Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt and Subordinated Debt; (iii) release any Person liable in any manner for the collection of Senior Debt and Subordinated Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. Section 13.10 Notice to Trustee. -82- The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article XIII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt and Subordinated Debt or from any trustee, agent or representative therefor; provided, however, that if the Trustee shall not have received the notice provided for in this Section 13.10 at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest (including any Additional Interest) on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt and Subordinated Debt (or a trustee therefor) to establish that such notice has been given by a holder of Senior Debt and Subordinated Debt (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt and Subordinated Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt and Subordinated Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 13.11 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article XIII, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or -83- distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and Subordinated Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIII. Section 13.12 Trustee Not Fiduciary for holders of Senior Debt and Subordinated Debt. The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and Subordinated Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Debt and Subordinated Debt shall be entitled by virtue of this Article or otherwise. Section 13.13 Rights of Trustee as Holder of Senior Debt and Subordinated Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIII with respect to any Senior Debt and Subordinated Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt and Subordinated Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Section 13.14 Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIII shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XIII in addition to or in place of the Trustee. Section 13.15 Certain Conversions or Exchanges Deemed Payment. For the purposes of this Article XIII only, (a) the issuance and delivery of junior securities upon conversion or exchange of Securities shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest (including any Additional Interest) on Securities or on account of the purchase or other acquisition of Securities, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion or exchange of a Security shall be deemed to constitute payment on account of the principal of such security. For the purposes of -84- this Section 13.15, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior Debt and Subordinated Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article XIII. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. U.S. HOME & GARDEN INC. By: ______________________________ Its: _____________________________ Attest: By: ______________________________ Its: _____________________________ WILMINGTON TRUST COMPANY, as Trustee By: ______________________________ Its: _____________________________ Attest: By: ______________________________ Its: _____________________________ -85- STATE OF CALIFORNIA ) ) SS. COUNTY OF ) On the ____day of ____________, 1998 before me personally came ________________________ to me known, who, being by me duly sworn, did depose and say that he is _____________________ of U.S. HOME & GARDEN INC. one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; and that he signed his name thereto by authority of the Board of Directors of said corporation. [SEAL] _____________________________ Notary Public STATE OF DELAWARE ) ) SS. COUNTY OF ) On the_____ day of ________________, 1998 before me personally came ___________________________ to me known, who, being by me duly sworn, did depose and say that he is _______________________ of WILMINGTON TRUST COMPANY one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; and that he signed his name thereto by authority of the Board of Directors of said corporation. [SEAL] _____________________________ Notary Public -86- EX-4.2 4 EXHIBIT 4.2 EXHIBIT 4.2 U.S. HOME & GARDEN INC. _______ % JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES DUE ________, 2028 OFFICERS' CERTIFICATE AND COMPANY ORDER Pursuant to the Indenture dated as of ________, 1998 (the "Indenture"), between U.S. Home & Garden Inc., a Delaware corporation (the "Company") and Wilmington Trust Company, as Debenture Trustee (the "Debenture Trustee") and resolutions adopted by the Pricing Committee of the Company's Board of Directors on ________, 1998; this Officers' Certificate is being delivered to the Debenture Trustee to establish the terms of one series of securities (the "Securities") in accordance with Section 3.1 of the Indenture, to establish the form of the Securities of such series in accordance with Section 2.1 of the Indenture, to request the authentication and delivery of the Securities of such series pursuant to Section 3.3 of the Indenture and to comply with the provisions of Section 1.2 of the Indenture. This Officers' Certificate shall be treated for all purposes under the Indenture as a supplemental indenture thereto. All conditions precedent provided for in the Indenture relating to the establishment of (i) a series of Securities and (ii) the form of Securities of such series have been complied with. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Indenture. I. Establishment of Series of Securities pursuant to Section 3.1 of the Indenture. There are hereby established pursuant to Section 3.1 of the Indenture a series of Securities which shall have the following terms: A. The Securities of such series shall bear the title ____% Junior Subordinated Deferrable Interest Debentures Due ________, 2028. B. The aggregate principal amount of such series of Securities to be issued pursuant to this Officers' Certificate and Company Order shall be limited to the sum of (i) $ ____________ (except for Securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.7 of the Indenture and except for any Securities which, pursuant to Section 3.3 of the Indenture, are deemed never to have been authenticated and delivered thereunder). C. The date on which the principal of the Securities is due and payable shall be ____________, 2028. D. The Securities shall bear interest at the rate of ___% per annum (based upon a 360-day year of twelve 30-day months), compounded monthly, from and including the date of original issuance or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable monthly in arrears on the ___ day of each calendar month of each year (each, an "Interest Payment Date"), commencing _______________, 1998, until the principal thereof is paid or made available for payment. The Business Day next preceding an Interest Payment Date shall be the "Regular Record Date" for the interest payable on such Interest Payment Date. Accrued interest that is not paid on such applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at a rate per annum of ___% thereof compounded quarterly. In addition, so long as no Event of Default with respect to the Securities has occurred or is continuing, the Company has the right under the Indenture at any time during the term of such Securities to defer the payment of interest at any time or from time to time for a period not exceeding 60 consecutive monthly periods with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity. At the end of such Extension Period, the Company must pay all interest then accrued and unpaid (together with interest thereon at the annual rate of ___%, compounded monthly, to the extent permitted by applicable law). E. Principal of (and premium, if any) and interest on the Securities will be payable, and, except as provided in Section 3.5 of the Indenture with respect to a Global Security (as defined below), the transfer of the Securities will be registrable and Securities (except as provided in paragraph (Q) hereof) will be exchangeable for Securities bearing identical terms and provisions at the corporate trust office of Wilmington Trust Company in the City of Wilmington, Delaware. F. The Securities will be redeemable in whole at any time and in part from time to time, at the option of the Company at any time on or after _____________, 2003, at a redemption price equal to the accrued and unpaid interest on the Securities so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. In addition, upon the occurrence of a Tax Event or an Investment Company Event (as each such term is defined below) the Company may, at its option, prepay the Securities in whole (but not in part) at any time within 90 days of the occurrence of such Tax Event or Investment Company Event, at a redemption price equal to the accrued and unpaid interest on the Securities so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. -2- "Tax Event" means the receipt by the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of the Trust, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States Federal income tax with respect to income received or accrued on the Securities, (ii) interest payable by the Company on the Securities is not, or within 90 days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes, or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Investment Company Event" means, in respect of the Trust, the receipt by the Trust of an Opinion of Counsel, rendered by a law firm experienced in such matters, to the extent that, as a result of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, the Trust is or will be considered an "investment company" that is required to be registered under the 1940 Act, which change becomes effective on or after the date of original issuance of the Preferred Securities of the Trust. G. The Company shall not be obligated to redeem or purchase any Securities pursuant to any sinking fund or analogous provisions or at the option of the Holder. H. The Securities will be issued only in fully registered form and the authorized minimum denomination of the Securities shall be $25.00 and any integral multiple of $25.00 in excess thereof. I. The Securities shall be denominated, and payments of principal of (and premium, if any) and interest on the Securities of such series will be made, in United States dollars. J. The Securities shall be subject to the Events of Default specified in Section 5.1, paragraphs (a) through (e), of the Indenture. -3- K. The portion of the principal amount of the Securities which shall be payable upon declaration of acceleration of maturity thereof shall not be other than the principal amount thereof, provided, that, if such acceleration is declared by the Holders of at least 25% in aggregate liquidation amount of the Preferred Securities then outstanding, then, upon such declaration of acceleration, the Securities which shall be payable shall be the principal amount thereof plus accrued interest (including any Additional Interest). L. The Securities will be issued in fully registered form, without coupons. The Securities will not be issued in bearer form. M. The amount of payments of principal of and any premium or interest on the Securities will not be determined with reference to an index. N. The Securities shall not be issued in the form of a temporary Global Security (as defined below). O. The Securities will initially be in certificated form registered in the name of Wilmington Trust Company as Property Trustee for the Trust (the "Certificated Securities"). The Securities may, in the sole discretion of the Company, be deposited with, and on behalf of, The Depository Trust Company, New York, New York, as Depositary, and will be represented by a global security (a "Global Security") registered in the name of a nominee of the Depositary. If and so long as the Depositary or its nominee is the registered holder of any Global Security, the Depositary or its nominee, as the case may be, will be considered the sole Holder of the Securities of such series represented by such Global Security for all purposes under the Indenture and the Securities. The Certificated Securities or the Global Securities, as the case may be, shall bear no legends. P. The Trustee shall be Paying Agent. Q. The Securities will not be convertible into any other securities or property of the Company. The Securities of any series may not be exchanged for Securities of any other series. R. The Trust Agreement, the Amended and Restated Trust Agreement and the Guarantee Agreement are in the forms attached hereto as Exhibits A, B and C respectively. S. The Securities are subordinate and subject in right of payment to the prior payment in full of all amounts then due and payable in respect of all Senior Debt and Subordinated Debt, as provided in the Indenture. -4- T. The Securities shall have additional terms, which terms shall not be inconsistent with the provisions of the Indenture. II. Establishment of Forms of Securities Pursuant to Section 2.1 of Indenture. It is hereby established pursuant to Section 2.1 of the Indenture that the Securities shall be substantially in the form attached as Exhibit D hereto. III. Order for the Authentication and Delivery of Securities Pursuant to Section 3.3 of the Indenture. It is hereby ordered pursuant to Section 3.3 of the Indenture that the Trustee authenticate, in the manner provided by the Indenture, Securities in the aggregate principal amount of $____ registered in the name of Wilmington Trust Company, as Property Trustee, which Securities have been heretofore duly executed by the proper officers of the Company and delivered to you as provided in the Indenture, and to deliver said authenticated Securities to Wilmington Trust Company or its custodian on or before 9:30 a.m., San Francisco time, on _____________, 1998. IV. Other Matters. Attached as Exhibit E hereto are true and correct copies of resolutions adopted by the Pricing Committee of the Board of Directors of the Company at a meeting on _____________, 1998. Attached as Exhibit F hereto are true and correct copies of resolutions adopted by the Board of Directors of the Company at a meeting on ___, 1998, authorizing the issuance of the Securities. Such resolutions have not been further amended, modified or rescinded and remain in full force and effect; and such resolutions (together with this Officers' Certificate) are the only resolutions or other action adopted by the Company's Board of Directors or any committee thereof or by any Authorized Officers relating to the offering and sale of the Securities. The undersigned have read the pertinent sections of the Indenture including the related definitions contained therein. The undersigned have examined the resolutions adopted by the Board of Directors and the Pricing Committee of the Board of Directors of the Company. In the opinion of the undersigned, the undersigned have made such examination or investigation as is necessary to enable the undersigned to express an informed opinion as to whether or not the conditions precedent to the establishment of (i) a series of Securities, (ii) the forms of such Securities and (iii) authentication of such series of Securities, contained in the Indenture have been complied with. In the opinion of the undersigned, such conditions have been complied with. -5- IN WITNESS WHEREOF, the undersigned have executed this Certificate this _____ day of _____________, 1998. U.S. HOME & GARDEN INC. By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: -6- EX-4 5 EXHIBIT 4.3 CERTIFICATE OF TRUST OF U.S. HOME & GARDEN TRUST I THIS Certificate of Trust of U.S. Home & Garden Trust I (the "Trust"), dated as of March 16, 1998, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. ss. 3801, et seq.). 1. Name. The name of the business trust formed hereby is U.S. Home & Garden Trust I. 2. Delaware Trustee. The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware are Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. Effective Date. This Certificate of Trust shall be effective upon filing. IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have executed this Certificate of Trust as of the date first-above written. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as trustee of the Trust By: /s/ Patricia A. Evans -------------------------------------------- Name: Patricia A. Evans Title: Financial Services Officer RICHARD RALEIGH, not in his individual capacity but solely as trustee of the Trust /s/ Richard Raleigh --------------------------------------------- EX-4 6 EXHIBIT 4.4 TRUST AGREEMENT OF U.S. HOME & GARDEN TRUST I THIS TRUST AGREEMENT is made as of March 16, 1998 (this "Trust Agreement"), by and among U.S. Home & Garden Inc., as depositor (the "Depositor"), and Wilmington Trust Company, as trustee (the "Delaware Trustee"), and Richard Raleigh, as trustee (the "Administrative Trustee" and jointly with the Delaware Trustee, the "Trustees"). The Depositor and the Trustees hereby agree as follows: 1. The trust created hereby shall be known as "U.S. Home & Garden Trust I" (the "Trust"), in which name the Trustees or the Depositor, to the extent provided herein, may conduct the business of the Trust, make and execute contracts, and sue and be sued. 2. The Depositor hereby assigns, transfers, conveys and sets over to the Trust the sum of $10. Such amount shall constitute the initial trust estate. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801, et seq.(the "Business Trust Act"), and that this document constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in such form as the Trustees may approve. 3. An amended and restated Trust Agreement satisfactory to each party to it and substantially in the form to be included as an exhibit to the 1933 Act Registration Statement (as herein defined), or in such other form as the parties thereto may approve, will be entered into to provide for the contemplated operation of the Trust created hereby and the issuance of the Preferred or Capital Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect of the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery any licenses, consents or approvals required by applicable law or otherwise. Notwithstanding the foregoing, the Trustees may take all actions deemed proper as are necessary to effect the transactions contemplated herein. 4. The Depositor, as the depositor of the Trust, is hereby authorized (i) to file with the Securities and Exchange Commission (the "Commission") and to execute, in the case of the 1933 Act Registration Statement and 1934 Act Registration Statement (as herein defined), on behalf of the Trust, (a) a Registration Statement (the "1933 Act Registration Statement"), including all pre-effective and post-effective amendments thereto, relating to the registration under the Securities Act of 1933, as amended (the "1933 Act"), of the Preferred or Capital Securities of the Trust, (b) any preliminary prospectus or prospectus or supplement thereto relating to the Capital or Preferred Securities of the Trust required to be filed pursuant to the 1933 Act, and (c) a Registration Statement on Form 8-A or other appropriate form (the "1934 Act Registration Statement"), including all pre-effective and post-effective amendments thereto, relating to the registration of the Preferred or Capital Securities of the Trust under the Securities Exchange Act of 1934, as amended; (ii) to filewith the American Stock Exchange or other exchange, or the National Association of Securities Dealers ("NASD"), and execute on behalf of the Trust a listing application and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred or Capital Securities of the Trust to be listed on the American Stock Exchange or such other exchange, or the NASD's Nasdaq National Market; (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred or Capital Securities under the securities or blue sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or desirable; and (iv) to execute, deliver and perform on behalf of the Trust an underwriting agreement with one or more underwriters relating to the offering of the Preferred or Capital Securities of the Trust. In the event that any filing referred to in clauses (i), (ii) or (iii) above is required by the rules and regulations of the Commission, the American Stock Exchange or other exchange, NASD, or state securities or blue sky laws to be executed on behalf of the Trust by the Trustees, the Trustees, in their capacities as trustees of the Trust, are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that the Trustees, in their capacities as trustees of the Trust, shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and regulations of the Commission, the American Stock Exchange or other exchange, NASD, or state securities or blue sky laws. In connection with all of the foregoing, the Trustees, solely in their capacities as trustees of the Trust, and the Depositor hereby constitute and appoint Richard Raleigh as his, her or its, as the case may be, true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for the Trustees and the Depositor or in the Trustees' or the Depositor's name, place and stead, in any and all capacities, to sign any and all amendments (including all pre-effective and post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as the Trustees or the Depositor might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his respective substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Trust Agreement may be executed in one or more counterparts. 6. The number of trustees of the Trust initially shall be two and thereafter the number of trustees of the Trust shall be such number as shall be fixed from time to time by a written instrument signed by the Depositor which may increase or decrease the number of trustees of the Trust; provided, however, that to the extent required by the Business Trust Act, one trustee of the Trust shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. Subject to the foregoing, the Depositor is entitled to appoint or remove without cause any trustee of the Trust at any time. Any trustee of the Trust may resign upon thirty days' prior notice to the Depositor. -2- 7. This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws principles). IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. U.S. HOME & GARDEN INC., as Depositor By: /s/ Richard Raleigh ------------------------------------------ Name: Richard Raleigh Title: Chief Operating Officer WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Delaware Trustee By: /s/ Patricia A. Evans ------------------------------------------ Name: Patricia A. Evans Title: Financial Services Officer RICHARD RALEIGH, not in his individual capacity, but solely as Administrative Trustee /s/ Richard Raleigh ------------------------------------------ -3- EX-4 7 EXHIBIT 4.4.1 TRUST AGREEMENT among U.S. Home & Garden Inc., as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and The Administrative Trustees Named Herein Dated as of ________, 1998 U.S. HOME & GARDEN TRUST I U.S. HOME & GARDEN TRUST I Certain Sections of this Trust Agreement relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Indenture Trust Agreement Act Section Section ----------------- --------------- (Section) 310(a) (1) 8.7 (a) (2) 8.7 (a) (3) 8.7 (a) (4) 2.7 (a) (ii) (b) (Section) 311(a) 8.13 (b) 8.13 (Section) 312(a) 5.7 (b) 5.7 (c) 5.7 (Section) 313(a) 8.14 (a) (a) (4) 8.14 (b) (b) 8.14 (b) (c) 10.9 (d) 8.14 (c) (Section) 314(a) 8.15 (b) Not Applicable (c) (1) 8.16 (c) (2) 8.16 (c) (3) Not Applicable (d) Not Applicable (e) 1.1, 8.16 (Section) 315(a) 8.1 (a), 8.3 (a) (b) 8.2, 10.9 (c) 8.1 (a) (d) 8.1, 8.3 (e) Not Applicable (Section) 316(a) Not Applicable (a) (1) (A) Not Applicable (a) (1) (B) Not Applicable (a) (2) Not Applicable (b) 5.14 (c) 6.7 (Section) 317(a) (1) Not Applicable (a) (2) Not Applicable (b) 5.9 (Section) 318(a) 10.10 - ---------- Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Trust Agreement. TRUST AGREEMENT (this "Trust Agreement"), dated as of ________, 1998, among (i) U.S. Home & Garden Inc., a Delaware corporation (including any successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as property trustee (in such capacity, the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank"), (iii) Wilmington Trust Company, a Delaware banking corporation organized under the laws of the State of Delaware, as Delaware trustee (in such capacity, the "Delaware Trustee"), (iv) ___________, an individual, ___________, an individual, and ___________, an individual, each of whose address is c/o U.S. Home & Garden Inc., 655 Montgomery Street, San Francisco, California, 94111 (each an "Administrative Trustee" and collectively the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to collectively herein as the "Trustees") and (v) the several Holders, as hereinafter defined. WITNESSETH WHEREAS, the Depositor, the Delaware Trustee and __________, ____________, and ___________, each as an Administrative Trustee, desire to declare and establish a business trust pursuant to the Delaware Business Trust Act by entering into this Trust Agreement, dated as of ________, 1998, and by the execution and filing by the Delaware Trustee with the Secretary of State of the State of Delaware of the Certificate of Trust, to be filed on March __, 1998. NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby agrees as follows: ARTICLE I DEFINED TERMS SECTION I.1 Definitions. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; 3 (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 6.8. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of Additional Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of Debentures for such period. "Additional Sums" has the meaning specified in Section 10.6 of the Indenture. "Administrative Trustee" means each of the Persons identified as an "Administrative Trustee" in the preamble to this Trust Agreement solely in such Person's capacity as Administrative Trustee of the Trust created and continued hereunder and not in such Person's individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bank" has the meaning specified in the preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: 4 (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable Bankruptcy Law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or (b) the institution by such Person of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Bankruptcy Law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by such Person in furtherance of any such action. "Bankruptcy Law" means any Federal or state bankruptcy, insolvency, reorganization or similar law. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the appropriate Trustees. "Book-Entry Preferred Securities Certificates" means a beneficial interest in the Preferred Securities Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11. "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed, or (c) a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate Depository Agreement" means the agreement among the Trust, the Depositor and The Depository Trust Company, as the initial Clearing Agency, dated as of the Closing Date, 5 relating to the Preferred Securities Certificates, substantially in the form attached as Exhibit B, as the same may be amended and supplemented from time to time. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. The Depository Trust Company will act as the initial Clearing Agency hereunder. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, as amended, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means (i) when used with respect to the Property Trustee, the principal office of the Property Trustee located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890-0001, Attention: Corporate Trust Administration, and (ii) when used with respect to the Debenture Trustee, the principal office of the Debenture Trustee located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890-0001, Attention: Corporate Trust Administration. 6 "Debenture Event of Default" means an "Event of Default" as defined in the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Tax Event" means a "Tax Event" as defined in the Indenture. "Debenture Trustee" means Wilmington Trust Company, a Delaware banking corporation organized under the laws of the State of Delaware and any successor thereto, as trustee under the Indenture. "Debentures" means the aggregate principal amount of the Depositor's ___% Junior Subordinated Deferrable Interest Debentures, issued pursuant to the Indenture. "Definitive Preferred Securities Certificates" means either or both (as the context requires) of (a) Preferred Securities Certificates issued as Book-Entry Preferred Securities Certificate as provided in Section 5.11(a) and (b) Preferred Securities Certificates issued in certificated, fully registered form as provided in Section 5.13. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801, et seq., as it may be amended from time to time. "Delaware Trustee" means the Person identified as the "Delaware Trustee" in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust created and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the preamble to this Trust Agreement. "Distribution Date" has the meaning specified in Section 4.1(a). 7 "Distributions" means amounts payable in respect of the Trust Preferred Securities as provided in Section 4.1. "Early Dissolution Event" has the meaning specified in Section 9.2. "Event of Default" means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Debenture Event of Default; or (b) default by the Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Property Trustee in this Trust Agreement (other than a covenant or warranty a default in the performance or breach of which is dealt with in clause (b) or (c) above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Property Trustee by the Holders of at least 25% in aggregate liquidation preference of the Outstanding Preferred Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 60 days thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. 8 "Expiration Date" has the meaning specified in Section 9.1. "Guarantee" means the Guarantee Agreement executed and delivered by the Depositor and Wilmington Trust Company, as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Preferred Securities, as amended from time to time. "Holder" means a Securityholder. "Indenture" means the Junior Subordinated Indenture, dated as of March __, 1998, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Investment Company Event" means the receipt by the Depositor and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in Investment Company Act Law"), the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after the date or original issuance of the Preferred Securities under this Trust Agreement. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, adverse claim, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture, allocated to the Common Securities and the Trust Preferred Securities based upon the relative Liquidation Amounts of such classes and the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. "Liquidation Amount" means the stated amount of $25 per Trust Security. 9 "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 9.4(a). "Liquidation Distribution" has the meaning specified in Section 9.4(d). "1940 Act" means the Investment Company Act of 1940, as amended. "Officers' Certificate" means a certificate signed by the Chairman of the Board, Chief Executive Officer, President or a Vice President, and by the Chief Financial Officer, Treasurer, Secretary or an Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 8.16 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (c) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee, the Delaware Trustee or the Depositor, but not an employee of any thereof, and who shall be reasonably acceptable to the Property Trustee. [["Original Trust Agreement" has the meaning specified in the recitals to this Trust Agreement.]] 10 "Outstanding," when used with respect to Trust Securities, means, as of the date of determination, all Trust Securities theretofore executed and delivered under this Trust Agreement, except: (a) Trust Securities theretofore canceled by the Property Trustee or delivered to the Property Trustee for cancellation; (b) Trust Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Trust Securities; provided that, if such Trust Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and (c) Trust Securities which have been paid or in exchange for or in lieu of which other Trust Securities have been executed and delivered pursuant to Sections 5.4, 5.5, 5.11 and 5.13; provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities that such Trustee knows to be so owned shall be so disregarded and (b) the foregoing shall not apply at any time when all of the outstanding Preferred Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Preferred Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee's right so to act with respect to such Preferred Securities and that the pledgee is not the Depositor or any Affiliate of the Depositor. "Owner" means each Person who is the beneficial owner of a Book-Entry Preferred Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency). "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.9 and shall initially be the Bank. 11 "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee, through the Paying Agent, shall make payments to the Securityholders in accordance with Sections 4.1 and 4.2. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided beneficial interest in the assets of the Trust designated as "___% Cumulative Trust Preferred Securities," having a Liquidation Amount of $25 per security and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate" means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Property Trustee" means the Person identified as the "Property Trustee" in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore created and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Preferred Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Preferred Securities. 12 "Relevant Trustee" shall have the meaning specified in Section 8.10. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 5.4. "Securityholder" means a Person in whose name a Trust Security is registered in the Securities Register; any such Person shall be deemed to be a beneficial owner within the meaning of the Delaware Business Trust Act. "Tax Event" means the receipt by the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under this Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the Debentures, (ii) interest payable by the Depositor on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, will not be, deductible by the Depositor, in whole or in part, for United States Federal income tax purposes or (iii) the Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including (i) all exhibits hereto and (ii) for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. 13 "Trust Property" means (a) the Debentures, (b) any cash on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriters" means each of the Underwriters named in the Underwriting Agreement. "Underwriting Agreement" means that certain Underwriting Agreement, dated as of April ___, 1998, among the Trust, the Depositor, EVEREN Securities, Inc. and Josephthal & Co. Inc., as the representatives of the Underwriters. ARTICLE II ESTABLISHMENT OF THE TRUST SECTION II.1 Name. The Trust continued hereby shall be known as "U.S. HOME & GARDEN TRUST I," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION II.2 Office of the Delaware Trustee; Principal Place of Business. 14 The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890-0001, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o U.S. Home & Garden Inc., 655 Montgomery Street, San Francisco, California, 94111. SECTION II.3 Initial Contribution of Trust Property; Organizational Expenses. The Trustees acknowledges receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. SECTION II.4 Issuance of the Preferred Securities. The Depositor and an Administrative Trustee, on behalf of the Trust and pursuant to the Original Trust Agreement, have executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement, Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, as instructed by EVEREN Securities, Inc., on behalf of the representatives of the Underwriters, in an aggregate amount of 2,200,000 Preferred Securities having an aggregate Liquidation Amount of $55,000,000, against receipt of such aggregate purchase price of such Preferred Securities of $55,000,000, which amount the Administrative Trustee shall promptly deliver to the Property Trustee. 15 SECTION II.5 Issuance of the Common Securities; Subscription and Purchase of Debentures. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of 66,000 Common Securities having an aggregate Liquidation Amount of $1,650,000, against payment by the Depositor of such amount, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor Debentures, registered in the name of the Trust and having an aggregate principal amount equal to $56,650,000 and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $56,650,000, such amount being the sum of the amounts delivered to the Property Trustee pursuant to (i) the second sentence of Section 2.4 and (ii) the first sentence of this Section 2.5. SECTION II.6 Declaration of Trust. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures, and (b) to engage in those activities necessary, advisable or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Trust and the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. SECTION II.7 Authorization to Enter into Certain Transactions. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section and Section 2.6, and in accordance with the following provisions (i) and (ii), the Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate 16 in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and the Certificate Depository Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration (including the execution of a registration statement on the appropriate form) of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) assisting in the listing of the Preferred Securities upon such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Exchange Act, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent, authenticating agent and Securities Registrar in accordance with this Trust Agreement; (G) registering transfer of the Trust Securities in accordance with this Trust Agreement; 17 (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) unless otherwise determined by the Depositor, the Property Trustee or the Administrative Trustees, or as otherwise required by the Delaware Business Trust Act or the Trust Indenture Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and (J) the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution through the Paying Agent of amounts owed to the Securityholders in respect of the Trust Securities; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; 18 (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) after an Event of Default (other than under paragraph (b), (c), (d) or (e) of the definition of such term if such Event of Default is by or with respect to the Property Trustee) the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); (J) so long as the Property Trustee is the Securities Registrar, registering transfers of the Trust Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 2.7(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.7(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, 19 the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution by the Trust of a registration statement on the appropriate form in relation to the Preferred Securities, including any amendments thereto; (ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to the American Stock Exchange or any other national stock exchange or the Nasdaq Stock Market for listing upon notice of issuance of any Preferred Securities; (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act, or fail to be classified as a grantor trust for United States federal income tax purposes and so that the Debentures will be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Trust Agreement, 20 that each of the Depositor and any Administrative Trustee determines in its discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the holders of the Preferred Securities. SECTION II.8 Assets of Trust. The assets of the Trust shall consist of the Trust Property. SECTION II.9 Title to Trust Property. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Trust and the Securityholders in accordance with this Trust Agreement. ARTICLE III PAYMENT ACCOUNT SECTION III.1 Payment Account. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. 21 ARTICLE IV DISTRIBUTIONS; REDEMPTION SECTION IV.1 Distributions. (a) The Trust Securities represent undivided beneficial interests in the Trust Property, and Distributions (including of Additional Amounts) will be made on the Trust Securities at the rate and on the dates that payments of interest (including of Additional Interest, as defined in the Indenture) are made on the Debentures. Accordingly: (i) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accrue from the date of original issuance of the Trust Securities, and, except in the event (and to the extent) that the Depositor exercises its right to defer the payment of interest on the Debentures pursuant to the Indenture, shall be payable monthly in arrears on the ___th day of each calendar month of each year, commencing on _______ ___, 1998. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 4.1(a), a "Distribution Date"). (ii) Assuming payments of interest on the Debentures are made when due (and before giving effect to Additional Amounts, if applicable), Distributions on the Trust Securities shall be payable at a rate of ___% per annum of the Liquidation Amount of the Trust Securities. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (iii) Distributions on the Trust Securities shall be made by the Property Trustee from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Distributions. 22 (b) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one Business Day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date 15 days prior to the relevant Distribution Date (or, if such date is not a Business Day, the next Business Day following such date). SECTION IV.2 Redemption. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust will be required to redeem, subject to Section 4.3, a Like Amount of Trust Securities at the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Security Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the total Liquidation Amount of the particular Trust Securities to be redeemed; and (v) that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that Distributions thereon will cease to accrue on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on 23 each Redemption Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, Eastern time, on the Redemption Date, subject to Section 4.2(c), with respect to Preferred Securities held in certificated form, the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Preferred Securities Certificates. With respect to Preferred Securities held in book-entry form, the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with the Clearing Agency for the Preferred Securities funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the holders thereof. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest, and such Securities will cease to be outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accrue, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the recordholders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date 15 days prior to the relevant Redemption Date (or, if such date is not a Business Day, the next Business Day following such date). (f) Subject to Section 4.3(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Redemption Price of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the 24 Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected on a pro rata basis (based upon Liquidation Amounts) not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, by such method (including, without limitation, by lot) as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the Security Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities that has been or is to be redeemed. SECTION IV.3 Subordination of Common Securities. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(f), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. (b) In the case of the occurrence of any Event of Default resulting from any Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. 25 SECTION IV.4 Payment Procedures. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register, provided that payments will be made by wire transfer if requested by a holder of at least $1,000,000 aggregate Liquidation Amount of the Preferred Securities, or, if the Preferred Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable Distribution Dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. SECTION IV.5 Tax Returns and Reports. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required to be provided on such form. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Trustees shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. SECTION IV.6 Payment of Taxes, Duties, Etc. of the Trust. Upon receipt under the Debentures of Additional Sums, the Property Trustee shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. SECTION IV.7 Payments under Indenture or Pursuant to Direct Actions. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment that such Holder (and any Owner with respect thereto) 26 has directly received pursuant to Section 5.8 of the Indenture or Section 5.14 of this Trust Agreement. ARTICLE V TRUST SECURITIES CERTIFICATES SECTION V.1 Initial Ownership. Upon the formation of the Trust and the contribution by the Depositor pursuant to Section 2.3 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION V.2 The Trust Securities Certificates. The Preferred Securities Certificates shall be issued in minimum denominations of $25 Liquidation Amount and integral multiples of $25 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $25 Liquidation Amount and integral multiples thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by signature of at least one Administrative Trustee. Trust Securities Certificates bearing the signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 5.4, 5.11 and 5.13. SECTION V.3 Execution and Delivery of Trust Securities Certificates. On or prior to the Closing Date, the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Section 2.4, to be executed on behalf of the Trust and delivered to or upon the written order of the Depositor, signed by its Chairman of the Board, Chief Executive Officer, President or any Vice President and its Chief Fiancial Officer, Treasurer, Secretary or any Assistant Secretary, without further corporate action by the Depositor, in authorized denominations. 27 SECTION V.4 Registration of Transfer and Exchange of Preferred Securities Certificates. The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (the "Securities Register") in which, the registrar designated by the Depositor (the "Securities Registrar"), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Preferred Securities Certificates and Common Securities Certificates (subject to Section 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar. Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 5.8, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.8. Every Preferred Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to an Administrative Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be canceled and subsequently disposed of by an Administrative Trustee in accordance with such Person's customary practice. The Trust shall not be required to (i) issue, register the transfer of, or exchange any Preferred Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Preferred Securities called for redemption and ending at the close business on the day of such mailing or (ii) register the transfer of or exchange any Preferred Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Preferred Securities being redeemed in part. 28 No service charge shall be made for any registration of transfer or exchange of Preferred Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Securities Certificates. SECTION V.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. SECTION V.6 Persons Deemed Securityholders. The Trustees or the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. SECTION V.7 Access to List of Securityholders' Names and Addresses. At any time when the Property Trustee is not also acting as the Securities Registrar, the Administrative Trustees or the Depositor shall furnish or cause to be furnished to the Property Trustee (a) semi-annually on or before January 1 and July 1 in each year, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of the most recent record date and (b) promptly after receipt by any Administrative Trustee or the 29 Depositor of a request therefor from the Property Trustee, such other information as the Property Trustee may reasonably require in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, in each case to the extent such information is in the possession or control of the Administrative Trustees or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee in its capacity as Securities Registrar. The rights of Securityholders to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities, and the corresponding rights of the Trustee shall be as provided in the Trust Indenture Act. Each Securityholder, by receiving and holding a Trust Securities Certificate, and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION V.8 Maintenance of Office or Agency. The Administrative Trustees shall maintain an office or offices or agency or agencies where Preferred Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities Certificates may be served. The Administrative Trustees initially designate the principal corporate trust office of the Property Trustee, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890- 0001, Attention: Corporate Trust Administration, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. 30 SECTION V.9 Appointment of Paying Agent. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Property Trustee also in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Trust Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION V.10 Ownership of Common Securities by Depositor. At the Closing Date, the Depositor shall acquire and retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another Person, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE." 31 SECTION V.11 Book-Entry Preferred Securities Certificates; Common Securities Certificate. (a) The Preferred Securities Certificates, upon original issuance, will be issued in the form of a typewritten Preferred Securities Certificate or Certificates representing Book-Entry Preferred Securities Certificates, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of _______________, the nominee of the initial Clearing Agency, and no Owner will receive a Definitive Preferred Securities Certificate, representing such Owners' interest in such Preferred Securities, except as provided in Section 5.13. Unless and until Definitive Preferred Securities Certificates have been issued to Owners pursuant to Section 5.13: (i) the provisions of this Section 5.11(a) shall be in full force and effect; (ii) the Securities Registrar, the Paying Agent and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Preferred Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Preferred Securities evidenced by Book-Entry Preferred Securities Certificates) the Book-Entry Preferred Securities Certificates and shall have no obligations to the Owners thereof; (iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and (iv) the rights of the Owners of the Book-Entry Preferred Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Certificate Depository Agreement, unless and until Definitive Preferred Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments on the Preferred Securities to such Clearing Agency Participants. Any Clearing Agency designated pursuant here to will not be deemed an agent of the Trustee for any purpose. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. 32 SECTION V.12 Notices to Clearing Agency. To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Preferred Securities Certificates shall have been issued to Owners pursuant to Section 5.13, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners. SECTION V.13 Definitive Preferred Securities Certificates. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Preferred Securities Certificates, and the Depositor is unable to locate a qualified successor, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Debenture Event of Default, Owners of Preferred Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interest of the Owners of Preferred Securities Certificates, then the Property Trustee shall notify the Clearing Agency and the Clearing Agency shall notify all Owners of Preferred Securities Certificates and the other Trustees of the occurrence of any such event and of the availability of the Definitive Preferred Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Property Trustee of the typewritten Preferred Securities Certificate or Certificates representing the Book-Entry Preferred Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the Holders of the Definitive Preferred Securities Certificates as Securityholders. The Definitive Preferred Securities Certificates shall be engraved and executed in accordance with the applicable rules of the American Stock Exchange or such other national exchange or over-the-counter market on which the Preferred Securities are then listed for trading. SECTION V.14 Rights of Securityholders. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.9, and the Securityholders shall not have any 33 right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be fully paid and nonassessable by the Trust. The Holders of the Trust Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. (b) For so long as any Preferred Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as in the Indenture provided, the Holders of a majority in Liquidation Amount of the Preferred Securities, by written notice to the Property Trustee, the Depositor and the Debenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Depositor has paid or deposited with the Debenture Trustee a sum sufficient to pay (A) all overdue installments of interest (including any Additional Interest (as defined in the Indenture)) on all of the Debentures, (B) the principal of (and premium, if any, on) any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and (C) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, 34 expenses, disbursements and advances of the Debenture Trustee and the Property Trustee, their agents and counsel; and (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13 of the Indenture. The Holders of a majority in aggregate Liquidation Amount of the Preferred Securities may, on behalf of the Holders of all the Preferred Securities, waive any past default under the Indenture, except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Property Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of the Preferred Securities all or part of which is represented by Book-Entry Preferred Securities Certificates, a record date shall be established for determining Holders of Outstanding Preferred Securities entitled to join in such notice, which record date shall be at the close of business on the day the Property Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.14(b). (c) For so long as any Preferred Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1) or 5.1(2) of the Indenture, any Holder of Preferred Securities shall have the right to institute a proceeding directly against the Depositor, pursuant to Section 5.8 of the Indenture, for enforcement of payment to such Holder of the principal amount of or interest on Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holder (a "Direct Action"). Except as set forth in Section 5.14(b) and this Section 5.14(c), the 35 Holders of Preferred Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Debentures. ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING SECTION VI.1 Limitations on Voting Rights. (a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.2 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures, (ii) waive any past default which is waivable under Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities, provided, however, that where a consent under the Indenture would require the consent of each Holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities, except by a subsequent vote of the Holders of Preferred Securities. The Property Trustee shall notify all Holders of the Preferred Securities of any notice of default received from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that such action shall not cause the Trust to fail to be classified as a grantor trust for United States federal income tax purposes. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the 36 powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities as a class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. Notwithstanding any other provision of this Trust Agreement, no amendment to this Trust Agreement may be made if, as a result of such amendment, it would cause the Trust to fail to be classified as a grantor trust for United States federal income tax purposes. SECTION VI.2 Notice of Meetings. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.9 to each Preferred Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. SECTION VI.3 Meetings of Preferred Securityholders. No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Preferred Securityholders to vote on any matter upon the written request of Holders of record of 25% of the Outstanding Preferred Securities (based upon their Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which Preferred Securityholders are entitled to vote. Holders of record of 50% of the Outstanding Preferred Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Preferred Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. 37 SECTION VI.4 Voting Rights. Securityholders shall be entitled to one vote for each $25 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. SECTION VI.5 Proxies, etc. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Securityholders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. SECTION VI.6 Securityholder Action by Written Consent. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding a majority of all Outstanding Trust Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount). SECTION VI.7 Record Date for Voting and Other Purposes. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, 38 not more than 90 days prior to the date of any meeting of Securityholders or the payment of a Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. SECTION VI.8 Acts of Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor of the Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of 39 the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such liquidation amount. If any dispute shall arise between the Securityholders and the Administrative Trustees or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter. A Securityholder may institute a legal proceeding directly against the Depositor under the Guarantee to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee (as defined in the Guarantee), the Trust or any Person. SECTION VI.9 Inspection of Records. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION VII.1 Representations and Warranties of the Bank. The Bank hereby represents and warrants for the benefit of the Depositor and the Securityholders that: (a) the Bank is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize 40 the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Bank and constitutes the valid and legally binding agreement of the Bank enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (d) the execution, delivery and performance of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Bank and does not require any approval of stockholders of the Bank and such execution, delivery and performance will not (i) violate the charter or bylaws of the Bank, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Bank is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking, trust or general powers of the Bank or any order, judgment or decree applicable to the Bank; (e) neither the authorization, execution or delivery by the Bank of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee or the Delaware Trustee (as appropriate in context) contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking, trust or general powers of the Bank, as the case may be, under the laws of the United States or the State of Delaware; (f) there are no proceedings pending or, to the best the Bank's knowledge, threatened against or affecting the Property Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Bank to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION VII.2 Representations and Warranties of Depositor. The Depositor hereby represents and warrants for the benefit of the Securityholders that: 41 (a) the Trust Securities Certificates issued at the Closing Date on behalf of the Trust have been duly authorized and will have been, duly and validly executed, issued and delivered by the Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders will be, as of each such date, entitled to the benefits of this Trust Agreement; and (b) there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Bank, the Property Trustee or the Delaware Trustee, as the case may be, of Bank, this Trust Agreement. ARTICLE VIII THE TRUSTEES SECTION VIII.1 Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. No Administrative Trustee or the Delaware Trustee shall be subject to any liability under this Trust Agreement except for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity, a Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Trustees. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to 42 enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of the Trust Securities given in accordance with this Trust Agreement relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such Property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor; and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 3.1 and except to the extent otherwise required by law; and (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of the Administrative Trustees or the Depositor. 43 SECTION VIII.2 Certain Notices. (a) Within 5 Business Days after the occurrence of any Event of Default actually known to a Responsible Officer of the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.9, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless the Event of Default shall have been cured or waived. For purposes of this Section the term "Event of Default" means any event that is, or after notice or lapse of time or both would become, and Event of Default. (b) The Administrative Trustees shall transmit, to the Securityholders in the manner and to the extent provided in Section 10.9, notice of the Depositor's election to begin or further extend an Extension Period (as defined in the Indenture) on the Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Debentures pursuant to the Indenture as originally executed. SECTION VIII.3 Certain Rights of Property Trustee. Subject to the provisions of Section 8.1: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Preferred Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, 44 by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; (f) the Property Trustee may consult with counsel (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or 45 document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION VIII.4 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. SECTION VIII.5 May Hold Securities. 46 Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, except as provided in the definition of the term "Outstanding" in Article I and subject to Sections 8.8 and 8.13, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. SECTION VIII.6 Compensation; Indemnity; Fees. The Depositor agrees: (a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as specified in a separate agreement between any of the Trustees and the Depositor; (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its gross negligence (or ordinary negligence in the case of the Property Trustee), bad faith or willfulness; and (c) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee, and (iv) any employee or agent of the Trust or its Affiliates, (referred to herein as an "Indemnified Person") from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or dissolution of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Trust Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or ordinary negligence in the case of the Property Trustee), bad faith or willful misconduct with respect to such acts or omissions. The provisions of this Section 8.6 shall survive the termination of this Trust Agreement. 47 No Trustee may claim any lien or charge on any Trust Property as a result of any amount due pursuant to this Section 8.6. The Depositor and any Trustee may (subject to Section 8.8) engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Depositor, nor any Trustee, shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Depositor or its Affiliates. SECTION VIII.7 Corporate Property Trustee Required; Eligibility of Trustees. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. 48 SECTION VIII.8 Conflicting Interests. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. SECTION VIII.9 Co-Trustees and Separate Trustee. Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Administrative Trustees, the Depositor shall for such purpose join with the Administrative Trustees in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Depositor. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (a) The Trust Securities shall be executed and delivered and all rights, powers, duties, 49 and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder shall be exercised solely by such Trustees and not by such co-trustee or separate trustee. (b) The rights, powers, duties, and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section. (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (e) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION VIII.10 Resignation and Removal; Appointment of Successor. No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. 50 Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time by giving written notice thereof to the Common Securityholder. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). In no event will the Holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees. An Administrative Trustee may be removed by the Common Securityholder at any time. If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and be continuing, the Preferred Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of Section 8.11. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder by Act of the Common Securityholder delivered to the Administrative Trustee shall promptly appoint a successor Administrative Trustee or Administrative Trustees and such successor Administrative Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee. 51 The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 10.9 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of the remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees or Delaware Trustee, as the case may be, set forth in Section 8.7). SECTION VIII.11 Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article. 52 SECTION VIII.12 Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Property Trustee or the Delaware Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION VIII.13 Preferential Collection of Claims Against Depositor or Trust. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Trust Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Trust Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Trust Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders, to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee. 53 Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement adjustment or compensation affecting the Trust Securities or the rights of any Holder thereof or to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION VIII.14 Reports by Property Trustee. (a) Not later than July 31 of each year commencing with the year commencing January 1, 1999, the Property Trustee shall transmit to all Securityholders in accordance with Section 10.9, and to the Depositor, a brief report dated as of the immediately preceding December 31 with respect to: (i) its eligibility under Section 8.7 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; (ii) a statement that the Property Trustee has complied with all of its obligations under this Trust Agreement during the twelve-month period (or, in the case of the initial report, the period since the Closing Date) ending with such December 31 or, if the Property Trustee has not complied in any material respect with such obligations, a description of such noncompliance; and (iii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities. (b) In addition the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national stock exchange (including the American Stock Exchange), the Nasdaq Stock Market or such other interdealer quotation system or self-regulatory organization upon which the Trust Securities are listed or traded, with the Commission and with the Depositor. 54 SECTION VIII.15 Reports to the Property Trustee. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION VIII.16 Evidence of Compliance with Conditions Precedent. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. SECTION VIII.17 Number of Trustees. (a) The number of Trustees shall be five (5) provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 8.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Trust Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. 55 SECTION VIII.18 Delegation of Power. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.7(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Trust Agreement, as set forth herein. SECTION VIII.19 Voting. Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless there are only two, in which case both must consent. ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER SECTION IX.1 Dissolution Upon Expiration Date. Unless dissolved earlier, the Trust shall automatically dissolve on ____________, 2029 (the "Expiration Date"), following the distribution of the Trust Property in accordance with Section 9.4. SECTION IX.2 Early Dissolution. The first to occur of any of the following events is an "Early Dissolution Event," upon the occurrence of which the Trust shall dissolve: 56 (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor; (b) the written direction to the Property Trustee from the Depositor at any time to dissolve the Trust and distribute Debentures to Securityholders in exchange for a Like Amount of the Preferred Securities (which direction is optional and wholly within the discretion of the Depositor); (c) the redemption of all of the Preferred Securities in connection with the redemption of all the Debentures; and (d) the entry of an order for dissolution of the Trust by a court of competent jurisdiction. SECTION IX.3 Dissolution. The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall dissolve upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Securities pursuant to Section 4.2, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders, and (d) the filing of a Certificate of Cancellation by the Administrative Trustee under the Delaware Business Trust Act. SECTION IX.4 Liquidation. (a) If an Early Dissolution Event specified in clause (a), (b) or (d) of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 9.4(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: 57 (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for certificates representing the Like Amount of the Debentures, or if Section 9.4(d) applies receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Administrative Trustees shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures will be issued to holders of Trust Securities Certificates, upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall use its best efforts to have the Debentures listed on the American Stock Exchange or on such other exchange, interdealer quotation system or self-regulatory organization as the Preferred Securities are then listed, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Debentures represented by such certificates) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive a Like Amount of Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound-up or terminated, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution of the Trust, Securityholders will be entitled to receive out of 58 the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such winding up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such winding-up or termination pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, Holders of the Preferred Securities shall have a priority over the Holders of Common Securities. SECTION IX.5 Mergers, Consolidations, Amalgamations or Replacements of the Trust. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except pursuant to this Section 9.5 or Section 9.4. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the Holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust may merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Preferred Securities or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Debentures, (iii) the Successor Securities are listed or traded, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed or traded, if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, 59 conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the 1940 Act and (viii) the Depositor owns all of the Common Securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE X MISCELLANEOUS PROVISIONS SECTION X.1 Limitation of Rights of Securityholders. The death or incapacity of any person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such person or any Securityholder for such person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. SECTION X.2 Amendment. (a) This Trust Agreement may be amended from time to time by the Property Trustee, the Administrative Trustees and the Depositor, without the consent of any Securityholders, (i) to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, which shall not be inconsistent with the other provisions of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an investment company under the 1940 Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any Securityholder, and any such amendments of this Trust 60 Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 10.2(c) hereof, any provision of this Trust Agreement may be amended by the Administrative Trustees and the Property Trustee with (i) the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an investment company under the 1940 Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this paragraph (c) of this Section 10.2 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Administrative Trustee shall enter into or consent to any amendment to this Trust Agreement which would (i) cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the 1940 Act, (ii) cause the Trust to fail or cease to be classified as a grantor trust for United States federal income tax purposes, or (iii) cause the Preferred Securities to be delisted by the American Stock Exchange. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Delaware Trustee or the Depositor, as the case may be, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor or the Delaware Trustee. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under 61 this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION X.3 Counterparts. This Trust Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. SECTION X.4 Separability. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION X.5 Governing Law. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). SECTION X.6 Payments Due on Non-Business Day. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day that is a Business Day (except as otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as though made on the date fixed for such payment, and no interest shall accrue thereon for the period after such date. SECTION X.7 Successors. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor 62 to the Depositor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION X.8 Headings. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. SECTION X.9 Reports, Notices and Demands. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to U.S. Home & Garden Inc., 655 Montgomery Street, San Francisco, California, 94111, Attention: Robert Kassel, President. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee, the Delaware Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington , Delaware 19890-0001, Attention: Corporate Trust Department; (b) with respect to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration; and (c) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention Administrative Trustees of U.S. HOME & GARDEN TRUST I." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION X.10 Agreement Not to Petition. 63 Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any Bankruptcy Laws or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 10.10, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Trustee or the Trust may assert. The provisions of this Section 10.10 shall survive the termination of this Trust Agreement. SECTION X.11 Trust Indenture Act; Conflict with Trust Indenture Act. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION X.12 Acceptance of Terms of Trust Agreement, Guarantee and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, 64 WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. 65 IN WITNESS WHEREOF, the undersigned have executed this Trust Agreement this 27th day of January, 1998. U.S. HOME & GARDEN INC. U.S. HOME & GARDEN TRUST I By: ______________________ __________________________________ Name: Jerry A. Gordon Name: Title: President and Title: Administrative Trustee Chief Operating Officer WILMINGTON TRUST COMPANY, __________________________________ as Property Trustee Name: Title: Administrative Trustee By: ______________________ __________________________________ Name: Name: Title: Title: Administrative Trustee WILMINGTON TRUST COMPANY, as Delaware Trustee By: ______________________ Name: Title: Certificate of Trust EXHIBIT B DTC Letter of Representations EXHIBIT C Certificate Evidencing Common Securities EXHIBIT D Agreement as to Expenses and Liabilities EXHIBIT E Certificate Evidencing Trust Preferred Securities TABLE OF CONTENTS
Page ---- ARTICLE I Defined Terms........................................................................................... 1 ARTICLE II Establishment of the Trust............................................................................. 10 Section 2.1...........................................................................................Name 10 Section 2.2....................................Office of the Delaware Trustee; Principal Place of Business 11 Section 2.3................................Initial Contribution of Trust Property; Organizational Expenses 11 Section 2.4...........................................................Issuance of the Preferred Securities 11 Section 2.5.....................Issuance of the Common Securities; Subscription and Purchase of Debentures 11 Section 2.6...........................................................................Declaration of Trust 12 Section 2.7...............................................Authorization to Enter into Certain Transactions 12 Section 2.8................................................................................Assets of Trust 15 Section 2.9........................................................................Title to Trust Property 16 ARTICLE III Payment Account....................................................................................... 16 Section 3.1................................................................................Payment Account 16 ARTICLE IV Distributions; Redemption.............................................................................. 16 Section 4.1..................................................................................Distributions 16 Section 4.2.....................................................................................Redemption 17 Section 4.3.............................................................Subordination of Common Securities 19 Section 4.4.............................................................................Payment Procedures 20
Page ---- Section 4.5........................................................................Tax Returns and Reports 20 Section 4.6....................................................Payment of Taxes, Duties, Etc. of the Trust 20 Section 4.7.........................................Payments under Indenture or Pursuant to Direct Actions 20 ARTICLE V Trust Securities Certificates........................................................................... 21 Section 5.1..............................................................................Initial Ownership 21 Section 5.2..............................................................The Trust Securities Certificates 21 Section 5.3........................................Execution and Delivery of Trust Securities Certificates 21 Section 5.4.....................Registration of Transfer and Exchange of Preferred Securities Certificates 21 Section 5.5.............................Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates 22 Section 5.6.................................................................Persons Deemed Securityholders 23 Section 5.7.........................................Access to List of Securityholders' Names and Addresses 23 Section 5.8................................................................Maintenance of Office or Agency 23 Section 5.9....................................................................Appointment of Paying Agent 24 Section 5.10...................................................Ownership of Common Securities by Depositor 24 Section 5.11...................Book-Entry Preferred Securities Certificates; Common Securities Certificate 25 Section 5.12....................................................................Notices to Clearing Agency 25 Section 5.13..................................................Definitive Preferred Securities Certificates 26 Section 5.14.....................................................................Rights of Securityholders 26 ARTICLE VI Acts of Securityholders; Meetings; Voting.............................................................. 28 Section 6.1...................................................................Limitations on Voting Rights 28 Section 6.2.............................................................................Notice of Meetings 29 Section 6.3..........................................................Meetings of Preferred Securityholders 29 Section 6.4..................................................................................Voting Rights 30 Section 6.5..................................................................................Proxies, etc. 30
Page ---- Section 6.6.......................................................Securityholder Action by Written Consent 30 Section 6.7......................................................Record Date for Voting and Other Purposes 30 Section 6.8........................................................................Acts of Securityholders 31 Section 6.9..........................................................................Inspection of Records 32 ARTICLE VII Representations and Warranties........................................................................ 32 Section 7.1.....................................................Representations and Warranties of the Bank 32 Section 7.2....................................................Representations and Warranties of Depositor 33 ARTICLE VIII The Trustees......................................................................................... 33 Section 8.1............................................................Certain Duties and Responsibilities 33 Section 8.2................................................................................Certain Notices 35 Section 8.3.............................................................Certain Rights of Property Trustee 35 Section 8.4.........................................Not Responsible for Recitals or Issuance of Securities 37 Section 8.5............................................................................May Hold Securities 37 Section 8.6..................................................................Compensation; Indemnity; Fees 38 Section 8.7...................................Corporate Property Trustee Required; Eligibility of Trustees 39 Section 8.8..........................................................................Conflicting Interests 39 Section 8.9...............................................................Co-Trustees and Separate Trustee 39 Section 8.10.............................................Resignation and Removal; Appointment of Successor 41 Section 8.11........................................................Acceptance of Appointment by Successor 42 Section 8.12...................................Merger, Conversion, Consolidation or Succession to Business 43 Section 8.13..................................Preferential Collection of Claims Against Depositor or Trust 43 Section 8.14...................................................................Reports by Property Trustee 44 Section 8.15...............................................................Reports to the Property Trustee 44 Section 8.16..............................................Evidence of Compliance with Conditions Precedent 45
Page ---- Section 8.17............................................................................Number of Trustees 45 Section 8.18...........................................................................Delegation of Power 45 Section 8.19........................................................................................Voting 46 ARTICLE IX Dissolution, Liquidation and Merger.................................................................... 46 Section 9.1...............................................................Dissolution Upon Expiration Date 46 Section 9.2..............................................................................Early Dissolution 46 Section 9.3....................................................................................Dissolution 46 Section 9.4....................................................................................Liquidation 47 Section 9.5............................Mergers, Consolidations, Amalgamations or Replacements of the Trust 48 ARTICLE X Miscellaneous Provisions................................................................................ 49 Section 10.1.......................................................Limitation of Rights of Securityholders 49 Section 10.2.....................................................................................Amendment 49 Section 10.3..................................................................................Counterparts 51 Section 10.4..................................................................................Separability 51 Section 10.5.................................................................................Governing Law 51 Section 10.6..............................................................Payments Due on Non-Business Day 51 Section 10.7....................................................................................Successors 51 Section 10.8......................................................................................Headings 51 Section 10.9..................................................................Reports, Notices and Demands 52 Section 10.10....................................................................Agreement Not to Petition 52 Section 10.11.......................................Trust Indenture Act; Conflict with Trust Indenture Act 53 Section 10.12..............................Acceptance of Terms of Trust Agreement, Guarantee and Indenture 54
Index of Exhibits: EXHIBIT A -- Certificate of Trust EXHIBIT B -- DTC Letter of Representations EXHIBIT C -- Form of Certificate Evidencing Common Securities EXHIBIT D -- Agreement as to Expenses and Liabilities EXHIBIT E -- Form of Certificate Evidencing Trust Preferred Securities EX-4.5 8 EXHIBIT 4.5 EXHIBIT 4.5 THIS TRUST PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY. THIS TRUST PREFERRED SECURITY IS EXCHANGEABLE FOR TRUST PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT AND NO TRANSFER OF THIS TRUST PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS TRUST PREFERRED SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS TRUST PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY (55 WATER STREET, NEW YORK) TO U.S. HOME & GARDEN TRUST I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY TRUST PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CERTIFICATE NUMBER P-1 NUMBER OF TRUST PREFERRED SECURITIES: ____ CUSIP NO. -------------- CERTIFICATE EVIDENCING TRUST PREFERRED SECURITIES OF U.S. HOME & GARDEN TRUST I _____% CUMULATIVE TRUST PREFERRED SECURITIES, (LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY) U.S. HOME & GARDEN TRUST I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder") is the registered owner of _______________________ (______) Trust Preferred Securities of the Trust representing an undivided beneficial interest in the assets of the Trust and designated the U.S. HOME & GARDEN TRUST I Cumulative Trust Preferred Securities, (liquidation amount $25 per Trust Preferred Security) (the "Trust Preferred Securities"). The Trust Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Trust Preferred Securities are set forth in, and this certificate and the Trust Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of ___________, 1998, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of Trust Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by U.S. Home & Garden Inc., a Delaware corporation, and Wilmington Trust Company, a Delaware banking corporation, as guarantee trustee, dated as of ___________, 1998, (the "Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. In Witness Whereof, one of the Administrative Trustees of the Trust has executed this certificate this ______ day of ____________, 1998. U.S. HOME & GARDEN TRUST I By: ----------------------------------- Administrative Trustee ASSIGNMENT For Value Received, the undersigned assigns and transfers this Trust Preferred Security to:_______________________________________________________ (Insert assignee's social security or tax identification number) ___________________________________ ___________________________________ (Insert address and zip code of assignee) and irrevocably appoints______________________________________________________ ______________________________________________________________________________ as agent to transfer this Trust Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:____________________ Signature:_________________________________________________________________ (Sign exactly as your name appears on the other side of this Trust Preferred Security Certificate) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 of the regulations promulgated under Securities Exchange Act of 1934, as amended. -3- EX-4.6 9 EXHIBIT 4.6 EXHIBIT 4.6 THIS CERTIFICATE IS NOT TRANSFERABLE CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES: CERTIFICATE EVIDENCING COMMON SECURITIES OF U.S. HOME & GARDEN TRUST I ______% COMMON SECURITIES (LIQUIDATION AMOUNT $25 PER COMMON SECURITY) U.S. HOME & GARDEN TRUST I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that U.S. Home & Garden Inc. (the "Holder") is the registered owner of _________________ (_____________ ) common securities of the Trust representing an undivided beneficial interest in the assets of the Trust and designated the Common Securities (liquidation amount $25 per Common Security) (the "Common Securities"). In accordance with Section 5.10 of the Trust Agreement (as defined below) the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of _____________, 1998, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of the Common Securities as set forth therein. The Trust will furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. In Witness Whereof, one of the Administrative Trustees of the Trust has executed this certificate this _____ day of _____________, 1998. U.S. HOME & GARDEN TRUST I By: -------------------------- Name: Title: Administrative Trustee EX-4.7 10 EXHIBIT 4.7 EXHIBIT 4.7 GUARANTEE AGREEMENT BETWEEN U.S. HOME & GARDEN INC. (AS GUARANTOR) AND WILMINGTON TRUST COMPANY (AS TRUSTEE) DATED AS OF ___________, 1998 CROSS-REFERENCE TABLE* Section of Trust Section of Indenture Act of 1939, as amended Guarantee Agreement - --------------------------------- ------------------- 310(a) 4.1(a) 310(b) 4.1(c), 2.8 310(c) Inapplicable 311(a) 2.2(b) 311(b) 2.2(b) 311(c) Inapplicable 312(a) 2.2(a) 312(b) 2.2(b) 313 2.3 314(a) 2.4 314(b) Inapplicable 314(c) 2.5 314(d) Inapplicable 314(e) 1.1, 2.5, 3.2 314(f) 2.1, 3.2 315(a) 3.1(d) 315(b) 2.7 315(c) 3.1 315(d) 3.1(d) 316(a) 1.1, 2.6, 5.4 316(b) 5.3 316(c) 9.2 317(a) Inapplicable 317(b) Inapplicable 318(a) 2.1(b) 318(b) 2.1 318(c) 2.1(a) - ----------- * This Cross-Reference Table does not constitute part of the Guarantee Agreement and shall not affect the interpretation of any of its terms or provisions. TABLE OF CONTENTS ARTICLE I. DEFINITIONS..................................................... 1 SECTION 1.1 Definitions........................................... 1 ARTICLE II. TRUST INDENTURE ACT............................................ 4 SECTION 2.1 Trust Indenture Act; Application....................... 4 SECTION 2.2 List of Holders........................................ 4 SECTION 2.3 Reports by the Guarantee Trustee....................... 5 SECTION 2.4 Periodic Reports to the Guarantee Trustee.............. 5 SECTION 2.5 Evidence of Compliance with Conditions Precedent.............................................. 5 SECTION 2.6 Events of Default; Waiver.............................. 5 SECTION 2.7 Event of Default; Notice............................... 6 SECTION 2.8 Conflicting Interest................................... 6 ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE........................................................ 6 SECTION 3.1 Powers and Duties of the Guarantee Trustee................................................ 6 SECTION 3.2 Certain Rights of Guarantee Trustee.................... 8 SECTION 3.3 Indemnity.............................................. 10 ARTICLE IV. GUARANTEE TRUSTEE.............................................. 10 SECTION 4.1 Guarantee Trustee; Eligibility......................... 10 SECTION 4.2 Appointment, Removal and Resignation of the Guarantee Trustee............................... 11 ARTICLE V. GUARANTEE....................................................... 11 SECTION 5.1 Guarantee.............................................. 11 SECTION 5.2 Waiver of Notice and Demand............................ 12 SECTION 5.3 Obligations Not Affected............................... 12 SECTION 5.4 Rights of Holders...................................... 13 SECTION 5.5 Guarantee of Payment................................... 13 SECTION 5.6 Subrogation............................................ 13 SECTION 5.7 Independent Obligations................................ 14 ARTICLE VI. COVENANTS AND SUBORDINATION.................................... 14 SECTION 6.1 Subordination.......................................... 14 SECTION 6.2 Pari Passu Guarantees ................................. 14 i ARTICLE VII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.............................................. 14 SECTION 7.1 Guarantor May Consolidate, Etc., Only on Certain Terms....................................... 14 SECTION 7.2 Successor Guarantor Substituted........................ 15 ARTICLE VIII. TERMINATION................................................... 15 SECTION 8.1 Termination............................................ 15 ARTICLE IX. MISCELLANEOUS.................................................. 16 SECTION 9.1 Successors and Assigns................................. 16 SECTION 9.2 Amendments............................................. 16 SECTION 9.3 Notices................................................ 16 SECTION 9.4 Benefit................................................ 17 SECTION 9.5 Interpretation......................................... 17 SECTION 9.6 Governing Law.......................................... 18 ii GUARANTEE AGREEMENT THIS GUARANTEE AGREEMENT, dated as of ________________, 1998, is executed and delivered by U.S. HOME & GARDEN INC., a Delaware corporation (the "Guarantor") having its principal office at 655 Montgomery Street, San Francisco, California 74111, and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the "Guarantee Trustee"), for the benefit of the Holders from time to time of the Preferred Securities (as defined herein) of U.S. Home & Garden Trust I, a Delaware statutory business trust (the "Trust"). WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of ________, 1998 (the "Trust Agreement"), among the Guarantor, as Depositor, Wilmington Trust Company as Property Trustee, Wilmington Trust Company, as Delaware Trustee, the Administrative Trustees named therein and the Holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust issued $55,000,000 aggregate Liquidation Amount (as defined in the Trust Agreement) of its ___% Cumulative Trust Preferred Securities, Liquidation Amount $25 per Trust Preferred Security (the "Preferred Securities"); WHEREAS, the Preferred Securities will be issued by the Trust and the proceeds thereof, together with the proceeds from the issuance of the Trust's Common Securities (as defined below), will be used to purchase the Debentures (as defined in the Trust Agreement) of the Guarantor which was deposited with Wilmington Trust Company, as Property Trustee under the Trust Agreement, as trust assets; WHEREAS, as an incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth herein, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement and pursuant to Section 5.1 hereof extends the Guarantee for the benefit of the Holders from time to time of the Preferred Securities. ARTICLE I. DEFINITIONS SECTION 1.1 Definitions. As used in this Guarantee Agreement, the terms set forth below shall, unless the context otherwise requires, have the following meanings. Capitalized or otherwise defined terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Trust Agreement and the Indenture (as defined herein), each as in effect on the date hereof. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Guarantor shall not be deemed to be an Affiliate of the Trust. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means either the board of directors of the Guarantor or any committee of that board duly authorized to act hereunder. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Trust. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 90 days after receipt of such notice. "Guarantee" has the meaning set forth in Section 5.1. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by or on behalf of the Trust: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) required to be paid on the Preferred Securities, to the extent the Trust shall have funds on hand available therefor at such time, (ii) the applicable Redemption Price (as defined in the Trust Agreement), to the extent the Trust shall have funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary termination, winding up or liquidation of the Trust, unless Debentures are distributed to the Holders, the lesser of (a) the aggregate of the Liquidation Distribution (as defined in the Trust Agreement) and (b) the amount of assets of the Trust remaining available for distribution to Holders of Preferred Securities after satisfaction of liabilities to creditors of the Trust as required by applicable law. "Guarantee Trustee" means Wilmington Trust Company, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Guarantee Trustee. -2- "Holder" means any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee Trustee. "Indenture" means the Junior Subordinated Indenture dated as of ____________, 1998, as supplemented and amended, between the Guarantor and Wilmington Trust Company, as trustee. "List of Holders" has the meaning specified in Section 2.2(a). "Majority in Liquidation Amount of the Preferred Securities" means, except as provided by the Trust Indenture Act, a vote by the Holder(s), voting separately as a class, of more than 50% of the Liquidation Amount of all then outstanding Preferred Securities issued by the Trust. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chairman or a Vice Chairman of the Board of Directors of such Person or the President or a Vice President of such Person, and by the Chief Financial Officer, the Secretary or an Assistant Secretary of such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each such officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Other Guarantees" means any guarantees similar to the Guarantee issued, from time to time, by the Guarantor on behalf of holders of one or more series of Preferred Securities issued by any U.S. Home & Garden Trust (as defined in the Indenture) other than the Trust. -3- "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Responsible Officer" means, with respect to the Guarantee Trustee, any officer of the Corporate Trust Department of the Guarantee Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Securities Act" means the Securities Act of 1933, as amended. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II. TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2 List of Holders. (a) The Guarantor shall furnish or cause to be furnished to the Guarantee Trustee (a) semiannually, on or before ____and ____ of each year, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of a date not more than 15 days prior to the delivery thereof, and (b) at such other times as the Guarantee Trustee may request in writing, within 30 days after the receipt by the Guarantor of any such request, a List of Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Guarantor and is not identical to a previously supplied list of Holders or has not otherwise been received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. -4- (b) The Guarantee Trustee shall comply with its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Guarantee Trustee. Not later than ____ of each year, commencing in the year beginning January 1, 1998, the Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 Periodic Reports to the Guarantee Trustee. The Guarantor shall provide to the Guarantee Trustee, the Securities and Exchange Commission and the Holders such documents, reports and information, if any, as required by Section 314 of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act, in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Guarantee Trustee, on an annual basis, such evidence of compliance with such conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6 Events of Default; Waiver. The Holders of a Majority in Liquidation Amount of the Preferred Securities may, by vote, on behalf of the Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent therefrom. -5- SECTION 2.7 Event of Default; Notice. (a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default known to the Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, except in the case of a default in the payment of a Guarantee Payment, the Guarantee Trustee shall be protected in withholding such notice if and so long as the Board of Directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice, or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice, of such Event of Default. SECTION 2.8 Conflicting Interest. The Trust Agreement shall be deemed to be specifically described in this Guarantee Agreement for the purpose of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Guarantee Trustee. (a) This Guarantee shall be held by the Guarantee Trustee for the benefit of the Holders, and the Guarantee Trustee shall not transfer this Guarantee to any Person except to a Holder exercising his or her rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment hereunder, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders. -6- (c) The Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenant shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) The duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof or of the Trust Indenture Act are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) The Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in Liquidation Amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and -7- (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.2 Certain Rights of Guarantee Trustee. (a) Subject to the provisions of Section 3.1: (i) The Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by an Officers' Certificate unless otherwise prescribed herein. (iii) Whenever, in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting to take any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request from the Guarantee Trustee, shall be promptly delivered by the Guarantor. (iv) The Guarantee Trustee may consult with legal counsel, and the written advice or opinion of such legal counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or opinion. Such legal counsel may be legal counsel to the Guarantor or any of its Affiliates and may be one of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction. -8- (v) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such adequate security and indemnity as would satisfy a reasonable person in the position of the Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (vi) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (vii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. (viii) Whenever in the administration of this Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in acting in accordance with such instructions. (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty to act in accordance with such power and authority. -9- SECTION 3.3 Indemnity. The Guarantor agrees to indemnify the Guarantee Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Guarantee Trustee, arising out of or in connection with the acceptance or administration of this Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. ARTICLE IV. GUARANTEE TRUSTEE SECTION 4.1 Guarantee Trustee: Eligibility. (a) There shall at all times be a Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000, and shall be a corporation meeting the requirements of Section 310(a) of the Trust Indenture Act. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority, then, for the purposes of this Section 4.1(a)(ii) and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. -10- SECTION 4.2 Appointment, Removal and Resignation of the Guarantee Trustee. (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Guarantee Trustee shall not be removed until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor. (c) The Guarantee Trustee appointed hereunder shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Guarantee Trustee may petition, at the expense of the Guarantor, any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee. ARTICLE V. GUARANTEE SECTION 5.1 Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full on a subordinated basis to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Trust), as and when due, regardless of any defense, right of set-off or counterclaim which the Trust may have or assert other than the defense of payment (the "Guarantee"). The Guarantee is a continuing guarantee, and the Guarantor fully, knowingly and unconditionally waives any right the Guarantor may have to revoke the Guarantee as to any future transactions under Section 2815 of the California Civil Code or otherwise. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. -11- SECTION 5.2 Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of the Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Guarantee Trustee, Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3 Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions (other than an extension of time for payment of Distributions that results from the extension of any interest payment period on the Debentures as provided in the Indenture), Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities; (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or -12- (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4 Rights of Holders. The Guarantor expressly acknowledges that: (i) this Guarantee will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee on behalf of the Holders; (iii) the Holders of a Majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Guarantee Trustee, the Trust or any other Person. SECTION 5.5 Guarantee of Payment. This Guarantee creates a guarantee of payment and not of collection. This Guarantee will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Trust) or upon distribution of Debentures to Holders as provided in the Trust Agreement. SECTION 5.6 Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement and shall have the right to waive payment by the Trust pursuant to section 5.1; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. -13- SECTION 5.7 Independent Obligations The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. ARTICLE VI. COVENANTS AND SUBORDINATION SECTION 6.1 Subordination. The obligations of the Guarantor under this Guarantee will constitute unsecured obligations of the Guarantor and will rank subordinate and junior in right of payment to all Senior Debt and Subordinated Debt (as defined in the Indenture) in the same manner as Debentures (as defined in the Trust Agreement). SECTION 6.2 Pari Passu Guarantees. The obligations of the Guarantor under this Guarantee shall rank pari passu with the obligations of the Guarantor under all Other Guarantees. ARTICLE VII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 7.1 Guarantor May Consolidate, Etc., Only on Certain Terms. The Guarantor shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Guarantor or convey, transfer or lease its properties and assets substantially as an entirety to the Guarantor, unless: (1) in case the Guarantor shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Guarantor substantially as an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume the Guarantor's obligations under this Guarantee; (2) immediately after giving effect thereto, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; -14- (3) such consolidation, merger, conveyance, transfer or lease is permitted under the Trust Agreement and the Indenture and does not give rise to any breach or violation of the Trust Agreement or the Indenture; and (4) the Guarantor has delivered to the Guarantee Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and assumption of the Guarantor's obligations under this Guarantee Agreement comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Guarantee Trustee, subject to Section 3.1 hereof, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 7.1. SECTION 7.2 Successor Guarantor Substituted. Upon any consolidation or merger by the Guarantor with or into any other Person, or any conveyance, transfer or lease by the Guarantor of its properties and assets substantially as an entirety to any Person in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Guarantor is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Guarantor under this Guarantee Agreement with the same effect as if such successor Person had been named as the Guarantor herein; and in the event of any such conveyance, transfer or lease the Guarantor shall be discharged from all obligations and covenants under this Guarantee Agreement. ARTICLE VIII. TERMINATION SECTION 8.1 Termination. This Guarantee Agreement shall terminate and be of no further force and effect upon the earliest of (i) full payment of the applicable Redemption Price of all Preferred Securities, (ii) the distribution of Debentures to the Holders in exchange for all of the Preferred Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Trust. Notwithstanding the foregoing clauses (i) through (iii), this Guarantee Agreement will continue to be effective or will be reinstated if it has been terminated pursuant to one of such clauses (i) through (iii), as the case may be, if at any time any Holder must restore payment of any sums paid with respect to Preferred Securities or this Guarantee Agreement. -15- ARTICLE IX. MISCELLANEOUS SECTION 9.1 Successors and Assigns. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article VII hereof and Article VIII of the Indenture, the Guarantor shall not assign its obligations hereunder. SECTION 9.2 Amendments. Except with respect to any changes which do not adversely affect the rights of the Holders in any material respect (in which case no vote will be required), this Guarantee Agreement may not be amended without the prior approval of the Holders of not less than a Majority in Liquidation Amount of the Preferred Securities. The provisions of Article VI of the Trust Agreement concerning meetings of the Holders shall apply to the giving of such approval. SECTION 9.3 Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address, facsimile number or to the attention of such other Person as the Guarantor may give notice to the Holders: U.S. Home & Garden Inc. 655 Montgomery Street San Francisco, California 94111 Facsimile No.: (415) 616-8110 Attention: Robert Kassel (b) if given to the Trust, in care of the Guarantee Trustee, at the Trust's (and the Guarantee Trustee's) address set forth below or such other address as the Guarantee Trustee on behalf of the Trust may give notice to the Holders: -16- U.S. Home & Garden Inc. 655 Montgomery Street San Francisco, California 94111 Facsimile No.: (415) 616-8110 Attention: Robert Kassel with a copy to: Wilmington Trust Company 1100 North Market Wilmington, Delaware 19890 Facsimile No.: (302) 651-1000 Attention: Corporate Trust Administration (c) if given to any Holder, at the address set forth on the books and records of the Trust. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4 Benefit. This Guarantee is solely for the benefit of the Holders and is not separately transferable from the Preferred Securities. SECTION 9.5 Interpretation. In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement but not defined in the preamble hereto have the respective meanings assigned to them in Section 1.1; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; -17- (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the contest otherwise requires; (f) a reference to the singular includes the plural and vice versa; and (g) the masculine, feminine or neuter genders used herein shall include the masculine, feminine and neuter genders. SECTION 9.6 Governing Law. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. U.S. HOME & GARDENS INC. By:______________________________ Name: Robert Kassel Title: Chairman of the Board and Chief Operating Officer WILMINGTON TRUST COMPANY as Guarantee Trustee By:_______________________________ Name: Title: -18- EX-4.8 11 AGREEMENT AS TO EXPENSES AND LIABILITIES EXHIBIT 4.8 AGREEMENT AS TO EXPENSES AND LIABILITIES Agreement As To Expenses And Liabilities (this "Agreement"), dated as of ____________, 1998, between U.S. HOME & GARDEN INC., a Delaware corporation (the "Company"), and U.S. HOME & GARDEN TRUST I, a Delaware business trust (the "Trust"). WHEREAS, the Trust intends to issue its Common Securities (the "Common Securities") to and receive Junior Subordinated Deferrable Interest Debentures (the "Debentures") from the Company and to issue and sell __% Cumulative Trust Preferred Securities (the "Trust Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of __________, 1998, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, the Company will directly or indirectly own all of the Common Securities of the Trust and will issue the Debentures; NOW, THEREFORE, in consideration of the purchase by each holder of the Trust Preferred Securities, which purchase the Company hereby agrees shall benefit the Company and which purchase the Company acknowledges will be made in reliance upon the execution and delivery of this Agreement, the Company and the Trust hereby agree as follows: ARTICLE I Section 1.1 Guarantee by the Company. Subject to the terms and conditions hereof, the Company hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment, when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust, other than obligations of the Trust to pay to holders of any Trust Preferred Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Trust Preferred Securities or such other similar interests, as the case may be. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. Section 1.2 Term of Agreement. This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Trust Preferred Securities (whether upon redemption, liquidation, exchange or otherwise) and (b) the date on which there are no Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Trust Preferred Securities or any Beneficiary must restore payment of any sums paid under the Trust Preferred Securities, under any Obligation, under the Guarantee Agreement dated the date hereof by the Company and Wilmington Trust Company, a Delaware banking corporation, as guarantee trustee, or under this Agreement, for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute and the Company fully, knowingly and unconditionally waives any right to revoke the guarantee contained in this Agreement under Section 2895 of the California Civil Code or otherwise. Section 1.3 Waiver of Notice. The Company hereby waives notice of acceptance of this Agreement and of any Obligation to which it applies or may apply, and the Company hereby waives presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Section 1.4 No Impairment. The obligations, covenants, agreements and duties of the Company under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the extension of time for the payment by the Trust of all or any portion of the Obligations or for the performance of any other obligation under, arising out of, or in connection with, the Obligations; (b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the Obligations or any action on the part of the Trust granting indulgence or extension of any kind; or (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt -2- of, or other similar proceedings affecting, the Trust or any of the assets of the Trust. There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, the Company with respect to the happening of any of the foregoing. Section 1.5 Enforcement. A Beneficiary may enforce this Agreement directly against the Company and the Company waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against the Company. Section 1.6 Subrogation. The Company shall be subrogated to all (if any) rights of the Trust in respect of any amounts paid to the Beneficiaries by the Company under this Agreement; provided, however, that the Company shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Agreement. ARTICLE II Section 2.1 Binding Effect. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the Beneficiaries. Section 2.2 Amendment. So long as there remains any Beneficiary or any Trust Preferred Securities are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Trust Preferred Securities. Section 2.3 Notices. Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same against receipt therefor, by facsimile transmission (confirmed by mail), or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed): -3- U.S. HOME & GARDEN TRUST I 655 Montgomery Street San Francisco, California 94111 Facsimile No.: (415) 616-8110 Attention: Robert Kassel U.S. HOME & GARDEN INC. 655 Montgomery Street San Francisco, California 94111 Facsimile No.: (415) 616-8110 Attention: Robert Kassel Section 2.4 Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES). This Agreement is executed as of the day and year first above written. U.S. HOME & GARDEN INC. By:________________________________ Name: Robert Kassel Title: Chairman of the Board and Chief Executive Officer U.S. HOME & GARDEN TRUST I By:________________________________ Name: Title: Administrative Trustee -4- EX-4.9 12 JR. SUBORD'D DEFERRABLE INTEREST DEBENTURE EXHIBIT 4.9 Face of Security U.S. HOME & GARDEN INC. __% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE DUE _________, 2028 Registered No. _____________ Principal Amount: $___________ U.S. HOME & GARDEN INC., a corporation organized and existing under the laws of Delaware (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Wilmington Trust Company, as Property Trustee, for U.S. HOME & GARDEN TRUST I, or registered assigns, the principal sum of $__________ on __________, 2028; provided that the Company may shorten the Stated Maturity of the principal of this Security to a date not earlier than __________, 2003. The Company further promises to pay interest, compounded monthly, on said principal sum from the date of original issuance or from the most recent interest payment date (each such date, an "Interest Payment Date") on which interest has been paid or duly provided for, monthly (subject to deferral as set forth herein) in arrears on the ____ day of each calendar month of each year commencing ___________, 1998 at the rate of ___% per annum, until the principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of ___% per annum, compounded monthly. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than a Saturday or Sunday or a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or on a day on which the Corporate Trust Office of the Trustee, or the principal office of the Property Trustee under the Trust Agreement (hereinafter referred to) for U.S. HOME & GARDEN TRUST I is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be the next Business Day preceding such Interest Payment Date. Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time during the term of this Security to defer payment of interest on this Security, at any time or from time to time, for up to 60 consecutive monthly interest payment periods with respect to each deferral period (each an "Extension Period"), (during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law)); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred atock), (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company (including Securities issued by the Company pursuant to the Indenture other than the Securities represented by this certificate) that ranks pari passu with or junior in interest to this Security, (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiaries of the Company if such guarantee ranks pari pasau in all respects with or junior in interest to this Security (other than (a) dividends or distributions in capital stock of the Company (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under -2- any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the U.S. Home & Garden Inc. Guarantee related to the Trust Preferred Securities issued by U.S. HOME & GARDEN TRUST I, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers, employees or consultants or (iv) redeem, purchase or acquire less than all of the Securities represented by this certificate or any of the Preferred Securities. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 60 consecutive interest payment periods or to extend beyond the Stated Maturity. Upon the termination of any such Extension Period and upon the payment of all amounts then due on any Interest Payment Date, and subject to the foregoing limitation, the Company may elect to begin a new Extension Period. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Trustee, the Property Trustee and the Administrative Trustees of U.S. HOME & GARDEN TRUST I notice of its election to begin any Extension Period at least one Business Day prior to the earlier of (i) the date on which Distributions on the Trust Preferred Securities would be payable except for the election to begin or extend such Extension Period, (ii) the date the Administrative Trustees are required to give notice to the American Stock Exchange, the New York Stock Exchange, the Nasdaq Stock Market, Inc. or other applicable stock exchange or automated quotation system on which the Preferred Securities are then listed or quoted or to holders of such Preferred Securities on the record date, or (iii) the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. The Trustee shall give notice of the Company's election to begin a new Extension Period to the holders of the Preferred Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Trustee or at the office of such paying agent or paying agents as the Company may designate from time to time, maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the person entitled thereto as such address shall appear in the Securities Register or (ii) by transfer to an account maintained by the person entitled thereto, in immediately available funds, at such place and to such account as may be designated by the Person entitled thereto as specified in the Securities Register. -3- The indebtedness evidenced by this Security is, to the extent provided in the Indenture, unsecured and will rank junior and subordinate and subject in right of payments to the prior payment in full of all Senior Debt and Subordinated Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided, and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt and Subordinated Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. U.S. HOME & GARDEN INC. a Delaware corporation By:___________________________ Name: Title: Attest: - ----------------------------- Name: Title: -4- Reverse of Security This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under a Junior Subordinated Indenture, dated as of ____________, 1998 (herein called the "Indenture"), between the Company and Wilmington Trust Company, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $_______. All terms used in this Security that are defined in the Indenture and in the Amended and Restated Trust Agreement, dated as of __________, 1998, as amended (the "Trust Agreement"), for U.S. HOME & GARDEN TRUST I among U.S. Home & Garden Inc., as Depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be. The Company may at any time, at its option, on or after _________ , 2003, and subject to the terms and conditions of Article XI of the Indenture, redeem this Security in whole at any time or in part from time to time, without premium or penalty, at a redemption price equal to the accrued and unpaid interest on the Security so redeemed to the Redemption Date, plus 100% of the principal amount thereof. Upon the occurrence and during the continuation of a Tax Event or Investment Company Event in respect of U.S. HOME & GARDEN TRUST I, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event or Investment Company Event, redeem this Security, in whole but not in part, subject to the provisions of Section 11.7 and the other provisions of Article XI of the Indenture, at a redemption price equal to the accrued and unpaid interest on the Security so redeemed to the Redemption Date, plus 100% of the principal amount thereof. In the event of redemption of this Security in part only, a new Security or Securities of this series for the portion hereof not redeemed will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon -5- compliance by the Company with certain conditions set forth in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to U.S. HOME & GARDEN TRUST I, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Trust Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. -6- As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Securities of this series are issuable only in registered form without coupons in minimum denominations of $25 and any integral multiples of $25 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same. The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that for United States Federal, state and local tax purposes it is intended that this Security constitute indebtedness. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. -7- This is one of the Securities referred to in the within mentioned Indenture. Dated:_____________, 1998 WILMINGTON TRUST COMPANY, as Trustee By:_____________________________ Authorized Officer -8- EX-10.24 13 EXHIBIT 10.24 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth Amendment") dated as of February 26, 1998, by and among EASY GARDENER, INC. (f.k.a. Easy Gardener Acquisition Corp.), a Delaware corporation, (the "Borrower") U.S. HOME & GARDEN INC., a Delaware corporation, ("Guarantor"), THE PROVIDENT BANK, an Ohio banking corporation, ("Agent") and LASALLE NATIONAL BANK, ANTARES LEVERAGED CAPITAL CORP. and THE PROVIDENT BANK ("Lenders"). PRELIMINARY STATEMENT WHEREAS, Borrower, Agent and Lenders have entered into a Credit Agreement dated as of August 9, 1996, as amended by a First Amendment to Credit Agreement dated as of April 3, 1997, by a Second Amendment dated as of May 9, 1997, and by a Third Amendment dated as of June 30, 1997 (the "Credit Agreement") whereby Lenders agreed on August 9, 1996 to make Term Loans to Borrower in an amount up to $25,250,000.00. Prior to the Fourth Amendment Closing Date (as defined below), the amount outstanding thereunder had been reduced to $20,270,000.00. The Lenders have agreed in connection with this Fourth Amendment and in connection with the closings of the Weed Wizard Acquisition and the Land Master Acquisition (each as defined below) to make additional Term Loan amounts available to Borrower up to an aggregate of $10,000,000.00 ("Fourth Amendment Advance") on the Fourth Amendment Closing Date subject to the terms and conditions hereof; and WHEREAS, Borrower has changed its name from Easy Gardener Acquisition Corp. to Easy Gardener, Inc. on July 3, 1997; and WHEREAS, Borrower has requested Agent and Lenders to provide additional loans to fund the purchase by Borrower of the assets of Landmaster Products, Inc. and Weed Wizard, Inc. and to provide general working capital; and WHEREAS, Borrower, Agent and Lenders now wish to amend the Credit Agreement in accordance with the terms and provisions hereof; NOW, THEREFORE, the parties hereto agree to supplement and amend the Credit Agreement upon such terms and conditions as follows: 1. Capitalized Terms. All capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement unless the context hereof requires otherwise. Any definitions as capitalized terms set forth herein shall be deemed incorporated into the Credit Agreement as amended by this Fourth Amendment. 2. Name Change. All references to "Easy Gardener Acquisition Corp." in the Credit -2- Agreement and in the Schedules and Exhibits thereto are hereby amended to read "Easy Gardener, Inc.". 3. Definitions; Exhibits; and Schedules; a) The definition of "Applicable Margin" contained in Section 1.2 of the Credit Agreement is hereby amended to delete the words "(but not the Term Loan II)" contained in the proviso of such definition. b) The following definitions contained in Section 1.2 of the Credit Agreement are hereby amended in their entirety to read as follows: "Interest Expense" means, for any period, and with respect to Borrower and its Subsidiaries on a consolidated basis, interest expense of such Persons determined in accordance with GAAP, including interest paid or expensed during such period, plus interest required or permitted to be capitalized in accordance with GAAP, excluding the amortization of all fees and closing costs payable in connection with the incurrence of the Indebtedness under this Agreement. "Loans" means the Revolving Credit Loans and the Term Loan. "Pledge Agreement" means a pledge agreement substantially in the form of Exhibit I hereto pledging (a) all of the issued and outstanding capital stock of Borrower, of whatever class or description, made by Guarantor to the Agent for the benefit of Lenders as additional collateral security for the payment of Guarantor's obligations under the Guaranty Agreement; and (b) all of the capital stock of each direct or indirect Subsidiary of Borrower or Guarantor now owned or hereafter formed or acquired, of whatever class or description, made by the holder of such stock to the Agent for the benefit of the Lender as additional collateral security for the Loans or the Subsidiary Guaranty of such Subsidiary, as the case may be; in each case, with such changes in the text of the Pledge Agreement to reflect the obligations secured thereby. "Revolving Credit Commitment" means Eight Million and 00/100 Dollars ($8,000,000.00) during the months of June through October and Twenty Million and 00/100 Dollars ($20,000,000.00) during the months of November through May of each year. "Term Loan" has the meanings set forth in Section 2.4. "Term Notes" has the meanings set forth in Section 2.5. c) Section 1.2 of the Credit Agreement is hereby amended to add the following definitions to read in their entirety as follows: -3- "Fourth Amendment Closing Date" means February 26, 1998. "Landmaster" means Landmaster Products, Inc. "Landmaster Acquisition" means the acquisition by Borrower of substantially all of the assets of Landmaster pursuant to the terms of the Landmaster Acquisition Agreement. "Landmaster Acquisition Agreement" means the Assets Purchase Agreement dated within ninety (90) days of the Fourth Amendment Closing Date, among Borrower, Guarantor, Landmaster and the various shareholders thereto. "Weed Wizard" means Weed Wizard, Inc., a Georgia corporation. "Weed Wizard Acquisition" means the acquisition by Weed Wizard Acquisition Corp. of substantially all of the assets of Weed Wizard pursuant to the terms of the Weed Wizard Acquisition Agreement. "Weed Wizard Acquisition Agreement" means the Assets Purchase Agreement dated as of February 26, 1998, among Weed Wizard Acquisition Corp., Guarantor, Weed Wizard, Paul Butler, Don Bryan, Mabel Bryan, Norman Adams, and James Anderson. "Weed Wizard Acquisition Corp." means Weed Wizard Acquisition Corp., a Delaware corporation. d) The following definitions contained in Section 1.2 of the Credit Agreement are deleted in their entirety: "Term Loan I" and "Term Loan II" have the respective meanings set forth in Section 2.4. "Term Notes I" and " Term Notes II" have the respective meanings set forth in Section 2.4. e) Schedule 1 of the Credit Agreement is hereby amended in its entirety to read as listed on Schedule 1 to this Fourth Amendment. f) The Credit Agreement is hereby amended to add a new Schedule 4.17 to read in its entirety as Schedule 4.17 to this Fourth Amendment. g) Exhibit B of the Credit Agreement is hereby amended in its entirety by Exhibit B attached to this Fourth Amendment. h) Exhibit C of the Credit Agreement is hereby amended in its entirety by Exhibit C attached to this Fourth Amendment. i) Exhibit D of the Credit Agreement is hereby amended in its entirety by Exhibit D attached to this Fourth Amendment. j) Exhibit E of the Credit Agreement is hereby deleted as an Exhibit to the Credit Agreement. 4. General. All references to "Term Loans" in the Credit Agreement are hereby amended to read "Term Loan". All references to "Term Loan I" in the Credit Agreement are hereby amended to read "the Term Loan". 5. Term Loan Commitments. (a) Section 2.4 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 2.4 Term Loan Commitments. Each Lender, severally and not jointly, subject to the terms and conditions of this Agreement, hereby agrees to make loans to Borrower in an amount equal to its Participation Percentage of the term loans of Thirty Million Two Hundred Seventy Thousand and 00/100 Dollars ($30,270,000.00) ("Term Loan")." 6. Term Promissory Notes. Section 2.5 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 2.5 Term Promissory Notes. The absolute and unconditional obligation of the Borrower to repay the principal of the Term Loan and the interest thereon shall be evidenced by promissory notes executed by the Borrower to each Lender in substantially the form of Exhibit D attached to this Agreement ("Term Notes"). In the event of an assignment under Section 10.17(a), Borrower shall issue new notes to reflect the new Credit Commitments of the assigning Lender and the assignee thereof. The Term Notes shall include the following terms: "(a) Terms. Each Term Note shall be dated as of the Fourth Amendment Closing Date and shall mature and be due and payable in full on June 30, 2002. "(b) Interest Rate. Each Term Note shall bear interest (computed on the basis of the actual number of days elapsed over a 360-day year) on the daily outstanding principal balance thereunder at a rate per annum calculated in accordance with Section 2.6 hereof. "(c) Interest Payment Dates. Interest on the Term Notes shall be payable in accordance with Section 2.6(g), and on the date the Term Loan is due (whether by maturity, acceleration or otherwise). "(d) Principal Payments on Term Loan. Quarterly installments of principal on the Term Loan shall be payable commencing on March 31, 1998 and on each Principal Payment Date thereafter in accordance with the following schedule and such payment shall be distributed ratably among the Lenders in accordance with their respective Credit Commitments: =============================================================================== Payment Date Principal Payment - -------------------------------------------------------------------------------- March 31, 1998 1,000,000 - ------------------------------------------------------------------------------- June 30, 1998 1,600,000 - ------------------------------------------------------------------------------- September 30, 1998 200,000 - ------------------------------------------------------------------------------- December 31, 1998 200,000 - ------------------------------------------------------------------------------- March 31, 1999 1,500,000 - ------------------------------------------------------------------------------- June 30, 1999 2,100,000 - ------------------------------------------------------------------------------- September 30, 1999 900,000 - ------------------------------------------------------------------------------- December 31, 1999 900,000 - ------------------------------------------------------------------------------- March 31, 2000 2,000,000 - ------------------------------------------------------------------------------- June 30, 2000 2,600,000 - ------------------------------------------------------------------------------- =============================================================================== Payment Date Principal Payment - -------------------------------------------------------------------------------- September 30, 2000 1,000,000 - ------------------------------------------------------------------------------- December 31, 2000 1,000,000 - ------------------------------------------------------------------------------- March 31, 2001 2,500,000 - ------------------------------------------------------------------------------- June 30, 2001 3,100,000 - ------------------------------------------------------------------------------- September 30, 2001 1,000,000 - ------------------------------------------------------------------------------- December 31, 2001 1,000,000 - ------------------------------------------------------------------------------- March 31, 2002 2,500,000 - ------------------------------------------------------------------------------- June 30, 2002 5,170,000 - ------------------------------------------------------------------------------- 7. Interest Payable on the Loans. a) Section 2.6(a) of the Credit Agreement is hereby amended to delete the second sentence thereof in its entirety, which prior to the Fourth Amendment reads as follows: "The Term Loans II shall bear interest on the outstanding principal amount thereof at an annual rate equal to the Prime Rate plus six percent (6%)." b) Section 2.6(c) of the Credit Agreement is hereby amended to delete the parenthetical clause in the first sentence thereof which reads "(but no part of the Term Loan II)". 8. Prepayments of Principal. Section 2.9(b) of the Credit Agreement is hereby amended to delete the last sentence thereof in its entirety, which prior to the Fourth Amendment reads as follows: "Borrower shall have no right to prepay Term Loan II, unless Borrower shall have prepaid in full Term Loan I and terminated the Revolving Credit Commitment, in which event Term Loan II shall be prepaid in full and without premium or penalty applicable to Term Loan II." 9. Prepayments of Principal; Use of Proceeds. All references to "the Weatherly Acquisition" in Sections 2.9(d) and 2.13 of the Credit Agreement are hereby amended to read "the Landmaster Acquisition or the Weed Wizard Acquisition". 10. Application of Funds. a) Section 2.11(d) of the Credit Agreement is hereby amended in its entirety to read as follows: "(d) Fourth, to the payment of principal then due on the Term Loan Notes;" b) Section 2.11(f) of the Credit Agreement is hereby deleted in its entirety. c) Section 2.11(g) of the Credit Agreement is hereby amended in its entirety to read as follows: "(f) Sixth, if no Default or Event of Default exists or if all Obligations have been paid or satisfied in full, the surplus remaining (if any) to the Borrower as provided in Section 2.7(b)." 11. Capitalization. Section 4.17 of the Credit Agreement is hereby amended in its entirety to read as follow: "Section 4.17 Capitalization. Borrower has no Subsidiaries except as set forth on Schedule 4.17. The Guarantor owns One Hundred Percent (100%) of the capital stock of Borrower." 12. Undisclosed Liabilities; Transactions with Affiliates; Limitation on Guarantee Obligations; Limitation on Fundamental Changes. All references to "the Weatherly Acquisition Agreement" in Sections 4.26(e), 6.2(a)(ii)(B), 6.2(b)(iii), 6.13(e) and 6.14 of the Credit Agreement are hereby amended to read "the Weatherly Acquisition Agreement, the Landmaster Acquisition Agreement or the Weed Wizard Acquisition Agreement". 13. Limitations on Restricted Payments. The reference in Section 6.1(a) of the Credit Agreement to "One Hundred Twenty-Five Thousand and 00/100 Dollars ($125,000)" is hereby amended to read "Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)" 14. Interest Coverage Ratio. Section 6.5 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 6.5 Interest Coverage Ratio. On each Computation Date set forth below, the Borrower shall not permit, for the relevant Reference Period the Interest Coverage Ratio to be less than the minimum ratio specified below: MINIMUM INTEREST COMPUTATION DATE COVERAGE RATIO ---------------- -------------- December 31, 1996 1.00 March 31, 1997 2.80 June 30, 1997 3.60 September 30, 1997 3.80 December 31, 1997 4.00 March 31, 1998 3.75 June 30, 1998 3.75 September 30, 1998 3.75 December 31, 1998 3.75 March 31, 1999 4.25 June 30, 1999 4.25 Each Computation Date from September 30, 1999 through June 30, 2002 5.00" 15. Maintenance of Net Worth. The reference in Section 6.6 of the Credit Agreement to "24,000,000.00" is hereby amended to read "33,000,000.00." 16. Debt Service Coverage Ratio. Section 6.7 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 6.7 Debt Service Coverage Ratio. On each Computation Date set forth below, the Borrower shall not permit, for the relevant Reference Period its Debt Service Coverage Ratio to be less than the minimum ratio specified below: COMPUTATION DATE RATIO ---------------- ----- December 31, 1996 -- March 31, 1997 1.04 June 30, 1997 1.25 September 30, 1997 1.35 December 31, 1997 1.45 March 31, 1998 1.50 June 30, 1998 through June 30, 2002 1.60" 17. EBITDA. Section 6.8 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 6.8 EBITDA. Borrower shall not permit EBITDA for the Reference Period ending on each Computation Date set forth below to be less than the dollar amount set forth below opposite such date. COMPUTATION DATE AMOUNT ---------------- ------ December 31, 1996 $1,400,000 March 31, 1997 6,700,000 June 30, 1997 11,500,000 September 30, 1997 12,000,000 December 31, 1997 12,000,000 March 31, 1998 13,000,000 June 30, 1998 14,000,000 September 30, 1998 14,000,000 December 31, 1998 14,000,000 March 31, 1999 15,500,000 June 30, 1999 17,000,000 September 30, 1999 17,000,000 December 31, 1999 17,000,000 March 31, 2000 17,000,000 Each Computation Date from June 30, 2000 through June 30, 2002 18,500,000" 18. Fixed Charge Coverage. Section 6.9 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 6.9 Fixed Charge Coverage.Borrower shall not permit its Fixed Charge Coverage Ratio for the Reference Period ending on the dates set forth below to be less than the amount set forth opposite such date. COMPUTATION DATE RATIO ---------------- ----- December 31, 1996 0.40 March 31, 1997 0.90 June 30, 1997 1.00 September 30, 1997 1.03 Each Computation Date from December 31, 1997 through June 30, 2002 1.05" 19. Limitations on Capital Expenditures. The reference in Section 6.11 of the Credit Agreement to "Seven Hundred Thousand and 00/100 Dollars ($700,000.00)" is hereby amended to read "One Million and 00/100 Dollars ($1,000,000.00) in the fiscal year ending June 30, 1998 and One Million Two Hundred Thousand and 00/100 Dollars ($1,200,000.00) in each fiscal year thereafter." 20. Limitation on Investments, Loans and Advances. Section 6.16(d) of the Credit Agreement is hereby amended in its entirety to read as follows: "(d) investments by Borrower and/or Guarantor, directly and/or indirectly, in Landmaster or Weed Wizard and/or any of Landmaster's or Weed Wizard's Subsidiaries and the making by Borrower and/or Guarantor, directly or indirectly, to Borrower and/or any of Borrower's Subsidiaries of loans, advances, extensions of credit (including pursuant to Finance Lease and/or operating lease transactions with Borrower and/or any of Borrower's Subsidiaries) and capital contributions to finance or fund the working capital requirements and other corporate purposes of Borrower and/or any of its Subsidiaries; and" 21. Reaffirmation of Covenants, Warranties and Representations. Borrower hereby agrees and covenants that all representations and warranties in the Credit Agreement, including without limitation all of those warranties and representations set forth in Article 4 are true and accurate as of the date hereof. Borrower further reaffirms all covenants in the Credit Agreement, and reaffirms each of the affirmative covenants set forth in Article 5 and negative covenants set forth in Article 6 thereof, as if fully set forth herein, except to the extent modified by this Fourth Amendment. 22. Conditions Precedent to Closing of Fourth Amendment. On or prior to the Fourth Amendment Closing Date, each of the following conditions precedent shall have been satisfied: a) Certified Copies of Charter Documents. Agent shall have received from the Borrower and Guarantor copies, certified by a duly authorized officer of the Borrower and Guarantor to be true and complete on and as of the Closing Date, of each of the charter or other organization documents and by-laws of the Borrower, Weed Wizard Acquisition Corp. and Guarantor each as in effect on such date of certification (together with any amendments thereto); b) Documents. Each of the documents to be executed and delivered at the Fourth Amendment Closing and all other certificates, documents and instruments to be executed in connection herewith shall have been duly and properly authorized, executed and delivered by Borrower and shall be in full force and effect on and as of the Fourth Amendment Closing Date. c) Corporate Structure. The ownership, capital, corporate, tax, organizational and legal structure (including articles of incorporation and bylaws, shareholder agreements and management) of Guarantor and Borrower shall be reasonably satisfactory to Agent. d) Legality of Transactions. No change in applicable law shall have occurred as a consequence of which it shall have become and continue to be unlawful for Agent and each Lender to perform any of its agreements or obligations under any of the Loan Documents, or for Borrower to perform any of its agreements or obligations under any of the Loan Documents. e) Changes; None Adverse. Since the date of the most recent balance sheets of Borrower delivered to Agent, no changes shall have occurred in the assets, liabilities, financial condition, business, operations or prospects of Borrower which, individually or in the aggregate, are material to Borrower, and Agent shall have completed such review of the status of all current and pending legal issues as Agent shall deem necessary or appropriate. f) Asset Purchase Agreements. Lenders shall have received a copy of the Weed Wizard Acquisition Agreement executed by the parties thereto. g) Weed Wizard Acquisition. Guarantor shall be prepared to close the Weed Wizard Acquisition, and in connection therewith Guarantor shall have received or have binding commitments to receive, contingent only upon the making of up to Seven Million Five Hundred Thousand Dollars ($7,500,000) of the Fourth Amendment Advance, an additional Ten Million Dollars ($10,000,000) in equity for Borrower funded to Borrower's account with The Provident Bank, on terms and conditions reasonably satisfactory to Agent, Borrower shall cause Weed Wizard Acquisition Corp. to enter into a Subsidiary Guaranty substantially in the form of Exhibit O to the Credit Agreement. h) Land Master Acquisition. Borrower shall make all reasonable efforts to close the Land Master Acquisition and Lender shall receive a copy of the Landmaster Acquisition Agreement if executed. If Borrower shall fail to close the Land Master Acquisition within ninety (90) days of the Fourth Amendment Closing Date Lender shall not be obligated to fund the undisbursed portion of the Fourth Amendment Advance and the final payment on the Term Loan shall be reduced by an amount equal to the unfunded amount of the Fourth Amendment Advance. i) Additional Security for Loans. As additional collateral security for such of the Obligations as are described in the Credit Agreement, the following documents constituting part of the Security Documents thereunder shall be delivered to the Agent on behalf of the Lenders: (i) a Pledge Agreement in substantially the form of Exhibit I to the Credit Agreement executed by Borrower with respect to the stock of Weed Wizard Acquisition Corp. with appropriate changes in text thereof to reflect that such Pledge Agreement secures the direct obligations of Borrower or a Subsidiary Guarantee, as the case may be; (ii) a Subsidiary Guaranty from Weed Wizard Acquisition Corp. in substantially the form of Exhibit O to the Credit Agreement; and (iii) a Subsidiary Security Agreement from Weed Wizard Acquisition Corp. in substantially the form of Exhibit P to the Credit Agreement. j) Perfection of Security Interests. Agent shall have received all Uniform Commercial Code Financing Statements required or, in Agent's opinion, advisable to be filed in order to create, in favor of the Agent for the benefit of Lenders, a perfected Lien on the Collateral with respect to which a Lien can be perfected by means of filing Uniform Commercial Code Financing Statements (or for the filing of an application for certificate of title); said Financing Statements shall have been properly filed in each office in each jurisdiction in which such filings are required or, in the opinion of Agent, advisable; Agent shall have received confirmation from its local counsel or local counsel to Borrower that all such filings and recordations have been made, and that all necessary filing, subscription and inscription fees and all recording and other similar fees, and all taxes and other expenses related to such filings and recordings have been paid or provided for in full by or on behalf of Borrower; k) Priority. Agent shall have received evidence reasonably satisfactory to Lenders that Agent's Liens for the benefit of Lenders are first and prior, and there are no other superior, equal, or inferior Liens except the Permitted Liens; l) Audit. Agent shall have completed its audit of the business operations, facilities and books and records of Borrower, Guarantor and Weed Wizard Acquisition Corp., including but not limited to, review of all material agreements, contracts and commitments of Borrower, Guarantor and Weed Wizard Acquisition Corp., including, but not limited to, the Landmaster Acquisition Agreement and the Weed Wizard Acquisition Agreement; all insurance policies and programs of Borrower, Guarantor and Weed Wizard Acquisition Corp.; the pension and employee benefit plans of Borrower, Guarantor and Weed Wizard Acquisition Corp.; all tax returns, filings and audit information relating to Borrower, Guarantor and Weed Wizard Acquisition Corp.; accounts receivable and inventory; and information regarding any pending or threatened litigation, claims or actions against Borrower, Guarantor and Weed Wizard Acquisition Corp., which audit shall be reasonably satisfactory to Agent; m) Financial Statements and Projections. Agent shall have received the audited statements of the Borrower for 1996 and 1997, unaudited statements for the period from January 1, 1997 to the end of the most recent month completed prior to the Fourth Amendment Closing Date, projections of the Borrower's operations for the entire term of the Loans, and such other financial information regarding Borrower's operations as Agent may reasonably require; n) Other Information. Agent shall have received such other information concerning the Borrower, the Landmaster Acquisition, the Weed Wizard Acquisition and the transactions contemplated hereby as Agent may reasonably require. o) Closing Fee. Borrower shall have paid to Agent, for the Pro Rate benefit of each Lender, a closing fee in the amount of One Hundred Thousand Dollars ($100,000). 23. Miscellaneous. Borrower shall reimburse Agent for all fees and disbursements of legal counsel to Agent which shall have been incurred by Agent in connection with the preparation, negotiation, review, execution and delivery of this Fourth Amendment and the handling of any other matters incidental hereto. a) All of the terms, conditions and provisions of the Agreement not herein modified shall remain in full force and effect. In the event a term, condition or provision of the Agreement conflicts with a term, condition or provision of this Fourth Amendment, the latter shall govern. b) This Fourth Amendment shall be governed by and shall be construed and interpreted in accordance with the laws of the State of Ohio. c) This Fourth Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and assigns. d) This Fourth Amendment may be executed in several counterparts, each of which shall constitute an original, but all which together shall constitute one and the same agreement. [Remainder of page intentionally left blank. Signature page follows.] IN WITNESS WHEREOF, this Fourth Amendment has been duly executed and delivered by or on behalf of each of the parties as of the day and in the year first above written. EASY GARDENER, INC, Borrower THE PROVIDENT BANK, Lender By: /s/ Richard J. Raleigh By: /s/ Nick Jevic - --------------------------------- --------------------------------- Name: Richard J. Raleigh Name: Nick Jevic Title: VP Title: VP U.S. HOME & GARDEN INC., Guarantor LASALLE NATIONAL BANK, Lender By: /s/ Richard J. Raleigh By: /s/ Stefano Robertson - --------------------------------- --------------------------------- Name: Richard J. Raleigh Name: Stefano Robertson Title: COO Title: VP THE PROVIDENT BANK, Agent ANTARES LEVERAGED CAPITAL CORP., Lender By: /s/ Eric Hansen By: /s/ Nick Jevic --------------------------------- - --------------------------------- Name: Eric Hansen Name: Nick Jevic Title: VP Title: VP SCHEDULE I TO FOURTH AMENDMENT Lender Credit Commitment ------ ----------------- The Provident Bank Revolving Credit Commitment: Percentage: 37.254902% During months of November through May: $7,450,980.40 During months of June through October: $2,980,392.16 Term Loan Commitment: $11,277,058.84 LaSalle National Bank Revolving Credit Commitment: Percentage: 29.411765% During months of November through May: $5,882,353.00 During months of June through October: $2,352,941.20 Term Loan Commitment: $8,902,941.27 Antares Leveraged Capital Corp. Revolving Credit Commitment: Percentage: 33.333333% During months of November through May: $6,666,666.60 During months of June through October: $2,666,666.64 Term Loan Commitment: $10,089,999.90 EX-21 14 EXHIBIT 21 SUBSIDIARIES OF U.S. HOME & GARDEN INC. STATE OF INCORPORATION NAME OF SUBSIDIARY OR ORGANIZATION - ------------------ ---------------------- Easy Gardener, Inc. Delaware Emerald Products Corp. Delaware Golden West Agri-Products, Inc. California Weatherly Consumer Products Group, Inc.* Delaware Weatherly Consumer Products, Inc.+ Delaware Weed Wizard Acquisition Corp.* Delaware U. S. Home & Gardent Trust I Delaware - ---------------- * Subsidiary of Easy Gardener, Inc. + Subsidiary of Weatherly Consumer Products Group, Inc. EX-23 15 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS U.S. Home & Garden Inc. San Francisco, California We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form S-1 of our report dated August 1, 1997, except for Note 15 which is as of September 15, 1997, relating to the consolidated financial statements of U.S. Home & Garden Inc. and of our report dated October 20, 1997, relating to the consolidated financial statements of Weatherly Consumer Products Group,Inc., both of which are contained in that Prospectus, and, our report dated August 1, 1997, relating to the Schedule of U.S. Home & Garden Inc. which is contained in Part II of the Registration Statement. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO SEIDMAN, LLP ------------------------ BDO SEIDMAN,LLP San Francisco, California March 20, 1998 EX-25.1 16 STATEMENT OF ELIGIBILITY OF TRUSTEE Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ____ WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) U.S. HOME & GARDEN INC. (Exact name of obligor as specified in its charter) Delaware 77-0262908 (State of incorporation) (I.R.S. employer identification no.) 655 Montgomery Street San Francisco, California 94111 (Address of principal executive offices) (Zip Code) ___% Junior Subordinated Interest Debentures of U.S. Home & Garden Inc. (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 18th day of March, 1998. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ W. Chris Sponenberg By:/s/ Emmett R. Harmon -------------------------- ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of 5 stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. 7 (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the 8 Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. 9 Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on 11 such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification. 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III Committees Section 1. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who 2 shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than 4 five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of 5 Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. 6 There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of 7 any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 8 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses 9 under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: March 18, 1998 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON Name of Bank City in the State of DELAWARE , at the close of business on December 31, 1997. ASSETS
Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins.............................................236,646 Interest-bearing balances........................................................................... 0 Held-to-maturity securities............................................................................... 331,880 Available-for-sale securities.............................................................................1,258,661 Federal funds sold and securities purchased under agreements to resell...................................... 91,500 Loans and lease financing receivables: Loans and leases, net of unearned income............. 3,822,320 LESS: Allowance for loan and lease losses........... 59,373 LESS: Allocated transfer risk reserve............... 0 Loans and leases, net of unearned income, allowance, and reserve..............................3,762,947 Assets held in trading accounts...................................................................................0 Premises and fixed assets (including capitalized leases)....................................................129,740 Other real estate owned...................................................................................... 2,106 Investments in unconsolidated subsidiaries and associated companies............................................ 22 Customers' liability to this bank on acceptances outstanding......................................................0 Intangible assets.............................................................................................4,905 Other assets................................................................................................100,799 Total assets..............................................................................................5,919,206
CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices.......................................................................................4,034,633 Noninterest-bearing................ 839,928 Interest-bearing................... 3,194,705 Federal funds purchased and Securities sold under agreements to repurchase................................. 575,827 Demand notes issued to the U.S. Treasury.....................................................................61,290 Trading liabilities (from Schedule RC-D)..........................................................................0 Other borrowed money:......................................................................................./////// With original maturity of one year or less......................................................673,000 With original maturity of more than one year.....................................................43,000 Bank's liability on acceptances executed and outstanding..........................................................0 Subordinated notes and debentures.................................................................................0 Other liabilities (from Schedule RC-G).................................................................... 76,458 Total liabilities.........................................................................................5,464,208 EQUITY CAPITAL Perpetual preferred stock and related surplus.....................................................................0 Common Stock....................................................................................................500 Surplus (exclude all surplus related to preferred stock).....................................................62,118 Undivided profits and capital reserves......................................................................385,018 Net unrealized holding gains (losses) on available-for-sale securities........................................7,362 Total equity capital........................................................................................454,998 Total liabilities, limited-life preferred stock, and equity capital.......................................5,919,206
2 EX-25.2 17 EXHIBIT 25.2 Registration No. =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ____ WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 - ------------------------ ------------------------------------ (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) U.S. HOME & GARDEN INC. (Exact name of obligor as specified in its charter) Delaware 77-0262908 (State of incorporation) (I.R.S. employer identification no.) 655 Montgomery Street San Francisco, California 94111 (Address of principal executive offices) (Zip Code) U.S. Home & Garden Inc. Guarantee with respect to ____% Cumulative Trust Preferred Securities (Title of the indenture securities) =============================================================================== ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 18th day of March, 1998. WILMINGTON TRUST COMPANY [SEAL] Attest: /s/ W. Chris Sponenberg By:/s/ Emmett R. Harmon _______________________ ______________________ Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. 3 (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; 5 (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. 6 (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. 7 (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. 8 (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. 9 Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: 11 (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III Committees Section 1. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who shall hold office during the pleasure of the Board. 2 (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. 5 Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. 6 There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. 7 Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 8 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. 9 (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: March 18, 1998 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - -------------------------------------------------------------------- Name of Bank City in the State of DELAWARE , at the close of business on December 31, 1997. -------- ASSETS
Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins.............................................236,646 Interest-bearing balances........................................................................... 0 Held-to-maturity securities............................................................................... 331,880 Available-for-sale securities.............................................................................1,258,661 Federal funds sold and securities purchased under agreements to resell...................................... 91,500 Loans and lease financing receivables: Loans and leases, net of unearned income. . . . . . . 3,822,320 LESS: Allowance for loan and lease losses. . . . . . 59,373 LESS: Allocated transfer risk reserve. . . . . . . . 0 Loans and leases, net of unearned income, allowance, and reserve..............................3,762,947 Assets held in trading accounts...................................................................................0 Premises and fixed assets (including capitalized leases)....................................................129,740 Other real estate owned...................................................................................... 2,106 Investments in unconsolidated subsidiaries and associated companies............................................ 22 Customers' liability to this bank on acceptances outstanding......................................................0 Intangible assets.............................................................................................4,905 Other assets................................................................................................100,799 Total assets..............................................................................................5,919,206
CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices.......................................................................................4,034,633 Noninterest-bearing ................ 839,928 Interest-bearing.................... 3,194,705 Federal funds purchased and Securities sold under agreements to repurchase................................. 575,827 Demand notes issued to the U.S. Treasury.....................................................................61,290 Trading liabilities (from Schedule RC-D)..........................................................................0 Other borrowed money:......................................................................................./////// With original maturity of one year or less......................................................673,000 With original maturity of more than one year.....................................................43,000 Bank's liability on acceptances executed and outstanding..........................................................0 Subordinated notes and debentures.................................................................................0 Other liabilities (from Schedule RC-G).................................................................... 76,458 Total liabilities.........................................................................................5,464,208 EQUITY CAPITAL Perpetual preferred stock and related surplus.....................................................................0 Common Stock....................................................................................................500 Surplus (exclude all surplus related to preferred stock).....................................................62,118 Undivided profits and capital reserves......................................................................385,018 Net unrealized holding gains (losses) on available-for-sale securities........................................7,362 Total equity capital........................................................................................454,998 Total liabilities, limited-life preferred stock, and equity capital.......................................5,919,206
2 EX-25.3 18 EXHIBIT 25.3 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _____ WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) U.S. HOME & GARDEN INC. U.S. HOME & GARDEN TRUST I (Exact name of obligor as specified in its charter) Delaware 77-0262908 Delaware Applied For (State of incorporation) (I.R.S. employer identification no.) 655 Montgomery Street San Francisco, California 94111 (Address of principal executive offices) (Zip Code) ____% Cumulative Trust Preferred Securities of U.S. Home & Garden Trust I (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 18th day of March, 1998. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ W. Chris Sponenberg By:/s/ Emmett R. Harmon ------------------------- -------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER Wilmington Trust Company Wilmington, Delaware As existing on May 9, 1987 Amended Charter or Act of Incorporation of Wilmington Trust Company Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "Wilmington Trust Company" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: First: - The name of this corporation is Wilmington Trust Company. Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of 5 stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. 7 (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the 8 Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Sixth: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. Eighth: - This Act shall be deemed and taken to be a private Act. 9 Ninth: - This Corporation is to have perpetual existence. Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. Twelfth: - The Corporation may transact business in any part of the world. Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. Fifteenth: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article Fifteenth shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article Fifteenth: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on 11 such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more. (e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation. Seventeenth: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification. 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE As existing on January 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I Stockholders' Meetings Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II Directors Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III Committees Section 1. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who 2 shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than 4 five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV Officers Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the Board of 5 Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. 6 There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V Stock and Stock Certificates Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of 7 any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI Seal Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII Fiscal Year Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII Execution of Instruments of the Company Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. 8 ARTICLE IX Compensation of Directors and Members of Committees Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X Indemnification Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses 9 under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI Amendments to the By-Laws Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C Section 321(b) Consent Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: March 18, 1998 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - ---------------------------------------------------------- ------------------ Name of Bank City in the State of DELAWARE , at the close of business on December 31, 1997. ---------
ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins.............................................236,646 Interest-bearing balances........................................................................... 0 Held-to-maturity securities............................................................................... 331,880 Available-for-sale securities.............................................................................1,258,661 Federal funds sold and securities purchased under agreements to resell...................................... 91,500 Loans and lease financing receivables: Loans and leases, net of unearned income. . . . . . . 3,822,320 LESS: Allowance for loan and lease losses. . . . . . 59,373 LESS: Allocated transfer risk reserve. . . . . . . . 0 Loans and leases, net of unearned income, allowance, and reserve..............................3,762,947 Assets held in trading accounts...................................................................................0 Premises and fixed assets (including capitalized leases)....................................................129,740 Other real estate owned...................................................................................... 2,106 Investments in unconsolidated subsidiaries and associated companies............................................ 22 Customers' liability to this bank on acceptances outstanding......................................................0 Intangible assets.............................................................................................4,905 Other assets................................................................................................100,799 Total assets..............................................................................................5,919,206
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LIABILITIES Deposits: In domestic offices.......................................................................................4,034,633 Noninterest-bearing . . . . . . . . 839,928 Interest-bearing. . . . . . . . . . 3,194,705 Federal funds purchased and Securities sold under agreements to repurchase................................. 575,827 Demand notes issued to the U.S. Treasury.....................................................................61,290 Trading liabilities (from Schedule RC-D)..........................................................................0 Other borrowed money:......................................................................................./////// With original maturity of one year or less......................................................673,000 With original maturity of more than one year.....................................................43,000 Bank's liability on acceptances executed and outstanding..........................................................0 Subordinated notes and debentures.................................................................................0 Other liabilities (from Schedule RC-G).................................................................... 76,458 Total liabilities.........................................................................................5,464,208 EQUITY CAPITAL Perpetual preferred stock and related surplus.....................................................................0 Common Stock....................................................................................................500 Surplus (exclude all surplus related to preferred stock).....................................................62,118 Undivided profits and capital reserves......................................................................385,018 Net unrealized holding gains (losses) on available-for-sale securities........................................7,362 Total equity capital........................................................................................454,998 Total liabilities, limited-life preferred stock, and equity capital.......................................5,919,206
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