-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WT2elMghASbXGeiVNvy/6yyVhvjqg0pqSUoYMHPbm8Od6oRpyauT7VH2IAmZU9IU r+EnSYLaxsgYVE+NKoKrTA== 0001047469-99-028214.txt : 19990723 0001047469-99-028214.hdr.sgml : 19990723 ACCESSION NUMBER: 0001047469-99-028214 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INDUSTRIES CORP CENTRAL INDEX KEY: 0001083200 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 431025604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-76055 FILM NUMBER: 99668299 BUSINESS ADDRESS: STREET 1: 8825 PAGE BOULEVARD CITY: ST LOUIS STATE: MO ZIP: 63114 BUSINESS PHONE: 3144270780 MAIL ADDRESS: STREET 1: 8825 PAGE BOULEVARD CITY: ST LOUIS STATE: MO ZIP: 63114 S-4/A 1 FORM S-4/A TABLE OF CONTENTS
PAGE --------- Prospectus Summary......................................................................................... 1 Risk Factors............................................................................................... 12 The Transactions........................................................................................... 17 Use of Proceeds............................................................................................ 19 Capitalization............................................................................................. 20 Unaudited Pro Forma Statements of Income................................................................... 21 Selected Historical Financial Data......................................................................... 28 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 30 Business................................................................................................... 37 Management................................................................................................. 49 Material Transactions...................................................................................... 54 Principal Stockholders..................................................................................... 56 Description of Capital Stock............................................................................... 57 Description of Our Senior Credit Facility.................................................................. 58 Description of the New Notes............................................................................... 60 Exchange Offer............................................................................................. 98 Selected United States Federal Income Tax Considerations................................................... 108 Plan of Distribution....................................................................................... 113 Legal Matters.............................................................................................. 113 Independent Accountants.................................................................................... 113 Change in Independent Accountants.......................................................................... 114 Available Information...................................................................................... 114 Forward-looking Statements................................................................................. 114 Index to Financial Statements.............................................................................. F-1
------------------------ PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE FINANCIAL STATEMENTS. REFERENCES IN THIS PROSPECTUS TO INDUSTRY DATA AND STATISTICS ARE BASED ON ESTIMATES COMPILED BY OR DERIVED FROM GALLUP ORGANIZATION, INC. AND/OR KALORAMA INFORMATION, LLC. UNLESS OTHERWISE INDICATED, REFERENCES IN THIS PROSPECTUS TO OUR SALES DATA WERE OBTAINED FROM INFORMATION RESOURCES, INC. AND TRIAD SYSTEMS CORPORATION. REFERENCES IN THIS PROSPECTUS TO "PREMIUM BRANDS," "VALUE BRANDS" OR "OPENING PRICE POINT BRANDS" REFER TO THE THREE BRAND TIERS OF CONSUMER LAWN AND GARDEN CARE PRODUCTS. VALUE BRANDS ARE TARGETED TOWARD CONSUMERS WHO WANT PRODUCTS AND PACKAGING THAT ARE COMPARABLE OR SUPERIOR TO PREMIUM BRANDS, BUT AT A LOWER PRICE, WHILE OPENING PRICE POINT BRANDS ARE DESIGNED FOR CONSUMERS WHO WANT QUALITY PRODUCTS AND PACKAGING, BUT ARE EXTREMELY COST CONSCIOUS. THE COMPANY United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water-soluble fertilizers, under a variety of brand names. Our "value" and "opening price point" brands generally compete with higher priced premium brands. Our portfolio of value-oriented brands includes the following: - SPECTRACIDE, the leading value brand and overall fastest growing brand of consumer lawn and garden pesticides; - SPECTRACIDE TERMINATE, the first ever do-it-yourself consumer termite killing system, launched in 1998; - SPECTRACIDE PRO, lawn and garden and household pesticides targeted toward the professional market, introduced in 1999; - HOT SHOT, the leading value brand and overall fastest growing brand of consumer household insecticides; - CUTTER, the leading value brand and overall fastest growing brand of consumer insect repellents; - PETERS, the leading value brand of consumer water-soluble fertilizers; and - REAL-KILL sold primarily at Home Depot, NO-PEST sold exclusively at Lowe's, and KRID AND KGRO sold exclusively at Kmart, the opening price point brands of consumer lawn and garden pesticides and household insecticides at each of these key retailers. We believe that our market leadership is a result of our: - leading value-oriented brands, - strategic relationships with major national retailers, - extensive distribution capabilities, - exclusive direct sales force and - proprietary management information systems. Our portfolio of pesticide brands holds the number one position in the home improvement center channel and the number two position in the mass merchandiser channel. In 1998, we generated net sales, pro forma income from continuing operations and pro forma EBITDA of $282.7 million, $13.0 million and $60.3 million, respectively. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. As a result, from 1994 to pro forma 1998 our: - Net sales grew at a compound annual rate of 19.2%; - EBITDA grew at a compound annual rate of 36.6%; and - EBITDA margin increased from 12.4% to 21.3%. COMPETITIVE STRENGTHS Our competitive strengths include: - a portfolio of leading value-oriented brands which have driven a shift in the industry by offering innovative products of comparable or superior quality to premium brands at lower prices. As a result, our products possess significant brand awareness and product loyalty; - "strategic partnerships" with a number of leading national retailers in the fastest growing retail channels. As a result, our sales have increased significantly as these retailers have added new stores and captured market share; - the largest direct sales force in the industry whose strong in-store presence helps us to identify emerging trends and facilitates real-time marketing, reordering and pricing decisions which maximizes store-level profitability; - a highly advanced proprietary management information system which provides real-time data on sales, orders and inventories at each retail outlet, allowing for targeted sales promotions and efficient inventory management; and - a management team with extensive operating, merchandising and marketing experience with us and in the consumer products industry, and with a significant investment in our equity. BUSINESS STRATEGY We plan to capitalize on our strengths and the favorable industry trends to enhance our leadership position in value and opening price point brands by implementing the following key elements of our business strategy: - maintaining our focus on building leading value brands to appeal to the large, growing segment of consumers that desire a better value; - partnering with leading national retailers to develop opening price point brands which, coupled with our strong value brand position and operational expertise, enables us to significantly increase our portion of retailers' category shelf space; - maximizing retailers' profitability in selling our products by utilizing our high level of vertical integration and patented water-based aerosol technology to be a low-cost provider, and utilizing our one-step distribution capabilities made possible by our 300 person exclusive direct sales force; - leveraging our strong distribution network and relationships with retailers by acquiring product lines and introducing new products that have superior performance, easy-to-understand packaging and value pricing; and - targeting smaller independent pest control operators and lawn and garden care professionals through our existing retail channels with offerings such as the Spectracide Pro product line. 2 We are a Delaware corporation. Our principal office is located at 8825 Page Boulevard, St. Louis, Missouri 63114. Our telephone number is (314) 427-0780. ------------------------ Spectracide-Registered Trademark-, Spectracide Terminate-TM-, Spectracide Pro-TM-, Hot Shot-Registered Trademark-, Real-Kill-Registered Trademark-, No-Pest-Registered Trademark-, Rid-a-Bug-Registered Trademark-, Bag-a-Bug-Registered Trademark-, Shootout-Registered Trademark- and Gro Best-Registered Trademark- are trademarks of United Industries Corporation. United Industries Corporation has, in effect, perpetual licenses to use the Cutter-Registered Trademark-, Peters-Registered Trademark- and Peters Professional-Registered Trademark- trademarks. KGro-Registered Trademark- and KRid-Registered Trademark- are trademarks of Kmart Corporation. RECENT DEVELOPMENTS In June 1999, David A. Jones was named Chairman of the Board. Mr. Jones has considerable experience with several major consumer goods organizations, including Thermoscan Inc. and Rayovac Corporation [NYSE: ROV], where he currently serves as Chairman and CEO. Mr. Jones succeeds David C. Pratt, founder of United Industries who will remain a board member and consultant to United, involved with helping to direct the development of our overall strategic direction and marketplace initiatives. Additionally, Stephen R. Brian announced his resignation as President and CEO effective immediately. Mr. Brian cited personal and family considerations as reasons for his departure. A search is currently underway to hire a new President and Chief Executive Officer as soon as possible. D. Garrad Warren III was named Senior Vice President of Marketing and Business Development. Mr. Warren has extensive experience in areas of strategic marketing and brand development, most recently serving in senior management positions at International Foods and Dow Chemical Company. These appointments were made to support our previously announced strategic plans to grow Spectrum brands through expanded distribution, increased brand awareness and new product development initiatives. 3 THE INITIAL OFFERING On March 24, 1999, we privately placed $150 million of our old 9 7/8% Senior Subordinated Notes due 2009. We entered into a registration rights agreement with the initial purchasers in that private offering in which we agreed, among other things, to use our reasonable best efforts to file a registration statement with the SEC, complete this exchange offer within 195 days after issuing the old notes and, in some circumstances, file a shelf registration statement. We must pay liquidated damages to the holders of the old notes if we do not meet these deadlines or if we file a shelf registration statement and fail to keep it effective until the second anniversary of the issue date of the notes. THE EXCHANGE OFFER SECURITIES OFFERED................ $150,000,000 principal amount of 9 7/8% Series B Registered Senior Subordinated Notes due 2009. THE EXCHANGE OFFER................ We are offering to exchange $150,000,000 principal amount of our new notes which have been registered under the Securities Act of 1933 for $150,000,000 of our outstanding 9 7/8% Series A Unregistered Senior Subordinated Notes due 2009, which were issued in March 1999. The new notes are substantially identical to the old notes, except that certain transfer restrictions and registration rights relating to the old notes do not apply to the new notes. You may tender your old notes by following the procedures described in this prospectus under the heading "The Exchange Offer." Each participating broker-dealer that receives new notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer in connection with resales of new notes received in exchange for old notes where the old notes were acquired by the participating broker-dealer as a result of market-making activities or other trading activities. EXPIRATION DATE................... The exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it. We will keep the exchange offer open for not less than 21 business days, or longer if required by applicable law, after the date on which notice of the exchange offer is mailed to holders of the old notes. We believe that it is unlikely that we would extend the exchange offer beyond 45 business days after notice is mailed to the holders of the old notes. WITHDRAWAL RIGHTS................. You may withdraw your tender of your notes at any time prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer.
4 CONDITIONS TO THE EXCHANGE OFFER........................... The exchange offer is subject to customary conditions, which we may waive. Please read the "The Exchange Offer-- Conditions" section of this prospectus for more information regarding conditions to the exchange offer. PROCEDURES FOR TENDERING YOUR OLD NOTES....................... If you are a holder of old notes who wishes to accept the exchange offer, you must either: (a) complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver such documentation, together with your old notes, to the exchange agent at the address set forth under "The Exchange--Offer Exchange Agent;" or (b) arrange for The Depository Trust Company to transmit certain required information to the exchange agent for this exchange offer in connection with a book-entry transfer. By tendering your notes in this manner, you will be representing, among other things, that: - the new notes you acquire pursuant to the exchange offer are being acquired in the ordinary course of your business; - you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the new notes issued to you in the exchange offer; and - you are not an "affiliate" of our company. MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES......... Your exchange of old notes for new notes pursuant to the exchange offer will not result in any gain or loss to you for federal income tax purposes. See the "Material United States Federal Income Tax Consequences" section of this prospectus. CONSEQUENCES OF FAILURE TO EXCHANGE........................ Old notes that are not tendered or that are tendered, but not accepted, will be subject to the existing transfer restrictions on such notes after the exchange offer. We will have no further obligation to register the old notes. If you do not participate in the exchange offer, the liquidity of your notes could be adversely affected. PROCEDURES FOR BENEFICIAL OWNERS.......................... If you are the beneficial owner of old notes registered in the name of a broker, dealer or other nominee and you wish to tender your notes, you should contact such person in whose name your notes are registered and promptly instruct such person to tender on your behalf.
5 GUARANTY DELIVERY PROCEDURES...... If you wish to tender your old notes and time will not permit your required documents to reach the State Street Bank and Trust Company by the expiration date, or the procedure for book-entry transfer cannot be completed on time, or the certificate for your notes cannot be delivered on time, you may tender your notes pursuant to the guaranteed delivery procedures. See "The Exchange Offer--Guaranteed Delivery Procedures." ACCEPTANCE OF OLD NOTES; DELIVERY OF NEW NOTES.................... Subject to certain conditions, we will accept old notes which are properly tendered in the exchange offer and not withdrawn, prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. The new notes will be delivered as promptly as practicable following the expiration date. USE OF PROCEEDS................... We will receive no proceeds from the exchange offer. EXCHANGE AGENT.................... State Street Bank and Trust Company is the exchange agent for the exchange offer. SUMMARY OF THE NEW NOTES ISSUER............................ United Industries Corporation. SECURITIES OFFERED................ $150,000,000 principal amount of 9 7/8% Series B Senior Subordinated Notes due 2009. MATURITY DATE..................... April 1, 2009. INTEREST RATE..................... 9.875% per year. INTEREST PAYMENT DATES............ Every April 1 and October 1, beginning on October 1, 1999. RANKING........................... The notes will not be secured by any collateral. The notes will rank below all of our senior debt, but will rank equal to our other senior subordinated debt. Therefore, if we default, your right to payment under the notes will be junior to the rights of holders of our senior debt to collect money we owe them. As of March 31, 1999, we had $263.1 million of senior debt outstanding, including $225.0 million outstanding on Term Loans A and B, $28.9 million outstanding on our revolving credit facility and $9.2 million of capital lease obligation. In addition, we had $81.1 million available under our senior credit facility. GUARANTEES........................ The notes will not be guaranteed by anyone on the issue date. We currently have no subsidiaries, but if we create any subsidiaries in the future, certain of these subsidiaries will be required to guarantee the notes with unconditional guarantees that will rank below their senior debt, but equal to their senior subordinated debt, in the right of payment. RESALE OF THE NEW NOTES........... If you are a holder of old notes who accepts the exchange offer, you must represent in a Letter of Transmittal that: - you acquired the new notes in the ordinary course of business;
6 - you are not engaging and do not intend to engage in the distribution of the new notes; - you do not have any arrangement or understanding with any person to participate in the distribution of the new notes; - you are not an affiliate of United within the meaning of Rule 405 of the Securities Act; and - if you participate in the exchange offer for the purpose of distributing the new notes, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the new notes and you cannot rely on the SEC's no-action letters. If you are a broker dealer who acquired the old notes as a result of market making or other trading activities, you may use the exchange offer prospectus, as amended or supplemented, in connection with resale of the new notes. If you are a broker dealer who acquired the old notes directly from United in private placement and not as a result of market making and trading activities, you: - must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the new notes; - cannot rely on the SEC's no-action letters; and - cannot use the exchange offer prospectus for resales of the new notes. OPTIONAL REDEMPTION AFTER FIVE YEARS...................... Except in connection with public equity offerings by our company, we cannot choose to redeem the notes until April 1, 2004. At any time after that date, we can choose to redeem some or all of the notes at prices listed under "Description of the Notes--Optional Redemption." OPTIONAL REDEMPTION AFTER EQUITY OFFERINGS....................... At any time before the third anniversary date of the issue date of the notes, we can choose to buy back up to 40% of the original principal amount of the notes with money that we raise in one or more public equity offerings of $25.0 million or more, as long as: - we pay 109.875% of the face amount of the notes, plus interest, - we buy the notes back within 90 days of completing the public equity offering, and - at least 60% of the notes originally issued remain outstanding afterwards.
7 CHANGE OF CONTROL OFFER........... If we experience a change of control, we must give holders of the notes the opportunity to sell us their notes at 101% of their face amount, plus accrued interest. We might not be able to pay you the required price for notes you present to us at the time of a change of control, because: - we might not have enough funds at that time, or - the terms of our other debt may prevent us from paying the required price. CERTAIN INDENTURE PROVISIONS...... The indenture governing the notes will limit what we may do. The provisions of the indenture will limit our ability to: - incur more debt; - pay dividends and make distributions; - issue stock of subsidiaries; - make investments; - repurchase stock; - create subsidiaries; - create liens; - enter into transactions with affiliates; - enter into sale and leaseback transactions; - merge or consolidate; and - transfer and sell assets. These covenants are subject to a number of important exceptions. TRANSFER RESTRICTIONS............. The new notes are new securities, and there is currently no established market for them. We do not intend to list the new notes on any securities exchange. USE OF PROCEEDS................... We will not receive cash proceeds from the issuance of the new notes. See "Use of Proceeds."
For more information about the new notes, see the "Description of the Notes" section of this prospectus. RISK FACTORS You should carefully consider the information set forth under "Risk Factors" as well as the other information and data included in this prospectus before tendering your old notes in exchange for new notes. We believe the most significant risks facing United include: - Holders of old notes who fail to exchange their notes may be unable to resell their notes. - Your notes will not be accepted for exchange if you fail to follow the exchange offer procedures. - We may be unable to service our debt, including the notes, as a result of our high level of indebtedness. - We may incur more debt senior to the notes, which could further increase the risks described above. 8 - To service our indebtedness, we will require a significant amount of cash, which we may be unable to generate. - You may lose part of your investment because the notes are subordinated to our senior debt. - The terms of our indebtedness impose operational and financial restrictions on our company which, if breached, could result in an acceleration of indebtedness. - If there is a change of control, we may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture. - The holders of a majority of the notes may waive defaults under or modify the indenture in a manner adverse to noteholders who do not approve of such actions. - We depend heavily on a few customers for the substantial majority of our sales. - Our historical seasonality could impair our ability to make interest payments on the notes. - Adverse weather conditions during our peak selling season could adversely impact our financial results. - We may be unable to compete successfully in our highly competitive industry. - The growth of our business may make it more difficult to manage. - We depend on our key personnel and we could be adversely affected if we lose additional key personnel. - The interests of the holders of the notes may conflict with our controlling stockholders. - Changes in environmental regulations may impose additional costs on us and expose us to additional requirements which we may be unable to comply with. - We may be exposed to significant product liability claims which our insurance may not cover and which could harm our reputation. - If we are unable to use and protect our trademarks or formulas, we may be exposed to modification and licensing costs. - If our efforts or our customers' or suppliers' efforts to remediate the year 2000 computer problem are not successful, our operations could be interrupted which could adversely affect our financial results. - You may be unable to trade your notes because there is currently no public market for the notes and one may not develop. 9 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS) In the table below, we provide you with selected historical and pro forma financial data for United. When you read this historical and pro forma financial data, it is important that you read along with it the financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which is included in this prospectus. The statement of income data for the years ended December 31, 1994 and 1995 have been derived from audited financial statements which do not appear in this prospectus. The statement of income data for the three months ended March 31, 1998 and 1999 have been derived from unaudited financial statements included elsewhere in this prospectus. The summary pro forma statement of income and other financial data give effect to the transactions as if they occurred at the beginning of the fiscal year ended December 31, 1998 and the three month periods ended March 31, 1998 and 1999. The unaudited pro forma financial data do not purport to be indicative of our actual financial position or results of operations, nor are they necessarily indicative of the results that we may achieve in the future. See "Unaudited Pro Forma Statements of Income."
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------------------------- ---------------------- 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- ------------- --------- ----------- STATEMENT OF INCOME DATA: Net sales.................................. $ 139,822 $ 159,192 $ 199,495 $ 242,601 $ 282,676 $ 82,295 $ 96,593 Cost of goods sold......................... 73,230 82,603 106,640 128,049 140,445 40,076 46,955 Advertising and promotion expenses......... 15,575 17,813 22,804 25,547 31,719 10,713 10,738 Selling, general and administrative expenses................................. 35,032 38,629 46,276 52,092 61,066 14,781 18,320 Operating income........................... 15,985 20,147 23,775 36,913 47,125 15,525 8,435 Interest expense........................... 445 609 1,502 1,267 1,106 220 7,906 Income (loss) from continuing operations... 15,235 19,249 21,826 34,920 45,027 14,999 (2,190) OTHER FINANCIAL DATA: Cash flow from (used in) continuing operations............................... $ 7,416 $ 14,316 $ 27,741 $ 35,136 $ 50,763 $ (20,581) $ (35,592) Cash used in investing activities--continuing operations........ 2,534 19,253 6,384 5,138 3,628 14,012 353 Cash used in (provided by) financing activities............................... 13,476 (607) 23,645 32,329 49,088 (35,708) (35,945) EBITDA(1).................................. 17,299 22,862 27,336 40,510 53,284 17,639 21,428 Depreciation and amortization.............. 1,314 2,715 3,561 3,597 3,838 914 848 Capital expenditures(2).................... 1,993 4,726 6,384 5,138 3,628 1,739 353 Gross margin............................... 47.6% 48.1% 46.5% 47.2% 50.3% 51.3% 51.4% EBITDA margin.............................. 12.4 14.4 13.7 16.7 18.8 21.4 22.2
AS OF AS OF DECEMBER 31, MARCH 31, 1998 1999 ------------- ----------- BALANCE SHEET DATA: Working capital(3).............................................................. $ 30,042 $ 66,505 Total assets.................................................................... 94,161 290,077 Total debt...................................................................... 4,645 413,065 Stockholders' equity (deficit).................................................. 58,257 (188,298)
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ---------------------- 1998 1998 1999 ------------- --------- ----------- PRO FORMA FINANCIAL DATA: Income (loss) from continuing operations....................................... $ 12,959 $ 5,969 $ (3,226) EBITDA(1)...................................................................... 60,274 18,979 21,428 EBITDA margin.................................................................. 21.3% 23.1% 22.2%
(SEE FOOTNOTES ON FOLLOWING PAGE) 10 - ------------------------ (1) EBITDA represents income from continuing operations before interest expense, income tax expense, depreciation and amortization, and recapitalization and other special charges. Pro Forma EBITDA includes related party transactions and the Thomas H. Lee Company management fee as discussed below. We have included information concerning EBITDA because we believe some investors use it as one measure of a company's historical ability to fund operations and meet its financial obligations. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to operating income or income from continuing operations as an indicator of our operating performance or cash flow as a measure of liquidity. In addition, our definition of EBITDA may not be comparable to that reported by other companies. Pro Forma EBITDA is calculated as follows:
THREE MONTHS ENDED MARCH YEAR ENDED DECEMBER 31, 31, --------------------------------------------------------------- ------------------------ 1994 1995 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income from continuing operations..... $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027 $ 14,999 $ (2,190) Interest expense...................... 445 609 1,502 1,267 1,106 220 7,906 Income tax expense.................... 305 289 447 726 992 306 2,719 Depreciation and amortization......... 1,314 2,715 3,561 3,597 3,838 914 848 Recapitalization and other special charges(a).......................... -- -- -- -- 2,321 1,200 12,145 ----------- ----------- ----------- ----------- ----------- ----------- ----------- EBITDA................................ $ 17,299 $ 22,862 $ 27,336 $ 40,510 53,284 17,639 21,428 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Related party transactions(b)......... 7,740 1,528 -- Thomas H. Lee Company management fee.. (750) (188) -- ----------- ----------- ----------- ----------- ----------- ----------- Pro Forma EBITDA...................... $ 60,274 $ 18,979 $ 21,428 ----------- ----------- ----------- ----------- ----------- -----------
- ------------------------------ (a) For the three months ended March 31, 1999, we recorded recapitalization and other special charges of $12,145. These charges included change of control bonuses paid to certain members of senior management amounting to $8,645. Other special charges of $3,500 included (a) $1,500 related to certain legal cases for which it has been determined that it is probable that we will incur monetary damages; and (b) $2,000 related to the rationalization of several product lines and the decision not to pursue collection of receivables related to deductions taken by significant customers for advertising and promotional spending in excess of contractual obligations. In 1998, we recorded non-recurring litigation charges of $2,321 related to two separate lawsuits. In March 1998, a judgment was entered against us for a lawsuit filed by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy. We recorded a charge of $1,200 for this case in the first quarter of 1998. We also incurred costs pertaining to certain litigation concerning the advertising of our Spectracide Terminate product for which we have negotiated a settlement. These costs amounted to $1,121. (b) Reflects the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. EBITDA for 1994, 1995, 1996 and 1997, has not been adjusted for related party transactions. The related party transactions amounts were $3,754, $4,215, $3,847 and $3,061 for 1994, 1995, 1996 and 1997, respectively. (2) Capital expenditures for 1995 exclude $8,272 of expenditures related to acquisitions. Capital expenditures for March 31, 1999 exclude a capital lease obligation of $9,215. (3) Working capital is defined as current assets (excluding cash and cash equivalents) less current liabilities (excluding short-term debt and current portion of long-term debt). 11 RISK FACTORS You should carefully consider each of the following factors and all of the other information set forth in this prospectus before tendering your old notes for new notes. The risks and uncertainties described below are the risks and uncertainties that we believe are material. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. In such case, we may not be able to make principal and interest payments on the notes, and you may lose all or part of your investment. HOLDERS OF OLD NOTES WHO FAIL TO EXCHANGE THEIR NOTES MAY BE UNABLE TO RESELL THEIR NOTES. We did not register the old notes under the federal or any state securities laws, nor do we intend to following the exchange offer. As a result, the old notes may only be transferred in limited circumstances under the securities laws. If the holders of old notes do not exchange their notes in the exchange offer, they lose their right to have the old notes registered under the federal securities laws. As a result, a holder of old notes after the exchange offer may be unable to sell its notes. YOUR NOTES WILL NOT BE ACCEPTED FOR EXCHANGE IF YOU FAIL TO FOLLOW THE EXCHANGE OFFER PROCEDURES. Neither the exchange agent nor our company is under any duty to notify you of defects or irregularities with respect to your tenders of old notes for exchange. Old notes that are not tendered or are tendered but not accepted will, following the exchange offer, continue to be subject to the existing transfer restrictions on the old notes. In addition, if you tender your old notes in the exchange offer to participate in a distribution of the new notes, you will be required to comply with the registration and prospectus delivery requirements of the federal securities laws in connection with any resale transaction. For additional information, please refer to "The Exchange Offer" and "Plan of Distribution" sections of this prospectus. WE MAY BE UNABLE TO SERVICE OUR DEBT, INCLUDING THE NOTES, AS A RESULT OF OUR HIGH LEVEL OF INDEBTEDNESS. As shown below, we have now and, after the offering, will continue to have a significant amount of indebtedness.
AS OF MARCH 31, 1999 ----------------------------- (DOLLARS IN MILLIONS) Indebtedness senior to the notes................................ $ 263.1 Total indebtedness.............................................. 413.1 PRO FORMA YEAR ENDED DECEMBER 31, 1998 ----------------------------- Ratio of earnings to fixed charges.............................. 1.4x
The pro forma ratio of earnings to fixed charges is not presented for the three-month period ended March 31, 1999 as the pro forma earnings are inadequate to cover fixed charges. The earnings deficiency is approximately $1.4 million and is the result of approximately $12.1 million of recapitalization and other special charges incurred by United during the three-month period ended March 31, 1999. Our substantial indebtedness could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations with respect to the notes; - increase our vulnerability to general adverse economic and industry conditions; - limit our ability to fund future working capital, capital expenditures, research and development costs and other general corporate requirements; - require a substantial portion of our cash flow from operations for debt payments; - limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate; 12 - place us at a competitive disadvantage compared to our competitors that have less debt; and - limit our ability to borrow additional funds. Any of the above listed factors could materially adversely affect us. See "Description of the Notes" and "Description of Our Senior Credit Facility." WE MAY INCUR MORE DEBT SENIOR TO THE NOTES, WHICH COULD FURTHER INCREASE THE RISKS DESCRIBED ABOVE. We may incur substantial additional indebtedness in the future. Our senior credit facility allows us to borrow up to an additional $110.0 million and all of those borrowings would be senior to the notes. If new debt is added to our current debt level, the related risks that we now face could increase. See "Capitalization," "Selected Historical Financial Data," "Description of the Notes" and "Description of Our Senior Credit Facility." TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, WHICH WE MAY BE UNABLE TO GENERATE. Our ability to make payments on and to refinance our indebtedness, including these notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. Our ability to generate cash is subject to some factors beyond our control, such as general economic, financial and industry conditions, competitive challenges, weather patterns and government regulations. We believe our cash flow from operations and available borrowings under our senior credit facility will be adequate to meet our future liquidity needs for at least the next two years. We cannot assure you, however, that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior credit facility in a sufficient amount to enable us to pay our indebtedness, including these notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. However, we might not be able to refinance any of our indebtedness on commercially reasonable terms or at all which would limit our flexibility to react to changes in general economic, financial and industry conditions, competitive challenges, pressures and adverse changes in government regulation and our ability to capitalize on significant business opportunities. YOU MAY LOSE PART OF YOUR INVESTMENT BECAUSE THE NOTES ARE SUBORDINATED TO OUR SENIOR DEBT. Your right to receive payments on these notes is junior to our debt under our senior credit facility and capital lease obligation. As of March 31, 1999 we had $263.1 million of senior debt outstanding. In addition, these notes may rank behind our future borrowings except any future indebtedness that expressly provides that it ranks equal with, or subordinated in right of payment to, the notes. As a result, upon any distribution to our creditors in a bankruptcy or similar proceeding relating to us, the holders of our senior debt will be entitled to be paid in full in cash before any payment may be made with respect to the notes. In addition, all payments on the notes will be blocked in the event of a payment default on senior debt and may be prohibited for up to 179 consecutive days in the event of some specified non-payment defaults on senior debt. In the event of bankruptcy, liquidation or reorganization or similar proceeding relating to us, the holders of the notes will participate with trade creditors and all other holders of our subordinated indebtedness in the assets remaining after we have paid all of our senior debt. Because the indenture requires that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior debt instead, holders of the notes may receive less, ratably, than holders of trade payables. In any of these cases, we may not have sufficient assets or funds to pay all of our creditors, and holders of notes may receive less, ratably, than the holders of senior debt. THE TERMS OF OUR INDEBTEDNESS IMPOSE OPERATIONAL AND FINANCIAL RESTRICTIONS ON OUR COMPANY WHICH, IF BREACHED, COULD RESULT IN AN ACCELERATION OF INDEBTEDNESS. Our senior credit facility and the indenture for the notes restrict our ability to: - incur additional indebtedness - create liens - pay dividends and make distributions - enter into transactions with affiliates
13 - issue common and preferred stock - enter into sale and leaseback of subsidiaries transactions - make investments - merge or consolidate our company - repurchase stock - transfer and sell assets - create subsidiaries
In addition, we must maintain minimum debt service and maximum leverage ratios under our senior credit facility. A failure to comply with the restrictions contained in our senior credit facility could lead to an event of default which could result in an acceleration of indebtedness. An acceleration would also constitute an event of default under the indenture relating to the notes. See "Description of Our Senior Credit Facility." IF THERE IS A CHANGE OF CONTROL, WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE. We will be required to offer to repurchase all outstanding notes upon the occurrence of the following events: - an unaffiliated person gains 50% of the voting power of United's common stock, - a merger in which United is not the surviving corporation or United's common stock is converted into other property and the holders of United's common stock immediately prior to the merger cease to hold a majority of the common stock of the surviving corporation or - if during any two year period, the directors at the beginning of the period and new directors who were approved by a majority of directors then in office cease to constitute a majority. These events involving a change of control may result in an event of default under our senior credit facility or other indebtedness that we may incur in the future. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our senior credit facility will not allow such repurchases. In addition, important corporate events, such as leveraged stock purchases that would increase the level of our indebtedness, may not constitute a change of control under the indenture. See "Description of the Notes-- Repurchase at the Option of Holders." THE HOLDERS OF A MAJORITY OF THE NOTES MAY WAIVE DEFAULTS UNDER OR MODIFY THE INDENTURE IN A MANNER ADVERSE TO NOTEHOLDERS WHO DO NOT APPROVE OF SUCH ACTIONS. Subject to limitations specified in the indenture, the holders of a majority in principal amount of the new notes then outstanding will have the right to: - waive existing defaults or events of default; - waive compliance with provisions of the indenture or the new notes; - modify or supplement the indenture; and - direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the indenture. These provisions of the indenture could allow actions affecting the new notes to be taken without the approval of all of the holders of the new notes and thus may have an adverse effect on the holders of new notes who do not approve of such actions. See "Description of the Notes--Events of Default" and "--Modification of Indenture." WE DEPEND HEAVILY ON A FEW CUSTOMERS FOR THE SUBSTANTIAL MAJORITY OF OUR SALES. Our four largest customers, Home Depot, Wal*Mart, Lowe's and Kmart, accounted for approximately 26%, 17%, 14% and 11%, respectively, of our net sales in 1998. We anticipate a similar or greater concentration of customers for the foreseeable future. Our reliance on these customers may significantly influence our negotiations with 14 them. We do not have long-term contracts with any of our customers, and there can be no assurance that our customers will continue to purchase our products to the degree they have in the past or at all. The loss of, or a significant adverse change in, our relationship with any major customer could have a material adverse effect on us. See "Business--Customers." OUR HISTORICAL SEASONALITY COULD IMPAIR OUR ABILITY TO MAKE INTEREST PAYMENTS ON THE NOTES. Our products are used primarily in the spring and summer, so our business is highly seasonal. For the past two years, approximately 75% of our net sales have occurred in the first and second quarters. Our working capital needs, and correspondingly our borrowings, peak near the end of our first quarter. If cash on hand is insufficient to cover payments due on the notes and if we are also unable to draw on our senior credit facility, this seasonality could adversely affect our ability to make interest payments as required by the notes. ADVERSE WEATHER CONDITIONS DURING OUR PEAK SELLING SEASON COULD ADVERSELY IMPACT OUR FINANCIAL RESULTS. Weather conditions in North America have a significant impact on the timing of sales in the spring selling season and our overall annual sales. Periods of dry, hot weather can decrease insecticide sales, while periods of cold and wet weather can slow sales of herbicides and fertilizers. In addition, an abnormally cold spring throughout North America could adversely affect both fertilizer and pesticide sales and therefore our financial results. WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN OUR HIGHLY COMPETITIVE INDUSTRY. We compete against a number of large national and regional brands. Our principal national competitors include: The Scotts Company, which markets products under the Ortho-Registered Trademark-, Roundup-Registered Trademark- and Miracle- Gro-Registered Trademark- brand names; S.C. Johnson & Son, Inc., which markets products under the Raid-Registered Trademark- and OFF!-Registered Trademark- brand names; and The Clorox Company, which markets products under the Combat-Registered Trademark- and Black Flag-Registered Trademark- brand names. Some of our competitors are larger, have longer operating histories, greater financial resources and greater market recognition than us. We cannot assure you that we will be able to compete successfully against our competitors. THE GROWTH OF OUR BUSINESS MAY MAKE IT MORE DIFFICULT TO MANAGE. Rapid growth may strain our ability to manage our business and will strain our operational and financial resources and accounting controls. Our continued growth will require an increase in personnel, particularly in our sales force. There can be no assurance that we will be able to continue to attract, train, develop and retain the personnel necessary to pursue our growth strategy. WE DEPEND ON OUR KEY PERSONNEL AND WE COULD BE ADVERSELY AFFECTED IF WE LOSE ADDITIONAL KEY PERSONNEL. If we were to lose the services of Richard A. Bender, William P. Johnson, Daniel J. Johnston or D. Garrad Warren III or if one or more additional members of management were to depart and subsequently compete with us, it could have a material adverse effect on our business. David C. Pratt, our former President and CEO, resigned in January 1999 in connection with our recapitalization. On June 23, 1999, Stephen R. Brian resigned as our President and CEO and David A. Jones was named Chairman of the Board. Although we have a noncompete agreement with Messrs. Pratt and Brian, if they were to compete with us it could adversely affect our business. Although we believe we will be able to replace Mr. Brian and we believe we could replace our other key employees should the need arise, the loss of key personnel could have a material adverse effect on us. See "Management--Employment Agreements." THE INTERESTS OF THE HOLDERS OF THE NOTES MAY CONFLICT WITH OUR CONTROLLING SHAREHOLDERS. Thomas H. Lee Equity Fund IV, L.P. and its affiliates beneficially own approximately 91.9% of our issued and outstanding common stock, and accordingly, they have the power to elect a majority of our directors, appoint new management and approve any action requiring the approval of the holders of our common stock, including adopting amendments to our charter and approving mergers or sales of substantially all of our assets. Our directors elected by Thomas H. Lee Equity Fund IV, L.P. and its affiliates will have the authority to make decisions affecting our capital structure including the issuance of additional capital stock, the implementa- 15 tion of stock purchase programs and the declaration of dividends. CHANGES IN ENVIRONMENTAL REGULATIONS MAY IMPOSE ADDITIONAL COSTS ON US AND EXPOSE US TO ADDITIONAL REQUIREMENTS WHICH WE MAY BE UNABLE TO COMPLY WITH. We are subject to federal, state, local and foreign environmental laws and regulations governing our manufacturing operations and the registration and sale of our pesticide products. The risk arising from environmental regulation may increase in the future because the EPA is currently analyzing the risk that pesticides present to children. Failure to comply with the EPA requirements, the cost of supplying data to EPA, and the results of EPA's risk analyses could adversely our business. See "Business--Environmental Regulation." WE MAY BE EXPOSED TO SIGNIFICANT PRODUCT LIABILITY CLAIMS WHICH OUR INSURANCE MAY NOT COVER AND WHICH COULD HARM OUR REPUTATION. Although we have product liability insurance coverage in the aggregate amount of $1.0 million per occurrence, subject to a $500,000 per occurrence self-insured retention, and an umbrella policy for occurrences exceeding $1.0 million in the amount of $10.0 million, we cannot assure you that this insurance will provide coverage for any claim against us or will be sufficient to cover all possible liabilities. Moreover, any adverse publicity arising from claims made against us, even if the claims were not successful, could adversely affect the reputation and sales of our products. See "Business--Litigation." IF WE ARE UNABLE TO USE AND PROTECT OUR TRADEMARKS OR FORMULAS, WE MAY BE EXPOSED TO MODIFICATION AND LICENSING COSTS. Our ability to successfully compete in our markets depends, in part, on our ability to use and protect our trademarks such as Spectracide and Hot Shot. There can be no assurance that our trademarks will be enforceable or adequately protect us from others using similar marks. Although we believe that our products do not violate the patents or proprietary rights of others, it is possible that competitors or others could claim this. If our products are found to infringe on the rights of others, we could be required to modify our products or pay for a license for the manufacture and sale of such products. IF OUR EFFORTS OR OUR CUSTOMERS' OR SUPPLIERS' EFFORTS TO REMEDIATE THE YEAR 2000 COMPUTER PROBLEM ARE NOT SUCCESSFUL, OUR OPERATIONS COULD BE INTERRUPTED WHICH COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS. Our failure, or the failure of our third party suppliers or customers, to address information technology issues related to the year 2000 could adversely affect our operations. Like other business entities, we must address the ability of our computer software applications and other business systems to properly identify the year 2000 due to a commonly used programming convention of using only two digits to identify a year. Unless modified or replaced, these systems could fail or create erroneous results when referencing the year 2000. While we believe we have assessed the relevant issues related to the year 2000 problem, we cannot be sure that we will have adequately addressed the issue. Moreover, we rely on third party suppliers for finished goods, raw materials, water, other utilities, transportation and a variety of other key services. If one or more of these suppliers fail to address the year 2000 problem adequately, these suppliers' operations could be interrupted. Our or our customers' failure to address the year 2000 problem adequately could adversely affect our financial results. YOU MAY BE UNABLE TO TRADE YOUR NOTES BECAUSE THERE IS CURRENTLY NO PUBLIC MARKET FOR THE NOTES AND ONE MAY NOT DEVELOP. The notes are a new issue of securities for which there is currently no trading market. We have been informed by CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC that they intend to make a market in the notes. However, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC may cease their market-making at any time. In addition, the liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the notes. 16 THE TRANSACTIONS On January 20, 1999, we completed a $652.0 million recapitalization to provide liquidity to some of our existing stockholders, in which: - Thomas H. Lee Equity Fund IV, L.P. contributed $254.7 million to UIC Holdings, L.L.C., which purchased common stock from stockholders for approximately $254.7 million; - our senior managers purchased common stock from stockholders for approximately $5.7 million; - we borrowed $150.0 million under a senior subordinated facility and $225.0 million under a senior credit facility to redeem a portion of the common stock held by stockholders; and - existing stockholders retained equity having an implied fair market value of approximately $16.6 million. The proceeds of the offering of old notes completed on March 24, 1999 were used to pay off the $150.0 million senior subordinated facility. Following the recapitalization, UIC Holdings, L.L.C. owns approximately 91.9% of our issued and outstanding common stock, the previous stockholders retain approximately 6.0% and our senior managers own approximately 2.1%. The total transaction value of the transactions was approximately $652.0 million, including related fees and expenses, and the implied total equity value following the transactions was approximately $277.0 million. The total consideration paid to redeem our common stock is subject to both upward and downward adjustments based on our working capital on the closing date of the recapitalization and excess taxes of our previous stockholders arising from our Section 338(h)(10) election. We have delivered notice to the selling stockholders to make an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. If implemented, the tax basis of our assets will increase, which should permit us to increase our tax deduction for depreciation and amortization which should lower cash paid for taxes. This step-up in basis will result in an anticipated cash tax benefit of approximately $15.0 million per year over each of the next 15 years, if fully utilized. The following table sets forth the sources and uses of funds in connection with these transactions assuming they were consummated on December 31, 1998 (in millions): SOURCES OF FUNDS: Senior credit facility(1)......................................... $ 225.0 Old notes......................................................... 150.0 Equity contribution(2)............................................ 277.0 --------- Total sources................................................. $ 652.0 --------- --------- USES OF FUNDS: Recapitalization(3)............................................... $ 612.4 Repayment of existing indebtedness................................ 4.6 Estimated fees and expenses....................................... 35.0 --------- Total uses.................................................... $ 652.0 --------- ---------
- ------------------------------ (1) Our senior credit facility consists of: - the $110.0 million revolving credit facility, of which no borrowings were outstanding at the closing of the recapitalization; - the $75.0 million Term Loan A; and - the $150.0 million Term Loan B. 17 (2) The equity contribution consists of: - Thomas H. Lee Equity Fund IV, L.P.'s investment of approximately $254.7 million; - the management investment of approximately $5.7 million; and - the equity retained by our existing stockholders having an implied fair market value of approximately $16.6 million. (3) The recapitalization consists of: - approximately $335.4 million used by us to redeem a portion of common stock held by our existing stockholders; - approximately $260.4 million (comprised of Thomas H. Lee Equity Fund IV, L.P.'s investment and management's investment) used to purchase a portion of common stock held by our existing stockholders; and - approximately $16.6 million (comprised of the equity retained by our existing stockholders) of implied fair market value of common stock retained by our existing stockholders. 18 USE OF PROCEEDS We will not receive cash proceeds from the issuance of the new notes. We used the net proceeds of approximately $145.8 million from the initial offering of the old notes plus borrowings under our senior credit facility to repay our borrowings under our senior subordinated facility. 19 CAPITALIZATION The following table sets forth our capitalization as of March 31, 1999. The information in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our unaudited financial statements, including the related notes, which are included elsewhere in this prospectus.
AS OF MARCH 31, 1999 ------------------- (IN THOUSANDS) Debt: Existing indebtedness.................................................. $ -- Revolving credit facility(1)........................................... 28,850 Capital lease obligation............................................... 9,215 Term Loan A............................................................ 75,000 Term Loan B............................................................ 150,000 Notes offered hereby................................................... 150,000 ---------- Total debt........................................................... 413,065 ---------- Stockholders' equity (deficit): Common stock........................................................... 553 Additional paid-in capital............................................. 105,518 Retained earnings (deficit)............................................ (290,919) Treasury stock......................................................... -- Common stock held in grantor trust..................................... (2,700) Employee note receivable............................................... (750) ---------- Total stockholders' equity (deficit)................................. (188,298) ---------- Total capitalization................................................. $ 224,767 ---------- ----------
- ------------------------ (1) Our revolving credit facility provides for borrowings of up to $110.0 million for working capital and general corporate purposes. 20 UNAUDITED PRO FORMA STATEMENTS OF INCOME The unaudited pro forma statements of income give effect to the transactions as if they occurred at the beginning of the fiscal year ended December 31, 1998 and the three month periods ended March 31, 1999 and 1998. The transactions affecting the pro forma statements of income include the recapitalization of United, which includes the incurrence of the $150 million senior subordinated facility and a senior credit facility. The senior subordinated facility was paid off with the proceeds from the issuance of the old notes, which in turn will be replaced by the new notes offered in this exchange offer. The information in the column titled "Actual" is summarized from the historical financial statements included in this prospectus. The unaudited pro forma statements of income do not purport to be indicative of our actual results of operations, nor are they necessarily indicative of the results that we may achieve in the future. When you read these pro forma statements of income, it is important that you read them along with the actual audited and unaudited financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this prospectus. 21 UNITED INDUSTRIES CORPORATION UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, 1998
RELATED PARTY TRANSACTION ACTUAL ADJUSTMENTS ADJUSTMENTS PRO FORMA -------- ------------- ----------- --------- Net sales..................... $282,676 $ -- $ -- $282,676 Operating costs and expenses: Cost of goods sold.......... 140,445 -- -- 140,445 Advertising and promotion expenses.................. 31,719 -- -- 31,719 Selling, general and administrative expenses... 61,066 (7,740)(1) 750(2) 54,076 Recapitalization and other special charges........... 2,321 -- -- 2,321 -------- ------ ----------- --------- Total operating costs and expenses.................... 235,551 (7,740) 750 228,561 -------- ------ ----------- --------- Operating income.............. 47,125 7,740 (750) 54,115 Interest expense.............. 1,106 -- 36,820(3) 37,926 -------- ------ ----------- --------- Income before provision for income taxes and discontinued operations..... 46,019 7,740 (37,570) 16,189 Income tax expense............ 992 -- 2,238(4) 3,230 -------- ------ ----------- --------- Income from continuing operations.................. $ 45,027 $7,740 $(39,808) $ 12,959 -------- ------ ----------- --------- -------- ------ ----------- ---------
SEE THE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME. 22 UNITED INDUSTRIES CORPORATION NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS) The unaudited pro forma statement of income excludes $12,145 of recapitalization and other special charges, the write-off of unamortized financing costs of $3,750 and the impact of converting from an "S" corporation to a "C" corporation of $2,062. (1) The pro forma adjustment to selling, general and administrative expenses reflects the elimination of stockholder salaries of $6,713 and certain fringe benefits of $2,382 that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure of $1,355 that was implemented with the recapitalization. (2) The pro forma adjustment to selling, general and administrative expenses reflects the annual management fee we will pay to the Thomas H. Lee Company. (3) The pro forma adjustment to interest expense reflects the following:
RATE AMOUNT --------- --------- Interest expense on revolving credit facility.................................. 7.750% $ 2,000(a) Interest expense on Term Loan A................................................ 7.750% 5,813 Interest expense on Term Loan B................................................ 8.250% 12,375 Interest expense on notes offered hereby....................................... 9.875% 14,813 Amortization of capitalized financing fees..................................... 2,375(b) Commitment fees on unused available revolving credit facility.................. 550 Interest expense on debt refinanced............................................ (1,106) --------- Total adjustment............................................................... $ 36,820 --------- --------- - ------------------------ (a) Reflects management's estimate of the annual interest expense associated with seasonal working capital borrowings. (b) Reflects annual amortization expense utilizing a weighted average maturity on all borrowings of eight years.
A 0.125% increase or decrease in the assumed interest rate on our senior credit facility would change the pro forma interest expense by approximately $312 for the year ended December 31, 1998. (4) The pro forma adjustment to income taxes reflects the following: - the planned Section 338(h)(10) election with respect to the recapitalization; - a 50% valuation allowance to partially reserve the deferred tax asset arising from the Section 338(h)(10) election; and - the direct tax effects of the pro forma adjustments described above at an estimated 38% effective tax rate. 23 UNITED INDUSTRIES CORPORATION UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1998
RELATED PARTY TRANSACTION ACTUAL ADJUSTMENTS ADJUSTMENTS PRO FORMA -------- ------------- ----------- --------- Net sales..................... $ 82,295 $ -- $ -- $ 82,295 Operating costs and expenses: Cost of goods sold.......... 40,076 -- -- 40,076 Advertising and promotion expenses.................. 10,713 -- -- 10,713 Selling, general and administrative expenses... 14,781 (1,528)(1) 188(2) 13,441 Recapitalization and other special charges........... 1,200 -- -- 1,200 -------- ------ ----------- --------- Total operating costs and expenses.................... 66,770 (1,528) 188 65,430 -------- ------ ----------- --------- Operating income.............. 15,525 1,528 (188) 16,865 Interest expense.............. 220 -- 9,184(3) 9,404 -------- ------ ----------- --------- Income before provision for income taxes and discontinued operations..... 15,305 1,528 (9,372) 7,461 Income tax expense............ 306 -- 1,186(4) 1,492 -------- ------ ----------- --------- Income from continuing operations.................. $ 14,999 $1,528 $(10,558) $ 5,969 -------- ------ ----------- --------- -------- ------ ----------- ---------
SEE THE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME. 26 UNITED INDUSTRIES CORPORATION NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1998 The unaudited pro form a statement of income excludes $8,645 of recapitalization charges related to change of control bonuses paid to management, the write-off of unamortized financing costs of $3,750 and the impact of converting from an "S" corporation to a "C" corporation. (1) The pro forma adjustment to selling, general and administrative expenses reflects the elimination of stockholder salaries of $1,318 and certain fringe benefits of $535 that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure of $325 that was implemented with the recapitalization. (2) The pro forma adjustment to selling, general and administrative expenses reflects the quarterly amount of the annual management fee we will pay to the Thomas H. Lee Company. (3) The pro forma adjustment to interest expense reflects the following:
RATE AMOUNT --------- --------- Interest expense on revolving credit facility.................................. 7.750% $ 421 Interest expense on Term Loan A................................................ 7.750% 1,453 Interest expense on Term Loan B................................................ 8.250% 3,094 Interest expense on notes offered hereby....................................... 9.875% 3,703 Amortization of capitalized financing fees..................................... 594(a) Commitment fees on unused available revolving credit facility.................. 139 Interest expense on debt refinanced............................................ (220) --------- Total adjustment............................................................... $ 9,184 --------- ---------
- ------------------------ (a) Reflects amortization expense utilizing a weighted average maturity on all borrowings of eight years. (4) The pro forma adjustment to income taxes reflects the following: - the Section 338(h)(10) election with respect to the recapitalization; - a 50% valuation allowance to partially reserve the deferred tax asset arising from the Section 338(h)(10) election; and - the direct tax effects of the pro forma adjustments described above at an estimated 38% effective tax rate. 27 SELECTED HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS) In the table below, we provide you with selected historical financial data for United. The selected historical financial data for the three months ended March 31, 1998 and 1999 have been derived from unaudited financial statements included elsewhere in this prospectus. The historical financial data for the years ended December 31, 1994 and 1995 have been derived from audited financial statements which do not appear in this prospectus. When you read this selected historical financial data, it is important that you read along with it the financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which is included in this prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------------------- -------------------- 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- --------- --------- STATEMENT OF INCOME DATA: Net sales............................... $ 139,822 $ 159,192 $ 199,495 $ 242,601 $ 282,676 $ 82,295 $ 96,593 Operating costs and expenses: Cost of goods sold.................... 73,230 82,603 106,640 128,049 140,445 40,076 46,955 Advertising and promotion expenses.... 15,575 17,813 22,804 25,547 31,719 10,713 10,738 Selling, general and administrative expenses............................ 35,032 38,629 46,276 52,092 61,066 14,781 18,320 Recapitalization and other special charges............................. -- -- -- -- 2,321 1,200 12,145 --------- --------- --------- --------- --------- --------- --------- Total operating costs and expenses...... 123,837 139,045 175,720 205,688 235,551 66,770 88,158 --------- --------- --------- --------- --------- --------- --------- Operating income........................ 15,985 20,147 23,775 36,913 47,125 15,525 8,435 Interest expense........................ 445 609 1,502 1,267 1,106 220 7,906 --------- --------- --------- --------- --------- --------- --------- Income before provision for income taxes and discontinued operations........... 15,540 19,538 22,273 35,646 46,019 15,305 529 Income tax expense...................... 305 289 447 726 992 306 2,719 --------- --------- --------- --------- --------- --------- --------- Income (loss) from continuing operations............................ $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027 $ 14,999 $ (2,190) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- OTHER FINANCIAL DATA: Cash flow from (used in) continuing operations............................ $ 7,416 $ 14,316 $ 27,741 $ 35,136 $ 50,763 $ (20,581) $ (35,592) Cash used in investing activities--continuing operations..... 2,534 19,253 6,384 5,138 3,628 14,012 353 Cash used in (provided by) financing activities............................ 13,476 (607) 23,645 32,329 49,088 (35,708) (35,945) EBITDA(1)............................... 17,299 22,862 27,336 40,510 53,284 17,639 21,428 Depreciation and amortization........... 1,314 2,715 3,561 3,597 3,838 914 848 Capital expenditures(2)................. 1,993 4,726 6,384 5,138 3,628 1,739 353 Gross margin............................ 47.6% 48.1% 46.5% 47.2% 50.3% 51.3% 51.4% EBITDA margin........................... 12.4 14.4 13.7 16.7 18.8 21.4 22.2 Ratio of earnings to fixed charges(3)... 11.8x 12.4x 8.3x 13.9x 17.6x 25.0x 1.1x BALANCE SHEET DATA: Working capital(4)...................... $ 21,867 $ 29,565 $ 26,919 $ 32,046 $ 30,042 $ 68,849 $ 66,505 Total assets............................ 56,037 82,979 84,254 97,441 94,161 161,328 290,077 Total debt.............................. -- 16,200 13,960 3,997 4,645 48,587 413,065 Stockholders' equity (deficit).......... 40,131 45,864 46,829 64,449 58,257 70,312 (188,298)
(SEE FOOTNOTES ON FOLLOWING PAGE) 28 - ------------------------ (1) EBITDA represents income from continuing operations before interest expense, income tax expense, depreciation and amortization, and recapitalization and other special charges accrued in 1998. For the three months ended March 31, 1998 and 1999, we accrued $1,200 and $12,145 for recapitalization and other special charges, respectively. We have included information concerning EBITDA because we believe it is used by certain investors as one measure of a company's historical ability to fund operations and meet its financial obligations. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to operating income or income from continuing operations as an indicator of our operating performance or cash flow as a measure of liquidity. In addition, our definition of EBITDA may not be comparable to that reported by other companies. EBITDA is calculated as follows:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------------------- -------------------- 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- --------- --------- Income from continuing operations............... $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027 $ 14,999 $ (2,190) Interest expense................................ 445 609 1,502 1,267 1,106 220 7,906 Income tax expense.............................. 305 289 447 726 992 306 2,719 Depreciation and amortization................... 1,314 2,715 3,561 3,597 3,838 914 848 Recapitalization and other special charges (a)........................................... -- -- -- -- 2,321 1,200 12,145 --------- --------- --------- --------- --------- --------- --------- EBITDA (b)...................................... $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284 $ 17,639 $ 21,428 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------------ (a) For the three months ended March 31, 1999, we recorded recapitalization and other special charges of $12,145. These charges included change of control bonuses paid to certain members of senior management amounting to $8,645. Other special charges of $3,500 included (a) $1,500 related to certain legal cases for which it has been determined that it is probable that we will incur monetary damages; and (b) $2,000 related to the rationalization of several product lines and the decision not to pursue collection of receivables related to deductions taken by significant customers for advertising and promotional spending in excess of contractual obligations. In 1998, we recorded non-recurring litigation charges of $2,321 related to two separate lawsuits. In March 1998, a judgment was entered against us for a lawsuit filed by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy. We recorded a charge of $1,200 for this case in the first quarter of 1998. We also incurred costs pertaining to certain litigation concerning the advertising of our Spectracide Terminate product for which we have negotiated a settlement. Costs related to this case amounted to $1,121. (b) Does not reflect the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. The related party transactions' amounts were $3,754, $4,215, $3,847, $3,061, $7,740, and $1,528 for the years ended 1994, 1995, 1996, 1997, 1998, and for the three month period ended March 31, 1998. (2) Capital expenditures for 1995 exclude $8,272 of expenditures related to acquisitions. Capital expenditures for March 31, 1999 exclude a capital lease obligation of $9,215. (3) For purposes of this calculation, earnings are defined as income before provision for income taxes and discontinued operations plus fixed charges. Fixed charges include interest expense on all indebtedness (including amortization of deferred financing costs) and the portion of operating lease rental expense which management believes is representative of the interest factor of rent expense (approximately one-third of rent expense). (4) Working capital is defined as current assets (excluding cash and cash equivalents) less current liabilities (excluding short-term debt and current portion of long-term debt). 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water-soluble fertilizers, under a variety of brand names. We believe that the key drivers of growth for the $2.7 billion consumer lawn and garden pesticide and household insecticide retail markets include: (a) the aging of the United States population; (b) growth in the home improvement center and mass merchandiser channels; and (c) shifting consumer preferences toward value-oriented branded products. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry and has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. The following discussion of our historical results of operations and financial condition should be read in conjunction with the audited financial statements and the related notes which are included in this prospectus. RESULTS OF OPERATIONS The following discussion regarding results of operations refers to net sales, cost of goods sold, advertising and promotion expense and selling and general and administrative expenses which we define as follows: - Net sales are gross sales of products sold to customers upon shipment of product less any customer discounts from list price and customer returns. - Cost of goods sold includes chemicals, container and packaging material costs as well as direct labor, outside labor, manufacturing overhead and freight. - Advertising and promotion expense includes the cost of advertising of products through national and regional media as well as the advertising and promotion of products through cooperative programs with retailers. - Selling and general and administrative expenses include all costs associated with the selling and distribution of product, product registrations, and administrative functions such as finance, information systems and human resources. 30 The following table sets forth the percentage relationship of certain items in our income statement to net sales.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------- -------------------- 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- Net sales: Value brands......................................................... 90.8% 81.4% 82.3% 85.7% 83.1% Opening price point brands........................................... 9.2 18.6 17.7 14.3 16.9 --------- --------- --------- --------- --------- Total net sales........................................................ 100.0 100.0 100.0 100.0 100.0 Operating costs and expenses: Cost of goods sold................................................... 53.5 52.8 49.7 48.7 48.6 Advertising and promotion expenses................................... 11.4 10.5 11.2 13.0 11.1 Selling, general and administrative expenses......................... 23.2 21.5 21.6 18.0 19.0 Recapitalization and other special charges........................... 0.0 0.0 0.8 1.4 12.6 --------- --------- --------- --------- --------- Total operating costs and expenses..................................... 88.1 84.8 83.3 81.1 91.3 --------- --------- --------- --------- --------- Operating income....................................................... 11.9 15.2 16.7 18.9 8.7 Interest expense....................................................... 0.8 0.5 0.4 0.3 8.2 --------- --------- --------- --------- --------- Income before provision for income taxes and discontinued operations... 11.1 14.7 16.3 18.6 0.5 Income tax expense..................................................... 0.2 0.3 0.4 0.4 2.8 --------- --------- --------- --------- --------- Income from continuing operatings...................................... 10.9% 14.4% 15.9% 18.2 (2.3)% --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
MARCH 31, 1999 COMPARED TO MARCH 31, 1998 NET SALES. Net sales increased 17.4% to $96.6 million for the three months ended March 31, 1999 from $82.3 million for the three months ended March 31, 1998. This increase was driven by a combination of factors including; (a) the continued shift of consumers' preferences toward value and opening price point brands (b) the introduction of Spectracide Pro; (c) expanded distribution at home improvement centers and mass merchandisers due to continued store expansion; and (d) increased shipments to K-Mart due to improvements in store inventory levels over 1998. Net sales of our value brands increased 13.9% to $80.3 million for the three months ended March 31, 1999 from $70.5 million for the three months ended March 31, 1998. This increase was a result of continued growth of core value brands including Spectracide and Cutter. Net sales of opening price point brands increased 38.1% to $16.3 million for the three months ended March 31, 1999 from $11.8 million for the three months ended March 31, 1998 driven by the continued rapid pace of store openings by our top retail customers. GROSS PROFIT. Gross profit increased 17.5% to $49.6 million for the three months ended March 31, 1999 compared to $42.2 million for the three months ended March 31, 1998. As a percentage of sales, gross profit increased slightly to 51.4% as of March 31, 1999 from 51.3% as of March 31, 1998. The improvement in gross profit was the result of increased sales volume. ADVERTISING AND PROMOTION EXPENSES. Advertising and promotion expenses were $10.7 million for the three months ended March 31, 1999 and March 31, 1998. As a percentage of net sales, advertising and promotion expenses decreased to 11.1% for the three months ended March 31, 1999 from 13.0% for the three months ended March 31, 1998. Advertising and promotion expenses decreased as a percentage of net sales growth since most of our first quarter 1999 growth was due to store expansion by home improvement centers. 31 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 23.6% to $18.3 million for the three months ended March 31, 1999 from $14.8 million for the three months ended March 31, 1998. As a percentage of net sales, selling, general and administrative expenses increased slightly to 19.0% as of March 31, 1999 from 18.0% as of March 31, 1998. The overall increase in selling, general and administrative expenses was related to higher selling, marketing and distribution costs to support the rapid growth in sales. RECAPITALIZATION AND OTHER SPECIAL CHARGES We recorded recapitalization and other special charges of $12.1 million as of March 31, 1999 and $1.2 million as of March 31, 1998. The charges in 1999 included change of control bonuses paid to some members of our senior management amounting to $8.6 million, which were contractually required as a result of the recapitalization. Other special charges of $3.5 million included (a) $1.5 million related to certain legal cases for which we determined that it is probable that we will incur monetary damages and (b) $2.0 million related to the rationalization of several product lines and the decision not to pursue collection of receivables related to deductions taken by significant customer's for advertising and promotional spending in excess of contractual obligations. Charges recorded as of March 31, 1998 of $1.2 million were related to legal proceedings pertaining to a suit filed in 1992 by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy. OPERATING INCOME. Operating income decreased 45.8% to $8.4 million for the three months ended March 31, 1999 from $15.5 million for the three months ended March 31, 1998. As a percentage of net sales, operating income decreased to 8.7% as of March 31, 1999 from 18.9% as of March 31, 1999 as a result of charges related to our recapitalization. INCOME TAX EXPENSE. In conjunction with the recapitalization, we converted from an "S" corporation to a "C" corporation. The one-time impact of this conversion was $2.1 million. 1998 COMPARED TO 1997 NET SALES. Net sales increased 16.5% to $282.7 million in 1998 from $242.6 million in 1997. This increase was driven by a combination of factors including: (a) the continued shift of consumers' preferences toward value and opening price point brands; (b) the introduction of Spectracide Terminate; and (c) expanded distribution at home improvement centers and mass merchandisers through increased shelf space and rapid store expansion. Net sales of our value brands increased 17.8% to $232.6 million in 1998 from $197.5 million in 1997. This increase was a result of continued growth of core value brands including Spectracide, Hot Shot and Peters, and the introduction of Spectracide Terminate, which contributed $21.9 million in net sales in 1998. Net sales of opening price point brands increased 11.1% to $50.1 million in 1998 from $45.1 million in 1997 driven by the continued rapid pace of store openings by our top retail customers. Net sales of other brands decreased 11.4% to $16.0 million in 1998 from $18.1 million in 1997 due to our effort to shift away from other brands with reduced margins. GROSS PROFIT. Gross profit increased 24.2% to $142.2 million in 1998 compared to $114.6 million in 1997. As a percentage of net sales, gross profit increased to 50.3% in 1998 compared to 47.2% in 1997. The improvement in gross profit as a percentage of net sales was a result of a more profitable sales mix, mainly attributable to the introduction of Spectracide Terminate, and volume efficiencies. ADVERTISING AND PROMOTION EXPENSES. Advertising and promotion expenses increased 24.2% to $31.7 million in 1998 from $25.5 million in 1997. As a percentage of net sales, advertising and promotion expenses increased to 11.2% in 1998 from 10.5% in 1997. The overall increase in advertising and promotion expenses was primarily related to the launch of Spectracide Terminate. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 17.2% to $61.1 million in 1998 from $52.1 million in 1997. As a percentage of net sales, selling, general and 32 administrative expenses increased slightly to 21.6% in 1998 from 21.5% in 1997. The overall increase in selling, general and administrative expenses was related to higher selling, marketing and distribution costs to support the launch of Spectracide Terminate and the rapid growth in sales, as well as higher related party expenses. NON-RECURRING LITIGATION CHARGES. Non-recurring litigation charges totalled $2.3 million in 1998 and were related to two separate lawsuits. In March 1998, a judgment was entered against United for a lawsuit filed in 1992 by the spouse of a former employee claiming benefits from a company-owned key man life insurance policy. We recorded a charge of $1.2 million for this case in the first quarter of 1998. In October 1998, the FTC and several state attorneys general filed a lawsuit concerning the advertising of our Spectracide Terminate product. The FTC and attorneys general alleged that deceptive and unsubstantiated claims were made regarding this product. In February 1999, a settlement agreement with the FTC was negotiated. The settlement reached was an agreement that the advertising for this product be modified and the other parties be reimbursed for certain costs incurred. Total charges of $1.1 million included $0.4 million paid to 10 states attorneys general for reimbursement of their legal expenses and $0.7 million for legal expenses incurred for our defense. OPERATING INCOME. Operating income increased 27.7% to $47.1 million in 1998 from $36.9 million in 1997. As a percentage of net sales, operating income increased to 16.7% in 1998 from 15.2% in 1997 as a result of improved gross margins as discussed above. 1997 COMPARED TO 1996 NET SALES. Net sales increased 21.6% to $242.6 million in 1997 from $199.5 million in 1996. This increase was driven by a combination of factors including: (a) the continued shift of consumers' preferences toward value and opening price point brands; (b) new product introductions, including opening price point brands at Home Depot and Lowe's; and (c) expanded distribution at home improvement centers and mass merchandisers through increased shelf space and rapid store expansion. Net sales of our value brands increased 9.0% to $197.5 million in 1997 from $181.2 million in 1996. This increase was a result of continued growth of core value brands including Spectracide, Hot Shot and Peters. Net sales of opening price point brands increased 146.4% to $45.1 million in 1997 from $18.3 million in 1996 driven by the introductions of Real-Kill at Home Depot and No-Pest at Lowe's. GROSS PROFIT. Gross profit increased 23.4% to $114.6 million in 1997 compared to $92.9 million in 1996. As a percentage of net sales, gross profit increased to 47.2% in 1997 compared to 46.5% in 1996. The improvement in gross profit as a percentage of net sales was a result of a more profitable sales mix, volume efficiencies and cost reduction efforts completed late in 1996 related to the acquisitions made in 1995. ADVERTISING AND PROMOTION EXPENSES. Advertising and promotion expenses increased 12.0% to $25.5 million in 1997 from $22.8 million 1996. As a percentage of net sales, advertising and promotion expenses declined to 10.5% in 1997 from 11.4% in 1996. The overall increase in advertising and promotion expenses related to costs associated with the launch of opening price point brands at Home Depot and Lowe's. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 12.6% to $52.1 million in 1997 from $46.3 million in 1996. As a percentage of net sales, selling, general and administrative expenses decreased to 21.5% in 1997 from 23.2% in 1996. The overall increase in selling, general and administrative expenses was related to higher selling, marketing and distribution costs to support the rapid growth in sales. The decline in selling, general and administrative expenses as a percentage of net sales was a result of increased total sales and the benefits of cost containment efforts and improved operating leverage. OPERATING INCOME. Operating income increased 55.3% to $36.9 million in 1997 from $23.8 million in 1996. As a percentage of net sales, operating income increased to 15.2% in 1997 from 11.9% in 1996 as a 33 result of improved gross margins and a decline in selling, general and administrative expenses as a percentage of net sales as discussed above. INCOME TAX EXPENSE The low effective tax rate for 1996, 1997 and 1998 was attributable to our election to be taxed as an "S" corporation under the provisions of the Internal Revenue Code and similar provisions of Missouri tax law. In conjunction with the recapitalization, we converted to a "C" corporation and will be subject to federal and Missouri income tax beginning in 1999. LIQUIDITY AND CAPITAL RESOURCES Historically, we have utilized internally generated funds and borrowings under credit facilities to meet ongoing working capital and capital expenditure requirements. As a result of the recapitalization, we have significantly increased our cash requirements for debt service relating to the notes and our senior credit facility. As of December 31, 1998, on a pro forma basis, we would have had long-term debt outstanding of approximately $375.0 million and up to $110.0 million available under our revolving credit facility. As of March 31, 1999, we had total debt outstanding of $413.1 million. We will rely on internally generated funds and, to the extent necessary, borrowings under our revolving credit facility to meet our liquidity needs. See "The Transactions." Our senior credit facility consists of: - the $110.0 million revolving credit facility, under which no borrowings were outstanding at the closing of the recapitalization. As of March 31, 1999, we had borrowed $28.9 million on this facility; - the $75.0 million Term Loan A; and - the $150.0 million Term Loan B. Our revolving credit facility and the Term Loan A mature six years from the closing date of our senior credit facility, and the Term Loan B matures seven years from the closing date of our senior credit facility. Our revolving credit facility is subject to a clean-down period during which the aggregate amount outstanding under our revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. Our principal liquidity requirements are for working capital, capital expenditures and debt service under our senior credit facility and the notes. Cash flow from continuing operations provided net cash of approximately $27.7 million, $35.1 million and $50.8 million in 1996, 1997 and 1998, respectively. Net cash used by operating activities from continuing operations was $35.6 million for the three months ended March 31, 1999. Cash flow from operating activities fluctuates during the year as the seasonal nature of our sales results in a significant increase in working capital (primarily accounts receivable and inventory) during the first half of the year, with the second and third quarters being significant cash collection periods. Capital expenditures are related to the enhancement of our existing facilities and the construction of additional production and distribution capacity. Cash used for capital expenditures in 1996, 1997, 1998 and for the three months ended March 31, 1999 were $6.4 million, $5.1 million, $3.6 million and $0.3 million, respectively. In addition, we entered into a capital lease agreement in March 1999 for $9.2 million. Cash used for capital expenditures for the remainder of 1999 is expected to be less than $5.0 million. Principal on the Term Loan A is required to be repaid quarterly in annual amounts of $10.0 million for years one through four and $17.5 million for years five and six after the closing of our senior credit facility. Principal on the Term Loan B is required to be repaid quarterly in annual amounts of $1.5 million for the first six years and $141.0 million for the seventh year after the closing of our senior credit facility. See "Description of Our Senior Credit Facility." On June 30, 1999, principal payments on Term Loans A and B of $2.5 million and $0.4 million, respectively, will be due. 34 We believe that our cash flow from operations, together with available borrowings under our revolving credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments for at least the next two years. However, we cannot ensure that we will generate sufficient cash flow from operations to repay the notes and amounts outstanding under our senior credit facility at maturity without requiring additional financing. Our ability to meet our debt service and clean-down obligations and reduce our debt will be dependent on our future performance, which in turn, will be subject to general economic conditions and to financial, business and other factors, including factors beyond our control. See "Risk Factors." Because a portion of our debt bears interest at floating rates, our financial condition is and will continue to be affected by changes in prevailing interest rates. SEASONALITY Our business is highly seasonal because our products are used primarily in the spring and summer. For the past two years, approximately 75% of our net sales have occurred in the first and second quarters. Our working capital needs, and correspondingly our borrowings, peak near the end of our first quarter. YEAR 2000 COMPLIANCE The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of our computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. In connection with a $2.5 million management information systems upgrade, we have substantially completed an inventory of our computer programs and assessed our year 2000 readiness. Our information systems and computer programs include programs developed for our proprietary management information system. For programs which were identified as not being year 2000 ready, we repaired or replaced the programs and have substantially completed performing appropriate testing for year 2000. We believe that substantially all of our information systems should now be year 2000 compliant, but we do not expect to complete our testing until June 1999. Costs related to the year 2000 issue are included in the $2.5 million management information systems upgrade. We estimate that the remaining testing, repair and replacement necessary to complete our year 2000 compliance program will cost less than $1.0 million. In our opinion, we do not anticipate any additional costs relating to the year 2000 issue which would have a material adverse effect on our financial condition or our results of operations. While we believe all necessary work will be completed in a timely fashion, we cannot assure you that all systems will be compliant by the year 2000, or that the systems of other companies and government agencies on which we rely will be compliant. We believe the most likely worst-case scenarios that we might confront with respect to the year 2000 issues have to do with the possible failure of third-party systems over which we have no control, including, but not limited to, satellite, power and telephone services. If these failures were not immediately corrected, our supply and distribution functions would be temporarily disrupted or delayed. Disruptions of our supply and distribution functions could also occur if any of our personal computers receiving electronic data interchange transmissions from our third-party suppliers were not Year 2000 compliant. We have exchanged Year 2000 information with most of our third-party suppliers and with most of our major customers. Of the third-party suppliers and major customers we have contacted, over 90% have responded to our requests for information. We have developed a contingency plan to facilitate electronic data interchange communication with our main customers. We have installed special "window adjustment" software to intercept non-Year 2000 compliant electronic data interchange transmissions and electronically correct the transmission errors to make them Year-2000 compliant before the transmissions are completed in our system. In addition, we anticipate that we will have replaced all non-Year 2000 personal computers utilized in the processing of electronic data interchange transmissions by September 30, 1999. Based on our assessment to date, we have not received any indication from a third party indicating that it expects to experience year 2000 non-compliance of a nature which would have a 35 material impact on us. However, the risk remains that our customers or other third parties may not have accurately determined their state of readiness, in which case these parties' lack of year 2000 compliance may have a material adverse effect on our results of operations. We continue to monitor the year 2000 compliance of third parties with which we do business. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" in June 1998. SFAS 133 provides standards on accounting and disclosure for derivative instruments and requires that all derivatives be measured at fair value and reported as either assets or liabilities on the balance sheet. We will be required to adopt this statement no later than the beginning of fiscal year 2001. We have not completed our analysis to determine the impact of this statement on our financial statements; the impact is not expected to be material. DISCLOSURES ABOUT MARKET RISK INTEREST RATE We have not in the past used derivative financial instruments to hedge our exposure to interest rate risk. The table below provides information about our long-term debt obligations sensitive to changes in interest rates as of March 31, 1999:
SCHEDULED MATURITY DATE ------------------------------------------------------------------ MARCH 31, DECEMBER 31, 1999 2000 2001 2002 2003 THEREAFTER 1999 1998 --------- --------- --------- --------- --------- ----------- ----------- --------------- (DOLLARS IN THOUSANDS) Principal fixed rate debt: Senior subordinated notes.................... -- -- -- $ -- $ -- $ 150,000 $ 150,000 $ -- Average interest rate...... 9.875% 9.875% 9.875% 9.875% 9.875% 9.875% 9.875% --% Principal variable rate debt: Senior Credit Facility Term Loan A.............. $ 7,500 $ 10,000 $ 10,000 $ 10,000 $ 15,625 $ 21,875 $ 75,000 $ -- Term Loan B.............. 1,125 1,500 1,500 1,500 1,500 142,875 150,000 -- Miscellaneous debt........... -- 4,645 ----------- ------ Total debt................... 375,000 4,645 Less current maturities...... (11,500) (929) ----------- ------ Total long-term debt......... $ 363,500 $ 3,716 ----------- ------ ----------- ------
Interest on Term Loan A and Term Loan B ranges from 200 to 325 basis points above LIBOR depending on certain financial ratios. LIBOR was 4.9375% as of March 31, 1999. EXCHANGE RATE We do not use derivative instruments to hedge against foreign currency exposures related to transactions denominated in other than our functional currency. Substantially all foreign currency transactions are denominated in United States dollars. COMMODITY PRICE We do not use derivative instruments to hedge our exposures to changes in commodity prices. We utilize various commodity and specialty chemicals in our production process. Purchasing procedures and arrangements with major customers serve to mitigate our exposure to price changes in commodity and specialty chemicals. 36 BUSINESS GENERAL We are the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water-soluble fertilizers, under a variety of brand names. Our "value" and "opening price point" brands generally compete with higher priced premium brands. Our portfolio of value-oriented brands includes the following: - SPECTRACIDE, the leading value brand and overall fastest growing brand of consumer lawn and garden pesticides; - SPECTRACIDE TERMINATE, the first ever do-it-yourself consumer termite killing system, launched in 1998; - SPECTRACIDE PRO, lawn and garden and household pesticides targeted toward the professional market, introduced in 1999; - HOT SHOT, the leading value brand and overall fastest growing brand of consumer household insecticides; - CUTTER, the leading value brand and overall fastest growing brand of consumer insect repellents; - PETERS, the leading value brand of consumer water-soluble fertilizers; and - REAL-KILL, sold primarily at Home Depot, NO-PEST sold exclusively at Lowe's and KRID and KGRO, sold exclusively at Kmart, the opening price point brands of consumer lawn and garden pesticides and household insecticides at each of these key retailers. We believe that our market leadership is a result of our: - leading value-oriented brands, - strategic relationships with major national retailers, - extensive distribution capabilities, - exclusive direct sales force and - proprietary management information systems. Our portfolio of pesticide brands holds the number one position in the home improvement center channel and the number two position in the mass merchandiser channel. In 1998, we generated net sales pro forma income from continuing operations and pro forma EBITDA of $282.7 million, $13.0 million and $60.3 million, respectively Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. As a result, from 1994 to pro forma 1998 our: - Net sales grew at a compound annual rate of 19.2%; - EBITDA grew at a compound annual rate of 36.6%; and - EBITDA margin increased from 12.4% to 21.3%. 37 INDUSTRY OVERVIEW Retail sales of consumer lawn and garden pesticides and household insecticides in the United States totaled $2.7 billion in 1998. Since 1994, the market for these products has grown at an average annual rate of approximately 3%. We believe that the industry will continue to grow at a similar rate over the next several years due to favorable demographic trends. Approximately 67% of households in the United States, or 68 million households, participate in some form of lawn and garden care activity. Moreover, consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically enjoy more leisure time and higher levels of discretionary income than the general population. As the baby boom generation ages, this segment is expected to grow at a rate more than twice that of the total population. This demographic trend is likely to increase the number of lawn and garden care product users. We also believe that we will benefit from the following trends in the industry: CHANNEL CONSOLIDATION. Historically, consumer lawn and garden care products have been distributed through a variety of retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, warehouse clubs and garden centers. In recent years, as home improvement centers and mass merchandisers have added stores and expanded their lawn and garden care departments, consumers have increasingly purchased their lawn and garden care needs from these outlets due to their broader and deeper product offerings, competitive prices and convenient locations and hours. In 1997, approximately 70% of consumers purchased lawn and garden care products at home improvement centers and mass merchandisers compared to just 57% in 1992. We believe that these retail channels will continue to gain market share from other channels over the next several years. GROWTH IN VALUE-ORIENTED BRANDS. Consumer lawn and garden care products fall into one of three brand tiers: (a) premium brands, (b) value brands or (c) opening price point brands. Historically, the market was dominated by premium brands. Over the past several years, the market has shifted toward value and opening price point brands. Value brands are targeted toward consumers who want products and packaging that are comparable or superior to premium brands, but at a lower price, while opening price point brands are designed for consumers who want quality products and packaging, but are extremely cost conscious. Value and opening price point brands' combined share of shelf space at our four largest customers increased from approximately 40% to 60% between 1995 and 1998 at the expense of premium brands. We believe that value and opening price point brands will continue to grow because of (a) continued improving consumer perception of the quality and performance of these brands and (b) ongoing increases in shelf space dedicated to these brands due to the higher margins they offer to retailers. PROFESSIONAL MARKET BUYING PATTERNS. Home improvement centers are increasingly targeting the trade professionals in a variety of industries. As a result, trade professionals are utilizing this channel with greater frequency to take advantage of the competitive prices, convenience of locations and hours, delivery services and availability of credit offered by such retailers. Smaller independent pest control operators and lawn and garden care professionals, who represent approximately 70% of the professional market, have historically purchased their supplies from commercial distributors. While the current selection of professional lawn and garden care products is limited at home improvement centers, we believe that strategic initiatives underway at several national retailers will improve the breadth of professional products offered and drive future growth through this channel. COMPETITIVE STRENGTHS LEADING VALUE-ORIENTED BRANDS. United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. Our value and opening price point brands have driven a shift in the industry by offering 38 innovative products comparable or superior quality to premium brands at lower prices. As a result, our products have developed significant brand awareness and customer loyalty. Our portfolio of pesticide brands holds the number one position (36% share) in the home improvement center channel and the number two position (29% share) in the mass merchandiser channel. STRATEGIC PARTNERSHIPS WITH LEADING RETAILERS. We have developed "strategic partnerships" with a number of leading national retailers in the fastest growing retail channels. Our four largest customers, Home Depot, Wal*Mart, Lowe's and Kmart, each hold significant positions in the lawn and garden care market and have together opened approximately 750 net new stores over the last five years. As a result, we have been able to significantly increase our sales as these retailers have added new stores and captured market share. LARGE, EXCLUSIVE DIRECT SALES FORCE. We have the largest direct sales force in our industry, with approximately 300 sales representatives dedicated to merchandising our products. Each representative is responsible for approximately 30 retail outlets and typically visits each store on a weekly basis to merchandise shelf space, collect inventory data, record orders and educate in-store personnel about our products. This process facilitates real time marketing, re-ordering and pricing decisions, helping to maximize store-level profitability. In addition, our exclusive sales force helps us to identify emerging trends and develop products to meet consumers' needs. We believe that our level of direct in-store sales support is unique among our competitors. PROPRIETARY MANAGEMENT INFORMATION SYSTEM. Our highly advanced and proprietary management information system provides real time data on sales, orders and inventories at each retail outlet, allowing targeted sales promotions and efficient inventory management. With same-day order processing and strategically located distribution centers throughout the United States, we are generally able to deliver products to retailers within 72 hours of an order, allowing retailers to maintain lower inventory levels, generate higher turns and minimize costly returns. PROVEN, COMMITTED SENIOR MANAGEMENT TEAM. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. Combined, our top four senior managers have over 80 years of experience in the consumer products industry and 19 years of experience with us. After the recapitalization, our senior management team owns or has the right to acquire approximately 9% of our fully diluted common stock. BUSINESS STRATEGY We plan to capitalize on our strengths and the favorable industry trends to enhance our leadership position in value and opening price point brands by implementing the following key elements of our business strategy: ENHANCE VALUE BRAND POSITION. We plan to maintain our focus on building our leading value brands for the consumer lawn and garden pesticide and household insecticide markets. Our strategy is to provide innovative products of comparable or superior quality to our competitors at a lower price to appeal to the large, growing segment of consumers that desire a better value. Over the past five years, we have grown the sales and market shares of our core value brands--Spectracide, Hot Shot, Cutter and Peters--through the successful execution of this strategy. PARTNER WITH LEADING RETAILERS. We believe that our strong value brand position coupled with our operational expertise allows us to partner with leading national retailers to develop opening price point brands. We currently manufacture and market the opening price point brands for retailers such as Home Depot, Kmart and Lowe's. Our strategic partnerships with these retailers have enabled us to significantly 39 increase our portion of their category shelf space. Specifically, our products occupy over half of the category shelf space at Home Depot, Kmart and Lowe's, where we are "category manager" for lawn and garden pesticides. As category manager, our representatives work together with these national retailers to determine advantageous pricing, product mix and merchandising plans. MAXIMIZE CATEGORY PROFITABILITY FOR RETAILERS. We focus on maximizing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution. We are a low-cost provider as a result of our high level of vertical integration and our patented water-based aerosol technology. We have a one-step distribution process through our approximately 300 person exclusive direct sales force, the largest in the industry. LEVERAGE DISTRIBUTION NETWORK. We continually seek to capitalize on our strong distribution network and relationships with retailers. To that end, we have increased our sales and improved our operating leverage by supplying complementary product lines to retailers. We add new products either through new product development or by acquiring product lines. Our new product development strategy has been to introduce innovative products that have superior performance, easy-to-understand packaging and value pricing. Over the past three years, we have introduced 80 new products, which represented nearly 40% of our 1998 net sales. New products generate additional sales and generally provide higher margins to us and our retailers. Spectracide Terminate generated net sales of $21.9 million in its limited initial launch in 1998, demonstrating the strength of our distribution network. Our brand acquisition strategy has been to selectively acquire product lines that can benefit from our strong distribution network, product development expertise and other competitive strengths. Acquired product lines such as Peters and Cutter have experienced rapid growth upon integration into our distribution system. TARGET PROFESSIONAL MARKET. While the primary end users of our products have historically been household consumers, we have begun to target smaller independent pest control operators and lawn and garden care professionals through our existing retail channels. Historically, these professionals have purchased their pesticide and lawn and garden care products from commercial distributors. We believe that these professionals will increasingly utilize the home improvement center channel to take advantage of the competitive prices, convenience of locations and hours, delivery services and availability of credit offered. To benefit from and further drive this trend, we developed Spectracide Pro, a group of products designed specifically for the professional market. Launched in March 1999, this line of professional pesticides is supported by national advertising in relevant trade magazines, in-store promotional campaigns, an exclusive direct sales force and technical support. We believe that we can capitalize on our strong relationships with leading national retailers to gain a meaningful position in the professional market. OUR HISTORY United was founded by David C. Pratt in 1969. We initially focused on metal works and anchor and bolt production. In 1973, we acquired Spray Chem, a contract manufacturer of liquid and aerosol insecticides and herbicides. In 1985, we acquired Real-Kill and entered into the manufacturing and distribution of branded products. In 1988, we formed our core businesses through the acquisition of certain assets of various businesses of Chesebrough-Ponds, a subsidiary of Unilever plc. The acquired brands included Spectracide, Hot Shot, Rid-a-Bug, Bag-a-Bug and No-Pest, expanding our products to include a wide array of value-oriented indoor and outdoor pesticides. In 1994, we acquired assets relating to Cutter from Miles, Inc. In 1995, we acquired assets from Alljack Company and Celex Corporation, including Peters, the manufacturing rights of Kmart's opening price point brands, KRid and KGro, and the Shootout and Gro Best brand names. In addition to acquisitions, we have grown through new product introductions. Our new product development strategy has been to identify unmet consumer needs, exploit competitors' weaknesses and introduce innovative products that have superior performance, easy-to-understand packaging and value pricing. Over the past three years, we have introduced 80 new products, which represented nearly 40% of 40 our 1998 net sales. Examples include: (a) Spectracide Terminate, the first ever do-it-yourself consumer termite killing system, introduced in 1998, and (b) Spectracide Pro, a line of lawn and garden and household pesticides targeted toward smaller independent pest control operators and lawn and garden care professionals, introduced in March 1999. PRODUCTS We are the leading manufacturer and marketer of value and opening price point branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water soluble fertilizers, under a variety of brand names. Our products have comparable or superior quality and performance to premium brands, but are typically priced at a 10% to 20% discount. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to premium brands, but at a lower price, while our opening price point brands are designed for consumers who want quality products and packaging, but are extremely cost conscious. Our portfolio of value-oriented pesticide brands hold the number one position (36% share) in the home improvement center channel and the number two position (29% share) in the mass merchandiser channel. The following is a description of each of our major products. VALUE BRANDS (82% OF 1998 NET SALES) We sell a broad line of value brands marketed under such names as Spectracide, Spectracide Terminate, Spectracide Pro, Hot Shot, Cutter and Peters. Since 1994, net sales of our value brands have grown at a compound annual rate of 13.6% from $139.8 million to $232.6 million in 1998. Below is a description of each of our value brands: SPECTRACIDE. The Spectracide product line primarily consists of outdoor insect control products and herbicides, but also includes indoor insect control products, specialty items such as plant disease control and rose care products, and regional products such as fire ant killer and Bag-a-Bug Japanese beetle traps. Since its acquisition from Unilever in 1988, Spectracide has grown faster than any brand in the consumer lawn and garden category with net sales growing at a compound annual rate of 14.1% since 1994. When we acquired the Spectracide product line, it held a single digit market share in the home improvement center and mass merchandiser channels. Today, the Spectracide brand has an average market share in excess of 20% in both of these channels. We have grown this brand by capitalizing on our strong distribution network, product development expertise and other competitive strengths. The Spectracide product line consists of 115 SKUs. SPECTRACIDE TERMINATE. Introduced in 1998, Spectracide Terminate is the first ever do-it-yourself consumer termite killing system. The product is based on professional bait stake technology and comes in 20, 40 or 60 stake packages to meet the needs of a wide range of property sizes. Prices per package range from $49 to $129, which is a significant discount to professional services. The introduction of Spectracide Terminate reflects our focus on innovative product development. We identified a need for a do-it-yourself alternative because approximately 98% of the revenues in the $2.0 billion termite control industry are generated by professional termite franchises. Conceived, developed and introduced in less than a year, Spectracide Terminate has been very successful during its initial marketing stage, with net sales of $21.9 million in 1998. As we continue to expand distribution and enhance marketing programs dedicated to this product, we believe sales of the Spectracide Terminate product will continue to grow. The Spectracide Terminate product line consists of 12 SKUs. SPECTRACIDE PRO. The Spectracide Pro product line, which was introduced in March 1999, targets smaller independent lawn and garden care professionals and pest control operators. Many trade professionals are increasingly purchasing their supplies at home improvement centers. To benefit from and drive this trend, we developed the Spectracide Pro line, a group of products designed specifically for the 41 professional market. This product line will be the first to offer both convenience and value to this market through the home improvement center channel. Conceived, developed and introduced in less than a year, this product line is supported by national advertising in relevant trade magazines, an exclusive direct sales force, a technical support team and in-store promotional campaigns. Preliminary distribution is through over 400 Home Depot retail locations. The Spectracide Pro product line consists of 21 SKUs. HOT SHOT. The Hot Shot product line consists of household insecticides, including items such as roach and ant killers, flying insect killers, foggers, wasp and hornet killers, rodenticides, flea control products and, most recently, a new line of roach and ant baits. Acquired from Unilever in 1988, Hot Shot is the fastest growing household insecticide brand in the United States, recently passing Black Flag-Registered Trademark- to become the number two brand in the home improvement center and mass merchandiser channels. Hot Shot's market penetration has consistently increased, growing from a market share in the low single digits in the home improvement center and mass merchandiser channels when we acquired the brand to over 16% today in the categories in which it competes. The Hot Shot product line consists of 48 SKUs. CUTTER. Acquired from Miles, Inc. in 1994, Cutter's product line provides protection for the entire family, ranging from area repellent citronella candles to products designed especially for use on children and the outdoorsman. We have repositioned Cutter as a value brand and increased its distribution, enabling it to become the fastest growing brand in the insect repellent category. Today, Cutter has the number one market position in the home improvement center and hardware store channels. Cutter's average market share in personal repellents is 18% within the channels that it competes. The Cutter product line consists of 27 SKUs. PETERS. Peters is a water soluble fertilizer available in all purpose formulations as well as specialty formulations for lawns, roses, tomatoes, orchids and azaleas. We acquired Peters, our most recent brand acquisition, from Alljack Company and Celex Corporation in 1995. Originally developed for professional greenhouse growers, Peters is now the number two water-soluble fertilizer in the home improvement center channel. For 1999, Peters introduced new high-impact packaging graphics and new all-weather packaging material and merchandising displays to improve shelf appearance and allow the products to be displayed in the live goods departments of home improvement centers and mass merchandisers. We believe that capital investments made in 1998 for new and upgraded manufacturing equipment for Peters will streamline operations and reduce overhead, resulting in significant improvements in manufacturing productivity. Peters will also continue to benefit from our strong distribution network, product development expertise and other competitive strengths. The Peters product line consists of 18 SKUs. OTHER VALUE BRANDS. We also manufacture and market regional value brands in Florida and the Caribbean. Rid-a-Bug, sold exclusively in Florida, is a leading household pesticide product in that state. Real-Kill, marketed as a Spanish-labeled product throughout the Caribbean, has become the leading brand of household insecticides in Puerto Rico. We also manufacture private label products for hardware co-operatives and other retailers and produce under contract pesticides and other chemicals for other companies. OPENING PRICE POINT BRANDS (18% OF 1998 NET SALES) An important aspect of our growth over the past few years has resulted from our introduction of opening price point brands at home improvement centers and mass merchandisers. By introducing these products, we have effectively acquired shelf space at the expense of our competitors by displacing premium brands and lower quality regional brands. Our strategic retail partners have also benefited from our introduction of opening price point brands through streamlined logistics, better inventory control and higher margins. Net sales of our opening price point brands have grown rapidly from zero in 1994 to $50.1 million in 1998. Below is a description of each of our opening price point brands. 42 REAL-KILL. In 1997, we repositioned Real-Kill, relaunching the brand exclusively at Home Depot as its opening price point brand. The brand consists of indoor and outdoor pesticides. NO-PEST. In late 1997, we introduced No-Pest exclusively at Lowe's as its opening price point brand. The brand consists of indoor and outdoor pesticides. KRID, KGRO, SHOOTOUT AND GRO BEST. In late 1995, we acquired the manufacturing operations which produce the Kmart owned opening price point brands, KRid and KGro, and the brand names, Shootout and Gro Best. These brands consist of indoor and outdoor pesticides. CUSTOMERS We sell our products through all major retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, wholesale clubs and garden centers. We manufacture and supply products to hundreds of customers representing more than 70,000 retail stores across the United States and in select locations in Canada, Puerto Rico and the Caribbean. Our leadership position in the home improvement center and mass merchandiser channels is a key element of our past and future success. Industry wide, category sales continue to shift to the home improvement center and mass merchandiser channels. In 1997, approximately 70% of consumers purchased lawn and garden products through these channels compared to just 57% in 1992. Within these channels, we focus on the fastest growing retailers and enjoy long-standing relationships with market leaders such as Home Depot,Wal.Mart, Lowe's, Kmart, Food Lion, Albertsons and Walgreens. Our four largest customers, Home Depot,Wal.Mart, Lowe's and Kmart, represented 68% of our 1998 net sales. The combination of consumer demand shifting away from premium price brands and our control of the opening price point brand at three of these top four customers has helped us achieve the role of "category manager" for lawn and garden pesticides at Home Depot, Lowe's and Kmart. As category manager, our representatives work together with these national retailers to determine advantageous pricing, product mix and merchandising plans. The following table sets forth our share of shelf space and position at each of our key retailers: SHELF SPACE AND POSITION AT FOUR LARGEST CUSTOMERS (1)
HOME DEPOT WAL.MART LOWE'S KMART ----------- ------------- ----------- ----------- Category manager............................................................. Yes No Yes Yes Share of 1999 shelf space (2)................................................ 52% 13% 53% 57% Position based on unit sales (3)............................................. #1 #2 #1 #1
- ------------------------ (1) As to lawn and garden pesticides. (2) Management estimate of our share of shelf space in the category based on store shelf plans. (3) Based on 1998 point-of-sale data from Information Resources, Inc. and Triad Systems Corporation Home Depot, Wal.Mart, Lowe's and Kmart have together opened approximately 750 net new stores, increasing their number of stores from 5,118 in 1994 to 5,858 in 1998. This store growth has permitted us to drive volume by stocking new shelves rather than depending solely on acquiring existing shelf space from competitors. We believe that new store growth will continue to drive volume in the future, as our top customers alone expect to open approximately 400 new stores in 1999. We expect to occupy the same amount of shelf space in new stores as in existing stores in comparable geographic locations. The following table sets forth the store base of each of our top four customers: 43 STORE GROWTH OF FOUR LARGEST CUSTOMERS(1)
HOME DEPOT WAL.MART LOWE'S KMART ----------- ----------- ----------- ----------- 1994......................................................................... 340 2,132 330 2,316 1995......................................................................... 423 2,234 365 2,161 1996......................................................................... 512 2,304 402 2,134 1997......................................................................... 624 2,362 446 2,136 1998......................................................................... 761 2,467 492 2,138
- ------------------------ (1) Represents stores at year-end. Below is a brief description of our relationships with our four largest customers: HOME DEPOT. Prior to 1997, our relationship with Home Depot included only the distribution of our core value brands. We capitalized on a shift in consumer preferences toward value and opening price point brands away from premium brands by working in partnership with Home Depot to reintroduce Real-Kill exclusively at Home Depot as its opening price point brand. Our net sales to Home Depot grew from $9.3 million in 1994 to $73.5 million in 1998, representing a compound annual growth rate of 67.7%. During the same period, Home Depot grew its store base at a compound annual growth rate of 22.3%. Our share of shelf space in our category at Home Depot is approximately 52%. WAL.MART. At Wal.Mart, we distribute our core value brands. Wal.Mart's opening price point brand is currently manufactured by a third-party manufacturer pursuant to a contract that expires in 2000. Our net sales to Wal.Mart grew from $42.2 million in 1994 to $49.0 million in 1998, representing a compound annual growth rate of 3.8%. During the same period, Wal.Mart grew its store base at approximately the same rate. Our share of shelf space in our category at Wal.Mart is approximately 13%. LOWE'S. Prior to 1997, our relationship with Lowe's included only the distribution of our core value brands. Like our relationship with Home Depot, our relationship was greatly enhanced with the introduction of No-Pest, which we sell exclusively to Lowe's as its opening price point brand. Our net sales to Lowe's grew from $11.0 million in 1994 to $40.6 million in 1998, representing a compound annual growth rate of 38.6%. During the same period, Lowe's grew its store base at a compound annual growth rate of 10.5%. Our share of shelf space in our category at Lowe's is approximately 53%. KMART. Prior to 1995, our relationship with Kmart included only the distribution of our core value brands. Like our relationships with Home Depot and Lowe's, our relationship was greatly enhanced when we began manufacturing Kmart's opening price point brands, KRid and KGro, and acquired its other opening price point brands, Shootout and Gro Best. Our net sales to Kmart grew from $0.8 million in 1994 to $32.1 million in 1998, representing a compound annual growth rate of 151.7%. During that same period, Kmart's store base was essentially constant. Our share of space in our category at Kmart is approximately 57%. SALES AND MARKETING We conduct our sales activities through our exclusive direct sales force, the largest in our industry. Our sales force consists of approximately 300 territory managers and 20 area sales managers. Territory managers are typically responsible for 30 retail accounts and visit accounts on a weekly basis to merchandise shelves and collect inventory data. Our proprietary management information system allows this information to be linked from territory managers' laptop computers to our main database. Territory managers' store visits generate close to 1,000 store reports a day. The data collected and analyzed includes valuable real-time information on SKUs, inventory levels and sales, information that is used by territory managers and our customers to develop promotional campaigns and merchandising plans that maximize 44 store level sales and profitability. This process facilitates real-time marketing, re-ordering and pricing decisions, helping to maximize store level profitability. Orders can be placed directly to our distribution facilities during a store visit, generally allowing for delivery of orders within 72 hours of a visit. Our rapid delivery allows customers to maximize inventory turns and minimize costly returns. In addition, our sales force is better able to help us identify emerging trends and develop products to meet consumers' needs. Moreover, our one-step distribution system allows us to minimize our distribution costs relative to our competitors' smaller sales forces and use of third-party distributors. Customers benefit as we can offer our products at a lower price. We believe that our level of direct in-store sales support is unique among our competitors. In the retail grocery and drug channel, we use a network of independent brokers to ensure execution of our sales programs. Our marketing department leads our new product development process as well as develops all consumer support plans to help drive sales through our strong distribution network. To promote our products to consumers, we advertise on national and local television, radio and print media; develop consumer promotions; and engage in market research efforts. We promote the quality and efficacy of our value brands, while emphasizing their lower cost relative to premium brands. RESEARCH AND DEVELOPMENT In fiscal 1998, 1997 and 1996, we spent $0.8, $0.6 and $0.4 million, respectively, on research and development. Our research and development department has developed over 80 new products since 1996 which represented nearly 40% of our 1998 net sales, evidence of our focus on innovation and the speed of our development cycle. As a result, our active ingredient chemical vendors often approach us first with new active ingredients, allowing us to rapidly develop and introduce new products. Our research and development staff has extensive experience across all of our product segments. Although our expertise is in applied formulation, items like our patented water-based aerosol technology, our exclusive formulation of diquat fusilade and our dual insect and disease control formulations were developed internally. RAW MATERIALS AND SUPPLIERS The key elements of our products are various commodity and specialty chemicals including diazinon, Dursban-Registered Trademark- and sulfluramid, as well as packaging materials. We obtain raw materials from various sources, which we currently consider to be adequate. No one source is considered to be essential to our operations, and we have never experienced a significant interruption of supply. Our top suppliers for 1998 included Novartis Crop Protection, Inc., AgrEvo Environmental Health and Dow Agro Sciences for active ingredients and United States Can Co. and C. L. Smith for components. In addition, The Andersons performs toll processing of granular insecticides for us. Several of our agreements with suppliers provide for price adjustments. In addition, some of our agreements with suppliers provide for exclusivity rights, subject to minimum purchase requirements. COMPETITION We operate in a highly competitive market and compete against a number of large national and regional brands. Our principal national competitors include: The Scotts Company, which markets products under the Ortho-Registered Trademark-, Roundup-Registered Trademark- and Miracle-Gro-Registered Trademark- brand names; S.C. Johnson & Son, Inc., which markets products under the Raid-Registered Trademark- and OFF!-Registered Trademark- brand names; and The Clorox Company, which markets products under the Combat-Registered Trademark- and Black Flag-Registered Trademark- brand names. Some of our competitors are larger, have longer operating histories, greater financial resources and greater market recognition than us. See "Risk Factors--Competition." 45 INTELLECTUAL PROPERTY We operate and own a substantial number of trademarks and tradenames including the following: Spectracide, Spectracide Terminate, Spectracide Pro, Hot Shot, Rid-a-Bug, Bag-a-Bug, Real-Kill, No-Pest, Shootout and Gro Best. We license the Cutter trademark and other members of the Cutter family of trademarks from Bayer Corporation and the Peters and Peters Professional trademarks from The Scotts Company. These licenses are, in effect, perpetual and exclusive. We also own a number of United States and foreign patents and have a number of patent applications pending. MANUFACTURING AND DISTRIBUTION We have four manufacturing facilities located throughout Missouri and Michigan. Our facilities manufacture primarily three types of product categories: aerosols, liquids and water-soluble fertilizers. Our products are formulated using active ingredients manufactured by major chemical companies. The chemical composition of our products is based on internally developed, proprietary formulas. The typical manufacturing process consists of four stages: batch, fill, label and pack. We currently produce over 400 SKUs through our four aerosol production lines, three liquid production lines and two water-soluble fertilizer production lines. Our production lines are flexible and can operate at a variety of filling speeds and produce multiple shipping configurations. We use outside manufacturers for the production of our granular insecticides, baits and candles. Our three aerosol production lines have an annual capacity of 100 million cans, and production on these lines is approximately 60 million cans. Our three liquid production lines have annual capacity of approximately 80 million bottles and are producing approximately 40 million bottles. Our two water-soluble production lines have an annual capacity of close to 40 million pounds, and current output is approximately 17 million pounds. We believe our capacity is sufficient to meet our seasonal inventory needs. On average, the cost of adding a new aerosol production line is approximately $3.0 million, a new liquid production line is approximately $2.0 million and a new water soluble production line is approximately $1.0 million. We have four distribution centers, located in Vinita Park, Missouri; Allentown, Pennsylvania; Gainesville, Georgia; and City of Industry, California. The strategic location of these centers, combined with the real-time order information provided by our proprietary management information system, allows same day shipment from one of these locations directly to our retail customers. All of our facilities are leased under leases expiring on December 31, 1999 or December 31, 2000, but may be renewed at our option for one-year periods until 2010 in the case of leases initially expiring in December 31, 1999, and for three additional five-year periods, in the case of a lease expiring on December 31, 2000. Our leases, like substantially all of our other properties, are pledged to secure our senior credit facility. See "Certain Transactions." 46 The table below provides information regarding the location, the use and the approximate square footage of our facilities:
APPROXIMATE SQUARE LOCATION FACILITY DESCRIPTION FOOTAGE - --------------------------- ---------------------------------------------------------------- ------------------ Overland, MO Office space and finished goods warehousing 182,200 Vinita Park, MO Office space and distribution center 159,550 Bentonville, AR Office space 3,125 Troy, MI Office space 918 Gainesville, GA Distribution center 79,000 Allentown, PA Distribution center 40,000 City of Industry, CA Distribution center 38,000 Vinita Park, MO Manufacturing plant and warehousing 318,500 Plymouth, MI Manufacturing plant 50,000 Earth City, MO Finished goods warehousing 125,000
EMPLOYEES As of December 31, 1998, we had approximately 1,000 full-time employees. Approximately 240 of our employees at our Vinita Park and Overland, Missouri locations are covered by collective bargaining agreements, which expire in September, 1999, with Finishers, Maintenance Painters, Industrial and Allied Workers Local Union 980, AFL-CIO. We have not experienced any significant work stoppage in recent years, and we believe our labor relations are satisfactory. LEGAL PROCEEDINGS In October 1998, the FTC and several state attorneys general filed a suit against us seeking to enjoin our advertising of Spectracide Terminate as a "termite home defense system." The suit alleges that we have made deceptive and unsubstantiated claims regarding Spectracide Terminate; we have denied these allegations. We have negotiated and received a signed settlement agreement regarding our advertising claims with the FTC and the state attorneys general involved in the litigation. As part of the settlement, we agreed that we would not, without competent and reliable scientific evidence, represent to consumers that: (a) use of Spectracide Terminate alone is effective in preventing termite infestations or eliminating active termite infestations; (b) Spectracide Terminate provides "protection for your home against subterranean termites"; and (c) Spectracide Terminate is a "termite home defense system" or make any representations comparing the performance of Spectracide Terminate to other termite control methods. We further agreed to apply to the federal EPA to rename our product as "Spectracide Terminate." The agreement provides that we may describe the product as a "do-it-yourself termite killing system for subterranean termites." Finally, in virtually any advertisement that indicates, either expressly or implicitly, that Spectracide Terminate kills termites or prevents termite damage or infestation, we agreed that we would make the following disclosure: "Not recommended as sole protection against termites, and for active infestations, get a professional inspection." We incurred charges from this suit totaling $1.1 million, including $0.4 million paid to 10 states' attorneys general for reimbursement of their legal expenses and $0.7 million for other legal expenses we incurred in connection with this suit. These expenses were reflected as recapitalization and other special charges in the fourth quarter of 1998 and were paid in the first quarter of 1999. In March 1998, a judgement was entered against us for a lawsuit filed in 1992 by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy. We are currently appealing the judgement. Costs related to this case of $1.2 million were reflected as recapitalization and other special charges in the first quarter of 1998 of which no amounts have been paid as of March 31, 1999. We are also involved in other lawsuits and claims which arise in the ordinary course of business. Our management does not believe that these claims, or the claims described above, individually or in the 47 aggregate, will have a material adverse effect on our financial position or operations. See "Risk Factors-- Product Liability." ENVIRONMENTAL MATTERS We are subject to federal, state, local and foreign laws and regulations governing environmental matters. Our manufacturing operations are subject to requirements regulating air emissions, wastewater discharge, waste management, and the cleanup of contamination. Based on assessments conducted by an independent environmental consultant in connection with the transactions, we believe that we are in material compliance with these requirements and have no material environmental liabilities. Nonetheless, like all companies, we may be subject to potentially significant fines or penalties if we fail to comply with these requirements, and we could be subject to potentially significant cleanup liabilities if contamination is discovered at properties currently or formerly owned or operated by us or at a facility to which we sent wastes. We are in the process of eliminating process wastewater discharges from our manufacturing operations, and expect to reach "zero discharge" by late 1999. The completion of this project will involve capital expenditures of approximately $200,000. We do not anticipate any material capital expenditures for environmental controls in 2000 or 2001. Our pesticide products must be reviewed and registered by EPA and similar state agencies or, in foreign jurisdictions, foreign agencies, before they can be marketed. We devote substantial resources to maintaining compliance with these registration requirements. If we fail to comply, however, the affected pesticide could be suspended or canceled, and we could be subject to fines or penalties. Depending upon the pesticide involved, the severity of the sanction, and the availability of a substitute product, failure to comply with the EPA requirements could have a material adverse effect on us. Additionally, EPA is in the process of re-registering all pesticides and is requiring manufacturers to supply EPA with additional data regarding their pesticides. Where possible, we are working with trade associations to reduce our cost of developing this data. We expect that EPA will continue to request additional pesticide data over the next five to ten years. Because we do not yet know the extent of the data EPA will require, it is impossible for us to predict the cost impact it will have on us. It is also possible that the data we submit could show a risk that EPA deems unacceptable, which could result in cancellation of the pesticide registration. While we cannot assure you, we do not expect the impact to have a material adverse effect on us. EPA also intends to analyze the risk that certain pesticides present to children, as required by the Food Quality Protection Act. Depending upon the outcome of its risk analyses, EPA could limit the use of some of our products, which could adversely affect our business. The severity of the effect would depend on which products were involved, whether another product or ingredient could be substituted, and whether our competitors are similarly affected. Our fertilizer products must be reviewed and registered by each state prior to sale. The states typically check the weight of the product and the accuracy of the analysis statement on the packaging. Other consumer products we market are subject to the safety requirements of the Consumer Product Safety Commission. If we fail to comply with any of these requirements, we could be suspended or prohibited from marketing the affected product, which could adversely affect our business. 48 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below is the name, age and position of each of our executive officers and directors. Our board of directors presently consists of six directors who are elected annually. Executive officers serve at the discretion of the board of directors and, in the case of Messrs. Bender, Johnson and Johnston, pursuant to employment agreements.
NAME AGE POSITION - ------------------------ --- --------------------------------------------------------------------------------- David A. Jones 51 Chairman of the Board; Director Richard A. Bender 49 Senior Vice President, Distribution, Human Resources and Manufacturing William P. Johnson 43 Senior Vice President, Sales Daniel J. Johnston 41 Senior Vice President, Finance and MIS and Chief Financial Officer; Director D. Garrad Warren III 47 Senior Vice President, Marketing and Business Development David C. Pratt 54 Director C. Hunter Boll 43 Director Scott A. Schoen 40 Director Charles A. Brizius 30 Director
DAVID A. JONES became a director of our company in January 1999 in connection with the recapitalization and was appointed Chairman of the Board in June 1999. Mr. Jones has been the President and Chief Executive Officer of Rayovac Corporation since March 1996. Between February 1995 and March 1996, Mr. Jones was Chief Operating Officer, Chief Executive Officer and Chairman of the Board of Directors of Thermoscan, Inc. From 1989 to 1994, he served as President and Chief Executive Officer of The Regina Company, a manufacturer of vacuum cleaners and other floor care equipment. RICHARD A. BENDER has served as our Senior Vice President, Distribution, Human Resources and MIS since 1996. Mr. Bender joined us in 1988 as Vice President of Human Resources. He has held various positions during his tenure with us, including responsibilities in our former metals group division, administration, management information systems, product supply and distribution. Prior to joining us, Mr. Bender was a general manager in an automotive related private business and spent 13 years in various roles including sales, plant operations and human resources at Colgate-Palmolive Co. WILLIAM P. JOHNSON has served as our Senior Vice President, Sales since 1998. From 1996 to 1998, Mr. Johnson served as Senior Vice President, Sales, and from 1993 to 1996, as Vice President of Sales in Non-Food National Accounts. Prior to joining us, Mr. Johnson was a national accounts manager for Rubbermaid, Inc. from 1989 to 1993. Prior to joining Rubbermaid, Inc., Mr. Johnson held the position of Vice President of Sales & Marketing for Dorcy International from 1979 to 1989. DANIEL J. JOHNSTON has served as our Senior Vice President, Finance and MIS and Chief Financial Officer since 1997. Mr. Johnston joined us in 1994 as Controller and then worked as Assistant to the Chairman. Prior to joining us, he spent five years from 1990 to 1994 at Cooper Industries, Inc. in various financial functions at its corporate office and Bussmann Division. Prior to joining Cooper Industries, Inc., he was employed by Price Waterhouse, LLP from 1982 to 1990, finishing as an audit manager. D. GARRAD WARREN III has served as our Senior Vice President, Marketing and Business Development since June 1999. Prior to joining us, Mr. Warren was the Senior Vice President, Sales & Customer Development at International Home Foods from March 1998 to September 1998. Prior to joining International Home Foods, Mr. Warren spent twenty-four years at Dow Chemical Company in various marketing, sales and customer development positions. DAVID C. PRATT was our President and Chief Executive Officer from our inception until the recapitalization and thereafter served as Chairman of the Board until Mr. Jones' acceptance of that position. Mr. Pratt has continued as a director. 49 C. HUNTER BOLL became a director of our company in January 1999 in connection with the recapitalization. Mr. Boll is a managing director of Thomas H. Lee Company where he has been employed since 1986. Mr. Boll is also a Principal Managing Director and Member of Thomas H. Lee Advisors, LLC, the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Vice President of Thomas H. Lee Advisors I and T. H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P., respectively. Mr. Boll also serves as a director of Stanley Furniture Company, Inc., New York Restaurant Group, Inc., Freedom Securities Corporation, Big V Supermarkets, Inc., TransWestern Communications Company, Inc. and several private corporations. SCOTT A. SCHOEN became a director of our company in January 1999 in connection with the recapitalization. He is a Managing Director of Thomas H. Lee Company, which he joined in 1986. In addition, Mr. Schoen is a Principal Managing Director and Member of Thomas H. Lee Advisors, LLC, the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, LP and Vice President of Thomas H. Lee Advisors I and T. H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P., respectively. He is also a director of Rayovac Corporation, Syratech Corporation, TransWestern Communications Company, Inc. and several private corporations. CHARLES A. BRIZIUS became a director of our company in January 1999 in connection with the recapitalization. Mr. Brizius worked at Thomas H. Lee Company from 1993 to 1995, rejoined in 1997 and currently serves as an Associate. Mr. Brizius is a Member of Thomas H. Lee Advisors, LLC, the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. From 1991 to 1993, Mr. Brizius worked at Morgan Stanley & Co. Incorporated in the Corporate Finance Department. He is also a director of Eye Care Centers of America, Inc. COMPENSATION OF DIRECTORS Other than Mr. Jones and Mr. Pratt, who receive compensation in connection with consulting agreements, we do not compensate our directors. In connection with the recapitalization, we entered into several agreements with David A. Jones. These agreements provide that Mr. Jones: - serve on our board of directors for three years from the closing of the recapitalization, - receive a consulting payment of $75,000 per year, - receive a directorship fee of $25,000 per year, - receive a signing bonus, - purchase $1.0 million of common stock and - receive options pursuant to the 1999 Stock Option Plan to purchase 300,000 shares of common stock. Also in connection with the recapitalization, we entered into a consulting agreement with David C. Pratt. This consulting agreement provides that Mr. Pratt: - receive a consulting payment of $15,000 per month for four months from the closing of the recapitalization or until a mutually agreed upon later date, - act as Chairman of our board of directors for four months from the closing of the recapitalization-- which term can continue for up to an additional five months at the discretion of the other directors, - remain a member of our board of directors after his term as Chairman has ended until the earlier of nine months after the closing of the recapitalization and the end of the consulting term, - receive a directorship fee of $25,000 per year and 50 - receive United-paid health and welfare benefits for four months from the closing of the recapitalization. On July ,1999, we entered into several agreements with David A. Jones. These agreements provide that Mr. Jones: - receives a base salary of $300,000 plus participation in our incentive compensation plan; - receives a one-time special bonus after the date which is six months after the date that we hire a new full-time CEO; and - receives options pursuant to the 1999 Stock Option Plan to purchase 300,000 shares of common stock. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the compensation of our former Chief Executive Officer and the other executive officers (collectively, the "Named Executive Officers") for the year ended December 31, 1998. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------------ ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION - --------------------------------------------------------------------- ---------- ------------ ------------- David C. Pratt ...................................................... $ 250,000 $ 2,771,061 $ 42,740(2) PRESIDENT AND CHIEF EXECUTIVE OFFICER(1) Richard A. Bender ................................................... 100,000 260,143 24,018(3) SENIOR VICE PRESIDENT, DISTRIBUTION, HUMAN RESOURCES AND MANUFACTURING William P. Johnson .................................................. 100,000 251,809 25,364(3) SENIOR VICE PRESIDENT, SALES Daniel J. Johnston .................................................. 100,000 251,809 4,716(3) SENIOR VICE PRESIDENT, FINANCE AND MIS, AND CHIEF FINANCIAL OFFICER
- ------------------------ (1) Mr. Pratt resigned as our President and Chief Executive Officer on January 20, 1999 in connection with the recapitalization. (2) Includes auto allowance and country club dues. (3) Includes deferred compensation under The Long-Term Incentive Compensation Plan, which was terminated in the first quarter of 1998. EMPLOYMENT AGREEMENTS Messrs. Bender, Johnson, Johnston and Warren have each entered into an employment agreement with us. The agreements provide for employment until December 31, 2001, for Messrs. Bender, Johnson and Johnston unless terminated earlier as provided in their respective employment agreements. Mr. Warren's employment agreement does not have an expiration date. The employment agreements provide for annual base salaries of $300,000 for Messrs. Bender, Johnson and Johnston and $235,000 for Mr. Warren. In addition, each employment agreement provides for annual incentive compensation to be determined in accordance with our attainment of certain target EBITDA and customary benefits. Each employment agreement may be terminated by us at any time with or without cause. If the employment agreement is terminated by us for cause or by the executive without good reason, the terminated executive will be entitled to any unpaid base salary through the date of termination plus any unpaid incentive compensation. If we terminate the employment agreement without cause or if the executive terminates the employment agreement for good reason or the executive dies or becomes disabled, he will be entitled to any unpaid base salary through the date of termination, any unpaid incentive compensation and, under certain conditions, his base salary through the later of January 2002 51 and the first anniversary of his termination. Each employment agreement provides for non-compete, nonsolicitation and confidentiality provisions through the later of one year after the executive's date of termination or the last date severance payments are owed to the executive. In connection with entering his employment agreement, Messrs. Johnson and Johnston each purchased $1.0 million of common stock, and Mr. Bender purchased $700,000 of common stock. Messrs. Johnson, Johnston and Bender purchased their common stock out of the proceeds of a bonus paid at the closing of the recapitalization. Under some circumstances, we have the right to repurchase the shares owned by Messrs. Johnson, Johnston and Bender. 1999 STOCK OPTION PLAN In connection with the recapitalization, we instituted the 1999 Stock Option Plan, which is administered by a committee of our board of directors. The 1999 Stock Option Plan was designed as an incentive to selected employees, our consultants and directors to acquire proprietary interest in us, to continue to perform services for us, to increase their efforts on our behalf and to promote the success of our business. The options are not designed to be incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended. The option pool under the 1999 Stock Option Plan consists of an aggregate of 4,000,000 shares of our common stock that may consist of shares of our Class A Voting Common Stock, our Class B Non-Voting Common Stock or some combination of Class A Voting Common Stock and Class B Non-Voting Common Stock. We granted 300,000 shares of Class A Voting Common Stock and 300,000 shares of Class B Non-Voting Common Stock to Messrs. Bender, Johnson and Johnston and granted 25,000 shares of Class A Voting Common Stock and 25,000 shares of Class B Non-Voting Common Stock to Mr. Warren. The remaining options will be granted to selected employees as determined by our board of directors from time to time. The options to purchase shares of common stock are subject to vesting schedules, which are both time and performance based. DEFERRED COMPENSATION AND 401(K) PLANS In connection with the recapitalization, we established a deferred compensation plan. The plan is administered by a committee of our board of directors. Messrs. Bender, Johnson and Johnston are eligible to participate in the plan. The plan provides for the establishment of a grantor trust for the purpose of accumulating the assets contributed pursuant to the plan. The grantor trust used the funds contributed to it to purchase: - 70,000 shares of our Class A Voting Common Stock and 70,000 shares of our Class B Non-Voting Common Stock for the benefit of Mr. Bender, - 100,000 shares of our Class A Voting Common Stock and 100,000 shares of our Class B Non-Voting Common Stock for the benefit of Mr. Johnson and - 100,000 shares of our Class A Voting Common Stock and 100,000 shares of our Class B Non-Voting Common Stock for the benefit of Mr. Johnston. We also maintain a 401(k) defined contribution plan. The plan allows for discretionary participant elective contributions. We are required to match 50% of each participant's contributions up to 6% of the employee's salary for those employees having less than 10 years of service and 75% of each participant's contributions up to 6% of the employee's salary for those employees having 10 or more years of service. In 1998, our contributions on behalf of the Named Executive Officers totalled $7,200 for Mr. Pratt and $4,800 for each of the others. SEVERANCE AGREEMENT In connection with the resignation of Mr. Brian, we entered into a severance agreement with Mr. Brian which provides that Mr. Brian will continue to receive his base salary and benefits through 52 January 31, 2002. In addition, the severance agreement provides that Mr. Brian will receive a bonus in respect of fiscal year 1999, use of an apartment leased by United for a period of three months at Mr. Brian's expense and transition expenses with respect to his relocation away from St. Louis. On his resignation, we (a) repurchased from Mr. Brian 100,000 shares of common stock in exchange for a promissory note in the amount of $500,000, plus accrued and unpaid interest, and (b) terminated his right to options under an option agreement. We purchased from Mr. Brian the right to acquire all of Mr. Brian's and his spouses rights and obligations under a St. Louis real estate sales contract. Unless we choose to exercise this option, we have no further liability or obligation under this real estate contract and no contractual relationship with the builder. The noncompetition and nonsolicitation provisions under Mr. Brian's original employment agreement will continue in effect through January 31, 2002. 53 MATERIAL TRANSACTIONS PROFESSIONAL SERVICES AGREEMENT In connection with the recapitalization, we entered into a professional services agreement with Thomas H. Lee Capital, LLC and THL Equity Advisors IV, LLC. The agreement has a term of three years and automatically extends for successive one year periods thereafter, unless the parties give 30 days' notice prior to the end of the term. The agreement provides for a financial advisory fee of $12.0 million in connection with structuring, negotiating and arranging the recapitalization and structuring, negotiating and arranging the debt financing, which was paid at the closing of the recapitalization. In addition, Thomas H. Lee Capital, LLC and THL Equity Advisors IV, LLC will initially receive an aggregate of $62,500 per month for management and other consulting services provided to us. The agreement also provides that we will reimburse reasonable out-of-pocket expenses incurred in connection with management advisory services. We believe that the terms of the professional services agreement are comparable to those that would have been obtained by unaffiliated sources. STOCKHOLDERS AGREEMENT In connection with the recapitalization, we entered into a stockholders agreement with UIC Holdings, L.L.C., and other stockholders of United. Under the stockholders agreement the stockholders are required to vote their shares of capital stock of United for any sale or reorganization of United that has been approved by United's board of directors or a majority of the stockholders. The stockholders agreement also grants the stockholders the right to effect the registration of their common stock they hold for sale to the public, subject to some conditions and limitations. If we propose to register any of our securities under the Securities Act of 1933, as amended, the stockholders are entitled to notice of such registration, subject to some conditions and limitations. Fees, costs and expenses of registration effected on behalf of the stockholders under the stockholders agreement, other than underwriting discounts and commissions, will be paid by United. RECAPITALIZATION AGREEMENT Our recapitalization agreement with UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P., contains customary provisions, including representations and warranties with respect to the condition and operations of the business, covenants with respect to the conduct of the business prior to the recapitalization closing date and various closing conditions, including the continued accuracy of the representations and warranties. In general, the representations and warranties made in the recapitalization agreement survive until the earlier of 10 days following the delivery of our December 31, 1999, audited financial statements or April 15, 2000. Representations and warranties with respect to tax matters survive until 30 days after the expiration of the applicable statute of limitations; representations with respect to environmental matters survive until December 31, 2002. Representations and warranties regarding ownership of stock do not expire. The total consideration paid to redeem our common stock is subject to both upward and downward adjustments based on our working capital on the closing date of the recapitalization and excess taxes of our previous stockholders arising from our Section 338(h)(10) election. Pursuant to the recapitalization agreement and in consideration of payments received under their recapitalization agreement, David C. Pratt and Mark R. Gale, our former general counsel, agreed that for a period ending on the fourth anniversary of the recapitalization closing date not to own, control, participate or engage in any line of business in which we are actively engaged or any line of business competitive with us anywhere in the United States and any other country in which we were doing business at the closing of the recapitalization. In addition, each of the stockholders of United has agreed that for a period ending on the fourth anniversary of the recapitalization closing date not to contact, approach or solicit for the purpose of offering employment to or hiring any person employed by us during the four year period. 54 Pursuant to the recapitalization, we redeemed a portion of our common stock held by our stockholders, and UIC Holdings, L.L.C. and certain members of our senior management purchased a portion of our common stock from our stockholders. In the recapitalization, Messrs. Bender, Johnson and Johnston collectively received an aggregate of approximately $5.8 million in cash and an additional $2.7 million with which the officers purchased our common stock through grantor trusts. LEASE AGREEMENTS We lease six of our facilities in St. Louis from an affiliate of David C. Pratt. Five of the leases expire on December 31, 1999, but are renewable for one-year periods until 2010 and one lease expires on December 31, 2000, but may be extended for three additional five-year periods. We believe that the terms of these leases are similar to those negotiated by unrelated parties at arms length. 55 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our Class A Voting Common Stock by each of our directors and our Named Executive Officers, by all of our directors and executive officers as a group, and by each owner of more than 5% of the outstanding shares of our Class A Voting Common Stock. Each of our directors and Named Executive Officers owns an equal number of our Class B Non-Voting Common Stock.
NAME OF BENEFICIAL OWNER(1) NUMBER OF SHARES PERCENT OF CLASS - ------------------------------------------------------------------------------ ----------------- ----------------- UIC Holdings, L.L.C........................................................... 25,468,000 91.9% c/o Thomas H. Lee Company 75 State Street Boston, Massachusetts 02109 David C. Pratt(2)............................................................. 1,325,108 4.8% Richard A. Bender............................................................. -- * Williams P. Johnson........................................................... -- * Daniel J. Johnston............................................................ -- * David A. Jones................................................................ 100,000 * C. Hunter Boll(3)............................................................. 25,468,000 91.9% Scott A. Schoen(3)............................................................ 25,468,000 91.9% Charles A. Brizius(3)......................................................... 25,468,000 91.9% All Directors and Executive Officers as a Group (9 persons)(3)................ 26,971,135 97.4%
- ------------------------ * Denotes less than one percent. (1) Beneficial owner generally means any person who, directly or indirectly, has or shares voting power or investment power with respect to a security. All of the parties listed above are party to a stockholders agreement, pursuant to which they have agreed to vote their shares in the election of directors in accordance with the terms of the stockholders agreement. The number of shares indicated in this table does not include the shares of Class A Voting Common Stock that are held by other stockholders subject to the stockholders agreement. Unless otherwise indicated, we believe that each person has sole voting and investment power with regard to their shares listed as beneficially owned. The calculation of beneficial ownership is based on 27,700,000 shares outstanding and includes all options exercisable within 60 days of January 20, 1999. (2) Includes 134,756 shares of our Class A Voting Common Stock held by the David C. Pratt Grantor Retained Interest Trust and 157,216 shares of our Class A Voting Common Stock held by the 1994 Ryder Pratt Grantor Retained Annuity Trust. (3) All of the equity interests in UIC Holdings, L.L.C. are controlled by the Thomas H. Lee Equity Fund IV, L.P. and its affiliates, which may therefore be deemed the beneficial owner of the shares held by UIC Holdings, L.L.C. All of the shares beneficially owned by the Thomas H. Lee Equity Fund IV, L.P. and its affiliates may be deemed to be beneficially owned by THL Equity Advisors IV, L.L.C. ("Advisors"), Thomas H. Lee Equity Fund IV, L.P. the general partner of THL Fund IV, by THL Equity Trust IV, the general partner of Advisors, by THL and by Messrs. Boll, Schoen and Brizius and the other officers of Thomas H. Lee Equity Fund IV, L.P. Each of these persons disclaims beneficial ownership of such shares. 56 DESCRIPTION OF CAPITAL STOCK WE ARE A DELAWARE CORPORATION. Our authorized capital stock consists of 65 million shares, of which: - 32,500,000 have been designated as Class A Voting Common Stock, par value $.01 per share, and - 32,500,000 have been designated as Class B Non-Voting Common Stock, par value $.01 per share. As of January 20, 1999, there were 27,230,000 shares of Class A Voting Common Stock outstanding and 27,230,000 shares of Class B NonVoting Common Stock outstanding. Set forth below is a summary of the material terms of our capital stock. DISTRIBUTIONS. The Class A Voting Common Stock and the Class B Non-Voting Common Stock share ratably in any distribution by us to the holders of our capital stock or with respect to our liquidation, dissolution or winding up. VOTING RIGHTS. The holders of Class B Non-Voting Common Stock have no right to vote on matters submitted to a vote of our stockholders, except as otherwise required by law. The holders of Class A Voting Common Stock are entitled to one vote per share on all matters to be voted upon by our stockholders. 57 DESCRIPTION OF OUR SENIOR CREDIT FACILITY In connection with the recapitalization, we entered into our senior credit facility by and among our company, a syndicate of lenders, NationsBanc Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as co-arrangers and NationsBank N.A., Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce as agents to such lenders. Pursuant to our senior credit facility, the lenders are lending up to $335.0 million, consisting of our $110.0 million revolving credit facility, (with a $10.0 million sublimit for swing line borrowings and a $5.0 million sublimit for the issuance of letters of credit) the $75.0 million Term Loan A and the $150.0 million Term Loan B. Normal restrictions and prepayment obligations imposed by our senior credit facility were listed for the offering of old notes and the exchange offer. REPAYMENT. Outstanding commitments under our revolving credit, swing line and letter of credit terminate and all amounts outstanding thereunder are to repaid in full on January 20, 2005. The principal amount of the Term Loan A is $75.0 million. This amount is to be repaid in twenty-four consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2005, with $10 million to be payable in each of the first four years and $17.5 million to be repaid in each of the last two years. The principal amount of the Term Loan B is $150.0 million. This amount is to be repaid in twenty-eight consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2006, with $1.5 million to be payable in each of the first six years and $141.0 million to be payable in year seven. As of March 31, 1999 we had $253.9 million outstanding under our senior credit facility, including $75.0 million outstanding on Term Loan A, $150.0 million outstanding on Term Loan B and $28.9 million outstanding on the $110.0 million revolving credit facility. We did not use the proceeds from the sale of the old notes to repay amounts outstanding under our senior credit facility because these senior subordinated facility required these proceeds be paid to it. SECURITY; GUARANTY. Our obligations under our senior credit facility are secured by a first priority lien on substantially all of our properties and assets as well as the properties and assets of our future domestic subsidiaries. Future domestic subsidiaries will be required to guarantee our obligations under our senior credit facility, and the stock of future domestic subsidiaries, or a percentage of this stock in the case of foreign subsidiaries, will also be pledged to the lenders as security. INTEREST. The interest rate per annum applicable to advances under our senior credit facility will be a fluctuating rate of interest measured, at our option, by reference to (1) the Eurodollar Rate, as defined in our senior credit facility, plus the applicable borrowing margin, or (2) a rate per annum equal to the higher of the published prime rate of NationsBank or the Federal Funds Rate, as defined in our senior credit facility plus 1/4 of 1% (the Base Rate) plus the applicable borrowing margin. The applicable borrowing margin for the Term Loan B is 2.25% for the Base Rate advances and 3.25% for Eurodollar advances. The applicable borrowing margin for our revolving credit facility and the Term Loan A is between 1.00% and 1.75% for the Base Rate advances and between 2.00% and 2.75% for the Eurodollar advances, in each case based on our consolidated leverage ratio. PREPAYMENTS; REDUCTIONS OF COMMITMENTS. Subject to certain exceptions set forth in our senior credit facility, the Term Loan A and the Term Loan B are required to be prepaid and commitments under our revolving credit facility are required to be permanently reduced with: - 50% of the net cash proceeds of any issuance of capital stock; - 100% of the net cash proceeds of any new indebtedness; - 50% of the excess cash flow; - 100% of the net cash proceeds of (a) any asset sale, subject to limited exceptions or (b) proceeds from any insurance claim relating to one of our assets, unless the proceeds are applied to replace or repair the lost of damaged assets; and 58 - 100% of the net cash proceeds of certain other extraordinary receipts. Our revolving credit facility is subject to a clean-down period during which the aggregate amount outstanding under our revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. COVENANTS. Our senior credit facility contains covenants restricting our ability and that of our subsidiaries to, among others: - incur or suffer to exist indebtedness or liens, - merge, consolidate or liquidate, - sell assets or stock, - pay dividends or repurchase stock, - make capital expenditures, - prepay or amend debt and other material agreements and - transact with affiliates. EVENTS OF DEFAULT. Events of default under our senior credit facility include: - our failure to pay principal or interest when due, - material breach by us of any representation or warranty contained in any loan document, - material breach by us of any covenant contained in any loan documents, - customary cross-default provisions, - certain adverse events under ERISA plans, - events of bankruptcy, insolvency or dissolution by us or any of our subsidiaries, - the levy of certain judgments against us or any of our subsidiaries, - the actual or asserted invalidity of security documents or guarantees, and - a change of control of our company. 59 DESCRIPTION OF THE NEW NOTES You can find the definition of selected terms used in this description under the subheading "Selected Definitions" commencing on page 76. In this description, the word "United" refers only to United Industries Corporation and not to any of its subsidiaries. We issued the old notes and will issue the new notes under an indenture between United and State Street Bank and Trust Company, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The following description is a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because it, and not this description, defines your rights as holders of these notes. To get a copy of the indenture, refer to the caption "Where You Can Find More Information." GENERAL The notes will be general unsecured obligations of United, ranking subordinate in right of payment to all senior indebtedness of United and senior in right of payment to all current and future subordinated indebtedness of United. The notes will be unconditionally guaranteed, on a senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by each restricted subsidiary which guarantees payment of the notes. MATURITY, INTEREST AND PRINCIPAL The notes will be limited in aggregate principal amount to $150.0 million. The notes will mature on April 1, 2009. The notes will bear interest at a rate of 9.875% per annum, which will be payable semiannually in arrears on each April 1 and October 1, commencing October 1, 1999, to holders of record of the notes at the close of business on the immediately preceding March 15 and September 15, respectively. Interest on the notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from March 24, 1999. The interest rate on the notes is subject to increase. Additional interest will be payable on the payment dates set forth above, in some circumstances, if the notes or other securities substantially similar to the notes, are not registered with the SEC within the prescribed time periods. OPTIONAL REDEMPTION Except as described below, the notes are not redeemable before April 1, 2004. On one or more occasions after April 1, 2004, United may redeem the notes, in whole or in part, at the following redemption prices, if redeemed during the twelve-month period beginning on April 1 of each year listed below:
REDEMPTION PRICE (AS PERCENTAGE OF PRINCIPAL YEAR AMOUNT) - -------------------------------------------------------- ---------------- 2004.................................................... 104.938% 2005.................................................... 103.292% 2006.................................................... 101.646% 2007 and thereafter..................................... 100.000%
In addition, United must pay all accrued and unpaid interest on the notes redeemed. 60 On one or more occasions prior to April 1, 2002, United may use the net proceeds of one or more qualified public offerings to redeem up to 40% of the original principal amount of the notes at a redemption price of 109.875% of the principal amount of the notes plus accrued and unpaid interest on the notes; provided that: (1) at least 60% of the original principal amount of the notes remains outstanding immediately after the occurrence of any such redemption; and (2) United makes this redemption not more than 90 days following the closing of any such qualified public offering. In the event that United chooses to redeem less than all of the notes, selection of the notes for redemption will be made by the trustee either: (1) in compliance with the requirements of the principal national securities exchange, if any, on which these notes are listed; or (2) on a pro rata basis or by lot or by any method which the trustee deems fair and appropriate. If a partial redemption is made with the proceeds of a qualified public offering, the trustee will select the notes or portion of the notes only on a pro rata basis or on as nearly a pro rata basis as practicable, unless this method is prohibited. Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder at its registered address. On and after any redemption date, interest will cease to accrue on the notes or portions of the notes called for redemption unless United fails to redeem any note. ASSET DROP-DOWN The UIC Holdings, L.L.C, in its sole discretion, may cause United to form and contribute all or substantially all of its assets to a newly-created wholly-owned subsidiary, at which time the new operating company would assume all or substantially all of the liabilities of United including the notes. As a result of the asset drop-down, United would become a holding company that directly owns, and the primary asset of which would be, all of the equity interests in the new operating company. The new operating company would conduct all of the operations that were previously conducted by United and for purposes of this section of the prospectus and the indenture, the new operating company would be the "Company." The asset drop-down will be carried out, if at all, in compliance with the "Merger, Consolidation or Sale of Assets" provisions described below, and the notes will continue to be guaranteed by restricted subsidiaries of the new operating company. SUBORDINATION The indebtedness represented by the notes will be subordinate in right of payment to the prior payment in full in cash of all existing and future senior indebtedness of United. As of December 31, 1998, on a pro forma basis after giving effect to recapitalization, the offering and the use of proceeds described in this prospectus, the principal amount of outstanding senior indebtedness of United, on a consolidated basis, would have been $225.0 million. In addition, United would have had $110.0 million of undrawn commitments available under the senior credit facility. The holders of senior indebtedness of United will be entitled to receive payment in full in cash of all amounts due on or in respect of all senior indebtedness of United, including accrued bankruptcy interest and all outstanding letter of credit obligations cash collateralized before the holders of the notes will be entitled to receive any payment with respect to the notes in the event of any distribution to creditors of United: (1) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to United or to its creditors, as such, or to its assets; 61 (2) in a liquidation or dissolution or other winding-up of United; (3) in an assignment for the benefit of creditors; or (4) in any marshalling of assets or liabilities of United. For purposes of the following discussion, each of the above situations will be referred to as a bankruptcy proceeding. For purposes of this section, all existing and future senior indebtedness and all obligations relating to senior indebtedness will not be deemed to have been paid in full unless and until all of the obligations of any holder of senior indebtedness have been indefeasibly paid in full in cash and all of the senior indebtedness commitments have been terminated and, in the case of letter of credit obligations, these obligations have been fully drawn and paid in full in cash or 100% cash collateralized. As a result of this subordination, in the event of any bankruptcy proceeding, holders of the notes may recover less ratably than creditors of United who are holders of senior indebtedness. No payment may be made on the notes following (1) a payment default on designated senior indebtedness or (2) a non-payment event of default on designated senior indebtedness and the acceleration of the maturity of designated senior indebtedness. Any of these prohibitions shall continue until the payment default is cured, waived in writing or ceases to exist or this acceleration has been rescinded or otherwise cured. Upon a non-payment event of default on designated senior indebtedness, no payment may be made on the notes for a period beginning on the date the trustee receives written notice from the representative or the senior credit facility of the non-payment event of default until the earliest of: - more than 179 days have elapsed since the trustee received the notice, - the non-payment event of default has been cured or waived in writing or ceased to exist or designated senior indebtedness has been paid in full or - the payment blockage period has been terminated by written notice to United or the trustee from the representative. The payment blockage period cannot extend beyond 179 days from the date the trustee receives the notice. This is the initial blockage period. Any number of additional payment blockage periods may be commenced during the initial blockage period; provided, that no additional payment blockage period can extend beyond the initial blockage period. After the initial blockage period, no payment blockage period may be commenced until at least 180 days after the initial blockage period, other than a payment default, and no event of default with respect to designated senior indebtedness which existed or was continuing on the first day of any payment blockage period can serve as the basis for a second payment blockage period, unless such event of default has been cured or waived for at least 90 days. Each guarantee will, to the extent set forth in the indenture, be subordinate in right of payment to the prior indefeasible payment and satisfaction in full in cash of all senior indebtedness of the respective guarantor, including obligations of such guarantor with respect to the senior credit facility, including any guarantee of the guarantor, and will be subject to the rights of holders of designated senior indebtedness of such guarantor to initiate blockage periods, upon terms substantially comparable to the subordination of the notes to all senior indebtedness of United. If United or any guarantor fails to make any payment on the notes or any guarantee when due or within any applicable grace period, whether or not on account of payment blockage provisions, such failure would constitute an event of default under the indenture. By accepting these notes, each holder agrees to be bound by these provisions and, if any such holder fails to file a proper proof of claim of debt in any bankruptcy proceeding with respect to United at least 30 days before the time to file such proofs of claim expires, authorizes the representative of the senior credit 62 facility to file an appropriate claim on behalf of such holder. The subordination provisions of the indenture cannot be amended without the consent of all holders of senior indebtedness unless such amendment could not adversely affect such holders. SELECTED COVENANTS The indenture will contain, among others, the following covenants: LIMITATION ON ADDITIONAL INDEBTEDNESS United will not, and will not permit any restricted subsidiary of United to, directly or indirectly, incur any indebtedness; provided that United or any of the guarantors may incur indebtedness if: - after giving effect to the incurrence of this indebtedness and the receipt and application of the proceeds of this indebtedness, United's consolidated fixed charge coverage ratio is at least 2.0 to 1 and - no default or event of default has occurred and be continuing at the time or as a consequence of the incurrence of this indebtedness. Notwithstanding the foregoing, United and its restricted subsidiaries may incur permitted indebtedness; provided that United will not incur any permitted indebtedness that ranks junior in right of payment to the notes that has a maturity or mandatory sinking fund payment prior to the maturity of the notes. For purposes of determining compliance with this covenant, in the event that an item of indebtedness meets the criteria of more than one of the categories of permitted indebtedness or is entitled to be incurred pursuant to the first paragraph of this covenant, United will, in its sole discretion, classify such item of indebtedness in any manner that complies with this covenant and such item of indebtedness will be treated as having been incurred pursuant to only one of the clauses in the definition of permitted indebtedness or pursuant to the first paragraph of this covenant. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of indebtedness for purposes of this covenant. LIMITATION ON OTHER SENIOR SUBORDINATED DEBT United will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, incur, contingently or otherwise, any indebtedness, other than the notes and the guarantees, that is both: (1) subordinate in right of payment to any senior indebtedness of United or its restricted subsidiaries, and (2) senior in right of payment to the notes and the guarantees. For purposes of this covenant, indebtedness is deemed to be senior in right of payment to the notes and the guarantees, as the case may be, if it is not explicitly subordinate in right of payment to senior indebtedness at least to the same extent as the notes and the guarantees are subordinate to senior indebtedness. LIMITATION ON RESTRICTED PAYMENTS United will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, make any restricted payment, unless: (1) no default or event of default has occurred and is continuing at the time of or immediately after giving effect to the restricted payment; 63 (2) other than permitted indebtedness, immediately after giving pro forma effect to the restricted payment, United could incur $1.00 of additional indebtedness under the "Limitation on Additional Indebtedness" covenant; and (3) immediately after giving effect to the restricted payment, the aggregate of all restricted payments declared or made after the issue date does not exceed the sum of: (a) 50% of the cumulative consolidated net income of United subsequent to the issue date, or minus 100% of any cumulative deficit in consolidated net income during such period, plus (b) 100% of the aggregate net proceeds and the fair market value of securities or other property received by United from the issue or sale, after the issue date, of capital stock, other than disqualified capital stock or capital stock of United issued to any subsidiary of United, of United or any indebtedness or other securities of United convertible into or exercisable or exchangeable for capital stock, other than disqualified capital stock, of United which have been so converted or exercised or exchanged net of any amounts of capital stock of United previously relied upon or to be relied upon to make any permitted investments pursuant to clause (15) of the definition of permitted investments, plus (c) without duplication of any amounts included in clauses (a) and (b) above, 100% of the aggregate net proceeds of any equity contribution received by United, other than in return for disqualified capital stock, from a holder of United's capital stock, net of any amounts of capital stock of United previously relied upon or to be relied upon to make any permitted investments pursuant to clause (15) of the definition of permitted investments, plus (d) $7,500,000. For purposes of determining under clause (3) above the amount expended for restricted payments, cash distributed will be valued at its face amount and property other than cash will be valued at its fair market value determined, in good faith, by the board of directors of United. The provisions of this covenant will not prohibit: (i) the payment of any distribution within 60 days after the date of declaration of the declaration, if at such date of declaration the payment would comply with the provisions of the indenture; (ii) the repurchase, redemption or other acquisition or retirement of any shares of capital stock of United or indebtedness subordinated to the notes by conversion into, or by or in exchange for, shares of capital stock, other than disqualified capital stock, or out of the net proceeds of the substantially concurrent sale, other than to a subsidiary of United, of other shares of capital stock of United, other than disqualified capital stock; (iii) the redemption or retirement of indebtedness of United subordinated to the notes in exchange for, by conversion into, or out of the net proceeds of, a substantially concurrent sale or incurrence of indebtedness, other than any indebtedness owed to a subsidiary, of United that is refinancing indebtedness; (iv) the retirement of any shares of disqualified capital stock by conversion into, or by exchange for, shares of disqualified capital stock, or out of the net proceeds of the substantially concurrent sale, other than to a subsidiary of United, of other shares of disqualified capital stock; (v) so long as no default or event of default has occurred and is continuing at the time of or immediately after giving effect to such payment, the purchase, redemption or other acquisition for value of shares of capital stock of United or, in the event of the asset drop-down, the holding company, other than disqualified capital stock, or options on 64 these shares held by United's or its subsidiaries', or, in the event of the asset drop-down, the holding company's, officers, employees or directors or former officers, employees or directors, or their estates or beneficiaries under their estates, upon the death, disability, retirement or termination of employment of these current or former officers or employees pursuant to the terms of an employee benefit plan or any other agreement pursuant to which these shares of capital stock or options were issued or pursuant to a severance, buy-sale or right of first refusal agreement with the current or former officer or employee; provided that the aggregate cash consideration paid, or distributions or payments made, pursuant to this clause shall not exceed $3,000,000 in any fiscal year, provided, that United may carry over and make in a subsequent fiscal year, in addition to the amounts permitted for such fiscal year, the amount of these distributions permitted to have been made, but not made, in any preceding fiscal year, or $15,000,000 in the aggregate from and after the issue date, provided that the foregoing amounts will be increased by: - the amount of any payments by officers, employees or directors of the holding company, United or a subsidiary of United for the purchase of capital stock of United, other than in connection with the recapitalization, or, in the event of the asset drop- down, the holding company except to the extent these payments consist of proceeds from loans by United or a subsidiary of United, and - the amount of any cash capital contributions to the Thomas H. Lee Equity Fund IV, L.P. or any affiliate of the Thomas H. Lee Equity Fund IV, L.P. used by United to purchase, redeem or otherwise acquire for value shares of this capital stock; (vi) the payment of THL fees; (vii) so long as no default or event of default has occurred and is continuing, payments not to exceed $100,000 in the aggregate to enable United to make payments to holders of its capital stock in lieu of issuance of fractional shares of its capital stock; (viii) restricted payments made pursuant to the recapitalization agreement; (ix) United or any restricted subsidiary from purchasing all, excluding directors' qualifying shares, of the capital stock or other ownership interests in a subsidiary of United which capital stock or other ownership interests were not owned by United or a subsidiary of United, such that after giving effect to this purchase the subsidiary becomes a restricted subsidiary of United; (x) the payment of distributions (A) to UIC Holdings, L.L.C. solely for the purpose of enabling UIC Holdings, L.L.C. to pay its reasonable, ordinary course operating and administrative expenses and taxes in any fiscal year will not exceed $250,000, and (B) in the event of the asset drop-down, to the holding company for the purpose of enabling the holding company to pay its reasonable, ordinary course operating and administrative expenses, the amount of which distributions pursuant to subclauses (A) and (B) of this clause (x) in any fiscal year will not exceed $500,000; and (xi) in the event of the asset drop-down, the payment of distributions to the holding company solely for the purpose of enabling the holding company to pay taxes attributable to the operations of the new operating company and its subsidiaries to the extent these taxes are actually owed and the holding company is permitted or required to make these payments. Notwithstanding the foregoing, 65 - the amount of any payments made in reliance on clause (i) and clause (v) above will reduce the amount otherwise available for restricted payments pursuant to subparagraphs (1)-(3) above and - in the event of the asset drop-down, the amount of any payments that could otherwise have been made in reliance on clauses (v), (vi), (vii), and (x)(A) may be paid for the respective purposes set forth in these clauses by the new operating company as dividends or distributions to the holding company. Not later than the date of making any restricted payment, United will deliver to the trustee an officers' certificate stating that the restricted payment is permitted and setting forth in reasonable detail the basis upon which the calculations required by this covenant were computed, including without limitation the date, amount and nature of any purchase or contribution referred to in clauses (3)(b) or (c) above. These calculations may be based upon United's latest available financial statements, and, to the extent that the absence of a default or an event of default is a condition to the making of such restricted payment, that no default or event of default exists and is continuing and no default or event of default will occur immediately after giving effect to any restricted payments. LIMITATIONS ON INVESTMENTS United will not, and will not permit any of its restricted subsidiaries to, make any investment other than (1) a permitted investment or (2) an investment that is made as a restricted payment in compliance with the "Limitation on Restricted Payments" covenant, after the issue date. LIMITATIONS ON LIENS Other than permitted liens, United will not, and will not permit any of its restricted subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any liens of any kind upon any property or asset of United or any restricted subsidiary or any shares of stock or debt of any restricted subsidiary which owns property or assets, now owned or later acquired, which secures indebtedness PARI PASSU with or subordinated to the notes unless: (1) if the lien secures indebtedness which is PARI PASSU with the notes, then the notes are secured on an equal and ratable basis with the obligations so secured until such time as the obligation is no longer secured by a lien or (2) if the lien secures indebtedness which is subordinated to the notes, any such lien shall be subordinated to the lien granted to the holders of the notes in the same collateral as that securing the lien to the same extent as such subordinated indebtedness is subordinated to the notes. LIMITATION ON TRANSACTIONS WITH AFFILIATES United will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions with any affiliate or extend, renew, waive or otherwise modify the terms of any affiliate transaction entered into prior to the date of this offering if the extension, renewal, replacement, waiver or other modification is more disadvantageous to the holders of the notes in any material respect than the original agreement as in effect on the date of this offering unless (1) such affiliate transaction is between or among United and/or its restricted subsidiaries; or (2) the terms of the affiliate transaction are fair and reasonable to United or the restricted subsidiary and the terms of the affiliate transaction are at least as favorable as the terms which could be obtained by United or the restricted subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. 66 In any affiliate transaction involving an amount or having a value in excess of $2,000,000 which is not permitted under clause (1) above, United must obtain a resolution of the board of directors certifying that the affiliate transaction complies with clause (2) above. In any affiliate transaction with a value in excess of $10,000,000 which is not permitted under clause (1) above, other than any sale by United of its capital stock that is not disqualified capital stock, United must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm. The limitations set forth in this and the preceding paragraph will not apply to: (1) any restricted payment that is not prohibited by the "Limitation on Restricted Payments" covenant or permitted investment permitted by the "Limitation on Investments" covenant, (2) any transaction pursuant to an agreement, arrangement or understanding existing on the issue date, (3) any transaction, compensation or agreement, approved by the board of directors of United, with an officer or director of, or consultant to, United or of any subsidiary in his or her capacity as officer or director entered into in the ordinary course of business, (4) any transaction permitted by the provisions described under "Merger, Consolidation or Sale of Assets," (5) any transaction (a) between United and any Thomas H. Lee Equity Fund IV, L.P. group member solely in its capacity as a holder or buyer of United's capital stock or (b) in the event of the asset drop-down, between the new operating company and the holding company solely in its capacity as a holder or buyer of the new operating company's capital stock, provided that any transaction described in this clause (5) is not otherwise prohibited by the indenture, or (6) in the event of the asset drop-down, any commercially reasonable transaction between the new operating company and the holding company solely in its capacity as a holder or buyer of the new operating company's indebtedness, provided that any such transaction is not otherwise prohibited by the indenture. LIMITATION ON CREATION OF SUBSIDIARIES United will not create or acquire, and will not permit any of its restricted subsidiaries to create or acquire, any subsidiary other than: (1) a restricted subsidiary that is acquired or created in connection with an acquisition by United or (2) an unrestricted subsidiary; provided, however, that each restricted subsidiary acquired or created pursuant to clause (1) will at the time it has either assets or stockholder's equity in excess of $200,000 execute a guarantee in the form attached to the indenture, pursuant to which the restricted subsidiary will become a guarantor, which guarantee will be subordinated to the restricted subsidiary's guarantee of or pledge to secure any other indebtedness that constitutes senior indebtedness to the same extent as the senior subordinated notes are subordinated to senior indebtedness. Notwithstanding the foregoing, any such senior subordinated guarantee shall provide by its terms that it will be automatically and unconditionally released and discharged upon certain mergers, consolidations, sales and other dispositions, including, without limitation, by foreclosure, in accordance with the indenture. LIMITATION ON ASSET SALES United will not, and will not permit any of its restricted subsidiaries to, consummate an asset sale unless: 67 (1) United or its restricted subsidiary receives consideration at the time of the asset sale or other disposition at least equal to the fair market value of the equity interests, property or assets constituting the asset sale; (2) not less than 75% of the consideration received by United or its subsidiaries is in the form of cash or temporary cash investments; and (3) the asset sale proceeds received by United or such restricted subsidiary are applied: (a) first, to the extent United elects, or is required, to prepay, repay or purchase debt or to reduce an unused commitment to lend under any then existing senior indebtedness of United or any restricted subsidiary within 365 days following the receipt of the asset sale proceeds from any asset sale, but only to the extent that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid or be applied to secure letter of credit obligations; and (b) second, to the extent of the balance of asset sale proceeds after application as described above, to the extent United elects, to an investment in assets used or useful in businesses similar or ancillary to the business of United or such restricted subsidiary as conducted at the time of such asset sale, provided that the investment occurs or United or a restricted subsidiary enters into contractual commitments to make the investment, subject only to customary conditions, other than the obtaining of financing, on or prior to the 365th day following receipt of the asset sale proceeds on this "reinvestment date" and asset sale proceeds contractually committed are so applied within 365 days following the receipt of the asset sale proceeds. Pending the final application of any such available asset sale proceeds, United or such restricted subsidiary may temporarily reduce indebtedness under a revolving credit facility or otherwise invest such available asset sale proceeds in any manner not prohibited under the indenture. If, on the reinvestment date with respect to any asset sale, the available asset sale proceeds exceed $10,000,000, United shall apply an amount equal to such available asset sale proceeds to an offer to repurchase the notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. If United is required to make this "excess proceeds offer," United will mail, within 30 days following the reinvestment date, a notice to the holders of the notes stating, among other things: (1) that such holders have the right to require United to apply the available asset sale proceeds to repurchase such notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (2) the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed; (3) the instructions, determined by United, that each holder must follow in order to have such notes repurchased; and (4) the calculations used in determining the amount of available asset sale proceeds to be applied to the repurchase of such notes. The excess proceeds offer shall remain open for a period of 20 business days following its commencement. United will publicly announce the results of the excess proceeds offer on the purchase date by sending a press release to the Dow Jones News Service or similar business news service in the United States. If an excess proceeds offer is not fully subscribed, United may retain that portion of the available asset sale proceeds not required to repurchase notes and use such portion for general corporate purposes, and such 68 retained portion shall not be considered in the calculation of available asset sale proceeds with respect to any subsequent offer to purchase notes. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES United will not permit any restricted subsidiary to issue any preferred stock, except preferred stock to United or a restricted subsidiary, or permit any person, other than United or a restricted subsidiary, to hold any such preferred stock unless United or such restricted subsidiary would be entitled to incur or assume indebtedness under the "Limitation on Additional Indebtedness" covenant in an aggregate principal amount equal to the aggregate liquidation value of the preferred stock to be issued. LIMITATION ON CAPITAL STOCK OF SUBSIDIARIES United will not: (1) sell, pledge, hypothecate or otherwise convey or dispose of any capital stock of a subsidiary, other than liens under the senior credit facility or under the terms of any designated senior indebtedness and liens not prohibited by the "Limitations on Liens" covenant, other than to United or another restricted subsidiary or (2) permit any of its subsidiaries to issue any capital stock, other than director's qualifying shares, other than (a) to United or a wholly-owned subsidiary of United or (b) to any other shareholder of such subsidiary in an amount not to exceed the shareholders' proportionate share of any dividend, distribution or other issuance to all shareholders. These restrictions will not apply to an asset sale made in compliance with the "Limitation on Certain Asset Sales" covenant or the issuance of preferred stock in compliance with the "Limitation on Preferred Stock of Restricted Subsidiaries" covenant. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES United will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any restricted subsidiary of United to: (1) (a) pay dividends or make any other distributions to United or any restricted subsidiary of United (i) on its capital stock or (ii) with respect to any other interest or participation in, or measured by, its profits or (b) repay any indebtedness or any other obligation owed to United or any restricted subsidiary of United, (2) make loans or advances or capital contributions to United or any of its restricted subsidiaries or (3) transfer any of its properties or assets to United or any of its restricted subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) encumbrances or restrictions existing on the date of this offering to the extent and in the manner these encumbrances and restrictions are in effect on the date of this offering or no more restrictive in any material respect, (b) the indenture, the notes and the guarantees, (c) applicable law, (d) any instrument governing acquired indebtedness, which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the property or assets of the person, so acquired, (e) any agreement or instrument governing indebtedness of foreign subsidiaries, 69 (f) customary non-assignment provisions in leases, licenses or other agreements entered in the ordinary course of business and consistent with past practices, (g) refinancing indebtedness; provided that such payment restrictions are no more restrictive in any material respect than those contained in the agreements governing the indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (h) customary restrictions in security agreements or mortgages or other similar agreements securing indebtedness of United or a restricted subsidiary to the extent these restrictions restrict the transfer of the property subject to these security agreements and mortgages or (i) customary restrictions with respect to a restricted subsidiary of United pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the capital stock or assets of that restricted subsidiary. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS United will not, and will not permit any restricted subsidiary to, enter into any sale and lease-back transaction unless: (1) the consideration received is at least equal to the fair market value of the property sold, as determined, in good faith, by the board of directors of United, and (2) United or its restricted subsidiary could incur the attributable indebtedness in compliance with the "Limitation on Additional Indebtedness" covenant. PAYMENTS FOR CONSENT Neither United nor any of its subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid or agreed to be paid to all holders of the notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. CHANGE OF CONTROL OFFER In the event of a change of control, United will be obligated to make an offer to purchase the outstanding notes at a purchase price equal to 101% of the principal amount of the outstanding notes together with any accrued and unpaid interest on the outstanding notes to the change of control payment date in accordance with the procedures set forth in this covenant. Within 30 days following the first date on which United has knowledge of any change of control, United will send by first-class mail, postage prepaid, to the trustee and to each holder of the notes, at the address appearing in the register maintained by the registrar of the notes, a notice stating: (1) that the change of control offer is being made pursuant to this covenant and that all notes tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein this prospectus; (2) the change of control purchase price and the change of control payment date which shall be a business day no earlier than 20 business days from the date notice is mailed. (3) that any note not tendered will remain outstanding and continue to accrue interest; 70 (4) that, unless United defaults in the payment of the change of control purchase price, any notes accepted for payment pursuant to the change of control offer shall cease to accrue interest after the change of control payment date; (5) that holders accepting the offer to have their notes purchased pursuant to a change of control offer will be required to surrender the notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the note completed, to the paying agent at the address specified in the notice prior to the close of business on the change of control payment date; (6) that holders will be entitled to withdraw their acceptance if the paying agent receives, not later than the close of business on the business day preceding the change of control payment date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the notes delivered for purchase, and a statement that the holder is withdrawing his election to have the notes purchased; (7) that holders whose notes are being purchased only in part will be issued new notes equal in principal amount to the unpurchased portion of the notes surrendered, provided that each note purchased and each new note issued will be in an original principal amount in denominations of $1,000 and integral multiples of $1,000; and (8) any other procedures that a holder must follow to accept a change of control offer or effect withdrawal of acceptance. On the change of control payment date, United will, to the extent lawful: (1) accept for payment notes or portions of notes tendered pursuant to the change of control offer; (2) deposit at the paying office established by United money sufficient to pay the purchase price of all notes or portions of the notes tendered; and (3) deliver or cause to be delivered to the trustee accepted notes with an officers' certificate stating the notes or portions of the notes tendered to United. The indenture will require that if the senior credit facility is in effect, or any amounts are owing under, or in respect of the senior credit facility, at the time of the occurrence of a change of control, prior to the mailing of the notice to holders described above, but in any event within 30 days following the first date on which United has knowledge of any change of control, United covenants to: (1) repay in full all obligations under or in respect of the senior credit facility or offer to repay in full all obligations under or in respect of the senior credit facility and repay the obligations under or in respect of the senior credit facility of each lender who has accepted the offer; or (2) obtain the requisite consent under the senior credit facility to permit the repurchase of the notes as described above. United will be deemed to have knowledge of all filings with the SEC. United must first comply with the covenant described in the preceding sentence before it shall be required to purchase notes in the event of a change of control; provided that United's failure to comply with the covenant described in the preceding sentence constitutes an event of default if not cured within 60 days after the notice. As a result, a holder of the notes may not be able to compel United to purchase the notes unless United is able at the time to refinance all of the obligations under or in respect of the senior credit facility or obtain requisite consents under the senior credit facility. Failure by United to make a change of control offer when required by the indenture constitutes a default under the indenture and, if not cured within 60 days after notice, constitutes an event of default. The indenture will require that: 71 (1) if United or any subsidiary of United has issued any outstanding (a) indebtedness that is subordinate in right of payment to the notes; or (b) preferred stock, and United or such subsidiary is required to make a change of control offer or to make a distribution with respect to the subordinated indebtedness or preferred stock in the event of a change of control, United shall not consummate the offer or distribution with respect to the subordinated indebtedness or preferred stock until United has paid the change of control purchase price in full to the holders of notes that have accepted United's change of control offer and shall otherwise have consummated the change of control offer made to holders of the notes and (2) United will not issue indebtedness that is subordinate in right of payment to the notes or preferred stock with change of control provisions requiring the payment of such indebtedness or preferred stock prior to the payment of the notes in the event of a change in control under the indenture. In the event that a change of control occurs and the holders of notes exercise their right to require United to purchase notes, if such purchase constitutes a "tender offer" for purposes of Rule l4e-1 under the Exchange Act at that time, United will comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase. MERGER, CONSOLIDATION OR SALE OF ASSETS United will not, nor will it permit any guarantor to, consolidate with, merge with or into, or transfer all or substantially all of its assets to, any person unless: (1) United or such guarantor, as the case may be, shall be the continuing person, or the person formed by such consolidation or into which United or such guarantor, as the case may be, is merged or to which the properties and assets of United or such guarantor, as the case may be, are transferred shall be a corporation, a limited liability company or a limited partnership organized and existing under the laws of the United States or any State of the United States or the District of Columbia and shall expressly assume in writing all of the obligations of United or such guarantor, as the case may be, under the notes and the indenture or guarantee, as applicable, and the obligations under the indenture shall remain in full force and effect; provided that at any time United or its successor is a limited partnership or limited liability company there shall be a co-issuer of the notes that is a corporation; (2) immediately before and immediately after giving effect to such transaction, no default or event of default has occurred and is continuing; and (3) unless the merger or consolidation is with, or the transfer of all or substantially all its assets is to, a wholly-owned subsidiary, immediately after giving effect to the transaction on a pro forma basis United or such person could incur at least $1.00 of additional indebtedness, other than permitted indebtedness, pursuant to the "Limitation on Additional Indebtedness" covenant. Nothing in this "Merger, Consolidation or Sale of Assets" provision will prohibit the consolidation, merger or transfer of all or substantially all the assets of any guarantor that is otherwise permitted by and conducted in accordance with the other applicable provisions of the indenture. In connection with any consolidation, merger or transfer of assets contemplated by this provision, United will deliver, or cause to be delivered, to the holders, in form and substance reasonably satisfactory to the trustee, an officers' certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the supplemental indenture comply with this provision and that all conditions precedent relating to the transaction or transactions have been complied with. 72 GUARANTEES The notes will be unconditionally guaranteed on an unsecured senior subordinated basis by the guarantors. All payments pursuant to the guarantees by the guarantors will be unconditionally subordinate in right of payment to the prior indefeasible payment and satisfaction in full in cash of all senior indebtedness of the guarantor, to the same extent and in the same manner that all payments on the notes are subordinate in right of payment to the prior payment in full of all senior indebtedness of United. The obligations of each guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of the guarantor and after giving effect to any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of the other guarantor under its guarantee or pursuant to its contribution obligations under the indenture, result in the obligations of the guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each guarantor that makes a payment or distribution under a guarantee shall be entitled to a contribution from each other guarantor in a pro rata amount based on the adjusted net assets of each guarantor. A guarantor shall be released from all of its obligations under its guarantee if all or substantially all of its assets are sold or at least 80% of its capital stock is sold, in each case in a transaction in compliance with the covenant described under "Limitation on Certain Asset Sales," provided that in the event of a sale of less than all of the capital stock of a guarantor, the release shall not be effective unless and until the guarantor is similarly released from its guarantee under the senior credit facility or the guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, United or another guarantor in a transaction in compliance with "Merger, Consolidation or Sale of Assets," and the guarantor has delivered to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent relating to the transaction have been complied with. EVENTS OF DEFAULT The following events will be defined in the indenture as "Events of Default": (1) default in payment of any principal of, or premium, if any, on the notes whether at maturity, upon acceleration or redemption or otherwise, whether or not such payment is prohibited by the subordination provisions of the indenture; (2) default for 30 days, whether or not such payment is prohibited by the subordination provisions of the indenture, in payment of any interest on the notes; (3) default by United or any guarantor in the observance or performance of any other covenant in the notes or the indenture for 60 days after written notice from the trustee or the holders of not less than 25% in aggregate principal amount of the notes then outstanding, except in the case of the consummation of a transaction governed by the "Merger, Consolidation or Sale of Assets" provision in violation of the terms of that provision, which will constitute an event of default with the notice requirement but without the passage of time requirement; (4) default in the payment at final maturity of principal in an aggregate amount of $10.0 million or more with respect to any indebtedness of United or any restricted subsidiary of United, or the acceleration of any such indebtedness aggregating $10.0 million or more which default shall not be cured, waived or postponed pursuant to an agreement with the holders of the indebtedness within 60 days after written notice as provided in the indenture, or the acceleration shall not be rescinded or annulled within 20 days after written notice as provided in the indenture; (5) any final judgment or judgments which can no longer be appealed or stayed for the payment of money in excess of $10.0 million, net of amounts covered by insurance for which coverage is not being challenged or denied is rendered against United or any restricted subsidiary of United, and 73 shall not be discharged, paid or otherwise satisfied for any period of 60 consecutive days during which a stay of enforcement shall not be in effect; (6) certain events involving bankruptcy, insolvency or reorganization of United or any restricted subsidiary of United; and (7) any of the guarantees ceases to be in full force and effect or any of the guarantees is declared to be null and void and unenforceable or any of the guarantees is found to be invalid or any of the guarantors denies in writing its liability under its guarantee, other than by reason of release of a guarantor in accordance with the terms of the indenture. The indenture will provide that the trustee may withhold notice to the holders of the notes of any default, except in payment of principal or premium, if any, or interest on the notes, if the trustee considers it to be in the best interest of the holders of the notes to do so. The indenture will provide that if an event of default, other than an event of default resulting from certain events of bankruptcy, insolvency or reorganization of United will have occurred and be continuing, then the trustee by notice to United or the holders of not less than 25% in aggregate principal amount of the notes then outstanding by written notice to United and the trustee may declare to be immediately due and payable the entire principal amount of all the notes then outstanding plus accrued but unpaid interest to the date of acceleration and (1) these amounts shall become immediately due and payable or (2) if there are any amounts outstanding under or in respect of the senior credit facility or any commitments remain in effect under the senior credit facility, these amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the senior credit facility or five business days after receipt by United and the representative of notice of the acceleration of the notes; provided, however, that after the acceleration but before a judgment or decree based on the acceleration is obtained by the trustee, the holders of a majority in aggregate principal amount of outstanding notes may, under some circumstances, rescind and annul the acceleration if all existing events of default, other than nonpayment of accelerated principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived as provided in the indenture. In case an event of default resulting from certain events of bankruptcy, insolvency or reorganization of United shall occur, the principal, premium, if any, and interest amount with respect to all of the notes shall be due and payable immediately without any declaration or other act on the part of the trustee or the holders of the notes. The holders of a majority in principal amount of the notes then outstanding shall have the right to waive any existing default or compliance with any provision of the indenture or the notes and to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, subject to limitations specified in the indenture. No holder of any note will have any right to institute any proceeding with respect to the indenture or for any remedy under the indenture, unless the holder has previously given to the trustee written notice of a continuing event of default and unless the holders of at least 25% in aggregate principal amount of the outstanding notes have made written request and offered indemnity satisfactory to the trustee to institute the proceeding as a trustee, and unless the trustee has not received from the holders of a majority in aggregate principal amount of the outstanding notes a direction inconsistent with the request and has failed to institute the proceeding within 60 days. However, these limitations do not apply to a suit instituted on the note on or after the respective due dates expressed in the note. DEFEASANCE AND COVENANT DEFEASANCE The indenture will provide that United may elect either 74 (1) to defease and be discharged from any and all obligations with respect to the notes, except for the obligations to register the transfer or exchange of such notes, to replace temporary or mutilated, destroyed, lost or stolen notes, to maintain an office or agency in respect of the notes and to hold monies for payment in trust; or (2) to be released from their obligations with respect to the notes under covenants contained in the indenture and described above under "Certain Covenants" upon the deposit with the trustee, or other qualifying trustee, in trust for such purpose of money and/or U.S. Government obligations which through the payment of principal and interest in accordance with their terms will provide money, in an amount sufficient to pay the principal of, premium, if any, and interest on the notes, on the scheduled due dates for the notes or on a selected date of redemption in accordance with the terms of the indenture. Such a trust may only be established if, among other things, United has delivered to the trustee an opinion of counsel: (a) to the effect that neither the trust nor the trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended, and (b) describing either a private ruling concerning the notes or a published ruling of the IRS, to the effect that holders of the notes or persons in their positions will not recognize income, gain or loss for federal income tax purposes as a result of the deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred. MODIFICATION OF INDENTURE From time to time, United, the guarantors and the trustee may, without the consent of holders of the notes, amend the indenture or the notes or supplement the indenture for certain specified purposes, including providing for uncertificated notes in addition to certificated notes, consummating the asset drop-down, and curing any ambiguity, defect or inconsistency, or making any other change that does not adversely affect the rights of any holder. The indenture contains provisions permitting United, the guarantors and the trustee, with the consent of holders of at least a majority in principal amount of the outstanding notes, to modify or supplement the indenture or the notes, except that no such modification shall, without the consent of each holder affected by the modification, (1) reduce the amount of notes whose holders must consent to an amendment, supplement, or waiver to the indenture or the notes; (2) reduce the rate of or change the time for payment of interest on any note; (3) reduce the principal of or premium on or change the stated maturity of any note; (4) waive a default in the payment of the principal of, interest on, or redemption payment with respect to any note; (5) make any note payable in money other than that stated in the note or change the place of payment from New York, New York; (6) make any change in provisions of the indenture protecting the right of each holder of notes to receive payment of principal of and interest on the note on or after the due date of the note or to bring suit to enforce the payment, or permitting holders of a majority in principal amount of notes to waive defaults or events of default; (7) amend, change or modify in any material respect the obligation of United to make and consummate a change of control offer in the event of a change of control or make and consummate an excess proceeds offer with respect to any asset sale that has been consummated or modify any of the provisions or definitions with respect thereto; 75 (8) affect the ranking of the notes or the guarantees in a manner adverse to the holders; (9) change any provision of the indenture relating to the redemption of notes; (10) release any guarantor from any of its obligations under its guarantee or the indenture otherwise than in accordance with the terms of the indenture. REPORTS TO HOLDERS So long as United is subject to the periodic reporting requirements of the Exchange Act, it will continue to furnish the information required by the Exchange Act to the SEC and to the holders of the notes. The indenture will provide that even if United is entitled under the Exchange Act not to furnish such information to the SEC or to the holders of the notes, it will nonetheless continue to furnish such information to the SEC and holders of the notes. COMPLIANCE CERTIFICATE United will deliver to the trustee on or before 100 days after the end of United's fiscal year and on or before 55 days after the end of each of the first, second and third fiscal quarters in each year an officers' certificate stating whether or not the signers know of any default or event of default that has occurred. If they do, the certificate will describe the default or event of default and its status. THE TRUSTEE The trustee under the indenture will be the registrar and paying agent with regard to the notes. The indenture will provide that, except during the continuance of an event of default, the trustee will perform only the duties specifically set forth in the indenture. During the existence of an event of default, the trustee will exercise the rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of that person's own affairs. TRANSFER AND EXCHANGE Holders of the notes may transfer or exchange the notes in accordance with the indenture. The registrar under the indenture may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the indenture. The registrar is not required to transfer or exchange any note selected for redemption. Also, the registrar is not required to transfer or exchange any note for a period of 15 days before selection of the notes to be redeemed. The notes will be issued in a transaction exempt from registration under the Securities Act and will be subject to the restrictions on transfer. The registered holder of a note may be treated as the owner of it for all purposes. SELECTED DEFINITIONS Set forth below is a summary of some of the defined terms used in the covenants contained in the indenture. We refer you to the indenture for the full definition of all these terms as well as any other capitalized terms used in this prospectus for which no definition is provided. "ACQUIRED INDEBTEDNESS" means indebtedness of a person, including an unrestricted subsidiary, existing at the time the person becomes a restricted subsidiary or assumed in connection with the acquisition of the outstanding equity interests on, or assets from, the person. "ADJUSTED NET ASSETS" of a guarantor at any date means the lesser of the amount by which 76 (1) the fair value of the property of the guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities, after giving effect to all other fixed and contingent liabilities, but excluding liabilities under the guarantee, of the guarantor at that date and (2) the present fair salable value of the assets of the guarantor at that date exceeds the amount that will be required to pay the probable liability of the guarantor on its debts, after giving effect to all other fixed and contingent liabilities and after giving effect to any collection from any subsidiary of the guarantor in respect of the obligations of the subsidiary under the guarantee, excluding indebtedness in respect of the guarantee, as they become absolute and matured. "ASSET ACQUISITION" means (1) an investment by United or any restricted subsidiary in any other person pursuant to which the person shall become a restricted subsidiary or shall be merged with or into United or any restricted subsidiary or (2) the acquisition by United or any restricted subsidiary of the assets of any person, other than a restricted subsidiary, which constitute all or substantially all of the assets of the person or comprise any division or line of business of the person or any other properties or assets of the person other than in the ordinary course of business. "ASSET SALE" means the sale, transfer or other disposition, including any sale and lease-back transaction, other than to United or any of its restricted subsidiaries, in any single transaction or series of related transactions having a fair market value in excess of $1,500,000 of (1) any capital stock of or other equity interest in any restricted subsidiary of United or (2) any other property or assets of United or of any restricted subsidiary of United; provided that asset sales shall not include: (a) sales, leases, conveyances, transfers or other dispositions to United or to a restricted subsidiary or to any other person if after giving effect to the sale, lease, conveyance, transfer or other disposition the other person becomes a restricted subsidiary; (b) the contribution of any assets to a joint venture, partnership or other person, which may be a subsidiary, to the extent the contribution constitutes a permitted investment, other than by operation of clause (4) of the definition of a permitted investment; (c) the sale, transfer or other disposition of all or substantially all of the assets of United or any guarantor as permitted under the "Merger, Consolidation or Sale of Assets" provision; (d) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection of accounts receivable; (e) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the industry; (f) the licensing of intellectual property; (g) disposals or replacements of obsolete equipment in the ordinary course of business; (h) leases or subleases to third persons not interfering in any material respect with the business of United or any of its restricted subsidiaries; (i) a disposition of temporary cash investments or goods held for sale in the ordinary course of business consistent with past practices of United; (j) a disposition that constitutes a change of control; and (k) any foreclosures on assets. 77 "ASSET SALE PROCEEDS" means, with respect to any asset sale, (1) cash received by or any restricted subsidiary from the asset sale, including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of the asset sale, after (a) provision for all income or other taxes measured by or resulting from the asset sale, (b) payment of all brokerage commissions, underwriting and other fees, including legal and accounting fees, and expenses, including relocation expenses, related to the asset sale, (c) any consideration for an asset sale, which would otherwise constitute asset sale proceeds, that is required to be held in escrow pending determination of whether a purchase price adjustment will be made, but amounts under this clause (c) will become asset sale proceeds at the time and to the extent the amounts are released to United or a restricted subsidiary, (d) repayment of indebtedness that either (1) is secured by a lien on the property or assets sold or (2) is required to be repaid in connection with the asset sale, in order to obtain a consent required in connection with the asset sale, (e) provision for minority interest holders in any restricted subsidiary as a result of the asset sale and (f) deduction of appropriate amounts to be provided by United or a restricted subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in the asset sale and retained by United or a restricted subsidiary after the asset sale, including, without limitation, severance, healthcare, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in the asset sale, and (2) promissory notes and other non-cash consideration received by United or any restricted subsidiary from the asset sale or other disposition upon the liquidation or conversion of such notes or non-cash consideration into cash. "ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and lease-back transaction means, as at the time of determination, the greater of: (1) the fair value of the property subject to such arrangement, as determined by the board of directors, and (2) the present value of the total obligations, discounted at the rate borne by the notes, compounded annually, of the lessee for rental payments during the remaining term of the lease included in such sale and lease-back transaction, including any period for which such lease has been extended. "AVAILABLE ASSET SALE PROCEEDS" means, with respect to any asset sale, the aggregate asset sale proceeds from the asset sale that have not been applied in accordance with clauses (3)(a) or (3)(b) of the first paragraph of "Limitation on Certain Asset Sales," and that have not previously been the basis for an excess proceeds offer in accordance with the third paragraph of "Limitation on Certain Asset Sales." "CAPITALIZED LEASE OBLIGATIONS" means indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of the indebtedness shall be the capitalized amount of the obligations determined in accordance with GAAP. "CHANGE OF CONTROL" means, at any time after the issue date, the occurrence of one or more of the following events: 78 (1) any person, including a person's affiliates and associates, other than a permitted holder, becomes the beneficial owner, as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act, of 50% or more of the total voting power of the common stock of United, (2) there shall be consummated any consolidation or merger of United in which United is not the continuing or surviving corporation or pursuant to which the common stock of United would be converted into cash, securities or other property, other than a merger or consolidation of United in which the holders of the common stock of United outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the common stock of the surviving corporation immediately after the consolidation or merger, or (3) during any period of two consecutive years commencing after the issue date, individuals who at the beginning of the period constituted the board of directors of United, together with any new directors whose election by the board of directors or whose nomination for election by the shareholders of United has been approved by a majority of the directors then still in office who either were directors at the beginning of such period or whose election or recommendation for election was previously so approved cease to constitute a majority of the board of directors of United. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any person, the ratio of EBITDA of such person during the four full fiscal quarters ending on or prior to the date of the transaction giving rise to the need to calculate the consolidated fixed charge coverage ratio (the "transaction date") for which financial statements are available to consolidated fixed charges of such person for those four full fiscal quarters. In addition, for purposes of this definition, "EBITDA" and "consolidated fixed charges" will be calculated after giving effect on a pro forma basis for the period of such calculation to: (1) the incurrence or repayment of any indebtedness of such person or any of its restricted subsidiaries, and the application of the proceeds of that repayment, giving rise to the need to make such calculation and any incurrence or repayment of other indebtedness, and the application of the proceeds of that repayment, other than the incurrence or repayment of indebtedness in the ordinary course of business for working capital purposes pursuant to revolving credit facilities, occurring during those four full fiscal quarters or at any time subsequent to the last day of those four full fiscal quarters and on or prior to the transaction date, as if such incurrence or repayment, as the case may be, and the application of such proceeds of, occurred on the first day of those four full fiscal quarters; (2) any asset sales or asset acquisitions, including, without limitation, any asset acquisition giving rise to the need to make the calculation as a result of the person or one if its restricted subsidiaries, including any person who becomes a restricted subsidiary as a result of the asset acquisition, incurring, assuming or otherwise being liable for acquired indebtedness and also including any EBITDA, provided that EBITDA will be included only to the extent includible pursuant to the definition of "consolidated net income," attributable to the assets which are the subject of the asset acquisition during those four full fiscal quarters occurring during those four full fiscal quarters or at any time subsequent to the last day of those four full fiscal quarters and on or prior to the transaction date, as if the asset sale or asset acquisition, including the incurrence, assumption or liability for any the acquired indebtedness occurred on the first day of those four full fiscal quarters; (3) with respect to any of those four full fiscal quarters commencing prior to the recapitalization, the recapitalization, which will be deemed to have taken place on the first day of those four full fiscal quarters; and (4) any asset sales or asset acquisition, including any EBITDA attributable to the assets which are the subject of the asset acquisition or asset sale during those four full fiscal quarters, provided that 79 EBITDA will be included only to the extent includible pursuant to the definition of "consolidated net income," that have been made by any person that has become a restricted subsidiary of United or has been merged with or into United or any restricted subsidiary of United during those four full fiscal quarters or at any time subsequent to the last day of those four full fiscal quarters and on or prior to the transaction date that would have constituted asset sales or asset acquisitions had the transactions occurred when the person was a restricted subsidiary of United or subsequent to the person's merger into United, as if the asset sale or asset acquisition, including the incurrence, assumption or liability for any indebtedness or acquired indebtedness in connection with that asset sale or asset acquisition occurred on the first day of those four full fiscal quarters. If the person or any of its restricted subsidiaries directly or indirectly guarantees indebtedness of a third person, the preceding sentence will give effect to the incurrence of the guaranteed indebtedness as if such person or any restricted subsidiary of the person had directly incurred or otherwise assumed the guaranteed indebtedness. Furthermore, in calculating "consolidated fixed charges" for purposes of determining the denominator of this "consolidated fixed charge coverage ratio," (1) interest on outstanding indebtedness determined on a fluctuating basis as of the transaction date and which will continue to be so determined after the transaction date will be deemed to have accrued at a fixed rate per annum equal to the rate of interest on the indebtedness in effect on the transaction date; and (2) notwithstanding clause (1) above, interest on indebtedness determined on a fluctuating basis, to the extent the interest is covered by one or more interest rate agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of the agreements. "CONSOLIDATED FIXED CHARGES" means, with respect to any person, for any period, the sum of: (1) consolidated interest expense, excluding amortization or write-off of debt issuance costs relating to the recapitalization and the financing for the recapitalization or relating to retired or existing indebtedness and amortization or write-off of customary debt issuance costs relating to future indebtedness incurred in the ordinary course of business, plus (2) without duplication, the product of (a) the amount of all dividend payments on any series of preferred stock of the person or any restricted subsidiary, determined on a consolidated basis, other than dividends paid in capital stock, other than disqualified capital stock, paid, accrued or scheduled to be paid or accrued during the period times (b) a fraction the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of the person, expressed as a decimal. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense," or any like caption on an income statement for the person and its restricted subsidiaries on a consolidated basis, including, but not limited to, imputed interest included in capitalized lease obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount, other than any such discount arising from the issuance of warrants to purchase common stock to purchasers of United's debt securities simultaneously with the issuance of the debt securities, or premium, if any, and all other non-cash interest expense, other than interest amortized to cost of sales, plus, without duplication, all net capitalized interest for the period and all interest incurred or paid under any guarantee of indebtedness, including a guarantee of principal, interest or any combination of principal or interest of any person, plus the amount of all dividends or distributions paid on disqualified capital stock other than dividends paid or payable in shares of capital stock of United, less the amortization of deferred financing costs. 80 "CONSOLIDATED NET INCOME" means, with respect to any person, for any period, the aggregate of the net income of such person and its restricted subsidiaries for the period, on a consolidated basis, determined in accordance with GAAP; provided, however, that: (1) the net income of any (a) "other person" in which the person in question or any of its restricted subsidiaries has less than a 100% interest, which interest does not cause the net income of the other person to be consolidated into the net income of the person in question in accordance with GAAP and (b) unrestricted subsidiary shall be included only to the extent of the amount of dividends or distributions paid to the person in question or the restricted subsidiary, (2) the net income of any restricted subsidiary of the person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions, other than pursuant to the notes or as permitted under "Certain Covenants--Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" shall be excluded to the extent of the restriction or limitation, (3) (a) the net income of any person acquired in a pooling of interests transaction for any period prior to the date of the acquisition and (b) any net gain resulting from an asset sale by the person in question or any of its restricted subsidiaries other than in the ordinary course of business shall be excluded, (4) extraordinary, unusual and non-recurring gains and losses, including any related tax effects on the person, shall be excluded, (5) income or loss attributable to discontinued operations, including without limitation operations disposed of during such period whether or not such operations were classified as discontinued, shall be excluded, (6) to the extent not otherwise excluded in accordance with GAAP, the net income of any restricted subsidiary in an amount that corresponds to the percentage ownership interest in the income of the restricted subsidiary not owned on the last day of the period, directly or indirectly, by the person shall be excluded, (7) dividends, distributions and any other payments constituting return of capital from investments shall in any event be excluded to the extent used to increase the amount available for investment under clause (15) of the definition of "permitted investments" in accordance with the terms of that definition, (8) non-cash compensation charges, including any arising from existing stock options resulting from any merger or recapitalization transaction, shall be excluded, and (9) without duplication, any charges related to the recapitalization shall be excluded. "DEFAULT" means any condition or event that is, or with the passing of time or giving of any notice expressly required under the indenture, or both, would be, an event of default. "DESIGNATED SENIOR INDEBTEDNESS," as to United or any guarantor, means (1) so long as indebtedness under or in respect of the senior credit facility is outstanding or has commitments for the extension of credit, the senior indebtedness and (2) any other senior indebtedness (a) which at the time of determination exceeds $25,000,000 in aggregate principal amount, or accreted value in the case of Indebtedness issued at a discount, outstanding or available under a committed facility. 81 (b) which is specifically designated in the instrument evidencing the senior indebtedness as "designated senior indebtedness" by the person, and (c) as to which the trustee has been given written notice of such designation and, so long as there is a representative with respect to the senior credit facility, the representative has concurred in the designation. "DISQUALIFIED CAPITAL STOCK" means any capital stock of United or a restricted subsidiary of United which, by its terms, or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder, or upon the happening of any event, (1) matures on or prior to the maturity date of the notes, for cash or securities constituting indebtedness; or (2) is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, on or prior to the maturity date of the notes, for cash or securities constituting indebtedness; or (3) is redeemable at the option of the holder, in whole or in part, on or prior to the maturity date of the notes, for cash or securities constituting indebtedness; provided that capital stock of United that is held by a current or former employee of United subject to a put option and/or a call option with United triggered by the termination of the employee's employment with United and/or United's performance will not be deemed to be disqualified capital stock solely by virtue of the call option and/or put option. Without limitation of that above, disqualified capital stock will be deemed to include (a) any preferred stock of a restricted subsidiary of United and (b) any preferred stock of United, with respect to either of which, under the terms of such preferred stock, by agreement or otherwise, United is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the notes; provided, however, that capital stock of United or any restricted subsidiary that is issued with the benefit of provisions requiring (1) a change of control offer or asset sale proceeds offer to be made for such capital stock in the event of a change of control of or asset sale by United or that restricted subsidiary, which provisions have substantially the same effect as the provisions of the indenture described under "Change of Control" or "Limitation on Certain Asset Sales," or (2) payment of dividends or redemption only after the notes have been fully paid, will not be deemed to be disqualified capital stock solely by virtue of these provisions. "EBITDA" means, for any person, for any period, an amount equal to (1) the sum of (a) consolidated net income for the period, plus (b) the provision for taxes for the period based on income or profits to the extent the income or profits were included in computing consolidated net income and any provision for taxes utilized in computing net loss under clause (a) of this definition, plus (c) consolidated interest expense for the period, but only including redeemable dividends in the calculation of the consolidated interest expense to the extent that the redeemable dividends have not been excluded in the calculation of consolidated net income, plus (d) depreciation for such period on a consolidated basis, plus (e) amortization of intangibles for such period on a consolidated basis, plus (f) any other non-cash items, excluding any such non-cash item to the extent that it represents an accrual of or a reserve for a cash expense in any period subsequent to the period for which EBITDA is being calculated, reducing or not included in the definition of consolidated net income for the period, plus 82 (g) without duplication, all cash and non-cash expenses and restructuring charges arising in connection with the recapitalization, minus (2) all non-cash items increasing consolidated net income for the period, all for the person and its subsidiaries determined in accordance with GAAP, except that with respect to United each of the above items will be determined on a consolidated basis with respect to United and its restricted subsidiaries only, provided, however, that, for purposes of calculating EBITDA during any fiscal quarter, cash income from a particular investment, other than in a subsidiary which under GAAP is consolidated, of the person will be included only (1) to the extent cash income has been received by the person with respect to the investment, or (2) if the cash income derived from the investment is attributable to temporary cash investments. "FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. "FOREIGN SUBSIDIARY" means a restricted subsidiary of United (1) that is organized in a jurisdiction other than the United States of America or a state thereof or the District of Columbia and (2) with respect to which at least 90% of its sales, as determined in accordance with GAAP, are generated by operations located in jurisdictions outside the United States of America. "GUARANTEE" means, as the context may require, individually, a guarantee, or collectively, any and all guarantees, of the obligations of United with respect to the notes by each guarantor, if any, pursuant to the terms of the indenture. "GUARANTOR" means each restricted subsidiary of United that hereafter becomes a guarantor pursuant to the indenture, and guarantors means these entities, collectively. "GUARANTOR REPRESENTATIVE" means (1) so long as the senior credit facility remains outstanding or any commitments under it remain in effect, the agent, or if there is more than one agent, the administrative agent for the lender parties, and (2) the agent, indenture trustee, other trustee or other representative for any guarantor senior indebtedness. "GUARANTOR SENIOR INDEBTEDNESS" means the principal of and premium, if any, and interest on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts and obligations incurred or owing pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with, (1) any guarantor's direct incurrence of any indebtedness or its guarantee of all indebtedness of United or any of its subsidiaries, in each case, under the senior credit facility, (2) all obligations of the guarantor with respect to any interest rate agreement, (3) all obligations of the guarantor to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (4) all other indebtedness of the guarantor which does not expressly provide that it is to rank PARI PASSU with or subordinate to the guarantees and 83 (5) all deferrals, renewals, extensions, refinancings, replacements and refundings in whole or in part of, and amendments, modifications, restatements and supplements to, any of the indebtedness described above. Notwithstanding anything to the contrary above, guarantor senior indebtedness will not include (1) indebtedness of such guarantor to any of its subsidiaries, except to the extent the indebtedness is pledged as security under the senior credit facility, (2) indebtedness represented by the guarantees, (3) any indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any other item of indebtedness of United, although this clause (3) shall not apply to the subordination of liens or security interests covering property or assets securing guarantor senior indebtedness, (4) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business or (5) liability for federal, state, local or other taxes owed or owing by United. "HOLDING COMPANY" means the parent company of the new operating company following the asset drop- down. "INCUR" means, with respect to any indebtedness or other obligation of any person, to create, issue, incur, assume, guarantee or otherwise become liable in respect of the indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any the indebtedness or other obligation on the balance sheet of the person; provided that a change in GAAP that results in an obligation of the person that exists at such time becoming indebtedness shall not be deemed an incurrence of the indebtedness. "INDEBTEDNESS" means, with respect to any person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money whether or not the recourse of the lender is to the whole of the assets of that person or only to a portion of its assets, or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property, excluding, without limitation, any balances that constitute accounts payable or trade payables or liabilities arising from advance payments or customer deposits for goods and services sold by United in the ordinary course of business, and other accrued liabilities and expenses arising in the ordinary course of business if and to the extent any of the indebtedness would appear as a liability upon a balance sheet of that person prepared in accordance with GAAP, and will also include, to the extent not otherwise included: (1) any capitalized lease obligations, (2) obligations secured by a lien to which the property or assets owned or held by the person is subject, whether or not the obligation or obligations secured by the lien has been assumed, provided, however, that if the obligation or obligations has not been assumed, the amount of the indebtedness will be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets, (3) guarantees of items of other persons which would be included within this definition for the other persons, whether or not the items would appear upon the balance sheet of the guarantor, (4) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, provided that in the case of any such letters of credit, the items for which the letters of credit provide credit support are those of other persons which would be included within this definition for the other persons, (5) disqualified capital stock of the person or any restricted subsidiary of the person, and 84 (6) obligations of any such person under any interest rate agreement applicable to any of the above, if and to the extent the interest rate agreement obligations would appear as a liability upon a balance sheet of the person prepared in accordance with GAAP. The amount of indebtedness of any person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided: (1) that the amount outstanding at any time of any indebtedness issued with original issue discount is the principal amount of the indebtedness less the remaining unamortized portion of the original issue discount of the indebtedness at such time as determined in conformity with GAAP and (2) that indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the above definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "indebtedness" of United or any restricted subsidiary for purposes of this definition. Furthermore, guarantees of, or obligations with respect to letters of credit supporting, indebtedness otherwise included in the determination of the amount shall also not be included. "INDIVIDUAL INVESTORS" means the persons who made the management contribution and, without duplication, the persons who hold the retained equity as of the issue date. "INVESTMENTS" means, directly or indirectly, any advance, account receivable, other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by United in connection with an acquisition of assets which is otherwise permitted by the terms of the indenture, loan or capital contribution to, by means of transfers of property to others, payments for property or services for the account or use of others or otherwise, the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any person or the making of any investment in any person. Investments shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. For the purposes of the "Limitation on Restricted Payments" covenant, "investment" shall include and be valued at the fair market value of the net assets of any restricted subsidiary at the time that the restricted subsidiary is designated an unrestricted subsidiary and shall exclude the fair market value of the net assets of any unrestricted subsidiary at the time that the unrestricted subsidiary is designated a restricted subsidiary. If United or any restricted subsidiary of United sells or otherwise disposes of any common stock of any direct or indirect restricted subsidiary of United such that, after giving effect to any such sale or disposition, United no longer owns, directly or indirectly, greater than 50% of the outstanding common stock of the restricted subsidiary, United shall be deemed to have made an investment on the date of any such sale or disposition equal to the fair market value of the common stock of the restricted subsidiary not sold or disposed of. "ISSUE DATE" means the date the notes are first issued by United and authenticated by the trustee under the indenture. "LIEN" means, with respect to any property or assets of any person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, other than advance payments or customer deposits for goods and services sold by United in the ordinary course of business, security interest, lien, charge, easement or encumbrance of any kind or nature whatsoever on or with respect to the property or assets, including, without limitation, any capitalized lease obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the above. 85 "NET PROCEEDS" means: (1) in the case of any sale of capital stock by any person, the aggregate net proceeds received by the person, after payment of expenses, commissions and the like incurred in connection with the aggregate net proceeds, whether the proceeds are in cash or in property, valued at the fair market value, as determined in good faith by the board of directors of the person, at the time of receipt, and (2) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of capital stock of the person which is not disqualified capital stock, the net book value of the outstanding securities on the date of the exchange, exercise, conversion or surrender, plus any additional amount required to be paid by the holder to the person upon the exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account of fractional shares and less all expenses incurred by United in connection with the payments. "NON-PAYMENT EVENT OF DEFAULT" means any event, other than a payment default, the occurrence of which entitles, or, in the case of some of the events described in clause (6) under "Events of Default," with the passage of time would entitle, one or more persons to accelerate the maturity of any designated senior indebtedness. "OBLIGATIONS" means, with respect to any indebtedness, any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other expenses and liabilities payable under the documentation governing the indebtedness. "PAYMENT DEFAULT" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to the default becoming an event of default has occurred, in the payment of principal of, or premium, if any, or interest on or any other obligations payable in connection with designated senior indebtedness. "PERMITTED HOLDERS" means, collectively, (1) United and, in the event of the asset drop-down, the holding company, (2) the Thomas H. Lee Equity Fund IV, L.P. and any of its affiliates, (3) the individual investors, each of the spouses, children or other lineal descendants of the individual investors, the probate estate of any such individual and any trust, so long as one or more of the above individuals retains substantially all of the controlling or beneficial interest thereunder, and (4) any underwriter during the course of an underwritten public offering until completion of the initial distribution of the underwritten public offering. "PERMITTED INDEBTEDNESS" means: (1) indebtedness of United or any restricted subsidiary arising under or in connection with the senior credit facility in an amount not to exceed the sum of (a) $225,000,000 plus (b) the greater of (i) $110,000,000 or (ii) the aggregate of 80% of the accounts receivable and 50% of the inventory of United and its consolidated restricted subsidiaries, which sum shall be reduced by any mandatory prepayments actually made as a result of any asset sale or similar sale of assets, to the extent, in the case of payments of revolving credit indebtedness, that the corresponding commitments have been permanently reduced, and any scheduled payments actually made; (2) indebtedness under the notes and the guarantees; 86 (3) indebtedness of foreign subsidiaries not to exceed $5,000,000 in the aggregate at any one time outstanding; (4) indebtedness not covered by any other clause of this definition which is outstanding on the issue date, including, for purposes of this clause (4), capitalized lease obligations in an amount not to exceed $10,000,000 incurred in the leasing of an aircraft for use by United , which lease is entered into on or before September 30, 1999; (5) indebtedness of United to any restricted subsidiary of United and indebtedness of any restricted subsidiary of United to United or another restricted subsidiary of United; provided that (a) if United or any guarantor is the obligor on the indebtedness, the indebtedness is unsecured and expressly subordinated to the payment in full to all obligations in respect of the notes and the guarantee of the guarantor on terms substantially in the form provided in the indenture and (b)(1) any subsequent issuance or transfer of equity interests that results in the indebtedness being held by a person other than United or a restricted subsidiary of United, and (2) any sale or transfer of the indebtedness to a person other than United or a restricted subsidiary of United, will be deemed to constitute an incurrence of indebtedness by United or the restricted subsidiary not permitted by this clause (5); (6) interest rate agreements; (7) refinancing indebtedness; (8) indebtedness under commodity hedge agreements and currency agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (9) indebtedness consisting of guarantees made in the ordinary course of business by United or its restricted subsidiaries of obligations of United or any of its restricted subsidiaries, which obligations are not otherwise prohibited under the indenture; (10) contingent obligations of United or its subsidiaries in respect of customary indemnification and purchase price adjustment obligations incurred in connection with an asset sale; provided that the maximum assumable liability in respect of all of these obligations shall at no time exceed the gross proceeds actually received by United and its subsidiaries in connection with the asset sale; (11) indebtedness incurred in respect of performance, surety and other similar bonds and completion guarantees provided by United and the restricted subsidiaries in the ordinary course of business, and extensions, refinancings and replacements thereof; (12) indebtedness incurred by United or any of its restricted subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other indebtedness with respect to reimbursement type obligations regarding workers' compensation or other similar claims; (13) purchase money indebtedness and capitalized lease obligations of United and its subsidiaries incurred to acquire, construct or improve property and assets in the ordinary course of business and any refinancings, renewals or replacements of the purchase money indebtedness or capitalized lease obligation, subject to the limitations on their principal amount set forth in this clause (13), the principal amount of which purchase money indebtedness and capitalized lease obligations shall not in the aggregate at any one time outstanding exceed $15,000,000; and (14) additional indebtedness of United or any of its restricted subsidiaries, other than indebtedness specified in clauses (1) through (13) above not to exceed $25,000,000 in the aggregate at any one time outstanding. 87 "PERMITTED INVESTMENTS" means, for any person, investments made on or after the issue date consisting of: (1) investments by United, or by a restricted subsidiary of United, in United or a restricted subsidiary; (2) temporary cash investments; (3) investments by United, or by a restricted subsidiary of United, in a person, if as a result of the investment (a) the person becomes a restricted subsidiary of United, (b) the person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, United or a restricted subsidiary of United or (c) the business or assets are owned by United or a restricted subsidiary; (4) an investment that is made by United or a restricted subsidiary of United in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to United or a restricted subsidiary solely as partial consideration for the consummation of an asset sale that is otherwise permitted under the covenant described under "Limitation on Certain Asset Sales"; (5) investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets in each case in the ordinary course of business; (6) investments consisting of (a) loans and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business not to exceed $2,000,000 in the aggregate at any one time outstanding, (b) loans to employees of United or its subsidiaries for the sole purpose of purchasing equity of United, (c) extensions of trade credit in the ordinary course of business, and (d) prepaid expenses incurred in the ordinary course of business; (7) without duplication, investments consisting of indebtedness permitted pursuant to clause (5) of the definition of "permitted indebtedness"; (8) investments existing on the issue date; (9) investments of United under interest rate agreements; (10) investments under commodity hedge agreements and currency agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (11) investments consisting of endorsements for collection or deposit in the ordinary course of business; (12) investments in suppliers or customers that are in bankruptcy, receivership or similar proceedings or as a result of foreclosure on a secured investment in a third party received in exchange for or cancellation of an existing obligation of the supplier or customer to United or a restricted subsidiary; (13) investments paid for solely with capital stock, other than disqualified capital stock, of United; (14) investments in joint venture arrangements, or in a person which as a result of the investment becomes a joint venture arrangement, in an aggregate amount, as valued at the time each the investment is made, not exceeding $10,000,000 for all investments from and after the date of this offering; and (15) investments, other than investments specified in clauses (1) through (14) above, in an aggregate amount, as valued at the time each investment is made, not exceeding $10,000,000 for all the 88 investments from and after the issue date; provided that the amount available for investments to be made pursuant to this clause (15) shall be increased from time to time (a) to the extent any return of capital is received by United or a restricted subsidiary on an investment previously made in reliance on this clause (15), in each case, up to, but not exceeding, the amount of the original investment but only to the extent the return of capital is excluded from consolidated net income and (b) by 100% of the aggregate net proceeds from the issue or sale of United's capital stock or of any equity contribution received by United, other than in return for disqualified capital stock, from a holder of United's capital stock, net of any amounts thereof used to calculate amounts available for restricted payments pursuant to clause (3) under "Limitation on Restricted Payments" or previously relied upon to make any permitted investments pursuant to this clause (15). Not later than the date of making of any permitted investment made in reliance on clause (15) above that includes proceeds described in clause (b) United shall deliver to the trustee an officers' certificate stating that the permitted investment is permitted and setting forth in reasonable detail the date, amount and nature of the purchase or contribution being relied upon. "PERMITTED LIENS" means (1) liens on property or assets of, or any shares of stock of or secured debt of, any corporation existing at the time the corporation becomes a restricted subsidiary of United or at the time the corporation is merged into United or any of its restricted subsidiaries; provided that the liens are not incurred in connection with, or in contemplation of, the corporation becoming a restricted subsidiary of United or merging into United or any of its restricted subsidiaries, (2) liens securing refinancing indebtedness; provided that the lien does not extend to or cover any property, shares or debt other than the property, shares or debt securing the indebtedness so refunded, refinanced or extended, (3) liens in favor of United or any of its restricted subsidiaries, and (4) liens existing on the issue date. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government. "PREFERRED STOCK" means any capital stock of a person, however designated, which entitles the holder to a preference with respect to dividends, distributions or liquidation proceeds of the person over the holders of other capital stock issued by the person. "PROPERTY" of any person means all types of real, personal, tangible, intangible or mixed property owned by the person whether or not included in the most recent consolidated balance sheet of the person and its subsidiaries under GAAP. "PURCHASE MONEY INDEBTEDNESS" means any indebtedness incurred by a person to finance, within 90 days from incurrence, the cost of an item of property acquired in the ordinary course of business, the principal amount of which indebtedness does not exceed the sum of (1) 100% of the cost and (2) reasonable fees and expenses of the person incurred in connection with purchase money indebtedness. "QUALIFIED PUBLIC OFFERING" means a public offering and sale by United, or, in the event of the asset drop-down, the new operating company or the holding company, of shares of its common stock, however designated and whether voting or non-voting, and any and all rights, warrants or options to acquire the common stock pursuant to a registration statement registered pursuant to the Securities Act; provided that the aggregate net proceeds to the issuer from the offering and sale is at least $25,000,000 and, provided, 89 further that, in the event of the asset drop-down and a subsequent qualified public offering by the holding company, the holding company will contribute to the capital of the new operating company that portion of the net proceeds of the qualified public offering, necessary to pay the aggregate redemption price, including accrued interest of the notes to be redeemed. "RECAPITALIZATION" means the transactions described in the recapitalization agreement. "RECAPITALIZATION AGREEMENT" means the agreement and plan of recapitalization, purchase and redemption dated as of December 24, 1998, as amended by Amendment No. 1 dated January 20, 1999 and Amendment No. 2 dated January 25, 1999, by and among the sellers, United and the UIC Holdings, L.L.C. "REDEEMABLE DIVIDEND" means, for any dividend or distribution with regard to disqualified capital stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate, expressed as a decimal number between 1 and 0, then applicable to the issuer of the disqualified capital stock. "REFINANCING INDEBTEDNESS" means indebtedness that is issued in exchange for, or refunds, refinances, renews, replaces, defeases or extends, in whole or in part, any indebtedness of United outstanding on the issue date or other indebtedness permitted to be incurred by United or its restricted subsidiaries pursuant to the terms of the indenture, but only to the extent that: (1) the refinancing indebtedness is subordinated to the notes to at least the same extent as the indebtedness being exchanged for, refunded, refinanced, renewed, replaced, defeased or extended, if at all, (2) the refinancing indebtedness is scheduled to mature either (a) no earlier than the indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the notes, (3) the portion, if any, of the refinancing indebtedness that is scheduled to mature on or prior to the maturity date of the notes has a weighted average life to maturity at the time the refinancing indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the notes, (4) the refinancing indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on the indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of the refinancing indebtedness, and (5) the refinancing indebtedness is incurred by the same person that initially incurred the indebtedness being refunded, refinanced or extended, except that United or a wholly-owned subsidiary United may incur refinancing indebtedness to refund, refinance or extend indebtedness of United or any other wholly-owned subsidiary of United. "RESTRICTED PAYMENT" means any of the following: (1) the declaration or payment of any dividend or any other distribution or payment on capital stock of United or any restricted subsidiary of United or any payment made to the direct or indirect holders of capital stock of United or any restricted subsidiary of United, other than (a) dividends or distributions payable solely in capital stock, other than disqualified capital stock, or in options, warrants or other rights to purchase capital stock, other than disqualified capital stock, and (b) in the case of restricted subsidiaries of United, dividends or distributions payable to United or to a wholly-owned subsidiary of United, 90 (2) the purchase, redemption or other acquisition or retirement for value of any capital stock of United or any of its restricted subsidiaries, other than capital stock owned by United or a wholly-owned subsidiary of United, excluding disqualified capital stock, (3) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any indebtedness which is subordinated in right of payment to the notes other than subordinated indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition, (4) the making of any investment or guarantee of any investment in any person other than a permitted investment, (5) any designation of a restricted subsidiary as an unrestricted subsidiary on the basis of the investment by United therein and (6) forgiveness of any indebtedness of an affiliate of United, other than a restricted subsidiary, to United or a restricted subsidiary. For purposes of determining the amount expended for restricted payments, cash distributed or invested will be valued at the face amount and property other than cash shall be valued at its fair market value determined by United's board of directors. "RESTRICTED SUBSIDIARY" means a subsidiary of United other than an unrestricted subsidiary. The board of directors of United may designate any unrestricted subsidiary or any person that is to become a subsidiary as a restricted subsidiary if: (1) immediately after giving effect to the action, and treating any acquired indebtedness as having been incurred at the time of the action, United could have incurred at least $1.00 of additional indebtedness, other than permitted indebtedness, pursuant to the "Limitation on Additional Indebtedness" covenant and (2) no default or event of default has occurred and be continuing. United will deliver an officers' certificate to the holders upon designating any unrestricted subsidiary as a restricted subsidiary. "SALE AND LEASE-BACK TRANSACTION" means any arrangement with any person providing for the leasing by United or any restricted subsidiary of United of any real or tangible personal property, which property has been or is to be sold or transferred by United or the restricted subsidiary to the person in contemplation of the leasing. "SENIOR CREDIT FACILITY" means the credit agreement, dated as of January 20, 1999, among United, the banks, financial institutions and other institutional lenders from time to time party to the credit agreement dated as of January 20, 1999, NationsBank, N.A., as the swing line bank and the initial issuing bank under the credit agreement dated as of January 20, 1999, NationsBanc Montgomery Securities LLC and Morgan Stanley Senior Funding Inc., as the co-arrangers for the credit agreement dated as of January 20, 1999, Canadian Imperial Bank of Commerce, as documentation agent for the credit agreement dated as of January 20, 1999, Morgan Stanley Senior Funding, Inc., as syndication agent under the credit agreement dated as of January 20, 1999, NationsBanc Montgomery Securities LLC, as lead arranger and book manager for the credit agreement dated as of January 20, 1999, and NationsBank, N.A., as administrative agent for the lender parties under the credit agreement dated as of January 20, 1999, together with all "Loan Documents" as defined in the credit agreement dated as of January 20, 1999 and all other documents related to the credit agreement dated as of January 20, 1999, in each case as the agreements may be amended, supplemented or otherwise modified from time to time, including any agreement 91 extending the maturity of, refinancing, renewing, replacing or otherwise restructuring, in whole or in part, all or any portion of the indebtedness under the agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders or other party to the agreement. "SENIOR INDEBTEDNESS" means the principal of and premium, if any, and interest on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts and obligations incurred or owing pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (1) all indebtedness of United under the senior credit facility, (2) all obligations of United with respect to any interest rate agreement, (3) all obligations of United to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (4) all other indebtedness of United which does not expressly provide that it is to rank PARI PASSU with or subordinate to the notes and (5) all deferrals, renewals, extensions, refinancings, replacements and refundings in whole or in part of, and amendments, modifications, restatements and supplements to, any of the indebtedness described above. Notwithstanding anything to the contrary above, senior indebtedness will not include (1) indebtedness of United to any of its subsidiaries, except to the extent the indebtedness is pledged as security under the senior credit facility, (2) indebtedness represented by the notes, (3) any indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any other item of indebtedness of United, although this clause (3) will not apply to the subordination of liens or security interests covering property or assets securing senior indebtedness, (4) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business or (5) liability for federal, state, local or other taxes owed or owing by United. "SUBSIDIARY" of any specified person means any corporation, partnership, limited liability company, joint venture, association or other business entity, whether now existing or later organized or acquired, (1) in the case of a corporation, of which more than 50% of the total voting power of the capital stock entitled, without regard to the occurrence of any contingency, to vote in the election of directors, officers or trustees held by such first-named person or any of its subsidiaries; or (2) in the case of a partnership, limited liability company, joint venture, association or other business entity, with respect to which such first-named person or any of its subsidiaries has the power to direct or cause the direction of the management and policies of that entity by contract or otherwise or if in accordance with GAAP that entity is consolidated with the first-named person for financial statement purposes. "TEMPORARY CASH INVESTMENTS" means (1) investments in marketable direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision of the United States of America, maturing within 365 days of the date of purchase; 92 (2) investments in certificates of deposit and time deposits issued by a lender under the senior credit facility or by a bank, or subsidiary of a bank holding company, organized under the laws of the United States of America or any of its states or the District of Columbia, in each case having capital, surplus and undivided profits at the time of investment totaling more than $500,000,000 and rated at the time of investment at least A by Standard and Poor's Corporation and A-2 by Moody's Investor Services, Inc. maturing within 365 days of purchase; (3) commercial paper issued by any person organized under the laws of any state of the United States of America and rated at least "Prime-1," or the then equivalent grade, by Moody's Investor Services, Inc. or at least "A- 1," or the then equivalent grade, by Standard and Poor's Corporation, in each case with a maturity of not more than 180 days from the date of acquisition; or (4) investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds' assets in the investments described in the preceding clauses (1), (2) and (3). "THL FEES" means (1) management fees under the management agreement between United and Thomas H. Lee Equity Fund IV, L.P. and its affiliates and successors and assigns that do not exceed $750,000 per year and the reimbursement of expenses pursuant thereto, provided that the amount of the management fees paid per year will increase to $1,500,000 if at the time of such payment United could incur at least $1.00 of additional indebtedness, other than permitted indebtedness, pursuant to the "Limitation on Additional Indebtedness" covenant and (2) one time fees to Thomas H. Lee Equity Fund IV, L.P. in connection with each acquisition of a company or a line of business by United or its subsidiaries, the fees to be payable at the time of each such acquisition and not to exceed 1% of the aggregate consideration paid by United and its subsidiaries for any such acquisition. "UNRESTRICTED SUBSIDIARY" of any person means (1) any subsidiary of the person that at the time of determination will be or continue to be designated an unrestricted subsidiary by the board of directors of the person in the manner provided below and (2) any subsidiary of an unrestricted subsidiary. The board of directors may designate any subsidiary to be an unrestricted subsidiary unless the subsidiary owns any capital stock of, or owns or holds any lien on any property of, United or any other subsidiary of United that is not a subsidiary of the subsidiary to be so designated; provided that (1) the designation complies with the "Limitation on Restricted Payments" covenant and (2) each subsidiary to be so designated and each of its subsidiaries has not at the time of designation, and does not, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any indebtedness pursuant to which the lender has recourse to any of the assets of United or any of its restricted subsidiaries. The board of directors may designate any unrestricted subsidiary to be a restricted subsidiary only if (1) immediately after giving effect to the designation and treating all indebtedness of the unrestricted subsidiary as being incurred on such date, United is able to incur at least $1.00 of additional indebtedness, other than permitted indebtedness, in compliance with the "Limitation on Additional Indebtedness" covenant and (2) immediately before and immediately after giving effect to the designation, no default or event of default has occurred and is continuing. 93 Any such designation by the board of directors will be evidenced by the board resolution giving effect to the designation and an officers' certificate certifying that the designation complied with the provisions. The trustee will be given prompt notice by United of each board resolution of United under this provision, together with a copy of each the resolution adopted. BOOK-ENTRY, DELIVERY AND FORM The notes were offered and sold to QIBs in reliance on Rule 144A under the Securities Act ("Rule 144A Notes"). Notes also were offered and sold in reliance on Regulation S ("Regulation S Notes"). In addition, notes may have been subsequently transferred to institutional accredited investors within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act of Institutional Accredited Investors in transactions exempt from registration under the Securities Act not made in reliance on Rule 144A or Regulation S under the Securities Act ("Other Notes"). Rule 144A Notes initially were represented by one or more notes in registered, global form without interest coupons (collectively, the "Rule 144A Global Note"). The Rule 144A Global Notes were deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant as described below. Other Notes held by Institutional Accredited Investors were represented by one or more certificated notes bearing the restrictive legend described under Notice to Investors ("Accredited Investor Certificated Notes"). Regulation S Notes initially were represented by one or more notes in registered, global form without interest coupons (collectively, the "Regulation S Global Note," and, together with the Rule 144A Global Note, the "Global Notes"). The Regulation S Global Notes were deposited upon issuance with the Trustee as custodian for DTC, and registered in the name of a nominee of DTC, in each case for credit to the accounts of Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL"). On or prior to the 40th day after the later of the commencement of the offering and the issue Date (such period through and including such 40th day, the "Restricted Period"), beneficial interests in the Regulation S Note may be held only through Euroclear or CEDEL, as indirect participants in DTC, unless transferred to a person that takes delivery in the form of an interest in the corresponding Rule 144A Global Note in accordance with the certification requirements described below. Beneficial interests in the Rule 144A Global Note may not be exchanged for beneficial interests in the Regulation S Global Note at any time except in the limited circumstances described below. See "--Exchanges between Regulation S Notes and Rule 144A Notes and Other Notes." Except as set forth below, the Global Notes may be transferred, in whole but not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for notes in certificated form except in the limited circumstances described below. See "--Exchange of Book-Entry Notes for Certificated Notes." Rule 144A Notes (including beneficial interests in the Rule 144A Global Note) and Other Notes are subject to certain restrictions on transfer and bear a restrictive legend as described under Notice to investors. In addition, transfer of beneficial interests in the Global Notes are subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and CEDEL), which may change from time to time. The notes may be presented for registration of transfer and exchange at the offices of the registrar. DEPOSITORY PROCEDURES DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between the participants through electronic book-entry changes in accounts of the participants. The participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to 94 DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the participants and the indirect participants. DTC has also advised us that pursuant to procedures established by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of participants designated by the initial purchasers with portions of the principal amount of the Global Notes and (ii) ownership of such interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the participants) or by the participants and the indirect participants (with respect to other owners of beneficial interests in the Global Notes). Investors in the Rule 144A Global Note may hold their interests therein directly through DTC, if they are participants in such system, or indirectly through organizations (including Euroclear and CEDEL) which are participants in such system. Investors in the Regulation S Global Note must initially hold their interests therein through Euroclear or CEDEL, if they are accountholders in such systems, or indirectly through organizations which are accountholders in such systems. After the expiration of the restricted period (but not earlier), investors may also hold interests in the Regulation S Global Note through organizations other than Euroclear and CEDEL that are participants in the DTC system. Euroclear and CEDEL will hold interests in the Regulation S Global Note on behalf of their participants through their respective depositories, which in turn will hold such interests in the Regulation S Global Note customers' securities accounts in their respective names on the books of DTC. The Chase Manhattan Bank, Brussels office, will initially act as depository for Euroclear, and Citibank, N.A., will initially act as depository for CEDEL. All interests in a Global Note, including those held through Euroclear or CEDEL, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or CEDEL may also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of the participants, which in turn act on behalf of the indirect participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the notes, see "--Exchange of Book-Entry Notes for Certificated Notes" and "--Exchanges between Regulation S Notes and Rule 144A Notes and Other Notes." EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respect of the principal of (and premium, if any) and interest on a Global Note registered in the name of DTC or its nominee will be payable to DTC or its nominee in its capacity as the registered holder under the indenture. Under the terms of the indenture, we and the Trustee will treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, none of our company, the initial purchasers, the Trustee or any of our agents or agents of the initial purchasers or the Trustee has or will have any responsibility or liability for (i) any aspect or accuracy of DTC's records or any participant's or indirect participant's records relating to the beneficial ownership or (ii) any other matter relating to the actions and practices of DTC or any of the participants or the indirect participants. 95 DTC has advised us that our current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will not be the responsibility of DTC, the Trustee or our company. Neither our company nor the Trustee will be liable for any delay by DTC or any of the participants in identifying the beneficial owners of the notes, and our company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Global Notes for all purposes. Except for trades involving only Euroclear and CEDEL participants, interests in the Global Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and the participants. Transfers between participants in DTC will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between accountholders in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes described herein, cross-market transfers between the accountholders in DTC, on the one hand, and directly or indirectly through Euroclear or CEDEL accountholders, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as the case may be, by its respective depository; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear and CEDEL accountholders may not deliver instructions directly to the depositories for Euroclear or CEDEL. Because of time zone differences, the securities account of a Euroclear or CEDEL accountholder purchasing an interest in a Global Note from an accountholder in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL participant, during the securities settlement processing day (which must be a business day for Euroclear or CEDEL) immediately following the settlement date of DTC. Cash received in Euroclear or CEDEL as a result of sales of interests in a Global Note by or through a Euroclear or CEDEL accountholder to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following DTC's settlement date. DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the notes as to which such participant or participants has or have given such direction. However, if any of the events described under--Exchange of Book Entry Notes for Certificated Notes occurs, DTC reserves the right to exchange the Global Notes for (in the case of the Rule 144A Global Note) legended notes in certificated form and to distribute such notes to its participants. The information in this section concerning DTC, Euroclear and CEDEL and their book-entry systems has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof. 96 Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to facilitate transfers of interests in the Regulation S Global Note and in the Rule 144A Global Note among accountholders in DTC and accountholders of Euroclear and CEDEL, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of our company, the initial purchasers or the Trustee or any agent of our company, the initial purchasers or the Trustee will have any responsibility for the performance by DTC, Euroclear or CEDEL or their respective participants, indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES Notes transferred to institutional accredited investors who are not QIBs will be issued in registered certificated form. In addition, a Global Note is exchangeable for definitive notes in registered certificated form if (i) DTC (x) notifies us that it is unwilling or unable to continue as depository for the Global Note and we thereupon fail to appoint a successor depository or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) we, at our option, notify the Trustee in writing that they elect to cause the issuance of the notes in certificated form or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the notes. In all cases, certificated notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures) and will bear, in the case of the restricted Global Note, the restrictive legend described in Notice to investors and, in the case of the Regulation S Global Note, a legend substantially in the form of the first sentence of the legend in bold type on the cover of this Offering Memorandum, in each case, unless we determine otherwise in compliance with applicable law. 97 EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER We originally sold our old notes on March 19, 1999 to CIBC Oppenheimer and NationsBanc Montgomery Securities LLC (the "Initial Purchasers") pursuant to a Securities Purchase Agreement dated March 19, 1999. The Initial Purchasers subsequently resold the notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. As a condition of the purchase agreement, we entered into an Exchange Offer Registration Rights Agreement (the "Exchange Offer Registration Rights Agreement") with the Initial Purchasers pursuant to which we agreed, for the benefit of the holders of the old notes, at our cost, to: - use our reasonable best efforts to file an exchange offer registration statement (the "Exchange Offer Registration Statement") within 45 days after the date of the original issuance of the old notes with the SEC with respect to the exchange offer for the new notes; and - use our reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 165 days after the date of the original issuance of the old notes. Upon the Exchange Offer Registration Statement being declared effective, we will offer the new notes in exchange for surrender of the old notes. We will keep the exchange offer open for not less than 30 days, or longer if required by applicable law, after the date on which notice of the exchange offer is mailed to the holders of the old notes. For each old note surrendered to us pursuant to the exchange offer, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old note. Under existing interpretations of the staff of the SEC contained in several no-action letters to third parties, we believe that the new notes will in general be freely tradeable after the exchange offer without further registration under the Securities Act. However, any purchaser of old notes who is an "affiliate" of the Issuers or who intends to participate in the exchange offer for the purpose of distributing the new notes: - will not be able to rely on the interpretation of the staff of the SEC; - will not be able to tender its old notes in the exchange offer; and - must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the old notes, unless such sale or transfer is made pursuant to an exemption from such requirements. As contemplated by these no-action letters and the Exchange Offer Registration Rights Agreement, each holder accepting the exchange offer is required to represent to us in the Letter of Transmittal that: - the new notes are to be acquired by the holder or the person receiving such new notes, whether or not such person is the holder, in the ordinary course of business; - the holder or any such other person, other than a broker-dealer referred to in the next sentence, is not engaging and does not intend to engage, in distribution of the new notes; - the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the new notes; - neither the holder nor any such other person is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act; and - the holder or any such other person acknowledges that if such holder or any other person participates in the exchange offer for the purpose of distributing the new notes it must comply 98 with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the new notes and cannot rely on those no-action letters. As indicated above, each broker-dealer (a "Participating Broker-Dealer") that receives new notes for its own account in exchange for old notes must acknowledge that it: - acquired the new notes for its own account as a result of market-making activities or other trading activities; - has not entered into any arrangement or understanding with us or any "affiliate" (within the meaning of Rule 405 under the Securities Act) to distribute the new notes to be received in the exchange offer; and - will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such new notes. For a description of the procedures for resales by Participating Broker-Dealers, see "Plan of Distribution." In the event that changes in the law or the applicable interpretations of the staff of the SEC do not permit us to effect such an exchange offer, or if for any other reason the exchange offer is not consummated within 195 days of the date of the original issuance of the old notes, we will: - file a shelf registration statement covering the resale of the old notes; - use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act; and - use our reasonable best efforts to keep effective the shelf registration statement for two years after its effective date. We will, in the event of the filing of the shelf registration statement, provide to each applicable holder of the old notes copies of the prospectus, which is a part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective, and take certain other actions as are required to permit unrestricted resale of the old notes. A holder of the old notes that sells such old notes pursuant to the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales, and will be bound by the provisions of the Exchange Offer Registration Rights Agreement which are applicable to such a holder, including certain indemnification obligations. In addition, each holder of the old notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the Exchange Offer Registration Rights Agreement in order to have their old notes included in the shelf registration statement and to benefit from the provisions set forth in the following paragraph. The Exchange Offer Registration Rights Agreement provides that: - we will use our reasonable best efforts to file an Exchange Offer Registration Statement with the SEC on or prior to 45 days after the date of the original issue of the old notes; - we will use our reasonable best efforts to have the Exchange Offer Registration Statement declared effective by the SEC on or prior to 165 days after the date of the original issue of the old notes; - unless the exchange offer would not be permitted by applicable law or SEC policy, we will commence the exchange offer and use our reasonable best efforts to issue on or prior to 195 days after the issue date, new notes in exchange for all old notes tendered prior thereto in the exchange offer; and 99 - if obligated to file the shelf registration statement, we will use our reasonable best efforts to file the shelf registration statement with the SEC in a timely fashion. If: (a) we fail to file any of the registration statements required by the Exchange Offer Registration Rights Agreement on or before the date specified for such filing; (b) any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness; (c) we fail to consummate the exchange offer within 195 days of the date of the original issuance of the old notes; or (d) the shelf registration statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities (as such term is defined in the Exchange Offer Registration Rights Agreement) during the period specified in the Exchange Offer Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "registration default"), the sole remedy available to holders of the old notes will be the immediate assessment of additional interest as follows: the per annum interest rate on the old notes will increase by .25% for each 90-day period during which the registration default continues, up to a maximum additional interest rate of 2% per annum in excess of 9 7/8% per annum. All additional interest will be payable to holders of the old notes in cash on each April 1 and October 1, commencing with the first such date occurring after any such additional interest commences to accrue, until such registration default is cured. After the date on which such registration default is cured, the interest rate on the old notes will revert to 9 7/8% per annum. Holders of old notes have no right to receive such additional interest, if any. Holders of old notes will be required to make certain representations to us in order to participate in the exchange offer and holders of old notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the Exchange Offer Registration Rights Agreement in order to have their old notes included in the shelf registration statement and benefit from the provisions regarding additional interest set forth above. Such required representations and information is described in the Exchange Offer Registration Rights Agreement. The summary herein of certain provisions of the Exchange Offer Registration Rights Agreement is subject to, and is qualified in its entirety by, all the provisions of the Exchange Offer Registration Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement of which this prospectus is a part. Following the consummation of the exchange offer, holders of the old notes who were eligible to participate in the exchange offer but who did not tender their old notes will not have any further registration rights and such old notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such old notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the Letter of Transmittal, we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1999. We will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding old notes accepted in the exchange offer. Holders may tender some 100 or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in integral multiples of $1,000. The form and terms of the new notes are substantially the same as the form and terms of the old notes except that: - the new notes bear a new designation and a different CUSIP number from the old notes; - the new notes have been registered under the federal securities laws and hence will not bear legends restricting the transfer thereof as the old notes do; and - the holders of the new notes will generally not be entitled to certain rights under the Exchange Offer Registration Rights Agreement, which rights generally will be satisfied when the exchange offer is consummated. The new notes will evidence the same debt as the tendered old notes and will be entitled to the benefits of the indenture under which the old notes were issued. As of the date of this prospectus, $150,000,000 aggregate principal amount of old notes were outstanding. Holders of old notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware, the Delaware Limited Liability Company Act or the indentures relating to such notes in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder. We shall be deemed to have accepted validly tendered old notes when, as and if we have given oral or written notice thereof, such notice if given orally, to be confirmed in writing, to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the new notes from our company. If any tendered old notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted old notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the expiration date. Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of old notes pursuant to the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The expiration date is 5:00 p.m., New York City time, on , 1999, unless we extend the exchange offer, in which case the expiration date will be the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, we will file with the SEC a post-effective amendment to the registration statement. We reserve the right: - to delay accepting any old notes, to extend the exchange offer or to terminate the exchange offer if any of the conditions set forth below under "conditions" shall not have been satisfied, by giving oral or written notice, such notice if given orally, to be confirmed in writing, of such delay, extension or termination to the exchange agent, or - to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. 101 INTEREST ON THE NEW NOTES The new notes will bear interest from their date of issuance. Holders of old notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the new notes. Such interest will be paid with the first interest payment on the new notes on October 1, 1999 to persons who are registered holders of the new notes on September 1, 1999. Interest on the old notes accepted for exchange will cease to accrue upon issuance of the new notes. Interest on the new notes is payable semi-annually on each April 1 and October 1, commencing on October 1, 1999. PROCEDURES FOR TENDERING Only a registered holder of old notes may tender such notes in the exchange offer. To tender in the exchange offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the old notes and any other required documents, or cause The Depository Trust Company to transmit an agent's message in connection with a book-entry transfer, to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. To be tendered effectively, the old notes, the Letter of Transmittal or agent's message and other required documents must be completed and received by the exchange agent at the address set forth below under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. Delivery of the old notes may be made by book entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date. The term "agent's message" means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent forming a part of a confirmation of a book-entry, which states that such book-entry transfer facility has received an express acknowledgment from the participant in such book-entry transfer facility tendering the old notes that such participant has received and agrees: - to participate in the Automated Tender Option Program ("ATOP"); - to be bound by the terms of the Letter of Transmittal; and - that we may enforce such agreement against such participant. By executing the Letter of Transmittal or agent's message, each holder will make to us the representations set forth above in the fourth paragraph under the heading "--Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by us will constitute agreement between such holder and the company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal or agent's message. The method of delivery of old notes and the Letter of Transmittal or agent's message and all other required documents to the exchange agent is at the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No Letter of Transmittal or old notes should be sent to the company. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for such holders. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. 102 Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution (as defined below) unless the notes tendered pursuant thereto are tendered by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal, or for the account of an eligible institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "eligible institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any old notes listed therein, such notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such notes with the signature thereon guaranteed by an eligible institution. If the Letter of Transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence to our satisfaction of their authority to so act must be submitted with the Letter of Transmittal. We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the old notes at the book-entry transfer facility, The Depository Trust Company (the "book-entry transfer facility"), for the purpose of facilitating the exchange offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of old notes by causing such book-entry transfer facility to transfer such old notes into the exchange agent's account with respect to the old notes in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of the old notes may be effected through book-entry transfer into the exchange agent's account at the book-entry transfer facility, unless an agent's message is transmitted to and received by the exchange agent in compliance with ATOP on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures, the tender of such notes will not be valid. Delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent. All questions as to the validity, form, eligibility, including time of receipt, acceptance of tendered old notes and withdrawal of tendered old notes will be determined by us, in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. We may not waive any condition to the exchange offer unless such condition is legally waiveable. In the event such a waiver by us gives rise to the legal requirement to do so, we will hold the exchange offer open for at least five business days thereafter. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the Letter of Transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as the we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither the issuers, the exchange agent nor any other person shall incur any liability for failure to give such notification. Tender of old notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the expiration date. 103 GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their old notes and whose old notes are not immediately available, who cannot deliver their old notes, the Letter of Transmittal or any other required documents to the exchange agent, or who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if: (a) the tender is made through an eligible institution; (b) prior to the expiration date, the exchange agent receives by facsimile transmission, mail or hand delivery from such eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, setting forth the name and address of the holder, the certificate number(s) of such old notes and the principal amount of old notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the Letter of Transmittal, or facsimile thereof, or, in the case of a book-entry transfer, an agent's message, together with the certificate(s) representing the old notes, or a confirmation of book-entry transfer of such notes into the exchange agent's account at the Book-Entry Transfer Facility, and any other documents required by the Letter of Transmittal will be deposited by the eligible institution with the exchange agent; and (c) the certificate(s) representing all tendered old notes in proper form for transfer, or a confirmation of a book-entry transfer of such old notes into the exchange agent's account at the book entry transfer facility, together with a Letter of Transmittal, of facsimile thereof, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an agent's message, are received by the exchange agent within three New York Stock Exchange trading days after the expiration date of the exchange offer. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. To withdraw a tender of old notes in the exchange offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth herein prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Any such notice of withdrawal must: - specify the name of the person having deposited notes to be withdrawn (the "Depositor"); - identify the notes to be withdrawn, including the certificate number(s) and principal amount of such notes, or, in the case of old notes transferred by book-entry transfer, the name and number of the account at the book entry transfer facility to be credited; - be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the old notes register the transfer of such notes into the name of the person withdrawing the tender; and - specify the name in which any such old notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by us and shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued with respect thereto unless the old notes so withdrawn are validly retendered. Any old notes which have been tendered but which are not accepted for exchange will be 104 returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the expiration date. CONDITIONS Notwithstanding any other term of the exchange offer, we shall not be required to accept for exchange, or new notes for, any old notes, and may terminate or amend the exchange offer as provided herein before the acceptance of such old notes, if: - any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our sole judgment, might materially impair our ability to proceed with the exchange offer, or any material adverse development has occurred in any existing action or proceeding with respect to our company or any of our subsidiaries; or - any law, statute, rule, regulation or interpretation by the staff of the SEC is proposed, adopted or enacted, which, in our sole judgment, might materially impair our ability to proceed with the exchange offer or materially impair the contemplated benefits of the exchange offer; or - any governmental approval has not been obtained, which approval we shall, in our sole discretion, deem necessary for the consummation of the exchange offer as contemplated hereby. If we determine, in our sole discretion, that any of the conditions are not satisfied, we may: - refuse to accept any old notes and return all tendered old notes to the tendering holders; - extend the exchange offer and retain all old notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw such old notes as described in "--Withdrawal of Tenders" above; - waive such unsatisfied conditions with respect to the exchange offer and accept all properly tendered old notes which have not been withdrawn. EXCHANGE AGENT State Street Bank and Trust Company has been appointed as exchange agent for the exchange offer. Questions and requests for assistance, requests for additional copies of this prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the exchange agent addressed as follows: By Mail: Overnight Courier: State Street Bank and Trust Company State Street Bank and Trust Company Corporate Trust Department Corporate Trust Department P.O. Box 778 Two Avenue de Lafayette, Fifth Floor Boston, Massachusetts 02110 Boston, Massachusetts 02111 Attention: Susan Lavey Attention: Susan Lavey By Hand in New York (as Drop Agent): By Hand in Boston: State Street Bank and Trust Company, N.A. State Street Bank and Trust Company 61 Broadway Two International Place Concourse Level, Corporate Trust Window Fourth Floor, Corporate Trust Department New York, New York 10006 Boston, Massachusetts 02111 Attention: Susan Lavey Facsimile Transmission: Confirm by Telephone: (For Eligible Institutions Only) (617) 662-1544 (617) 662-1452
Delivery to an address other than set forth above will not constitute a valid delivery. 105 FEES AND EXPENSES The expenses of soliciting tenders will be borne by us. The principal solicitation is being made by mail however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of our company and our affiliates. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. We will pay the cash expenses to be incurred in connection with the exchange offer. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The new notes will be recorded at the same carrying value as the old notes, which is face value, as reflected in our company's accounting records on the date of exchange. Accordingly, we will recognize no gain or loss for accounting purposes. The expenses of the exchange offer will be expensed over the term of the new notes. CONSEQUENCES OF FAILURE TO EXCHANGE The old notes that are not exchanged for new notes pursuant to the exchange offer will remain restricted securities. Accordingly, such old notes may be resold only: - to our company, upon redemption thereof or otherwise; - so long as the old notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to our company; - outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or - pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. RESALE OF THE NEW NOTES With respect to resales of new notes, based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives new notes, whether or not such person is the holder, other than a person that is an "affiliate" of our company within the meaning of Rule 405 under the Securities Act, in exchange for old notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the new notes, will be allowed to resell the new notes to the public without further registration under the Securities Act and without delivering to the purchasers of the new notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires new notes in the exchange offer for the purpose of distributing or participating in a distribution of the new notes, such holder cannot rely on the position of the staff of the SEC enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale 106 transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. As contemplated by these no-action letters and the Exchange Offer Registration Rights Agreement, each holder accepting the exchange offer is required to represent to our company in the Letter of Transmittal that: - the new notes are to be acquired by the holder or the person receiving such new notes, whether or not such person is the holder, in the ordinary course of business; - the holder or any such other person, other than a broker-dealer referred to in the next sentence, is not engaging and does not intend to engage, in the distribution of the new notes; - the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the new notes; - neither the holder nor any such other person is an "affiliate" of our company within the meaning of Rule 405 under the Securities Act; and - the holder or any such other person acknowledges that if such holder or other person participates in the exchange offer for the purpose of distributing the new notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the new notes and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives new notes for its own account in exchange for old notes must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." 107 SELECTED UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material U.S. federal income tax aspects of the exchange of old notes for new notes pursuant to the exchange offer and the ownership and disposition of the new notes. This discussion is for general information and does not consider all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership and disposition of the notes by a prospective investor in light of your personal circumstances. This discussion also does not address the U.S. federal income tax consequences of ownership of notes not held as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, or the U.S. federal income tax consequences to investors subject to special treatment under the U.S. federal income tax laws, such as dealers in securities or foreign currency, tax-exempt entities, financial institutions, insurance companies, persons that hold the notes as part of a "straddle," a "hedge" or a "conversion transaction," persons that have a "functional currency" other than the U.S. dollar, and investors in pass-through entities. In addition, this discussion does not describe any tax consequences arising under U.S. federal gift and estate taxes or out of the tax laws of any state, local or foreign jurisdiction. This discussion is based upon the Code, existing, temporary and proposed Treasury regulations issued by the IRS, and current administrative rulings and court decisions as of the date of this Registration Statement. All of the foregoing is subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion. Persons considering investing in the notes should consult their own tax advisors concerning the application of federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdiction, to their particular situations. U.S. HOLDERS The following discussion is limited to the U.S. federal income tax consequences relevant to a holder of a new note that is: - a citizen or resident (as defined in Section 7701(b)(1) of the Code) of the United States; - a corporation organized under the laws of the United States or any U.S. political subdivision (or one treated as a citizen or resident under the Code); - an estate, the income of which is subject to U.S. federal income tax regardless of the source; or - a trust with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions (a "U.S. Holder"). Certain U.S. federal income tax consequences relevant to a holder other than a U.S. Holder are discussed separately below. NEW NOTES The exchange of old notes for new notes pursuant to the exchange offer will not be treated as an "exchange" for federal income tax purposes because the new notes will not be considered to differ materially in kind or extent from the old notes. Rather, the new notes received by a Holder will be treated as a continuation of the old notes in the hands of such Holder. As a result, there will be no federal income tax consequences to Holders exchanging old notes for new notes pursuant to the exchange offer. 108 STATED INTEREST Stated interest on a new note should be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received in accordance with such U.S. Holder's method of accounting for U.S. federal income tax purposes. MARKET DISCOUNT If a new note is acquired at a "market discount," some or all of any gain realized upon a sale or other disposition or payment at maturity or some or all of a partial principal payment of such new note may be treated as ordinary income, as described below. For this purpose, "market discount" is the excess, if any, of the stated redemption price at maturity of a new note over its purchase price, subject to a statutory DE MINIMIS exception. Unless a U.S. Holder has elected to include market discount in income as it accrues, any gain realized on a subsequent disposition of a new note, other than in connection with certain nonrecognition transactions, or payment at maturity, or some or all of any partial principal payment with respect to the new note, will be treated as ordinary income to the extent of the market discount that is treated as having accrued during the period such U.S. Holder held the new note. The amount of market discount treated as having accrued will be determined either: - on a straight-line basis by multiplying the market discount times a fraction, the numerator of which is the number of days the new note was held by the U.S. Holder and the denominator of which is the total number of days after the date such U.S. Holder acquired the new note up to and including the date of its maturity; or - if the U.S. Holder so elects, on a constant interest rate method. A U.S. Holder may make that election with respect to any new note but, once made, such election is irrevocable. In lieu of recharacterizing gain upon disposition as ordinary income to the extent of accrued market discount at the time of disposition, a U.S. Holder of a new note acquired at a market discount may elect to include market discount in income currently, through the use of either the straight-line inclusion method or the elective constant interest method. Once made, the election to include market discount in income currently applies to all new notes and other obligations held by the U.S. Holder that are purchased at a market discount during the taxable year for which the election is made, and all subsequent taxable years of the U.S. Holder, unless the Internal Revenue Service (the "IRS") consents to a revocation of the election. If an election is made to include market discount in income currently, the basis of the new note in the hands of the U.S. Holder will be increased by the market discount thereon as it is included in income. In addition, the U.S. Holder may be required to defer, until the maturity of the old note or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred (or continued) in order to purchase or carry such old note. Unless a U.S. Holder who acquires a new note at a market discount elects to include market discount in income currently, such U.S. Holder may be required to defer deductions for any interest paid on indebtedness allocable to such new notes in an amount not exceeding the deferred income until such income is realized. In addition, in President Clinton's Fiscal Year 2000 Budget which was submitted to Congress on February 1, 1999, a proposal was submitted which would require holders that use an accrual method of accounting to include market discount in income (as ordinary interest income) as it accrues. Under this proposal, the holder's yield for purposes of determining and accruing market discount would be limited to the greater of (1) the original yield-to-maturity of the debt instrument plus 5 percentage points, or (2) the applicable federal rate at the time the holder acquired the debt instrument plus 5 percentage points. As currently proposed, this proposal would be effective for debt instruments acquired on or after the date of 109 enactment. As of the date of this Registration Statement, whether this proposal will be enacted is uncertain. BOND PREMIUM If a U.S. Holder purchases a note and immediately after the purchase the adjusted basis of the note exceeds the sum of all amounts payable on the instrument after the purchase date, other than qualified stated interest, the note has "bond premium." The old notes were issued for an amount in excess of their principal amount, and thus have "bond premium." A U.S. Holder may elect to amortize such bond premium over the remaining term of such note or if it results in a smaller amount of amortizable bond premium, until an earlier call date. If bond premium is amortized, the amount of interest that must be included in the U.S. Holder's income for each period ending on an interest payment date or at the stated maturity, as the case may be, will be reduced by the portion of premium allocable to such period based on the note's yield to maturity. If such an election to amortize bond premium is not made, a U.S. Holder must include the full amount of each interest payment in income in accordance with its regular method of accounting and will receive a tax benefit from the premium only in computing such U.S. Holder's gain or loss upon the sale or other disposition or payment of the principal amount of the new note. An election to amortize premium will apply to amortizable bond premium on all notes and other bonds, the interest on which is includible in the U.S. Holder's gross income, held at the beginning of the U.S. Holder's first taxable year to which the election applies or that are thereafter acquired and may be revoked only with the consent of the IRS. SALE, EXCHANGE OR REDEMPTION OF THE NEW NOTES Upon the disposition of a new note by sale, exchange or redemption, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount realized on the disposition, other than amounts attributable to accrued interest not yet taken into income which will be taxed as ordinary income, and the U.S. Holder's tax basis in the new note. A U.S. Holder's tax basis in a new note generally will equal the cost of the new note to the U.S. Holder increased by amounts includible in income as market discount, if the U.S. Holder elects to include market discount on a current basis, and reduced by any bond premium amortized by any U.S. Holder. Assuming the new note is held as a capital asset, such gain or loss, except to the extent that the market discount rules otherwise provide, will generally constitute capital gain or loss and will be long-term capital gain, which is taxed, in the case of non-corporate taxpayers, at a maximum rate of 20%, or loss if the U.S. Holder has held such new note for longer than 12 months. BACKUP WITHHOLDING AND INFORMATION REPORTING Under the Code, a U.S. Holder of a new note may be subject, under certain circumstances, to information reporting and/or backup withholding at a 31% rate with respect to cash payments in respect of interest on, or the gross proceeds from disposition of, a new note. This withholding applies only if a U.S. Holder: - fails to furnish its social security or other taxpayer identification number ("TIN") within a reasonable time after a request therefor; - furnishes an incorrect TIN; - fails to report interest or dividends properly; or - fails, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. 110 Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit, and may entitle such holder to a refund, against such Holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and financial institutions. Holders of new notes should consult their tax advisors as to their qualification for exemption from withholding and the procedure for obtaining such exemption. NON-U.S. HOLDERS The following discussion is limited to the U.S. federal income tax consequences relevant to a holder of a new note that is not a U.S. Holder (a "Non-U.S. Holder"). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership or disposition of the new notes by any particular Non-U.S. Holder in light of such Holder's personal circumstances, including holding the new notes through a partnership. For example, persons who are partners in foreign partnerships or beneficiaries of foreign trusts or estates and who are subject to U.S. federal income tax because of their own status, such as U.S. residence or foreign persons engaged in a trade or business in the United States, may be subject to U.S. federal income tax even though the entity is not subject to income tax on disposition of its new note. For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of the new note will be considered "U.S. trade or business income" if such income or gain is effectively connected with the conduct of a U.S. trade or business, or in the case of an applicable income tax treaty between the United States and the country of which the Holder is a qualified resident, attributable to a U.S. permanent establishment (or to a fixed base) in the United States. STATED INTEREST Generally, any interest paid to a Non-U.S. Holder of a new note that is not U.S. trade or business income will not be subject to U.S. federal income tax if the interest qualifies as "portfolio interest." Interest on the new notes will qualify as portfolio interest if: - the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of United Industries corporation, and is not a "controlled foreign corporation" with respect to which either of the issuers is a "related person" within the meaning of Section 881(c)(3)(C) of the Code; and - the beneficial owner, under penalties of perjury, certifies that the beneficial owner is not a U.S. person and such certificate provides the beneficial owner's name and address and such beneficial owner files the requisite withholding form. The gross amount of payments to a Non-U.S. Holder of interest that do not qualify for the portfolio interest exception and that are not U.S. trade or business income will be subject to U.S. withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at regular U.S. federal income tax rates rather than the 30% gross rate. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed Form 1001 or 4224, or such successor forms as the IRS designates, as applicable, prior to payment of interest. These forms must be periodically updated. Under regulations effective beginning after December 31, 1999, the Forms 1001 and 4224 will be replaced by Form W-8, and a Non-U.S. Holder who is claiming the benefits of a tax treaty may be required to obtain a U.S. TIN and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. 111 SALE, EXCHANGE OR REDEMPTION OF NOTES Subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a new note generally will not be subject to U.S. federal income tax unless such gain is U.S. trade or business income, or, subject to certain exceptions, the Non-U.S. Holder is an individual who holds the new note as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition. INFORMATION REPORTING AND BACKUP WITHHOLDING The issuers must report annually to the IRS and to each Non-U.S. Holder any interest that is subject to U.S. withholding tax or that is exempt from withholding pursuant to a tax treaty or the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Backup withholding and information reporting will not apply to payments of principal on the new notes by the issuers to a Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that neither the issuers nor their paying agent has actual knowledge that the Holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of notes to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of a new note to or through a non-U.S. office of a U.S. broker that is not a "U.S. related person" will not be subject to information reporting or backup withholding. For this purpose, a "U.S. related person" is a "controlled foreign corporation" for U.S. federal income tax purposes or a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived from activities that are effectively connected with the conduct of a U.S. trade or business. In the case of the payment of proceeds from the disposition of new notes to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related person, the regulations require information reporting on the payment unless the broker has documentary evidence in its files that the owner is a Non- U.S. Holder and the broker has no knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is a U.S. person or a U.S. related person, absent actual knowledge that the payee is a U.S. Holder. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed. 112 PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with the resale of new notes received in exchange for new notes where such new notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale. Each Participating Broker-Dealer who acquired the old notes directly form United in the private placement and not as a result of market making and trading activities; (a) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the notes; (b) cannot rely on the SEC's no-action letters; and (c) cannot use the exchange offer prospectus for resales of the new notes. We will not receive any proceeds from any sales of the new notes by Participating Broker Dealers. new notes received by Participating Broker-Dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such new notes. Any Participating Broker-Dealer that resells the new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. LEGAL MATTERS Certain legal matters in connection with the offering and the sale of the notes will be passed upon for us by Kirkland & Ellis, Chicago, Illinois. INDEPENDENT ACCOUNTANTS Our financial statements as of December 31, 1998, and for the year ended December 31, 1998, included in this prospectus have been audited by PricewaterhouseCoopers LLP, independent public accountants, as stated in their report appearing herein. Our financial statements as of December 31, 1996 and 1997, and for each of the years ended December 31, 1996 and 1997, included in this prospectus have been audited by Rubin, Brown, Gornstein & Co., LLP, independent public accountants, as stated in their report appearing herein. 113 CHANGE IN INDEPENDENT ACCOUNTANTS Effective January 20, 1999, we dismissed Rubin, Brown, Gornstein & Co. LLP as our independent accountants. Concurrent with such dismissal, we engaged PricewaterhouseCoopers LLP as our independent accountants. The decision to dismiss Rubin, Brown, Gornstein & Co. LLP as our independent accountants was approved by United's board of directors. The reports of Rubin, Brown, Gornstein & Co. LLP on our financial statements for each of the two fiscal years in the period ended December 31, 1997 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of our financial statements for each of the two fiscal years in the period ended December 31, 1997 and through January 20, 1999, there were no disagreements between us and Rubin, Brown, Gornstein & Co. LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Rubin, Brown, Gornstein & Co. LLP, would have caused them to make reference to the matter in their reports. AVAILABLE INFORMATION United has filed with the SEC a Registration Statement on Form S-4 pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the exchange offer contemplated by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement. For further information with respect to United and the exchange offer, see the Registration Statement. We are not currently subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934. We have agreed that, whether or not we are required to do so by the rules and regulations of the Securities Exchange Commission, for so long as any of the notes remain outstanding, we will furnish to the holders of the notes and file with the Securities Exchange Commission, unless the Securities Exchange Commission will not accept such a filing: (a) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if we were required to file such forms, including a Management's Discussion and Analysis of Financial Condition and Results of Operations and, with respect to the annual information only, a report thereon by our certified independent accountants and (b) all reports that would be required to be filed with the Commission on Form 8-K if we were required to file such reports. FORWARD-LOOKING STATEMENTS We make forward-looking statements throughout this prospectus. Whenever you read a statement that is not simply a statement of historical fact, such as when we describe what we believe, expect or anticipate will occur, and other similar statements, you must remember that our expectations may not be correct, even though we believe they are reasonable. We do not guarantee that the transactions and events described in this prospectus will happen as described, or that they will happen at all. You should read this prospectus completely and with the understanding that actual future results may be materially different from what we expect. We will not update these forward-looking statements, even though our situation will change in the future. 114 [THIS PAGE INTENTIONALLY LEFT BLANK] 115 UNITED INDUSTRIES CORPORATION INDEX TO FINANCIAL STATEMENTS
PAGE ----- Report of Independent Accountants--PricewaterhouseCoopers LLP.............................................. F-2 Report of Independent Auditors--Rubin, Brown, Gornstein & Co. LLP.......................................... F-3 Balance Sheets............................................................................................. F-4 Statements of Income....................................................................................... F-5 Statements of Stockholders' Equity......................................................................... F-6 Statements of Cash Flows................................................................................... F-7 Notes to Financial Statements.............................................................................. F-8 Unaudited Financial Statements as of March 31, 1999........................................................ F-19
F-1 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors United Industries Corporation St. Louis, Missouri In our opinion, the accompanying balance sheet of United Industries Corporation and the related statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of United Industries Corporation at December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of United Industries Corporation for the year ended December 31, 1997 and December 31, 1996 were audited by other independent accountants whose report dated February 25, 1998 expressed an unqualified opinion on those statements. /S/ PRICEWATERHOUSECOOPERS LLP St. Louis, Missouri February 24, 1999 F-2 REPORT OF INDEPENDENT AUDITORS Board of Directors United Industries Corporation St. Louis, Missouri We have audited the accompanying balance sheet of United Industries Corporation, an S Corporation, as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of United's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Industries Corporation as of December 31, 1997 and 1996, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Rubin, Brown, Gornstein & Co. LLP February 25, 1998 F-3 UNITED INDUSTRIES CORPORATION BALANCE SHEETS DECEMBER 31, 1997 AND 1998 (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------- 1997 1998 --------- ---------- ASSETS Current assets: Cash and cash equivalents................................................................ $ 316 $ -- Accounts receivable (less allowance for doubtful accounts of $60 at December 31, 1997 and 1998)............................................................ 17,526 17,650 Inventories.............................................................................. 41,637 41,444 Prepaid expenses......................................................................... 1,696 2,172 --------- ---------- Total current assets................................................................. 61,175 61,266 Equipment and leasehold improvements, net.................................................. 20,022 20,156 Amounts due from affiliated company........................................................ 3,428 -- Other assets............................................................................... 7,018 6,948 Investment in discontinued operations...................................................... 5,798 5,791 --------- ---------- Total assets......................................................................... $ 97,441 $ 94,161 --------- ---------- --------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt..................................................... $ 1,050 $ 929 Accounts payable......................................................................... 22,090 18,519 Accrued expenses......................................................................... 6,723 12,705 --------- ---------- Total current liabilities............................................................ 29,863 32,153 Long-term debt............................................................................. 2,947 3,716 Other liabilities.......................................................................... 182 35 --------- ---------- Total liabilities.................................................................... 32,992 35,904 Stockholders' equity: Common stock............................................................................. 2 2 Additional paid-in capital............................................................... 972 972 Retained earnings........................................................................ 70,798 70,193 Treasury stock........................................................................... (7,323) (12,910) --------- ---------- Total stockholders' equity........................................................... 64,449 58,257 --------- ---------- Total liabilities and stockholders' equity........................................... $ 97,441 $ 94,161 --------- ---------- --------- ----------
The accompanying notes are an integral part of these financial statements. F-4 UNITED INDUSTRIES CORPORATION STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1997 1998 ---------- ---------- ---------- Net sales.................................................................... $ 199,495 $ 242,601 $ 282,676 Operating costs and expenses: Cost of goods sold......................................................... 106,640 128,049 140,445 Advertising and promotion expenses......................................... 22,804 25,547 31,719 Selling, general and administrative expenses............................... 46,276 52,092 61,066 Non-recurring litigation charges........................................... -- -- 2,321 ---------- ---------- ---------- Total operating costs and expenses..................................... 175,720 205,688 235,551 ---------- ---------- ---------- Operating income............................................................. 23,775 36,913 47,125 Interest expense............................................................. 1,502 1,267 1,106 ---------- ---------- ---------- Income before provision for income taxes and discontinued operations......... 22,273 35,646 46,019 Income tax expense........................................................... 447 726 992 ---------- ---------- ---------- Income from continuing operations............................................ 21,826 34,920 45,027 Income from discontinued operations, net of tax.............................. 2,325 1,923 1,714 ---------- ---------- ---------- Net income................................................................... $ 24,151 $ 36,843 $ 46,741 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. F-5 UNITED INDUSTRIES CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (DOLLARS IN THOUSANDS)
ACCUMULATED CLASS A VOTING CLASS B NON-VOTING OTHER COMMON STOCK COMMON STOCK ADDITIONAL COMPREHENSIVE -------------------------- -------------------------- PAID-IN RETAINED INCOME SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS --------------- ----------- ------------- ----------- ------------- ------------- ----------- Balance--January 1, 1996...... $ -- 1,000 $ 1 1,000 $ 1 $ 913 $ 45,817 Net income.................... 24,151 Other comprehensive income.... Distributors paid............. (17,005) Treasury stock reissued....... 59 Treasury stock purchased...... -- -- ------ ----- ----- ----- ----------- Balance--December 31, 1996.... -- 1,000 1 1,000 1 972 52,963 -- -- ------ ----- ----- ----- ----------- Balance--January 1, 1997...... -- 1,000 1 1,000 1 972 52,963 Net income.................... 36,843 Other comprehensive income.... Distributions paid............ (19,008) Treasury stock cost adjustment.................. -- -- ------ ----- ----- ----- ----------- Balance--December 31, 1997.... -- 1,000 1 1,000 1 972 70,798 -- -- ------ ----- ----- ----- ----------- Balance--January 1, 1998...... -- 1,000 1 1,000 1 972 70,798 Net income.................... 46,741 Other comprehensive income.... Distributions paid............ (47,346) Treasury stock purchased...... Treasury stock cost adjustment.................. -- -- ------ ----- ----- ----- ----------- Balance--December 31, 1998.... $ -- 1,000 $ 1 1,000 $ 1 $ 972 $ 70,193 -- -- -- -- ------ ----- ----- ----- ----------- ------ ----- ----- ----- ----------- NOTES RECEIVABLE- TREASURY STOCK TREASURY TOTAL ---------------------- STOCK STOCKHOLDERS' SHARES AMOUNT REISSUED EQUITY ----------- --------- ------------- ------------- Balance--January 1, 1996...... (135) (169) (699) 45,864 Net income.................... 24,151 Other comprehensive income.... Distributors paid............. (17,005) Treasury stock reissued....... 43 53 (112) Treasury stock purchased...... (308) (6,993) 811 (6,182) ----- --------- --- ------------- Balance--December 31, 1996.... (400) (7,109) -- 46,828 ----- --------- --- ------------- Balance--January 1, 1997...... (400) (7,109) -- 46,828 Net income.................... 36,843 Other comprehensive income.... Distributions paid............ (19,008) Treasury stock cost adjustment.................. (214) (214) ----- --------- --- ------------- Balance--December 31, 1997.... (400) (7,323) -- 64,449 ----- --------- --- ------------- Balance--January 1, 1998...... (400) (7,323) -- 64,449 Net income.................... 46,741 Other comprehensive income.... Distributions paid............ (47,346) Treasury stock purchased...... (120) (5,818) (5,818) Treasury stock cost adjustment.................. 231 231 ----- --------- --- ------------- Balance--December 31, 1998.... $ (520) $ (12,910) $ -- $ 58,257 ----- --------- --- ------------- ----- --------- --- -------------
The accompanying notes are an integral part of these financial statements. F-6 UNITED INDUSTRIES CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1997 1998 ---------- ---------- ---------- Cash flows from operating activities: Net income.................................................................. $ 24,151 $ 36,843 $ 46,741 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations......................................... (2,325) (1,923) (1,714) Depreciation and amortization............................................... 3,561 3,597 3,838 Loss on sale or disposal of equipment....................................... 1,411 97 31 Changes in assets and liabilities: (Increase) in accounts receivable......................................... (2,560) (5,410) (124) Decrease (increase) in inventories........................................ 2,121 (6,608) 193 Decrease (increase) in prepaid expenses................................... 352 92 (476) Increase in accounts payable and accrued expenses......................... 967 8,565 2,411 Other, net.................................................................. 63 (117) (137) ---------- ---------- ---------- Cash flow from continuing operations.......................................... 27,741 35,136 50,763 Cash flow from discontinued operations........................................ 3,155 1,896 1,858 ---------- ---------- ---------- Net cash provided by operating activities............................... 30,896 37,032 52,621 Cash flows from investing activities: Payments for acquisition of equipment and leasehold improvements, net......................................................... (6,384) (5,138) (3,628) ---------- ---------- ---------- Cash used by investing activities--continuing operations...................... (6,384) (5,138) (3,628) Cash used by investing activities--discontinued operations.................... (279) (422) (221) ---------- ---------- ---------- Net cash used in investing activities................................... (6,663) (5,560) (3,849) Cash flows from financing activities: Decrease in line of credit, net............................................. (2,050) (9,250) -- Payments on long-term debt.................................................. (4,900) (927) (3,997) Purchase of treasury stock.................................................. (1,437) -- (1,173) Net advances from (to) affiliated company................................... 1,747 (3,144) 3,428 Distributions paid.......................................................... (17,005) (19,008) (47,346) ---------- ---------- ---------- Net cash used in financing activities................................... (23,645) (32,329) (49,088) Net increase (decrease) in cash and cash equivalents.......................... 588 (857) (316) Cash and cash equivalents--beginning of year.................................. 585 1,173 316 ---------- ---------- ---------- Cash and cash equivalents--end of year........................................ $ 1,173 $ 316 $ -- ---------- ---------- ---------- ---------- ---------- ---------- Supplemental disclosure of cash flow information: Interest paid............................................................... $ 1,401 $ 1,308 $ 1,584 Income taxes paid........................................................... $ 465 $ 612 $ 567 Noncash financing activity: Treasury stock purchased for stockholder notes............................ $ 4,745 $ -- $ 4,645 Revaluation of treasury stock............................................. $ -- $ 214 $ (231) Forgiveness of shareholder note........................................... $ 811 $ -- $ --
The accompanying notes are an integral part of these financial statements. F-7 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out method. Cost includes raw materials, direct labor and overhead. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Expenditures for equipment and leasehold improvements and those which substantially increase the useful lives of equipment are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and gains or losses on the dispositions are reflected in earnings. Depreciation is provided on the straight-line basis by charges to costs or expenses at rates based on the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from three to twelve years. Office furniture and equipment are depreciated over periods ranging from five to ten years. Automobiles and trucks are depreciated over periods ranging from three to seven years. Leasehold improvements are amortized over periods ranging from five to thirty-nine years. Subsequent to acquisition, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining useful life of equipment and leasehold improvements may warrant revision or that the remaining balance of equipment and leasehold improvements may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of equipment and leasehold improvements from expected future operating cash flows on an undiscounted basis. In the opinion of management, no such impairment existed as of December 31, 1997 and 1998. GOODWILL Goodwill is included in other assets and represents the excess of cost over the net tangible assets of acquired businesses. Goodwill is amortized over 40 years. Subsequent to acquisition, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining useful life of an intangible asset may warrant revision or that the remaining balance of an intangible asset may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of intangible assets from expected future operating cash flows on an undiscounted basis. In the opinion of management, no such impairment existed as of December 31, 1997 and 1998. F-8 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING AND PROMOTION EXPENSES The Company advertises and promotes its products through national and regional media. Products are also advertised and promoted through cooperative programs with retailers. The Company expenses advertising and promotion costs as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred and approximated $427, $592 and $776 for 1996, 1997 and 1998, respectively. REVENUE RECOGNITION The Company recognizes revenue upon shipment of its products. Sales are net of discounts and allowances. COMPREHENSIVE INCOME Comprehensive income is defined as the total of net income and all other non-owner changes in equity (see the accompanying statements of stockholders' equity). The Company has no other items that affect comprehensive income other than net income. EARNINGS PER SHARE In accordance with generally accepted accounting principles, earnings per share information is not presented since the Company does not have publicly held common stock. SEGMENT INFORMATION In 1998, the Company adopted Statement of Financial Accounting Standards (FAS) 131, Disclosure about Segments of an Enterprise and Related Information. FAS 131 supersedes FAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. FAS 131 also requires disclosures about products and services, geographic areas and major customers. The adoption of FAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information (see Note 17--Segment information). 2. SUBSEQUENT EVENT--RECAPITALIZATION OF THE COMPANY On January 20, 1999, pursuant to a recapitalization agreement with UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P. ("THL Fund IV" and, together with its affiliates, the "THL Parties"), the Company was recapitalized in a transaction in which: (a) UIC Holdings, L.L.C. purchased common stock from the Company's stockholders for approximately $254.7 million; (b) the Company's senior managers purchased common stock from the Company's existing stockholders for approximately $5.7 million; and (c) the Company used the net proceeds of a senior subordinated facility (the "senior F-9 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 2. SUBSEQUENT EVENT--RECAPITALIZATION OF THE COMPANY (CONTINUED) subordinated facility") and borrowings under a senior credit facility (the "senior credit facility") to redeem a portion of the common stock held by the Company's existing stockholders. Following the recapitalization, UIC Holdings, L.L.C. owns approximately 91.9% of the Company's issued and outstanding common stock, the existing stockholders retain approximately 6.0% and the Company's senior managers own approximately 2.1%. The total transaction value of the recapitalization was approximately $652.0 million, including related fees and expenses, and the implied total equity value following the recapitalization was approximately $277.0 million. The total consideration paid to redeem the Company's common stock is subject to both upward and downward adjustments based on the Company's working capital on the date of the recapitalization and excess taxes of the Company's previous stockholders arising from the Company's Section 338(h)(10) election. The recapitalization was funded by: (a) $225.0 million of borrowings under a senior credit facility; (b) $150.0 million of borrowings under a senior subordinated facility; (c) the approximate $254.7 million equity investment by the THL Parties through UIC Holdings, L.L.C.; (d) the approximate $5.7 million equity investment by the Company's senior management team; and (e) equity retained by the Company's existing stockholders having an implied fair market value of approximately $16.6 million. The recapitalization will be accounted for as a leveraged recapitalization which will have no impact on United's historical basis of assets and liabilities for financial reporting purposes. The effects of the recapitalization have not been included in these financial statements. 3. DISCONTINUED OPERATIONS In connection with the recapitalization of the Company as described in Note 2 above, the Company formed a wholly-owned subsidiary DW Wej-it, Inc., a Delaware corporation ("DW"). All of the Company's assets and liabilities related to the Company's business of manufacturing and marketing construction anchoring fasteners and providing contract manufacturing services in metals fabrication (which is collectively referred to as the "Metals Business") were contributed to DW. Effective January 1, 1999, the Company distributed all of the shares of capital stock of DW owned by the Company to its shareholders. The Metals Business is accounted for as a discontinued operation in the accompanying financial statements. The Investment in discontinued operations at December 31, 1998 and 1997 is primarily comprised of cash, accounts receivable, inventory, fixed assets, accounts payable and accrued expenses. Operating results for the Metals Business have been included in the Statements of Income for 1996, 1997 and 1998. Results for discontinued operations are as follows:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- Net sales.................................................... $ 18,242 $ 18,757 $ 18,038 Income before income taxes................................... 2,373 1,963 1,751 Income tax expense........................................... 48 40 37 Income from discontinued operations.......................... 2,325 1,923 1,714
F-10 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 4. COMMON STOCK AND STOCK SPLIT The Company's articles of incorporation previously authorized 20,000 shares of $1.00 par value Class A Voting shares and 20,000 shares of $1.00 par value Class B Non-Voting shares. At December 31, 1998, 740 Class A Voting shares and 740 Class B Non-Voting shares were outstanding. At December 31, 1996 and 1997, 800 Class A Voting shares and 800 Class B Non-Voting shares were outstanding. On January 20, 1999, the Company's Board of Directors declared a 83,378.37838 to 1 stock split and increased the Company's authorized capital to 65 million shares, of which 32.5 million have been designated as Class A Voting Common Stock and 32.5 million have been designated as Class B Non-Voting Common Stock. As of January 20, 1999, there were 27.7 million shares of Class A Voting Common Stock outstanding and 27.7 million shares of Class B Non-Voting Common Stock outstanding. In conjunction with the stock split, the Company's board of directors reduced the par value of both the Class A Voting shares and Class B Non-Voting shares to $0.01 per share. The effects of the stock split and changes to the authorized capital of the Company have not been reflected in the accompanying financial statements. 5. INVENTORIES Inventories at December 31, are as follows:
1997 1998 --------- --------- Raw materials........................................................... $ 8,253 $ 7,748 Finished good........................................................... 33,384 33,696 --------- --------- $ 41,637 $ 41,444 --------- --------- --------- ---------
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements at December 31, are as follows: Machinery and equipment................................... $ 27,379 $ 30,243 Office furniture and equipment............................ 3,065 3,316 Automobiles and trucks.................................... 322 322 Leasehold improvements.................................... 6,401 6,793 --------- --------- 37,167 40,674 Less: Accumulated depreciation and amortization........... 17,145 20,518 --------- --------- $ 20,022 $ 20,156 --------- --------- --------- ---------
Depreciation charged against income approximated to $3,324, $3,377 and $3,624 in 1996, 1997 and 1998, respectively. F-11 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 7. OTHER ASSETS Other assets at December 31, are as follows:
1997 1998 --------- --------- Goodwill................................................................. $ 7,988 $ 7,988 Accumulated amortization................................................. (1,530) (1,744) --------- --------- 6,458 6,244 Other.................................................................... 560 704 --------- --------- $ 7,018 $ 6,948 --------- --------- --------- ---------
Amortization charged against income for goodwill approximated $237, $220 and $214 in 1996, 1997 and 1998, respectively. 8. ACCRUED EXPENSES Accrued expenses at December 31 are as follows:
1997 1998 --------- --------- Cash overdraft........................................................... $ -- $ 3,148 Litigation accrual....................................................... -- 2,321 Other.................................................................... 6,723 7,236 --------- --------- $ 6,723 $ 12,705 --------- --------- --------- ---------
9. LONG-TERM DEBT AND CREDIT FACILITIES Long-term debt at December 31, consists of:
1997 1998 --------- --------- Former stockholder, unsecured, payable in annual principal installments of $982 plus interest at the six-month U.S. Treasury Bill rate in effect on the first day of each annual period... $ 3,997 $ -- Former stockholders, unsecured, payable in annual principal installments of $929 plus interest at the six-month U.S. Treasury Bill rate in effect on the first day of each annual period... -- 4,645 Less: current maturities...................................................................... (1,050) (929) --------- --------- $ 2,947 $ 3,716 --------- --------- --------- ---------
The long-term debt outstanding at December 31, 1998 was repaid in conjunction with the recapitalization on January 20, 1999. The fair value of long-term debt approximates its carrying value. Prior to the recapitalization, the Company had available an unsecured seasonal working capital line of credit with a bank. The agreement provided the Company with a maximum $80,000 line of credit. Interest on outstanding borrowings were payable monthly at a rate not to exceed the bank's LIBOR rate plus F-12 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 9. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED) 0.75% or the bank's prime rate less 1.75%. No borrowings were outstanding at December 31, 1998. This agreement was canceled in conjunction with the recapitalization. In conjunction with the recapitalization on January 20, 1999 as discussed in Note 2, the Company borrowed $225,000 under the senior credit facility and $150,000 under the senior subordinated facility. The senior credit facility was provided by NationsBank, N.A., Morgan Stanley Senior Funding, Inc. and CIBC Inc. and consists of (a) a $110,000 revolving credit facility (the "revolving credit facility"), under which no borrowings were outstanding at the closing of the recapitalization; (b) a $75,000 term loan facility ("Term Loan A"); and (c) a $150,000 term loan facility ("Term Loan B"). The revolving credit facility and the Term Loan A mature six years from the closing date of the senior credit facility, and the Term Loan B matures seven years from the closing date of the senior credit facility. The revolving credit facility is subject to a clean-down period during which the aggregate amount outstanding under the revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. The principal amount of the Term Loan A is to be repaid in twenty-three consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2005, with $10,000 to be payable in each of the first four years and $17,500 to be repaid in each of the last two years. The principal amount of the Term Loan B is to be repaid in twenty-seven consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2006, with $1,500 to be payable in each of the first six years and $141,000 to be payable in year seven. Interest on the revolving credit facility, Term Loan A and Term Loan B ranges from 200 to 325 basis points above LIBOR depending on certain financial ratios. Unused commitments under the revolving credit facility are subject to a 50 basis point annual commitment fee. Obligations under the senior credit facility are secured by substantially all of the properties and assets of the Company and substantially all of the properties and assets of the Company's future domestic subsidiaries. The senior subordinated facility was provided by CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. The notes mature in 2009 and bear interest at 10.5% per annum, which is payable semi-annually in arrears on July 15 and January 15, commencing in 1999. The interest rate on the notes is subject to increase under certain circumstances. Aggregate maturities under the senior credit facility (excluding the revolving credit facility) and the senior subordinated facility are as follows: 1999.............................................................. $ 8,625 2000.............................................................. 11,500 2001.............................................................. 11,500 2002.............................................................. 11,500 2003.............................................................. 17,125 Thereafter........................................................ 314,750 --------- $ 375,000 --------- ---------
F-13 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 10. TREASURY STOCK REISSUED/PURCHASED On January 1, 1996, the Company reissued 42.56 shares of treasury stock in exchange for a note for $112 from a stockholder. The note bore interest at 8.17%, payable in January of each year. The difference between the reissue price and the cost of the treasury stock was credited to additional paid-in capital. On August 15, 1996, the Company purchased all the outstanding shares covered by the note discussed above and by previous transactions and related notes. As part of this treasury stock purchase, the outstanding notes, along with accrued interest, were credited against the purchase price of the stock. During 1997, the cost of the treasury stock purchased in 1996 was revalued, resulting in an increase of $214 in treasury stock and long-term debt. On January 30, 1998, the Company purchased 120 shares, which represented all of the outstanding common stock of three stockholders for cash of $1,173 and shareholder notes totaling $4,645. In 1998, the treasury stock was revalued, resulting in a decrease of $231 in treasury stock. 11. INCOME TAXES The Company had elected "S" corporation status under provisions of the Internal Revenue Code, and similar provisions of Missouri tax law. As such, the Company was not liable for federal or Missouri state income taxes, but rather the stockholders include their distributive share of the taxable income of the Company on their respective income tax returns. The Company was under a contractual obligation to its stockholders to distribute a percentage of net income equal to 110% of the highest personal income tax rates to provide the stockholders with funds to make their personal quarterly estimated income tax payments. The provision for income taxes consists of certain state income taxes computed at statutory rates in effect. In conjunction with the recapitalization, the Company converted to a "C" corporation and will be subject to federal income tax beginning in 1999. 12. DEFERRED COMPENSATION PLANS The Company has a 401(k) savings plan which covers substantially all of its employees with six months or more continuous service. The 401(k) feature allows participants to defer a portion of eligible compensation on a tax-deferred basis. The plan provides for the Company to match 50% of the voluntary contribution up to 6% of gross earnings. The matching amount increases to 75% after ten years of service. The matching contribution amounted to $352, $347 and $239 for 1996, 1997 and 1998, respectively. 13. TRANSACTIONS WITH RELATED PARTIES The Company occasionally advanced funds or received funds from a company with common ownership to the Company. The advances are unsecured and bear interest at the Company's borrowing rate. The amounts due from the affiliated company bore interest at 10.5% per year and were repaid in 1998. Effective January 1, 1996, the Company entered into a services agreement with an affiliated company to provide executive, administrative, acquisition, bookkeeping, clerical and other services. The fees for these services are to be determined by mutual agreement within 120 days of year end for the prior year. F-14 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 13. TRANSACTIONS WITH RELATED PARTIES (CONTINUED) The services agreement will remain in place until terminated by either party. Fees charged under this service agreement were $768, $0 and $0 for 1996, 1997 and 1998, respectively. This agreement was canceled in connection with the recapitalization. The Company has guaranteed the debt of an affiliated company. The guaranteed debt amounted to approximately $5,528 and $4,833 at December 31, 1997 and 1998, respectively. The guarantee of this debt was terminated in connection with the recapitalization. See Note 15--Commitments--for a discussion of lease arrangements with a related party. 14. CONCENTRATION OF CREDIT RISKS, EXPOSURES AND FINANCIAL INSTRUMENTS Financial instruments which potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. The Company is heavily dependent on four customers for a substantial majority of its sales. These four customers accounted for approximately 64% and 68% of net sales for 1997 and 1998, respectively. At December 31, 1997 and 1998, accounts receivable from these four customers were 56% and 51%, respectively, of total accounts receivable. (See Note 17--Segment information for sales to United's four largest customers.) The Company performs ongoing credit evaluations of its customers' financial conditions and generally does not require collateral from its customers. The Company maintains allowances for potential credit losses, and such losses have generally been within management's expectations. Through December 31, 1998, the Company did not have any significant amounts of debt outstanding that was sensitive to changes in interest rates. The Company does not use any derivative financial instruments to hedge its exposure to interest rate changes. The Company does utilize various commodity and specialty chemicals in its production process. The Company does not use derivative commodity instruments to hedge its exposures to changes in commodity prices. The carrying value of cash and short-term financial instruments approximates fair value due to the short maturity of those instruments. 15. COMMITMENTS The Company rents one of its facilities from an affiliated company under an operating lease expiring December 31, 2000 with minimum annual rentals of $138. The Company has three options to renew the lease for additional five-year periods. Rent expense amounted to $138 in 1996, 1997 and 1998. The Company leases the majority of its operating facilities from an affiliated company under various operating leases expiring December 31, 1999 at minimum annual rentals of approximately $2,637. The leases also provide that on an annual basis the monthly rent is adjusted by one-half of the annual change in the Consumer Price Index percentage. The Company has options to renew the leases on a year-to-year basis for an additional ten years, beginning January 1, 2000. The Company also leased an aircraft from this company for $96 per month through December 1998. The Company leases a portion of its operating facilities from the same company under a sublease agreement expiring on December 31, 2005 with minimum annual rentals ranging from $140 to $368. The F-15 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 15. COMMITMENTS (CONTINUED) Company has two, five-year options to renew the lease, beginning January 1, 2006. Total rent expense to this affiliated company amounted to $3,202, $3,528 and $3,575 for 1996, 1997 and 1998, respectively. The Company is also obligated under other operating leases for use of warehouse space. The leases expire at various dates through January 31, 2001. Three of the leases provide as many as three five-year options to renew. Total rent expense under these lease agreements amounted to $1,233, $654 and $654 for 1996, 1997 and 1998, respectively. Management believes that the terms and expenses associated with the related party leases described above are similar to those negotiated by unrelated parties at arm's length. The future minimum rental commitments, required under noncancellable operating leases, are as follows:
AMOUNT --------------------------------- YEAR AFFILIATE OTHER TOTAL - ---------------------------------------------------------------------------- ----------- --------- --------- 1999........................................................................ $ 2,514 $ 472 $ 2,986 2000........................................................................ 506 180 686 2001........................................................................ 416 -- 416 2002........................................................................ 416 -- 416 2003........................................................................ 416 -- 416 Thereafter.................................................................. 832 -- 832 ----------- --------- --------- $ 5,100 $ 652 $ 5,752 ----------- --------- --------- ----------- --------- ---------
16. CONTINGENCIES In March 1998, a judgement was entered against the Company for a lawsuit filed in 1992 by the spouse of a former employee claiming benefits from a Company-owned key man life insurance policy. The Company is currently appealing this judgment. In October 1998, the FTC and several state attorneys general filed a suit against the Company seeking to enjoin its advertising of Spectracide Terminate as "a home defense system." The FTC and attorneys general alleged that the Company had made deceptive and unsubstantiated claims regarding this product. In February 1999, the Company negotiated a settlement agreement with the FTC which is currently being circulated among the parties to the case for signatures, in which the Company agrees to modify its advertising and to reimburse the other parties for certain costs incurred. Costs related to the two cases described above have been reflected as non-recurring litigation charges in 1998. The Company is involved in litigation and arbitration proceedings in the normal course of business that assert product liability and other claims. The Company is contesting all such claims. When it appears probable in management's judgment that the Company will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, appropriate liabilities are recorded in the financial statements and charges are made against earnings. Management believes the possibility of a material adverse effect on the Company's consolidated financial position, results of operations and cash flows from the claims and proceedings described above is remote. F-16 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 17. SEGMENT INFORMATION The Company operates in one segment consisting of the manufacturing, marketing and distribution of lawn and garden care and insect control products to retail channels principally in the United States. (See Note 3--Discontinued operations--for a discussion of the spin-off of the Metals Business.) The Company's product lines include herbicides, household insecticides, insect repellents and water-soluble fertilizers under a variety of brand names. The product lines are as follows: VALUE BRANDS - Spectracide--consumer lawn and garden pesticides; - Hot Shot--household insecticides; - Cutter--consumer insect repellents; and - Peters--consumer water-soluble fertilizers. OPENING PRICE POINT BRANDS - Real-Kill--opening price point brand at Home Depot; - No-Pest--opening price point brand at Lowe's; and - KRid and KGro--exclusive opening price point brand at Kmart. The Company sells and distributes both its value and opening price point brands to its four largest customers. Net sales to United's four largest customers were as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 1997 1998 ----- ----- Customer A........................................................................ 19% 26% Customer B........................................................................ 18% 17% Customer C........................................................................ 10% 14% Customer D........................................................................ 17% 11%
No other customers represented more than 10% of 1997 or 1998 net sales. F-17 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 1998 ------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL --------- ---------- --------- --------- ---------- Net sales............................................... $ 82,295 $ 126,938 $ 47,952 $ 25,491 $ 282,676 Operating income........................................ 15,525 29,864 4,268 (2,532) 47,125 Income from continuing operations....................... 14,999 28,448 4,273 (2,693) 45,027 Income from discontinued operations, net of tax......... 420 534 424 336 1,714 Net income.............................................. 15,419 28,982 4,697 (2,357) 46,741
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL --------- ---------- --------- --------- ---------- Net sales............................................... $ 83,133 $ 100,483 $ 40,187 $ 18,798 $ 242,601 Operating income........................................ 15,968 23,607 2,476 (5,138) 36,913 Income from continuing operations....................... 15,274 22,507 2,168 (5,029) 34,920 Income from discontinued operations, net of tax......... 534 577 436 376 1,923 Net income.............................................. 15,808 23,084 2,604 (4,653) 36,843
F-18 UNITED INDUSTRIES CORPORATION INDEX MARCH 31, 1999
PAGE --------- Balance Sheet.............................................................................................. F-20 Statements of Operations................................................................................... F-21 Statements of Cash Flows................................................................................... F-22 Notes to Financial Statements.............................................................................. F-23
F-19 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CAN NOT LEGALLY BE OFFERED THE SECURITIES. THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE ON ITS COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE OF THIS PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME AS DESCRIBED OR THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT--NOR DO WE IMPLY THOSE THINGS BY DELIVERING THIS PROSPECTUS OR SELLING SECURITIES TO YOU. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 1 Risk Factors.............................................................. 12 The Transactions.......................................................... 17 Use of Proceeds........................................................... 19 Capitalization............................................................ 20 Unaudited Pro Forma Financial Statements.................................. 21 Selected Historical Financial Data........................................ 28 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 30 Business.................................................................. 37 Management................................................................ 49 Material Transactions..................................................... 54 Principal Stockholders.................................................... 56 Description of Capital Stock.............................................. 57 Description of Our Senior Credit Facility................................. 58 Description of the New Notes.............................................. 60 Exchange Offer............................................................ 98 Selected United States Federal Income Tax Considerations.................. 108 Plan of Distribution...................................................... 113 Legal Matters............................................................. 113 Independent Auditors...................................................... 113 Available Information..................................................... 114 Forward-looking Statements................................................ 114 Index to Financial Statements............................................. F-1
$150,000,000 UNITED INDUSTRIES CORPORATION OFFER TO EXCHANGE THEIR 9 7/8% SERIES B REGISTERED SENIOR SUBORDINATED NOTES DUE 2009 FOR ANY AND ALL OF THEIR OUTSTANDING 9 7/8% SERIES A UNREGISTERED SENIOR SUBORDINATED NOTES DUE 2009 --------------------- PROSPECTUS --------------------- , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. United is incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware, inter alia ("Section 145") provides that a Delaware corporation may indemnify any persons who were, are or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses, such as attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are threatened to be made, party to any threatened, pending or completed action or suit by or in the right of the corporation by reasons of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses, including attorneys' fees, actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Article V of the By-laws of United ("Article V") provides, among other things, that any person who, by reason of the fact he is a director or officer of United, or is or was serving at the request of the United as a director, officer of United, or is or was serving at the request of United as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, is or was a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, shall be indemnified by United, provided he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of United, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Such indemnification shall be provided against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in that with respect to an action or suit by or in the right of United, such indemnification shall be only against expenses, including attorneys' fees, and in such cases no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to United, unless, and only to the extent that, the court in which the action or suit was brought determines, upon application, that despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. To the extent that a director, officer, employee or agent of United has been successful on the merits or otherwise in defense of any such action, suit, or proceeding or in defense of any claim, issue or mater therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the action, suit or proceeding. Any other indemnification hereunder, unless ordered by a court, is made by United only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth within Article V of United's bylaws. The determination is made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the shareholders. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of United, or, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Article V further provides that expenses, including attorneys' fees, incurred in defending a civil or criminal action, suit or proceeding may be paid by United in advance of the final disposition of the action, suit, or proceeding as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it ultimately determines that he is entitled to be indemnified by United as authorized by Article V of United's bylaws. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him or her in any such capacity, arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him or her under Section 145. Article V further provides that United may purchase and maintain insurance on its behalf and on behalf of any person who is or was a director, officer, employee, fiduciary or agent of United or is or was serving at the request of United as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his status as such, whether or not United would have the power to indemnify such person against such liability under Article V. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 3.1 Amended and Restated Certificate of Incorporation of the Company, dated January 13, 1999. 3.2 Certificate of Amendment of the Company, dated January 20, 1999. 3.3 By-laws of the Company. 4.1 Securities Purchase Agreement, dated as of March 19, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. 4.2 Indenture, dated as of March 24, 1999, between the Company and State Street Bank and Trust Company as Trustee with respect to the 9 7/8% Senior Subordinated Notes due 2009 (including the form of 9 7/8% Senior Subordinated Notes). 4.3 Registration Rights Amendment, dated as of March 24, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. 5.1 Opinion of Kirkland & Ellis. 10.1 United Industries Corporation Deferred Compensation Plan. 10.2 Management Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian.+ 10.3 Management Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender.+ 10.4 Management Agreement, dated as of January 20, 1999, between the Company and William P. Johnson.+
II-2 10.5 Management Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston.+ 10.6 Management Agreement, dated as of July , 1999, between the Company and D. Garrad Warren III.+ 10.7 Chairman's Agreement, dated as of July , 1999, between the Company and David A. Jones.+ 10.8 Consulting Agreement, dated as of January 20, 1999, between the Company and David A. Jones. 10.9 United Industries Corporation 1999 Stock Option Plan. 10.10 Stock Option Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian.+ 10.11 Stock Option Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender.+ 10.12 Stock Option Agreement, dated as of January 20, 1999, between the Company and William P. Johnson.+ 10.13 Stock Option Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston.+ 10.14 Stock Option Agreement, dated as of January 20, 1999, between the Company and David A. Jones.+ 10.15 Stock Option Agreement, dated as of July , 1999, between the Company and David A. Jones.+ 10.16 Stockholders Agreement, dated as of January 20, 1999, among the Company and the Stockholders (as defined therein).+ 10.17 Stock Option Agreement, dated as of July , 1999, between the Company and D. Garrad Warren III.+ 10.18 Professional Services Agreement, dated as of January 20, 1999, between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital, L.L.C. and the Company. 10.19 Amended and Restated Credit Agreement dated as of March 24, 1999 among the Company, NationsBanc Montgomery Securities LLC, Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce, NationsBank, N.A., the Initial Lenders (as defined therein), the Swing Line Bank (as defined therein) and the Initial Issuing Bank (as defined therein).+ 10.20 Lease, dated as of December 1, 1995, between Rex Realty Co. and the Company.+ 10.21 Lease, dated as of November 27, 1989, between Rex Realty Co. and the Company.+ 10.22 Agreement and Plan of Reorganization, Purchase and Redemption, dated as of December 24, 1998, among the Company, the sellers named therein and UIC Holdings, L.L.C. (the "Recapitalization Agreement"). 10.23 Amendment No. 1 to the Recapitalization Agreement, dated as of January 20, 1999. 10.24 Amendment No. 2 to the Recapitalization Agreement, dated as of January 25, 1999. 10.25 Severance Agreement, dated as of June 29, 1999, between the Company and Stephen R. Brian.+ 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.*
II-3 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Rubin, Brown, Gornstein & Co., LLP. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1). 24.1 Powers of Attorney (included in Part II of the Registration Statement). 25.1 Statement of Eligibility of Trustee on Form T-1.* 27.1 Financial Data Schedule.* 99.1 Form of Letter of Transmittal. 99.2 Form of Letter of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.
- ------------------------ * To be filed by amendment. + The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon request by the Commission. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore has been omitted. ITEM 22. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuers undertake that such reoffering prospectus will contain the information called for by II-4 the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (5) The registrant undertakes that every prospectus (a) that is filed pursuant to paragraph (1) immediately preceding, or (b) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (6) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (7) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (8) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first Class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, United Industries Corporation has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in City of San Diego, State of California, on the 7th day of April, 1999. UNITED INDUSTRIES CORPORATION BY: /S/ DAVID A. JONES ----------------------------------------- Name: David A. Jones Title: Chairman of the Board POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Jones and Daniel J. Johnston and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities indicated on the 7th day of April, 1999. SIGNATURE CAPACITY - ------------------------------ --------------------------- Chairman of the Board and /s/ DAVID A. JONES Director of United - ------------------------------ (Principal Executive David A. Jones Officer) /s/ DANIEL J. JOHNSTON Senior Vice President, - ------------------------------ Finance and MIS and Chief Daniel J. Johnston Financial Officer /s/ MARK ROWLAND Vice President, Controller - ------------------------------ Mark Rowland /s/ C. HUNTER BOLL Director of United - ------------------------------ C. Hunter Boll /s/ SCOTT A. SCHOEN Director of United - ------------------------------ Scott A. Schoen /s/ CHARLES A. BRIZIUS Director of United - ------------------------------ Charles A. Brizius /s/ DAVID C. PRATT Director of United - ------------------------------ David C. Pratt II-6 EX-5.1 2 EXHIBIT 5.1 Exhibit 5.1 KIRKLAND & ELLIS PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS 200 East Randolph Drive DRAFT Chicago, Illinois 60601 To Call Writer Direct: 312 861-2000 Facsimile: 312 861-2000 312 861-2200 July __, 1999 United Industries Corporation 8825 Page Boulevard St. Louis, Missouri 63114 Re: United Industries Corporation, Registration Statement on Form S-4 Registration No. 333-76055 -------------------------- Ladies and Gentlemen: We are issuing this opinion letter in our capacity as special legal counsel to United Industries Corporation, a Delaware corporation (the "Registrant") pursuant to the Indenture (the "Indenture") dated as of March 24, 1999, among the Issuer and State Street Bank and Trust Company, as Trustee, in connection with the proposed registration by the Issuer of up to $150,000,000 in aggregate principal amount of the Issuer's 9 7/8% Senior Subordinated Notes due 2009 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-4 (Registration No. 333-76055) originally filed with the Securities and Exchange Commission (the "Commission") on March 19, 1999, under the Securities Act of 1933, as amended (the "Act") (such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement"). The Exchange Notes and are to be issued pursuant to the Indenture in exchange for and in replacement of the Registrant's outstanding 9 7/8% Senior Notes due 2009 (the "Old Notes"), of which $150,000,000 in aggregate principal amount is outstanding. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) the Certificate of Incorporation and By-Laws of the Registrant, (ii) minutes and records of the corporate proceedings of the Registrant with respect to the issuance of the Exchange Notes and the Guarantees, respectively, (iii) the Registration Statement, and (iv) the Registration Rights Agreement, dated March 24, 1999, among the Issuer and CIBC Oppenheimer Corp and NationsBanc Montgomery Securities LLC. For purposes of this opinion, we have assumed the authenticity of all documents KIRKLAND & ELLIS United Industries Corporation July __, 1999 Page 2 submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto other than the Registrant and the due authorization, execution and delivery of all documents by the parties thereto other than the Registrant. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Registrant and others. Our opinion expressed below is subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of (i) any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other similar law affecting the enforcement of creditors' rights generally, (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (iii) public policy considerations which may limit the rights of parties to obtain certain remedies and (iv) any laws except the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware case law decided thereunder and the federal laws of the United States of America. Based upon and subject to the assumptions, qualifications, assumptions and limitations and the further limitations set forth below, we are of the opinion that when (i) the Registration Statement becomes effective, (ii) the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended and (iii) the Exchange Notes and the Guarantees have been duly executed and authenticated in accordance with the provisions of the Indenture and duly delivered to the purchasers thereof in exchange for the Old Notes, the Exchange Notes and the Guarantees will be validly issued and binding obligations of the Registrant. We hereby consent to the filing of this opinion with the commission as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or KIRKLAND & ELLIS United Industries Corporation July __, 1999 Page 3 supplement this opinion should the present laws of the States of New York or Delaware or the federal law of the United States be changed by legislative action, judicial decision or otherwise. This opinion is furnished to you in connection with the filing of the Registration Statement and is not to be used, circulated, quoted or otherwise relied upon for any other purpose. Sincerely, Kirkland & Ellis EX-10.6 3 EXHIBIT 10.6 Exhibit 10.6 UNITED INDUSTRIES CORPORATION May 19, 1999 Via Federal Express Mr. D. Garrad Warren III 26 Horizon Drive Mandham NJ 07945 RE: Offer of Employment Dear Gary: The purpose of this letter is to confirm United Industries Corporation's offer of employment to you. Our offer will remain open for 5 days from the date of this letter. 1. You will become a Senior Vice President for United Industries Corporation ("UIC"). In this position, you will report to Stephen R. Brian, President and CEO and you will devote your full time and attention to the business and affairs of the Company. 2. Your base salary will be at the annualized rate of $235,000.00, payable in equal monthly increments. 3. Your first performance appraisal and review will be no later than 1/1/2000. 4. Per the terms of UIC's 1999 Stock Option Plan, you will be granted stock options to purchase 100,000 shares of UIC stock when you sign the "United Industries Corporation Stock Option Agreement" which will be substantially in the form attached as "ITEM 4 EXHIBIT". 5. Per the terms of UIC's 1999 Stock Purchase Plan, you will be given the opportunity to purchase up to 50,000 shares of UIC stock at the current price of $5.00 per share upon your signing the "United Industries Corporation Executive Stock Purchase Agreement" which will be substantially in the form attached as "ITEM 5 EXHIBIT". 6. You will receive a $25,000 signing bonus, payable within 30 days after you begin your employment with UIC. 7. Change of Control: In the event there is a Sale of UIC (as defined in Section 4.1 of the Stock Option Agreement referenced in Item 4 above), vesting of your options will be accelerated as provided in the Stock Option Agreement. 8. You will receive an annual target bonus of 50% of your base salary (no less than $25,000 will be paid), prorated from your date of employment with UIC. 9. If you are terminated due to lack of performance, or within 90 days of a Change of Control (as defined in Section 4.1 of the Stock Option Agreement referenced in Item 4 above) you will receive severance pay equal to one year's base salary. However, you will not receive such severance pay if you are terminated for Cause as defined in Section 4.3(a)(i) of the Stock Option 8825 PAGE BOULEVARD, ST. LOUIS, MO 63114 TEL. 314-427-0780 Agreement. UNITED INDUSTRIES CORPORATION Mr. D. Garrad Warren III May 19, 1999 10. Relocation expenses will be provided by UIC in accordance with its current relocation policy, which includes reimbursement of certain out-of-pocket expenses. To the extent provided under the UIC relocation policy, you will be reimbursed for the real estate commission on the sale of your existing principal residence, for temporary living accommodations in St. Louis, airfare for trips to St. Louis authorized by Mr. Brian, and expenses of two house hunting trips (excluding the trip planned for May 21-23). If you resign or are terminated for Cause (as defined in Section 4.3(a)(i) of the Stock Option Agreement) before completing twelve (12) months with the Company, you must repay to UIC the full amount of your relocation expenses previously paid by UIC. 11. You will be entitled to receive the usual benefits available to other UIC executives. Unless otherwise specified in this letter, your benefits will consist of whatever benefit programs may be in effect from time to time for UIC executives, subject to eligibility requirements as specified in the applicable benefit plans. Benefit programs may be increased, decreased, changed or discontinued at any time. Details of UIC's benefit programs are explained in the "Benefits Basics" brochure included as "ITEM 11 EXHIBIT". 12. You will be entitled to four weeks of paid vacation per year, with the understanding that you will take two weeks of that vacation in the first two weeks of July 1999. 13. ITEM 13 EXHIBIT attached to this letter states your obligations regarding (a) business ethics, (b) confidentiality, (c) intellectual property protection, and (d) severance, nonsolicitation and noncompetition. 14. By signing this letter, you are also confirming to UIC that you are not subject to any noncompetition covenants or other legal obligations which prevent you from joining our team. If this letter is acceptable to you, please sign and return the enclosed copy of this letter to me within 5 days, or you may fax a signed copy to my attention at 314-253-5947. Sincerely yours, Stephen R. Brian President and CEO Accepted this __ day of May, 1999: -------------------------- D. Garrad Warren III 8825 PAGE BOULEVARD, ST. LOUIS, MO 63114 TEL. 314-427-0780 EX-10.7 4 EXHIBIT 10.7 Exhibit 10.7 UNITED INDUSTRIES CORPORATION CHAIRMAN'S AGREEMENT THIS CHAIRMAN'S AGREEMENT (this "AGREEMENT"), dated as of July __, 1999, is entered into by and among United Industries Corporation, a Delaware corporation (the "COMPANY") and David Jones ("EXECUTIVE"). Certain capitalized terms used but not otherwise defined herein are defined in SECTION 9. Executive and the Company are parties to that certain Consulting Agreement (the "CONSULTING AGREEMENT") and that certain Stock Option Agreement (the "JANUARY OPTION AGREEMENT"), both dated as of January 20, 1999. The Company and Executive desire to enter into an agreement relating to Executive's engagement by the Company in the positions of board member and chairman. Simultaneously with the execution of this Agreement, the parties hereto have entered into a Stock Option Agreement (the "STOCK OPTION AGREEMENT"). The parties hereto, in exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, hereby agree as follows: PART I. BOARD MEMBERSHIP TERMS 1. BOARD MEMBERSHIP AND DUTIES. (a) The Company hereby engages Executive, and Executive hereby accepts such engagement with the Company, as a member of the Board and as the Company's Chairman on the terms and conditions specified herein. (b) Executive shall devote his best efforts to the interests of the Company, which interests may change from time to time, and shall devote such time to his position as the duties and responsibilities of his position reasonably require. (c) Executive shall perform such duties and functions commensurate with his position as may be reasonably assigned or delegated to him from time to time by the Board. Executive acknowledges that such duties and functions may or may not involve performance of services for or on behalf of affiliates of the Company. 2. TERM AND TERMINATION. (a) TERM. The "TERM" of Executive's engagement by the Company is from the date hereof until the "TERMINATION DATE", which is defined as the earlier of (i) the date of termination of Executive's engagement pursuant to any one or more of SECTIONS 2(b), 2(c) or 2(d) of this Agreement and (ii) the "PAYOUT DATE", which shall be the later of (x) the one-year anniversary hereof and (y) the date which is six months after the date that a new chief executive officer is hired by the Company (provided that if such chief executive officer is not still employed by the Company at the end of such six-month period, this clause (y) shall apply to his successor). Executive is an independent contractor and not an employee of the Company and his engagement by the Company may be terminated by Executive, in his sole and arbitrary discretion, at any time with or without good reason, or by the Company, in the Company's sole and arbitrary discretion, at any time with or without cause, by delivery of a written termination notice to the other party, in each case subject to the consequences in SECTION 4. (b) DEATH. If Executive dies during the Term, the Termination Date shall be the date of his death. (c) TERMINATION BY EXECUTIVE. If Executive terminates his engagement by the Company, the Termination Date shall be the date on which Executive's termination notice is given to the Company, or such later date indicated on such termination notice, which may not be more than thirty (30) days nor less than fourteen (14) days from its receipt by the Company; PROVIDED that upon receipt of Executive's termination notice, the Company may, in its sole discretion, request that Executive cease some or all of his services prior to the date referenced in such notice and Executive shall promptly comply with such request, it being understood that such request will not change the Termination Date specified in this SECTION 2(C). (d) TERMINATION BY THE COMPANY. If the Company terminates Executive's engagement (or if until Executive is removed by a vote of the directors or stockholders of the Company in accordance with the Company's constituent documents), the Termination Date shall be the date on which the Company's notice is given to Executive, or such later date indicated in such termination notice, which may not be more than thirty (30) days from its receipt by Executive. The Company may, in its sole discretion, elect to remove Executive from the position of Chairman without removing him from his position as a member of the Board, in which case the Term shall continue until later terminated pursuant to this SECTION 2. 3. COMPENSATION. (a) During the Term, Executive's compensation for his services hereunder shall consist of (a) Base Salary plus (b) Incentive Compensation, if any. (b) "BASE SALARY" shall be paid by the Company to Executive at an annual rate of $300,000, payable in arrears in equal monthly installments, subject to periodic review by the - 2 - compensation committee of the Board for increase only, any such increased salary thereafter constituting "BASE SALARY." (c) "INCENTIVE COMPENSATION," if any, is equal to the sum of the following three amounts, up to a maximum of 60% of Base Salary in any given year, it being understood that no Incentive Compensation is required to be paid in any year in which the Company's actual EBITDA for the year in question is not at least 90% of Target EBITDA for such year: (i) If the Company's actual EBITDA for the year in question equals or exceeds 90% of Target EBITDA for such year, Incentive Compensation will equal the product of (A) Base Salary multiplied by (B) 25%; plus (ii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2.5% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 90% of Target EBITDA for such year (for example, if the Company's actual EBITDA was 93% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 93%-90% = 3)), up to a maximum of 25% of Base Salary in any year; plus (iii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 100% of the Target EBITDA for such year (for example, if the Company's actual EBITDA was 103% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 103%-100% = 3)). All Incentive Compensation due hereunder shall be payable promptly after the Company has received audited financial statements from its independent accountants for the year in question which set forth such accountant's determination of actual EBITDA for such year and not later than at or about the time bonuses are paid to the Company's other senior executives whose bonuses are determined based on the receipt of the Company's audited financial statements.. The formula for determining Incentive Compensation provided for in this SECTION 3 shall not be changed during the Term without Executive's consent. (d) STOCK OPTIONS. The Company shall grant Executive options to purchase 300,000 shares of Common Stock, all on the terms and conditions contained in the Company's 1999 Stock Option Plan approved by the Board and in the Stock Option Agreement. 4. TERMINATION PROVISIONS. (a) If Executive terminates his engagement by the Company, then: - 3 - (i) Executive shall be entitled to Base Salary for the period ending on the Termination Date; and (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as any Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year. (b) If the Company terminates Executive's engagement or if Executive's services terminate by reason of his death, then in either such case: (i) Executive shall be entitled to Base Salary for the period ending on the Payout Date; and (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which Executive is last entitled to receive his Base Salary pursuant to SECTION 4(b)(i), as well as Incentive Compensation for the calendar year in which Executive is last entitled to receive his Base Salary pursuant to SECTION 4(b)(i) pro-rated based on the portion of Base Salary paid to Executive the Company in such year. (c) Any amounts owed by the Company to Executive pursuant to SECTION 4(b) shall be paid at such times and in such manner as if the termination giving rise to such payments had not occurred (with the Company retaining the right to prepay all or any portion of such amount at any time in its sole discretion). The Company's obligation to make any payments pursuant to SECTION 4(b) shall be conditioned upon Executive's continued and continuing compliance with the terms and conditions of this Agreement. 5. EXPENSES. The Company shall reimburse Executive for all reasonable expenses incurred in the performance of his duties in accordance with the expense reimbursement policy of the Company with respect to members of the Board in effect at the time. 6. CONFIDENTIAL INFORMATION. Executive acknowledges that the information, observations and data relating to the business of the Company and its subsidiaries which Executive shall obtain during the course of his association with the Company and its subsidiaries and his performance under this Agreement are the property of the Company and its subsidiaries. Executive agrees that he shall not use for his own purposes or disclose to any third party any of such information, observations or data without the prior written consent of the Board, unless and to the extent that (i) the aforementioned matters become generally known to or generally available for use by the public, in each case other than as a result of Executive's acts or omissions, (ii) disclosure is compelled by law or judicial, administrative or regulatory action or proceeding or (iii) disclosure is reasonably necessary in order for Executive to enforce his rights under this Agreement or to defend himself in - 4 - any judicial, administrative or regulatory action or proceeding to which the Company or its affiliates are directly or indirectly a party. 7. SPECIAL BONUS. Promptly after the Payout Date, the Compensation Committee of the Board shall consider and grant the payment of a one-time special bonus for Executive if and only if a new chief executive officer has been hired by the Company and has been employed by the Company for at least six months as of the Payout Date. Such bonus shall be a minimum of $300,000 and may, in the Compensation Committee's sole discretion, be increased to a maximum of $500,000. The Compensation Committee shall use its reasonable discretion in determining the appropriateness and magnitude of such bonus based upon the Company's performance during the Term and the success of the transition to the new chief executive officer of the Company. 8. STATUS OF CONSULTING AGREEMENT. Executive and the Company acknowledge and agree that beginning on the date hereof and ending on the Payout Date, all of Executive's and the Company's rights and obligations under the Consulting Agreement shall be suspended, including, without limitation, the rendering of services by Executive and the payment of compensation by the Company. Beginning on the first day after the Payout Date, the Consulting Agreement shall be reinstated and shall continue in full force and effect for the remainder of the Consulting Period (as defined therein), if any, in accordance with its terms. 9. SURVIVAL. SECTION 4 and SECTIONS 6 through 13 shall survive and continue in full force in accordance with their terms notwithstanding the termination of the Term. 10. DEFINITIONS. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated: (a) DEFINED TERMS. "BOARD" means the Company's board of directors. "BUSINESS" means the business conducted by the Company including, without limitation, (a) the production and sale of termiticide products and (b) the business conducted by the Company's Spectrum and Chemsico Divisions. "EBITDA" means, for a given period, the consolidated Company's accounting earnings of the Company and its consolidated Subsidiaries before taking into account any interest expense, provision for income taxes or depreciation or amortization expense, excluding for this purpose extraordinary gains and losses unless included in the determination of Target EBITDA. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. - 5 - "TARGET EBITDA" means the annual performance goal for the Company approved by the Board in its reasonable discretion with the input of Executive, with Target EBITDA for fiscal 1999 being $85,400,000 or such lower target as the Board (or a committee thereof) may determine in its reasonable discretion. The Board shall use reasonable efforts to determine Target EBITDA for any fiscal year after 1999 no later than the 90th day of the fiscal year of the Company to which it relates. (b) OTHER DEFINITIONS. The terms set forth below are defined on the following pages of this Agreement: Agreement..........................................- 1 - Base Salary........................................- 2 - Company............................................- 1 - Consulting Agreement...............................- 1 - Executive..........................................- 1 - Incentive Compensation.............................- 3 - January Option Agreement...........................- 1 - Payout Date........................................- 2 - Stock Option Agreement.............................- 1 - Term...............................................- 2 - Termination Date...................................- 2 -
11. INDEMNIFICATION. Without prejudice to (or enlargement or other modification of) any existing rights of indemnification as an officer or director enjoyed by Executive, the Company will defend and indemnify and hold Executive harmless for serving as a director and Chairman to the same extent as the Company indemnifies its officers and directors under the Company's articles of incorporation and bylaws as in effect on the date hereof, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors or officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage provided for any other Company officer or director). No amendment to the Company's Certificate of Incorporation or bylaws after the date of this Agreement which reduces the scope of indemnification of officers and directors shall affect the rights of Executive under this Agreement. 12. NOTICES. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: TO THE COMPANY United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Telecopy: (314) 253-5941 Attention: Chief Financial Officer - 6 - WITH A COPY TO Thomas H. Lee Equity Fund IV, L.P. c/o Thomas H. Lee Company 75 State Street Boston, MA 02109 Telecopy: (617) 227-3514 Attention: C. Hunter Boll Scott Schoen TO EXECUTIVE David Jones 4596 Signature Drive Middleton, WI 53562 Telecopy: (608) 828-9721 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. 13. GENERAL PROVISIONS. (a) SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (b) COMPLETE AGREEMENT. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, other than the Consulting Agreement and the January Option Agreement. (c) COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (d) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and their - 7 - respective successors and assigns; PROVIDED that the rights and obligations of Executive under this Agreement shall not be assignable. (e) GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. (f) REMEDIES. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (g) AMENDMENT AND WAIVER. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company and Executive. (h) THIRD-PARTY BENEFICIARY. There are no beneficiaries to this Agreement other than the signatories hereto. (i) BUSINESS DAYS. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (j) ASSIGNMENT. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation; PROVIDED that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume this Agreement. As used in this Agreement, "COMPANY" shall mean the Company, as defined above, and any successor to its business and/or assets as aforesaid which assumes this Agreement by operation of law or otherwise. (k) TAX RETURNS. It is intended that the fees paid to Executive hereunder shall constitute revenues to Executive and (unless otherwise required by law) the Company will not withhold any amounts therefrom as federal income tax withholding from wages or as employee contributions under the Federal Insurance Contribution Act or any other state or federal law. Executive shall file all tax returns and reports required to be filed by him on the basis that Executive - 8 - is an independent contractor, rather than an employee, as defined in Treasury Regulation Section 31.3121(d)-1(c)(2). (l) MITIGATION BY EXECUTIVE. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. * * * * - 9 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. UNITED INDUSTRIES CORPORATION By:________________________________ Its:_______________________________ ----------------------------------- DAVID JONES EX-10.15 5 EXHIBIT 10.15 Exhibit 10.15 UNITED INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "AGREEMENT") is entered into as of July __, 1999, by and between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "COMPANY"), and David Jones ("OPTIONEE") pursuant to the United Industries Corporation 1999 Stock Option Plan (the "PLAN"). The Company and Optionee are referred to collectively herein as the "PARTIES." Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. Optionee and the Company are parties to that certain Stock Option Agreement dated as of January 20, 1999, and the options granted to Optionee hereunder are in addition to, and not in replacement of, the options granted thereunder. Simultaneously with the execution of this Agreement, the parties hereto have executed a Chairman's Agreement pursuant to which the Company engaged Optionee as a member of the Board and its Chairman. THE PARTIES AGREE AS FOLLOWS: 1. GRANT OF OPTIONS AND EFFECTIVE DATE. 1.1 GRANT. The Company hereby grants to Optionee pursuant to the Plan an option (the "OPTION") to purchase all or any part of an aggregate of 150,000 shares (the "CLASS A SHARES") of the Company's Class A Voting Common Stock, par value $0.01 per share and 150,000 shares (the "CLASS B SHARES" and, together with the Class A Shares (the "SHARES")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "COMMON STOCK"), on the terms and conditions set forth herein and in the Plan as in effect on the Vesting Date (as defined below), the terms of which are incorporated herein by reference. 1.2 GRANT DATE. The grant date of this Option is the date hereof, and the reference date of this Option for vesting purposes is January 20, 1999 (the "VESTING DATE"). 2. EXERCISE PRICE. The exercise price for the Shares of Common Stock covered by this Option shall be $5.00 per share (the "EXERCISE PRICE"). 3. ADJUSTMENT AND TERMINATION OF OPTIONS. Subject to the restrictions, and under the circumstances described, in the Plan and this Agreement, the Company shall adjust the number and kind of Shares and the Exercise Price thereof, and this Option shall be terminated in certain circumstances, in accordance with the provisions of the Plan. 4. EXERCISE OF OPTIONS. 4.1 WHEN EXERCISABLE. (a) RATE OF EXERCISE FOR 5-YEAR OPTIONS. Optionee's right to exercise this Option as to 100,000 of the Shares (50,000 Class A Shares and 50,000 Class B Shares) subject thereto (the "5 YEAR OPTIONS") shall vest ratably over the five (5) year period commencing on the Vesting Date in accordance with the following schedule if (but only if) Optionee is a director or employee of the Company or any of its Subsidiaries as of each such date:
Cumulative Shares of Date 5 Year Option Vested ---- -------------------- 1st Anniversary of Vesting Date 20,000 2nd Anniversary of Vesting Date 40,000 3rd Anniversary of Vesting Date 60,000 4th Anniversary of Vesting Date 80,000 5th Anniversary of Vesting Date 100,000
Notwithstanding any provision to the contrary in this SECTION 4.1(a), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the 5 Year Options shall become vested and immediately exercisable. (b) RATE OF EXERCISE ON TARSAP OPTIONS. (i) Optionee shall not be vested with the right to exercise this Option with respect to 200,000 of the Shares (100,000 Class A Shares and 100,000 Class B Shares) (the "TARSAP SHARES") subject thereto (the "TARSAP OPTIONS") until ten (10) years after the Vesting Date, at which time Optionee shall acquire the vested right to exercise the TARSAP Options and purchase one hundred percent (100%) of the TARSAP Shares if (but only if) Optionee is a director or employee of the Company or any of its Subsidiaries as of such date. (ii) ACCELERATION OF TARSAP OPTIONS. Notwithstanding the foregoing, if on and after the publication of each written determination by the Board of Directors of the Company (the "BOARD") or a committee thereof which is authorized to do so that the Company has met at least ninety percent (90%) of its objective for EBITDA (as defined below) (100% of the Company's objective referred to herein as the "PERFORMANCE GOALS") with respect to any fiscal year commencing with the fiscal year ending December 31, 1999 and continuing for each of the four fiscal years thereafter (which Performance Goals are set forth on ANNEX I attached hereto), then (subject to the other restrictions in the Plan and this Agreement), Optionee shall acquire the vested right to exercise the TARSAP Options to purchase ten percent (10%) of the TARSAP Shares, and for each additional one percent (1%) achievement over ninety percent (90%) of the Performance Goals for any such fiscal year, as so determined, Optionee shall acquire the vested right to exercise the TARSAP Options to purchase an additional one percent (1%) of the TARSAP Shares, but no more than twenty percent (20%) of the TARSAP Shares in respect of each full fiscal year. Additionally, on and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the fiscal year ending December 31, 2003 and -2- at least ninety percent (90%) of its cumulative Performance Goals for the five fiscal years ending December 31, 2003 ("FIVE YEAR PERFORMANCE GOALS"), then subject to the other restrictions in the Plan and this Agreement, (i) Optionee shall acquire the vested right to exercise the TARSAP Options to purchase fifty percent (50%) of the TARSAP Shares as to which Optionee had not otherwise acquired the vested right to exercise, and (ii) for each additional one percent (1%) achievement over ninety percent (90%) of the Five Year Performance Goals, as so determined, Optionee shall acquire the vested right to exercise this TARSAP Option to purchase an additional five percent (5%) of the TARSAP Shares as to which Optionee has not otherwise acquired the vested right to exercise (such additional exercise rights pursuant to clauses (i) and (ii) above are referred to herein as the "ADDITIONAL EXERCISE RIGHTS"). Such determinations shall be made by the Board or such committee within ten (10) days after receipt of audited financial statements for each fiscal year. The Board's or committee's determination as to whether the Company has met such objectives shall be final and not subject to dispute. In addition, the Board or a committee thereof shall have complete discretion to modify such objectives from time to time for any year or years to reflect business combinations or dispositions, fiscal year changes, purchases or sales of assets or any other circumstances the Board or committee thereof deems relevant. For purposes hereof, "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, excluding any non-recurring or extraordinary items, as determined in accordance with generally accepted accounting principles, consistently applied. (iii) ACCELERATION UPON SALE. Notwithstanding any provision to the contrary in this SECTION 4.1(b), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the TARSAP Options shall become vested and immediately exercisable to the extent set forth below. On and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the last twelve (12) full months and at least ninety percent (90%) of its cumulative Performance Goals for the completed fiscal years (if any) and the Interim Period (as defined below) (based on months elapsed), the Board or such committee shall treat the percentage of cumulative Performance Goals achieved through the completed fiscal years (if any) and Interim Period as the percentage of Five Year Performance Goals achieved and on that basis shall determine the Additional Exercise Rights with respect to all 200,000 TARSAP Options as to which Optionee had not otherwise acquired the vested right to exercise consistent with the method set forth in the second sentence of SECTION 4.1(b)(ii) above. The percentage of Five Year Performance Goals for such period shall be computed by dividing (i) the sum of EBITDA achieved for the completed fiscal years (if any) and the Interim Period by (ii) the annual Performance Goals for the completed fiscal years (if any) and the monthly Performance Goals for the Interim Period. For purposes hereof, the term "INTERIM PERIOD" shall mean the period beginning on the first day of the then current fiscal year and ending on the last full month of that uncompleted fiscal year. For purposes hereof, the term "SALE" shall mean: -3- (w) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "PERSON") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of (a) the Company or (b) the surviving entity in any reorganization, merger or consolidation (each an "ACQUISITION") involving the Company (any such entity referred to herein as the "CORPORATION") where such Acquisition causes such Person to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates; (x) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; (y) the acquisition by a third party not affiliated with the Company of all or substantially all of the Company's assets; or (z) individuals who constitute the Board on the date of the Company's initial public sale of equity securities registered under the Securities Act (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board thereafter. Any person becoming a director subsequent to such date whose, election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. The accelerated vesting provided in this SECTION 4.1(b)(iii) shall take effect immediately prior to but contingent upon the Sale giving rise to such accelerated vesting. The phrase "IMMEDIATELY PRIOR TO THE SALE" shall be understood to mean sufficiently in advance of a Sale to permit the Optionee to take all steps reasonably necessary to permit the Optionee to become a shareholder of the Company as of the consummation of such Sale with respect to the TARSAP Shares subject to the accelerated vesting provided in this SECTION 4.1(b)(iii). The Board or committee thereof may in good faith shorten the Interim Period or make approximations of EBITDA during the Interim Period in order to comply with the preceding sentence. (c) PARTIAL EXERCISE. Subject to the other restrictions in the Plan and this Agreement, the Options may be exercised for all or a part of the Shares with respect to which each Option is exercisable under SECTION 4.1(a) and (b) above. 4.2 METHOD OF EXERCISE; STOCKHOLDERS AGREEMENT. Subject to SECTION 4.1 and the other restrictions in the Plan and this Agreement, Options are exercisable from time to time by Optionee, who shall complete, execute and deliver to the Company a Form of Exercise and Stock Transfer Power substantially in the form attached hereto or in such other form as the Company may require. Except as otherwise permitted by SECTION 6(d) of the Plan, such notice shall be accompanied by payment in full for the Shares to be purchased. Payment of the Exercise Price may be made: (i) in cash, (ii) in shares of Common Stock which either (A) were purchased by Optionee in other than a compensatory transaction, (B) have been held by Optionee free and clear for at least six (6) months -4- prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or in the sole discretion of the Committee, through a cashless exercise procedure. Optionee shall also execute and deliver to the Company a copy of the Company's Stockholders Agreement, dated as of January 20, 1999, in the form in effect at the time of exercise (as amended and modified from time to time, the "STOCKHOLDERS AGREEMENT"), if Optionee has not previously done so. Upon due exercise of any Option and (if required) execution and delivery of the Stockholders Agreement, subject to the terms and conditions in this Agreement, the Company shall issue in the name of Optionee and deliver to Optionee a certificate for the Shares in respect of which such Option shall have been exercised, but no Shares will be issued until arrangements satisfactory to Company have been made for appropriate income tax withholding, if any, pursuant to Section 12 hereof. 4.3 EXERCISE AFTER TERMINATION; TERMINATION OF OPTIONS. (a) TERMINATION OF VESTING. Upon the termination of Optionee as a director and employee of the Company or any of its Subsidiaries for any reason, the Options may, to the extent exercisable as of the date of termination and not terminated pursuant to SECTION 4.3(B), be exercised by Optionee until termination pursuant to SECTION 4.3(B). (b) TERMINATION OF OPTIONS. The Options shall not be exercisable after the earliest of (i) a Sale (provided that Optionee has at least five (5) business days prior to the Sale to exercise the Options or the Options are treated as exercised in connection with such Sale) or (ii) January 20, 2009. 5. NON-TRANSFERABILITY OF OPTIONS. The Options shall not be transferable or assignable except upon Optionee's death by will or the laws of descent and distribution and shall be exercisable, during Optionee's lifetime, only by Optionee; PROVIDED that Optionee shall be permitted to transfer the Options to members of his Family Group (as defined in the Stockholders Agreement) for estate planning purposes upon the agreement in writing by the transferee to be bound by the terms and conditions hereof, and any Options so transferred shall be exercisable by the transferee thereof in accordance with the terms and conditions of this Agreement . 6. PURCHASE FOR INVESTMENT; OTHER REPRESENTATIONS OF OPTIONEE; LEGENDS. 6.1 INVESTMENT INTENT. As provided in the Plan, in the event that the offering of Shares with respect to which the Options are being exercised is not registered under the Securities Act, but an exemption is available that requires an investment representation or other representation, Optionee, if electing to purchase Shares, will be required to represent that such Shares are being acquired for investment and not with a view to distribution thereof, and to make such other reasonable and customary representations regarding matters relevant to compliance with applicable securities laws as are deemed necessary by counsel to the Company. Stock certificates evidencing such unregistered Shares that are acquired upon exercise of the Options shall bear -5- restrictive legends in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws or are provided for in the Stockholders Agreement or any other agreement to which Optionee is a party: THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED AT ANY TIME IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES AT SUCH TIME, OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH TRANSFER AT SUCH TIME WILL NOT VIOLATE THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS. 6.2 OTHER REPRESENTATIONS. Optionee hereby represents and warrants to the Company as follows: (a) ACCESS TO INFORMATION. Because of Optionee's business relationship with the Company and with the management of the Company, Optionee has had access to all material and relevant information concerning the Company, thereby enabling Optionee to make an informed investment decision with respect to his investment in the Company, and all pertinent data and information requested by Optionee from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of this Agreement have been furnished. Optionee acknowledges that Optionee has had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. (b) FINANCIAL SOPHISTICATION. Optionee has such knowledge and experience in financial and business matters that Optionee is capable of evaluating the merits and risks of investing in the Shares. (c) UNDERSTANDING THE INVESTMENT RISKS. Optionee understands that: (i) An investment in the Shares represents a highly speculative investment, and there can be no assurance as to the success of the Company in its business; and (ii) There is at present no market for the Shares and there can be no assurance that a market will develop in the future. (d) UNDERSTANDING OF THE NATURE OF THE SHARES. Optionee understands and agrees that: -6- (i) There can be no assurance that the Shares will be registered under the Securities Act or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and the representations and warranties of Optionee contained herein, which will have to be renewed as to the Shares at the times of exercise of the Options, are essential to any claim of exemption by the Company under the Securities Act and such state laws; (ii) If the Shares are not so registered, the Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (iii) The Option cannot be exercised and the Shares will not be sold to Optionee and Optionee cannot resell or transfer the Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (iv) Only the Company can register the Shares under the Securities Act and applicable state securities laws; (v) The Company has not made any representations to Optionee that the Company will register the Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (vi) Optionee is aware of the conditions for Optionee's obtaining an exemption for the resale of the Shares under the Securities Act and any applicable state securities laws; and (vii) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act and any applicable state securities laws, and any additional restrictions imposed by state securities administrators. (e) INVESTMENT INTENT. Optionee acknowledges that: (i) Optionee is acquiring the Option for Optionee's own account and not on behalf of any other person; (ii) Optionee is acquiring the option for investment and not with a view to distribution or with the intent to divide Optionee's participation with others or resell or otherwise distribute the Options or the Shares; (iii) Neither Optionee nor anyone acting on Optionee's behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Options or the Shares; and -7- (iv) At the time of exercise of any Option, Optionee will have to make all the representations and warranties contained in this SECTION 6 with respect to the Shares to be issued and other representations concerning investment intent as a condition of the issuance of the Shares by the Company. 7. RESTRICTION ON ISSUANCE OF SHARES. The Company shall not be obligated to sell or issue any Shares pursuant to this Agreement if such issuance would result in the violation of any laws, including the Securities Act or any applicable state securities laws. The Company agrees to use its reasonable best efforts to qualify for available exemptions under the Securities Act or any applicable state securities laws which will enable it to issue Shares hereunder in compliance with applicable law. 8. RIGHTS AS A SHAREHOLDER. Optionee shall have no rights as a shareholder with respect to any Shares covered by the Options until the date of exercise and payment of the Exercise Price in accordance with the terms of this Agreement. Subject to SECTION 3 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 9. NO CONTINUATION RIGHTS. This Agreement shall not confer upon Optionee any right with respect to the continuance as a director or employee of the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate such directorship or employment at any time. 10. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. 11. NOTICES. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or by reputable overnight courier service (charges prepaid), or transmitted by facsimile with answer-back confirmation to the following address, or any other address specified, by notice duly given: To Optionee at: David Jones 4596 Signature Drive Middleton, WI 53562 Telecopy (608) 828-9721 -8- To the Company at: United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: President Telecopy: (314) 253-5941 12. WITHHOLDINGS. Except to the extent prohibited by applicable law, Optionee may satisfy any required withholding obligation upon the exercise of an Option hereunder by either of the following methods, or by a combination of such methods: (a) tendering a cash payment or (b) delivering to the Company previously acquired Shares, or having the Company withhold Shares otherwise deliverable upon the exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding obligation arises, less than or equal to the amount of the total withholding obligation. 13. PRO RATA EXERCISE. The Shares of Common Stock covered by this Option shall only be exercised, if at all, ratably among the Class A Shares and Class B Shares, based on the aggregate number of Class A Shares and Class B Shares subject to the Options granted hereunder. 14. REGISTRATION OF SHARES. At any time after UIC Holdings, L.L.C., together with its affiliates, holds less than 25% of the Common Stock held by such entities as of the date hereof, Optionee shall have the right to cause the Company to register all of the Shares on a Form S-8, along with a Form S-3 reoffer prospectus, under the Securities Act of 1933, as amended from time to time, or any successor form thereto, and the Company shall use its reasonable best efforts to comply with such request in a timely manner. * * * * * -9- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By_______________________________ Name: _________________________ Title: ________________________ OPTIONEE: --------------------------------- David Jones -10- ANNEX I The Performance Goal with respect to each fiscal year from 1999 through 2003 is as follows, unless adjusted downwards by the Board (or a committee thereof) in its reasonable discretion:
Fiscal Year Performance Goal ----------- ---------------- 1999* $ 85,400,000 2000 111,200,000 2001 123,100,000 2002 133,000,000 2003 143,800,000 ------------ Aggregate $596,500,000 ------------ ------------
*Including any portion of calendar 1999 prior to closing. These Performance Goals have been calculated without deduction for any expenses associated with the recapitalization effectuated by the Company on January 20, 1999 or any relocation expenses of the Company's former president, and the measurement of the Company's actual performance shall similarly be calculated without deduction for such items. These Performance Goals have already been reduced to reflect (i) the Company's revised aviation budget, (ii) management fees payable to Thomas H. Lee Company and/or its affiliates, (iii) consulting and directors fees payable to Executive (under the Consulting Agreement) and David Pratt and (iv) the salary and bonus payable to the Company's former president. -11- UNITED INDUSTRIES CORPORATION FORM OF EXERCISE AND STOCK TRANSFER POWER United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Ladies and Gentlemen: Reference is made to the Stock Option Agreement between United Industries Corporation (the "COMPANY") and me (the "OPTION AGREEMENT"), whereby on July __, 1999, I was granted an option to purchase all or any part of an aggregate of 150,000 shares (the "CLASS A SHARES") of the Company's Class A Voting Common Stock, par value $0.01 per share and 150,000 shares (the "CLASS B SHARES" and, together with the Class A Shares (the "SHARES")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "COMMON STOCK"), at $5.00 per share. I hereby exercise my right to purchase Shares (on a pro rata basis among the Class A Shares and the Class B Shares) (the "EXERCISED SHARES") of Common Stock at said price and deliver to you herewith the full purchase price of such Exercised Shares, as follows: /_/ Cash or check in the amount $ ; ------------------------ /_/ Previously owned shares of Common Stock having a Fair Market Value (as defined in the United Industries Corporation 1999 Stock Option Plan) equal to $_______ as of the date hereof, and otherwise in accordance with SECTION 4.2 of the Option Agreement; and/or /_/ If the Common Stock is publicly traded, by delivery to the Company of the attached copy of irrevocable broker instructions to deliver promptly to the Company $_______ of loan proceeds, or $_________ of proceeds of the sale of Exercised Shares of Common Stock deliverable upon exercise of the option represented by the Option Agreement. I understand that no Exercised Shares will be issued until arrangements satisfactory to the Company have been made for appropriate income tax withholding, if any, and I have executed the Company's Stockholders Agreement (the "STOCKHOLDERS AGREEMENT"). The Exercised Shares will be subject to certain rights of repurchase and other restrictions, as more particularly set forth in the Option Agreement and the Stockholders Agreement. In the event that the Exercised Shares have not been registered under the Securities Act of 1933, as amended from time to time, upon the date hereof, I hereby represent and warrant to the Company as follows: 1. Because of my business relationship with the Company and with the management of the Company, I have had access to all material and relevant information concerning the Company, thereby enabling me to make an informed investment decision with respect to my investment in the Company, and all pertinent data and information requested by me from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of the Option Agreement have been furnished. I acknowledge that I have had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. 2. I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of investing in the Exercised Shares. 3. I understand that: (a) An investment in the Exercised Shares represents a highly speculative investment, and there can be no assurance as to the success of the company in its business; and (b) There is at present no market for the Exercised Shares and there can be no assurance that a market will develop in the future. 4. I understand and agree that: (a) There can be no assurance that the Exercised Shares will be registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and my representations and warranties contained herein are essential to any claim of exemption by the Company under the Securities Act and such state laws; (b) If the Exercised Shares are not so registered, the Exercised Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (c) I cannot resell or transfer the Exercised Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (d) Only the Company can register the Exercised Shares under the Securities Act and applicable state securities laws; (e) The Company has not made any representations to me that the Company will register the Exercised Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; -2- (f) I am aware of the conditions for obtaining an exemption for the resale of the Exercised Shares under the Securities Act and any applicable state securities laws; (g) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act, and any applicable state securities laws, and any additional restrictions imposed by state securities administrators; and (h) I understand that stock certificates evidencing the Exercised Shares shall bear restrictive legends as more particularly described in the Option Agreement and the Stockholders Agreement. 5. I acknowledge that: (a) I am acquiring the Exercised Shares for my own account and not on behalf of any other person; (b) I am acquiring the Exercised Shares for investment and not with a view to distribution or with the intent to divide my participation with others or resell or otherwise distribute the Exercised Shares; and (c) Neither I nor anyone acting on my behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Exercised Shares. Signature___________________________________ Address:____________________________________ ____________________________________ ____________________________________ Social Security No.: _______________________ -3- EX-10.17 6 EXHIBIT 10.17 Exhibit 10.17 UNITED INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "AGREEMENT") is entered into as of May 21, 1999, by and between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "COMPANY"), and D. Garrad Warren, III ("OPTIONEE") pursuant to the United Industries Corporation 1999 Stock Option Plan (the "PLAN"). The Company and Optionee are referred to collectively herein as the "PARTIES." Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. THE PARTIES AGREE AS FOLLOWS: 1. GRANT OF OPTIONS AND EFFECTIVE DATE. 1.1 GRANT. The Company hereby grants to Optionee pursuant to the Plan an option (the "OPTION") to purchase all or any part of an aggregate of 50,000 shares (the "CLASS A SHARES") of the Company's Class A Voting Common Stock, par value $0.01 per share, and 50,000 shares (the "CLASS B SHARES" and, together with the Class A Shares (the"SHARES") of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "COMMON STOCK"), on the terms and conditions set forth herein and in the Plan as in effect on the Grant Date (as defined below), the terms of which are incorporated herein by reference. 1.2 GRANT DATE. The Grant Date of this Option is May 21, 1999 (the "GRANT DATE"). 2. EXERCISE PRICE. The exercise price for the Shares of Common Stock covered by this Option shall be $5.00 per share (the "EXERCISE PRICE"). 3. ADJUSTMENT AND TERMINATION OF OPTIONS. Subject to the restrictions, and under the circumstances described, in the Plan and this Agreement, the Company shall adjust the number and kind of Shares and the Exercise Price thereof, and this Option shall be terminated in certain circumstances, in accordance with the provisions of the Plan. 4. EXERCISE OF OPTIONS. 4.1 WHEN EXERCISABLE. (a) RATE OF EXERCISE FOR 5-YEAR OPTIONS. Optionee's right to exercise this Option as to 33,333 of the Shares (16,666.5 Class A Shares and 16,666.5 Class B Shares) subject thereto (the "5 YEAR OPTIONS") shall vest ratably over the 1 five (5) year period commencing on the Grant Date in accordance with the following schedule if (but only if) Optionee is employed by the Company or any of its Subsidiaries as of each such date:
CUMULATIVE SHARES OF DATE 5 YEAR OPTION VESTED ---- -------------------- 1st Anniversary of Grant Date 6,666.6 2nd Anniversary of Grant Date 13,333.2 3rd Anniversary of Grant Date 19,999.8 4th Anniversary of Grant Date 26,666.4 5th Anniversary of Grant Date 33,333
Notwithstanding any provision to the contrary in this SECTION 4.1(A), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to the fifth anniversary of the Grant Date, the 5 Year Options shall become vested and immediately exercisable. (b) RATE OF EXERCISE ON TARSAP OPTIONS. (i) Optionee shall not be vested with the right to exercise this Option with respect to 66,667 of the Shares (33,333.5 Class A Shares and 33,333.5 Class B Shares) (the "TARSAP SHARES") subject thereto (the "TARSAP OPTIONS") until ten (10) years after the Grant Date, at which time Optionee shall acquire the vested right to exercise the TARSAP Options and purchase one hundred percent (100%) of the TARSAP Shares if (but only if) Optionee is an employee of the Company or any of its Subsidiaries as of such date. (ii) ACCELERATION OF TARSAP OPTIONS. Notwithstanding the foregoing, if on and after the publication of each written determination by the Board of Directors of the Company (the "BOARD") or a committee thereof which is authorized to do so that the Company has met at least ninety percent (90%) of its objective for EBITDA (as defined below) (100% of the Company's objective referred to herein as the "PERFORMANCE GOALS") with respect to any fiscal year commencing with the fiscal year ending December 31, 1999 and continuing for each of the four fiscal years thereafter (which Performance Goals are set forth on ANNEX I attached hereto), then (subject to the other restrictions in the Plan and this Agreement), Optionee shall acquire the vested right to exercise the TARSAP Options to purchase ten percent (10%) of the TARSAP Shares, and for each additional one percent (1%) achievement over ninety percent (90%) of the 2 Performance Goals for any such fiscal year, as so determined, Optionee shall acquire the vested right to exercise the TARSAP Options to purchase an additional one percent (1%) of the TARSAP Shares, but no more than twenty percent (20%) of the TARSAP Shares in respect of each full fiscal year. Additionally, on and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the fiscal year ending December 31, 2003 and at least ninety percent (90%) of its cumulative Performance Goals for the five fiscal years ending December 31, 2003 ("FIVE YEAR PERFORMANCE GOALS"), then subject to the other restrictions in the Plan and this Agreement, (i) Optionee shall acquire the vested right to exercise the TARSAP Options to purchase fifty percent (50%) of the TARSAP Shares as to which Optionee had not otherwise acquired the vested right to exercise, and (ii) for each additional one percent (1%) achievement over ninety percent (90%) of the Five Year Performance Goals, as so determined, Optionee shall acquire the vested right to exercise this TARSAP Option to purchase an additional five percent (5%) of the TARSAP Shares as to which Optionee has not otherwise acquired the vested right to exercise (such additional exercise rights pursuant to clauses (i) and (ii) above are referred to herein as the "ADDITIONAL EXERCISE RIGHTS"). Such determinations shall be made by the Board or such committee within ten (10) days after receipt of audited financial statements for each fiscal year. The Board's or committee's determination as to whether the Company has met such objectives shall be final and not subject to dispute. In addition, the Board or a committee thereof shall have complete discretion to modify such objectives from time to time for any year or years to reflect business combinations or dispositions, fiscal year changes, purchases or sales of assets or any other circumstances the Board or committee thereof deems relevant. For purposes hereof, "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, excluding any non-recurring or extraordinary items, as determined in accordance with generally accepted accounting principles, consistently applied. (iii) ACCELERATION UPON SALE. Notwithstanding any provision to the contrary in this SECTION 4.1(b), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the TARSAP Options shall become vested and immediately exercisable to the extent set forth below. On and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the last twelve (12) full months and at least ninety percent (90%) of its cumulative Performance Goals for the completed fiscal years (if any) and the Interim Period (as defined below) (based on months elapsed), the Board or such 3 committee shall treat the percentage of cumulative Performance Goals achieved through the completed fiscal years (if any) and Interim Period as the percentage of Five Year Performance Goals achieved and on that basis shall determine the Additional Exercise Rights with respect to all 10,000 TARSAP Options as to which Optionee had not otherwise acquired the vested right to exercise consistent with the method set forth in the second sentence of SECTION 4.1(b)(ii) above. The percentage of Five Year Performance Goals for such period shall be computed by dividing (i) the sum of EBITDA achieved for the completed fiscal years (if any) and the Interim Period by (ii) the annual Performance Goals for the completed fiscal years (if any) and the monthly Performance Goals for the Interim Period. For purposes hereof, the term "INTERIM PERIOD" shall mean the period beginning on the first day of the then current fiscal year and ending on the last full month of that uncompleted fiscal year. For purposes hereof, the term "SALE" shall mean: (w) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "PERSON") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of (a) the Company or (b) the surviving entity in any reorganization, merger or consolidation (each an "ACQUISITION") involving the Company (any such entity referred to herein as the "CORPORATION") where such Acquisition causes such Person to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates; (x) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; (y) the acquisition by a third party not affiliated with the Company of all or substantially all of the Company's assets; or (z) individuals who constitute the Board on the date of the Company's initial public sale of equity securities registered under the Securities Act (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board thereafter. Any person becoming a director subsequent to such date whose, election, or nomination for election, is, at any time, approved by a vote of at least a majority of the 4 directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. The accelerated vesting provided in this SECTION 4.1(b)(iii) shall take effect immediately prior to but contingent upon the Sale giving rise to such accelerated vesting. The phrase "IMMEDIATELY PRIOR TO THE SALE" shall be understood to mean sufficiently in advance of a Sale to permit the Optionee to take all steps reasonably necessary to permit the Optionee to become a shareholder of the Company as of the consummation of such Sale with respect to the TARSAP Shares subject to the accelerated vesting provided in this SECTION 4.1(b)(iii). The Board or committee thereof may in good faith shorten the Interim Period or make approximations of EBITDA during the Interim Period in order to comply with the preceding sentence. (c) PARTIAL EXERCISE. Subject to the other restrictions in the Plan and this Agreement, the Options may be exercised for all or a part of the Shares with respect to which each Option is exercisable under SECTION 4.1(a) and (b) above. 4.2 METHOD OF EXERCISE; STOCKHOLDERS AGREEMENT. Subject to SECTION 4.1 and the other restrictions in the Plan and this Agreement, Options are exercisable from time to time by Optionee, who shall complete, execute and deliver to the Company a Form of Exercise and Stock Transfer Power substantially in the form attached hereto or in such other form as the Company may require. Except as otherwise permitted by SECTION 6(d) of the Plan, such notice shall be accompanied by payment in full for the Shares to be purchased. Payment of the Exercise Price may be made: (i) in cash, (ii) in shares of Common Stock which either (A) were purchased by Optionee in other than a compensatory transaction, (B) have been held by Optionee free and clear for at least six (6) months prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or in the sole discretion of the Committee, through a cashless exercise procedure. Optionee shall also execute and deliver to the Company a copy of the Company's Stockholders Agreement, dated as of January 20, 1999, in the form in effect at the time of exercise (as amended and modified from time to time, the "STOCKHOLDERS AGREEMENT"), if Optionee has not previously done so. Upon due exercise of any Option and (if required) execution and delivery of the Stockholders Agreement, subject to the terms and conditions in this Agreement, the Company shall issue in the name of Optionee and deliver to Optionee a certificate for the Shares in respect of which such Option shall have been exercised, but no Shares will be issued until arrangements 5 satisfactory to Company have been made for appropriate income tax withholding, if any, pursuant to SECTION 12 hereof. 4.3 EXERCISE AFTER TERMINATION OF EMPLOYMENT; TERMINATION OF OPTIONS. (a) DEFINITIONS. The following definitions shall be applied to the capitalized terms used in this SECTION 4.3 and in SECTION 4.4 below for all purposes, unless otherwise clearly indicated: (i) "CAUSE" for termination by the Company of Optionee's employment with the Company means (a) misappropriation of the Company's property, interests or opportunities; (b) violation of reasonable directions of the Company to Optionee which directions are consistent with Optionee's duties and responsibilities; (c) misconduct which causes damage to the Company or its finances or to its business relationships or reputation in the industry or the community; (d) breach or nonperformance by Optionee of his obligations provided for in this Agreement or in other material agreement between Optionee and the Company (including, without limitation, any employment or noncompetition agreement) or reasonably implied by his position; (e) the habitual drug addiction or habitual intoxication of Optionee which negatively impacts his job performance or Optionee's failure of a Company-required drug test; or (f) failure of Optionee to reasonably cooperate with an examining physician as may be required by any agreement between Optionee and the Company. (ii) "FAIR MARKET VALUE" of each Share means the fair value of such share determined in good faith by the Board, based on the assumption of an arms-length transaction between a willing buyer and a willing seller, taking into account all reasonable and customary factors relevant to value including, without limitation, the fact that there may be no public market for the Company's securities , but not including any minority discount; PROVIDED that, until the first anniversary hereof, the "FAIR MARKET VALUE" of each Share shall not be less than the Original Cost of such Share. (iii) "ORIGINAL COST" for each Share shall be equal to $5.00 (as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations). (iv) "PUBLIC OFFERING" means the sale in an underwritten public offering registered under the Securities Act of shares of any class of the Company's Common Stock. 6 (v) "TERMINATION DATE" means the date on which Optionee's employment with the Company terminates, whether pursuant to an employment agreement between Optionee and the Company or otherwise. (b) TERMINATION BY OPTIONEE. Upon any termination of employment by Optionee, the Options may, to the extent exercisable and not terminated pursuant to SECTION 4.3(e), be exercised only within thirty (30) days after the date of such employment termination. This SECTION 4.3(b) shall not, however, extend the term of the Options beyond that specified in SECTION 4.3(e). For purposes of this SECTION 4.3(b), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (c) TERMINATION BY VIRTUE OF DEATH OR DISABILITY OR WITHOUT CAUSE. Upon any termination of employment of Optionee by virtue of Optionee's death or Disability or upon any termination of employment by the Company without Cause, the Options may, to the extent exercisable and not terminated pursuant to SECTION 4.3(e), be exercised only within twelve (12) months after the date of such termination. This SECTION 4.3 (c) shall not extend the term of the Options beyond that specified in SECTION 4.3(e). For purposes of this SECTION 4.3(c), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (d) TERMINATION FOR CAUSE. The Option shall terminate immediately upon termination by the Company of the employment of Optionee for Cause. (e) OTHER TERMINATION. The Options shall not be exercisable after the earliest of (i) a Sale (PROVIDED THAT Optionee has at least five (5) business days prior to the Sale to exercise the Options or the Options are treated as exercised in connection with such Sale) or (ii) February 4, 2009. 4.4 REPURCHASE OPTION. (a) RIGHT OF REPURCHASE. In the event Optionee ceases to be employed by the Company and its Subsidiaries for any reason (the " TERMINATION"), the Shares (whether held by Optionee or one or more of Optionee's transferees) shall be subject to repurchase by the Company pursuant to the terms and conditions set forth in this SECTION 4.4 (the " REPURCHASE OPTION"). (b) PURCHASE PRICE. Any repurchase of Shares pursuant to the Repurchase Option shall be at the " REPURCHASE PRICE" described in this SECTION 7 4.4(b) determined as of the Termination Date. If Optionee's employment is terminated by Optionee prior to the fifth anniversary hereof or by the Company for Cause, the Repurchase Price for all of the Shares shall be the lower of (i) the Fair Market Value therefor and (ii) the Original Cost therefor. If Optionee's employment is terminated for any other reason (including, without limitation, as a result of Optionee's retirement in good standing from the Company at or after age 65 in accordance with the Company's retirement policies as in effect at that time), the Repurchase Price for all Shares shall be the Fair Market Value therefor. (c) REPURCHASE BY THE COMPANY. The Company may elect to purchase all or any portion of the Shares at the Repurchase Price by delivering written notice (the " REPURCHASE NOTICE") to Optionee (i) within 120 days after the Termination Date, and (ii) for Shares acquired by Optionee after the Termination Date pursuant to SECTION 4.3 above, then within 120 days after the issuance of such Shares. The Repurchase Notice shall set forth the number of Shares to be acquired from Optionee and/or his or her transferees (if any), the aggregate consideration to be paid for such securities, and the time and place for the closing of the transaction (the " REPURCHASE CLOSING"). The Company may, in its sole discretion, assign its rights pursuant to this SECTION 4.4 to the holders of its capital stock (other than Optionee and any other stockholder whose Shares are being repurchased) pro rata on the basis of the number of Shares owned (with subsequent re-offer in the event of under subscription); PROVIDED that any such assignees shall comply with the terms of this SECTION 4.4. (d) REPURCHASE CLOSING. The closing of the purchase of the Shares pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase Notice which date shall not be more than 60 days nor less than 10 days after the delivery of such notice. Subject to SECTION 4.4(e), the Company shall pay for the Shares to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds. The Company shall be entitled to receive customary representations and warranties regarding good title to such securities, free and clear of any liens or encumbrances, power and authority, due execution, and enforceability. (e) CERTAIN RESTRICTIONS. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Shares by the Company shall be subject to applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Shares hereunder which the Company is otherwise entitled or required to make, the time periods provided in this SECTION 4.4 shall be suspended, and the Company shall make such 8 repurchases as soon as it is permitted to do so under such restrictions with interest at an annual rate of 7%. In addition, the Company may pay the Repurchase Price for such Shares by offsetting any bona fide debts owed by Optionee to the Company. (f) TERMINATION OF REPURCHASE OPTION. The Repurchase Option set forth in this SECTION 4.4 shall continue with respect to all Shares following any Transfer thereof; PROVIDED that such Repurchase Option shall terminate effective immediately after the consummation of a Sale of the Company or a Public Offering of the Company's equity securities in which the Company receives net proceeds of at least $100 million; and PROVIDED FURTHER that, with respect to each Share, the Repurchase Option with respect to such Share shall terminate immediately upon the Transfer of such Share pursuant to a Public Sale. 5. NON-TRANSFERABILITY OF OPTIONS. The Options shall not be transferable or assignable except upon Optionee's death by will or the laws of descent and distribution and shall be exercisable, during Optionee's lifetime, only by Optionee. 6. PURCHASE FOR INVESTMENT; OTHER REPRESENTATIONS OF OPTIONEE; LEGENDS. 6.1 INVESTMENT INTENT. As provided in the Plan, in the event that the offering of Shares with respect to which the Options are being exercised is not registered under the Securities Act, but an exemption is available that requires an investment representation or other representation, Optionee, if electing to purchase Shares, will be required to represent that such Shares are being acquired for investment and not with a view to distribution thereof, and to make such other reasonable and customary representations regarding matters relevant to compliance with applicable securities laws as are deemed necessary by counsel to the Company. Stock certificates evidencing such unregistered Shares that are acquired upon exercise of the Options shall bear restrictive legends in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws or are provided for in the Stockholders Agreement or any other agreement to which Optionee is a party: THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED AT ANY TIME IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES AT SUCH TIME, OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH 9 TRANSFER AT SUCH TIME WILL NOT VIOLATE THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS. 6.2 OTHER REPRESENTATIONS. Optionee hereby represents and warrants to the Company as follows: (a) ACCESS TO INFORMATION. Because of Optionee's business relationship with the Company and with the management of the Company, Optionee has had access to all material and relevant information concerning the Company, thereby enabling Optionee to make an informed investment decision with respect to his investment in the Company, and all pertinent data and information requested by Optionee from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of this Agreement have been furnished. Optionee acknowledges that Optionee has had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. (b) FINANCIAL SOPHISTICATION. Optionee has such knowledge and experience in financial and business matters that Optionee is capable of evaluating the merits and risks of investing in the Shares. (c) UNDERSTANDING THE INVESTMENT RISKS. Optionee understands that: (i) An investment in the Shares represents a highly speculative investment, and there can be no assurance as to the success of the Company in its business; and (ii) There is at present no market for the Shares and there can be no assurance that a market will develop in the future. (d) UNDERSTANDING OF THE NATURE OF THE SHARES. Optionee understands and agrees that: (i) There can be no assurance that the Shares will be registered under the Securities Act or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and the representations and warranties of Optionee contained herein, which will have to be renewed as to the Shares at the times of exercise of 10 the Options, are essential to any claim of exemption by the Company under the Securities Act and such state laws; (ii) If the Shares are not so registered, the Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (iii) The Option cannot be exercised and the Shares will not be sold to Optionee and Optionee cannot resell or transfer the Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (iv) Only the Company can register the Shares under the Securities Act and applicable state securities laws; (v) The Company has not made any representations to Optionee that the Company will register the Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (vi) Optionee is aware of the conditions for Optionee's obtaining an exemption for the resale of the Shares under the Securities Act and any applicable state securities laws; and (vii) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act and any applicable state securities laws, and any additional restrictions imposed by state securities administrators. (e) INVESTMENT INTENT. Optionee acknowledges that: (i) Optionee is acquiring the Option for Optionee's own account and not on behalf of any other person; (ii) Optionee is acquiring the option for investment and not with a view to distribution or with the intent to divide Optionee's participation with others or resell or otherwise distribute the Options or the Shares; 11 (iii) Neither Optionee nor anyone acting on Optionee's behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Options or the Shares; and (iv) At the time of exercise of any Option, Optionee will have to make all the representations and warranties contained in this SECTION 6 with respect to the Shares to be issued and other representations concerning investment intent as a condition of the issuance of the Shares by the Company. 7. RESTRICTION ON ISSUANCE OF SHARES. The Company shall not be obligated to sell or issue any Shares pursuant to this Agreement if such issuance would result in the violation of any laws, including the Securities Act or any applicable state securities laws. The Company agrees to use its reasonable best efforts to qualify for available exemptions under the Securities Act or any applicable state securities laws which will enable it to issue Shares hereunder in compliance with applicable law. 8. RIGHTS AS A SHAREHOLDER. Optionee shall have no rights as a shareholder with respect to any Shares covered by the Options until the date of exercise and payment of the Exercise Price in accordance with the terms of this Agreement. Subject to SECTION 3 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 9. NO EMPLOYMENT RIGHTS. This Agreement shall not confer upon Optionee any right with respect to the continuance as an employee of the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate such employment at any time. 10. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. 11. NOTICES. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or by reputable overnight courier service (charges prepaid), or transmitted by facsimile with answer-back confirmation to the following address, or any other address specified, by notice duly given: 12 To Optionee at: D. Garrad Warren, III 26 Horizon Drive Mendham, NJ 07945 To the Company at: United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: General Counsel Telecopy: (314) 253-5947
12. WITHHOLDINGS. Except to the extent prohibited by applicable law, Optionee may satisfy any required withholding obligation upon the exercise of an Option hereunder by either of the following methods, or by a combination of such methods: (a) tendering a cash payment or (b) delivering to the Company previously acquired Shares, or having the Company withhold Shares otherwise deliverable upon the exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding obligation arises, less than or equal to the amount of the total withholding obligation. 13. PRO RATA EXERCISE. The Shares of Common Stock covered by this Option shall only be exercised, if at all, ratably among the Class A Shares and Class B Shares, based on the aggregate number of Class A Shares and Class B Shares subject to the Options granted hereunder. 14. REGISTRATION OF SHARES. At any time after UIC Holdings, L.L.C., together with its affiliates, holds less than 25% of the Common Stock held by such entities as of the date hereof, Optionee shall have the right to cause the Company to register all of the Shares on a Form S-8, along with a Form S-3 reoffer prospectus, under the Securities Act of 1933, as amended from time to time, or any successor form thereto, and the Company shall use its reasonable best efforts to comply with such request in a timely manner. 15. RULE 701 OFFERING. THE GRANT OF THE OPTION HEREUNDER (AND THE PURCHASE AND SALE OF SHARES UPON ANY EXERCISE OF THE OPTION PURSUANT TO THE TERMS HEREOF) IS MADE PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, PROVIDED BY RULE 701, PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION. * * * * * 13 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By: --------------------------- Name: STEPHEN R. BRIAN Title: PRESIDENT & CEO OPTIONEE: ------------------------------ D. GARRAD WARREN, III 14 ANNEX I The Performance Goal with respect to each fiscal year from 1999 through 2003 is as follows:
FISCAL YEAR PERFORMANCE GOAL ----------- ---------------- 1999* $ 85,400,000 2000 111,200,000 2001 123,100,000 2002 133,000,000 2003 143,800,000 ------------- Aggregate $596,500,000 ------------- -------------
*Including any portion of calendar 1999 prior to closing. These Performance Goals have been calculated without deduction for any expenses associated with the recapitalization effectuated by the Company on January 20, 1999 or any relocation expenses of the Company's new president, and the measurement of the Company's actual performance shall similarly be calculated without deduction for such items. These Performance Goals have already been reduced to reflect (i) the Company's revised aviation budget, (ii) management fees payable to Thomas H. Lee Company and/or its affiliates, (iii) consulting and directors fees payable to David Jones and David Pratt and (iv) the salary and bonus payable to the Company's new president. 15 UNITED INDUSTRIES CORPORATION FORM OF EXERCISE AND STOCK TRANSFER POWER United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Ladies and Gentlemen: Reference is made to the Stock Option Agreement between United Industries Corporation (the "COMPANY") and me (the "OPTION AGREEMENT"), whereby on ________________, 1999, I was granted an option to purchase all or any part of an aggregate of 50,000 shares (the "CLASS A SHARES") of the Company's Class A Voting Common Stock, par value $0.01 per share and 50,000 shares (the "CLASS B SHARES" and, together with the Class A Shares (the "SHARES") of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "COMMON STOCK"), at $5.00 per share. I hereby exercise my right to purchase _________ Shares (on a pro rata basis among the Class A Shares and the Class B Shares) (the "EXERCISED SHARES") of Common Stock at said price and deliver to you herewith the full purchase price of such Exercised Shares, as follows: / / Cash or check in the amount $ ; --------------- / / Previously owned shares of Common Stock having a Fair Market Value (as defined in the Option Agreement) equal to $_______ as of the date hereof, and otherwise in accordance with Section 4.2 of the Option Agreement; and/or / / If the Common Stock is publicly traded, by delivery to the Company of the attached copy of irrevocable broker instructions to deliver promptly to the Company $_______ of loan proceeds, or $_________ of proceeds of the sale of Exercised Shares of Common Stock deliverable upon exercise of the option represented by the Option Agreement. I understand that no Exercised Shares will be issued until arrangements satisfactory to the Company have been made for appropriate income tax withholding, if any, and I have executed the Company's Stockholders Agreement (the "STOCKHOLDERS AGREEMENT"). In the event that the Exercised Shares have not been registered under the Securities Act of 1933, as amended from time to time, upon the date hereof, I hereby represent and warrant to the Company as follows: 1. Because of my business relationship with the Company and with the management of the Company, I have had access to all material and relevant information concerning the Company, thereby enabling me to make an informed investment decision with respect to my investment in the Company, and all pertinent data and information requested by me from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of the Option Agreement have been furnished. I acknowledge that I have had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. 2. I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of investing in the Exercised Shares. 3. I understand that: (a) An investment in the Exercised Shares represents a highly speculative investment, and there can be no assurance as to the success of the company in its business; and (b) There is at present no market for the Exercised Shares and there can be no assurance that a market will develop in the future. 4. I understand and agree that: (a) There can be no assurance that the Exercised Shares will be registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and my representations and warranties contained herein are essential to any claim of exemption by the Company under the Securities Act and such state laws; (b) If the Exercised Shares are not so registered, the Exercised Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (c) I cannot resell or transfer the Exercised Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (d) Only the Company can register the Exercised Shares under the Securities Act and applicable state securities laws; (e) The Company has not made any representations to me that the Company will register the Exercised Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (f) I am aware of the conditions for obtaining an exemption for the resale of the Exercised Shares under the Securities Act and any applicable state securities laws; (g) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act, and any applicable state securities laws, and any additional restrictions imposed by state securities administrators; and (h) I understand that stock certificates evidencing the Exercised Shares shall bear restrictive legends as more particularly described in the Option Agreement and the Stockholders Agreement. 5. I acknowledge that: (a) I am acquiring the Exercised Shares for my own account and not on behalf of any other person; (b) I am acquiring the Exercised Shares for investment and not with a view to distribution or with the intent to divide my participation with others or resell or otherwise distribute the Exercised Shares; and (c) Neither I nor anyone acting on my behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Exercised Shares. 6. I acknowledge and understand that an investment in the Shares involves a high degree of risk and my entire investment could be lost, and that these risks include, but are not limited to, the following: (a) The manufacture and sale of the Company's products is highly competitive, and the Company competes with a number of other companies, some of which may be larger and better capitalized. In response to such competition, the Company may be required to lower selling prices to maintain or increase market share, and such measures could adversely affect the Company's gross margins and operating results. (b) The Company may be a party to administrative actions and lawsuits, including product liability claims involving its products. An adverse final judgment in any such proceeding or related actions could have a material adverse effect on the Company's financial condition. (c) UIC Holdings, L.L.C., owns in excess of 90% of the voting shares of the Company. Accordingly, the UIC Holdings, L.L.C. may elect the Company's directors and amend the Company's certificate of incorporation, effect a merger, sale of assets or other business acquisition or disposition, and otherwise control the outcome of many actions requiring stockholder approval. (d) The Company is highly leveraged and is capitalized with a significant amount of senior and subordinated debt. The rights of the holders of the Common Stock are junior to the rights held by the senior lenders and the holders of subordinated debt of the Company. Any proceeds on a sale of the Company or on liquidation, dissolution or winding up of the Company would first be used to pay outstanding debt incurred by the Company. There is no guarantee that the Company can repay its obligations to those with rights senior to the holders of Common Stock or that any money will be available for distribution to holders of Common Stock. (e) Upon termination of employment, the Company has the right (but not the obligation) to purchase all or a portion of the Exercised Shares. As a result, I could be required to hold the Exercised Shares for a period of time after the termination of my employment with the Company. (f) The financial performance of the Company is largely dependent on the capabilities of its senior management. The retention of the key members of management is critical to the success of the Company. Loss of key personnel could lead to poor execution of operating strategies, lost sales and could adversely impact the Company's operating results. Signature --------------------------------- D. Garrad Warren, III Address: 26 Horizon Drive Mendham, NJ 07945 Social Security No.: ###-##-#### EX-10.18 7 EXHIBIT 10.18 AGREEMENT AND PLAN OF RECAPITALIZATION, PURCHASE AND REDEMPTION among THE SELLERS Listed on Exhibit A hereto, UNITED INDUSTRIES CORPORATION and UIC HOLDINGS, L.L.C. Dated as of December 24, 1998 TABLE OF CONTENTS Page 1. RECAPITALIZATION, PURCHASE AND REDEMPTION TRANSACTIONS......................2 1.1 RECAPITALIZATION, PURCHASE AND REDEMPTION TRANSACTIONS.................2 2. ADJUSTMENTS.................................................................5 2.1 POST-CLOSING ADJUSTMENTS..........................................5 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS...............................8 3.1 CORPORATE EXISTENCE....................................................8 3.2 AUTHORITY..............................................................8 3.3 UIC COMMON STOCK.......................................................9 3.4 GOVERNMENTAL APPROVALS; CONSENTS......................................10 3.5 FINANCIAL STATEMENTS..................................................10 3.6 COMPLIANCE WITH LAWS..................................................11 3.7 REAL AND PERSONAL PROPERTIES..........................................12 3.8 MATERIAL CONTRACTS....................................................13 3.9 LITIGATION............................................................15 3.10 INTANGIBLE PROPERTY RIGHTS............................................16 3.11 TAX MATTERS...........................................................18 3.12 EMPLOYMENT AND BENEFITS...............................................20 3.13 ABSENCE OF CERTAIN CHANGES OR EVENTS..................................22 3.14 FINDERS; BROKERS......................................................24 3.15 ENVIRONMENTAL MATTERS.................................................24 3.16 YEAR 2000 COMPLIANCE..................................................26 3.17 AFFILIATE TRANSACTIONS................................................26 3.18 ABSENCE OF UNDISCLOSED LIABILITIES....................................27 3.19 SUFFICIENCY OF ASSETS.................................................27 3.20 PRODUCT WARRANTIES....................................................28 3.21 INDEBTEDNESS..........................................................28 3.22 DISCLOSURE............................................................28 3.23 NO OTHER REPRESENTATIONS OR WARRANTIES................................28 4. REPRESENTATIONS AND WARRANTIES OF BUYER....................................29 4.1 CORPORATE EXISTENCE...................................................29 4.2 CORPORATE AUTHORITY...................................................29 4.3 GOVERNMENTAL APPROVALS; CONSENTS......................................30 4.4 FINDERS; BROKERS......................................................30 4.5 FINANCIAL CAPACITY....................................................30 4.6 PURCHASE FOR INVESTMENT...............................................31 4.7 NO OTHER REPRESENTATIONS OR WARRANTIES................................31 5. AGREEMENTS OF BUYER AND THE UIC SELLERS....................................31 5.1 OPERATION OF THE BUSINESS.............................................31 5.2 INVESTIGATION OF BUSINESS.............................................35 5.3 MUTUAL COOPERATION; NO INCONSISTENT ACTION............................35 5.4 PUBLIC DISCLOSURES....................................................38 5.5 ACCESS TO RECORDS AND PERSONNEL.......................................38 5.6 EMPLOYEE RELATIONS AND BENEFITS.......................................39 5.7 NON-SOLICITATION......................................................42 5.8 LITIGATION............................................................42 5.9 TERMINATION OF DAVID C. PRATT, MARK R. GALE AND ED KUHN...............42 5.10 TAX MATTERS...........................................................43 5.11 OFFICERS' AND DIRECTORS' INDEMNIFICATION..............................48 5.12 AMENDMENTS TO SCHEDULES...............................................48 5.13 EXCLUSIVITY...........................................................49 5.14 POST-CLOSING NONCOMPETITION, NONSOLICITATION, CONFIDENTIALITY.........50 5.15 KUHN NOTES............................................................52 5.16 INSURANCE.............................................................52 5.17 STOCKHOLDERS' AGREEMENT...............................................52 6. CONDITIONS.................................................................53 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND THE SELLERS..........53 6.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE SELLERS.....................54 6.3 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER...........................54 7. CLOSING....................................................................57 7.1 CLOSING DATE..........................................................57 7.2 BUYER DELIVERIES......................................................57 7.3 SELLERS DELIVERIES....................................................57 8. INDEMNIFICATION............................................................58 8.1 INDEMNIFICATION BY THE SELLERS........................................58 8.2 INDEMNIFICATION BY BUYER..............................................63 8.3 INDEMNIFICATION CALCULATIONS..........................................68 9. TERMINATION................................................................69 9.1 TERMINATION EVENTS....................................................69 9.2 EFFECT OF TERMINATION.................................................70 10.ALTERNATIVE DISPUTE RESOLUTION.............................................70 11.MISCELLANEOUS AGREEMENTS OF THE PARTIES....................................71 11.1 EXPIRATION OF REPRESENTATIONS AND WARRANTIES..........................71 11.2 NOTICES...............................................................71 11.3 TRANSACTION TAXES.....................................................72 11.4 FURTHER ASSURANCES....................................................73 11.5 EXPENSES..............................................................73 11.6 NON-ASSIGNABILITY.....................................................74 11.7 AMENDMENT; WAIVER.....................................................74 ii 11.8 SCHEDULES AND EXHIBITS..............................................75 11.9 THIRD PARTIES.......................................................75 11.10 GOVERNING LAW.......................................................76 11.11 CONSENT TO JURISDICTION.............................................76 11.12 CERTAIN DEFINITIONS.................................................76 11.13 SECTION 1445 WITHHOLDING............................................78 11.14 ENTIRE AGREEMENT....................................................78 11.15 SECTION HEADINGS; TABLE OF CONTENTS.................................78 11.16 SEVERABILITY........................................................78 11.17 COUNTERPARTS........................................................78 11.18 LIMITED GUARANTEE...................................................79 11.19 SELLERS' REPRESENTATIVE.............................................79 iii EXHIBIT EXHIBIT A - The Sellers EXHIBIT B - Charter Amendment EXHIBIT C - Stockholders' Agreement EXHIBIT D - Letter of UIC's accountants EXHIBIT E - Consulting Agreement SCHEDULES SCHEDULE 1.1(c) Purchase of Class A Common Stock 1.1(d) Purchase of Class B Common Stock 1.1(e) Redemption of UIC Common Stock; Post-Closing Ownership 2.1(a) Working Capital Calculation 3.3 UIC Common Stock 3.4 Government Approvals; Consents 3.5 Financial Statements 3.6 Compliance with Laws 3.7 Real and Personal Properties 3.8 Material Contracts 3.9 Litigation 3.10 Intangible Property Rights 3.11 Tax Matters 3.12 Employment and Benefits 3.13 Absence of Certain Changes or Events 3.15 Environmental Matters 3.17 Affiliate Transactions 3.18 Liabilities 3.20 Product Warranties 4.3 Governmental Approvals; Consents 5.1 Operation of the Business 5.6 Employee Relations and Benefits 11.12 Knowledge iv AGREEMENT AND PLAN OF RECAPITALIZATION, PURCHASE AND REDEMPTION Agreement and Plan of Recapitalization, Purchase and Redemption, dated as of December 24, 1998 (this "Agreement"), among the Sellers listed on Exhibit A hereto (the "SELLERS"), United Industries Corporation, a Delaware corporation ("UIC"), and UIC Holdings, L.L.C., a Delaware limited liability company ("BUYER"). W I T N E S S E T H: WHEREAS, the Sellers collectively own 100% of the outstanding shares of Class A voting common stock, par value $1 per share (the "CLASS A COMMON STOCK") and Class B nonvoting common stock, par value $1 per share (the "CLASS B COMMON STOCK", and together with the Class A Common Stock, the "UIC COMMON STOCK") of UIC, which is engaged, through its Spectrum Group division, in the business of manufacturing and marketing household insecticides, rodenticides, insect repellents and lawn and garden products and supplying control and private label products to national retailers in the insecticide, lawn and garden and households consumer products businesses and, through its Chemsico division, in the business of supplying aerosol and liquid products to major branded companies in the insecticide, lawn and garden, automotive and household consumer products businesses and supplying private label products for many large retail chains (which businesses are collectively referred to in this Agreement as the "BUSINESS"); WHEREAS, UIC is also engaged, through its wholly-owned subsidiary DW Wej-it, Inc., a Delaware corporation ("DW"), in the business of manufacturing and marketing construction anchoring fasteners and providing contract manufacturing services in metals fabrication (which business is collectively referred to in this Agreement as the "METALS BUSINESS"); WHEREAS, UIC intends to contribute to DW all of UIC's assets primarily used in or related to the Metals Business, to have DW assume all of UIC's liabilities to the extent related to the Metals 2 Business and then on or about January 1, 1999 to distribute to certain of the Sellers all of the shares of capital stock of DW owned by UIC (the "METALS BUSINESS DISTRIBUTION"); and WHEREAS, upon the terms and subject to the conditions of this Agreement, UIC, the Sellers and Buyer will enter into recapitalization, purchase and redemption transactions pursuant to which, among other things, (i) UIC shall consummate certain borrowings, (ii) Buyer will purchase from the Sellers certain shares of their Class B Common Stock, (ii) Buyer will purchase from the Sellers certain shares of their Class A Common Stock and (iii) UIC will redeem a portion of the Class A Common Stock and Class B Common Stock held by the Sellers such that after giving effect to the transactions contemplated hereby, Buyer will own 94% of the outstanding Class A Common Stock and 94% of the outstanding Class B Common Stock, and the Sellers will retain 6% of the outstanding Class A Common Stock and 6% of the outstanding Class B Common Stock. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and intending to be legally bound hereby, the parties hereby agree as follows: 1. RECAPITALIZATION, PURCHASE AND REDEMPTION TRANSACTIONS 1.1 RECAPITALIZATION, PURCHASE AND REDEMPTION TRANSACTIONS. On the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, at the Closing and as of the Closing Date, as those terms are defined in Section 7.1 hereof, UIC, the Sellers and Buyer shall enter into the following transactions: (a) UIC shall file an Amended and Restated Certificate of Incorporation substantially in the form of Exhibit B hereto (the "CHARTER AMENDMENT") to make certain changes set forth therein; (b) UIC shall consummate borrowings (the "BORROWINGS") substantially on the terms set forth in the Commitment Letters (as defined in Section 4.5) and in amounts sufficient to effect the 3 redemption described in Section 1.1(e) below and to pay certain expenses associated with the transactions contemplated hereby; (c) PURCHASE OF CLASS A COMMON STOCK BY BUYER FROM SELLERS. (i) Buyer shall purchase from each of the Sellers, and each of the Sellers shall sell to Buyer, a number of shares of Class A Common Stock as set forth on SCHEDULE 1.1(c) attached hereto which in the aggregate will equal 312.2872 shares of the Class A Common Stock owned by such Sellers for an aggregate purchase price of $130,190,000, less an amount equal to 21.683% of (A) the amount outstanding on UIC's unsecured seasonal working capital line of credit (the "REVOLVER") as of the close of business on January 17, 1999 and (B) the amount outstanding on the Closing Date under the Kuhn Notes (as defined in Section 5.15) (the Kuhn Notes together with the Revolver are collectively referred to herein the "DEBT ADJUSTMENT AMOUNT") and (ii) the Sellers shall deliver to Buyer certificates representing the Class A Common Stock owned by the Sellers duly endorsed, or accompanied by stock powers duly executed, with all necessary stock transfer stamps attached thereto and canceled, or such other assignments, deeds, share transfer forms, endorsements, notarial deeds of transfer or other instruments or documents, duly stamped where necessary, as required by the State of Delaware. (d) PURCHASE OF CLASS B COMMON STOCK BY BUYER FROM THE SELLERS. (i) Buyer shall purchase from each of the Sellers, and each of the Sellers shall sell to Buyer, a number of shares of Class B Common Stock as set forth on SCHEDULE 1.1(d) attached hereto which in the aggregate will equal 312.2872 shares of Class B Common Stock owned by such Sellers for an aggregate purchase price of $130,190,000, less an amount equal to 21.683% of the Debt Adjustment Amount and (ii) the Sellers shall deliver to Buyer certificates representing the Class B Common Stock owned by the Sellers duly endorsed, or accompanied by stock powers duly executed, with all necessary stock transfer stamps attached thereto and canceled, or such other assignments, deeds, share transfer forms, 4 endorsements, notarial deeds of transfer or other instruments or documents, duly stamped where necessary, as required by the State of Delaware. (e) PARTIAL REDEMPTION OF THE SELLERS' CLASS A COMMON STOCK. UIC shall redeem from the Sellers, and the Sellers shall transfer to UIC, a number of shares of the Sellers' Class A Common Stock as set forth on SCHEDULE 1.1(e) hereto, which in the aggregate will equal 407.7796 shares of the Class A Common Stock for an aggregate purchase price of $170,000,000, less an amount equal to 28.317% of the Debt Adjustment Amount, and (ii) the Sellers shall deliver to UIC certificates representing the Class A Common Stock owned by the Sellers duly endorsed, or accompanied by stock powers duly executed, with all necessary stock transfer stamps attached thereto and canceled, or such other assignments, deeds, share transfer forms, endorsements, notarial deeds of transfer or other instruments or documents, duly stamped where necessary, as required by the State of Delaware. (f) PARTIAL REDEMPTION OF THE SELLERS' CLASS B COMMON STOCK. UIC shall redeem from the Sellers, and the Sellers shall transfer to UIC, a number of shares of the Sellers' Class B Common Stock as set forth on SCHEDULE 1.1(e) hereto, which in the aggregate will equal 407.7796 shares of the Class B Common Stock for an aggregate purchase price of $170,000,000, less an amount equal to 28.317% of the Debt Adjustment Amount, and (ii) the Sellers shall deliver to UIC certificates representing the Class B Common Stock owned by the Sellers duly endorsed, or accompanies by stock powers duly executed, with all necessary stock transfer stamps attached thereto and canceled, or such other assignments, deeds, share transfer forms, endorsements, notarial deeds of transfer or other instruments or documents, duly stamped where necessary, as required by the State of Delaware. 5 (g) STOCKHOLDERS' AGREEMENT. The Sellers, UIC and Buyer shall enter into a Stockholders' Agreement, substantially on the terms set forth on Exhibit C (h) POST-CLOSING OWNERSHIP. Upon consummation of the transactions contemplated by this Section 1.1, the amount of the Class A Common Stock and the Class B Common Stock in UIC held by Buyer and the Sellers shall be as set forth on SCHEDULE 1.1(e) hereto. (i) Any amounts payable by Buyer or UIC pursuant to this Section 1 shall be payable in immediately available federal funds to such bank accounts, in the United States, as shall be designated by the Sellers prior to Closing. 2. ADJUSTMENTS 2.1 POST-CLOSING ADJUSTMENTS. (a) Within 60 days following the Closing, Buyer shall, at its expense, prepare, or cause to be prepared, and deliver to the Sellers (i) a balance sheet (the "CLOSING BALANCE SHEET") which shall set forth those assets and liabilities of the Business relevant to the calculation of working capital on the basis set forth on SCHEDULE 2.1(a) as of the close of business on the Closing Date. Subject to SCHEDULE 2.1(a), the Closing Balance Sheet, shall be prepared as a year-end financial statement in accordance with GAAP (taking into account all applicable year-end adjustments and accruals), reflecting all costs and expenses incurred by UIC in connection with the transactions contemplated hereby (excluding costs and expenses incurred by or on behalf of the Buyer) and, to the extent consistent therewith, using the same accounting principles, methods, assumptions, practices and estimation methodologies as were utilized in the preparation of the audited balance sheet of UIC as of December 31, 1997 (the "1997 BALANCE SHEET") and the statement of income for the twelve-month period ended December 31, 1997 (the "1997 INCOME STATEMENT") included as part of the Financial Statements (as defined in Section 3.5) previously 6 delivered to Buyer. Buyer shall also deliver within 60 days from the Closing a calculation of working capital derived from the Closing Balance Sheet on the basis set forth on Schedule 2.1(a) ("CLOSING WORKING CAPITAL"). (b) The Sellers and their accountants shall, within 30 days after the delivery by Buyer of the Closing Balance Sheet and calculation of Closing Working Capital, complete their review of Closing Working Capital. In the event that the Sellers determine that Closing Working Capital has not been determined in accordance with GAAP (taking into account all applicable year-end adjustments and accruals) and, to the extent consistent therewith, using the same accounting principles, methods, assumptions, practices and estimation methodologies as were utilized in the preparation of the 1997 Balance Sheet or the 1997 Income Statement, as adjusted on the basis set forth on SCHEDULE 2.1(a), the Sellers shall inform Buyer in writing (the "SELLERS' OBJECTION"), setting forth a specific description of the basis of Sellers' Objection and the adjustments to Closing Working Capital which the Sellers believe should be made, on or before the last day of such 30-day period. Buyer shall then have 30 days to review and respond to Sellers' Objection. If the Sellers and Buyer are unable to resolve all of their disagreements with respect to the determination of the foregoing items within 30 days following the completion of the Buyer's review of Sellers' Objection, they shall refer their remaining differences to a nationally recognized firm of independent public accountants as to which the Sellers and Buyer mutually agree (the "CPA FIRM"), who shall determine on the basis of the standards set forth in this Section 2.1 and on SCHEDULE 2.1(a), and only with respect to the specific remaining accounting related differences so submitted, whether and to what extent, if any, Closing Working Capital requires adjustment. The Sellers and Buyer shall direct the CPA Firm to use its best efforts to render its determination within 45 days. The CPA Firm's determination shall be conclusive and binding upon Buyer and the Sellers. The fees and disbursements of the CPA Firm 7 shall be shared equally by Buyer, on the one hand, and the Sellers, on the other hand. Buyer and the Sellers shall make readily available to the CPA Firm all relevant books and records and any work papers (including those of the parties' respective accountants) relating to the 1997 Balance Sheet, the Closing Balance Sheet, the Closing Working Capital and the 1997 Income Statement, and all other items reasonably requested by the CPA Firm. The "ADJUSTED CLOSING WORKING CAPITAL" shall be (i) the Closing Working Capital in the event that (x) no Sellers' Objection is delivered to Buyer during the 30-day period specified above, or (y) the Sellers and Buyer so agree, (ii) the Closing Working Capital, adjusted in accordance with the Sellers' Objection in the event that Buyer does not respond to Sellers' Objection within the 30-day period following receipt by Buyer of Sellers' Objection, or (iii) the Closing Working Capital, as adjusted by either (x) the agreement of the Sellers and Buyer or (y) the CPA Firm. (c) Buyer shall provide the Sellers and their accountants full access to the books and records of UIC, to any other information, including work papers of their accountants, and to any employees to the extent necessary for the Sellers to review the Closing Balance Sheet and review Closing Working Capital. Sellers and their accountants shall have the opportunity to observe the taking of the Inventory (which at Sellers' request may begin prior to the Closing Date) in connection with the preparation of the Closing Balance Sheet and Closing Working Capital and shall have full access to all information used by Buyer in preparing the Closing Balance Sheet and Closing Working Capital, including the procedures, books, records and work papers of its accountants. (d) Within 10 business days following the determination of the Adjusted Closing Working Capital, (i) UIC shall pay to Sellers any amount by which the Adjusted Closing Working Capital is greater than $30,415,900, or (ii) Sellers shall pay to UIC any amount by which the Adjusted Closing Working Capital is less than $30,415,900, plus, in each case, interest thereon from 8 the Closing Date through the date of payment at the "base rate" of Citibank, N.A. or any successor thereto in New York, New York on the Closing Date, based on a 360-day year. Any payment to be made pursuant to this Section 2.1(d) shall be paid in United States dollars by wire transfer of immediately available funds to an account designated by Sellers, on the one hand, or the Buyer, on the other hand, as the case may be. 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS The Sellers jointly and severally represent and warrant to Buyer as follows: 3.1 CORPORATE EXISTENCE. UIC is a corporation duly organized and validly existing and in good standing under the laws of Delaware. UIC has the requisite power and authority to own, lease and operate the properties and assets used in the Business and to carry on the Business as the same is now being conducted. UIC is duly authorized, qualified or licensed to do business as a foreign corporation and in good standing in every jurisdiction wherein, by reason of the nature of the Business, the failure to be so qualified would, individually or in the aggregate with other such failures, reasonably be expected to have a material adverse effect on the results of operations, assets, properties, financial condition or business of the Business taken as a whole or on the ability of the Sellers to consummate the transactions contemplated hereby (a "MATERIAL ADVERSE EFFECT"). Other than DW, UIC does not have and has not had since it became an S Corporation in April 1982 any subsidiaries. 3.2 AUTHORITY. This Agreement and the consummation of all of the transactions provided for herein have been duly authorized, in the case of any Seller that is a trust, by all requisite trust action prior to Closing, and each of the Sellers has full power and authority to execute and deliver this Agreement and to perform his, her or its obligations hereunder. This Agreement has been duly executed and 9 delivered by each of the Sellers and constitutes a valid and legally binding obligation of each of the Sellers, enforceable in accordance with its terms except as enforceability is subject to the effects of bankruptcy, insolvency fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. The execution and delivery of this Agreement by the Sellers and the consummation by the Sellers of the transactions contemplated hereby will not violate or conflict with any provision of the Certificate of Incorporation or By-Laws of UIC or result in any breach or constitute any default under, or permit a cancellation or acceleration or give rise to any right of termination under, or conflict with or result in a modification, amendment or change in the terms of, result in the creation of any Lien under any contract, indenture, mortgage, lease, note or other agreement or instrument to which UIC is subject or is a party, except for any such violation, conflict, breach or default which would not reasonably be expected to have a Material Adverse Effect. 3.3 UIC COMMON STOCK. SCHEDULE 3.3 sets forth for UIC the authorized capital stock, the number of shares of outstanding capital stock, the number of shares of such outstanding capital stock owned by each owner thereof and the name of each such owner. Except as indicated on SCHEDULE 3.3 hereto, there are no outstanding options, warrants or other rights of any kind relating to the sale, issuance or voting of any UIC Common Stock which have been issued, granted or entered into by UIC or any of the Sellers or any securities convertible into or evidencing the right to purchase any UIC Common Stock, and there are no outstanding or authorized stock appreciation, phantom stock, or similar rights with respect to UIC. Neither UIC nor any Seller is a party to any stockholder agreement, voting agreement, proxy, registration agreement, or other agreement relating to the voting or transfer of UIC 10 Common Stock or containing any preemptive, first refusal or similar rights, except as disclosed on SCHEDULE 3.3 (all of which will be terminated at or prior to the Closing). Except as set forth on SCHEDULE 3.3 hereto, all of the UIC Common Stock has been validly issued, is fully paid and nonassessable and is owned by the Sellers free and clear of all liens, pledges, claims, charges, security interests, options or other legal or equitable encumbrances ("LIENS"). At the Closing, Sellers shall deliver to Buyer all right, title and interest in and to the UIC Common Stock free and clear of any Liens (other than any Liens created by Buyer). 3.4 GOVERNMENTAL APPROVALS; CONSENTS. The Sellers are not subject to any order, judgement or decree which would prevent the consummation of the transactions contemplated hereby. No claim, legal action, suit, arbitration, governmental investigation, action, or other legal or administrative proceeding is pending or, to the knowledge of the Sellers, threatened against the Sellers which would enjoin or delay the transactions contemplated hereby. Except as set forth in SCHEDULE 3.4 hereto, no consent, approval, order or authorization of, license or permit from, notice to or registration, declaration or filing with, any governmental authority or entity, domestic or foreign, or of any third party, is or has been required on the part of the Sellers or UIC in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby except for such consents, approvals, orders or authorizations of, licenses or permits, filings or notices the failure of which to obtain or make would not reasonably be expected to have a Material Adverse Effect or which have been obtained. 3.5 FINANCIAL STATEMENTS. SCHEDULE 3.5 contains a copy of the audited balance sheets of UIC as of December 31, 1996 and 1997 and the related statements of income, stockholders' equity and cash flows for the years then 11 ended (such financial statements and the notes thereto, the "ANNUAL FINANCIAL STATEMENTS"), and the audited August 31, 1998 Balance Sheet (together with the notes thereto, the "INTERIM BALANCE SHEET") and the related statements of income, stockholders' equity and cash flows for the eight-month period ended August 31, 1998 (such financial statements and the notes thereto, together with the Interim Balance Sheet, the "INTERIM FINANCIAL STATEMENTS" and together with the Annual Financial Statements, the "FINANCIAL STATEMENTS"). The Financial Statements present fairly in all material respects the financial condition of and the results of operations of UIC as of the dates and for the periods indicated, subject in the case of the Interim Financial Statements to normal year-end audit adjustments. The Financial Statements have been prepared in accordance with United States generally accepted accounting principles consistently applied ("GAAP"). 3.6 COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 3.6 and except for those failures to have, to be in full force in effect, to file, retain and maintain and to comply, in each case, that would not reasonably be expected to have a Material Adverse Effect, (i) with respect to the Business, UIC has all licenses, permits or franchises issued by any United States or foreign, federal, state, provincial, municipal or local authority or regulatory body and other governmental certificates, authorizations and approvals (collectively "LICENSES AND PERMITS") required by every United States or foreign, federal, state, provincial, municipal and local governmental or regulatory body for the operation of its businesses and the use of its properties as presently operated or used; (ii) all such Licenses and Permits are in full force and effect and no action, claim or proceeding is pending, nor to the knowledge of the Sellers' is threatened, to suspend, revoke, revise, limit, restrict or terminate any of such Licenses and Permits or declare any such License and Permit invalid; (iii) UIC has filed all necessary reports and maintained and retained all necessary records pertaining to such Licenses and Permits; and (iv) UIC 12 has otherwise complied with all of the laws, ordinances, regulations and orders applicable to its existence, financial condition, operations, properties or business, and UIC has not received any notice to the contrary. 3.7 REAL AND PERSONAL PROPERTIES. (a) UIC has good title to, or a valid and binding leasehold or subleasehold interest in, the real or personal property used in the Business, free and clear of all Liens except (i) as set forth on SCHEDULE 3.7(a); (ii) as disclosed in the Financial Statements; (iii) liens for taxes, assessments and other governmental charges not yet due and payable or, if due, (A) not delinquent or (B) being contested in good faith by appropriate proceedings during which collection or enforcement against the property is stayed as set forth on Schedule 3.7(a); (iv) mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like liens arising or incurred in the ordinary course of business if the underlying obligations are not past due and which are not, individually or in the aggregate, material to the Business, original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (v) with respect to real property, (A) easements, licenses, covenants, rights-of-way and other similar restrictions, including, without limitation, any other agreements or restrictions which would be shown by a current title report or other similar report or listing, (B) any conditions that may be shown by a current survey, title report or physical inspection and (C) zoning, building and other similar restrictions, so long as none of (A), (B) or (C) prevent the use or occupancy of such real property substantially as currently used; and (vi) other liens, charges or other encumbrances which would not reasonably be expected to have a Material Adverse Effect (such liens, charges and encumbrances described in clauses (i)-(vi) hereof are referred to herein as "PERMITTED LIENS"). 13 (b) SCHEDULE 3.7(b) contains a list of all leases and subleases of real property used by UIC in the Business ("REAL PROPERTY"), including all buildings, structures and other improvements situated thereon (individually referred to as a "FACILITY" and collectively, the "FACILITIES") as of the date hereof. Except as set forth in SCHEDULE 3.7(b) and except in each case as would not reasonably be expected to have a Material Adverse Effect, there are no parties in possession of any portion of the Real Properties as lessees, tenants at sufferance or trespassers other than UIC. Except as provided in SCHEDULE 3.7(b), UIC has received no actual notice that the location, construction, occupancy, operation or use of the buildings located on the Real Properties violates any restrictive covenant or deed restriction or any other governmental laws, orders, rules or regulations except for such violations or restrictions which would not reasonably be expected to have a Material Adverse Effect. (c) There is not under any lease or sublease of any of the Real Property (a "UIC LEASE") any default by UIC thereunder or, to the knowledge of the Sellers, any condition which with notice or the passage of time or both would constitute such a default, except in each case for such defaults which, would not reasonably be expected to have a Material Adverse Effect, and UIC has not received notice asserting the existence of any such default or condition. To the knowledge of the Sellers, each UIC Lease is valid and binding and in full force and effect, and each UIC Lease will continue to be valid, binding, enforceable, and in full force and effect as of the Closing on the same terms applicable immediately prior to the Closing. To the knowledge of the Sellers, neither the execution of this Agreement nor the sale of the UIC Common Stock hereunder will cause a default under any UIC Lease or require the prior written consent of any landlord under any UIC Lease, except consents as set forth on SCHEDULE 3.7(c). 3.8 MATERIAL CONTRACTS. 14 (a) Except as set forth on SCHEDULE 3.8(a), UIC is not bound by: (i) any agreement, contract or commitment relating to the employment of any Person by UIC at an annual rate of compensation in excess of $150,000, or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other employee benefit plan; (ii) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock; (iii) any agreement, contract or commitment relating to capital expenditures in excess of $100,000; (iv) any loan (other than accounts receivable from trade debtors arising in the ordinary course of business) or advance to (other than travel or entertainment advances to employees made in the ordinary course of business), or investment in, any Person or any agreement, contract or commitment relating to the making of any such loan, advance or investment in each case involving an amount in excess of $ 100,000; (v) any agreement evidencing borrowings by UIC, including loan and credit agreements, promissory notes and other instruments of indebtedness, in each case involving an amount in excess of $100,000; (vi) any guarantee or other contingent liability in respect of any indebtedness or obligation of any other Person (other than the endorsement of negotiable instruments in the ordinary course of business); (vii) any management service, consulting, change of control, severance or other similar type contract in each case involving amounts of $100,000 or more; 15 (viii) any agreement, contract or commitment limiting the ability of UIC to engage in any line of business or to compete with any Person; (ix) any agreement, contract or commitment which involves a liability or obligation, contingent or otherwise, of $100,000 or more and is not cancelable without penalty within 30 days; and (x) any other agreements, contracts and commitments which are material to the Business. (b) True and complete copies of all of the contracts disclosed on SCHEDULE 3.8(a), all UIC Leases, and all other licenses and other agreements disclosed on any other schedule hereto (the "DISCLOSED CONTRACTS") (including all amendments thereto and waivers in respect thereof) have been delivered or made available to Buyer. Except as set forth on SCHEDULE 3.8(b), all Disclosed Contracts are in full force and effect, and no material rights of UIC have lapsed thereunder. Neither UIC, nor, to the knowledge of Sellers, any other party thereto, is in breach or default in the performance of any obligation under any Disclosed Contract, and, to the knowledge of the Sellers, no event has occurred or has failed to occur whereby, with or without the giving of notice or the lapse of time or both, a default or breach will be deemed to have occurred thereunder, except for such breaches, defaults and events which would not reasonably be expected to have a Material Adverse Effect. 3.9 LITIGATION. (a) Except as set forth in SCHEDULE 3.9, as of the date hereof, there are no actions, suits, proceedings (whether adjudicatory, rulemaking, licensing, or otherwise) or investigations pending or, to the knowledge of the Sellers, threatened against UIC in law or in equity, or before any governmental agency or court (collectively, "Litigation"). The monetary exposure for potential 16 damages (excluding UIC's attorney's fees) in connection with the Litigation set forth or required to be set forth on SCHEDULE 3.9 is and will be fully covered by insurance, in each case except to the extent of a $500,000 self-insurance retention. SCHEDULE 3.9 contains a true and complete summary of Litigation for the past five years in which UIC has paid damages in excess of $500,000. Except as set forth on SCHEDULE 3.9, UIC is not subject to any judgment, order, injunction or decree of any court or government agency relating to the Business. (b) UIC has no, and will have no, liability or exposure with respect to or arising out of the litigation STEPHEN BREST AND LOREE BREST VS. DOWELANCO, ET AL., filed in the Superior Court of California, County of Sacramento (the "BREST CASE"). 3.10 INTANGIBLE PROPERTY RIGHTS. (a) SCHEDULE 3.10(a)(ii) lists, as of the date hereof, all material unexpired domestic and foreign patents and patent applications, as well as all material reissues, divisionals, continuations and continuation-in-part applications and any patents issuing thereon, and all material license agreements and other agreements which relate to inventions and discoveries and any patent applications and patents thereon, as well as improvements therein used in connection with the Business (the "PATENT RIGHTS") (which schedule shall also include a description of the terms and expiration dates of such Patent Rights). Except as set forth in SCHEDULE 3.10(a)(ii), (i) UIC owns, is licensed or has the full right to use the Patent Rights and the Technology (as defined below) described in SCHEDULE 3.10(a)(ii) free and clear of all Liens, encumbrances, equities and other restrictions; (ii) there are no pending claims challenging the validity, enforceability or ownership of such Patent Rights or Technology or UIC's right to use such Patent Rights or Technology; (iii) the issued patents under such Patent Rights are valid and subsisting and, to the best of the Sellers' knowledge, none of the claims of said patents is now being infringed by others; (iv) there are no 17 licenses or sublicense agreements now in effect regarding UIC's or to the best of the Seller's knowledge, any third party's use of such Patent Rights or Technology; and (v) to the best of the Sellers' knowledge, UIC is not infringing or misappropriating any U.S. or foreign patent or technology, respectively, owned by third parties and no claim is now pending or is threatened to such effect. For purposes of this Section 3.10(a), the term "TECHNOLOGY" shall mean the material patterns, plans, designs, confidential information, research data, trade secrets and other proprietary know-how, formulae and manufacturing processes, operating manuals, drawings, technology, manuals, data, records, procedures, research and development records, and all licenses or other rights to use any of the foregoing of others used in connection with the Business. (b) SCHEDULE 3.10(b)(ii) lists, as of the date hereof (i) all material trademarks, trademark registrations, trademark applications (including all documents or files pertaining thereto), trade names; (ii) any and all material licenses or other rights to use trademarks owned by others and (iii) any material trade dress associated therewith, used in connection with the Business (the "TRADEMARK RIGHTS"). To the best of the Sellers' knowledge, except as set forth in SCHEDULE 3.10(b)(ii), (i) UIC owns, is licensed or has the full right to use the Trademark Rights; (ii) all such registered Trademark Rights and trade dress are valid and subsisting, free and clear of any encumbrances or rights of third parties which would restrict Buyer's exclusive right to use such registered Trademark Rights and trade dress; and (iii) no claim by third parties with regard to the use of any of such Trademark Rights and trade dress is now pending or is threatened and none of such Trademark Rights is being infringed by others; (c) SCHEDULE 3.10(c)(ii) lists, as of the date hereof, all material copyrights, copyright registrations, copyright applications (pertaining thereto) and all material licenses or other rights to use the copyrights of others, in each case used in connection with the Business (the 18 "COPYRIGHT RIGHTS"). Except as disclosed in SCHEDULE 3.10(c)(ii), UIC owns, is licensed or has the full right to use the Copyright Rights; (ii) all such Copyright Rights are valid, enforceable and subsisting, free and clear of any Liens or rights of third parties which would restrict Buyer's exclusive right to use such Copyright Rights; (iii) to Sellers' knowledge, none of the Copyright Rights is being infringed by a third party; and (iv) there are no pending or, to the best of the Sellers' knowledge, threatened claims by or against UIC with respect to any Copyright Rights or the use thereof and no valid basis exists for any such claim. 3.11 TAX MATTERS. Except as set forth on SCHEDULE 3.11, (a) There are no Liens on any of the assets used in the Business for (i) any federal, state, provincial, local, territorial and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, real estate, excise, value added, estimated, stamp, alternative or add-on minimum, environmental, withholding and any other taxes, duties or assessments, together with all interest, penalties and additions imposed with respect to such amounts or (ii) liability of UIC for the payment of any amounts of the type described in clause (i) arising as a result of being (or ceasing to be) a member of any affiliated group (or being included (or required to be included) within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code") (or any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law) in any Tax Return relating thereto (collectively, "TAXES") (other than for Taxes not yet due and payable). (b) (i) All material Tax Returns required to be filed relating to UIC have been timely filed, (ii) all such Tax Returns are complete and correct in all material respects, and (iii) all material Taxes due and owing from UIC have been timely paid or such Taxes have been provided for on the 19 Closing Balance Sheet. With respect to any period or portion thereof ending on or before the Closing Date for which material Tax Returns have not yet been filed, or for which material Taxes have accrued but are not yet due and owing, UIC has made due and sufficient accruals for such Taxes on the Closing Balance Sheet. (c) UIC has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any material Tax assessment or deficiency. (d) No audit or other proceeding by any court, governmental or regulatory authority, or similar person has formally commenced and no written notification has been given to UIC that such an audit or other proceeding is pending or threatened with respect to any material Taxes due from or with respect to UIC or any material Tax Return filed by or with respect to UIC. No assessment of a material Tax has been proposed in writing against UIC or any of its assets or properties. (e) UIC has made a valid election under Section 1362 of the Code and any corresponding state or local provisions (collectively, the "S Elections") to be an S corporation within the meaning of Section 1361 of the Code for all taxable years (or portions thereof) which have not been closed by the applicable statute of limitations. (f) UIC made a valid election to treat DW as a "qualified Subchapter S subsidiary" under Code Section 1361(b)(3) (the "QSSS") for all taxable years (or portions thereof) during which UIC held an ownership interest in DW. (g) UIC is not a party to any Tax allocation or Tax sharing agreement. (h) Buyer will not be required to deduct and withhold any amount pursuant to Section 1445(a) of the Code upon the transfer of the UIC Common Stock. 20 3.12 EMPLOYMENT AND BENEFITS. (a) LABOR CONTROVERSIES. Except as described on SCHEDULE 3.12(a), (i) UIC is in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, (ii) there is no unfair labor practice complaint against UIC pending before the National Labor Relations Board, (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or to the knowledge of Sellers threatened against or affecting UIC, (iv) UIC has not experienced any strike, work stoppage or other labor difficulty during the past three years, and (v) UIC is not a party to, or subject to, a collective bargaining agreement, and no collective bargaining agreement relating to employees of UIC is currently being negotiated. (b) EMPLOYEE BENEFIT PLANS. (i) SCHEDULE 3.12(b)(i) lists, as of the date hereof, each "employee benefit plan" (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and each other material employee plan or agreement providing for compensation, retirement, vacation, medical, life insurance or disability benefits maintained for the current and former employees of UIC ("EMPLOYEES") by UIC (the "COMPANY PLANS"). Copies or descriptions of the Company Plans have been or will be furnished or made available to Buyer. For purposes of this Section 3.12(b) and its subsections, "UIC" shall be deemed to include any subsidiary or entity required to be aggregated in a controlled group or affiliated service group with UIC for purposes of ERISA or the Code (including, without limitation, under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA), at any relevant time. With respect to each Company Plan, UIC has provided the Buyer with true, complete and correct copies of (to the extent applicable) (i) all documents pursuant to which the Company Plan is maintained, funded and administered, (ii) the most recent annual report (Form 5500 series) filed with 21 the IRS (with applicable attachments), (iii) the most recent financial statement, (iv) actuarial valuations of benefit obligations, (v) the most recent summary plan description provided to participants, and (vi) the most recent determination letter received from the IRS. UIC has been fully released in writing from any and all obligations owed to Kent Rapp and complete documentation relating to his termination, severance and such release has been provided to Buyer. (ii) Each Company Plan and related trust, insurance contract or fund has been administered and is in compliance with the terms of such Plan and all applicable laws, rules and regulations where the failure thereof would reasonably be expected to have a Material Adverse Effect. (iii) No "REPORTABLE EVENT" (as such term is used in Section 4043 of ERISA), or "PROHIBITED TRANSACTION" (as such term is used in Section 406 of ERISA or Section 4975 of the Code), has heretofore occurred with respect to any Company Plan and no Company Plan is subject to Title IV of ERISA. (iv) No litigation or administrative or other proceeding involving any Company Plan has occurred or, to the best knowledge of the Sellers, is threatened. (v) No Company Plan is a "MULTIEMPLOYER PLAN" (within the meaning of Section 3(37) of ERISA) and UIC has no potential or actual withdrawal liability under Title IV of ERISA. (vi) Each Company Plan that is intended to be qualified within the meaning of Section 401(a) of the Code has received a determination from the Internal Revenue Service (the "IRS") that such Company Plan is qualified under Section 401(a) of the Code, and to the best knowledge of Sellers nothing has occurred since the date of such determination that could adversely affect the qualification of such Company Plan. 22 (vii) Except as described on Schedule 3.12(b)(i), none of the Company Plans obligates UIC to pay any separation, severance, termination or similar benefit solely as a result of any transaction contemplated by this Agreement or solely as a result of a change in control or ownership within the meaning of Section 280G of the Code. (viii) UIC has materially complied with the health care continuation requirements of Part 6 of Subtitle B of Title I of ERISA; and UIC has no obligation under any Company Plan or otherwise to provide health or life insurance benefits to former employees of UIC or any other person, except as specifically required by Part 6 of Subtitle B of Title I of ERISA. (ix) With respect to all Company Plans, all required or recommended (in accordance with historical practice) payments, premiums, contributions, reimbursements or accruals for all periods (or partial periods) ending prior to or as of the Interim Balance Sheet have been made or properly accrued on the Interim Balance Sheet. None of the Company Plans has any unfunded liabilities which are not reflected on the Interim Balance Sheet. (c) EMPLOYMENT CONTRACTS. Except as described on SCHEDULE 3.12(c), there are no material employment contracts between UIC, on the one hand, and Employees, on the other hand, other than contracts representing the standard terms and conditions prevailing between UIC and its Employees. 3.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Interim Balance Sheet and through the date hereof, except as contemplated by this Agreement or as disclosed in SCHEDULE 3.13, UIC has conducted its businesses only in the ordinary course and in a manner consistent with past practice and, since such date, UIC has not: (a) permitted any of its assets to be subjected to any Lien (other than Permitted Liens); 23 (b) sold, transferred or otherwise disposed of assets involving an aggregate value of more than $250,000, except inventory in the ordinary course of business consistent with past practice; (c) made any capital expenditure involving an aggregate amount of more than either $50,000 individually or $250,000 in the aggregate, or made any commitment therefor, except in accordance with SCHEDULE 3.13(c)); (d) declared or paid any dividend or made any distribution on any shares of its capital stock; (e) redeemed, purchased or otherwise acquired any shares of its capital stock; (f) made any bonus, pension, retirement or profit sharing distribution or payment of any kind except in the ordinary course of business consistent with past practice; (g) made any loan of more than $50,000 individually or $100,000 in the aggregate (other than trade payables receivable from trade debtors arising in the ordinary course of business) to any Person; (h) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any executive employee or other employees, except in the ordinary course of business consistent with past practice; (i) canceled or waived any claims or rights which cancellation or waiver would reasonably be expected to have a Material Adverse Effect; (j) made any material change in any method of accounting or auditing practice; (k) otherwise entered into any transaction, except in the ordinary course of business consistent with past practice; 24 (l) changed its cash management policies or procedures (including, without limitation, the timing of both the collection of accounts receivable and the payment of accounts payable); (m) terminated any key employee of the Business other than Kent Rapp; (n) failed to make capital expenditures in the ordinary course of business in a manner consistent with the Schedule 3.13(c); (o) had any material adverse development in any case, action, lawsuit or proceeding pending against or affecting UIC which would reasonably be expected to have a Material Adverse Effect; (p) agreed, whether or not in writing, to do any of the foregoing; or (q) taken any other action which, if it had been taken after the date hereof, would have required the consent of Buyer under Section 5.1. 3.14 FINDERS; BROKERS. With the exception of fees and expenses payable to Goldman Sachs & Co, which shall be the Sellers' sole responsibility, the Sellers and UIC are not a party to any agreement with any finder or broker, or in any way obligated to any finder or broker for any commissions, fees or expenses in connection with the origin, negotiation, execution or performance of this Agreement. 3.15 ENVIRONMENTAL MATTERS. (a) Except as disclosed on SCHEDULE 3.15: (i) UIC complies and within the past three years has complied with all applicable Environmental Laws, other than any exception to the foregoing that would not reasonably be expected to have a Material Adverse Effect; 25 (ii) UIC possesses and complies with, and within the past three years has possessed and complied with, all applicable Environmental Permits required under applicable Environmental Laws to operate as it currently operates and there are no proceedings pending or, to the knowledge of the Sellers, threatened to revoke or rescind any such Environmental Permits, other than any exception to the foregoing that would not reasonably be expected to have a Material Adverse Effect; (iii) There are no and in the past three years have been no Materials of Environmental Concern at the Real Property or at any other location in a condition or concentration that is reasonably likely to result in liability to the owner of the Business under any applicable Environmental Law, other than any exception to the foregoing that would not reasonably be expected to have a Material Adverse Effect; (iv) UIC has not received within the past five years any written notification or report alleging that it has violated any Environmental Law or has liability or potential liability pursuant to any Environmental Law, including notification that it is liable for, or request for information pursuant to section 104(e) of the federal Comprehensive Environmental Response, Compensation and Liability Act or similar state statute concerning, disposal or release of Materials of Environmental Concern at any location under any applicable Environmental Law; and (v) UIC has not entered into any written agreement to resolve any liability alleged, or to investigate or remediate any Materials of Environmental Concern, under any applicable Environmental Law. Notwithstanding the generality of any other representations and warranties in this Agreement, this Section 3.15 shall be deemed to contain the only representations and warranties in this 26 Agreement with respect to matters relating to Environmental Laws or to Materials of Environmental Concern. (b) As used in this Agreement: "Environmental Laws" shall mean all foreign, federal, state, or local statutes, regulations, ordinances, codes, orders, or decrees and all common law protecting the quality of human health and safety as affected by the environment, quality of the ambient air, soil or subsurface strata, surface water, or groundwater from exposure to or discharges or releases of Materials of Environmental Concern, in effect on or prior to the Closing. "Environmental Permits" shall mean all permits, licenses, registrations, and other authorizations required under any applicable Environmental Law. "Materials of Environmental Concern" shall mean any hazardous, acutely hazardous, radioactive, or toxic substance or waste, any pollutant, contaminant, petroleum products or pesticide defined or regulated as such under any Environmental Law, including without limitation the federal Comprehensive Environmental Response, Compensation and Liability Act, the federal Resource Conservation and Recovery Act and the Federal Insecticide, Fungicide, and Rodenticide Act. For purposes of this Section 3.15, any reference to "UIC" shall be deemed to be reference to UIC and its past and present subsidiaries. 3.16 YEAR 2000 COMPLIANCE. UIC's internal computer systems used in the operation of the Business are in all material respects able to store, process and output dates from and after January 1, 2000 in the same manner and with the same accuracy, functionality and performance as when dates prior to January 1, 2000 are involved. 3.17 AFFILIATE TRANSACTIONS. 27 Except as disclosed on SCHEDULE 3.17 and other than any employment agreement in the ordinary course of business and disclosed on SCHEDULE 3.12(c), no officer, director, stockholder, or affiliate of UIC or any individual related by marriage or adoption to any such individual or any entity in which any such Person owns any beneficial interest or any affiliate of the foregoing, is a party to any agreement, contract, commitment, transaction or arrangement with UIC or related to the Business or has any interest in any property, real or personal or mixed, tangible or intangible, used in or pertaining to the Business. 3.18 ABSENCE OF UNDISCLOSED LIABILITIES. To the knowledge of the Sellers (with "knowledge", solely for purposes of this Section 3.18, including such knowledge that a person had or should have had, after due inquiry) UIC has no material obligations or liabilities (regardless of when asserted) arising out of transactions entered into at or prior to the Closing, or any condition or state of facts existing at or prior to the Closing, including Taxes with respect to or based upon transactions or events occurring on or before the Closing, except (i) liabilities reflected on the Interim Balance Sheet, (ii) liabilities which have arisen after August 31, 1998 in the ordinary course of business (none of which would reasonably be expected to have a Material Adverse Effect) and (iii) liabilities in the amounts specifically identified on SCHEDULE 3.18. 3.19 SUFFICIENCY OF ASSETS. All of the material assets and material properties (whether personal or real, tangible or intangible) of UIC are either owned by UIC with good and marketable title thereto, free and clear of all Liens (other than Permitted Liens), or validly leased, licensed or sublicensed, and such assets and properties constitute all of the material assets and material properties necessary to operate the businesses as currently conducted (other than (i) sales of inventory in the ordinary course of business, 28 (ii) the termination of the Citation VII lease and (iii) the assets and properties used in the Metals Business) and all such assets and properties will be available for use by UIC as of the Closing on the same terms as available to UIC immediately prior to the Closing. 3.20 PRODUCT WARRANTIES. UIC has not made any warranties with respect to the products sold by it other than the warranties expressly made on the labels or literature accompanying such products. Set forth on SCHEDULE 3.20 is a listing, as of the date hereof, of any claim pending under such product warranties which involves a request for damages against UIC of at least $500,000. 3.21 INDEBTEDNESS. UIC will have no indebtedness as of the Closing, other than Permitted Current Liabilities (as defined in Section 6.3(d)). 3.22 DISCLOSURE. Neither this Agreement, the Schedules hereto nor any certificate furnished by or on behalf of the Sellers or UIC in connection with the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein, not misleading. To the Sellers' knowledge, there is no fact, circumstance or transaction pertaining to UIC, the Business or title to the UIC Common Stock, which has not been fully disclosed to Buyer which has had or would reasonably be expected to have a Material Adverse Effect. 3.23 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Section 3, neither the Sellers' nor any other person makes any other express or implied representation or warranty on behalf of the Sellers. 29 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Sellers as follows: 4.1 CORPORATE EXISTENCE. Buyer is a limited liability company duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite power and authority to own, lease and operate the properties and assets used in the Business being purchased hereunder and to carry on the Business as the same is now being conducted. Buyer is duly authorized, qualified or licensed to do business as a foreign limited liability company and in good standing in every jurisdiction wherein, by reason of the nature of the Business, the failure to be so qualified would reasonably be expected to have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby (a "BUYER MATERIAL ADVERSE EFFECT"). 4.2 CORPORATE AUTHORITY. This Agreement and the consummation of all of the transactions provided for herein have been duly authorized by the Board of Managers of Buyer and by all requisite action prior to Closing, and Buyer has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer, and constitutes a valid and legally binding obligation of Buyer, enforceable in accordance with its terms except as enforceability is subject to the effects of bankruptcy, insolvency, fraudulent, conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. The execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated hereby will not violate or conflict with any provision of the Certificate of Formation or Operating Agreement of Buyer, or result in any 30 breach or constitute any material default under any contract, indenture, mortgage, lease, note or other agreement or instrument to which Buyer is subject or is a party, except for any such violation, breach or default which would not reasonably be expected to have a Buyer Material Adverse Effect. 4.3 GOVERNMENTAL APPROVALS; CONSENTS. Buyer is not subject to any order, judgement or decree which would prevent the consummation of the transactions contemplated hereby. No claim, legal action, suit, arbitration, governmental investigation, action, or other legal or administrative proceeding is pending or, to the knowledge of Buyer, threatened against Buyer which would enjoin or delay the transactions contemplated hereby. Except as set forth in SCHEDULE 4.3 hereto, no consent, approval, order or authorization of, license or permit from, notice to or registration, declaration or filing with, any governmental authority or entity, domestic or foreign, or of any third party, is or has been required on the part of Buyer in connection with the execution and delivery of this Agreement or any of the transactional documents, or the consummation of the transactions contemplated hereby and thereby except for such consents, approvals, orders or authorizations of, licenses or permits, filings or notices the failure of which to obtain or make would not reasonably be expected to have a Buyer Material Adverse Effect. 4.4 FINDERS; BROKERS. Buyer is not a party to any agreement with any finder or broker, or in any way obligated to any finder or broker for any commissions, fees or expenses, in connection with the origin, negotiation, execution or performance of this Agreement. 4.5 FINANCIAL CAPACITY. Buyer either (a) has available on hand, from its working capital and/or currently available unrestricted credit facilities or (b) has obtained written commitments for all financing (both equity 31 and debt) that will (subject to the conditions set forth therein) be required to provide, all of the cash that Buyer will need on the Closing Date to consummate the purchase of the UIC Common Stock and to fund the obligations of UIC and the Business thereafter. Copies of the commitment letters evidencing the foregoing have been provided by Buyer to the Sellers (the "COMMITMENT LETTERS"). 4.6 PURCHASE FOR INVESTMENT. Buyer will acquire the UIC Common Stock for its own account for investment and not with a view toward any resale or distribution thereof in violation of U.S. Federal or state securities laws and with no present intention of distributing or reselling any part thereof in violation thereof. Buyer will not so distribute or resell any of the UIC Common Stock in violation of any such law. 4.7 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Section 4, neither Buyer nor any other person makes any other express or implied representation or warranty on behalf of Buyer. 5. AGREEMENTS OF BUYER AND THE UIC SELLERS 5.1 OPERATION OF THE BUSINESS. Sellers covenant and agree that, during the period from the date hereof to the Closing Date, unless Buyer shall otherwise agree in writing, the businesses of UIC shall be conducted only in, and UIC shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; and Sellers shall cause UIC to use its reasonable best efforts to preserve substantially intact the business organization of UIC, to keep available the services of the present officers, employees and consultants of UIC and to preserve the present relationships of UIC with customers, suppliers, regulators and other persons with which UIC has significant business relations. Except as otherwise contemplated by this Agreement and except as set forth on SCHEDULE 5.1, Sellers 32 shall cause UIC not to, between the date of this Agreement and the Closing Date, directly or indirectly do, or commit to do, any of the following without the prior written consent of Buyer: (a) Amend or otherwise change its certificate of incorporation or by-laws; (b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, or any other ownership interest, convertible securities or phantom equity, of UIC; (c) Sell, pledge, dispose of or encumber any assets of UIC, except for sales of inventory in the ordinary course of business and in a manner consistent with past practice; (d) Declare, set aside, make or pay any dividend or other distribution, payable with respect to any of its capital stock; (e) Reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (f) (i) Incur any funded debt or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans, advances or capital contributions to, or investments in, any other person (in each case other than in the ordinary course of business consistent with past practice or borrowings under the Revolver), (ii) authorize any capital expenditures (other than as contemplated by SCHEDULE 3.13(c)), (iii) fail to make any capital expenditures in the ordinary course of business consistent with the SCHEDULE 3.13(c), or (iv) accelerate the collection of accounts receivable or delay the payment of accounts payable beyond stated terms; 33 (g) Except to the extent required under existing employee benefit plans, agreements or arrangements as in effect on the date of this Agreement, increase the rate of compensation or fringe benefits of any of its directors, officers or employees, except for increases in salary or wages of employees of UIC who are not officers of UIC in the ordinary course of business in accordance with past practice, or grant any severance or termination pay not currently required to be paid under existing severance plans to or enter into any employment, consulting or severance agreement or arrangement with any present or former director, officer or other employee of UIC, or establish, adopt, enter into or amend or terminate any collective bargaining agreement or Company Plan or terminate any officers; (h) Except as may be required as a result of a change in law or in GAAP, change in a material way any of the accounting practices or principles used by it; (i) Make any material Tax election, change any material method of Tax accounting or settle or compromise any material federal, state, local or foreign Tax liability; (j) Settle or compromise any pending or threatened suit, action or claim or governmental action which is material to UIC or which relates to the transactions contemplated hereby; (k) Pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction (i) in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the Financial Statements or incurred in the ordinary course of business and consistent with past practice and (ii) of liabilities required to be paid, discharged or satisfied pursuant to the terms of any contract in existence on the date hereof; (l) Amend any UIC Lease (except as contemplated by Section 6.3(i)); or 34 (m) Take, or offer or propose to take, or agree to take in writing or otherwise, any of the actions described in Sections 5.1(a) through 5.1(l) or any action which would make any of the representations or warranties made by the Sellers in this Agreement materially untrue and incorrect as of the Closing Date (without taking into account any supplemental disclosures pursuant to Section 5.12) when made if such action had then been taken. Notwithstanding anything else in this Section 5.1 or elsewhere in the Agreement to the contrary, the following shall be permitted without the need to obtain Buyer's consent: (i) the contribution of any assets primarily used in or related to the Metals Business to DW and the assumption by DW of any liabilities primarily related to the Metals Business (and SCHEDULE 5.1 sets forth a complete and accurate list, as of the date hereof, of all assets and employees to be so contributed that are also used in or employed in the Business as of the date hereof), (ii) the Metals Business Distribution, (iii) on or prior to January 17, 1999, the declaration and payment of cash distributions to the Sellers in amounts such that (A) 64% of UIC's estimated income before provision for income taxes for the year ended December 31, 1998 is distributed to Sellers (with any distributions paid to Sellers in 1998 but relating to 1997 income being disregarded for this purpose) and (B) 64% of UIC's estimated income before provision for income taxes for the period from January 1, 1999 through January 17, 1999 is distributed to Sellers, (iv) the termination or assignment of the Citation VII lease without any cost, expense or continuing liability or obligation to UIC, (v) the Sellers and UIC may take all action as may be necessary in order to provide that (A) as of the date of the Metals Business Distribution, any Employees who, on such date, are actively employed in the Metals Business or who are absent from work in the Metals Business by reason of vacation, sick leave, short-term disability or due to authorized leave of absence or military service (collectively, the "TRANSFERRED EMPLOYEES") shall cease to be employed by UIC and shall become 35 employed by DW and (B) DW may continue to participate, as a participating employer, in UIC's 401(k) Savings Plan in accordance with the provisions of Section 5.6, after which time DW shall withdraw from, and cease to be a participating employer therein and (vi) prior to January 17, 1999 pay any outstanding principal and interest on the Kuhn Notes. 5.2 INVESTIGATION OF BUSINESS. Buyer may, prior to the Closing Date, make or cause to be made such reasonable investigation of the business and properties of the Business and of its financial and legal condition as Buyer deems necessary or advisable. The Sellers will permit Buyer and its authorized agents or representatives, including its independent accountants and financing sources, to have full access to the properties, books and records, suppliers, employees and personnel, accountants, attorneys and other advisors of the Business at reasonable hours to review matters related to the Business; PROVIDED, HOWEVER, that Buyer shall not have access to customer lists (or other customer-specific information) prior to Closing. Buyer and its representatives will hold in confidence all confidential information obtained from the Sellers or UIC, its officers, agents, representatives or employees in accordance with the provisions of the letter dated October 8, 1998 between an affiliate of Buyer and UIC ("CONFIDENTIALITY LETTER"). 5.3 MUTUAL COOPERATION; NO INCONSISTENT ACTION. (a) Subject to the terms and conditions hereof, the Sellers and Buyer agree to use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including all of the following (i) obtain prior to Closing all licenses, certificates, permits, approvals, authorizations, qualifications and orders of governmental authorities as are necessary for the consummation of the transactions contemplated hereby, including 36 but not limited to such consents and approvals as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HART-SCOTT ACT"), as set forth below and any similar foreign legislation; and (ii) effect all necessary registrations and filings. The Sellers and Buyer shall cooperate fully with each other to the extent reasonable in connection with the foregoing. (b) Buyer and the Sellers shall timely and promptly make all filings which may be required by each of them in connection with the consummation of the transactions contemplated hereby under the Hart-Scott Act and any similar foreign legislation. Each party shall furnish to each other such necessary information and assistance as the other party may reasonably request in connection with the preparation of any necessary filings or submissions by it to any governmental agency, including, without limitation, any filings necessary under the provisions of the Hart-Scott Act. Each party shall provide the other party the opportunity to make copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between such party or its representatives, on the one hand, and the Federal Trade Commission (the "FTC"), the Antitrust Division of the United States Department of Justice (the "ANTITRUST DIVISION") or any similar governmental agency or members of their respective staffs, on the other hand, with respect to this Agreement or the transactions contemplated hereby. (c) For purposes of this Section 5.3, the "REASONABLE BEST EFFORTS" of Buyer shall include acceptance by Buyer of any and all divestitures of any subsidiary or assets of Buyer or its affiliates or acceptance of an agreement to hold any assets of the Business separate in any lawsuit or other legal proceeding, whether judicial or administrative, that may be required by the FTC, the Antitrust Division or any other applicable governmental entity in connection with the transactions contemplated by this Agreement or any other agreement contemplated hereby. Other than to the extent applicable law expressly requires the Buyer to obtain any license, permit, consent, approval, 37 authorization or order of any governmental authority or to make any registration or filing with any governmental authority, Sellers shall be responsible for making all filings and giving all notices relating to, and otherwise pursuing all licenses, permits, consents, approvals, authorizations and orders of governmental authorities and making all registrations and filings with governmental authorities (collectively, the "GOVERNMENTAL CONSENTS"), which are required in connection with the transactions contemplated hereby and shall provide a copy of any such filings or notices to the Buyer. Buyer shall be responsible for making or giving all Governmental Consents required to be made or given subsequent to the Closing Date. In connection with and as a condition to Buyer's and Seller's obligations under the preceding sentence, the Sellers shall fully cooperate with and assist Buyer in identifying and obtaining all such licenses, permits, consents, approvals, authorizations or orders and in making all such registrations and filings. (d) Each of the Sellers and Buyer shall notify and keep the other advised as to (a) any litigation, governmental action or administrative proceeding pending and known to such party, or to its knowledge threatened, which challenges the transactions contemplated hereby and (b) any event or circumstance which would constitute a breach of their respective representations and warranties in this Agreement PROVIDED, that the failure of the Sellers or Buyer to comply with clause (b) shall not subject the Sellers or Buyer to any liability hereunder except as and to the extent the Sellers or Buyer would be responsible for a breach of such representations and warranties pursuant to Section 8 (including, without limitation, the limitations on recovery and the time periods for bringing claims thereunder). Subject to the provisions of Section 9, hereof, the Sellers and Buyer shall not take any action inconsistent with their obligations under this Agreement or which would materially hinder or delay the consummation of the transactions contemplated by this Agreement. 38 5.4 PUBLIC DISCLOSURES. Prior to the Closing Date, neither the Sellers nor Buyer will issue any press release or make any other public disclosures concerning this transaction or the contents of this Agreement without the prior written consent of the other party or parties. After the Closing Date, neither the Sellers nor Buyer will issue any press release or make any other public disclosures concerning this transaction or the contents of this Agreement without the prior written consent of the other party or parties (which consent shall not be unreasonably withheld or delayed). Notwithstanding the above, nothing in this Section will preclude any party from making any disclosures required by law or regulation or necessary and proper in conjunction with the filing of any tax return or other document required to be filed with any federal, state or local governmental body, authority or agency; PROVIDED, that the party required to make the release or statement shall allow the other parties reasonable time to comment on such release or statement in advance of such issuance, and nothing in this Section will preclude Buyer from making any disclosures which it reasonably believes it is required to make in connection with any financing or refinancing. 5.5 ACCESS TO RECORDS AND PERSONNEL. (a) Prior to or at the Closing, the Sellers shall deliver to Buyer all Books and Records (as defined below) in their possession or control, except that the Sellers shall be permitted to retain copies of such Books and Records to the extent required in connection with their tax returns. Subject to the foregoing, the Sellers and Buyer shall retain the books, records, documents, instruments, accounts, correspondence, writings, evidences of title and other papers relating to UIC and the Business in their possession (the "BOOKS AND RECORDS") for a period of six years after the Closing Date or for such longer period as may be required by law or any applicable court order; provided, however, that prior to any destruction by or on the behalf of Buyer or UIC of any Books 39 and Records related to the conduct of the Business prior to the Closing which the Sellers may require in connection with any tax matters, Buyer and UIC shall provide the Sellers a reasonable opportunity to retrieve such Books and Records from UIC or the Buyer and to keep such Books and Records in perpetuity (without payment to UIC or the Buyer); (b) The Sellers and Buyer will allow each other reasonable access to such Books and Records, and to personnel having knowledge of the whereabouts and/or contents of such Books and Records, for the preparation of tax returns or the defense of litigation with any third party. Each party shall be entitled to recover its out-of-pocket costs (including, without limitation, copying costs) incurred in providing such records and/or personnel to the other party or parties. The requesting party will hold in confidence all confidential information identified as such by, and obtained from, the disclosing party, any of its officers, agents, representatives or employees, provided, however, that information which (i) was in the public domain, (ii) was in fact known to the requesting party prior to disclosure by the disclosing party, its officers, agents, representatives or employees, or (iii) becomes known to the requesting party from or through a third party not under an obligation of non-disclosure to the disclosing party, shall not be deemed to be confidential information. 5.6 EMPLOYEE RELATIONS AND BENEFITS. (a) BUYER'S EMPLOYEE BENEFIT PLANS. (i) The Buyer shall take such actions as are necessary so that, as of the Closing Date and for a period of two years thereafter, the Employees will be provided standard employee benefits which, in the aggregate, are intended to be not less favorable than those provided to the Employees as of the date hereof; PROVIDED, HOWEVER, that it is understood that after the Closing Date (i) no party hereto will have any obligation to issue or adopt any plans or arrangements to provide for the issuance of shares of capital stock, 40 warrants, options, stock appreciation rights or other rights in respect of any shares of capital stock of any entity or any securities convertible or exchangeable into such shares pursuant to any such plan or program and (ii) except as set forth herein, nothing shall require the Buyer to maintain any particular plan or arrangement. (ii) Buyer and its affiliates shall honor all vacation days accrued by the Employees as of the Closing Date under UIC's vacation policy and shall honor all employment and other individual agreements with respect to Employees in effect as of the date hereof and set forth on SCHEDULE 5.6(a)(ii). (iii) For purposes of all employee benefit plans, programs and arrangements established by, maintained by or contributed to by Buyer or its affiliates (the "BUYER PLANS"), Buyer shall cause each such Buyer Plan to treat the prior service with UIC and its affiliates of each Employee as service rendered to Buyer or its affiliates, as the case may be, for purpose of eligibility to participate and for all benefits, accrual and vesting thereunder. (iv) Each Buyer Plan offered to Employees on or after the Closing Date shall be offered to Employees (and, if applicable, their dependents) without any waiting period and Buyer shall cause any restrictions and limitations for pre-existing conditions to be waived. Employees shall receive credit for any deductibles paid and co-payments made under Company Plans. (v) Buyer and its affiliates shall honor and shall not amend or challenge the validity or enforceability of the "Contracts for Release in Event of Sale" between UIC and the individuals listed on SCHEDULE 5.6(a)(v). 41 (b) UIC 401(k) SAVINGS PLAN. If requested by the Sellers in writing prior to the Closing Date: (i) On the Closing Date or as soon as practicable thereafter, Buyer shall (x) cause the trustee of the UIC 401(k) Savings Plan to segregate the assets of such Plan representing the full account balances of Transferred Employees as of the Closing Date, (y) make any and all filings and submissions to the appropriate governmental agencies arising in connection with such segregation of assets and (z) make all necessary amendments to the UIC 401(k) Savings Plan and related trust agreement to provide for such segregation of assets and the transfer of assets as described below. The manner in which the account balances of Transferred Employees under the UIC 401(k) Savings Plan are invested shall not be affected by such segregation of assets. (ii) As soon as practicable after the Closing Date, DW shall establish or designate an individual account plan for the benefit of Transferred Employees (the "Successor Individual Account Plan"), shall take all necessary action, if any, to qualify such plan under the applicable provisions of the Code and shall make any and all filings and submissions to the appropriate governmental agencies required to be made by it in connection with the transfer of assets described below. As soon as practicable following DW's written notice to Buyer of its establishment or designation of the Successor Individual Account Plan, Buyer shall cause the trustee of the UIC 401(k) Savings Plan to transfer in the form of cash (or such other form as may be agreed by Buyer and DW) the full account balances of the Transferred Employees under the UIC 401(k) Savings Plan (which account balances will have been credited with appropriate earnings attributable to the period from the Closing Date to the date of transfer described herein), reduced by any necessary benefit or 42 withdrawal payments to or in respect of Transferred Employees occurring during the period from the Closing Date to the date of transfer described herein, to the appropriate trustee as designated by DW under the trust agreement forming a part of the Successor Individual Account Plan. (iii) In consideration for the transfer of assets described herein, DW shall, effective as of the date of transfer described herein, assume all of the obligations of Buyer and any of its affiliates in respect of the account balances accumulated by Transferred Employees under the UIC 401(k) Savings Plan (exclusive of any portion of such account balances which are paid or otherwise withdrawn prior to the date of transfer described herein) on or prior to the Closing Date. 5.7 NON-SOLICITATION. Until the Closing shall actually have occurred, Buyer acknowledges that it remains subject to the non-solicitation provisions of the Confidentiality Letter. 5.8 LITIGATION. The Sellers shall promptly inform the Buyer of any Litigation related to the Business, or any material development in any such Litigation, arising after the date hereof and prior to the Closing Date. 5.9 TERMINATION OF DAVID C. PRATT, MARK R. GALE AND ED KUHN. The Sellers shall cause UIC to terminate the employment of David C. Pratt, Mark R. Gale and Ed Kuhn as of the Closing, without any cost, liability or continuing obligation of UIC other than as will be set forth in a consulting arrangement with the terms set forth in Exhibit E to this Agreement to be executed on the Closing Date by Buyer and Mr. Pratt. 43 5.10 TAX MATTERS. (a) (i) UIC and each of the Sellers will join with Buyer, at Buyer's option if Buyer so notifies Sellers within 60 days after Closing, in making an election under Section 338(h)(10) of the Code (and any corresponding election under state, local and foreign Tax law) with respect to the purchase and sale of the stock of UIC hereunder (the "338 Election"). Sellers and Buyer shall jointly prepare any and all forms necessary to effectuate the 338 Elections (including, without limitation, IRS Form 8023 and similar forms under state and local Tax law) (the "338 Election Forms"). The Sellers and the Buyer shall complete such 338 Election Forms no later than 15 days prior to the date such 338 Election Forms are required to be filed. Each of the Sellers shall execute the 338 Election Forms and the Buyer shall execute and shall duly and timely file the Election Forms in accordance with applicable Tax laws and the terms of this Agreement. The Sellers will include any income, gain, loss, deduction or other Tax items resulting from the 338 Elections on their Tax Returns to the extent permitted by applicable law and, subject to clause (iii) below shall pay all Taxes due pursuant thereto. The Sellers and Buyer shall report all transactions pursuant to this Agreement in a manner that is consistent with the 338 Elections and shall take no position contrary thereto unless required to do so pursuant to a final "determination" within the meaning of Section 1313 of the Code or an analogous provision of state, local or foreign law. (ii) Buyer and Sellers jointly shall, within 90 days after the Closing Date, allocate the Purchase Price (the "ALLOCATION") among the assets of UIC, which Allocation shall be prepared in accordance with Treas. Reg. Section 1.338(h)(10)-1(f). If Buyer and Sellers are unable to agree on the Allocation, then any disputed items shall be resolved by 44 the CPA Firm. Such CPA Firm shall resolve the dispute within 30 days of having the items referred to it and such resolution shall be binding on the parties. The costs, fees and expenses of the CPA Firm shall be borne equally by Sellers and Buyer. Any subsequent adjustments to the Purchase Price shall be reflected in the Allocation as revised hereunder in a manner consistent with Treas. Reg. Section 1.338(h)(10)-1(f) and as agreed to by the Buyer and Sellers. Buyer and Sellers agree to (i) be bound by the Allocation, (ii) act in accordance with the Allocation in the preparation of financial statements and filing of all Tax Returns and in the course of any tax audit or tax litigation relating thereto and (iii) take no position inconsistent with the Allocation for all tax and accounting purposes, except, in each case, to the extent that, there has been a determination (within the meaning of Section 1313 of the Code) contrary to such position. (iii) (A) Buyer shall be responsible for and pay to Sellers, and shall indemnify and hold harmless the Sellers against, any and all Taxes imposed on any of the Sellers (including any Taxes as a result of any payment made pursuant to this Section 5.10(a)(iii)) arising out of or in connection with or attributable to the 338 Election, to the extent such Taxes are in excess of the amount of Taxes Sellers would have incurred if the 338 Election were not made, PROVIDED, THAT, such excess Tax payment shall be reduced by the present value of any tax benefit attributable to an increase in the basis of the UIC Common Stock retained by the Sellers as a result of the 338 Election. Such present value shall be computed using the federal and all applicable state long-term capital gain tax rates applicable to individual taxpayers, a discount rate of 10% and an assumed sale of such UIC Common Stock on the seventh anniversary of the Closing Date. The indemnification provided for in this Section 5.10(a)(iii) shall be in addition to the indemnification provided 45 for in Section 8.2 of this Agreement and shall not be subject to the provisions of Section 8 of this Agreement other than Section 8.3(b). (B) Sellers shall provide Buyer with a schedule computing the excess amount of Taxes arising from the 338 Election ("EXCESS TAXES"), within 10 days after the parties have agreed to the Allocation under Section 5.10(a)(ii) of this Agreement, including any additional period of time required for resolution of disputes by the CPA Firm. Such Excess Taxes shall be determined by comparing the aggregate of UIC's and the Sellers' Tax liabilities if the 338 Election were made with such Tax liabilities if the 338 Election were not made. When making such calculations, the highest corporate or individual federal Tax rates to which Sellers and UIC would be subject and the actual applicable state Tax rates to which each Seller and UIC would be subject based on these calculations, as applicable to such type of income shall be used and any other income, deduction, gain, loss or credits of UIC and the Sellers shall be ignored. Payment pursuant to this Section 5.10(a)(iii) shall be made no later than 10 days prior to the due date of the Tax Returns reflecting the Excess Taxes, PROVIDED, THAT, if the parties have not agreed to an Allocation within 60 days prior to the due date of the Tax Returns reflecting the Excess Taxes, then the parties shall submit the dispute to the CPA Firm for resolution. The CPA Firm's determination shall be final and binding upon the parties. If resolution has not yet been determined for the matters contemplated in Sections 5.10(a)(ii) or 5.10(a)(iii)(B) by the date referred to in the preceding sentence, Buyer shall pay the amount referenced on the Sellers' schedule of Excess Taxes and Buyer or the Sellers shall make payment to the other of any underpayment or overpayment of Excess Taxes as finally resolved. 46 (b) The Closing Date will be treated as the last day of UIC's subchapter S tax year ("Short Period S Year"), and the day after the Closing Date will be the first day of UIC's subchapter C year ("Short Period C Year"), PROVIDED, HOWEVER, if a 338 Election is not made, the day before the Closing Date shall be treated as the last day of UIC's Short Period S Year and the Closing Date will be the first day of UIC's Short Period C Year. In order to appropriately apportion any taxable income or loss relating to the Short Period S Year and Short Period C Year, the parties will elect to allocate UIC's items of income, gain, expense, loss, deduction or credit in accordance with the provisions of Code section 1362(e)(3) as opposed to allocating items ratably throughout such periods. The Sellers and UIC shall, pursuant to Section 1362(e)(3) of the Code, elect to close the Short Period S Year of UIC at the end of the day on the Closing Date provided a 338 Election is made, or at the end of the day before the Closing Date if a 338 Election is not made, and shall prepare Tax Returns on a consistent basis. The Sellers shall also prepare and file UIC's Tax Returns for the Short Period S Year. The parties shall cooperate with each other to provide each other with such assistance as may be reasonably requested by them in connection with the preparation of any Tax Returns, and any Tax audit, or other examination by or administrative or judicial proceeding involving a taxing authority related to liability for Taxes. If, in connection with any examination, investigation, audit or other proceeding concerning any Tax Return covering a tax period of UIC ending on or before the Closing Date, a taxing authority issues to any of the parties a notice of deficiency, a proposed adjustment, an assertion of claim or a demand concerning the period covered by such Tax Return, the recipient shall notify the other parties that it has received the same within twenty days of its receipt. The Sellers shall have the sole and exclusive right, power and authority to negotiate, resolve, settle or contest any such notice of deficiency, proposed adjustment or assertion of claim or demand by the taxing authority (a "TAX CONTEST") and to represent and act for and on 47 behalf of UIC in connection with any such examination, investigation, audit or other proceeding, including refund claims of any Tax Return of UIC for the periods ending on or before the Short Period S Year provided that the Sellers shall not (without the prior written consent of Buyer, which consent shall not be unreasonably withheld) resolve or settle any such Tax Contest relating to a Tax computed on a basis other than income, if settlement shall have the effect of increasing any Tax obligation (or decreasing any Tax loss) for any tax period ending after the Closing Date. (c) Buyer shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of UIC relating to a Tax computed on a basis other than income ("NON INCOME TAXES"), for Tax periods which begin before the Closing Date and end after the Closing Date. The Sellers shall pay to Buyer within fifteen (15) days of the date on which such Non Income Taxes are paid with respect to such periods an amount equal to the portion of such Non Income Taxes which relates to the portion of such Taxable period ending on the Closing Date to the extent such Non Income Taxes are not accrued on the Closing Balance Sheet. For purposes of this Section, in the case of any such Non Income Taxes that are imposed on a periodic basis and are payable for a Taxable period that includes (but does not end on) the Closing Date, the portion of such Tax which relates to the portion of such Taxable period ending on the Closing Date shall be deemed to be the amount of such Tax for the entire Taxable period multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and the denominator of which is the number of days in the entire Taxable period. (d) With respect to Non Income Taxes, without the prior written consent of Buyer, neither the Sellers nor UIC shall make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to UIC, surrender any right to claim a refund 48 of Non Income Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to UIC, or take any other similar action, or omit to take any action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action or omission would have the effect of materially increasing the present or future Tax liability of UIC, Buyer or any affiliate of Buyer. (e) Buyer agrees not to permit UIC's certificate of incorporation to be amended to create any class of stock other than common stock prior to the close of business on the second day after the Closing Date. 5.11 OFFICERS' AND DIRECTORS' INDEMNIFICATION. Buyer agrees that the provisions with respect to indemnification in the certificate of incorporation and by-laws of UIC on the date hereof shall not be amended, repealed or otherwise modified for a period of six years from the Closing Date in any manner that would adversely affect the rights thereunder of individuals who on or prior to the Closing Date were directors, officers, employees or agents of UIC. 5.12 AMENDMENTS TO SCHEDULES. (a) If no later than five business days prior to the Closing Date, the Sellers become aware of any fact or circumstance (whether or not such fact or circumstance existed prior to the date hereof), which fact or circumstance would make any representation, warranty, covenant or other agreement of the Sellers untrue, then the Sellers shall be permitted to amend any Schedule to this Agreement so as to identify such fact or circumstance to the extent necessary to make such representation, warranty, covenant or agreement true and correct. (b) If the Sellers shall elect to amend any Schedule to this Agreement pursuant to this Section 5.12, then the Sellers shall promptly inform Buyer in writing (the "AMENDMENT NOTICE") of such facts and circumstances, the circumstances of their discovery and the proposed 49 amendment; PROVIDED, that in no event shall the delivery by the Sellers of an Amendment Notice affect the Sellers representations, warranties, covenants or agreements for the purposes of Sections 6.3 and 9.1 hereof (and therefore any such Amendment Notice will not be taken into account for purposes of determining satisfaction with the conditions to Buyer's obligation to Closing under Section 6.3); PROVIDED, FURTHER, that notwithstanding the foregoing proviso, Buyer shall not be entitled to be indemnified pursuant to Section 8.1(a) to the extent that the disclosures contained in an Amendment Notice reasonably inform Buyer of a breach of a representation, warranty or covenant upon which such indemnity claims otherwise would be based. 5.13 EXCLUSIVITY. UIC and the Sellers agree (on behalf of themselves and their affiliates) that, beginning on the date hereof and lasting until the Closing occurs or this Agreement is terminated in accordance with its terms (the "EXCLUSIVITY PERIOD"), Buyer shall have the exclusive right to negotiate and consummate the transactions contemplated hereby. During the Exclusivity Period, none of the Sellers, UIC nor any of its subsidiaries nor any of their respective affiliates shall, directly or indirectly, through any officer, director, employee, investment banker, attorney, representative, agent or otherwise, (a) solicit, initiate or encourage the submission of any proposal or offer (an "ACQUISITION PROPOSAL") from any person or entity relating to any acquisition or purchase of all or substantially all of the assets of, or any material asset of, or any capital stock or other equity security of, or any liquidation, dissolution, recapitalization of, merger or consolidation with or into, UIC or any of its subsidiaries, or relating to any other similar transaction or business combination involving UIC or any of its subsidiaries, or (b) participate in any discussions or negotiations regarding, or furnish to any other person or entity any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage any effort or attempt by 50 any other person or entity to do or seek to do any of the foregoing; provided that this Section 5.13 shall not apply to the Metals Business. 5.14 POST-CLOSING NONCOMPETITION, NONSOLICITATION, CONFIDENTIALITY. As a material inducement to Buyer to enter into this Agreement and in consideration of the payment by Buyer of the Purchase Price to the Sellers: (a) During the period beginning on the Closing Date and ending on the fourth anniversary of the Closing Date (the "NONCOMPETE PERIOD"), David C. Pratt and Mark R. Gale shall not, directly or indirectly, Participate in any line of business in which the Business is actively engaged or any line of business competitive with the Business anywhere in the United States and any other country in which UIC does business as of the Closing (the "COMPETITIVE ACTIVITIES"). For purposes of this Agreement, the term "PARTICIPATE" includes any direct or indirect interest in, or providing any direct or indirect assistance (whether financial, advisory or otherwise) to, any enterprise (or any affiliate thereof), whether as an officer, director, employee, partner, member, sole proprietor, agent, representative, independent contractor, consultant, creditor, stockholders, unitholder, owner or otherwise; PROVIDED that the term "PARTICIPANT" shall not include ownership of less than 5% of the stock of a publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market or the ownership of UIC Common Stock. (b) During the Noncompete Period, each Seller (i) shall not, directly or indirectly contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) or actually hire any person employed by UIC during the Noncompete Period, without the prior written consent of UIC; provided that the foregoing shall not apply to general solicitations not directed at UIC or any of its employees or to any person hired as a result thereof and (ii) shall not induce or attempt to induce any customer 51 or other business relation of UIC to cease doing business with UIC or to engage in any business relationship which might materially harm UIC. (c) Each Seller acknowledges that as an employee, officer, director or stockholder of UIC it has obtained confidential and proprietary information regarding UIC ("CONFIDENTIAL INFORMATION"). Each Seller agrees not to directly or indirectly, use for its or his own purposes or use or disclose to any third party any of such Confidential Information without the prior written consent of Buyer, unless and to the extent that the aforementioned matters (a) become generally known to and available for use by the public other than as a result of that Seller's acts or omissions to act, or (b) such Seller is required by law or legal process to disclose or discuss any Confidential Information (provided that in such case, such Seller shall promptly inform Buyer, shall cooperate with Buyer in attempting to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the minimum extent necessary). (d) The parties hereto acknowledge and agree that Buyer and UIC will suffer irreparable harm from a breach by any Seller of any of the covenants or agreements contained in this Section 5.14. In the event of an alleged or threatened breach by any Seller of any of the provisions of this Section 5.14, Buyer and UIC or their successors or assigns may, in addition to all other rights and remedies existing in its or their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of the provisions hereof. Each Seller acknowledges and agrees that the restrictions contained in this Section 5.14 are reasonable. (e) If, at the time of enforcement is sought of any of the provisions of this Section 5.14, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable 52 under such circumstances shall be substituted for the stated period, scope or area. Each Seller agrees that the covenants made in this Section 5.14 shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. 5.15 KUHN NOTES. Buyer and the Sellers acknowledge that the amount of any principal and interest outstanding on the unsecured notes payable to the family of a former stockholder, Ed Kuhn Sr. (the "KUHN NOTES") at the close of business on the Closing Date shall be deducted from the proceeds paid to the Sellers pursuant to this Agreement at the Closing (as set forth in Section 1.1 of this Agreement), and Buyer hereby agrees that on the Closing Date, Buyer shall cause UIC to pay all such amounts to the Kuhn family. 5.16 INSURANCE. Buyer agrees to cause UIC to continue to pay after the Closing Date all premiums under all existing insurance policies which provide UIC with insurance coverage in respect of the Brest Case until at least April 15, 2000; provided that in no event shall UIC be required to pay in excess of 300% of the premiums paid in 1998 under such insurance policies; and, provided, further, that if the premiums of such insurance policies exceed such amount, Buyer agrees that it shall cause UIC, and UIC shall, obtain policies with the maximum coverage available for a cost not exceeding such amount. Prior to the Closing, Sellers will provide Buyer with a schedule of the insurance policies referred to in the preceding sentence. 5.17 STOCKHOLDERS' AGREEMENT. The Sellers, UIC and Buyer shall execute a Stockholders' Agreement, substantially on the terms and conditions reflected on the term sheet set forth in Exhibit C. 53 6. CONDITIONS 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND THE SELLERS. The respective obligations of Buyer and the Sellers to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing Date of the following conditions: (a) NO INJUNCTION, ETC. At the Closing Date, there shall be no injunction, restraining order or decree of any nature of any court or governmental agency or body of competent jurisdiction that is in effect that restrains or prohibits the consummation of the Stock Purchase or the transfer to Buyer by the Sellers of the UIC Common Stock. (b) REGULATORY AUTHORIZATIONS. All (i) consents, approvals, authorizations and orders of federal, state and foreign governmental and regulatory authorities as are necessary in connection with the transfer of the UIC Common Stock to Buyer (the "REQUIRED CONSENTS") shall have been obtained, except for Required Consents the failure to obtain which, individually or in the aggregate, are not material to the Business and the failure of which to obtain would not subject the Buyer or any Seller, or any officer, director or agent of any such person to civil or criminal liability; PROVIDED that for purposes of this clause (b) applicable waiting periods specified under the Hart-Scott Act with respect to the transactions contemplated by this Agreement shall have lapsed or been terminated. (c) CHARTER AMENDMENT. UIC shall have filed with the Secretary of State of Delaware a Charter Amendment to be effective as of the close of business on the Closing Date, substantially in the form of Exhibit B hereto. (d) STOCKHOLDERS' AGREEMENT. The Sellers, UIC and Buyer shall have executed a Stockholders' Agreement, substantially on the terms and conditions reflected on the term sheet set forth in Exhibit C. 54 6.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE SELLERS. The obligation of the Sellers to consummate the transactions provided for in this Agreement is subject to fulfillment of the following condition: (a) ACCURACY OF BUYER'S REPRESENTATIONS AND WARRANTIES; COVENANTS OF BUYER. The representations and warranties of Buyer contained in this Agreement (except as affected by the transactions contemplated in this Agreement) that are qualified as to materiality shall be true and correct and the representations and warranties of Buyer set forth in this Agreement and that are not so qualified shall be true and correct in all material respects, in each case on the date of this Agreement (except to the extent cured prior to the Closing Date) and on the Closing Date as though made on the Closing Date, except to the extent such representations and warranties speak as of an earlier date; Buyer shall have complied in all material respects with all covenants contained in this Agreement to be performed by it prior to Closing; and the Sellers shall have received a certificate signed by an executive officer of Buyer to such effect. 6.3 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. The obligation of Buyer to consummate the transactions provided for in this Agreement is subject to fulfillment of the following conditions: (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF THE SELLERS; COVENANTS OF THE SELLERS. The representations and warranties of the Sellers contained in this Agreement (except as affected by the transactions contemplated in this Agreement) that are qualified as to materiality shall be true and correct and the representations and warranties of the Sellers set forth in this Agreement and that are not so qualified shall be true and correct in all material respects, in each case on the date of this Agreement (except to the extent cured prior to the Closing Date) and on the Closing Date as though made on the Closing Date, except to the extent such representations and warranties speak as 55 of an earlier date (in each case without taking into account any supplemental disclosures pursuant to Section 5.12); the Sellers shall have complied in all material respects with all covenants contained in this Agreement to be performed by them prior to Closing; and Buyer shall have received a certificate signed by each of the Sellers to such effect. (b) THIRD PARTY CONSENTS. All consents by third parties required in connection with the closing of the transactions contemplated by this Agreement shall have been obtained on terms reasonably satisfactory to Buyer. (c) LITIGATION. No action, suit, or proceeding brought by a governmental agency shall be pending before any court or governmental agency wherein an unfavorable judgment, decree, injunction, order or ruling would be reasonably likely to prevent or declare unlawful the performance of this Agreement or any of the transactions contemplated hereby or cause such transactions to be rescinded, and no judgment, decree, injunction, order or ruling shall have been entered which has any of the foregoing effects and no action, suit or proceeding brought by any third party challenging the ownership of the UIC Common Stock or asserting the right to proceeds to be paid with respect thereto in connection with this Agreement shall be pending. (d) INDEBTEDNESS. Neither UIC nor any subsidiary shall have any outstanding indebtedness (other than accounts payable, trade payables and current debt for borrowed money under the Revolver, in each case only to the extent incurred in the ordinary course of business and taken into account in the determination of Closing Working Capital, and the Kuhn Notes (the "PERMITTED CURRENT LIABILITIES")), and the Sellers shall have delivered to Buyer if so requested (i) payoff letters and UCC termination letters with respect to all indebtedness (other than accounts payable and trade payables), and (ii) releases of any and all Liens (other than Permitted Liens) 56 against the assets of UIC or any subsidiary and any and all Liens against the UIC Common Stock (other than Liens created by Buyer). (e) MATERIAL ADVERSE CHANGE. Since August 31, 1998, there shall have been no event, transaction, condition or change which has had or would reasonably be expected to have a Material Adverse Effect. (f) RELIANCE ON AUDITS. Buyer shall have received a properly executed letter substantially in the form attached hereto as Exhibit D from UIC's outside accountants entitling Buyer to rely on the Annual Financial Statements and the Interim Financial Statement and any audit letters delivered in conjunction therewith and to use such financial statements in connection with any public or private financing by Buyer, UIC or its successors and assigns (including in any registration statement filed with the Securities and Exchange Commission). (g) METALS BUSINESS. The structure of and documentation effecting the Metals Business Distribution shall be reasonably satisfactory to Buyer. (h) BUYER FINANCING. Buyer shall have received the financing on substantially the terms contemplated under the Commitment Letters. (i) CERTAIN SELLERS MATTERS. All accounts receivable of UIC from Sellers and their affiliates shall have been paid prior to Closing, and all leases for Real Property with Sellers and their affiliates shall have been amended prior to Closing to give UIC the unilateral option to exercise the extension options contained therein on the terms set forth therein as of the date hereof; provided that if no increase in the rental payments to be made upon such extensions is specified therein, each such lease shall be amended to provide for such increases at the same rate as set forth in the lease for 8825 Page Boulevard, St. Louis, Missouri, a true and complete copy of which was previously delivered to Buyer. In the case of all leases for which the landlord is a Seller or an affiliate of the Sellers, 57 Buyer shall have received a consent from the landlord thereunder, effective upon the assignment of the Leased Real Property owned by such landlord, to the assignment of such Leased Real Property to a wholly owned subsidiary of UIC without any cost, expense or change of terms. 7. CLOSING 7.1 CLOSING DATE. (a) Unless this Agreement shall have been terminated and the transactions herein shall have been abandoned pursuant to Section 9 hereof, the closing of the transactions contemplated by this Agreement (the "CLOSING") shall take place at the offices of Simpson Thacher & Bartlett, at the close of business, New York City time, on the later of (i) January 20, 1999 or (ii) two business days after the lapse or termination of the applicable waiting periods specified under the Hart-Scott Act (or as soon as practicable thereafter as all of the conditions to the Closing set forth in Section 6 hereof are satisfied or waived), or such other date, time and place as shall be agreed upon by the Sellers and Buyer (the actual date and time being herein called the "CLOSING DATE"). 7.2 BUYER DELIVERIES. At the Closing, Buyer shall deliver (i) the Purchase Price as provided in Section 2.1(b) hereof, (ii) the document described in Section 6.2 hereof, (iii) such other documents and instruments as counsel for Buyer and the Sellers mutually agree to be reasonably necessary to consummate the transactions described herein. 7.3 SELLERS DELIVERIES. At the Closing, the Sellers shall deliver to Buyer the following: (a) the documents described in Section 6.3 of this Agreement; (b) the UIC Common Stock duly endorsed or accompanied by stock powers duly executed as described in Section 1 of this Agreement; 58 (c) such other documents and instruments as counsel for Buyer and the Sellers mutually agree to be reasonably necessary to consummate the transactions described in this Agreement or as Buyer or its financing sources reasonably request, including, without limitation, opinions of counsel, director or other resignations, closing certificates regarding closing conditions or other customary matters, nondisturbance agreements, estoppel certificates and other customary closing documents. 8. INDEMNIFICATION 8.1 INDEMNIFICATION BY THE SELLERS. (a) The Sellers shall jointly and severally defend, indemnify and hold Buyer and its affiliates (which, for purposes of this Section 8, shall include Buyer's officers, directors, direct and indirect owners, agents, representatives, successors and permitted assigns) harmless from and against and in respect of any and all losses, liabilities, damages, judgments, settlements and expenses, including reasonable attorneys' fees, incurred directly by Buyer and its affiliates (hereinafter "BUYER LOSSES") which arise out of, relate to, or result from (1) any breach of any of the representations and warranties contained in Section 3 hereof or any certificate delivered pursuant hereto, (2) any breach of any of the covenants and agreements made by Sellers or (prior to Closing) UIC in this Agreement, including, without limitation, Article 2, and (3) any Income Tax of UIC or its subsidiaries for any Tax period (or portion thereof) ending on or prior to the Closing Date except to the extent of any Income Taxes reflected on the Closing Balance Sheet are included in the calculation of Closing Working Capital. Buyer shall give the Sellers prompt written notice of any third party claim which may give rise to any indemnity obligation under this Section, together with the estimated amount of such claim, and if the aggregate monetary exposure of the Sellers under such claim exceeds the aggregate monetary exposure of Buyer under such claim (with the parties' 59 aggregate monetary exposure determined by the Sellers and Buyer in good faith taking into account all applicable insurance coverage and all amounts paid with respect to all previously resolved indemnification claims under this Agreement or reasonably expected to be paid with respect to all pending unresolved indemnification claims under this Agreement), then the Sellers shall have the right to assume the defense of such claim through counsel of their own choosing, by so notifying Buyer within sixty (60) days of receipt of Buyer's written notice; provided, however, that the Sellers' counsel shall be reasonably satisfactory to Buyer, provided further, that as a condition precedent to the Sellers' right to assume control of such defense, Sellers must first admit in writing that such claims would be covered by the indemnification provisions in this Agreement, and provided further, that if the Sellers and Buyer cannot agree on whose aggregate monetary exposure is greater within twenty days of the notice of the third party claim from Buyer to the Sellers, then they shall refer the matter to a nationally recognized law firm mutually selected by the Sellers and Buyer (the "FIRM"), which shall be directed to determine within ten days of such referral whether the Sellers, on the one hand, or Buyer, on the other hand, have the greater aggregate monetary exposure for such third party claim. The parties shall make available to the Firm all items reasonably requested by the Firm in order for the Firm to assess their aggregate monetary exposure, and the Firm's determination shall be conclusive and binding upon the Sellers and Buyer. The fees and disbursements of the Firm shall be shared equally by the Sellers, on the one hand, and Buyer, on the other hand, and the Firm shall be held harmless by and shall have no liability to the Sellers or Buyer in connection with the foregoing. Failure to give prompt notice shall not affect the indemnification obligations hereunder unless there is actual prejudice. If Buyer desires to participate in any such defense assumed by the Sellers, it may do so at its sole cost and expense. If the Sellers decline (or in accordance with the above are not permitted) to assume any such defense, they shall be liable for and pay as incurred all 60 reasonable costs and expenses of defending such claim by Buyer, including reasonable fees and disbursements of counsel. Neither Buyer nor the Sellers shall, without the prior written consent of the other party or parties, which shall not be unreasonably withheld, settle, compromise or offer to settle or compromise any such claim or demand on a basis which would result in the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of the other party or parties or any subsidiary or affiliate thereof or if such settlement or compromise does not include an unconditional release of the other party or parties for any liability arising out of such claim or demand or any related claim or demand, nor shall the defending party enter into any other settlement or compromise without the prior written consent of the defended party, which consent shall not be unreasonably withheld; PROVIDED that in any case if the defended party does not so consent, it shall be responsible for all Buyer Losses arising out of or related to the claim that was the subject matter of such settlement or compromise which are in excess of the Buyer Losses that would have been incurred if consent for such settlement had been granted, regardless of any other limitations on such party's indemnification obligations hereunder. (b) The foregoing obligation to indemnify Buyer and its affiliates set forth in Section 8.1(a) shall be subject to each of the following limitations: (i) The Sellers' indemnification obligation for any breach of the representations and warranties described in (A) Section 3.11 (Tax Matters) of this Agreement shall survive until 30 days following the expiration of the applicable statute of limitations, (B) Section 3.15 (Environmental Matters) of this Agreement shall survive until December 31, 2002, (C) Sections 3.2 (Authority) and 3.3 (UIC Common Stock) of this Agreement shall survive forever, and (D) all other sections of Article 3 and any certificate delivered pursuant hereto shall survive until the earlier of (x) ten days following the receipt of audited financial 61 statements of UIC for the period ending December 31, 1999 or (y) April 15, 2000, and thereafter all such representations and warranties of the Sellers under this Agreement and any certificate delivered pursuant hereto shall be extinguished. No claim for the recovery of such Buyer Losses may be asserted by Buyer after such applicable survival periods; PROVIDED, HOWEVER, that claims first asserted in writing with reasonable specificity within such period shall not thereafter be barred; (ii) No reimbursement for Buyer Losses asserted against the Sellers under Section 8.1(a)(1) above (except to the extent related to breaches of representations and warranties contained in Sections 3.2 (Authority), 3.3 (UIC Common Stock), 3.9(b) (Brest Case), 3.11 (Tax Matters), 3.14 (Finders; Brokers) or 3.21 (Indebtedness), with respect to each of which there will be no Threshold (as defined below)) shall be required unless and until the cumulative aggregate amount of such Buyer Losses equals or exceeds Ten Million United States Dollars (US $10,000,000) (the "THRESHOLD") and then only to the extent that the cumulative aggregate amount of such Buyer Losses, as finally determined, exceeds said Threshold; provided that in calculating such Threshold any Buyer Losses which individually total less than Fifty Thousand United States Dollars (US $50,000) each ("DE MINIMIS BUYER LOSSES") shall be excluded in their entirety and the Sellers in any event shall have no liability hereunder to Buyer and its affiliates for any such DE MINIMIS Buyer Losses. (iii) The Sellers' liability to Buyer and its affiliates under Section 8.1(a)(1) above (except to the extent related to breaches of representations and warranties contained in Sections 3.2 (Authority), 3.3 (UIC Common Stock), 3.9(b) (Brest Case), 3.11 (Tax Matters), 3.14 (Finders; Brokers) or 3.21 (Indebtedness), with respect to each of which there 62 will be no limitation) for Buyer Losses in excess of the Threshold shall not exceed $50,000,000. (c) The indemnities provided in this Section 8.1 shall survive the Closing. The indemnity provided in this Section 8.1 shall be the sole and exclusive remedy of the indemnified party against the indemnifying party at law or equity with respect to any loss, liability, damage, judgment, settlement, or expense of any kind or nature incurred directly or indirectly resulting from or arising out of this Agreement or the transactions contemplated hereby, except in the case of any fraud or willful breach of any representation or warranty. Notwithstanding anything herein to the contrary, none of the limitations contained in Section 8.1(b) will apply in the event of or with respect to any breach of any covenant or agreement in Article 1, Article 2, Section 5.1, 5.3, 5.4, 5.10, and 5.12 to 5.14, 11.4, 11.5, 11.13 or any fraud or any willful breach of any representation or warranty. (d) In no event shall the Sellers be liable to Buyer or its affiliates for special, indirect, incidental, consequential or punitive damages (unless such damages are assessed against Buyer or its affiliates in litigation). The representations, warranties, covenants and agreements made herein, together with the indemnification provisions herein, are intended among other things to allocate the economic cost and the risks inherent in the transactions contemplated hereby between the Sellers and Buyer. Accordingly, the Sellers and Buyer shall be entitled to the indemnification or other remedies provided in this Agreement by reason of any breach of any such representation, warranty, covenant or agreement by the other notwithstanding whether any employee, representative or agent of the party seeking to enforce a remedy knew or had reason to know of such breach. Notwithstanding anything to the contrary contained herein, for purposes of determining whether there has been a breach and the amount of any related Buyer Losses that are the subject matter of a claim for indemnification hereunder, the Threshold and DE MINIMIS Buyer Losses amounts shall be 63 the sole materiality standard and, therefore, each representation, warranty and other provision contained in this Agreement and each certificate delivered pursuant hereto shall be read without regard and without giving effect to any materiality or Material Adverse Effect standard or qualification contained in such representation or warranty (as if such standard or qualification were deleted from such representation or warranty). 8.2 INDEMNIFICATION BY BUYER. (a) Buyer shall defend, indemnify and hold the Sellers and their affiliates (which, for purposes of this Section 8, shall include the Sellers' agents, representatives, successors and permitted assigns) harmless from and against and in respect of any and all losses, liabilities, damages, judgments, settlements and expenses, including reasonable attorney fees, incurred directly by the Sellers and their affiliates (hereinafter "SELLER LOSSES"; together with Buyer Losses, "LOSSES") which arise out of, relate to, or result from (1) any breach of any of the representations and warranties contained in Section 4 hereof or any certificate delivered pursuant hereto (2) any breach of any of the covenants and agreements made by Buyer (or after the Closing) UIC in this Agreement (including, without limitation, Article 2) (3) the ownership, operation or use of the Business on or after the Closing Date, (4) any action taken by any regulatory authority on or after the Closing Date which has the effect, in whole or in part, of voiding or unwinding the transactions provided for herein, or (5) the ownership, operation, or use of the Business prior to the Closing Date, or any other losses, liabilities, damages, judgments, settlements, and expenses of any kind of, or relating to, the Business, except insofar as Sellers are obligated to defend, indemnify and hold harmless the Buyer and its affiliates for such Losses pursuant to Section 8.1 of this Agreement and except to the extent caused by a Seller's fraud or willful misconduct. The Sellers shall give Buyer prompt written notice of any third party claim which may give rise to any indemnity obligation under this Section, together 64 with the estimated amount of such claim, and if the aggregate monetary exposure of Buyer under such claim exceeds the aggregate monetary exposure of the Sellers under such claim (with the parties' aggregate monetary exposure determined by the Sellers and Buyer in good faith taking into account all applicable insurance coverage and all amounts paid with respect to all previously resolved indemnification claims under this Agreement or reasonably expected to be paid with respect to all pending unresolved indemnification claims under this Agreement), then Buyer shall have the right to assume the defense of any such claim through counsel of its own choosing, by so notifying the Sellers within sixty (60) days of receipt of the Sellers' written notice; provided, however, that Buyer's counsel shall be reasonably satisfactory to the Sellers, provided further, that as a condition precedent to Buyer's right to assume control of such defense, Buyer must first admit in writing that such claims would be covered by the indemnification provisions in this Agreement; and provided further, that if the Sellers and Buyer cannot agree on whose aggregate monetary exposure is greater within twenty days of the notice of the third party claim from the Sellers to Buyer, then they shall refer the matter to the Firm, which shall be directed to determine within ten days of such referral whether the Sellers, on the one hand, or Buyer, on the other hand, have the greater aggregate monetary exposure for such third party claim. The parties shall make available to the Firm all items reasonably requested by the Firm in order for the Firm to assess their aggregate monetary exposure, and the Firm's determination shall be conclusive and binding upon the Sellers and Buyer. The fees and disbursements of the Firm shall be shared equally by the Sellers, on the one hand, and Buyer, on the other hand, and the Firm shall be held harmless by and shall have no liability to the Sellers or Buyer in connection with the foregoing. Failure to give prompt notice shall not affect the indemnification obligations hereunder unless there is actual prejudice. If the Sellers desire to participate in any such defense assumed by Buyer it may do so at its sole cost and expense. If Buyer 65 declines (or in accordance with the above are not permitted) to assume any such defense, it shall be liable for and pay as incurred all costs and expenses of defending such claim by the Sellers, including reasonable fees and disbursements of counsel. Neither Buyer nor the Sellers shall, without the prior written consent of the other party or parties, which shall not be unreasonably withheld, settle, compromise or offer to settle or compromise any such claim or demand on a basis which would result in the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of the other party or parties or any subsidiary or affiliate thereof or if such settlement or compromise does not include an unconditional release of the other party or parties for any liability arising out of such claim or demand nor shall the defending party enter into any other settlement or compromise without the prior written consent of the defended party, which consent shall not be unreasonably withheld; PROVIDED that in any case if the defended party does not so consent, it shall be responsible for all Seller Losses arising out of or related to the claim that was the subject matter of such settlement or compromise which are in excess of the Seller Losses that would have been incurred if consent for such settlement had been granted, regardless of any other limitations on such party's indemnification obligations hereunder. (b) The foregoing obligation to indemnify the Sellers and their affiliates set forth in Section 8.2(a) shall be subject to each of the following limitations: (i) Buyer's indemnification obligation for any breach of the representations and warranties described in (A) Section 4.2 (Authority) of this Agreement shall survive forever, (B) all other sections of Article 4 and any certificates delivered pursuant hereto shall survive until April 15, 2000, and thereafter all such representations and warranties of Buyer under this Agreement and any certificate delivered pursuant hereto shall be extinguished. No claim for the recovery of such Seller Losses may be asserted by the 66 Sellers after such applicable survival periods; provided, however, that claims first asserted in writing with reasonable specificity within such period shall not thereafter be barred; (ii) No reimbursement for Seller Losses asserted against Buyer under Section 8.2(a)(i)(1) above (except to the extent related to breaches of representations and warranties contained, in Sections 4.2 (Authority) or 4.4 (Finders; Brokers), with respect to each of which there will be no Buyer Threshold (as defined below)) shall be required unless and until the cumulative aggregate amount of such Seller Losses equals or exceeds Ten Million United States Dollars (US $10,000,000) (the "BUYER THRESHOLD") and then only to the extent that the cumulative aggregate amount of the Seller Losses, as finally determined, exceeds said Buyer Threshold; provided that in calculating such Buyer Threshold any Seller Losses which individually total less than Fifty Thousand United States Dollars (US $50,000) each ("DE MINIMIS SELLER LOSSES") shall be excluded in their entirety and Buyer in any event shall have no liability hereunder to the Sellers and their affiliates for any such DE MINIMIS Seller Losses. (iii) Buyer's liability to the Sellers and their affiliates under Section 8.2(a)(1) above (except to the extent related to breaches of representations and warranties contained in Section 4.2(Authority) and 4.4(Finder' Brokers), with respect to each of which there will be no limitation) for Seller Losses in excess of the Buyer Threshold shall not exceed $50,000,000. (c) The indemnities provided in this Section 8.2 shall survive the Closing. The indemnity provided in this Section 8.2 shall be the sole and exclusive remedy of the indemnified party against the indemnifying party at law or equity for any matter covered by this Section 8.2, except in the case of any fraud or willful breach of any representation or warranty. Notwithstanding 67 anything contained herein to the contrary, none of the limitations contained in Section 8.2(b) will apply in the event of or with respect to any breach of any covenant or agreement in Article 1, Article 2, Sections 5.3, 5.10, 11.4 and 11.5 or any fraud or any willful breach of any representation or warranty. (d) In no event shall Buyer be liable to the Sellers or their affiliates for special, indirect, incidental, consequential or punitive damages (unless such damages are assessed against the Sellers or their affiliates in litigation). The representations, warranties, covenants and agreements made herein, together with the indemnification provisions herein, are intended among other things to allocate the economic cost and the risks inherent in the transactions contemplated hereby between the Sellers and Buyer. Accordingly, the Sellers and Buyer shall be entitled to the indemnification or other remedies provided in this Agreement by reason of any breach of any such representation, warranty, covenant or agreement by the other notwithstanding whether any employee, representative or agent of the party seeking to enforce a remedy knew or had reason to know of such breach. Notwithstanding anything to the contrary contained herein, for purposes of determining whether there has been a breach and the amount of any related Seller Losses that are the subject matter of a claim for indemnification hereunder, the Threshold and DE MINIMIS Seller Losses amounts shall be the sole materiality standard and, therefore, each representation, warranty and other provision contained in this Agreement and each certificate delivered pursuant hereto shall be read without regard and without giving effect to any materiality or Buyer Material Adverse Effect standard or qualification contained in such representation or warranty (as if such standard or qualification were deleted from such representation or warranty). 68 8.3 INDEMNIFICATION CALCULATIONS. (a) The amount of any Seller Losses or Buyer Losses for which indemnification is provided under this Section 8 shall be computed net of any insurance proceeds received by the indemnified party in connection with such Losses. If the amount with respect to which any claim is made under this Section 8 (an "INDEMNITY CLAIM") gives rise to a currently realizable Tax Benefit (as defined below), computed on a present value basis using the highest ordinary income tax rate applicable to corporate taxpayers, a discount rate of 10%, and assumed realization for such Tax Benefit on the seventh anniversary of the Closing Date, to the party making the claim, the indemnity payment shall be reduced by the amount of the Tax Benefit, computed on a present value basis using the highest ordinary income tax rate applicable to corporate taxpayers, a discount rate of 10%, and assumed realization for such Tax Benefit on the seventh anniversary of the Closing Date, available to the party making the claim. For purposes of this Section 8.3, a "TAX BENEFIT" means an amount by which the tax liability of the party (or group of corporations including the party) is reduced (including, without limitation, by deduction, entitlement to refund or otherwise) plus any related interest received from the relevant taxing authority. Where a party has other losses, deductions, credits or items available to it, the Tax Benefit from any losses, deductions, credits or items relating to the Indemnity Claim shall be deemed to be realized proportionately with any other losses, deductions, credits or items. In the event that there should be a determination disallowing the Tax Benefit, the indemnifying party shall be liable to refund to the indemnified party the amount of any related reduction previously allowed or payments previously made to the indemnifying party pursuant to this Section 8.3. The amount of the refunded reduction or payment shall be deemed a payment under this Section 8.3 and thus shall be paid subject to any applicable reductions under this Section 8.3. 69 (b) The parties agree that any indemnification payments made pursuant to this Agreement shall be treated for tax purposes as an adjustment to the Purchase Price, unless otherwise required by applicable law. 9. TERMINATION 9.1 TERMINATION EVENTS. Without prejudice to other remedies which may be available to the parties by law or this Agreement, this Agreement may be terminated and the transactions contemplated herein may be abandoned: (a) by mutual consent of the parties hereto; (b) by either the Sellers on the one hand or Buyer on the other hand by notice to the other party or parties if the Closing shall not have been consummated on or before February 28, 1999, unless extended by written agreement of the parties hereto, so long as the party terminating this Agreement shall not be in default or breach hereunder and shall not have caused the failure of a condition precedent of the other party; or (c) by either the Sellers on the one hand or Buyer on the other hand, by written notice to the other party or parties if: (i) the other party or parties have (and the terminating party shall not have) failed to perform and comply with, in all material respects, all agreements, covenants and conditions hereby required to have been performed or complied with by such party or parties prior to the time of such termination, and such failure shall not have been cured within 30 days following notice of such failure; or (ii) any event shall occur after the date hereof that shall have made it impossible to satisfy a condition precedent to the terminating party's obligations to 70 consummate the transactions contemplated by this Agreement, unless the occurrence of such event shall be due to the failure of the terminating party to perform or comply with any of the agreements, covenants or conditions hereof to be performed or complied with by such party prior to the Closing. 9.2 EFFECT OF TERMINATION. In the event of any termination of the Agreement as provided in Section 9.1 above, this Agreement shall forthwith become wholly void and of no further force and effect and there shall be no liability on the part of Buyer or the Sellers, except that (i) the obligations of Buyer and the Sellers under Sections 5.2, 5.4, 5.7 and 11.5 of this Agreement shall remain in full force and effect and (ii) termination shall not preclude either Buyer on the one hand or the Sellers on the other hand from suing the other party or parties for willful breach of this Agreement and recovering damages from such party or parties, as the case may be, for such a willful breach. 10. ALTERNATIVE DISPUTE RESOLUTION The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiations between executives who have authority to settle the controversy. The Sellers on the one hand or the Buyer on the other hand may give the other party or parties written notice of any dispute not resolved in the normal course of business. Within twenty (20) days after delivery of said notice, executives of Buyer and the Sellers shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved within sixty (60) days of the disputing party's original notice, or if the parties fail to meet within twenty (20) days, either the Sellers or Buyer may initiate legal proceedings to resolve the controversy or claim. If the Sellers' or Buyer's negotiator intends to be accompanied at a meeting by an attorney, the other party's or parties' negotiator shall be given at least three (3) working days' notice of such intention 71 and may also be accompanied by an attorney. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence. 11. MISCELLANEOUS AGREEMENTS OF THE PARTIES 11.1 EXPIRATION OF REPRESENTATIONS AND WARRANTIES. The respective representations and warranties of the Sellers and of Buyer contained in this Agreement shall expire and be terminated and extinguished as set forth in Section 8, and thereafter the Sellers on the one hand and Buyer on the other shall have no liability whatsoever to the other with respect to any such representation or warranty except to the extent notice of a claim was given in accordance with Section 8. 11.2 NOTICES. All communications provided for hereunder shall be in writing and shall be deemed to be given when delivered in person or by private courier with receipt, when telefaxed and received, or three (3) days after being deposited in the United States mail, first-class, registered or certified, return receipt requested, with postage paid and, If to Buyer: UIC Holdings, L.L.C. c/o Thomas H. Lee Company 75 State Street Boston, MA 02109 Attention: C. Hunter Boll Scott Schoen Fax: 617-227-3514 72 With a copy to: Kirkland & Ellis 200 E. Randolph Drive Chicago, IL 60601 Attention: William S. Kirsch, P.C. Fax: 312-861-2200 If to the Sellers: David C. Pratt 91 Gem Island Drive Vero Beach, Florida 32963 and Mark R. Gale 4616 West Sahara Avenue P.O. Box 374 Las Vegas, Nevada 89102 With a copy to (prior to Closing): David C. Pratt Mark R. Gale c/o United Industries Corporation 8825 Page Boulevard St. Louis, Missouri 63114 Fax: 314-253-5941 With an additional copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Robert L. Friedman Fax: 212-455-2502 or to such other address as any such party shall designate by written notice to the other parties hereto. 11.3 TRANSACTION TAXES. Buyer shall cause UIC to be responsible for the timely payment of, and to such extent shall indemnify and hold harmless the Sellers against, all sales, use, value added, documentary, stamp, 73 gross receipts, registration, transfer, conveyance, excise, recording, license, stock transfer stamps and other similar taxes and fees ("TRANSFER COSTS") arising out of or in connection with or attributable to the transactions effected pursuant to this Agreement except that neither Buyer nor UIC shall be responsible for any Transfer Costs relating to the Metals Business Distribution or otherwise assessed against Sellers (except to the extent arising out of the 338 Election). The Sellers shall prepare and timely file all tax returns required to be filed in respect of Transfer Costs (including, without limitation, all notices required to be given with respect to bulk sales taxes), PROVIDED that Buyer shall prepare any such tax returns that are the primary responsibility of Buyer under applicable laws. 11.4 FURTHER ASSURANCES. Upon request from time to time, the Sellers shall execute and deliver all documents, take all rightful oaths, and do all other acts that may be reasonably necessary or desirable, in the reasonable opinion of counsel for Buyer, to perfect or record the title of Buyer, or any successor of Buyer, to the UIC Common Stock transferred or to be transferred under this Agreement, or to aid in the prosecution, defense, or other litigation of any matter, or to aid in the preparation of Tax Returns, financial statements or other accounting Tax matters, including retention and (upon the other party's request) provision of records relating thereto (provided that Buyer shall reimburse the Sellers for all out of pocket costs and expenses resulting from any such request). 11.5 EXPENSES. Subject to Section 11.3, the Sellers and Buyer shall each pay their respective expenses at Closing (such as legal, investment banker and accounting fees) incurred in connection with the origination, negotiation, execution and performance of their respective obligations under this Agreement, except that (i) Buyer shall be responsible for the payment of any filing fee under the Hart-Scott Act, (ii) Buyer may cause UIC to pay at or after the Closing all such expenses incurred 74 by Buyer and (iii) Sellers shall be responsible for and shall pay on or before Closing all fees and expenses of third party service providers incurred by UIC on behalf of or for the benefit of the Sellers in connection with this Agreement. 11.6 NON-ASSIGNABILITY. This Agreement shall inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. This Agreement shall not be assigned by either the Sellers on the one hand or Buyer on the other hand without the express prior written consent of the other party or parties, and any attempted assignment, without such consents, shall be null and void (except that Buyer may, without the consent of Sellers, assign all or a portion of its rights hereunder (x) to one of its Affiliates, (y) to a third party that is acquiring from Buyer a majority interest in or substantially all of the assets of the Business, and/or (z) to one or more of UIC's or Buyer's lenders as collateral security). 11.7 AMENDMENT; WAIVER. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto. No waiver by either the Sellers on the one hand or the Buyer on the other hand of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party or parties so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of either the Sellers or Buyer, shall be deemed to constitute a waiver by the party or parties taking such action of compliance with any representations, warranties, covenants, or agreements contained herein, and in any documents delivered or to be delivered pursuant to this Agreement and in connection with the Closing hereunder. The waiver by either the Sellers or Buyer 75 of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 11.8 SCHEDULES AND EXHIBITS. All exhibits and schedules hereto are hereby incorporated by reference and made a part of this Agreement. All statements contained in schedules, exhibits, certificates and other instruments attached hereto or delivered or furnished on behalf of the Sellers pursuant hereto or in connection with the transactions contemplated hereby, shall be deemed representations and warranties by the Sellers. Any fact or item which is clearly disclosed on any Schedule or Exhibit to this Agreement or in the Financial Statements in such a way as to make its relevance to a representation or representations made elsewhere in this Agreement or to the information called for by another Schedule or other Schedules (or Exhibit or other Exhibits) to this Agreement readily apparent shall be deemed to be an exception to such representation or representations or to be disclosed on such other Schedule or Schedules (or Exhibit or Exhibits), as the case may be, notwithstanding the omission of a reference or cross-reference thereto so long as the potential exposure and/or magnitude is also reasonably apparent from such disclosure. Any fact or item disclosed on any Schedule or Exhibit hereto shall not by reason only of such inclusion be deemed to be material and shall not be employed as a point of reference in determining any standard of materiality under this Agreement. 11.9 THIRD PARTIES. This Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto. 76 11.10 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. 11.11 CONSENT TO JURISDICTION. Each of the parties hereto, irrevocably submits to the exclusive jurisdiction of the United States District Court located in Wilmington, Delaware or if such court does not have jurisdiction, the a Delaware State Court located in Wilmington, Delaware, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the parties hereto, further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth in Section 11.2 shall be effective service of process for any action, suit or proceeding in Missouri with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of the parties hereto, irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (a) the United States District Court located in Wilmington, Delaware or (b) a Delaware State Court located in Wilmington, Delaware and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 11.12 CERTAIN DEFINITIONS. For purposes of this Agreement, the term: (i) "AFFILIATE" of a person means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; 77 (ii) "PERSON" means an individual, corporation, partnership, association, trust, incorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); (iii) "SUBSIDIARY" or "SUBSIDIARIES" of Buyer or any other person means any corporation, partnership, joint venture or other legal entity of which Buyer or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity; and (iv) "THE KNOWLEDGE OF" or "THE BEST KNOWLEDGE OF" a party hereto when modifying any representation and warranty shall mean that such party has no knowledge that such representation and warranty is not true and correct to the same extent as provided in the applicable representation and warranty, and that: (A) such party has made appropriate investigations and inquiries of its officers and responsible employees; and (B) nothing has come to its attention in the course of such investigation and inquiries or otherwise which would cause such party, in the exercise of due diligence, to believe that such representation and warranty is not true and correct in all material respects. The Sellers and UIC shall be deemed to have satisfied the requirements of Section 11.12(iv) above by making appropriate investigations and inquiries of the officers and employees of UIC listed on SCHEDULE 11.12, and no knowledge of any other officer or employee of UIC shall be imputed to the persons listed on SCHEDULE 11.12, the Sellers or to UIC. 78 11.13 SECTION 1445 WITHHOLDING. There shall be no withholding pursuant to Section 1445 of the Code, provided that the Sellers deliver to Buyer at the Closing a certificate complying with the Code and Treasury Regulations, in form and substance reasonably satisfactory to Buyer, duly executed and acknowledged, certifying that the transactions contemplated hereby are exempt from withholding under Section 1445 of the Code. 11.14 ENTIRE AGREEMENT. This Agreement, and the Schedules and Exhibits hereto set forth the entire understanding of the parties hereto and no modifications or amendments to this Agreement shall be binding on the parties unless in writing and signed by the party or parties to be bound by such modification or amendment. 11.15 SECTION HEADINGS; TABLE OF CONTENTS. The section headings contained in this Agreement and the Table of Contents to this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 11.16 SEVERABILITY. If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect. 11.17 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 79 11.18 LIMITED GUARANTEE. In consideration of the execution and delivery of this Agreement by the Sellers and intending to be legally bound hereby, Thomas H. Lee Equity Fund IV, L.P. ("THL"), an affiliate of Buyer, unconditionally guarantees the full and complete performance of each of Buyer's covenants and agreements under this Agreement and the obligations and liabilities of Buyer under this Agreement required to be performed on or prior to Closing (this "LIMITED GUARANTEE"); PROVIDED, that the liability of THL pursuant to this Guarantee shall not exceed $5,000,000, it being understood that nothing herein is intended to designate or liquidate any amount of damages and that the Sellers will only be entitled to recover from THL under this Section 11.18 the actual amount of damages, if any, incurred by them as a result of a breach by Buyer of its covenants and agreements under this Agreement and the obligations and liabilities of Buyer under this Agreement required to be performed on or prior to Closing but in no event more than $5 million. Notwithstanding anything contained herein, this Limited Guarantee and THL's obligations hereunder will terminate automatically on the Closing Date upon consummation of the transactions contemplated hereby and thereafter will be of no further force or effect. 11.19 SELLERS' REPRESENTATIVE. Each Seller irrevocably constitutes and appoints David C. Pratt, 91 Gem Island Drive, Vero Beach, Florida 32963 (the "REPRESENTATIVE") as such Seller's true and lawful agent, proxy and attorney-in-fact and agent and authorizes the Representative acting for such Seller and in such Seller's name, place and stead, in any and all capacities to do and perform every act and thing required or permitted to be done by such Seller hereunder or otherwise in connection with the agreements and transactions contemplated by this Agreement, including, without limitation, to deliver and receive all notices hereunder, to take any and all actions on behalf of such Seller as the Representative may deem necessary to desirable to defend, pursue, resolve and/or settle disputes or claims under this Agreement, including under Sections 2.1 and 8; and to vote or consent 80 on behalf of Sellers with respect to matters hereunder (including amendments to this Agreement). Each Seller agrees that such agency, proxy and power of attorney are coupled with an interest, and are therefore irrevocable without the consent of the Representative and Buyer and shall survive the death, incapacity, or bankruptcy of such Seller. Each Seller acknowledges and agrees that all such actions and decisions made by the Representative pursuant to this Section 11.19, shall bind such Seller as fully as if such Seller had taken such action, executed such documents or made such decisions. 81 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. ----------------------------------- David C. Pratt 91 Gem Island Drive Vero Beach, FL 32963 ----------------------------------- Mark R. Gale 4616 West Sahara Avenue Box 374 Las Vegas, NV 89102 DAVID C. PRATT GRANTOR RETAINED INTEREST TRUST By: _______________________________ Name: Mark R. Gale Title: Trustee c/o David C. Pratt 91 Gem Island Drive Vero Beach, FL 32963 MARK R. GALE REVOCABLE TRUST By: _______________________________ Name: Mark R. Gale Title: Trustee 4616 West Sahara Avenue Box 374 Las Vegas, NV 89102 82 MARK R. GALE GRANTOR RETAINED INTEREST TRUST By: _______________________________ Name: David C. Pratt Title: Trustee c/o Mark R. Gale 4616 West Sahara Avenue Box 374 Las Vegas, NV 89102 MAXINE GALE GRANTOR RETAINED INTEREST TRUST By: _______________________________ Name: David C. Pratt Title: Trustee 4616 West Sahara Avenue c/o Maxine Gale Box 374 Las Vegas, NV 89102 RALPH EDWARDS REVOCABLE TRUST By: _______________________________ Name: Ralph Edwards Title: Trustee 14581 Whittington Ct. St. Louis, MO 63017 83 DAVID C. PRATT GRANTOR RETAINED ANNUITY TRUST By: _______________________________ Name: Mark R. Gale Title: Trustee c/o David C. Pratt 91 Gem Island Drive Vero Beach, FL 32963 RYDER PRATT GRANTOR RETAINED ANNUITY TRUST By: _______________________________ Name: David C. Pratt Title: Trustee 91 Gem Island Drive Vero Beach, FL 32963 1994 RYDER PRATT GRANTOR RETAINED ANNUITY TRUST By: _______________________________ Name: David C. Pratt Title: Trustee 91 Gem Island Drive Vero Beach, FL 32963 84 1998 GALE FAMILY NEVADA IRREVOCABLE TRUST By: _______________________________ Name: Charles R. Gale Title: Trustee c/o Mark R. Gale 4616 West Sahara Avenue Box 374 Las Vegas, NV 89102 By: Ternion Corporation, as Trustee By: _________________________ Name: Title: c/o Mark R. Gale 4616 West Sahara Avenue Box 374 Las Vegas, NV 89102 UNITED INDUSTRIES CORPORATION By: _______________________________ Name: David C. Pratt Title: President 8825 Page Avenue St. Louis, MO 63114 85 UIC HOLDINGS, L.L.C. By: _______________________________ Name: Title: Solely for purposes of Section 11.18: THOMAS H. LEE EQUITY FUND IV, L.P. By: THL Equity Advisors IV, LLC, General Partner By: _________________________ Name: Title: EX-10.19 8 EXHIBIT 10.19 Exhibit 10.19 AMENDMENT NO. 1 Amendment No.1 (this "AMENDMENT"), dated as of January 20, 1999, among the Sellers listed on Exhibit A hereto (the "SELLERS"), United Industries Corporation, a Delaware corporation ("UIC"), and UIC Holdings, L.L.C., a Delaware limited liability company ("BUYER"). WHEREAS, the parties hereto have entered into an Agreement and Plan of Recapitalization, Purchase and Redemption, dated as of December 24, 1998 (the "AGREEMENT"); WHEREAS, the parties hereto wish to amend the Agreement as set forth herein; NOW, THEREFORE, in consideration of the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. The amount "$30,415,900" in Sections 2.1(d)(i) and 2.1(d)(ii) is hereby deleted and the following substituted in lieu thereof: "$32,440,900". 2. The following is hereby added as a new Section 11.20: "Section 11.20 CERTAIN ADDITIONAL MATTERS. (a) Notwithstanding anything to the contrary in this Agreement (including Section 6.3(b) and the Schedules hereto), the parties hereto agree as follows: (i) Buyer hereby waives the condition set forth in Section 6.3(b) of this Agreement with respect to any consent required under the leases for 15205 E. Stafford, Industry, California and 3250 Big Beaver Road, Troy, Michigan (collectively, the "Leases"); PROVIDED, that the Sellers agree to use their reasonable best efforts to obtain such consents as promptly as practicable after the Closing without any costs or expenses to Buyer, UIC or their affiliates; PROVIDED FURTHER, that the Sellers agree to indemnify and hold harmless Buyer, UIC and their affiliates from any Buyer Losses arising out of, relating to or resulting from the failure to obtain such consents, in each such case without regard to any limitations on indemnification set forth in Section 8.1(b)(ii) and (iii) of this Agreement. The parties agree that for purposes of this Section 11.20(a), Buyer Losses shall include, without limitation, any of the following incurred by Buyer, UIC or their affiliates as a result of the failure to obtain any consent required under the Leases: increases in rent imposed by the landlords under the Leases, any incremental increases in rent at any new facility, any amounts paid by UIC to the landlords as damages for breaching the Leases due to the required consent to the assignment, any and all costs associated with moving its business operations out of the facilities subject to the Leases and any amounts paid to brokers to assist UIC in procuring new facilities. (ii) Buyer hereby waives the condition set forth in Section 6.3(b) of the Agreement with respect to any consent required under the lease for 377 Amelia Street, Plymouth, Michigan. 2 (b) Notwithstanding anything to the contrary in this Agreement (including Sections 6.3(d) and the Schedules hereto), the parties hereto agree that UIC's Stand-by Letter of Credit (S702162) for $175,000 back-stopping workers compensation claims in the State of Oklahoma (the "LC") shall remain in effect as of and after the Closing; PROVIDED, that the Sellers agree to replace the LC with a stand-by letter of credit from Rexair Service Co. as promptly as practicable after the Closing without any costs or expenses to Buyer, UIC or their affiliates; PROVIDED FURTHER that the Sellers agree to indemnify and hold harmless Buyer, UIC and their affiliates from any Buyer Losses arising out of, relating to or resulting from maintaining the LC after the Closing Date and any drawdown of the LC after the Closing Date, in each such case without regard to any limitations on indemnification set forth in Section 8.1(b)(ii) and (iii) of this Agreement. (c) Notwithstanding anything to the contrary in this Agreement (including the Schedules hereto), the parties hereto agree that none of the Borrowings of UIC pursuant to Section 1.1(b) of the Agreement or any fees or expenses relating thereto shall be taken into account for purposes of determining Closing Working Capital." 3. Capitalized terms used in this Amendment and not defined herein shall have the meanings ascribed thereto in the Agreement. 4. Except as expressly amended by this Amendment, the provisions of the Agreement shall remain unchanged and in full force and effect. From and after the date of this Amendment, any reference in the Agreement to the Agreement shall be deemed to be a reference to the Agreement as amended by this Amendment. 5. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 3 IN WITNESS WHEREOF, each of the parties hereto has duly executed this amendment as of the date first written above. ----------------------------------- David C. Pratt ----------------------------------- Mark R. Gale ----------------------------------- M. Robert Gale ----------------------------------- Charles R. Gale ----------------------------------- Randolph D. Gale DAVID C. PRATT GRANTOR RETAINED INTEREST TRUST By: -------------------------------- Name: Mark R. Gale Title: Trustee MARK R. GALE REVOCABLE TRUST By: -------------------------------- Name: Mark R. Gale Title: Trustee 4 MARK R. GALE GRANTOR RETAINED INTEREST TRUST By: -------------------------------- Name: David C. Pratt Title: Trustee RALPH EDWARDS REVOCABLE TRUST By: -------------------------------- Name: Ralph Edwards Title: Trustee DAVID C. PRATT GRANTOR RETAINED ANNUITY TRUST By: -------------------------------- Name: Mark R. Gale Title: Trustee RYDER PRATT GRANTOR RETAINED ANNUITY TRUST By: -------------------------------- Name: David C. Pratt Title: Trustee 5 1994 RYDER PRATT GRANTOR RETAINED ANNUITY TRUST By: -------------------------------- Name: David C. Pratt Title: Trustee 1998 GALE FAMILY NEVADA IRREVOCABLE TRUST By: -------------------------------- Name: Charles R. Gale Title: Trustee By: Ternion Corporation, as Trustee By: -------------------------------- Name: Mark R. Gale Title: UNITED INDUSTRIES CORPORATION By: -------------------------------- Name: David C. Pratt Title: President UIC HOLDINGS, L.L.C. By: -------------------------------- Name: Title: 6 Exhibit A David C. Pratt Mark R. Gale M. Robert Gale Charles R. Gale Randolph D. Gale David C. Pratt Grantor Retained Interest Trust Mark R. Gale Revocable Trust Ralph Edwards Revocable Trust David C. Pratt Grantor Retained Annuity Trust Ryder Pratt Grantor Retained Annuity Trust 1994 Ryder Pratt Grantor Retained Annuity Trust 1998 Gale Family Nevada Irrevocable Trust EX-10.20 9 EXHIBIT 10.20 Exhibit 10.20 AMENDMENT NO. 2 Amendment No.2 (this "AMENDMENT"), dated as of January 25, 1999, among the Sellers listed on Exhibit A hereto (the "SELLERS"), United Industries Corporation, a Delaware corporation ("UIC"), and UIC Holdings, L.L.C., a Delaware limited liability company ("BUYER"). WHEREAS, the parties hereto have entered into an Agreement and Plan of Recapitalization, Purchase and Redemption, dated as of December 24, 1998, as amended as of January 20, 1999 (as amended, the "AGREEMENT"); WHEREAS, the parties hereto wish to further amend the Agreement as set forth herein; NOW, THEREFORE, in consideration of the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. The Sellers shall repay to UIC $8,425,470, representing all amounts which were payable by UIC in connection with the transactions contemplated by the Agreement to Dan Johnston, Richard Bender and William Johnson under their Contracts for Release in Event of Sale with UIC. 2. Upon receipt by UIC of the amount referred to in Section 1 (as indicated by the execution of the certificate attached hereto as Annex A), Schedule 2.1(a) to the Agreement shall be amended by deleting the parenthetical "(including under the Contracts for Release in Event of Sale)" in subclause (ii) of the second paragraph thereof in its entirety and substituting in lieu thereof the following: ", other than any amounts payable by UIC under the Contracts for Release in Event of Sale which shall not be included as liabilities on the Closing Balance Sheet". 3. The parties hereby agree that such amount repaid pursuant to Section 1 hereof shall be deemed a reduction of the redemption amounts paid to the Sellers pursuant to Sections 1.1(e) and 1.1(f) of the Agreement and that such amount shall be deemed to have been repaid as of the Closing. 4. Capitalized terms used in this Amendment and not defined herein shall have the meanings ascribed thereto in the Agreement 5. Except as expressly amended by this Amendment, the provisions of the Agreement shall remain unchanged and in full force and effect. From and after the date of this Amendment, any reference in the Agreement to the Agreement shall be deemed to be a reference to the Agreement as amended by this Amendment. 6. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 2 IN WITNESS WHEREOF, each of the parties hereto has duly executed this amendment as of the date first written above. ----------------------------------- David C. Pratt ----------------------------------- Mark R. Gale ----------------------------------- M. Robert Gale ----------------------------------- Charles R. Gale ----------------------------------- Randolph D. Gale DAVID C. PRATT GRANTOR RETAINED INTEREST TRUST By: -------------------------------- Name: Mark R. Gale Title: Trustee MARK R. GALE REVOCABLE TRUST By: -------------------------------- Name: Mark R. Gale Title: Trustee 3 RALPH EDWARDS REVOCABLE TRUST By: -------------------------------- Name: Ralph Edwards Title: Trustee DAVID C. PRATT GRANTOR RETAINED ANNUITY TRUST By: -------------------------------- Name: Mark R. Gale Title: Trustee RYDER PRATT GRANTOR RETAINED ANNUITY TRUST By: -------------------------------- Name: David C. Pratt Title: Trustee 4 1994 RYDER PRATT GRANTOR RETAINED ANNUITY TRUST By: -------------------------------- Name: David C. Pratt Title: Trustee 1998 GALE FAMILY NEVADA IRREVOCABLE TRUST By: -------------------------------- Name: Charles R. Gale Title: Trustee By: Ternion Corporation, as Trustee By: -------------------------------- Name: M. Robert Gale Title: UNITED INDUSTRIES CORPORATION By: -------------------------------- Name: Title: UIC HOLDINGS, L.L.C. By: -------------------------------- Name: Title: 5 Exhibit A David C. Pratt Mark R. Gale M. Robert Gale Charles R. Gale Randolph D. Gale David C. Pratt Grantor Retained Interest Trust Mark R. Gale Revocable Trust Ralph Edwards Revocable Trust David C. Pratt Grantor Retained Annuity Trust Ryder Pratt Grantor Retained Annuity Trust 1994 Ryder Pratt Grantor Retained Annuity Trust 1998 Gale Family Nevada Irrevocable Trust 6 Annex A The undersigned, United Industries Corporation, a Delaware corporation ("UIC"), hereby acknowledges receipt from the Sellers of the $8,425,470 referred to in Section 1 of Amendment No. 2 to the Agreement and Plan of Recapitalization, Purchase and Redemption, dated as of December 24, 1998, as amended as of January 20, 1999, and as of January 25, 1999 (as amended, the "AGREEMENT") among the Sellers, UIC and UIC Holdings, L.L.C. All capitalized terms used herein but not otherwise defined shall have the respective meanings ascribed to them in the Agreement. UNITED INDUSTRIES CORPORATION By: -------------------------------- Name: Title: January 25, 1999 EX-10.25 10 EXHIBIT 10.25 Exhibit 10.25 UNITED INDUSTRIES CORPORATION SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (this "AGREEMENT"), dated as of June 29, 1999, is entered into by and between United Industries Corporation, a Delaware corporation (the "COMPANY"), and Stephen R. Brian ("EXECUTIVE"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Management Agreement (as defined below). WHEREAS, the Company and Executive are parties to that certain Management Agreement attached hereto as ANNEX A, dated as of January 20, 1999 (the "MANAGEMENT AGREEMENT"), pursuant to which Executive accepted an offer of employment from the Company and pursuant to which Executive purchased, and the Company sold, 100,000 shares of the Company's Class A Voting Common Stock and 100,000 shares of the Company's Class B Non-Voting Common Stock (collectively, the "COMMON STOCK"); WHEREAS, in partial payment for the Common Stock, Executive issued two Promissory Notes in favor of the Company with initial principal amounts of $250,000 and $500,000, respectively (the "NOTES") and entered into a Pledge Agreement (the "PLEDGE AGREEMENT") with the Company pursuant to which Executive pledged the Common Stock to the Company to secure Executive's obligations under the Notes. The principal amount, but not the interest thereon, of the $250,000 Note has been paid in full; WHEREAS, simultaneously with the execution of the Management Agreement, the Company and Executive entered into a Stock Option Agreement (the "STOCK OPTION AGREEMENT") pursuant to which the Company granted Executive certain options to acquire shares of the Company's Class A Voting Common Stock and Class B Non-Voting Common Stock; WHEREAS, Executive now desires to pursue other business interests and opportunities and to therefore resign his employment with the Company as President, CEO and a member of the Board; and WHEREAS, Executive and the Company desire to set forth the mutually agreed upon terms of Executive's separation from the Company; NOW THEREFORE, based upon mutually satisfactory negotiations and good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and reflected herein, and intending to be legally bound, notwithstanding any terms to the contrary in the Management Agreement, the Option Agreement, the Pledge Agreement and/or the Note the parties hereto agree as follows: 1. RESIGNATION. Executive hereby resigns all of his positions with the Company as President, CEO and a member of the Board, effective as of 5PM on June 29, 1999, which date shall be the "Termination Date" described in Section 2(a) of the Management Agreement. 2. PAYMENT OF BASE SALARY AND BONUS. (a) Executive shall be entitled to receive his Base Salary through January 31, 2002 together with the Benefits currently being provided to Executive under the Company's existing plans, but only to the extent any such Benefits are provided pursuant to Company plans which allow Executive to participate after he ceases to be an employee of the Company. (b) Executive shall be entitled to receive a bonus of $95,000 in respect of fiscal 1999. No other bonuses will be payable or contemplated for fiscal 1999 or any previous or subsequent period. (c) Any amounts owed by the Company to Executive pursuant to this SECTION 2 shall be paid at such times and in such a manner as the Company otherwise pays executive salaries and bonuses (with the Company retaining the right to prepay all or any portion of such amount without discount at any time in its sole discretion). Notwithstanding the foregoing, the $95,000 bonus payable under SECTION 2(b) will be paid no later than April 1, 2000. 3. TREATMENT OF STOCK OPTIONS. All of the stock options granted to Executive pursuant to the Option Agreement shall expire immediately on the Termination Date and shall not be exercisable thereafter. 4. REPURCHASE OF COMMON STOCK. Pursuant to Section 8 of the Management Agreement, the Company hereby notifies Executive that it will exercise the Repurchase Option with respect to 50,000 shares of Class A Voting Common Stock and 50,000 shares of Class B Non-Voting Common Stock for an aggregate Repurchase Price equal to the sum of the outstanding principal amount of the $500,000 Note together with all accrued but unpaid interest on both Notes. The Company shall pay the Repurchase Price pursuant to SECTION 5 hereof. The Repurchase Closing shall take place on the Termination Date at the Company's headquarters, and Executive hereby waives compliance by the Company with the time period set forth in Section 8(d) of the Management Agreement. The parties hereto agree that the Company retains the right, in its sole discretion, to exercise the Repurchase Option with respect to the remaining Executive Securities in accordance with the terms of Section 8 of the Management Agreement, which provides for a purchase price equal to Fair Market Value, as more fully detailed therein. 5. TREATMENT OF NOTE AND PLEDGE AGREEMENT. All amounts due under the Note (including the principal amount thereof as well as all accrued but unpaid interest thereon) shall become immediately due and payable upon the Termination Date. The Company shall apply the Repurchase Price set forth in SECTION 4 against such amounts and in full satisfaction of such amounts, and Executive acknowledges that the entire Repurchase Price is being used for such purposes. At the Repurchase Closing, the Company shall return the Note to Executive marked paid in full. Pursuant to Section 8 of the Pledge Agreement, the Company shall take all necessary action required to release any security interest the Company has with respect to the Common Stock and shall return to Executive the certificates representing the shares of Common Stock not being repurchased by the Company pursuant to SECTION 4. 6. RELEASE. As a condition precedent to the Company's obligation to make any payments to Executive hereunder, Executive shall execute and deliver to the Company the release attached hereto as ANNEX B and shall not thereafter revoke such execution and delivery (the "RELEASE"). 7. NONCOMPETITION, NONSOLICITATION, CONFIDENTIALITY. Executive acknowledges, confirms and agrees that the terms of Section 6 of the Management Agreement shall remain in full force and effect after the Termination Date and that the Noncompete Period shall end on January 31, 2002. 8. NON-DISPARAGEMENT. Each of Executive and the Company agree that they will not at any time disparage or impugn the reputation, damage the goodwill or the business of, or make any derogatory, embarrassing or harmful public or private communications or statements (a) in the case of Executive, concerning the Company or any of its employees, executives, directors, shareholders, customers or suppliers and (b) in the case of the Company, concerning Executive. In addition, Executive agrees not to make any statements to the press or issue any public statement regarding or relating to the Company or its affiliates or shareholders. 9. TRANSITION EXPENSES. (a) The Company shall pay for Executive's actual and reasonable costs of moving his personal property from St. Louis to North Carolina or other destinations of similar mileage (subject to the Company's policies with respect to reporting and documentation), grossed-up for any resulting income tax liability recognized by Executive with respect to any such payments by the Company. (b) The Company shall promptly reimburse Executive for Executive's actual costs for storage of his personal property in St. Louis for a period not to exceed 120 days after the Termination Date (subject to the Company's policies with respect to reporting and documentation). (c) The Company currently rents an executive apartment in St. Louis for the benefit of Executive. At Executive's request, the Company will continue for executive's benefit the apartment lease for up to 3 months following the Termination Date (or such other period as requested by Executive not to exceed the term of the lease which expires on December 31, 1999) so long as Executive reimburses the Company for all costs and expenses (including, without limitation, rent, utilities, telephone and other charges) associated therewith as and when due. Executive's obligation to reimburse the Company for such rental costs and expenses shall commence on July 1, 1999 and shall continue with respect to all costs and expenses incurred thereafter until Executive provides the Company with notice of the termination of his occupancy and vacates the apartment. (d) The Company shall purchase for $300,000 an option from Executive and his spouse to acquire all of Executive's and his spouse's rights and obligations, as they may exist from time to time, under the Sale Contract between Executive, his spouse and Casten Development Incorporated dated April 30, 1999 covering Lot 12 of the Ballantine Subdivision in St. Louis, Missouri (the "Real Estate Contract"). The Company may, in its sole discretion, exercise its option to acquire the Real Estate Contract at any time prior to October 15, 1999 by delivering written notice to Executive setting forth the date of exercise and the documentation required to fully assign the Real Estate Contract to the Company. If the Company elects to so exercise its option, the Company will deliver to Executive an additional $50,000 in full payment of the exercise price and the Company, Executive and his spouse will timely enter into assignment documents in form and substance satisfactory to the Company. The Executive may terminate the exercise period on two days written notice to the Company, in which case the Company may exercise its option in its sole discretion during that two day period for a reduced price of $25,000 in full payment of the exercise price, at which time the Company, Executive and his spouse will timely enter into assignment documents in form and substance satisfactory to the Company. In no event does or will the Company directly or indirectly assume or otherwise become responsible for any obligations or liabilities with respect to the Real Estate Contract by virtue of its execution or delivery of this Agreement or the performance of its obligations hereunder. Any obligation of the Company with respect to the Real Estate Contract will be created if, and only if, the Company delivers written notice of its election to exercise the option to acquire the Real Estate Contract and any such obligations of the Company, if any, will be defined in the assignment documents if and when executed and delivered by the Company in its sole discretion. 10. NOTICES. Any notice provided for in this Agreement shall be given in accordance with Section 13 of the Management Agreement. 11. GENERAL PROVISIONS. (a) EXPENSES. The Company will pay the reasonable and documented hourly legal fees and legal expenses of Executive's counsel in connection with the negotiation and execution of this Agreement. (b) CONTINUING COMPLIANCE. The Company's obligation to make any payments pursuant to this Agreement are expressly conditioned upon Executive's continued and continuing compliance with each of the terms and conditions of this Agreement, the Release (as defined below) and Section 6 of the Management Agreement. (c) TERMINATION. The provisions of Sections 2, 4 and 9 of this Agreement shall terminate and be of no further force and effect at such time as both parties hereto have fully discharged their covenants and agreements made hereunder. All other provisions of this Agreement shall continue and be in full force and effect notwithstanding the termination of any such section. (d) SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (e) COMPLETE AGREEMENT. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, including, without limitation, the Management Agreement, the Option Agreement, the Pledge Agreement and the Note; PROVIDED that Sections 6, 8, 12, 13 and 14 of the Management Agreement shall continue in full force and effect notwithstanding the execution of this Agreement. EXECUTIVE EXPRESSLY ACKNOWLEDGES AND CONFIRMS THAT FROM AND AFTER THE TERMINATION DATE THE COMPANY WILL NOT HAVE ANY OBLIGATIONS OR LIABILITIES TO PAY ANY AMOUNTS OR PERFORM ANY DUTIES TO OR WITH RESPECT TO EXECUTIVE UNDER ANY AGREEMENT OR UNDERSTANDING EXCEPT FOR (I) THE EXPRESS PAYMENTS AND DUTIES SET FORTH ON THE FACE OF THIS AGREEMENT (II) ANY DUTIES AND OBLIGATIONS ARISING AS A CONSEQUENCE OF THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS AGREEMENT BY AND AMONG THE COMPANY, EXECUTIVE AND CERTAIN OTHER PARTIES THERETO DATED AS OF JANUARY 20, 1999, AS AMENDED FROM TIME TO TIME, AND (III) ALL OBLIGATIONS AND DUTIES SET FORTH IN THE RELEASE. (f) COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (g) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by and against Executive, the Company and their respective successors and assigns; it being understood that this Agreement may not be assigned by either party (except for an assignment by the Company to a wholly-owned subsidiary of the Company) without the prior written consent of the other party hereto and that a change of control does not constitute an assignment hereunder. (h) GOVERNING LAW. THE LAWS OF THE STATE OF MISSOURI SHALL GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE EMPLOYMENT OF EXECUTIVE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF MISSOURI OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF MISSOURI. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. (i) REMEDIES. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (j) AMENDMENT AND WAIVER. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company and Executive. (k) THIRD-PARTY BENEFICIARY. There are no beneficiaries to this Agreement other than the signatories hereto. (l) BUSINESS DAYS. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (m) REORGANIZATIONS. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation; PROVIDED that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume this Agreement. As used in this Agreement, "COMPANY" shall mean the Company, as defined above, and any successor to its business and/or assets as aforesaid which assumes this Agreement by operation of law or otherwise. (n) WITHHOLDING AND SET-OFF. All amounts payable to Executive hereunder shall be subject to customary required withholding by the Company as determined by the Company in a manner consistent with the Company's withholding policies and procedures in effect for its executive officers. (o) MITIGATION BY EXECUTIVE. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. * * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. UNITED INDUSTRIES CORPORATION By: Its: STEPHEN R. BRIAN ANNEX A MANAGEMENT AGREEMENT SEE ATTACHED. ANNEX B FORM OF RELEASE June 29, 1999 United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: Chairman of the Board of Directors Subject: RELEASE AGREEMENT Gentlemen: 1. This letter constitutes the agreement and release (this "RELEASE AGREEMENT") between United Industries Corporation (the "COMPANY") including its past, present and future affiliates, officers, directors, employees, shareholders and divisions, and its and their successors and assigns (collectively referred to as the "COMPANY PARTIES") and me ("EXECUTIVE"), relative to the termination of my employment with the Company. 2. Executive and the Company are parties to that certain Management Agreement, dated as of January 20, 1999 (as the same may have been amended from time to time, the "MANAGEMENT AGREEMENT") and that certain Severance Agreement dated as of the date hereof (the "SEVERANCE AGREEMENT"). Executive is providing this Release Agreement pursuant to SECTION 6 of the Severance Agreement within 21 days after the Termination Date (as defined in the Management Agreement). 3. In consideration of and as a condition to the Company making the payments and providing benefits to Executive as set forth the Severance Agreement, all of which may be subject to withholdings as required by law (the "SEVERANCE BENEFITS"), Executive has agreed to provide to the Company a full, final and complete release (the "RELEASE") of and from all possible Claims (as defined below). Accordingly, Executive hereby (i) agrees to fully perform and comply with all of the surviving provisions of the Management Agreement (including, without limitation, SECTION 6 thereof) and the Severance Agreement, to promptly return all Company properties in his possession or control, and not to defame the Company, and (ii) fully and completely discharges and releases the Company Parties from all Claims which Executive may have against any of the Company Parties. 4. If Executive does not promptly return all Company properties in his possession or control, or if he does not fully perform and comply with all of the applicable provisions of the Management Agreement, including, without limitation, SECTION 6 thereof, and the Severance Agreement or if he defames the Company or if he asserts (or attempts to assert) any Claims against any Company Party, then in addition to whatever other legal recourse the Company may have, the Company shall be entitled to discontinue all Severance Benefits. 5. Executive acknowledges that, except for the Company's payments and other benefits (including expense reimbursements) provided for in the Severance Agreement and those provisions of the Management Agreement which survive the execution of the Severance Agreement (the "SURVIVING PROVISIONS"), his release of the Company is a full, final and complete settlement and discharge of all Claims. "CLAIMS" include, but are not limited to: (a) All matters, events, rights and obligations, if any, in respect of every express and implied oral and written contractual relationship between Executive and the Company (including, but not limited to, provisions in the Management Agreement other than the Surviving Provisions); any and every right, obligation, demand and matter, known or unknown, arising out of every act, omission and occurrence prior to the Effective Date (as defined below) of this Release Agreement, including, but not limited to, Executive's employment relationship with the Company and the termination of that employment relationship; actions in law and equity, including, but not limited to, claims for breach of contract, defamation, personal injury (excluding any workers' compensation claims), back pay, front pay, severance pay, vacation pay (including, but not limited to, compensation for any vacation days not taken), bonuses, wages, compensatory damages, punitive damages, liquidated damages, benefits (to the extent permitted by applicable law), attorneys' fees, interest, court costs, seniority, reinstatement and re-employment, service letters, claims arising under the provisions of the Labor Management Relations Act, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1866 et seq., the Civil Rights Act of 1991, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Older Workers Benefit Protection Act, applicable Missouri statutes, and comparable statutes of every other state which may be applicable. (b) Executive expressly waives any and all rights and claims arising or which could arise under the Age Discrimination in Employment Act of 1967, as amended ("ADEA"), and he acknowledges that his waiver of rights and claims is in writing, and written in a manner intended to be understood, and is understood by him. This waiver refers to rights and claims arising or which could arise under ADEA, except those which may arise after the Effective Date of this Release Agreement. This waiver of Executive's rights and claims arising or which could arise under ADEA is in exchange for part of the consideration stated in SECTION 2 of the Severance Agreement, and is above and beyond that to which Executive is otherwise entitled, and his waiver of rights and claims is made pursuant to 29 U.S.C. Section 626(f)(1), and this waiver is not requested in connection with any existing incentive or other employment termination program. 6. The law requires that Executive have a period of at least 21 days to consider this proposed Release and Release Agreement. If the Release and Release Agreement are acceptable to Executive, Executive also has an additional period of 7 days to change his mind. This means that Executive can sign and deliver this Release at any time within 21 days after the Termination Date, and the 7 days during which Executive may change his mind and revoke his acceptance will commence on the day that this Release Agreement document is signed by Executive and delivered to the Company. The purpose of the 21 days and 7 days periods is to assure that Executive has ample opportunity to consider this proposed Release Agreement and to consult with members of his family, attorneys, and/or his advisors, if he chooses to do so before becoming legally bound. If Executive signs and delivers this Release Agreement document within 21 days of the Termination Date, and if he does not thereafter revoke his acceptance during the following 7 days, then the Effective Date of this Release Agreement will be the date on which the revocation period ends and (notwithstanding anything contained in the Severance Agreement to the contrary) at that time the Severance Benefits provided for in SECTION 2 of the Severance Agreement will be commenced. 7. Executive and the Company agree that this Release Agreement shall in no sense be construed to be an admission of wrongdoing, guilt or liability on the part of either Executive or the Company under any state, federal or local law, whether statutory or common law, or pursuant to regulation or executive order of any public authority, or arising or which could arise in respect of any contractual relationship, express or implied, written or oral. 8. This Release Agreement shall be regarded by Executive and by the Company as confidential. 9. EXECUTIVE HEREBY ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND RELEASE AGREEMENT CONSISTING OF FOUR (4) PAGES AND ELEVEN (11) NUMBERED SECTIONS, INCLUDING THIS SECTION; THAT HE HAS HAD A REASONABLE PERIOD OF TIME WITHIN WHICH TO CONSIDER THIS RELEASE AND RELEASE AGREEMENT AND FULLY UNDERSTAND AND ACCEPT ALL OF ITS PROVISIONS OF HIS OWN VOLUNTARY FREE WILL; THAT NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE OTHER THAN AS EXPRESSLY STATED HEREIN; THAT HE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY AND HAS DONE SO OR HAS VOLUNTARILY ELECTED NOT TO DO SO; AND THAT BY EXECUTING THIS RELEASE AND RELEASE AGREEMENT AND ACCEPTING THE CONSIDERATIONS OUTLINED HEREIN FROM THE COMPANY EXECUTIVE WILL ABIDE BY THE PROVISIONS HEREOF. 10. Notwithstanding anything contained in this Release Agreement, nothing herein shall limit or otherwise affect any of the rights and remedies which Executive or the Company has under (a) Sections 6, 8, 12, 13 and 14 of the Management Agreement, (b) that certain Stockholders Agreement, by and among Executive, the Company and certain other parties thereto, dated as of January 20, 1999 (as the same may have been amended from time to time), (c) the Company's benefits plans or (d) the Severance Agreement. 11. This letter agreement shall be governed by, and construed in accordance with, the laws of the State of Missouri, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Missouri or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Missouri and may be executed in counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same instrument. - --------------------------------------- Witness: STEPHEN BRIAN ------------------------------- Date: ---------------------------------- UNITED INDUSTRIES CORPORATION Witness: ------------------------------- By: Date: ------------------------------------ ---------------------------------- Its: ----------------------------------- EX-99.1 11 EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE SERIES A 9 7/8% SENIOR SUBORDINATED NOTES DUE 2009 OF UNITED INDUSTRIES CORPORATION PURSUANT TO THE PROSPECTUS DATED , 1999 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 UNLESS EXTENDED. TO: STATE STREET BANK AND TRUST COMPANY (THE "EXCHANGE AGENT")
By Mail: By Overnight Courier: State Street Bank and Trust Company State Street Bank and Trust Company Corporate Trust Department Corporate Trust Department P.O. Box 778 Two Avenue de Lafayette, Fifth Floor Boston, Massachusetts 02110 Boston, Massachusetts 02111 Attention: Susan Lavey Attention: Susan Lavey By Hand in New York (as Drop Agent): By Hand in Boston: State Street Bank and Trust Company, N.A. State Street Bank and Trust Company 61 Broadway Two International Place Concourse Level, Corporate Trust Window Fourth Floor, Corporate Trust Department New York, New York 10006 Boston, Massachusetts 02111 Attention: Susan Lavey By Facsimile: Confirm by telephone: (For Eligible Institutions Only) (617) 662-1544 (617) 662-1452
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. The undersigned acknowledges receipt of the Prospectus, dated , 1999 (the "Prospectus") of United Industries Corporation (the "Company") and the related Letter of Transmittal (the "Letter of Transmittal"), which together describe the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its Series B 9 7/8% Senior Subordinated Notes due 2009 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement, for each $1,000 principal amount of its outstanding Series A 9 7/8% Senior Subordinated Notes due 2009 (the "Notes") , of which $150,000,000 principal amount is outstanding. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1999, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended. The term "Holder" with respect to the Exchange Offer means any person in whose name the Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. Capitalized terms used but not defined herein have the respective meanings set forth in the Prospectus. This Letter of Transmittal is to be used by holders of the Notes if (i) certificates representing the Notes are to be physically delivered to the Exchange Agent herewith, (ii) tender of the Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering" by any financial institution that is a participant in the Book-Entry Transfer Facility and whose name appears on a security position listing as the owner of the Notes to the extent provided herein or (iii) tender of the Notes is to be made according to the guaranteed delivery procedures described in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. Notwithstanding the foregoing, valid acceptance of the terms of the Exchange Offer may be effected by a participant in the Book-Entry Transfer Facility tendering the Notes through the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") where the Exchange Agent receives an Agent's Message prior to the Expiration Date. Accordingly, such participant must electronically transmit its acceptance to the Book-Entry Transfer Facility through ATOP, and then the Book-Entry Transfer Facility will edit and verify the acceptance, execute a book-entry delivery to the Exchange Agent's account at the Book-Entry Transfer Facility and send an Agent's Message to the Exchange Agent for its acceptance. By tendering through ATOP, participants in the Book-Entry Transfer Facility will expressly acknowledge receipt of this Letter of Transmittal and agree to be bound by its terms and the Company will be able to enforce such agreement against such Book-Entry Transfer Facility participants. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Notes must complete this letter in its entirety. / / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: --------------------------------------------- Account Number: ------------------------------------------------------------ Transaction Code Number: --------------------------------------------------- Principal Amount of Tendered Notes : --------------------------------------- If Holders desire to tender Notes pursuant to the Exchange Offer and (i) time will not permit this Letter of Transmittal, certificates representing the Notes , an Agent's Message or other required documents to reach the Exchange Agent prior to the Expiration Date, or (ii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of such Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below. / / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING (SEE INSTRUCTION 2): Name of Registered or Acting Holder(s): ------------------------------------ Window Ticket No. (if any): ------------------------------------------------ -2- Date of Execution of Notice of Guaranteed Delivery: ------------------------ Name of Eligible Institution that Guaranteed Delivery: -------------------------------------------------- If Delivered by Book-Entry Transfer, the Account Number: -------------------------------------------------------- Transaction Code Number: --------------------------------------------------- / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER THE EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES. Name: ---------------------------------------------------------------------- Address: ------------------------------------------------------------------- Attention: ----------------------------------------------------------------- List below the Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of the Notes should be listed on a separate signed schedule affixed hereto. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
- --------------------------------------------------------------------------------------------------- BOX 1 DESCRIPTION OF NOTES - --------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Aggregate Principal Principal Amount Registered Holder(s) Certificate Amount Represented Tendered (must be (Please fill in, if blank) Number(s)* by Certificate(s) an Integral Multiple of $1,000)** - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Total - ---------------------------------------------------------------------------------------------------
-3- - -------------------------------------------------------------------------------- * Need not be completed by Holders tendering by book-entry transfer. ** Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Notes will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of Notes. All other tenders must be in integral multiples of $1,000. - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- BOX 2 BOX 3 SPECIAL REGISTRATION SPECIAL DELIVERY INSTRUCTIONS INSTRUCTIONS (See Instructions 4, 5 and 6) (See Instructions 4, 5 and 6) To be completed ONLY if certificates for the To be completed ONLY if certificates for the Notes Notes in a principal amount not tendered, or in a principal amount not tendered, or Exchange Notes Exchange Notes issued in exchange for the Notes issued in exchange for the Notes accepted for accepted for exchange, are to be issued in a name exchange, are to be sent to an address other than the other than the name appearing in Box 1 above. address appearing in Box 1 above, or if Box 2 is filled in, to an address other than the address appearing in Box 2. Issue certificate(s) to: Deliver certificate(s) to: Name (Please Print) Name (Please Print) Address Address (Include Zip Code) (Include Zip Code) (Tax Identification or Social Security Number) (Tax Identification or Social Security Number)
BOX 4 BROKER-DEALER STATUS - -------------------------------------------------------------------------------- / / Check this box if the Beneficial Owner of the Notes is a Participating Broker-Dealer and such Participating Broker- Dealer acquired the Notes for its own account as a result of market-making activities or other trading activities. IF THIS BOX IS CHECKED, PLEASE SEND A COPY OF THIS LETTER OF TRANSMITTAL TO DANIEL J. JOHNSTON, SENIOR VICE PRESIDENT, VIA FACSIMILE: (314) 253-5964. - -------------------------------------------------------------------------------- - 4 - NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company, the principal amount of Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of the Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Notes with the full power of substitution to (i) present such Notes and all evidences of transfer and authenticity to, or transfer ownership of, such Notes on the account books maintained by the Book-Entry Transfer Facility to, or upon, the order of, the Company, (ii) deliver certificates for such Notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (iii) present such Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Notes, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Notes tendered hereby and that the Company will acquire good, valid and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, when the same are acquired by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for the Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, that neither the undersigned nor any other such person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the undersigned nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. In addition, the undersigned and any such person acknowledge that (a) any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must, in the absence of an exemption therefrom, comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Notes and cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in no-action letters and (b) failure to comply with such requirements in such instance could result in the undersigned or such person incurring liability under the Securities Act for which the undersigned or such person is not indemnified by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Notes tendered hereby. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for the Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a Prospectus in connection with any resale of such Exchange Notes, however, by so acknowledging and by delivering a Prospectus, the undersigned will not be deemed to admit that it is an "underwriter" the meaning of the Securities Act. Unless otherwise notified in accordance with the instructions set forth herein in Box 4 under "Broker-Dealer Status," the Company will assume that the undersigned is not a Participating Broker-Dealer. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered the Notes when, as and if the Company has given notice thereof to the Exchange Agent (such notice if given orally, to be confirmed in writing). -5- If any Notes tendered herewith are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Notes will be returned, without expense, to the undersigned at the address shown below or to a different address as may be indicated herein in Box 3 under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representative, successors and assigns. The undersigned understands that tenders of the Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." Unless otherwise indicated in Box 2 under "Special Registration Instructions," please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates for Notes not tendered or not exchanged, in the name(s) of the registered holder of the Notes appearing in Box 1 above. Similarly, unless otherwise indicated in Box 3 under "Special Delivery Instructions," please send the certificates, if any, representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates for Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below in the undersigned's signature(s). In the event that the box entitled "Special Registration Instructions" and the box entitled "Special Delivery Instructions" both are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange in the name(s) of, and return any certificates for Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned understands that the Company has no obligation pursuant to the "Special Registration Instructions" and "Special Delivery Instructions" to transfer any Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Notes so tendered. Holders who wish to tender their Notes and (i) whose Notes are not immediately available or (ii) who cannot deliver the Notes, an Agent's Message, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. - 6 - The lines below must be signed by the registered holder(s) exactly as their name(s) appear(s) on the Notes or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If the Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. SIGNATURES X Date X Date Area Code and Telephone Number: If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 5. Name(s): (Please Print) Capacity: Address: (Include Zip Code) - 7 - MEDALLION SIGNATURE GUARANTEE (If required by Instruction 5) Certain Signatures must be Guaranteed by an Eligible Institution Signature(s) Guaranteed by an Eligible Institution: (Authorized Signature) (Title) (Name of Firm) (Address, Include Zip Code) (Area Code and Telephone Number) - 8 - Dated Dated: - 9 - INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR NOTES OR BOOK- ENTRY CONFIRMATIONS. Certificates representing the tendered Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account with the Book-Entry Transfer Facility), as well as a properly completed and duly executed copy of this Letter of Transmittal (or, in the case of a book-entry transfer, an Agent's Message), a Substitute Form W-9 and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of certificates for Notes and all other required documents is at the election and sole risk of the tendering holder and delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holder may wish to use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. Neither the Company nor the Exchange Agent is under an obligation to notify any tendering holder of the Company's acceptance of tendered Notes prior to the completion of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes but whose Notes are not immediately available and who cannot deliver their certificates for the Notes (or comply with the procedures for book-entry transfer prior to the Expiration Date), the Letter of Transmittal and any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth below. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail, or hand delivery) setting forth the name and address of the holder, the certificate number or numbers of the tendered Notes, and the principal amount of tendered Notes and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message), together with the tendered Notes (or a -10- confirmation of book-entry transfer of such Notes into the Exchange Agent's account with the Book-Entry Transfer Facility) and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates representing the tendered Notes in proper form for transfer (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account with the Book-Entry Transfer Facility), together with this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and all other documents required by the Letter of Transmittal must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by a Holder who attempted to use the guaranteed delivery procedure. 3. TENDER BY HOLDER. Only a registered holder of Notes may tender such Notes in the Exchange Offer. Any beneficial owner of Notes who is not the registered holder and who wishes to tender should arrange with such Holder to execute and deliver this Letter of Transmittal on such owner's behalf or must, prior to completing and executing this Letter of Transmittal and delivering such Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered holder. 4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of the Notes is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Principal Amount Tendered" of the box entitled "Description of Notes" (Box 1) above. The entire principal amount of the Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of the Notes is not tendered, the Notes for the principal amount of the Notes not tendered and Exchange Notes exchanged for any Notes tendered will be sent to the holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURE. If this Letter of Transmittal is signed by the registered holder(s) of the Notes tendered herewith, the signatures must correspond with the name(s) as written on the face of the tendered Notes without alteration, enlargement, or any change whatsoever. If any of the tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Notes are held in different names on several Notes, it will be necessary to complete, sign, and submit as many separate copies of the Letter of Transmittal documents as there are names in which tendered Notes are held. If this Letter of Transmittal is signed by the registered holder, and Exchange Notes are to be issued and any untendered or unaccepted principal amount of Notes are to be reissued or returned to the registered holder, then, the registered holder need not and should not endorse any tendered Notes nor provide a separate bond power. In any other case, the registered holder must either properly endorse the Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal (executed exactly as the name(s) of the registered holder(s) appear(s) on such Notes), with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution unless such certificates or bond powers are signed by an Eligible -11- Institution. If this Letter of Transmittal or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. No medallion signature guarantee is required if this Letter of Transmittal is signed by the registered holder(s) of the Notes tendered herewith and the Exchange Notes (and any Notes not tendered or not accepted) are to be issued directly to such registered holder(s) and neither the "Special Registration Instructions" (Box 2) nor the "Special Delivery Instructions" (Box 3) has been completed. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. 6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box, the name and address in which the Exchange Notes and/or substitute Notes for principal amounts not tendered or not accepted for exchange are to be sent, if different from the name and address or account of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification number or social security number of the person named must also be indicated and the tendering holders should complete the applicable box. If no such instructions are given, the Exchange Notes (and any Notes not tendered or not accepted) will be issued in the name of and sent to the registered holder of the Notes. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the sale and transfer of the Notes to it or its order pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and sale of the Notes to the Company or its order pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption from taxes therefrom is not submitted with this Letter of Transmittal, the amount of transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law required that a holder of any Notes which are accepted for exchange must provide the Company (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among other, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each tendering holder must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Notes are registered in more than one name or are not in the name of the actual owner, see the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. -12- The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligation regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of tendered Notes will be determined by the Company, in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Notes not validly tendered or any Notes, the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Notes as to any ineligibility of any holder who seeks to tender Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of the Notes, but shall not incur any liability for failure to give such notification. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive, or modify specified conditions in the Exchange Offer in the case of any tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Notes will be accepted. 12. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. Any tendering holder whose Notes have been mutilated, lost, stolen, or destroyed should contact the Exchange Agent at the address indicated above for further instruction. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for information and for additional copies of the Prospectus may be directed to the Exchange Agent at the address set forth on the first page of this Letter of Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Notes when, as and if the Company has given notice thereof to the Exchange Agent (such notice if given orally, to be confirmed in writing). If any tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Notes will be returned, without expense, to the undersigned at the address shown above or at a different address as may be indicated under "Special Delivery Instructions." 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." - -------------------------------------------------------------------------------- PAYOR'S NAMES: UNITED INDUSTRIES CORPORATION - -------------------------------------------------------------------------------- -13- Part 1--PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number or TIN -----/-----/----- Part 2-Check the box if you are NOT subject to backup withholding under the provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest of dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. |_| CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Part 3-- SIGNATURE DATE Awaiting TIN / / SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREA- SURY INTERNAL REVENUE SERVICE Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part I below. See instructions if your name has changed.) Address PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) City, State and ZIP Code List account number(s) here (optional)
NOTE:FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -14- EX-99.2 12 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO UNITED INDUSTRIES CORPORATION SERIES A 9*% SENIOR SUBORDINATED NOTES DUE 2009 This form must be used by a holder of Series A 9*% Senior Subordinated Notes due 2009 (the "Notes") of United Industries Corporation, (the "Company"), who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in the section of the Prospectus entitled "The Exchange Offer--Guaranteed Delivery Procedures," and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms not defined herein have the meanings ascribed to them in the Letter of Transmittal. - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). - -------------------------------------------------------------------------------- TO: STATE STREET BANK AND TRUST COMPANY (THE "EXCHANGE AGENT")
By Mail: By Overnight Courier: State Street Bank and Trust Company State Street Bank and Trust Company Corporate Trust Department Corporate Trust Department P.O. Box 778 Fifth Floor, Two Avenue de Lafayette Boston, Massachusetts 02110 Boston, Massachusetts 02111 Attention: Susan Lavey Attention: Susan Lavey By Hand in New York (as Drop Agent): By Hand in Boston: State Street Bank and Trust Company, N.A. State Street Bank and Trust Company 61 Broadway Two International Place Concourse Level, Corporate Trust Window Fourth Floor, Corporate Trust Department New York, New York 10006 Boston, Massachusetts 02111 Attention: Susan Lavey By Facsimile: Confirm by telephone: (For Eligible Institutions Only) (617) 662-1544 (617) 662-1452
DELIVERY OF THIS FORM TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. LADIES AND GENTLEMEN: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount at maturity of Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Notes listed below: - ------------------------------------------------------------------------------------------------------ CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR ACCOUNT AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PLEASE SIGN AND COMPLETE - -------------------------------------------------------------------------------- Signatures of Registered Holder(s) or Date: , 1999 Authorized Signatory: Address: Area Code and Telephone No.: Name of Registered Holder(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for the Notes or on a security position listing as the owner of the Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: Please print name(s) and address(es) Name(s):........................ Capacity:....................... Address(es):.................... - -------------------------------------------------------------------------------- - 2 - - -------------------------------------------------------------------------------- GUARANTEE (Not to be used for signature guarantee) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees that either the Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Notes into the Exchange Agent's account at Book-Entry Transfer Facility as described in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures"), together with a properly completed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message) and any other required documents will be received by the Exchange Agent by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Name of Firm: Authorized Signature Address: Name: Title: Date: , 1999 Area Code and Telephone No.: - -------------------------------------------------------------------------------- DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. - 3 - INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Notes referred to herein, the signature must correspond with the name(s) written on the face of the Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Notes, the signature must correspond with the name shown on the security position listing as the owner of the Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for information and additional copies of the Prospectus may be directed to the Exchange Agent at the address set forth on the first page of this Notice of Guaranteed Delivery. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. - 4 - EX-99.3 13 EXHIBIT 99.3 INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER OF UNITED INDUSTRIES CORPORATION SERIES A 9*% SENIOR SUBORDINATED NOTES DUE 2009 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus, dated , 1999 (the "Prospectus"), of United Industries Corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its Series B 9*% Senior Subordinated Notes due 2009 (the "Exchange Notes"), for each $1,000 principal amount of its outstanding Series A 9*% Senior Subordinated Notes due 2009 (the "Notes"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Notes held by you for the account of the undersigned. The aggregate face amount of the Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ Of the 9 7/8% Senior Subordinated Notes due 2009. With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): / / TO TENDER the following Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED): $ / / NOT TO TENDER any Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (fill in state), (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) the undersigned acknowledges that any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1993, as amended (the "Act"), in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission set forth in no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer--Resale of the New Notes," and (v) the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Notes. PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER THE EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES. / / Check this box if the Beneficial Owner of the Notes is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Notes for its own account as a result of market-making activities or other trading activities. IF THE BOX IS CHECKED, PLEASE SEND A COPY OF THESE INSTRUCTIONS TO DANIEL J. JOHNSTON, SENIOR VICE PRESIDENT, VIA FACSIMILE: (314) 253-5964. SIGN HERE Name of beneficial owner(s): Signature(s): Name (PLEASE PRINT): Address: Telephone number: Taxpayer Identification or Social Security Number: Date: -----END PRIVACY-ENHANCED MESSAGE-----