The Scotts Miracle-Gro Company

Proxy Statement for 2008 Annual Meeting of Shareholders

 

 

The Scotts Miracle-Gro Company

14111 Scottslawn Road

Marysville, Ohio 43041

December 20, 2007

 

 

Dear Fellow Shareholders:

 

The Annual Meeting of Shareholders (the “Annual Meeting”) of The Scotts Miracle-Gro Company will be held at 10:00 a.m., Eastern Time, on Thursday, January 31, 2008, at The Berger Learning Center, 14111 Scottslawn Road, Marysville, Ohio 43041. The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement contain detailed information about the business to be conducted at the Annual Meeting.

 

The Board of Directors has nominated four directors, each to serve for a term of three years to expire at the 2011 Annual Meeting of Shareholders. The Board of Directors recommends that you vote FOR each of the nominees.

 

Only shareholders of record at the close of business on December 3, 2007, the record date, are entitled to receive notice of and to vote at the Annual Meeting.

 

On behalf of the Board of Directors and management, I cordially invite you to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, please record your vote on the accompanying form of proxy and return it promptly in the postage-paid envelope provided. Alternatively, if you are a registered shareholder, you may transmit voting instructions for your common shares electronically via the Internet or telephonically by following the specific instructions on your form of proxy.

 

Sincerely,

 

James Hagedorn

President, Chief Executive Officer

and Chairman of the Board

 

The Scotts Miracle-Gro Company

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held Thursday, January 31, 2008

 

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the “Annual Meeting”) of The Scotts Miracle-Gro Company (the “Company”) will be held at The Berger Learning Center, 14111 Scottslawn Road, Marysville, Ohio 43041, on Thursday, January 31, 2008, at 10:00 a.m., Eastern Time, for the following purposes:

 

 

The close of business on December 3, 2007 has been fixed by the Board of Directors of the Company as the record date for determining the shareholders entitled to receive notice of and to vote at the Annual Meeting.

 

You are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, you may ensure your representation by completing, signing, dating and promptly returning the accompanying form of proxy. A return envelope, which requires no postage if mailed in the United States, has been provided for your use. Alternatively, if you are a registered shareholder, you may ensure that your common shares are voted at the Annual Meeting by submitting your voting instructions electronically via the Internet or telephonically by following the specific instructions on your form of proxy. Voting your common shares by returning the accompanying form of proxy, electronically through the Internet or by telephone does not affect your right to vote in person if you attend the Annual Meeting and wish to revoke your previous vote.

 

By Order of the Board of Directors,

 

James Hagedorn

President, Chief Executive Officer

and Chairman of the Board

 

14111 Scottslawn Road

Marysville, Ohio 43041

December 20, 2007

Proxy Statement for the
Annual Meeting of Shareholders of

THE SCOTTS MIRACLE-GRO COMPANY

To Be Held on Thursday, January 31, 2008

 

TABLE OF CONTENTS

 

 

 

 

The Scotts Miracle-Gro Company
14111 Scottslawn Road
Marysville, Ohio 43041

 

 

PROXY STATEMENT

 

for

 

Annual Meeting of Shareholders

to be held on Thursday, January 31, 2008

 

 

GENERAL INFORMATION ABOUT VOTING

 

This Proxy Statement, along with the accompanying form of proxy, are being furnished in connection with the solicitation of proxies, on behalf of the Board of Directors of The Scotts Miracle-Gro Company, for use at the Annual Meeting of Shareholders of The Scotts Miracle-Gro Company (the “Annual Meeting”) to be held at The Berger Learning Center, 14111 Scottslawn Road, Marysville, Ohio 43041, on Thursday, January 31, 2008, at 10:00 a.m., Eastern Time, and at any adjournment or postponement thereof. This Proxy Statement and the accompanying form of proxy are first being sent or given to shareholders of The Scotts Miracle-Gro Company on or about December 20, 2007.

 

On March 18, 2005, we consummated the restructuring of our corporate structure into a holding company structure by merging The Scotts Company (“Scotts”), which had been the public company, into a newly-created, wholly-owned, second-tier Ohio limited liability company, The Scotts Company LLC (“Scotts LLC”), pursuant to the Agreement and Plan of Merger, dated as of December 13, 2004, among Scotts, Scotts LLC and The Scotts Miracle-Gro Company (the “Restructuring Merger”). As a result of this Restructuring Merger, each common share of Scotts issued and outstanding immediately prior to the consummation of the Restructuring Merger was automatically converted into one fully-paid and nonassessable common share of The Scotts Miracle-Gro Company. The Scotts Miracle-Gro Company became the public company successor to Scotts and Scotts LLC became a direct, wholly-owned subsidiary of The Scotts Miracle-Gro Company. The Restructuring Merger did not affect the new parent holding company’s management, corporate governance or capital stock structure. In addition, the consolidated assets and liabilities of The Scotts Miracle-Gro Company and its subsidiaries (including Scotts LLC) immediately after the Restructuring Merger were the same as the consolidated assets and liabilities of Scotts and its subsidiaries immediately before the Restructuring Merger. The Scotts Miracle-Gro Company and its corporate predecessors, as appropriate, are referred to in this Proxy Statement as the “Company.”

 

Only holders of record of the Company’s common shares at the close of business on December 3, 2007 will be entitled to receive notice of and to vote at the Annual Meeting. As of December 3, 2007, there were 64,238,715 common shares outstanding. Holders of common shares as of the record date are entitled to one vote for each common share held. There are no cumulative voting rights in the election of directors. Under the Company’s Code of Regulations, a quorum is the presence at the Annual Meeting, in person or by proxy, of a majority of the outstanding common shares entitled to vote.

 

A form of proxy for use at the Annual Meeting accompanies this Proxy Statement. You may ensure your representation at the Annual Meeting by completing, signing, dating and promptly returning the accompanying form of proxy. A return envelope, which requires no postage if mailed in the United States, has been provided for your use. Alternatively, shareholders holding common shares registered directly with the Company’s transfer agent, National City Bank, may transmit their voting instructions electronically via the Internet or by

using the toll-free telephone number stated on the form of proxy. The deadline for transmitting voting instructions electronically via the Internet or telephonically is 11:59 p.m., Eastern Time, on January 30, 2008. The Internet and telephone voting procedures are designed to authenticate shareholders’ identities, allow shareholders to give their voting instructions and confirm that shareholders’ voting instructions have been properly recorded. If you provide voting instructions through the Internet, you may incur costs associated with electronic access, such as usage charges from Internet access providers and telephone companies.

 

If you hold your common shares in “street name” with a broker/dealer, financial institution or other nominee or holder of record, you may be eligible to appoint your proxy electronically via the Internet or telephonically and may incur costs associated with the electronic access. If you hold your common shares in “street name,” you are urged to carefully review the information provided to you by the holder of record. This information will describe the procedures to be followed in instructing the holder of record how to vote the “street name” common shares and how to revoke any previously-given voting instructions. If you hold your common shares in “street name” and do not provide voting instructions to your broker/dealer within the required time frame before the Annual Meeting, your broker/dealer will have the discretion to vote your common shares on routine matters such as the uncontested election of directors.

 

If you are a registered shareholder, you may revoke your proxy at any time before it is actually voted at the Annual Meeting by giving written notice of revocation to the Corporate Secretary of the Company, by accessing the Internet site or using the toll-free number stated on the form of proxy and electing revocation as instructed or by attending the Annual Meeting and giving notice of revocation in person. You may also change your vote by choosing one of the following options: (1) executing and returning to the Company a later-dated form of proxy; (2) voting in person at the Annual Meeting; (3) submitting a later-dated electronic vote through the Internet site; or (4) voting by telephone using the toll-free telephone number stated on the form of proxy at a later date. Attending the Annual Meeting will not, in and of itself, constitute revocation of a previously-appointed proxy.

 

Proxies will be solicited by mail and may be further solicited by additional mailings, personal contact, telephone, facsimile or electronic mail by directors, officers and regular employees of the Company, none of whom will receive additional compensation for such solicitation activities. The Company will reimburse its transfer agent, National City Bank, as well as broker/dealers, financial institutions and other custodians, nominees and fiduciaries, for their standard charges and expenses for forwarding proxy materials to the beneficial shareholders. The Company will bear the costs of preparing, assembling, printing and mailing this Proxy Statement, the accompanying form of proxy and any other related materials, as well as all other costs incurred in connection with the solicitation of proxies on behalf of the Board of Directors, other than the Internet access fees and telephone service fees described above.

 

If you participate in The Scotts Company LLC Retirement Savings Plan (the “RSP”) and common shares have been allocated to your account in the RSP, you will be entitled to instruct the trustee of the RSP how to vote such common shares. You may receive your form of proxy with respect to your RSP common shares separately. If you do not give the trustee of the RSP voting instructions, the trustee will not vote such common shares at the Annual Meeting.

 

If you participate in The Scotts Miracle-Gro Company Discounted Stock Purchase Plan (the “Discounted Stock Purchase Plan”), you will be entitled to vote the number of common shares credited to your custodial account (including any fractional common shares) on any matter submitted to the Company’s shareholders for consideration at the Annual Meeting. If you do not vote or grant a valid proxy with respect to the common shares credited to your custodial account, those common shares will be voted by the custodian under the Discounted Stock Purchase Plan in accordance with any stock exchange or other rules governing the custodian in the voting of common shares held for customer accounts.

 

The results of shareholder voting at the Annual Meeting will be tabulated by or under the direction of the inspector of election appointed by the Company’s Board of Directors for the Annual Meeting. Common shares represented by properly executed forms of proxy returned to the Company prior to the Annual Meeting or represented by properly authenticated voting instructions timely recorded electronically through the Internet or

by telephone will be counted toward the establishment of a quorum for the Annual Meeting even though they are marked “For All,” “Withhold All” or “For All Except” or are not marked at all.

 

Those common shares represented by properly executed forms of proxy, or properly authenticated voting instructions recorded electronically through the Internet or by telephone, that are timely received prior to the Annual Meeting and not revoked, will be voted as specified by the shareholder. The common shares represented by valid proxies timely received prior to the Annual Meeting which do not specify how the common shares should be voted will be voted FOR the election as directors of the Company of each of the four nominees of the Board of Directors listed below under the caption “ELECTION OF DIRECTORS.” No appraisal rights exist for any action proposed to be taken at the Annual Meeting.

 

ELECTION OF DIRECTORS

 

There are currently 12 individuals serving as members of the Board of Directors of the Company, divided into three classes with regular three-year staggered terms. The Class I directors hold office for terms expiring at the Annual Meeting, the Class II directors hold office for terms expiring in 2009 and the Class III directors hold office for terms expiring in 2010. Gordon F. Brunner, who has served as a Class II director since 2003, will continue to serve as a director of the Company until the Company’s next regularly scheduled Board of Directors’ meeting at which time he will retire. The Company anticipates that, by the time of or shortly after the next regularly scheduled Board of Directors’ meeting, an individual will be identified for consideration and recommendation by the Company’s Governance and Nominating Committee, and appointed by the Company’s Board of Directors, to fill the vacancy created by Mr. Brunner’s retirement in accordance with the Company’s Code of Regulations and other governing documents.

 

At the Annual Meeting, four Class I directors will be elected. The four individuals currently serving as Class I directors — James Hagedorn, Karen G. Mills, Nancy G. Mistretta and Stephanie M. Shern — have been designated by the Board of Directors as nominees for re-election as directors of the Company at the Annual Meeting. The nomination of each individual was recommended to the Board of Directors by the Governance and Nominating Committee.

 

The individuals elected as Class I directors at the Annual Meeting will hold office for a three-year term to expire at the Annual Meeting of Shareholders of the Company to be held in 2011 and until their respective successors are duly elected and qualified, or until their earlier death, resignation or removal. The individuals named as proxies in the form of proxy solicited by the Board of Directors intend to vote the common shares represented by the proxies received under this solicitation for the Board’s nominees, unless otherwise instructed on the form of proxy. The Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve as a director of the Company if elected. If any nominee becomes unable to serve or for good cause will not serve as a candidate for election as a director, the individuals designated as proxy holders reserve full discretion to vote the common shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board of Directors following recommendation by the Governance and Nominating Committee.

 

The following information, as of December 3, 2007, with respect to the age, principal occupation or employment, other affiliations and business experience during the last five years of each director or nominee for re-election as a director, has been furnished to the Company by each director or nominee. Except where indicated, each director or nominee has had the same principal occupation for the last five years.

Nominees Standing for Re-Election to the Board of Directors

 

 

Recommendation and Vote

 

Under Ohio law and the Company’s Code of Regulations, the four nominees for election as Class I directors receiving the greatest number of votes FOR election will be elected as directors of the Company. Common shares represented by properly executed and returned forms of proxy or properly authenticated voting instructions recorded electronically through the Internet or by telephone will be voted FOR the election of the Board of Directors’ nominees unless authority to vote for one or more of the nominees is withheld. Common shares as to which the authority to vote is withheld will not be counted toward the election of directors or toward the election of the individual nominees specified on the form of proxy. The individuals designated as proxy holders cannot vote for more than four nominees for election as Class I directors at the Annual Meeting.

 

YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF ALL OF THE ABOVE-NAMED CLASS I DIRECTOR NOMINEES.

 

CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

In accordance with applicable sections of the Listed Company Manual (the “NYSE Rules”) of the New York Stock Exchange (“NYSE”), the Board of Directors has adopted Corporate Governance Guidelines to promote the effective functioning of the Board and its committees and to reflect the Company’s commitment to the highest standards of corporate governance. The Board of Directors, with the assistance of the Governance and Nominating Committee, periodically reviews the Corporate Governance Guidelines to ensure they are in compliance with all applicable requirements. The Corporate Governance Guidelines are posted under the “governance” link on the Company’s Internet website located at http://investor.scotts.com and are available in print to any shareholder who requests them from the Corporate Secretary of the Company.

 

Director Independence

 

The Board of Directors has reviewed, considered and discussed each director’s relationships, either directly or indirectly, with the Company and its subsidiaries, including those listed under “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” and the compensation and other payments each director has, directly or indirectly, received from or made to the Company and its subsidiaries in order to determine whether such director qualifies as “independent” for purposes of the applicable NYSE Rules and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC Rules”), and has determined that the Board has at least a majority of independent directors. The Board of Directors has affirmatively determined that each of the following directors and former directors (and his or her immediate family members) has no financial ties, either directly or indirectly, with the Company or its subsidiaries (other than director compensation and ownership of common shares and common share equivalents as described in this Proxy Statement) and, except as discussed below, no relationships (either directly or as a partner, member, shareholder or officer of an organization that has a relationship) with the Company or one of its subsidiaries

(including commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships) other than as a director of the Company, and thus qualifies as independent:

 

 

In determining that Mr. Donald qualifies as an independent director under the NYSE Rules and SEC Rules, the Board of Directors considered his service as a director of Scotts Miracle-Gro Foundation, an Ohio nonprofit corporation formed for charitable and educational purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The current primary activity of Scotts Miracle-Gro Foundation is to fund the “Miracle-Gro Cap Kids at COSI,” a program designed to provide academic and other support services to a select group of economically and socially disadvantaged students in the Columbus (Ohio) Public School District.

 

The Board of Directors determined that: (a) James Hagedorn is not independent because he is the President and Chief Executive Officer of the Company and beneficially owns more than 5% of the outstanding common shares of the Company; (b) Katherine Hagedorn Littlefield is not independent because she beneficially owns more than 5% of the outstanding common shares of the Company and is the sister of James Hagedorn; and (c) Patrick J. Norton is not independent because he served as an advisor for the Company until January 31, 2006.

 

Lead Independent Director

 

At its January 26, 2006 meeting, upon the recommendation of the Governance and Nominating Committee and with the support of management, the Board of Directors elected Karen G. Mills to serve as the Lead Independent Director. Ms. Mills serves in this capacity at the pleasure of the Board of Directors and will continue to so serve until her successor is elected and qualified. As Lead Independent Director, Ms. Mills presides at the executive sessions of the non-management directors of the Company and of the independent directors of the Company.

 

Nominations of Directors

 

As described below, the Company has a standing Governance and Nominating Committee that has responsibility for, among other things, providing oversight on the broad range of issues surrounding the composition and operation of the Board of Directors, including identifying candidates qualified to become directors and recommending director nominees to the Board.

 

When considering candidates for the Board of Directors, the Governance and Nominating Committee evaluates the entirety of each candidate’s credentials and does not have any specific eligibility requirements or minimum qualifications that must be met by a Governance and Nominating Committee-recommended nominee. However, under the Company’s Corporate Governance Guidelines, in general, a director is not eligible to stand for re-election once he or she has reached the age of 72. The Governance and Nominating Committee and the full Board of Directors will review individual circumstances and may from time to time choose to renominate a director who is 72 or older. Although he was then older than 72, the Board of Directors chose to nominate Joseph P. Flannery for re-election to the Board at the Company’s 2007 Annual Meeting of Shareholders because his expertise and knowledge made him a valuable candidate. The Governance and Nominating Committee may consider any factors it deems appropriate when considering candidates for the Board of Directors, including a candidate’s: judgment; skill; diversity; strength of character; experience with businesses and organizations of comparable size or scope; experience as an executive of, or advisor to, a publicly-traded or private company; experience and skill relative to other members of the Board

of Directors; specialized knowledge or experience; and desirability of the candidate’s membership on the Board of Directors and any committees of the Board of Directors.

 

The Governance and Nominating Committee considers candidates for the Board of Directors from any reasonable source, including current directors, management and shareholder recommendations, and does not evaluate candidates differently based on who has made the recommendation. The Board of Directors, taking into account the recommendations of the Governance and Nominating Committee, selects nominees to stand for election as directors. Pursuant to its written charter, the Governance and Nominating Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating candidates and to approve the fees and other retention terms for any such consultant or search firm. During the Company’s fiscal year ended September 30, 2007 (the “2007 fiscal year”) through the date of this Proxy Statement, the Company paid $106,500 to the search firm Christian and Timbers, LLC for assistance with the evaluation and selection process for the Company’s director search.

 

Shareholders may recommend director candidates for consideration by the Governance and Nominating Committee by giving written notice of the recommendation to the Corporate Secretary of the Company. The recommendation should include the candidate’s name, age, business address and principal occupation or employment, as well as a description of the candidate’s qualifications, attributes and other skills. A written statement from the candidate consenting to serve as a director, if so elected, should accompany any such recommendation.

 

Communications with the Board

 

The Board of Directors believes it is important for shareholders and other interested persons to have a process by which to send communications to the Board and its individual members, including the Lead Independent Director. Accordingly, shareholders and other interested persons who wish to communicate with the Board of Directors, the Lead Independent Director, the non-management directors as a group or a particular director may do so by addressing such correspondence to the name(s) of the specific director(s), to the “Non-Management Directors” as a group or to the “Board of Directors” as a whole, and sending it in care of the Company, to the Company’s headquarters address at 14111 Scottslawn Road, Marysville, Ohio 43041. The mailing envelope must contain a clear notation indicating that the enclosed letter is an “Interested Person/Shareholder — Board Communication,” an “Interested Person/Shareholder — Lead Independent Director Communication,” an “Interested Person/Shareholder — Non-Management Director Communication,” or an “Interested Person/Shareholder — Director Communication,” as appropriate. All such letters must identify the author as a shareholder or other interested person (identifying such interest) and clearly indicate whether the communication is directed to all members of the Board of Directors, to the non-management directors as a group or to certain specified individual director(s). Correspondence marked “personal and confidential” will be delivered to the intended recipient(s) without opening. Copies of all letters will be circulated to the appropriate director or directors. There is no screening process in respect of communications from shareholders and other interested persons.

 

Code of Business Conduct and Ethics

 

In accordance with applicable NYSE Rules and SEC Rules, the Board of Directors has adopted The Scotts Miracle-Gro Company Code of Business Conduct and Ethics, which is available under the “governance” link on the Company’s Internet website located at http://investor.scotts.com and in print to any shareholder who requests it from the Corporate Secretary of the Company.

 

All of the employees of the Company and its subsidiaries, including executive officers of the Company, and all directors of the Company are required to comply with the Company’s Code of Business Conduct and Ethics. The Sarbanes-Oxley Act of 2002 and the SEC Rules promulgated thereunder require companies to have procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and to allow for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Company’s procedures for addressing these matters are set forth in the Code of Business Conduct and Ethics.

 

MEETINGS AND COMMITTEES OF THE BOARD

 

Meetings of the Board and Board Member Attendance at Annual Meetings of Shareholders

 

The Board of Directors held 8 regularly scheduled or special meetings during the Company’s 2007 fiscal year. Each incumbent member of the Board of Directors attended at least 75% of the aggregate of the total number of meetings of the Board and of the Board committees on which he or she served, in each case during the period such director served in the 2007 fiscal year.

 

Although the Company does not have a formal policy requiring members of the Board of Directors to attend annual meetings of the shareholders, the Company encourages all incumbent directors and director nominees to attend each annual meeting of shareholders. Ten of the eleven then incumbent directors and director nominees attended the Company’s last annual meeting of shareholders held on January 25, 2007.

 

In accordance with the Company’s Corporate Governance Guidelines and applicable NYSE Rules, the non-management directors of the Company met in executive session (without management participation) in connection with each of the 8 regularly scheduled meetings of the Board of Directors during the Company’s 2007 fiscal year. In addition, the independent directors of the Company meet in executive session as appropriate matters for their consideration arise but, in any event, at least once a year.

 

Committees of the Board

 

The Board of Directors has five significant standing committees: (1) the Audit Committee; (2) the Compensation and Organization Committee; (3) the Finance Committee; (4) the Governance and Nominating Committee; and (5) the Innovation & Technology Committee.

 

Audit Committee

 

The Audit Committee, which was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is organized and conducts its business pursuant to a written charter adopted by the Board of Directors. A copy of the Audit Committee’s charter is posted under the “governance” link on the Company’s Internet website at http://investor.scotts.com and is available in print to any shareholder who requests it from the Corporate Secretary of the Company. At least annually, the Audit Committee evaluates its performance, reviewing and assessing the adequacy of its charter and recommending any proposed changes to the full Board of Directors, as necessary, to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Audit Committee is responsible for (1) overseeing the accounting and financial reporting processes of the Company, (2) overseeing the audits of the financial statements of the Company, (3) appointing, compensating and overseeing the work of the independent registered public accounting firm employed by the Company for the purpose of preparing or issuing an audit report or related work, (4) establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing matters or other compliance matters, (5) assisting the Board of Directors in its oversight of: (a) the integrity of the Company’s financial statements; (b) the Company’s compliance with applicable laws, rules and regulations, including applicable NYSE Rules; (c) the independent registered public accounting firm’s qualifications and independence; and (d) the performance of the Company’s internal audit function, and (6) undertaking the other matters required by applicable SEC Rules and NYSE Rules. Pursuant to its charter, the Audit Committee has the authority to engage and compensate such independent counsel and other advisors as the Audit Committee deems necessary to carry out its duties.

 

Each member of the Audit Committee qualifies as an independent director under the applicable NYSE Rules and under Rule 10A-3 promulgated by the Securities and Exchange Commission (the “SEC”) under the Exchange Act. The Board of Directors believes each member of the Audit Committee is qualified to discharge his or her duties on behalf of the Company and its subsidiaries and satisfies the financial literacy requirement of the NYSE Rules. The Board of Directors has determined that Stephanie M. Shern qualifies as an “audit

committee financial expert” as that term is defined in the applicable SEC Rules. None of the members of the Audit Committee serves on the audit committee of more than two other public companies.

 

The Audit Committee met 12 times during the 2007 fiscal year. The Audit Committee’s report relating to the Company’s 2007 fiscal year begins on page 62 of this Proxy Statement.

 

Compensation and Organization Committee

 

The Compensation and Organization Committee is organized and conducts its business pursuant to a written charter adopted by the Board of Directors. A copy of the Compensation and Organization Committee charter is posted under the “governance” link on the Company’s Internet website located at http://investor.scotts.com and is available in print to any shareholder who requests it from the Corporate Secretary of the Company. At least annually, in consultation with the Governance and Nominating Committee, the Compensation and Organization Committee reviews and reassesses the adequacy of its charter and performs a Committee performance evaluation.

 

The Compensation and Organization Committee reviews, considers and acts upon matters concerning salary and other compensation and benefits of all executive officers and certain other employees of the Company and its subsidiaries. The Compensation and Organization Committee also reviews and approves the general compensation philosophy applicable to these individuals. In addition, the Compensation and Organization Committee acts upon all matters concerning, and exercises such authority as is delegated to it under the provisions of, any benefit, retirement or pension plan maintained by the Company. The Compensation and Organization Committee also advises the Board of Directors regarding executive officer organizational issues and succession plans and serves as the committee administering The Scotts Miracle-Gro Company Amended and Restated 1996 Stock Option Plan (the “1996 Plan”), The Scotts Miracle-Gro Company Amended and Restated 2003 Stock Option and Incentive Equity Plan (the “2003 Plan”), The Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term Incentive Plan (the “2006 Plan”), The Scotts Company LLC Amended and Restated Executive/Management Incentive Plan (the “EMIP”) and the Discounted Stock Purchase Plan. The Compensation and Organization Committee met 10 times during the 2007 fiscal year. Pursuant to its charter, the Compensation and Organization Committee has the authority to retain special counsel, compensation consultants and other experts or consultants as it deems appropriate to carry out its functions and to approve the fees and other retention terms for any such counsel, consultants or experts.

 

Each member of the Compensation and Organization Committee qualifies as an independent director under the applicable NYSE Rules, an outside director for purposes of Section 162(m) of the Internal Revenue Code, and a non-employee director for purposes of Rule 16b-3 under the Exchange Act. The compensation discussion and analysis regarding executive compensation for the 2007 fiscal year begins on page 18 of this Proxy Statement and the Compensation and Organization Committee Report for the 2007 fiscal year appears on page 31 of this Proxy Statement.

 

Finance Committee

 

The Finance Committee is organized and conducts its business pursuant to a written charter adopted by the Board of Directors. A copy of the Finance Committee charter is posted under the “governance” link on the Company’s Internet website located at http://investor.scotts.com and is available in print to any shareholder who requests it from the Corporate Secretary of the Company.

 

The Finance Committee provides oversight of the financial strategies and policies of the Company and its subsidiaries. In discharging its duties, the Finance Committee: (1) reviews investments, stock repurchase programs and dividend payments; (2) provides oversight of cash management and bank agreements; and (3) plays a large role in overseeing the Company’s acquisitions and acquisition financing. The Finance Committee met 7 times during the 2007 fiscal year.

 

Governance and Nominating Committee

 

The Governance and Nominating Committee is organized and conducts its business pursuant to a written charter adopted by the Board of Directors. A copy of the Governance and Nominating Committee charter is posted under the “governance” link on the Company’s Internet website located at http://investor.scotts.com and is available in print to any shareholder who requests it from the Corporate Secretary of the Company. At least annually, the Governance and Nominating Committee reviews and reassesses the adequacy of its charter and performs a Committee performance evaluation.

 

The Governance and Nominating Committee recommends policies on the composition of the Board of Directors and nominees for membership on the Board. The Governance and Nominating Committee also makes recommendations to the full Board of Directors and the Chairman of the Board of Directors regarding committee selection, including committee chairs and rotation practices, the overall effectiveness of the Board and of management (in the areas of Board relations and corporate governance), director compensation and developments in corporate governance practices. The Governance and Nominating Committee is responsible for developing a policy with regard to the consideration of candidates for election or appointment to the Board of Directors recommended by shareholders of the Company and procedures to be followed by shareholders in submitting such recommendations, consistent with any shareholder nomination requirements which may be set forth in the Company’s Code of Regulations and applicable laws, rules and regulations. In considering potential nominees, the Governance and Nominating Committee conducts its own search for available, qualified nominees and will consider candidates from any reasonable source, including shareholder recommendations. The Governance and Nominating Committee is also responsible for developing and recommending to the Board of Directors corporate governance guidelines applicable to the Company and overseeing the evaluation of the Board and management.

 

Each member of the Governance and Nominating Committee qualifies as an independent director under the applicable NYSE Rules. The Governance and Nominating Committee met 4 times during the 2007 fiscal year.

 

Innovation & Technology Committee

 

The Innovation & Technology Committee was formed in May 2004 to assist the Board of Directors in providing counsel to the Company’s senior management on strategic management of global science, technology and innovations issues and to act as the Board’s liaison to the Company’s Innovation and Technology Advisory Board, a board of experts which assists in carrying out the work of the Innovation & Technology Committee. The Innovation & Technology Committee is organized and conducts its business pursuant to a written charter adopted by the Board of Directors and met 4 times during the 2007 fiscal year. A copy of the Innovation & Technology Committee charter is posted under the “governance” link on the Company’s Internet website located at http://investor.scotts.com and is available in print to any shareholder who requests it from the Corporate Secretary of the Company.

 

Compensation and Organization Committee Interlocks and Insider Participation

 

The Compensation and Organization Committee is currently comprised of Mark R. Baker, Arnold W. Donald and Joseph P. Flannery, each of whom served on the committee throughout the 2007 fiscal year. In addition, Thomas N. Kelly Jr. served as a member of the Compensation and Organization Committee from August 11, 2006 to January 25, 2007. With respect to the 2007 fiscal year and from October 1, 2007 through the date of this Proxy Statement, there were no interlocking relationships between any executive officer of the Company and any entity, one of whose executive officers served on the Company’s Compensation and Organization Committee or Board of Directors, or any other relationship required to be disclosed under the applicable SEC Rules.

 

NON-EMPLOYEE DIRECTOR COMPENSATION

 

The Board of Directors believes that non-employee director compensation levels should be competitive with similarly situated companies and should encourage high levels of ownership of the Company’s common shares. For the 2007 fiscal year, the non-employee director compensation structure was based on a combination of annual cash retainers and Non-Qualified Stock Options (“NSOs”), as follows:

 

 

In addition to the above compensation elements, non-employee directors also receive reimbursement of all reasonable travel and other expenses of attending Board meetings or other Company-related travel.

 

Grant Date and Vesting:  NSO grants for non-employee directors are approved by an action of the Board of Directors at a meeting held on the date of the annual meeting of shareholders. The grant date is established as the first business day after the annual meeting of shareholders and the exercise price is equal to the closing price of the Company’s common shares on the date of grant. Once vested, the grants generally have an expiration period as follows:

 

Director serving less than one full term:  The vested NSO expires upon the lesser of 10 years from date of grant or one year after leaving the Board.

 

Director serving more than one full term:  The vested NSO expires upon the lesser of 10 years from date of grant or five years after leaving the Board.

 

Upon a change in control of the Company, each non-employee director’s outstanding NSOs will be cancelled, unless (a) the Company’s common shares remain publicly-traded, (b) the non-employee director remains a director of the Company after the change in control or (c) the non-employee director exercises, with the permission of the Board of Directors, the non-employee director’s outstanding NSOs within 15 days of the date of the change in control. For each cancelled NSO, a non-employee director will receive cash in the amount of, or common shares having a fair market value equal to, the difference between the change in control price per common share and the exercise price per share associated with the cancelled NSO.

 

Deferral of Cash-Based Retainers:  The non-employee directors may elect, in advance, to receive up to 100% of their annual cash retainers in cash or stock units. If stock units are elected, the non-employee director receives a grant equal to the number of stock units determined by dividing the chosen dollar amount by the closing price of the Company’s common shares on the first trading day following the date of the annual meeting of shareholders. Final distributions of stock units are to be made in cash or common shares, as elected by the non-employee director, upon the date that the non-employee director ceases to be a member of the Board of Directors, or upon a “change in control” (as defined in the 2006 Plan), whichever is earliest. If stock units are to be settled in cash, the amount distributed will be calculated by multiplying the number of stock

units to be settled in cash by the fair market value of the Company’s common shares. If stock units are to be settled in common shares, the number of common shares distributed will equal the whole number of stock units to be settled in common shares, with the fair market value of any fractional stock units distributed in cash. Distributions may be made either in a lump sum or in installments over a period of up to ten years, as elected by the non-employee director. However, upon a change in control, each outstanding stock unit held by a non-employee director will be settled for a lump sum cash payment equal to the change in control price per common share.

 

Other Benefits and Perquisites:  Pursuant to the terms of a letter agreement with the Company, dated November 5, 2002, and amended on October 25, 2005, Mr. Norton has continued to participate in the Company’s group medical and dental plans under the prevailing annual COBRA rates and will continue to do so until his 65th birthday on November 19, 2015.

 

Benchmarking Board of Director Compensation:  The Company engaged an independent consultant from Towers Perrin to conduct a benchmark study of the 2007 compensation structure for the Company’s non-employee directors. For purposes of the study, Towers Perrin compared each element of the non-employee director compensation against two groups of similarly situated companies, as follows:

 

 

The survey information was compiled from 2007 definitive proxy statement filings for the respective companies. Consistent with the Company’s performance-based pay philosophy, the compensation for the non-employee directors is more heavily weighted to long-term equity-based compensation than that of the comparison companies. Based on the benchmark study, the average compensation level for the Company’s non-employee directors for the 2007 fiscal year approximates the 75^th percentile when compared to the above -mentioned groups of companies; however, the Board of Directors believes the higher level of total pay is appropriate given the heavy weighting of long-term equity-based compensation.

The following table sets forth the compensation awarded to, or earned by, each of the non-employee directors of the Company for the 2007 fiscal year. Mr. Hagedorn, the Company’s President, Chief Executive Officer and Chairman of the Board, did not receive any additional compensation for his services as a director. Accordingly, Mr. Hagedorn’s compensation is reported in “EXECUTIVE COMPENSATION” and is not included in the table below.

 

Non-Employee Director Compensation Table for 2007 Fiscal Year

 

 

Footnote to Column (b) of the Non-Employee Director Compensation Table

 

The amounts shown in this column reflect the annual retainers earned by each director for services rendered during the 2007 fiscal year as explained earlier in this section. Although each director receives an annual retainer of $40,000 per calendar year, members of the Audit Committee (Mr. Kelly, Ms. Mills, Ms. Shern, and Mr. Shiely) receive an additional $5,000 per calendar year. Mr. Kelly’s annual cash retainer of $49,166 includes $22,500 paid upon his appointment to the Board of Directors on October 11, 2006 and an additional $26,666, which represents a pro-rated portion of the annual retainer paid to him in January 2007. Ms. Mistretta’s annual cash retainer payment of $20,000 was paid on a pro-rated basis upon her appointment to the Board of Directors on August 9, 2007. Mr. Shiely’s annual cash retainer of $43,333 includes an additional $3,333, which represents a pro-rated portion of the Audit Committee retainer paid to him in January 2007. Mr. Sullivan and Dr. Walker continued to serve as directors of the Company until the January 25, 2007 Board of Directors meeting at which time they retired. Thus, the annual retainer of $15,000 reported for Mr. Sullivan represents a pro-rated portion of the annual retainer paid to him in January 2006 and the annual retainer of $23,000 reported for Dr. Walker represents a pro-rated portion of the annual retainer paid to him in January 2006.

 

The aggregate number of stock units held as of September 30, 2007 by non-employee directors who have elected to defer all or a portion of their annual retainers and receive stock units are Mr. Baker (1,451.1417), Mr. Brunner (5,575.0013), Mr. Donald (1,658.1079) and Ms. Mills (3,373.3099). The aggregate number of stock units held by the non-employee directors reflect the adjustments to account for the special dividend of $8.00 per share approved by the Board of Directors on February 16, 2007 and paid on March 5, 2007 (the “Special Dividend”). The number of stock units subject to each deferral was adjusted to maintain the same deferral value before and after the adjustments. The Compensation and Organization Committee approved the adjustments which were consistent with Section 409A of the Internal Revenue Code and assure compliance with Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”). Accordingly, there were no accounting charges associated with the adjustments nor were there any tax implications to the Company or the holders of outstanding stock units as a result of the adjustments associated with the Special Dividend.

Footnote to Column (c) of the Non-Employee Director Compensation Table

 

The amounts in this column reflect the expense recognized for financial statement reporting purposes, for the 2007 fiscal year, with respect to NSOs granted to the non-employee directors. The amounts are calculated in accordance with SFAS 123(R), and thus may include amounts from awards granted in as well as prior to the 2007 fiscal year. The value of Option Awards is determined using a binomial option valuation on the date of the grant and expensed within the one-year vesting period. Assumptions used in the calculation of these amounts are included in Note 11 to the Consolidated Financial Statements, included in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2007.

 

The amount reflected in this column for Mr. Baker does not include a $63,859 amount which should have been reported as an expense in the 2006 fiscal year, but due to a clerical error, was inadvertently included as part of the expense recognized for financial statement reporting purposes for the 2007 fiscal year. The amount reflected in this column for Mr. Kelly includes the $84,133 expense for the 2007 fiscal year associated with an October 11, 2006 grant of NSOs at the time he was appointed to the Board of Directors.

 

The grant date fair value of the NSOs covering 7,142 common shares granted to Mr. Kelly on October 11, 2006 was $84,133, calculated in accordance with SFAS 123(R). The number of common shares covered by the NSOs granted to each non-employee director then serving on January 26, 2007 and the grant date fair value of such NSOs, calculated in accordance with SFAS 123(R) is summarized in the following table, along with the aggregate number of common shares subject to Option Awards outstanding as of September 30, 2007.

 

 

The number of common shares covered by the NSOs granted on October 11, 2006 and January 26, 2007, as well as the aggregate numbers of common shares subject to Option Awards outstanding as of September 30, 2007, reflect the adjustments to account for the Special Dividend. The Compensation and Organization Committee approved the adjustments which were consistent with Section 409A of the Internal Revenue Code and assure compliance with SFAS 123(R). Accordingly, there were no accounting charges associated with the adjustments nor were there any tax implications to the Company or the holders of outstanding NSOs as a result of the adjustments associated with the Special Dividend.

Footnote to Column (d) of the Non-Employee Director Compensation Table

 

The amounts in this column reflect the personal usage of company-owned aircraft, calculated on the basis of the aggregate incremental cost to the Company of $1,950 for Mr. Donald and $23,350 for Ms. Littlefield. The reported aggregate incremental cost of personal use of company-owned aircraft was based on the direct operating costs associated with operating a flight from origination to destination, such as fuel, oil, landing fees, crew hotels and meals, on-board catering, trip-related maintenance, and trip-related hangar/parking costs. Since company-owned aircraft are used primarily for business travel, the calculation method excludes the fixed costs which do not change based on usage, such as pilots’ salaries, the purchase cost of company-owned aircraft and the cost of maintenance not related to trips. The value reported for personal usage does not include the cost of ferry legs, i.e. “deadhead flights,” of $4,350 for Mr. Donald and $8,560 for Ms. Littlefield. Due to Federal Aviation Regulations which govern the registration and operating authority of the aircraft, the Company cannot accept reimbursement for the aggregate incremental cost associated with personal usage, including the cost of the ferry legs. Accordingly, the aggregate incremental cost to the Company of such usage during the 2007 fiscal year is reported as additional compensation to Mr. Arnold and Ms. Littlefield.

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The purpose of this Compensation Discussion and Analysis (the “CD&A”) is to provide insight to our shareholders about the compensation policies, practices, guiding principles and philosophies that have been adopted by the Company to guide our decision-making with respect to executive compensation. The CD&A is broken down into the following topical areas:

 

 

Our Compensation Philosophy and Objectives

 

Simply stated, the culture of our Company is based on a strong bias for action and delivering results. Consistent with our high performance approach, our compensation programs are structured to promote a pay-for-performance culture with an orientation toward variable pay and a heavy emphasis on long-term incentives.

 

Our compensation programs are designed to achieve the following objectives:

 

 

Management believes that flexibility is a key cultural attribute to enable the Company to maintain an edge in the competitive marketplace. To preserve the flexibility needed to respond to the competitive market for executive talent, the Company has adopted a set of guiding principles that establish a framework for making compensation decisions in support of our compensation objectives. Our compensation guiding principles are as follows:

 

 

Our Compensation Practices

 

Oversight of Executive Officer Compensation

 

The Compensation and Organization Committee has oversight responsibility for all elements of executive compensation for the Chief Executive Officer (“CEO”) and other key management employees of the Company, including the Named Executive Officers (“NEOs”) listed in the Summary Compensation Table on page 32.

The Compensation and Organization Committee is responsible for evaluating the CEO’s performance and setting all elements of the CEO’s annual compensation. In setting the CEO’s compensation, the Compensation and Organization Committee considers:

 

 

In addition to setting the compensation of the CEO and approving the compensation recommendations for other key management employees, the Compensation and Organization Committee is also responsible for administering all equity-based incentive plans to achieve the objectives of the compensation programs within the framework approved by shareholders. Under the terms of these plans, the Compensation and Organization Committee has sole authority to determine the size and type of all equity-based awards as well as the period of vesting and all other key terms and conditions of the awards.

 

With respect to the annual incentive compensation plan, the Compensation and Organization Committee has responsibility for approving the overall plan design, as well as the performance metrics, performance goals and payout levels proposed by management.

 

Role of Outside Consultants

 

The Compensation and Organization Committee engages an independent consultant from Frederic W. Cook & Co. to advise the Compensation and Organization Committee with respect to best practices and competitive trends in the area of executive compensation, as well as ongoing legal and regulatory considerations. The consultant provides guidance to assist the Compensation and Organization Committee in its evaluation of the compensation recommendations submitted by management with respect to the CEO, the executive officers and other key management employees, including the NEOs. Frederic W. Cook & Co. is engaged as a consultant to the Compensation and Organization Committee and does not provide consulting services directly to management.

 

The Company engages a consultant from Hewitt Associates, Inc. (“Hewitt”). Hewitt works directly with management to advise the Company with respect to best practices and competitive trends, as well as ongoing legal and regulatory considerations with respect to executive compensation. In addition, Hewitt advises the Company with respect to the development of its compensation peer group and provides compensation benchmark data for the peer group. Where applicable, Hewitt statistically adjusts the peer group data to more closely reflect the size of the Company. Hewitt is engaged as a consultant to the Company to work directly with management and does not provide consulting services directly to the Compensation and Organization Committee.

 

Compensation Peer Group

 

For the 2007 fiscal year, the Company utilized the same compensation peer group as had been utilized in the 2006 fiscal year. This peer group consisted of approximately 60 consumer-oriented companies as a reference for determining competitive total compensation packages for the CEO and other key management employees. The compensation benchmark data for the 2007 fiscal year peer group was determined by applying a 4% annual growth rate assumption to the survey data that was initially compiled in the 2005 fiscal year. To account for the wide range of companies included in the 2005 survey, the data was statistically adjusted by an

outside survey company to more closely reflect the size and complexity of the Company. The 2007 fiscal year compensation peer group was comprised of the following companies:

 

 

At the direction of the Compensation and Organization Committee and in conjunction with the Company’s compensation consultants, a new, more focused compensation peer group was developed in the 2007 fiscal year with the goal of enabling the Company to more closely benchmark the total compensation packages of the CEO and other NEOs with the types of companies that the Company typically competes with to attract and retain executive talent. This new peer group, which has been approved by the Compensation and Organization Committee and which will be utilized by management and the Compensation and Organization Committee for the 2008 fiscal year and beyond, consists of the following companies:

 

 

The Compensation and Organization Committee believes this peer group of highly regarded consumer oriented companies reflects the pay practices of the broader consumer products industry, and is more reflective of the size and complexity of the Company. In general, the new 2008 fiscal year peer group reflects companies that range between $1.0 billion and $6.5 billion of annual revenues. The annual revenues for the Company are slightly below the median revenues of the new peer group.

 

Use of Tally Sheets

 

On an annual basis, management prepares and furnishes to the Compensation and Organization Committee a comprehensive statement, known as a “Tally Sheet,” reflecting the value of each element of compensation, executive perquisites and other benefits provided to the NEOs and other key management employees. The Tally Sheets present the total value of all compensation elements based on a target level of performance for each respective plan in which the executive participates.

 

The Tally Sheets provide perspective to the Compensation and Organization Committee on the overall level of executive compensation and wealth accumulation, as well as the relationship between short-term and long-term compensation elements, and how each element relates to the compensation philosophy and guiding principles. The Tally Sheets are instructive for the Compensation and Organization Committee when compensation decisions are being evaluated; particularly in connection with compensation upon promotions, special retention issues and separations from the Company.

 

Role of Management in Compensation Decisions

 

While the Compensation and Organization Committee retains full oversight and approval authority for all elements of executive compensation, management, including the CEO, plays a significant role in the compensation-setting process.

 

The CEO is responsible for conducting annual performance reviews and establishing performance objectives for all of the other NEOs, who in turn are responsible for conducting reviews and establishing

performance objectives for other key management employees. As mentioned previously, the Compensation and Organization Committee establishes the annual performance objectives for the CEO and completes an annual assessment of his performance. The performance evaluation and goal-setting process is critical to the overall compensation-setting process since the personal performance level of each executive is one of the most heavily weighted factors considered when making compensation decisions.

 

In conjunction with the Company’s outside consultant, management conducts annual market surveys of the salary levels, short-term incentives and long-term incentives for the CEO and each of the NEOs and other key management employees. Our goal in conducting these surveys is to understand competitive compensation programs and trends, as reflected by our compensation peer group, as well as the level and mix of compensation elements. The Compensation and Organization Committee considers the survey information to help ensure that executive compensation levels are competitive with the then existing peer group, which facilitates our ability to retain and motivate key executive talent.

 

Management makes specific recommendations to the Compensation and Organization Committee with respect to each element of executive compensation for the NEOs. These recommendations are based on management’s assessment of the competitive market trends and the performance level of the individual executive. The Compensation and Organization Committee, with the assistance of its compensation consultant, independently evaluates these recommendations taking into account the competitive market data, the overall performance level of the executive and our compensation guiding principles.

 

Setting Compensation Level for CEO

 

The Compensation and Organization Committee is responsible for evaluating the CEO’s performance with respect to the Company’s goals and objectives at least once a year and making a report to the Board of Directors. Based on this assessment, the Compensation and Organization Committee is then charged with setting the CEO’s annual compensation, including salary, annual incentive compensation and equity-based compensation and perquisites. When evaluating Mr. Hagedorn’s total level of compensation, the Compensation and Organization Committee considered information such as:

 

 

The Compensation and Organization Committee also reviews the value of the CEO’s perquisites, including his ability to use company-owned aircraft for commuting and other personal use, and his reimbursement for a portion of other commuting expenses.

 

The Compensation and Organization Committee recognizes that base salary is typically an important component of an overall compensation package for CEOs and other executive officers. However, the Compensation and Organization Committee also recognizes that Mr. Hagedorn’s situation is somewhat unique in this regard. In past years, the Committee has offered to increase Mr. Hagedorn’s base salary, but he has repeatedly declined any increases since he became CEO in the 2001 fiscal year. Rather, the Compensation and Organization Committee understands that Mr. Hagedorn, who along with his family is the single largest shareholder in the Company and has a high personal net worth, is motivated by, and should be rewarded by, equity-based compensation, which aligns the CEO’s compensation with the shareholders’ returns, and by certain perquisites, including the ability to utilize company-owned aircraft for personal use.

 

While Mr. Hagedorn’s base salary has remained flat and falls below the 50^th percentile of the 2007 fiscal year compensation peer group, the Compensation and Organization Committee has used equity-based compensation in excess of the 50^th percentile to target Mr. Hagedorn’s total direct compensation (base salary, annual incentive compensation and equity-based compensation) at around the 50^th percentile. If Mr. Hagedorn’s

total direct compensation were measured against the new compensation peer group to be used for the 2008 fiscal year and beyond, which the Compensation and Organization Committee believes is more reflective of the size and complexity of the Company, Mr. Hagedorn’s total direct compensation would be well below the 50^th percentile.

 

Mr. Hagedorn’s target incentive opportunity under the EMIP was 90% of his base salary for the 2007 fiscal year, which is intentionally set at a high level relative to the other NEOs. This puts a greater percentage of his total pay at risk, consistent with our performance-oriented pay philosophy, and is slightly below the target incentive, expressed as a percentage of base salary, of his peers.

 

For the 2007 fiscal year, 100% of his target incentive compensation opportunity was directly attributable to attainment of annual performance measures established at the Enterprise level (i.e., the Company on a consolidated basis) and approved by the Compensation and Organization Committee. The measures used to determine Mr. Hagedorn’s incentive compensation, which were the same measures used for other corporate level NEOs, were as follows:

 

 

A description of the specific performance goals and the payout levels associated with each performance measure are discussed later in this CD&A and in conjunction with the Summary Compensation Table beginning on page 32.

 

For the 2007 fiscal year, approximately 50% of the economic value of Mr. Hagedorn’s long-term equity-based compensation was granted in the form of NSOs and the remaining 50% was granted in the form of stock awards (“restricted stock”). Both the NSOs and the restricted stock are subject to three-year, time-based cliff vesting. The Compensation and Organization Committee’s decision to award a mix of NSOs and restricted stock reflects a balance between rewarding Mr. Hagedorn for future share price appreciation while attempting to mitigate the dilution to existing shareholders since a grant of restricted stock requires considerably fewer common shares than a grant of NSOs, while delivering the same economic value, measured as of the time of grant.

 

As noted above, the Compensation and Organization Committee recognizes that additional monetary compensation may not be a sufficient motivational component for purposes of Mr. Hagedorn’s overall compensation package. On the other hand, the Compensation and Organization Committee also recognizes that Mr. Hagedorn places significant value on the ability to utilize company-owned aircraft for personal use and that such use is generally consistent with the Board of Directors’ travel protocols which encourage Mr. Hagedorn to fly on company-owned aircraft for security reasons. Accordingly, the Compensation and Organization Committee has determined that Mr. Hagedorn may utilize company-owned aircraft for personal use pursuant to usage guidelines established by the Compensation and Organization Committee. In addition, the Compensation and Organization Committee has determined that reimbursement of a portion of Mr. Hagedorn’s commuting expenses is also an appropriate perquisite. In the 2007 fiscal year, Mr. Hagedorn exceeded the anticipated number of flight hours for personal use established by the Compensation and Organization Committee, largely as a result of his having to address a family tragedy, and the Compensation and Organization Committee supported such excess use under the circumstances. Although the Compensation and Organization Committee anticipates that personal use of company-owned aircraft will continue to be an important perquisite in the CEO’s overall compensation package for the 2008 fiscal year, both Mr. Hagedorn and the Compensation and Organization Committee expect the value of this perquisite to be significantly lower in the 2008 fiscal year. The Compensation and Organization Committee did not value these perquisites in benchmarking the CEO’s total compensation for the 2007 fiscal year or prior years. The Compensation and Organization Committee expects that it will include the anticipated value of such perquisites in benchmarking Mr. Hagedorn’s total compensation against the new compensation peer group to be utilized in the 2008 fiscal year and beyond.

 

Setting Compensation Levels for Other NEOs

 

The Compensation and Organization Committee intends to deliver an appropriate level of total compensation to each of the NEOs by evaluating and balancing the following objectives:

 

 

Consistent with our performance-oriented pay philosophy, the compensation structure for the NEOs, other than the CEO, is allocated to deliver about one-third of the annual compensation opportunity in the form of fixed pay (i.e. base salary) and the remaining two-thirds in the form of variable pay (short-term and long-term incentives). This pay mix is generally in line with the pay mix of our 2007 fiscal year compensation peer group.

 

Based on their assessment of the individual performance of each NEO, the CEO and the Executive Vice President, Global Human Resources, submit compensation recommendations to the Compensation and Organization Committee for each NEO. These recommendations incorporate all elements of compensation, including base salary, annual incentive compensation, equity-based compensation and perquisites. To evaluate the compensation recommendations, the Compensation and Organization Committee considers information such as the Company’s financial performance as well as the compensation of similarly situated executives as determined by reference to the benchmark data for our 2007 fiscal year compensation peer group.

 

In general, the total direct compensation level, at target levels of performance, for most of the NEOs, other than the CEO, was between the 50^th and 65^th percentile compared to the 2007 fiscal year compensation peer group. The total direct compensation level for Mr. Sanders and for Mr. Nagel, the former head of the Company’s North America Consumer Business, were below the 50^th percentile. The Compensation and Organization Committee believes that the total direct compensation for each of these individuals was appropriate in view of the objectives noted above and that variances from the target range versus the 2007 fiscal year compensation peer group were the result of the fact that such individuals were in their then current positions a relatively short period of time.

 

For the 2007 fiscal year, 100% of the target incentive compensation opportunity under the EMIP for the NEOs, other than the CEO, was directly attributable to attainment of annual performance measures as follows:

 

 

A description of the specific performance goals and the payout levels associated with each performance measure are discussed later in this CD&A and in the narrative accompanying the Summary Compensation Table beginning on page 32 and the narrative accompanying the Grants of Plan-Based Awards Table beginning on page 38.

 

For the 2007 fiscal year, approximately 50% of the economic value of the long-term equity-based compensation granted to the NEOs, other than the CEO, was in the form of NSOs and the remaining 50% was granted in the form of restricted stock. Both the NSOs and the restricted stock are subject to three-year, time-based cliff vesting. The Compensation and Organization Committee’s decision to award a mix of NSOs and

restricted stock reflects a balance between rewarding the NEOs for future share price appreciation while attempting to mitigate the dilution to existing shareholders since a grant of restricted stock requires considerably fewer common shares than a grant of NSOs while delivering the same economic value, measured as of the time of grant.

 

Elements of Executive Compensation

 

To best promote the objectives of the compensation program, the Company uses a mix of five principal compensation elements that reflect a mix of short-term and long-term rewards. The Compensation and Organization Committee reviews each element of compensation on an annual basis, as well as the relative mix or weighting between elements. For the 2007 fiscal year, the elements of executive compensation were as follows:

 

 

Base Salary (short-term compensation element)

 

Consistent with the Company’s performance-based pay philosophy, base salary is not intended to deliver the majority of the total compensation to any of the NEOs or other key management employees. However, the base salary, which is the primary fixed element of total pay, serves as the foundation of the total compensation structure since most of the variable compensation elements are linked directly or indirectly to the base salary level.

 

Salaries of the NEOs are typically reviewed on an annual basis and benchmarked by position to the median of our compensation peer group. Individual base salaries may be higher or lower than the benchmark to reflect an executive’s experience, competency, skill level and overall contribution to the success of our business. The base salaries of the Company’s NEOs and other key management employees are determined considering:

 

 

Base salary changes, if any, take effect in October, as well as on a facts and circumstances basis at the time of a promotion or other material change in an executive’s overall responsibilities.

 

EMIP (short-term compensation element)

 

All NEOs and other key management employees are eligible to participate in the EMIP, which is designed to:

 

 

The EMIP provides annual cash incentive compensation opportunities based on various performance metrics related to the financial performance of the Company and its business units for the fiscal year. An incentive target, expressed as a percentage of base salary, is established for each NEO. The percentage may vary by position but is generally intended to approximate the market median of the compensation peer group. For the 2007 fiscal year, the incentive target for all NEOs, other than the CEO, Mr. Hagedorn, was established at 55% of base salary. The incentive target for Mr. Hagedorn was set at 90% of base salary.

 

The design and administration of the EMIP are generally intended to qualify compensation payable thereunder as performance-based compensation for purposes of Internal Revenue Code Section 162(m) in order to maximize the tax deductibility for the Company. Accordingly, the Compensation and Organization Committee oversees the operation of the EMIP, including approving the plan’s design as well as establishing the performance objectives and payout targets. At the end of each fiscal year, the Compensation and Organization Committee determines the extent to which the targets and objectives have been met and approves cash incentive payments accordingly.

 

The EMIP Performance Metrics:  The performance metrics and relative weightings chosen for the EMIP in the 2007 fiscal year achieved the intended objectives of the plan by balancing the entrepreneurial focus on individual business unit results with the overall Enterprise level financial performance. As indicated below, the performance metrics and relative weightings differ based on the NEO’s primary span of control as follows:

 

EMIP Measures for Corporate Officers
Mr. Hagedorn, Mr. Evans, Mr. Sanders, Ms. Stump and Mr. Aronowitz (former)

 

For the 2007 fiscal year, the incentive awards for corporate level NEOs were based on two annual performance measures, both of which are calculated at the Enterprise level (i.e., the Company on a consolidated basis). As reflected in the table below, overachievement vs. the pre-defined performance goals generates a larger payout (up to 250% of target) and underachievement yields a smaller payout. The Enterprise level performance goals and actual performance results for the 2007 fiscal year were:

 

 

Actual payouts between the specified performance levels were calculated on a straight-line basis

 

Adjusted Net Income — Earnings after amortization, interest and taxes, excluding charges related to impairment, restructuring and other non-recurring items. For purposes of the EMIP, foreign currency translation is calculated based on budgeted exchange rates.

 

Modified Free Cash Flow — Adjusted Net Income with certain adjustments, as shown below. For purposes of the EMIP, foreign currency translation is calculated based on budgeted exchange rates.

 

Adjusted Net Income

Add: non-cash expenses (depreciation, amortization and stock-based compensation)

Subtract: capital expenditures

Adjust: (add/subtract) for change in working capital, calculated using an

average of 13 month-end balances. This is in contrast with the methodology

of using 2 month-end balances, the beginning of year and end of year, used

for external reporting purposes.

The target performance goals chosen for the Enterprise level performance measures were initially based on the Company’s budget for the 2007 fiscal year. The performance goals were then adjusted by the Compensation and Organization Committee in May 2007 to reflect the impact of a $245 million share repurchase completed in February 2007 and the Special Dividend of $8.00 per share paid on March 5, 2007. The adjustments were anticipated by the Compensation and Organization Committee at the time the Board of Directors approved the share repurchase and the Special Dividend, but approval of the adjusted target performance goals did not occur until the Compensation and Organization Committee’s regularly scheduled meeting in May 2007. The minimum performance goals were initially established based on the prior year actual performance for each metric and the maximum performance goals were set at a level deemed to be aggressive, but reachable. When the target performance goals were adjusted by the Compensation and Organization Committee in May 2007, the minimum and maximum performance goals were adjusted to maintain the original relationship vs. target.

 

As noted in the chart above, the total weighted payout percentage achieved for the 2007 fiscal year was only 22.9%, which the Compensation and Organization Committee believes is consistent with the fact that the Company performed below expected levels and indicates that the thresholds were set at appropriate levels.

 

EMIP Measures for Business Unit Officers
Mr. Nagel (former)

 

For the 2007 fiscal year, the incentive awards for management employees in each business unit were based on a combination of Enterprise level performance measures and business unit performance measures. Prior to leaving the Company in July 2007, Mr. Nagel participated in the EMIP as a North America business unit officer; however, he was not eligible for the 2007 fiscal year payout since he separated from the Company prior to the end of the fiscal year. As reflected in the table below, overachievement vs. the pre-defined performance goals generates a larger payout (up to 250% of target) and underachievement yields a smaller payout. The North America business unit officer performance measure goals and actual performance results for the 2007 fiscal year were:

 

 

Actual payouts between the specified performance levels were calculated on a straight-line basis

 

* We are not disclosing the minimum, target and maximum performance goals or the actual results for this performance measure. The target performance goal for this performance measure was established at budget rates consistent with all other performance measures. At the time the target performance goal was established, the Compensation and Organization Committee believed the target was appropriately challenging based on inherent assumptions on product mix, pricing and in particular, commodity costs, which were subject to considerable upward pressure. In order to achieve the gross margin rate performance target, the Company needed to pass on planned price increases to the trade, realize targeted sales of higher margin products and control material costs that were subject to adverse movements in commodity and other raw materials prices.

The actual performance level achieved for this performance measure in 2007 fiscal year, which was slightly greater than the minimum performance level, indicates that the threshold was set at a challenging level.

 

EBTA — A measure of earnings before taxes and amortization and after a working capital charge-back to the business unit.

 

Gross Margin Rate — Calculated at the business unit level. For purposes of the EMIP, gross margin rate is calculated on an internal reporting basis prior to certain adjustments made for external reporting purposes related to the Marketing Agreement between the Company and Monsanto in support of the consumer Roundup^® business.

 

Adjusted Net Income — Earnings after amortization, interest and taxes, excluding charges related to impairments, restructuring and other non-recurring items. For purposes of the EMIP, foreign currency translation is calculated based on budgeted exchange rates.

 

Modified Free Cash Flow — Adjusted Net Income with certain adjustments, as shown below. For purposes of the EMIP, foreign currency translation is calculated based on budgeted exchange rates.

 

Adjusted Net Income

Add: non-cash expenses (depreciation, amortization and stock-based compensation)

Subtract: capital expenditures

Adjust: (add/subtract) for change in working capital, calculated using an

average of 13 month-end balances. This is in contrast with the methodology

of using 2 month-end balances, the beginning of year and end of year, used

for external reporting purposes.

 

The target performance goals chosen for the North America business unit component were based on the Company’s budget for the 2007 fiscal year. The minimum performance goals were established based on the prior year actual performance for each metric. The maximum performance goals were set at a level deemed to be aggressive, but reachable. The minimum, target and maximum performance levels for the Enterprise level component were set equal to the performance targets established for the Corporate Officers as described previously.

 

To recognize the individual contributions of each NEO towards the achievement of team oriented goals, only 75% of the aggregate annual incentive payout under the EMIP is fixed by the performance metrics formulae described above. The remaining 25% is awarded at the discretion of the CEO, subject to approval by the Compensation and Organization Committee, based on each NEO’s performance level for the fiscal year. The CEO has no discretionary authority with respect to his own annual incentive payouts under the EMIP. Due to the discretionary component of annual incentive payouts under the EMIP, it is possible that a portion of the discretionary payout will not be deductible by the Company for federal income tax purposes; however, the Compensation and Organization Committee believes the trade-off serves to reinforce our performance-based culture. Additional explanation of the EMIP payout calculations, including identification of the discretionary payout amount for the 2007 fiscal year, is included in the narrative accompanying the Summary Compensation Table beginning on page 32 and the narrative accompanying the Grants of Plan-Based Awards Table beginning on page 38.

 

Long-Term Equity-Based Incentive Plans (long-term compensation element)

 

The Compensation and Organization Committee targets the economic value (equity award value) for long-term equity-based incentive awards at the 50^th percentile of the compensation peer group. The target level is expressed as a multiple of the base salary and may be delivered in any combination of options, stock appreciation rights (“SARs”), restricted stock and/or performance shares. Consistent with the Company’s performance-based pay philosophy, the targeted economic value of individual equity grants may be adjusted upward or downward from the 50^th percentile based on such factors as the overall performance level of the individual, years of service and the accumulated value of previous equity-based incentive awards.

For the 2007 fiscal year, the Company granted approximately 50% of the desired equity award value in the form of NSOs, with the remaining 50% granted in the form of restricted stock. The decision to use a combination of NSOs and restricted stock reflects competitive pay practices and allows the Company to deliver the intended equity award value with fewer common shares. The specific numbers of common shares subject to NSOs and restricted stock awarded were determined as follows:

 

Desired Option Award value / Black-Scholes value per option = # of common shares subject to NSOs awarded

 

Desired Stock Award value / FMV per share = # of common shares underlying Restricted Stock awarded

 

All NSOs and restricted stock awarded to the NEOs in the 2007 fiscal year are subject to a three-year time-based cliff vesting provision. The restricted stock grants do not qualify as performance-based compensation for purposes of Internal Revenue Code Section 162(m). As a result, the Company’s ability to deduct the full value of these awards at the time of vesting may be limited. Information on our equity grant practices and the determination of exercise price are explained under the section captioned “Other Executive Compensation Policies, Practices and Guidelines — Practices Regarding Equity-Based Awards” below.

 

Executive Perquisites and Other Benefits (short-term compensation element)

 

The Company maintains traditional health and welfare benefits and a qualified 401(k) plan that are generally offered to all employees (subject to basic plan eligibility requirements), and are consistent with the types of benefits offered by other large corporations. In addition to the traditional benefits, the Company offers certain executive level perquisites to key executives which are designed to be competitive with the compensation practices of our peer group. In addition to the perquisites and benefits made available to other employees, the Company pays for additional perquisites for all NEOs consisting of comprehensive annual physical examinations, a car allowance of $1,000 per month and annual financial planning services, valued at approximately $4,000 per year on average.

 

As noted above, a company-owned airplane is available to the CEO for personal use that is generally consistent with the Board of Directors’ travel protocols which encourage Mr. Hagedorn to fly on company-owned aircraft for security reasons. While the Company maintains the aircraft primarily for business travel, the Compensation and Organization Committee believes that extending this perquisite to the CEO is in the best interest of the Company from a productivity perspective. As a result, Mr. Hagedorn’s personal use of company-owned aircraft, which is paid for by the Company, is considered as a perquisite. In addition, the Compensation and Organization Committee has determined that reimbursement of a portion of Mr. Hagedorn’s commuting expenses is also an appropriate perquisite.

 

None of the other NEOs are covered by the security guidelines. Accordingly, personal usage of company-owned aircraft by NEOs other than the CEO is subject to pre-approval on a case by case basis.

 

Executive Retirement Plans and Deferred Compensation Benefits (long-term compensation element)

 

The Scotts Company LLC Executive Retirement Plan (the “ERP”) is a non-qualified deferred compensation plan. The ERP provides executives, including the NEOs, the ability to defer compensation above the Internal Revenue Service (“IRS”) limits applicable to The Scotts Company LLC Retirement Savings Plan (the “RSP”), a qualified 401(k) plan. The ERP is an unfunded plan and is subject to the claims of the Company’s general creditors. The ERP consists of three parts:

 

 

 

The Company matching contributions and Base Retirement Contributions to the ERP are based on the same contribution formulae used for the RSP. The Company matches the Compensation Deferral at 100% for the first 3% of pay that is contributed to the ERP and 50% for the next 2% of pay contributed to the ERP.

 

The Company also makes a Base Retirement Contribution in an amount equal to 2% of eligible earnings for all eligible associates, whether or not they make deferral elections to the ERP. This amount increases to 4% once an associate’s annual earnings reach 50% of the Social Security (FICA) wage base. Base Retirement Contributions are only made to the ERP once an executive exceeds the maximum allowable pay under the RSP.

 

Participant account balances in the ERP are invested in a Company stock fund and other mutual fund investments that are generally consistent with the investment alternatives permitted with respect to the RSP. Accordingly, there were no above-market or preferential earnings on investments associated with the ERP for any of the NEOs for the 2007 fiscal year.

 

The Scotts Company LLC Excess Benefit Plan (the “Excess Pension Plan”) is an unfunded plan that provides benefits which cannot be provided under The Scotts Company LLC Associates’ Pension Plan (the “Associates’ Pension Plan”) due to IRS limits. The Associates’ Pension Plan was frozen effective December 31, 1997 and, therefore, no service is earned after that date under the Excess Pension Plan for participating executives.

 

Other Executive Compensation Policies, Practices and Guidelines

 

Practices Regarding Equity-Based Awards:  In general, all employees are eligible to receive grants of equity-based awards; however, the Compensation and Organization Committee typically limits participation to the CEO, the executive officers and other key management employees. The decision to include certain key management employees in the annual equity-based awards is reflective of competitive market practice and serves to reward those individuals for their past and future impact on our business results.

 

Grants of Option Awards and/or Stock Awards are typically approved on an annual basis at a regularly scheduled meeting of the Compensation and Organization Committee. The grant date is established as the date of the Compensation and Organization Committee action. In certain instances, an equity-based award may be granted to a new hire as of the later of the date such grant is approved by the Compensation and Organization Committee, or the date employment commences. The Company does not have any program, plan or practice to time annual equity-based awards to our executives in coordination with the release of material non-public information.

 

The exercise price for each NSO is equal to the closing price of the Company’s common shares on the grant date, as reported on NYSE. If the grant date is not a trading day on NYSE, the exercise price is established as the closing price on the succeeding trading day. The Company does not have any program, plan or practice of determining the exercise price of an NSO on any date other than the grant date.

 

Stock Ownership Retention Guidelines:  The Compensation and Organization Committee has established stock ownership retention guidelines, which vary by position, for the CEO and the NEOs. The purpose of these guidelines is to align the interests of each NEO with the long-term interests of the shareholders by ensuring that a material amount of each executive’s accumulated wealth is maintained in the form of common shares of the Company. The minimum target levels of equity ownership (retention) established by position are as follows:

 

 

The Compensation and Organization Committee believes that these retention guidelines are generally more stringent than the competitive pay practices of our compensation peer group since we include the annual

target EMIP amount (in addition to base salary) when establishing the minimum amount of stock ownership desired, while most of the other members of our peer group look only at multiples of base salary. For purposes of achieving the desired level of stock ownership retention, the Company considers the following forms of equity-based holdings:

 

 

According to the Company’s stock ownership retention guidelines, each NEO has five years from the date of hire or promotion to fully reach the appropriate retention guideline for his or her position.

 

Recoupment/Clawback Policies:  To protect the interests of the Company and its shareholders, all equity-based awards are subject to recoupment provisions (known as clawback provisions). These provisions are designed to enable the Company to recoup common shares or other amounts earned or received under the terms of an equity-based award based on subsequent events, such as violation of non-compete covenants or engaging in conduct that is deemed to be detrimental to the Company (as outlined in the underlying plan and/or award agreement).

 

In addition to the clawback provisions for equity-based awards, all amounts paid under the EMIP are subject to similar recoupment provisions.

 

Guidelines with Respect to Tax Deductibility and Accounting Treatment

 

The Company’s ability to deduct certain elements of compensation paid to each of the NEOs is generally limited to $1 million annually, under Internal Revenue Code Section 162(m). This non-deductibility is generally limited to amounts that do not meet certain technical requirements to be classified as “performance-based” compensation. To ensure the maximum tax deduction allowable, the Company attempts to structure its cash-based incentive programs to qualify as performance-based compensation under Internal Revenue Code Section 162(m).

 

The Company accounts for stock-based compensation, including Option Awards and Stock Awards, in accordance with SFAS 123(R). Prior to making decisions to grant equity-based awards, the Compensation and Organization Committee reviews pro forma expense estimates, as well as an analysis of the potential dilutive effect such awards could have on existing shareholders. Where deemed appropriate, the proposed level of the equity-based awards may be adjusted to balance these objectives.

 

Decisions regarding the design, structure and operation of the Company’s incentive plans, including the EMIP and the equity-based incentive plans, contemplate an appropriate balance between the underlying objectives of each plan and the resulting accounting and tax implications to the Company. While we view preserving the tax deductibility as an important objective, there are instances where the Compensation and Organization Committee has approved design elements that may not be fully tax-deductible, but are accepted as trade-offs that support the achievement of other corporate objectives. For example, based on the desire to add a level of individual accountability to the team oriented measurements in the EMIP, a 25% discretionary element was added to the design for the 2007 fiscal year. The Company has made a trade-off between the potential tax due to non-deductibility and the desire to achieve higher level corporate objectives such as individual accountability.

 

COMPENSATION AND ORGANIZATION COMMITTEE REPORT

 

The Compensation and Organization Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K with management and, based on such review and discussions, the Compensation and Organization Committee recommended to the Board of Directors (and the Board of Directors approved) that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Submitted by the Compensation and Organization Committee of the Board of Directors of the Company:

 

Arnold W. Donald, Chair
Mark R. Baker
Joseph P. Flannery

 

EXECUTIVE COMPENSATION TABLES

 

At the end of the 2007 fiscal year, the Company had only four executive officers that were still actively serving in that capacity. Accordingly, the NEOs for purposes of this disclosure include James Hagedorn, who served as Principal Executive Officer throughout the 2007 fiscal year, David C. Evans, who served as Principal Financial Officer throughout the 2007 fiscal year, Barry W. Sanders and Denise S. Stump, who were the only other executive officers serving at the end of the 2007 fiscal year. Each of Mr. Hagedorn, Mr. Evans, Mr. Sanders and Ms. Stump serves pursuant to an employment agreement as described below under the caption “PAYMENTS ON TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL — Employment Agreements and Termination of Employment and Change-in-Control Arrangements.” In addition, two former executive officers are disclosed as NEOs, Christopher L. Nagel and David M. Aronowitz, who would have been among the most highly compensated executive officers, but were not serving as executive officers at the end of the 2007 fiscal year. Mr. Nagel served as Executive Vice President, North America Consumer Business through July 18, 2007 and Mr. Aronowitz served as Executive Vice President, General Counsel and Corporate Secretary through July 17, 2007.

 

Summary Compensation Table

 

The following table summarizes the total compensation paid to, awarded to or earned by each of the NEOs of the Company for the 2007 fiscal year. The amounts shown include compensation for services in all capacities that were to be provided by the Company including any amounts which may have been deferred. Since the table includes equity-based compensation costs and changes in the actuarial present value of the NEOs’ accumulated pension benefits, the total compensation amount is significantly greater than the compensation that actually was paid to the NEOs during the 2007 fiscal year.

 

Summary Compensation Table for 2007 Fiscal Year

 

 

Footnote to Column (c) of Summary Compensation Table

 

This column shows each NEO’s base salary for the 2007 fiscal year.

Footnote to Column (d) of Summary Compensation Table

 

The amount in this column shows the “discretionary” portion of the 2007 fiscal year EMIP payout for each NEO. This amount is based on individual performance for the 2007 fiscal year and is awarded at the discretion of the CEO and approved by the Compensation and Organization Committee. The CEO has no discretionary authority with respect to his own annual incentive payout under the EMIP. The target discretionary bonus for each individual is 25% of the aggregate payout calculated based on the EMIP performance measures. Each NEO can earn more or less than the 25% discretionary target based on the NEO’s individual performance for the 2007 fiscal year. The maximum discretionary amount that can be awarded to the NEOs in total is limited by the size of a pool, which is funded by aggregating the target discretionary bonus amounts of the key management team reporting to the CEO.

 

Footnote to Column (e) of Summary Compensation Table

 

The amount in this column reflects the dollar amount recognized for financial statement reporting purposes, for the 2007 fiscal year, with respect to the restricted stock awards granted to each NEO. The amount is calculated in accordance with SFAS 123(R), and thus may include amounts from awards granted in as well as prior to the 2007 fiscal year. Pursuant to applicable SEC Rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The value of Stock Awards is determined using the fair market value of the underlying common shares on the date of the grant, and expensed ratably over the three-year restriction period. Assumptions used in the calculation of this amount are included in Note 11 to the Consolidated Financial Statements, included in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2007.

 

With respect to Mr. Nagel, who resigned from the Company in July 2007, all unvested restricted stock awards (covering an aggregate of 51,900 common shares) were forfeited in the 2007 fiscal year, resulting in a credit of $995,139 for financial statement reporting purposes. Of the total credit recorded, $982,480 was a direct offset to expense that would otherwise have been recorded for the 2007 fiscal year. As a result, no expense is reflected for the 2007 fiscal year.

 

With respect to Mr. Aronowitz, who resigned from the Company in July 2007, all unvested restricted stock awards (covering an aggregate of 31,200 common shares) were forfeited in the 2007 fiscal year, resulting in a credit of $461,450 for financial statement reporting purposes. Of the total credit recorded, $253,527 was a direct offset to expense that would otherwise have been recorded for the 2007 fiscal year. As a result, no expense is reflected for the 2007 fiscal year.

 

Footnote to Column (f) of Summary Compensation Table

 

The amount in this column reflects the expense recognized for financial statement reporting purposes, for the 2007 fiscal year, with respect to NSOs granted to each NEO. The amount is calculated in accordance with SFAS 123(R), and thus may include amounts from awards granted in as well as prior to the 2007 fiscal year. Pursuant to applicable SEC Rules, the amount shown excludes the impact of estimated forfeitures related to service-based vesting conditions. The value of Option Awards is determined using a binomial option valuation on the date of the grant and expensed ratably over the three-year vesting period. Assumptions used in the calculation of this amount are included in Note 11 to the Consolidated Financial Statements, included in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2007.

 

With respect to Mr. Nagel, who resigned from the Company in July 2007, the amount reflected in this column includes the actual compensation costs, calculated in accordance with SFAS 123(R), related to Option Awards that vested in the 2007 fiscal year. For financial statement reporting purposes, an additional expense of $1,100,117, calculated in accordance with SFAS 123(R), was recorded for the 2007 fiscal year related to Option Awards (covering an aggregate of 108,056 common shares) that were subject to a negotiated cash settlement upon Mr. Nagel’s resignation from the Company and forfeited. To avoid double counting, that amount has not been reported in column (f) since it is included as part of the cash settlement of $1,401,068 that is reflected in column (i), All Other Compensation.

With respect to Mr. Aronowitz, who resigned from the Company in July 2007, the amount reflected in this column includes the actual compensation costs, calculated in accordance with SFAS 123(R), related to Option Awards that vested in the 2007 fiscal year. For financial statement reporting purposes, an additional expense of $644,847 was recorded for the 2007 fiscal year related to Option Awards (covering an aggregate of 91,632 common shares) that were subject to a negotiated cash settlement upon Mr. Aronowitz’s resignation from the Company and forfeited. To avoid double counting, that amount has not been reported in column (f) since it is included as part of the cash settlement of $851,068 that is reflected in column (i), All Other Compensation.

 

Footnote to Column (g) of Summary Compensation Table

 

The amount in this column reflects the “non-discretionary” portion of the 2007 fiscal year EMIP payout for each NEO. This amount represents 75% of the aggregate payout calculated based on the EMIP performance measures. A more detailed description of the performance measures and actual 2007 fiscal year performance levels for purposes of the EMIP are discussed under the caption “Elements of Executive Compensation — EMIP (short-term compensation element)” in the CD&A.

 

Footnote to Column (h) of Summary Compensation Table

 

The amount in this column reflects the change in aggregate pension value based on the aggregate change in the actuarial present value of the accumulated benefit under both the Associates’ Pension Plan and the Excess Pension Plan for each participant. The change in actuarial present value is the change in present value from October 1, 2006 through September 30, 2007. Both plans were frozen as of December 31, 1997; therefore, no service credits have been earned since that date.

 

Participant account balances in the ERP, a non-qualified deferred compensation plan, are invested in a Company stock fund and other mutual fund investments that are generally consistent with the investment alternatives permitted with respect to the RSP, a qualified 401(k) plan. Accordingly, there were no above-market or preferential earnings on investments associated with the deferred compensation plan for any of the NEOs for the 2007 fiscal year.

 

Footnote to Column (i) of Summary Compensation Table

 

The amount reported in this column consists of amounts provided to each NEO with respect to an automobile allowance, annual financial planning services, physical examinations, amounts contributed by the Company to defined contribution and non-qualified deferred compensation plans, commuting and other personal use of company-owned aircraft, reimbursement of other commuting expenses, tax gross-ups and common shares purchased under the Discounted Stock Purchase Plan, all of which are detailed in the All Other Compensation Table.

 

  All Other Compensation Table (Supplements Summary Compensation Table)

 

The following table shows the detail for column (i), All Other Compensation of the Summary Compensation Table.

 

All Other Compensation (Supplements Summary Compensation Table)

 

 

Footnote to Column (b) of the All Other Compensation Table

 

The amount in this column reflects the monthly automobile allowance provided to each of the NEOs for the 2007 fiscal year. The amounts for Mr. Sanders, Mr. Nagel and Mr. Aronowitz reflect their time served in an executive officer capacity during the 2007 fiscal year.

 

Footnote to Column (c) of the All Other Compensation Table

 

The amount in this column shows the Company matching and retirement contributions made in the 2007 fiscal year under the RSP, a defined contribution plan, on behalf of each NEO. Eligible participants may contribute up to 75% of pay on a before-tax basis through payroll deduction up to the IRS limit. The Company matches the before-tax contributions at 100% for the first 3% of pay that is contributed to the RSP and 50% for the next 2% of pay contributed to the RSP (within IRS limitations). The matching contributions, and any earnings on them, are immediately 100% vested.

 

The Company also makes a Base Retirement Contribution in an amount equal to 2% of eligible earnings for all eligible associates, whether or not they choose to contribute to the RSP. This amount increases to 4% once an associate’s annual earnings reach 50% of the Social Security (“FICA”) wage base. The Base Retirement Contributions, and any earnings on them, vest once an associate has reached three years of service with the Company.

 

Footnote to Column (d) of the All Other Compensation Table

 

The amount in this column shows the amount of all Company contributions into the ERP, a non-qualified deferred compensation plan, for each NEO. The ERP provides executives, including the NEOs, the ability to defer compensation above the IRS limits applicable to the RSP. Additional details with respect to non-qualified deferred compensation provided for under the ERP are shown in the Non-Qualified Deferred Compensation Table on page 44.

 

Footnote to Column (e) of the All Other Compensation Table

 

The amount in this column for Mr. Hagedorn reflects tax gross-up payments with respect to aircraft usage and commuting expenses. Mr. Hagedorn’s gross-up payments include $98,068 related to commuting and other personal use of company-owned aircraft as well as $9,156 related to the reimbursement of certain expenses associated with commuting in his personal aircraft.

Footnote to Column (f) of the All Other Compensation Table

 

The amount in this column for Mr. Hagedorn reflects the costs of commuting on company-owned aircraft ($121,060), calculated according to applicable SEC guidance which measures the aggregate incremental cost to the Company of personal use. This amount does not include the cost of ferry legs, i.e. “deadhead flights” ($59,610). The reported aggregate incremental cost of commuting on company-owned aircraft was based on the direct operating costs associated with operating a flight from origination to destination, such as fuel, oil, landing fees, crew hotels and meals, on-board catering, trip-related maintenance, and trip-related hangar/parking costs. Since company-owned aircraft are used primarily for business travel, the calculation method excludes the fixed costs which do not change based on usage, such as pilots’ salaries, the purchase cost of company-owned aircraft and the cost of maintenance not related to trips. This column also includes an additional perquisite for certain costs ($77,400) which the Company reimbursed to Mr. Hagedorn for a portion of the direct operating costs associated with commuting in his personal aircraft.

 

Footnote to Column (g) of the All Other Compensation Table

 

The amount in this column reflects additional forms of compensation to each NEO. The Discounted Stock Purchase Plan allows employees to buy the Company’s common shares at a 10% discount from the then current market price. There are financial planning services offered to executives which have an “opt-out” payment of $4,000 to those executives who do not use the service. The comprehensive financial planning services integrate benefits and compensation with estate planning, investment planning, retirement planning and tax planning.

 

As a result of his participation in the Discounted Stock Purchase Plan, Mr. Hagedorn realized additional compensation of $2,667, associated with purchasing common shares of the Company at a 10% discount from the then current market price. Mr. Hagedorn elected to receive an opt-out payment in lieu of receiving Company-paid financial planning services, which increased his compensation by $4,000 for the 2007 fiscal year. This column also reflects the cost of Mr. Hagedorn’s personal usage of company-owned aircraft ($370,280), excluding the cost of commuting that was reported in column (f). The value reported for his personal usage does not include the cost of ferry legs, i.e. “deadhead flights” ($117,740). The reported aggregate incremental cost of his personal usage of company-owned aircraft was based on the direct operating costs associated with operating a flight from origination to destination, such as fuel, oil, landing fees, crew hotels and meals, on-board catering, trip-related maintenance, and trip-related hangar/parking costs. Since company-owned aircraft are used primarily for business travel, the calculation method excludes the fixed costs which do not change based on usage, such as pilots’ salaries, the purchase cost of company-owned aircraft and the cost of maintenance not related to trips. The aggregate incremental cost reported does not include the incremental tax cost of $491,850 to the Company, associated with the partial loss of a tax deduction of aircraft-related costs, as a result of Mr. Hagedorn’s personal use of company-owned aircraft. Mr. Hagedorn also received a deferred dividend of $18,750 related to a grant of 30,000 shares of restricted stock which were granted on November 19, 2003 and vested on November 19, 2006.

 

The value of Company-paid financial planning services for Mr. Evans increased his compensation by $3,415 for the 2007 fiscal year.

 

Mr. Sanders elected to receive the opt-out payment in lieu of receiving Company-paid financial planning services, which increased his compensation by $4,000 for the 2007 fiscal year. Mr. Sanders also received a deferred dividend of $86,250 related to a grant of 10,000 performance shares which were granted on December 9, 2005 and vested on April 2, 2007.

 

As a result of her participation in the Discounted Stock Purchase Plan, Ms. Stump realized additional compensation of $667, associated with purchasing common shares of the Company at a 10% discount from the then current market price. The value of Company-paid financial planning services for Ms. Stump increased her compensation by $6,779 for the 2007 fiscal year.

 

Mr. Nagel elected to receive the opt-out payment in lieu of receiving Company-paid financial planning services, which increased his compensation by $4,000 for the 2007 fiscal year. Mr. Nagel also received

compensation of $1,401,068 in connection with his resignation from the Company on July 18, 2007. Mr. Nagel entered into a separation agreement and release on July 18, 2007 that terminated his previous employment agreement with the Company (entered into on November 13, 2006) by reason of Mr. Nagel’s resignation and addresses the payments and benefits to which Mr. Nagel will be entitled, in lieu of any payment or benefits pursuant to his employment agreement or addressed in the CD&A, in connection with his resignation. Such payments and benefits consisted of, among other things, payment for up to 18 months after his resignation of a monthly amount equal to Mr. Nagel’s cost of health care coverage and a lump sum cash payment of $1,400,000, which represented the negotiated value of Mr. Nagel’s unvested options, as offset by certain other amounts. Mr. Nagel will not be entitled to any severance or other payments under any severance, separation, bonus or other benefit plan maintained by the Company or its subsidiaries. All unvested options, shares of restricted stock, SARs or other rights held by Mr. Nagel under any equity-based compensation plan of the Company were forfeited, while all vested options held by Mr. Nagel remained exercisable in accordance with the terms of the relevant plan and award agreement. Mr. Nagel will also be entitled to any vested benefits he had as of July 18, 2007 under other benefit plans or programs of the Company or its subsidiaries, including the RSP ($415,683) and the ERP ($578,253). In exchange for the payments and benefits described above, Mr. Nagel agreed to release all claims against the Company and all related entities, agreed to cooperate with the Company in the prosecution or defense of existing or future proceedings, and agreed that the employee confidentiality, noncompetition and nonsolicitation agreement previously executed by Mr. Nagel on August 7, 2006 would remain in full force and effect. If Mr. Nagel materially breaches any provision of the separation agreement and release or facts are subsequently discovered that show he engaged during the term of his employment with the Company in activities that would constitute “Cause” as defined in his employment agreement, then the $1,400,000 lump sum payment, net of applicable withholdings, paid under the settlement agreement and release is subject to forfeiture within two years after the activity or breach or discovery of the activity or breach by the Company.

 

As a result his participation in the Discounted Stock Purchase Plan, Mr. Aronowitz realized additional compensation of $1,556, associated with purchasing common shares of the Company at a 10% discount from the then current market price. Mr. Aronowitz elected to receive the opt-out payment in lieu of receiving Company-paid financial planning services, which increased his compensation by $4,000 for the 2007 fiscal year. Mr. Aronowitz also received compensation of $851,068 in connection with his resignation from the Company on July 17, 2007. Mr. Aronowitz entered into a separation agreement and release with the Company on July 17, 2007 that provided certain payments and benefits different from those addressed in the CD&A. Such payments and benefits consisted of, among other things, payment for up to 18 months after his resignation of a monthly amount equal to Mr. Aronowitz’s cost of health care coverage and a lump sum cash payment of $850,000, which represented the negotiated value of Mr. Aronowitz’s unvested options, as offset by certain other amounts. Mr. Aronowitz will not be entitled to any severance or other payments under any severance, separation, bonus or other benefit plan maintained by the Company or its subsidiaries. All unvested options, shares of restricted stock, SARs or other rights held by Mr. Aronowitz under any equity-based compensation plan of the Company were forfeited, while all vested options held by Mr. Aronowitz remained exercisable in accordance with the terms of the relevant plan and award agreement. Mr. Aronowitz will also be entitled to any vested benefits he had as of July 17, 2007 under other benefit plans or programs of the Company or its subsidiaries, including the RSP ($376,645) and the ERP ($1,304,451). In exchange for the payments and benefits described above, Mr. Aronowitz agreed to release all claims against the Company and all related entities, agreed to cooperate with the Company in the prosecution or defense of existing or future proceedings, and agreed that the employee confidentiality, noncompetition and nonsolicitation agreement previously executed by Mr. Aronowitz on May 11, 2006 would remain in full force and effect. If Mr. Aronowitz materially breaches any provision of the separation agreement and release or facts are subsequently discovered that show he engaged during the term of his employment with the Company in activities that would constitute cause, then the $850,000 lump sum payment, net of applicable withholdings, paid under the settlement agreement and release is subject to forfeiture within two years after the activity or breach or discovery of the activity or breach by the Company.

 

Grants of Plan-Based Awards Table

 

The following table sets forth information concerning equity-based awards made to the NEOs during the 2007 fiscal year as well as the range of potential payouts under the EMIP, a non-equity incentive plan. The information is shown with the adjustments for the Special Dividend. The payment of the Special Dividend required the Company to adjust the number of common shares subject to options and SARs outstanding under the Company’s equity-based compensation plans at the time of the Special Dividend, as well as the price at which such awards may be exercised. The Compensation and Organization Committee approved the adjustments which were consistent with Section 409A of the Internal Revenue Code and assure compliance with SFAS 123(R). Accordingly, there were no accounting charges associated with the adjustments nor were there any tax implications to the Company or the holders of outstanding awards, as a result of the option and SAR adjustments associated with the Special Dividend.

 

Grants of Plan-Based Awards for 2007 Fiscal Year

 

 

Footnote to Columns (d), (e) and (f) of Grants of Plan-Based Awards Table

 

The amounts in columns (d), (e) and (f) are the estimated potential threshold, target and maximum incentive award payouts that each of the NEOs was eligible to receive based on performance levels set pursuant to the EMIP for the 2007 fiscal year. A detailed description of the performance measures and potential incentive award payouts under the EMIP for minimum (threshold), target and maximum performance levels are discussed under the caption “Elements of Executive Compensation — EMIP (short-term compensation element)” in the CD&A.

 

The estimated incentive award payouts shown include the 25% discretionary portion of the incentive payout described in Footnote to Column (d) of Summary Compensation Table on page 33. The actual incentive award payouts earned for the 2007 fiscal year are reported in columns (d) and (g) of the Summary Compensation Table.

Footnote to Column (g) of Grants of Plan-Based Awards Table

 

Column (g) of this table shows the number of shares of restricted stock awarded under the 2006 Plan on October 11, 2006 that are subject to a three-year cliff vesting schedule. The shares of restricted stock are held in an escrow account until they vest or are forfeited. Each holder of restricted stock exercises all voting rights associated with the shares of restricted stock while they are held in the escrow account and will be credited with any dividends paid on the common shares underlying the restricted stock. In addition, each holder of restricted stock will be credited with a reasonable rate of interest on any such cash dividends that were or are declared and paid in respect of the shares of restricted stock during the period that began on December 20, 2006 and ends on the vesting date. The dividends and interest are distributed with the related shares of restricted stock if they vest, or forfeited if those shares of restricted stock are forfeited.

 

In addition to the annual grant on October 11, 2006, Mr. Nagel received a special retention grant of 38,000 shares of restricted stock under the 2006 Plan, which was approved by the Compensation and Organization Committee on August 10, 2006 with a grant date of October 1, 2006. Half of the 38,000 shares (19,000) were granted with a one-year vesting schedule with the remaining 19,000 shares granted with a three-year vesting schedule. This special grant of 38,000 shares of restricted stock, along with the 7,300 shares of restricted stock granted on October 11, 2006, was forfeited on July 18, 2007 when Mr. Nagel resigned from the Company. Mr. Aronowitz’s October 11, 2006 grant of 5,600 shares of restricted stock was forfeited on July 17, 2007 when he resigned from the Company.

 

Footnote to Column (h) of Grants of Plan-Based Awards Table

 

Column (h) of this table shows the number of NSOs granted under the 2006 Plan on October 11, 2006 that are subject to a three-year cliff vesting schedule and generally have ten-year terms. The grant of NSOs covering 34,047 common shares for Mr. Nagel was forfeited on July 18, 2007 upon his resignation from the Company. The grant of NSOs covering 26,190 common shares for Mr. Aronowitz was forfeited on July 17, 2007 upon his resignation from the Company.

 

Footnote to Column (i) of Grants of Plan-Based Awards Table

 

All grants were made pursuant to the 2006 Plan. The 2006 Plan, which was approved by the Company’s shareholders, provides that the exercise price will be the closing price of a common share on NYSE on the date of the grant. Column (i) shows the exercise price after the adjustments to account for the Special Dividend.

 

Footnote to Column (j) of Grants of Plan-Based Awards Table

 

Column (j) amounts reflect the grant date fair value, computed in accordance with SFAS 123(R), for the NSO grants and restricted stock grants identified in this table. The methodology used to adjust the number of common shares subject to NSOs outstanding at the time of the Special Dividend, as well as the exercise price of such NSOs, resulted in a fair value for the adjusted awards post-dividend equal to that of the unadjusted awards pre-dividend, with the result that there was no additional compensation expense in accordance with the accounting for modifications to awards under SFAS 123(R).

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The following table provides information regarding outstanding NSOs, SARs and restricted stock awards held by the NEOs as of September 30, 2007.

 

The information is shown with the adjustments for the Special Dividend. The payment of the Special Dividend required the Company to adjust the number of common shares subject to NSOs and SARs outstanding under the Company’s equity-based compensation plans at the time of the Special Dividend, as well as the price at which such awards may be exercised. The Compensation and Organization Committee approved the adjustments which were consistent with Section 409A of the Internal Revenue Code and assure compliance with SFAS 123(R). Accordingly, there were no accounting charges associated with the adjustments nor were there any tax implications to the Company or the holders of outstanding awards, as a result of the NSO and SAR adjustments associated with the Special Dividend.

 

Outstanding Equity Awards at 2007 Fiscal Year-End

 

 

Footnote to Columns (c) and (d) of Outstanding Equity Awards at Fiscal Year-End Table

 

Those awards shown with an asterisk (*) are SARs. All of the NSOs/SARs shown in columns (c) and (d) have a vesting date that is the third anniversary of the grant date shown in column (b), and an expiration date (shown in column (f), that is 10 years from the date of grant.

Footnote to Column (e) of Outstanding Equity Awards at Fiscal Year-End Table

 

Each NSO or SAR was granted with an exercise price equal to the closing price of a common share of the Company on NYSE on the date of grant. Column (e) shows the exercise price after the adjustments to account for the Special Dividend.

 

Footnote to Column (g) of Outstanding Equity Awards at Fiscal Year-End Table

 

Column (g) of the table shows the aggregate number of shares of restricted stock for each NEO that have not vested as of September 30, 2007. All shares of restricted stock reported in this column (g) will become fully vested on December 1, 2007, October 12, 2008 or October 11, 2009, based on the original grant date of the respective award.

 

Footnote to Column (h) of Outstanding Equity Awards at Fiscal Year-End Table

 

Column (h) shows the market value of the shares of restricted stock for each NEO that had not vested as of September 30, 2007. The value is calculated by multiplying column (g) by $42.75, which was the closing share price of the Company’s common shares on September 28, 2007, the last trading day of the 2007 fiscal year.

 

Option Exercises and Stock Vested Table

 

The following table provides information concerning the aggregate amounts realized or received in connection with all exercises of NSOs or the vesting of shares of restricted stock for each NEO during the 2007 fiscal year.

 

The information is shown with the adjustments for the Special Dividend. The payment of the Special Dividend required the Company to adjust the number of common shares subject to NSOs and SARs outstanding under the Company’s equity-based compensation plans, as well as the price at which the awards may be exercised. The Compensation and Organization Committee approved the adjustments which were consistent with Section 409A of the Internal Revenue Code and assure compliance with SFAS 123(R). Accordingly, there were no accounting charges associated with the adjustments nor were there any tax implications to the Company or the holders of outstanding awards, as a result of the NSO and SAR adjustments associated with the Special Dividend.

 

Option Exercises and Stock Vested for 2007 Fiscal Year

 

 

Footnote to Column (b) of Option Exercises and Stock Vested Table

 

Column (b) of this table shows the number of common shares acquired upon exercise of NSOs by each NEO during the 2007 fiscal year.

Footnote to Column (c) of Option Exercises and Stock Vested Table

 

Column (c) of this table shows the value realized upon exercise of NSOs and/or SARs by each NEO during the 2007 fiscal year. The value realized upon exercise of an option is calculated based on the excess of the closing price of a common share of the Company on NYSE on the date of exercise over the exercise price of the NSO and/or SAR, multiplied by the number of common shares acquired upon exercise.

 

Footnote to Column (d) of Option Exercises and Stock Vested Table

 

Column (d) of this table shows the number of common shares acquired upon vesting of the related shares of restricted stock by each NEO during the 2007 fiscal year.

 

Footnote to Column (e) of Option Exercises and Stock Vested Table

 

Column (e) of this table shows the value realized upon the vesting of shares of restricted stock for each NEO during the 2007 fiscal year. The value realized upon the vesting of restricted stock is calculated by multiplying the number of common shares underlying the vested shares of restricted stock by the closing price of the underlying common shares of the Company on NYSE on the vesting date.

 

Pension Benefits Table

 

Scotts LLC maintains the Associates’ Pension Plan, a tax-qualified, non-contributory defined benefit pension plan. Eligibility for and accruals under the Associates’ Pension Plan were frozen as of December 31, 1997. Monthly benefits under the Associates’ Pension Plan upon normal retirement (age 65) are determined under the following formula:

 

(a)(i) 1.5% of the individual’s highest average annual compensation for 60 consecutive months during the ten-year period ending December 31, 1997; times

 

(ii) years of benefit service through December 31, 1997; reduced by

 

(b)(i) 1.25% of the individual’s primary Social Security benefit (as of December 31, 1997); times

 

(ii) years of benefit service through December 31, 1997

 

Compensation includes all earnings plus 401(k) contributions and salary reduction contributions for welfare benefits, but does not include earnings in connection with foreign service, the value of a company car or separation or other special allowances. An individual’s primary Social Security benefit is based on the Social Security Act as in effect on December 31, 1997, and assumes constant compensation through age 65 and that the individual will not retire earlier than age 65. No more than 40 years of benefit service are taken into account.

 

Benefits under the Associates’ Pension Plan are supplemented by benefits under the Excess Pension Plan. The Excess Pension Plan was established October 1, 1993 and also frozen as of December 31, 1997. The Excess Pension Plan provides additional benefits to participants in the Associates’ Pension Plan whose benefits are reduced by limitations imposed under Section 415 and 401(a)(17) of the Internal Revenue Code. Under the Excess Pension Plan, executive officers and certain key employees participating in the Excess Pension Plan will receive, at the time and in the same form as benefits are paid under the Associates’ Pension Plan, additional monthly benefits in an amount which, when added to the benefits paid to each participant under the Associates’ Pension Plan, will equal the benefit amount such participant would have earned but for the limitations imposed by the Internal Revenue Code.

The following table shows information related to the participation in the Associates’ Pension Plan and the Excess Pension Plan by James Hagedorn and David C. Evans, the only two NEOs who participate in either of the plans. Since both the Associates’ Pension Plan and the Excess Pension Plan were frozen as of December 31, 1997, no further years of credited service may be earned after that date.

 

Pension Benefits at 2007 Fiscal Year-End